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SECURITIES AND EXCHANGE COMMISSION PRIVATE
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended April 30, 1999
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the fiscal year ended ____________________
Commission File No. 0-17174
HAUSER, INC.
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
Colorado
(I.R.S. Identification Number) 84-0926801
5555 Airport Blvd., Boulder, Colorado 80301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303)443-4662
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Paragraph229.405 of
this chapter) is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant. The aggregate market value
shall be computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock,
as of a specified date within 60 days prior to the date of
filing.
$15,299,686 as of July 23, 1999
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.
Common Stock, $.001 par value Class
Outstanding at April 30, 1999 2,618,017
<PAGE>
PART I
Item 1. Business
GENERAL DEVELOPMENT OF BUSINESS
Hauser, Inc., ("Hauser" or the "Company") was incorporated
under the laws of the State of Colorado in December 1996,
under the name Hauser, Inc. as the successor company to a
Delaware corporation (Hauser Chemical Research, Inc.) formed
in 1983. The Company's principal offices are located at 5555
Airport Boulevard, Boulder, CO 80301. Its telephone number is
(303) 443-4662. All references to "Hauser" or the "Company" in
this Form 10-K mean Hauser, Inc. and its subsidiaries, unless
stated otherwise.
In January 1990, the Company acquired Hauser Laboratories,
Inc. to expand the interdisciplinary laboratory testing and
chemical engineering skills of its Technical Services business
unit. The Company operates in three industry segments: Natural
Products, Technical Services and Pharmaceuticals. In July
1995, in order to expand the skill base of the Company's
Technical Services business unit, the Company acquired 100% of
the stock of Shuster Laboratories, Inc. ("Shuster"), an
independent consumer products research and development firm
and contract laboratory based in Quincy, MA and Smyrna, GA.
In June 1999, Wilcox Drug Company, Inc., a Delaware
corporation ("Wilcox"), and ZetaPharm, Inc., a New York
corporation ("ZetaPharm"), subsidiaries of Zuellig Group N.A.,
Inc. ("ZGNA") and Zuellig Botanical Extracts, Inc., a Delaware
corporation ("ZBI"), a subsidiary of Zuellig Botanicals, Inc.,
a Delaware corporation ("ZBI") merged with three wholly owned
subsidiaries of the Company. Wilcox, ZetaPharm and ZBE are
collectively referred to as the "Contributed Subsidiaries".
The Contributed Subsidiaries were the surviving corporations
and became wholly-owned subsidiaries of the Company as a
result of the Merger, thereby creating a leading supplier in
the United States of herbal extracts, botanical raw materials
and related products to the dietary supplement industry.
In December 1998, Hauser announced its intention to terminate
its paclitaxel business to focus its corporate resources on
its Natural Products and Technical Service business units. A
corresponding one-time accounting charge of $25.6 million was
recorded in the quarter ended January 31, 1999. In February
1999, the Company signed a contract for the sale of its
paclitaxel inventory as part of the planned closure of the
paclitaxel business. Pursuant to the contract, the company
will receive approximately $9.5 million over the first six to
nine months of fiscal 2000. The Company has negotiated
settlement of its yew tree cultivation agreements and
termination of a multi-year non-exclusive agreement to supply
paclitaxel to a customer.
DESCRIPTION OF HAUSER, INC - THE BUSINESS
Hauser is a Customer Connected[Service Mark] company whose
customer support utilizes Hauser's technical and regulatory
expertise to help ensure the success of each project.
"Customer Connected[Service Mark]," a management strategy
implemented at Hauser, defines a company that: totally focuses
on customers' needs, owns and solves customers' problems,
builds strong customer/company relationships at all levels,
and capitalizes on customer problems as company opportunities.
Hauser and the Contributed Subsidiaries bring unique and
complementary strengths in raw material sourcing,
manufacturing, and sales and marketing for the combined
business enterprise. Hauser has developed expertise in
proprietary extraction and purification technologies, which
enable the production of purified materials with a readily
ascertainable concentration of active ingredients. The
strengths of the Contributed Subsidiaries include their
superior raw material sourcing capabilities and an established
sales force in the dietary supplement, fine chemical, bulk
generic active ingredient and botanical raw material markets.
The combination of Hauser's technical and manufacturing
expertise with the sourcing and sales and marketing
experience of the Contributed Subsidiaries represents an
opportunity for significant revenue and profit enhancement for
the Company.
Hauser expects to increase its market share to become a
leading supplier of herbal extracts, botanical raw materials,
and related products to the dietary supplement market in the
United States. Hauser and the Contributed Subsidiaries create
a vertically integrated operation able to source, process,
and distribute products to the dietary supplement market
including branded product sellers. In addition, Hauser's
integrated research and development capability and
proprietary extraction technology will allow it to work with
its customers to provide a full range of solutions to their
product needs.
The addition of the Contributed Subsidiaries permits Hauser to
focus its manufacturing facilities and capabilities in a
market where Hauser has demonstrated an ability to
substantially increase its revenues. At the close of fiscal
year 1999, Hauser's manufacturing plant operated at only
approximately 35% to 40% of capacity, excluding equipment
which was scheduled to be decommissioned or sold as a result
of the Company's termination of its involvement in the
production of paclitaxel. Most of that capacity is now
available for production of products marketed by the
Contributed Subsidiaries.
Hauser's Technical Services business unit ("Technical
Services") has earned a national reputation for scientific
and problem-solving excellence. Technical Services offers
innovative technical solutions and has developed expertise in
natural product isolation, pharmaceutical development, and
food products and dietary supplement formulation. Hauser's
Technical Services business unit offers innovative technical
services to a diverse customer base.
DESCRIPTION OF EACH REPORTABLE INDUSTRY SEGMENT
Natural Products
Herbal Extracts - During fiscal 1995, Hauser began development
of a new product line, "herbal extracts". Herbal extracts
include a broad range of natural, healthful products that are
used as dietary supplements. Shipments commenced in the first
quarter of fiscal 1996, and during fiscal year 1999, the
Company's internal marketing and technical staff marketed
these products.
Hauser's herbal extracts are dietary supplements, which may be
consumed as supplements in liquids, capsules, or tablets, or
as ingredients in processed foods. Hauser currently sells the
following herbal extracts: Echinacea, Valerian, Siberian
Ginseng, Panax Ginseng, Ginkgo, Kava Kava, Rosemary,
Goldenseal, and St. John's Wort. In addition, the Company has
two proprietary products; RoseOx[Registered Trademark], a
Rosemary extract and an antioxidant, TT550[Trademark], a
Ginger based anti-nausea product. Hauser's herbal extracts
are distinguished by the Company's NaturEnhance[Trademark]
Natural Ratio[Trademark], which assumes that the product
contains measured concentrations (the assay) of one or more
selected marker compounds, and assures that the level of the
active compounds is representative of the botanical's natural
ratio. The Hauser NaturEnhance[Trademark] Natural
Ratio[Trademark] program provides customers the highest
quality products, superior customer service and access to the
Company's new product development. Currently, there are no
government standards in the U.S. specifying the purity and
dosage of herbal supplements. Standardized herbal supplements
are defined as containing a concentrated marker compound (key
ingredient).
The Company operates in the dietary supplement market,
providing supplement manufacturers with standardized herbal
extracts and service. The manufacturing chain of herbal
supplements consists of: 1) sourcing raw material; 2)
extracting the material; 3) standardizing and testing the
extract; and 4) selling it to dietary supplement manufacturers
who then encapsulate and package the supplements. Sales of
herbal extracts accounted for 34%, 39%, and 18%, of total
revenues in the fiscal years ending April 30, 1999, 1998, and
1997, respectively.
Natural Flavor Extracts - The Company has manufactured and
sold natural flavor extracts. The extracts have been marketed
under the Company's brand name NaturEnhance[Trademark] Flavor
Extracts. In March 1999, the Company announced its intention
to phase out its natural flavor extracts business to focus
its corporate resources on herbal extract, and its Technical
Services business.
Natural Food Ingredients - Food ingredients are products that
perform a function in foods, such as preservatives,
stabilizers, antioxidants, and nutritional additives.
During fiscal year 1996, the Company introduced a line of
Rosemary extracts, which protect the flavor, and quality of
foods and beverages. Oil-soluble and water-soluble oxidation
stabilizer products are marketed under the brand name
StabilEnhance[Registered Trademark] and are Kosher, GRAS
("Generally Recognized As Safe") and Natural Certified.
Although rosemary has been used for centuries to prevent
rancidity of fats and oils, the use of rosemary has been
limited by its strong odor and taste, and thus, historically
has been limited to applications such as Italian sausage
where this flavor is acceptable. Hauser's patent pending
process minimizes the objectionable flavor components while
retaining rosemary's preservative characteristics. Its
StabilEnhance[Registered Trademark] product line is the
natural way to control flavor-deteriorating oxidation in food
products containing fats and oils.
Minimal revenue from natural food ingredients products was
recognized in fiscal year 1999, but shipments are expected to
increase in fiscal year 2000 because of increased interest
expressed by potential customers.
Technical Services
Hauser's Technical Services business unit is comprised of
Hauser Laboratories in Boulder, CO, and Shuster Laboratories
in Quincy, MA and Smyrna, GA. The expertise of the Technical
Services business unit in natural product isolation,
pharmaceutical development, and formulation of food products
and dietary supplements supports Hauser's other business
units.
For the pharmaceutical industry, Hauser Laboratories provides
process research and development, custom manufacturing,
analytical methods and development validation, and complete
pharmaceutical testing. For the medical device industry,
Hauser Laboratories provides failure analysis, material
identification and suitability testing, and product design
validation. Natural product services provided by Hauser
Laboratories include development of extraction and isolation
processes, analytical method development, custom
manufacturing and analysis of the chemistry of natural
products.
Hauser Laboratories generally works with clients in two ways.
First, Hauser Laboratories provides routine services based
upon standard procedures or methods to answer customers'
technical questions. Hauser Laboratories is compensated on a
fee-for-service basis. Second, Hauser Laboratories provides
product development and research services on a negotiated fee
basis.
Hauser Laboratories offers customers contract research
services, as well as process and product development, in a
variety of chemical, engineering, and food technology
applications. These services may include multiple areas of
chemical technology, including custom organic synthesis of new
compounds, process simulation, process improvement and
scale-up, extraction and purification technology, food
technology, and chemical modification of surfaces.
During fiscal 1998, the Company signed a collaborative
agreement with The National Institute on Drug Abuse ("NIDA")
for custom synthesis of drug compounds that are under
development as potential treatment agents for drug addiction.
Under the agreement, the Company receives $2.3 million over a
three-year period. Hauser chemists are performing custom
synthesis of specified compounds under strict Good
Manufacturing Practices protocol, for NIDA's use in studying
their efficacy in the treatment of patients with various drug
addictions.
Examples of Hauser Laboratories projects that became
significant alliances for other business units include
production of bulk paclitaxel for Bristol- Myers Squibb
Company ("Bristol") which grew out of work for the National
Cancer Institute under the Anti-Tumor Master Agreement, and
production of sanguinaria extract for Colgate Oral
Pharmaceuticals.
Shuster Laboratories provides a variety of services for the
consumer products industry which include food product
development, household chemical formulation, nutritional
supplement and pharmaceutical assay and formulation,
microbiological assay, Food and Drug Administration ("FDA")
labeling and a significant number of related areas focused on
consumer products. In addition, Shuster provides clients with
technical services in the Natural Products area.
Shuster offers a Technically Advanced Quality
Assurance[Trademark] ("TAQA[Trademark]") program for private
label retailers. The Company works closely with top
supermarket chains, chain drug stores, and mass market
retailers to develop and maintain the best quality assurance
programs available in the private label industry. The
TAQA[Trademark] program utilizes state-of-the-art performance
laboratories, qualified and trained laboratory personnel,
in-house expert sensory panels, and certified regulatory
affairs teams to provide retailers with a 99+% assurance
level of product quality. The TAQA[Trademark] program is
based on the best of both international (ISO) and current
U.S. standards, and includes product risk assessment.
Shuster also offers the Foods 2000 program that focuses on new
product development and related services for clients in the
fast-growing organic foods and functional foods markets.
Under Foods 2000, Shuster is continuing to offer a wide range
of services to companies in the conventional foods market,
including product development, laboratory analysis, quality
assurance, regulatory compliance, and consumer testing.
Revenues from Technical Services accounted for 48%, 45%, and
36% of total revenues in fiscal years 1999, 1998, and 1997,
respectively.
Pharmaceuticals
Hauser's pharmaceutical products, consisting primarily of
paclitaxel, have included natural and custom synthesized
compounds used in a variety of drug development and
commercial applications. As a percentage of total revenues,
sales of pharmaceutical products, were 14% in fiscal 1999, 12%
in fiscal 1998, and 39% in fiscal 1997. Paclitaxel
constitutes substantially all of such sales. In December
1998, Hauser announced its intention to terminate its
paclitaxel business to focus its corporate resources on its
Natural Products and Technical Service business units. A
corresponding one-time accounting charge of $25.6 million was
recorded.
DESCRIPTION OF THE CONTRIBUTED SUBSIDIARIES
ZBE sells herbal extracts to manufacturers of dietary
supplements primarily in the United States. ZetaPharm imports
and sells bulk vitamins, dietary supplements, pharmaceutical
ingredients and food additives for the health food,
pharmaceutical and food and beverage industries. Wilcox
sources and sells botanical raw materials worldwide.
ZBE
ZBE, as a distributor, has sold bulk standardized and
non-standardized herbal extracts to manufacturers of dietary
supplements since 1990. Standardized herbal extracts
represent approximately 80% of the current annual sales of
ZBE.
The standardized herbal extracts sold by ZBE contain specified
concentrations of the active ingredients and marker compounds
of the particular botanical raw materials being extracted.
The standardized herbal extracts are primarily sold by ZBE to
manufacturers of dietary supplements located in the United
States. The primary standardized herbal extracts sold by ZBE
are St. John's Wort, Kava Kava, Gingko and Saw Palmetto.
Non-standardized herbal extracts sold by ZBE contain the
levels of active ingredients that are present in the
botanical raw materials being extracted. Non-standardized
herbal extracts are primarily exported by ZBE.
ZetaPharm
ZetaPharm, which was founded in 1976, is a distributor of bulk
fine chemicals, excipients and generic active ingredients.
Fine chemicals sold by ZetaPharm include bulk vitamins,
dietary supplements, over-the-counter pharmaceutical
ingredients and food additives. These products are sold to
manufacturers and processors of health food, pharmaceuticals,
food and beverages, and dietary supplements.
ZetaPharm is the exclusive distributor in the United States
for the excipient line of Blanver Farmoquimica, Brazil, a
leading manufacturer of excipients. Excipients are derived
from cellulose and are used as binders in the production of
tablets. Excipients are also used as ingredients in the slow
release process of tablets and capsules. Excipients are sold
to manufacturers of vitamins and dietary supplements.
ZetaPharm distributes bulk generic active ingredients to
pharmaceutical manufacturers for use in human and veterinary
applications. The sale of generic active ingredients
purchased from Cilag, located in Switzerland, represented 54%
and 38% of ZetaPharm total sales in the fiscal years ended
March 31, 1998 and 1999, respectively. In 1998, ZetaPharm was
advised that Cilag had elected to sell its products directly.
As a result, ZetaPharm expects that the revenue from the sale
of generic active ingredients will be insignificant in the
fiscal year ending April 30, 2000. ZetaPharm is actively
seeking additional sources of generic active ingredients to
distribute.
Wilcox
Wilcox, which does business as Wilcox Natural Products, is a
leading supplier of botanical raw materials to customers in
the United States, Asia and Europe. Botanical raw materials
are wild gathered in the United States and cultivated in
North America. Wilcox has been engaged in purchasing and
selling botanical raw materials since 1900.
The primary products sold by Wilcox are Saw Palmetto Berries,
Echinacea Purpurea, Echinacea Angustifolia, Goldenseal,
American Wild Ginseng, Black Cohosh, Passion Flower, Slippery
Elm Bark, Witch Hazel and Missouri Snake Root. The botanical
raw materials sold by Wilcox are used in the manufacture of
herbal extracts or the production of botanical powders, both
of which are sold to manufacturers of dietary supplements. In
fiscal 1999, approximately 47% of Wilcox sales were made to
ZBI. The next largest customer accounted for 8% of 1999
sales. Approximately 60% of Wilcox annual sales are made
pursuant to annual contracts with customers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Historically, the Company has purchased its needed raw
materials through a variety of sources. It is expected that
all future raw materials will be sourced and purchased
through the Contributed Subsidiaries.
ZetaPharm has primarily imported the products that it sells.
ZetaPharm suppliers are primarily located in Europe, China,
India, and South America.
Since 1990, a substantial portion of the standardized herbal
extracts sold by ZBE have been manufactured by Martin Bauer,
GmbH, a German extract manufacturer. ZBE believes that it
supplied approximately 10% of the standardized herbal
extracts sold to manufacturers in the United States of
dietary supplements in 1999. A contract manufacturer located
in the United States has manufactured non-standardized herbal
extracts for ZBE.
Botanical raw materials which are wild gathered in the United
States are purchased by Wilcox at buying stations located in
North Carolina, Florida, Kentucky and Missouri. Wilcox
purchases the botanical raw materials from the collectors of
such raw materials. Since more than 80% of the botanical raw
materials purchased by Wilcox are wild gathered, production is
dependent on the price of the product, growing conditions and
available habitat. Wilcox has approximately 1,000 acres of
botanical raw materials under contract cultivation in the
United States, Canada and Costa Rica, of which approximately
300 acres are leased to Wilcox. Wilcox leases four acres in
Boone, North Carolina, where it conducts botanical cultivation
experimentation.
Because of the experience of Wilcox as a purchaser of
botanical raw materials and as a cultivator of botanicals,
Wilcox will provide additional sources, worldwide, from which
Hauser may obtain the botanical raw materials required for
the manufacturing of herbal extracts.
Since herbal extracts are derived from botanical raw
materials, a substantial portion of which are collected in
the wild, the ability to locate such products and purchase
them at competitive prices plays a significant, if not
determinative, role in the capability of a manufacturer to
produce herbal extracts. The continued growth of the herbal
extract market will increase the competition for the purchase
of botanical products and could increase the price of such
products. Adverse growing conditions, loss of habitat, plant
disease and international political conditions can also
reduce the amount of botanical raw materials, which are
available to manufacturers of extracts.
TRADE SECRETS, PATENTS, AND TRADEMARKS
Proprietary protection for the Company's technology and body
of knowledge is extremely important to Hauser's business. The
Company relies on patents, trade secrets and confidentiality
agreements, as well as continuing technological innovation,
to develop and maintain its competitive position. Management
believes the Company has established a distinct competitive
advantage with its proprietary technologies and sophisticated
knowledge of the extraction and purification of natural
products. This expertise enables the Company to produce
certain products that management believes could not be
duplicated without the use of the Company's technologies.
The Company has developed numerous proprietary technologies to
process natural raw materials and produce specialized natural
products. The Company's expertise in analyzing, identifying
and measuring low concentration compounds, occurring in
natural materials and in process streams, is important to raw
material analysis, process development, and process and
quality control. Designing a particular process application
involves selecting the most appropriate processing steps,
determining the proper sequence, and establishing optimum
temperature, pressure, solvent and other parameters for each
process step. The Company develops variations of its
processes based on the nature of the raw material used and the
specifications of the desired product.
For example, the Company's Dynamic Liquid/Solid
Extraction[Service Mark] ("DL/SE[Service Mark]") isolation
process, typically the first step, is particularly effective
at producing liquid extracts from solid natural materials,
such as roots, bark, seeds and leaves. Relative to
conventional methods, DL/SE[Service Mark] produces a more
highly concentrated extract that can be valuable in itself as
a product, or alternatively, can simplify the subsequent
steps required to isolate an enriched extract or purified
natural chemical.
DL/SE[Service Mark] can capture a broader range of components,
such as the top notes of pepper, which improves the quality
of the final product. Top notes are the highly volatile
chemical components of an extract, such as a flavor, which
can easily evaporate, the loss of which reduces the quality or
character of the flavor. The Company's process also ensures
that the level of the marker compound in a specific herbal
product is representative of the botanical natural ratio of
all compounds.
The Company's purification process, Liquid Liquid
Focusing[Service Mark] ("LLF[Service Mark]") is highly
versatile and can be used in place of more costly
chromatography methods. It is often the method of choice as
the second step in a process.
In addition to patents, the Company protects its proprietary
technology and knowledge through established security
practices and confidentiality agreements with employees,
consultants, strategic industry participants, and technical
advisors. Few individuals within the Company possess a full
working knowledge of these processes, although a somewhat
larger number of key employees and several former employees
have some working knowledge of various aspects and
applications of these processes. Joint development agreements
and consultant relationships generally allow only limited
access to Company information, which is protected through
confidentiality agreements with the parties involved.
There can be no assurance that confidentiality agreements or
other procedures will provide meaningful protection for the
Company's trade secrets in the event of unauthorized use or
disclosure of such information. The Company vigorously
protects its trade secrets.
Since the Company is continually improving its processes and
developing additional technological knowledge relating to the
extraction and purification of natural products, management
believes that the loss of trade secret or confidential status
of some portions of its technology or processes would not
adversely affect the Company.
Patents: Hauser patents technology when appropriate to obtain
long-term protection. The Company owns patents for
proprietary chemical substances, composition of matter, and
manufacturing processes.
Trademarks and Servicemarks: The Company has several
trademarks and servicemarks either registered or pending,
including Certified Assay[Trademark],
StabilEnhance[Registered Trademark],
NatureEnhance[Trademark], RoseOx[Registered Trademark],
RoseOx660[Registered Trademark], Carnosic Acid
Cascade[Trademark], Delivering What Nature
Intended[Trademark], Natural Ratio[Trademark],
Collagenex[Trademark], and TT550[Trademark]. The servicemarks
"Hauser" and "Shuster" have been registered by the Company.
During fiscal 1998, Shuster registered the trademark
TAQA[Trademark] for its Technically Advanced Quality
Assurance[Trademark] program.
SEASONAL ASPECTS OF THE COMPANY'S BUSINESS
The natural flavor extracts provided by the Company are
primarily used for summer beverages.
The Contributed Subsidiaries strongest selling season has been
the months of January through March. While the Contributed
Subsidiaries purchase inventory throughout the year, a
substantial portion of the inventory requirements are
purchased during the harvest seasons of botanical raw
materials which begins in August and concludes in December.
As a result, inventory and short-term debt are substantially
higher in the second and third quarters.
BACKLOG
Refer to customer backlog information in Management's
Discussion and Analysis of Financial Condition and Results of
Operations
Significance of Dependence Upon a Few Customers
ZBE sells standardized herbal extracts to more than 180
customers and no customer accounts for more than 17% of the
annual standardized herbal extract sales. ZBE sells
non-standardized herbal extracts to more than 90 customers.
Currently, one customer accounts for approximately half of the
non-standardized extract annual sales.
No other customer accounts for 10% of any products produced,
or services performed, by the Company.
GOVERNMENT CONTRACTS
No material portion of the Company's and Contributed
Subsidiaries' business is subject to renegotiation of profits
or termination of contracts at the election of the
government.
CUSTOMERS AND COMPETITION
Herbal Extracts - Standardized herbal extract products are
purchased from a small number of large suppliers, located
primarily in North America, Europe and China. European
competition includes Indena Pharmaceuticals, Martin Bauer and
Euromed. These competitors sell bulk products, manufactured in
Europe, directly or through agents or partners in the United
States. Hauser expects that Martin Bauer, GmbH will compete
with the Company in the sale of herbal extracts to those
customers of ZBE, which previously purchased products
manufactured by Martin Bauer. United States companies selling
herbal extracts include PureWorld, Folexco and Triarco.
Management believes that the Company's expertise in the
production of products from natural sources and its extensive
regulatory experience, combined with the expertise of the
Contributed Subsidiaries, will permit the Company to
effectively compete in the sale of herbal extracts to
manufacturers of dietary supplements.
Natural Food Ingredients - Competition for the company's
StabilEnhance[Registered Trademark] brand is found in
synthetic antioxidants such as BHT and BHA, and natural
extracts such as tocopherols (vitamin E) and other rosemary
extracts presently on the market. Management believes that the
product performance of its StabilEnhance[Registered Trademark]
line will make it competitive against both synthetic and
natural products in this market.
Technical Services
The market for technical services in the United States is
large, diverse and highly fragmented. The Company competes
with a number of companies depending on the specific type of
services provided. Competition is based primarily on quality
and service.
The Company's competitive position depends on its ability to
attract and retain scientific and other personnel and its
ability to maintain the proprietary nature of its
technologies.
Wilcox and ZetaPharm
Wilcox is the largest purchaser of botanical raw materials
wild gathered in the United States. The major competitors of
Wilcox for botanical raw materials wild gathered in the
United States are McAndrews and Forbes Company ("MAFCO"), and
Plantation Botanicals, Inc.
In the sale of its products, ZetaPharm competes with major
pharmaceutical companies, major manufacturers of food
supplements and excipients and other distributors of such
products. ZetaPharm competes on the basis of service, product
quality and price.
RESEARCH AND DEVELOPMENT
Research and development efforts are generally devoted to five
principal areas: (1) development of new technology; (2)
application of the Company's processing technology to new
products; (3) improvement of existing processes; (4)
semi-synthetic preparation of existing and new biologically
active compounds; and (5) development of viable alternate raw
materials for natural products extraction and purification.
Efforts in these areas have generated products, such as the
rosemary antioxidants and TT550[Trademark].
Hauser also offers consultation and contract research and
development in the areas of product purification and
isolation, product development, and process development and
optimization. The Company is currently active in supporting
the drug discovery and drug development efforts of the
pharmaceutical customers. The Company also provides contract
research and development for customers in the flavors and
cosmetic industries. Management believes that such endeavors
could provide Hauser with future manufacturing opportunities.
The Company's internally funded research and development
expenditures were approximately $1,600,000, $2,200,000, and
$2,200,000, respectively during fiscal years 1999, 1998, and
1997. During fiscal 1999, 1998 and 1997 customer-sponsored
research and development costs were approximately $1,633,635,
$2,530,000, and $760,000, respectively.
The Company intends to continue actively pursuing research and
development efforts and these costs may increase in future
periods.
GOVERNMENT REGULATIONS
The Company's business is subject to comprehensive regulation
throughout the world. In the United States, regulations have
been established by the FDA with respect to the manufacturing
of pharmaceuticals, foods and flavors; environmental
regulation by the U.S. Environmental Protection Agency ("EPA")
with respect to the environment; by the U.S. Bureau of
Alcohol, Tobacco and Firearms with respect to alcohol used in
flavors and research; by the Colorado Department of Public
Health and Environment, and by the U.S. Departments of
Interior and Agriculture to manage and protect wildlife and
forest resources.
The FDA, the EPA, the Departments of the Interior and
Agriculture and other governmental agencies may in the future
change existing regulations or adopt additional regulations
that may affect the Company's ability to acquire necessary
raw materials, to manufacture herbal extracts, or to develop
or manufacture new products. Failure to comply with
applicable laws, regulations and permits can result in
injunctive actions, product seizures, damages and civil and
criminal penalties. If the Company expands or changes its
existing operations or proposes any new operations, it may be
required to obtain additional or amended permits or
authorizations.
The Company is also subject to regulation under the
Occupational Safety and Health Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the
Federal Water Pollution Control Act, and other federal,
state, and local statutes and regulations. The Company
believes it is in compliance with all applicable laws.
Environmental Regulations - Because of its ambient emissions
of volatile organic compounds, some of which are considered
toxic as well as flammable, all of the Company's facilities
are subject to the 1990 Clean Air Act Amendments' phased-in
requirements for such sources. Emission standards,
established by the EPA setting the Maximum Achievable Control
Technology and Best Achievable Control Technology, limit
hazardous air pollutant emissions from this category of
sources, require a comprehensive air emission operating
permit, which has been received by the Company, and include
related testing and reporting requirements. The Company
believes its facilities are in compliance with applicable air
pollution control requirements.
FDA Regulations:
Herbal Extracts: Herbal extract products are "Dietary
Supplements" as defined by the Dietary Supplement Health and
Education Act ("DSHEA") and are governed by DSHEA.
Under the DSHEA, dietary supplements are defined as vitamins,
minerals, herbs or other botanicals, amino acids, or other
dietary substances used to supplement the diet by increasing
total dietary intake. Moreover, concentrates, metabolites,
constituents, extracts, or any combination of these
ingredients are also included in this definition.
The DSHEA preserves the existing safety standards found in the
Food, Drug and Cosmetic Act and provides additional
safeguards to ensure that consumers are protected from
products which present a significant or unreasonable risk of
illness or injury under the conditions of use recommended or
suggested in product labeling. The bill also grants the
Secretary of Health and Human Services emergency authority to
remove a supplement from the marketplace if it poses an
imminent hazard to public safety.
The DSHEA addresses dietary supplement claims and statements
of nutritional support. It establishes labeling practices
regarding quality standards for supplements, including
requirements concerning purity, disintegration and
compositional specifications and also amends nutrition
labeling and nutrient content claim requirements for dietary
supplements under the Nutrition Labeling and Education Act of
1990.
PRODUCT LIABILITY INSURANCE
The sale of the Company's products include an inherent risk
that product liability claims may be asserted against the
Company. The pharmaceutical industry has experienced
increasing difficulty maintaining product liability insurance
coverage at reasonable levels, and substantial increases in
insurance premium costs have rendered coverage economically
impractical in many cases. The Company maintains product
liability coverage in an amount that management considers to
be prudent. There can be no assurance that the Company will
be able to maintain product liability insurance on acceptable
terms or that such insurance will provide adequate coverage
against potential claims. While the Company has not
experienced any product liability claims, if such claims
should arise in the future, the Company's business and
prospects could be adversely affected.
EMPLOYEES
As of April 30, 1999, the Company employed 355 regular
full-time employees.
Hauser has 39 employees involved with administrative,
financial and marketing functions, 92 involved in Technical
Services, 109 involved in manufacturing and sourcing of
natural products, and 12 employees involved with research and
development efforts.
Shuster employs 36 people in administration, financial and
marketing functions, and 67 in Technical Services.
ZBE sells herbal extracts through its sales force consisting
of 11 employees.
ZetaPharm has 21 employees. Ten are engaged in sales, 6 are
engaged in customer service, and the balance are engaged in
administration.
Wilcox has approximately 27 employees. Seven are engaged in
purchasing of botanical raw materials; 2 are engaged in the
sale of botanical raw materials; 2 are engaged in
cultivation; and the balance is engaged in processing,
warehousing and administration.
Item 2. Properties
The location and general description properties owned or
leased by the Company are as follows:
<TABLE>
Area/Facility Owned or Leased:
Square If Leased,
Location Type of Facility Footage Expiration Year
<S> <C> <C> <C>
Airport Boulevard Manufacturing and laboratory facilities
Boulder, CO executive and administrative offices 25,298 Leased; 2001
Nautilus Court South
Boulder, CO Manufacturing and laboratory facilities 26,426 Owned
Longmont, CO Manufacturing and warehouse facilities 32,052 Owned
administrative office
Clear Creek, CO Technical services 18,000 Leased; 2001
Quincy, MA Laboratory and storage facilities 35,423 Leased; 2000
executive and administrative offices
Smyrna, GA Laboratory facilities executive and 9,350 Leased;currently
administrative offices renegotiating term
New York, NY Executive and sales offices 3,300 Leased; 2000
Boone, NC Warehouse facility executive and 17,900 Leased; 2003
administrative offices
Eolia, MO 28,162 Owned
</TABLE>
The Company also leases additional warehouse space in North
Carolina, Florida, Kentucky and Missouri. The Company
believes that its active facilities are in good repair and are
suitable for its needs in the foreseeable future.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a shareholder vote during
the fourth quarter of the fiscal year ended April 30, 1999.
On June 11, 1999 the shareholders voted to approve (1) the
Agreement and Plan of the Merger among Hauser, ZGNA, ZBI and
certain other parties, and (2) issuance to ZGNA and ZBI of
shares of Common Stock of Hauser representing 49% of the
issued and outstanding shares after giving effect to such
issuance, subject to adjustment under certain circumstances.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded in the over-the-counter
market on the NASDAQ National Market System under the symbol
HAUS. The quotations presented below reflect inter-dealer
prices, without retail mark-up, markdown or commissions and
may not necessarily represent actual transactions. The
following table sets forth for the periods indicated, the
high and low closing bid quotations for the Common Stock as
adjusted for the one-for-four reverse stock split approved by
shareholders on June 11, 1999:
<TABLE>
Year Ended April 30,
1999 1998
High Bid Low Bid High Bid Low Bid
<S> <C> <C> <C> <C>
First Quarter $33.75 $21.75 $29.52 $21.52
Second Quarter 25.75 11.25 29.52 23.00
Third Quarter 20.50 12.00 30.32 21.52
Fourth Quarter 15.75 6.00 36.00 23.52
</TABLE>
As of April 30, 1999, there were approximately 561 holders of
record of the Company's Common Stock, which numbers do not
reflect stockholders who beneficially own Common Stock held in
nominee or street name.
Dividend Policy
The Company has not paid cash dividends in the past and does
not intend to pay cash dividends in the foreseeable future,
nor can it pursuant to the terms of its bank lending
agreement. The Company presently intends to retain earnings
for use in its business, with any future decision to pay cash
dividends dependent upon the Company's growth, profitability,
financial condition, and other factors the Board of Directors
may deem relevant.
Item 6. Selected Financial Data
The following is a summary of selected financial data which
the Company believes highlights trends in its financial
condition and results of operations. The data is as of and for
the Company's fiscal years ended April 30, 1999, 1998, 1997,
1996, and 1995.
<TABLE>
Year Ended April
1999 1998 1997 1996 1995
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C>
Natural product processing $ 13,826,862 $ 13,674,832 $ 6,308,221 $ 2,642,481 $ 1,530,031
Technical services 17,220,146 14,507,424 9,034,787 9,315,672 3,796,559
Pharmaceuticals 5,218,413 3,855,272 9,882,758 5,481,279 9,930,085
Total revenues 36,265,421 32,037,528 25,225,766 17,439,432 15,256,675
Cost of revenues 48,699,253 24,541,003 20,702,086 18,459,170 12,580,463
Gross profit (loss) (12,433,832) 7,496,525 4,523,680 (1,019,738) 2,676,212
Operating expenses 16,874,341 12,142,067 10,565,076 9,562,314 7,686,276
Loss from operations (29,308,173) (4,645,542) (6,041,396) (10,582,052) (5,010,064)
Other income (expense):
Interest and other income 153,987 315,280 528,424 1,047,734 1,857,406
Interest expense (581,920) (44,931) (18,947) (40,738) (42,667)
Gain (loss) from investments - 361,461 - (1,000,000) -
Total other income (expense) (427,933) 631,810 509,477 6,996 1,814,739
Loss from continuing operations before
provision for income taxes (29,736,106) (4,013,732) (5,531,919) (10,575,056) (3,195,325)
Benefit for income taxes - 879,723 1,628,993 4,134,812 1,246,666
Loss from continuing operations (29,736,106) (3,134,009) (3,902,926) (6,440,244) (1,948,659)
Loss from discontinued operations - - (2,628,610) (1,296,092) (748,491)
Net loss $(29,736,106) $ (3,134,009) $ (6,531,536) $(7,736,336) $ (2,697,150)
Loss per share from continuing
operations-basic and diluted $ (11.36) $ (1.20) $ (1.50) $ (2.49) $ (0.74)
Loss per share from discontinued
operations-basic and diluted - - (1.01) (0.50) (0.29)
Loss per share basic and diluted $ (11.36) $ (1.20) $ (2.51) $ (2.99) $ (1.03)
Weighted average number of shares outstanding 2,617,166 2,609,950 2,597,278 2,583,542 2,619,636
As of April 30,
1999 1998 1997 1996 1995
Balance Sheet Data:
Working capital $ 10,715,970 $ 16,671,596 $ 21,162,501 $ 32,054,242 $ 34,403,946
Property and equipment, net 16,571,066 22,344,618 23,186,057 24,605,560 25,128,717
Total assets 49,903,537 68,293,581 66,797,878 74,410,380 82,575,167
Long-term debt 486,596 692,733 121,764 130,271 111,078
Stockholders' equity 30,835,851 60,553,700 63,691,554 70,183,619 77,391,459
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
Pursuant to an Agreement and Plan of Merger dated December 8,
1998 (the "Merger Agreement"), the Company completed a merger
on June 11, 1999, with three subsidiaries of ZGNA and ZBI.
Two subsidiaries of ZGNA, Wilcox and ZetaPharm, and one
subsidiary of ZBI, ZBE merged with three wholly-owned
subsidiaries of the Company which were created for the purpose
of the Merger. The Contributed Subsidiaries were the
surviving corporations and became wholly-owned subsidiaries
of the Company as a result of the Merger.
At the closing of the Merger, the Company issued 2,515,349
shares of its common stock to ZGNA and ZBI, which constituted
49% of the outstanding shares. After the closing, the
Company's existing officers and public shareholders own 51.0%
of the combined company, while ZGNA owns 49.0%. The number of
shares that were issued to ZGNA is subject to downward
adjustment under certain circumstances. Subsequent to the
Merger, the Company effected a one-for-four reverse stock
split. The reverse stock split was implemented in order to
satisfy NASDAQ's listing requirements. All share and per share
information has been adjusted for the reverse stock split.
In connection with the Merger, Wells Fargo Bank, N.A. provided
a $35.0 million line of credit and a $10.0 million fixed
asset line in support of the merged companies. As part of the
Merger, the Company assumed approximately $21.0 million of
the Contributed Subsidiaries bank debt. The loans are
collateralized by all of the Company's assets including its
shares of the Contributed Subsidiaries.
Hauser's total revenues for fiscal year 1999 were $36,265,421,
a 13% increase over revenues of $32,037,528 in fiscal 1998.
Net loss for the year ended April 30, 1999, was $(29,736,106)
as compared to a net loss of $(3,134,009) for fiscal 1998.
Net loss for fiscal 1999 included a one-time charge of $25.6
million taken in the third quarter ended January 31, 1999, for
the write-down of paclitaxel inventory and other related
assets. Excluding this one-time write-down, the net loss
would have been $(4,136,106).
Below is a table that summarizes the Company's results of
operations, including the one-time charge of $25.6 million
taken in the quarter ended January 31, 1999, as a percentage
of total revenues.
<TABLE>
Percent of Revenues Percent change
Year Ended April 30, Year Ended April 30,
1999 1998 1997 1999 1998
Revenues:
<S> <C> <C> <C> <C> <C>
Natural products 38.1% 42.7% 25.0% 1.1% 116.8%
Technical services 47.5% 45.3% 35.8% 18.7% 60.5%
Paclitaxel 14.4% 12.0% 39.2% 35.4% (61.0)%
Total revenues 100.0% 100.0% 100.0% 13.2% 27.0%
Gross profit (loss) (34.3)% 23.4% 17.9% (265.9)% 65.7%
Research & development 4.4% 7.0% 8.9% (28.5)% (0.5)%
Sales and marketing 7.5% 7.5% 6.4% 14.3% 47.6%
General and administrative 18.3% 18.8% 26.5% 10.4% (10.2)%
Product warranty ---% 4.7% ---% (100.0)% ---%
Write-off of assets 16.3% ---% ---% ---% ---%
Loss from operations (80.8)% (14.5)% (23.90)% (530.9)% 23.1%
Loss from continuing operations before taxes (82.0)% (12.5)% (21.9)% (640.9)% 27.4%
Loss from continuing operations (82.0)% (9.8)% (15.5)% (848.8)% 19.7%
Loss from discontinuing operations ---% ---% (10.4)% ---% (100.0)%
Net loss (82.0)% (9.8)% (25.9)% (848.8)% 52.0%
</TABLE>
Below is a table that summarizes the Company's results of operations, as a
percentage of total revenues excluding the effects of pharmaceutical
activities.
<TABLE>
Percent of Revenues Percent change
Year Ended April 30, Year Ended April 30,
1999 1999
Revenues:
<S> <C> <C>
Natural products 44.5% 1.1%
Technical services 55.5% 18.7%
Total revenues 100.0% 10.3%
Gross profit (loss) 19.1% (12.0)%
Research & development 5.1% (28.5)%
Sales and marketing 8.8% 14.3%
General and administrative 21.4% 10.4%
Product warranty ---% (100.0)%
Loss from operations (16.2)% (6.6)%
Loss from continuing operations before taxes (17.6)% (14.7)%
Loss from continuing operations (17.6)% (40.7)%
Net loss (17.6)% (40.7)%
</TABLE>
The 1999 increases in revenue were the result of the Company's
efforts to increase its presence in the herbal supplement
market, and expand its strength in providing technical
services to clients. Sales of NaturEnhance[Trademark] natural
products, which include herbal extracts, flavors and food
ingredients, increased 1% over the prior year. Revenues from
technical services increased almost 19% over the prior year.
Pharmaceutical revenues increased as a result of the
Company's announcement of the termination of future
production of paclitaxel. Subsequent to the announcement,
increased demand for current inventories on-hand resulted in
increased revenues generated through the sale of paclitaxel in
the current year. Such sales are not expected to continue
past fiscal 2000.
The Company was not profitable in fiscal 1999, nor in fiscal
1998 or 1997. With the completion of the Merger, Management
has completed operating plans for fiscal 2000, and believes
that the Company can regain profitability in the new fiscal
year, based upon achieving certain sales goals and the
continuation of cost controls; however, there can be no
assurance of when profitability will again be realized.
DISCONTINUED ACTIVITIES
Prior to the Merger, in the third quarter fiscal 1999, the
Company discontinued its pharmaceutical activities. In the
quarter ended January 31, 1999, the Company incurred a
one-time charge to earnings of $25.6 million. The change and
the results of pharmaceutical activities have been included in
the continuing operations because pharmaceutical activities
did not constitute a separate business segment of the
Company. In February 1999, the Company signed a contract for
the sale of its pharmaceutical inventory as part of the
planned closure of the pharmaceutical business. The purchase
agreement will gross approximately $9.5 million to the Company
over the first six to nine months of fiscal 2000 and is
contingent upon the Company delivering the product in final
form within agreed upon specifications. The Company has
negotiated settlement of its yew tree cultivation agreements
and termination of a multi-year non-exclusive agreement to
supply pharmaceutical to a customer. These agreements are
contingent upon contractual performance by third parties
assuming Hauser's obligations under these settlement
agreements. The Company anticipates completion of its exit of
the pharmaceutical business by January 31, 2000.
On October 11, 1996, the Company sold substantially all of the
net assets of its secondary forest product subsidiary, Hauser
Northwest, Inc., d/b/a Ironwood Evergreens ("Ironwood").
Revenues for Ironwood were $2,670,389 in the year ended April
30, 1997. The results for fiscal 1997 include a non- recurring
charge for the divestiture of Ironwood. The Company received
cash of $250,000, a promissory note of $150,000 and a basic
earnout of no more than $550,000. The earnout is based upon
75% of the buyer's net cash flow, if any derived from the
business for the four-year period ending December 31, 2000.
An additional earnout of 5% of the excess (if any) of net cash
flow over the projected net cash flow in the buyer's
five-year plan is available to the Company. The maximum
additional earnout is $400,000. The Company has not earned
any amounts available under either the basic or additional
earnout arrangements. The operations and disposal of Ironwood
have been reflected in discontinued operations because the
secondary forest products activities represented a separate
business segment of the Company.
RESULTS OF CONTINUING ACTIVITIES:
REVENUES. A breakout of the Company's revenues by product and
service groupings for its continuing activities is as
follows:
<TABLE>
Year ended April 30,
1999 1998 1997
<S> <C> <C> <C>
Natural products (includes herbal
extracts, natural flavor extracts
and food ingredients) $13,826,862 $13,674,832 $ 6,308,221
Technical services (includes Hauser
and Shuster Laboratories) 17,220,146 14,507,424 9,034,787
Total revenues from continuing
activities $31,047,008 $28,182,256 $15,343,008
</TABLE>
Increases in fiscal 1999 and 1998 were the result of increases
in both the natural products and technical services
categories. Revenues from continuing activities in fiscal 1999
increased 10% to $31,047,008 from $28,182,256 in fiscal 1998.
Revenues from continuing activities increased 84% in fiscal
1998 as compared to fiscal 1997.
Natural Products:
Natural product revenues increased 1% in fiscal 1999 to
$13,826,862 from $13,674,832 in fiscal 1998. The insignificant
growth in this category can be attributed primarily to
moderate industry growth, offset by customer efforts to
manage inventory levels more tightly.
Natural product revenues increased approximately 117% in
fiscal 1998 to $13,674,832 from $6,308,221 in fiscal 1997.
The increase is primarily attributable to success in selling
herbal extracts as sales of these products increased from
$4,533,350 in fiscal 1997 to $12,531,190 in fiscal 1998, an
increase of 176%.
Technical Services:
Technical services revenues of $17,220,146 in fiscal 1999
increased by approximately 19% from $14,507,424 in fiscal
1998, and increased approximately 61% in fiscal 1998 from
$9,034,787 in fiscal 1997. These increases were due primarily
to the Company's concentrated efforts to increase the number
of projects related to custom synthesis and natural product
isolation in the pharmaceuticals industry.
GROSS PROFIT (LOSS). Gross margin for the natural products
industry segment in fiscal 1999 was 10% of total revenues
compared to 17% in fiscal 1998 and (20%) in fiscal 1997. The
decline in fiscal 1999 is due primarily to increased
competitive pressures and changes in product mix.
Additionally, overhead costs increased in an effort to expand
plant capacity, in order to meet planned sales levels on
certain products. The gross margin loss in 1997 reflects that
the Company had only recently entered the herbal extract
manufacturing business, and accordingly, manufacturing
processes were still being defined. The margin improved
significantly in fiscal 1998 as the Company gained more
experience in these products.
Gross margin for technical services decreased in fiscal 1999
to 27% as compared to 30% in fiscal 1998 and 14% in fiscal
1997. The decrease in 1999 is due to increased overhead costs
which were not supported by revenue generating projects. The
increase in fiscal 1998 was the result of more projects
related to drug development and natural product formulations
that generated higher margins.
OPERATING EXPENSES. Research and development expenses were
$1,593,880 in fiscal 1999 as compared to $2,229,843 in fiscal
1998 and $2,240,992 in fiscal 1997. While research and
development expenses declined from fiscal 1998, the Company
intends to actively continue research and development
efforts, and such expenses could increase over the next year
to support the growing needs of the Company.
Sales and marketing expenses in fiscal years 1999, 1998 and
1997 were $2,732,057, $2,390,602 and $1,619,937,
respectively. The increase represents the Company's
accelerated efforts to market new products, particularly in
the areas of herbal extracts and natural food ingredients.
General and administrative expenses of $6,648,404 in fiscal
1999 increased by 10% from $6,021,622 in fiscal 1998, and
decreased 10% in fiscal 1998 from $6,704,147 in fiscal 1997.
During fiscal 1999, overhead costs increased in nearly all
administrative functions, due primarily to added personnel
costs. The decrease from fiscal 1997 to fiscal 1998 is due
primarily to decreased insurance, legal and consulting fees.
Additionally, during fiscal 1997, the Company incurred a
charge of $345,000 in connection with the disposition of
certain fixed assets.
Product warranty expense in fiscal 1998 of $1,500,000 was an
estimate of anticipated costs related to a fungicide found in
a product sold by the Company. The reserve related to
potential product returns, re-work costs, development work
required to provide methodology to remove the substance from
the bulk extracts and legal and professional fees. During
fiscal 1999, the issues were addressed without the necessity
for additional expense accruals, or reversal of accruals
provided in fiscal 1998.
During fiscal 1999, the Company recorded operating expenses of
$5,900,000 in connection with a write-off of paclitaxel
related assets. This write-off is part of the $25.6 million
charge recorded in connection with the Company's decision to
terminate production of paclitaxel, discussed earlier.
INTEREST INCOME (EXPENSE). Interest income (expense) was
$(427,933) in fiscal 1999, $270,349 in fiscal 1998, and
$509,477 in fiscal 1997. The decreases in interest income and
increases in interest expense are due to less capital
available for investment and increased borrowing in fiscal
1999.
OTHER INVESTMENTS. The Company sold its investment in a public
company and realized a gain of $361,461 in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Total cash and cash equivalents were $3,610,825 at
April 30, 1999, compared to $2,081,796 at April 30, 1998. The
increase is primarily due to increased borrowing on the
Company's line of credit of $4,500,000, offset by additions
of property and equipment of $1,907,986. Cash used in
operating activities of $20,420 had an insignificant impact on
cash flow. As of April 30, 1999, the Company had a revolving
line of credit totaling $8,850,000 which expires on June 30,
2000. As of April 30, 1999, $6,000,000 had been borrowed
against the line. As of April 30, 1999, the Company was not
in compliance with a financial covenant to report
profitability in the fourth quarter of fiscal 1999. The
Company has obtained a waiver from the bank for this covenant
as of April 30, 1999. This line of credit along with a lease
credit line with a bank, were repaid as part of the Merger and
related financing in June 1999. In connection with the
termination of these lines-of-credit, restricted cash of
$567,032 as of April 30, 1999, will be available for general
corporate purposes.
Subsequent to the Merger, the Company has obtained financing
from Wells Fargo Bank, NA to provide an aggregate amount of
$45,000,000, to be guaranteed by each of its subsidiaries: a
revolving line of credit up to $35,000,000 for general
working capital maturing two years after the loan closing,
and a $10,000,000 non-revolving term commitment for financing
the acquisition of fixed assets with a draw down period of
two years and a maturity date five years following the loan
closing (collectively, the "Credit Facility"). The Company
has also assumed approximately $22 million of the Contributed
Subsidiaries' bank debt.
The Credit Facility includes a $1,000,000 sublimit for the
issuance of commercial letters of credit up to 150 days in
term. The advance rates for the revolving facility are 80% of
eligible accounts receivable and 50% of eligible inventory.
Inventory collateral for loan purposes may not exceed
$20,000,000.
For the revolving loan, the interest rate is the Bank's
prime-rate minus .75% or the Bank's quoted LIBOR plus 1.5%
per annum. For the term loan fixed asset facility, the
interest rate is the Bank's prime rate minus .5% or the
Bank's quoted LIBOR plus 1.75% per annum, or on an unspecified
fixed rate basis. A commitment fee will be charged of .25%
per annum on the unused portion of the term loan fixed asset
commitment.
The Credit Facility is secured by all of the Company's assets.
Additionally, the Credit Facility contains affirmative and
negative covenants, including certain financial covenants.
Management believes that current cash reserves, the new Credit
Facility and funds generated from earnings are sufficient to
meet the Company's liquidity needs within the next twelve
months and on a long-term basis.
WORKING CAPITAL. Working capital as of April 30, 1999 was
$10,715,970 as compared to $16,671,596 as of April 30, 1998.
The decrease is primarily attributable to an increase in debt
of $4,500,000 required to finance deposits and purchases of
property and equipment.
PROPERTY AND EQUIPMENT. Purchases of property and equipment in
fiscal 1999 totaled $1,907,986. This was primarily the result
of improvements to manufacturing equipment for the production
of herbal extracts and food ingredient products. The Company
expects capital expenditures to be approximately $10,000,000
in fiscal 2000 for additional manufacturing equipment
improvements, and expects to fund these expenditures through
the $10 million fixed asset line, described above.
INCOME TAXES. The Company has a net deferred tax asset of
$14,782,167 that has been reduced by a valuation allowance of
$11,825,674 as of April 30, 1999. Included in deferred tax
assets at April 30, 1999, are federal net operating loss
carry forwards of approximately $24.8 million, income tax
credits of approximately $544,000 and alternative minimum tax
credits of approximately $1.4 million. Realization is
dependent on generating sufficient taxable income or
realization of future taxable temporary difference prior to
expiration of the carry forwards. Although, realization is
not assured, management believes it is more likely than not
the recorded net deferred tax asset will be realized.
During fiscal 1999, the Company increased its valuation
allowance by $11,202,394 due to uncertainty regarding the
realizability of the tax assets generated during fiscal 1999.
In assessing the amount of its net deferred tax assets
considered realizable, management has considered the
following factors: (1) taxable income projected within the
next twenty-four months; (2) the expiration dates of its net
operating loss and tax credit carryovers; and (3) tax
planning strategies which would allow Hauser to generate
significant taxable income from existing assets (including
possible sale-leaseback scenarios for its land, property and
equipment held fee simple). The amount of the deferred tax
asset considered realizable could be reduced in the near term
if estimates of future taxable income do not materialize.
BACKLOG. Backlog of unfilled sales orders was $1,590,302 of as
April 30, 1999, compared to $2,974,817 as of April 30, 1998.
Backlog consists of unfilled sales orders for herbal extracts
and flavors products.
Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the
financial position, results of operations or cash flows of
the Company due to adverse changes in financial and commodity
market prices and rates. The Company is exposed to market
risk in the area of changes in United States interest rates.
These exposures are directly related to the Company's fixed
and variable rate borrowings used to fund its operations.
Historically and as of April 30, 1999, the Company has not
used derivative instruments or engaged in hedging activities.
The interest payable on the Company's revolving line of credit
is variable based on the prime rate and, is therefore,
affected by changes in market interest rates. At April 30,
1999, approximately $6 million was outstanding with an
interest rate of 9.25% (prime plus 0.75%). The line of credit
is cancelable upon 30 days notice by the lender and, should
such a cancellation occur, or the Company's liquidity needs
exceed amounts available under this line of credit, the
interest rate applicable to replacement credit facilities
might be significantly higher. For example, if the interest
rate on the Company's line of credit had been twice the rates
in effect for its year ended April 30, 1999, the Company
would have incurred additional interest expense of
approximately $425,000 for the year, with an associated $.16
increase in the share loss for that year. Therefore, the
Company's exposure to changes in interest rates will be
significant until such time as its operation results permit
it greater access to other lenders and lending instruments on
terms equivalent or superior to those available under its
current lending agreement.
Year 2000 COMPLIANCE:
Hauser is preparing its systems and applications for the year
2000 ("Y2K"). The issue the Company's Y2K program addresses
is the use of two-digit instead of four-digit year fields in
computer systems. If the computer systems cannot distinguish
between the year 1900 and the year 2000, system failures or
other computer errors could result. The potential for failures
and errors spans all aspects of the Company's business,
including computer systems, voice and data networks, and
building infrastructures. The Company is also faced with
addressing its interdependencies with suppliers and major
customers, which all face the same problem.
The Company recognizes the importance of readiness for Y2K and
has given it high priority. The Company created a
corporate-wide Y2K team to represent all company business and
staff units. The team was headed by the Company's Director of
Information Technology. The team's objective was to ensure an
uninterrupted transition to the year 2000 by assessing,
testing and modifying information technology ("IT") and
non-IT systems so that (a) they would perform as intended,
regardless of the date (before, during and after December 31,
1999), and (b) dates could be processed (before, during and
after December 31, 1999 and including February 29, 2000) with
expected results ("Year 2000 Compliant").
The scope of the Y2K compliance effort includes (i)
information technology (IT) such as software and hardware;
(ii) non-IT systems or embedded technology such as
micro-controllers contained in various manufacturing and
laboratory equipment; environmental and safety systems,
facilities and utilities, and (iii) the readiness of key
third parties, including suppliers and customers.
The Y2K project team has taken an inventory of IT and non-IT
systems that might malfunction or fail as a result of using
only the last two digits to indicate the year. The project
team categorized the potential date component failures into
three categories: "Vital" (stops the business operation and no
short-term solution is available); "Critical" (inconvenient to
the business operation and a short-term solution is
available); and "Marginal" (inconsequential to the business
operation).
IT Systems - The Company is using both internal and external
resources to remediate and test millions of lines of
application software code. As of April 30, 1999,
approximately 95 percent of the core IT systems (e.g.,
general ledger, payroll, procurement, and order management)
that were deemed "Vital" or "Critical" are Year 2000
Compliant.
Non-IT Systems - The Company has manufacturing and laboratory
locations with varying degrees of non-IT systems (such as
programmable logic controllers, gauging guidance and
adjustment systems, and testing equipment). Assessment and
testing of non-IT systems for Y2K compliance has proven much
more difficult than assessing compliance of IT systems
because testing of non-IT systems often requires shutdown of
operations.
As a result, the Company has approached assessment and testing
of non-IT systems that are common to many of the Company's
facilities by (i) contacting the suppliers of these non-IT
systems and obtaining statements that the systems are Y2K
Compliant, and (ii) testing components of non-IT systems when
they are shut down for normal maintenance. The Company has
also tested manufacturing lines and tested non-IT systems at
the Company's several facilities. These tests demonstrate
that "time interval" instead of "dates" are used primarily in
these non-IT systems and support the Company's belief that
potential disruption of such systems due to the Y2K issue
should be minimal.
Third Parties - In addition to internal Y2K IT and non-IT
remediation activities, the Company is in contact with key
suppliers and with customers to minimize potential
disruptions in the relationships between the Company and
these important third parties related to the Y2K issue. The
Company has also categorized supplies purchased from vendors
into three categories: "Vital" (disruption of supply stops
the business operation and no short-term solution is
available); "Critical" (disruption of supply is inconvenient
to the business operation and a short-term solution is
available); and "Marginal" (disruption of supply is
inconsequential to the business operation). The Company has
focused its efforts on those vendors that supply goods or
services deemed "Vital" to the Company's business. All vendors
categorized as "Vital" or "Critical" have responded confirming
that they are fully Y2K Compliant, or will have completed
compliance preparations prior to September 30, 1999. While
the Company cannot guarantee compliance by third parties, the
Company is developing contingency plans with its key suppliers
that include availability of appropriate inventories of
supplies in the event the supplier is not Y2K Compliant.
Contingency Planning - The Company is preparing contingency
plans specifying what the Company will do if failures occur
in IT and non-IT systems, or if important third parties are
not Y2K Compliant. The Company expects to finalize
contingency plans company-wide by August 1, 1999 for its IT
and non-IT systems, and by that same date for its key
suppliers.
Costs - From the project inception through April 30, 1999, the
Company has spent $300,000 out of a total estimate of
approximately $360,000 related to Y2K readiness. These costs
include the costs incurred for external consultants and
professional advisors and the costs for software and
hardware. The Company's process for tracking internal costs
does not capture all of the costs incurred for each of the
employees working on the Y2K project. Such internal costs are
principally the related payroll costs for its information
technology group and other employees who worked on the Y2K
project. The Company is expensing as incurred all costs
related to the assessment and remediation of the Y2K issue.
These costs are being funded through operating cash flows.
Risk Assessment - The Company's current estimates of the time
and costs necessary to remediate and test its computer
systems are based on the facts and circumstances existing at
this time. The estimates were made using assumptions of
future events including the continued availability of certain
resources, such as skilled IT personnel and electrical power,
Y2K modification plans, implementation success by key
third-parties, and other factors. New developments could
affect the Company's estimates of the amount of time and
costs needed to modify and test its IT and non-IT systems for
Y2K compliance. These developments include, but are not
limited to: (i) the availability and cost of personnel
trained in this area; (ii) the ability to locate and correct
all relevant codes in both IT and non-IT systems; (iii)
unanticipated failures in IT and non-IT systems; and (iv) the
planning and Y2K compliance success that key customers and
suppliers attain.
The Company cannot determine the impact of these potential
developments on the current estimate of probable total cost
of making its IT and non-IT systems Y2K Compliant.
Accordingly, the Company is not able to estimate possible
future costs beyond the current estimates. As new developments
occur, these cost estimates may be revised to reflect the
impact of these developments on the costs to the Company of
making its IT and non-IT systems Y2K Compliant. Such cost
revisions could have a material adverse impact on the
Company's net income in the quarterly period in which they are
recorded. Although the Company considers it unlikely, such
revisions could also have a material effect on the
consolidated financial position or annual results of
operations of the Company.
The failure to correct a material Y2K problem could result in
an interruption in, or failure of, normal business activities
or operations. There is inherent uncertainty regarding the
Y2K problem, in part resulting from the uncertainty of the
Y2K readiness of third-party suppliers and customers.
Therefore, the company is unable to predict with certainty
whether the consequences of Y2K failures will have a material
impact on the company's results of operations, liquidity or
financial condition. The Y2K Project is expected to
significantly reduce the company's level of uncertainty about
the Y2K problem, in particular, with respect to the Y2K
compliance and readiness of its third-party suppliers. The
company believes that the possibility of significant
interruptions of normal operations should be significantly
reduced by the implementation of upgraded business systems
and the completion of the Y2K project as scheduled.
FORWARD-LOOKING STATEMENTS
Certain oral and written statements of management of the
Company included in the Form 10-K and elsewhere may contain
forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be
covered by the safe harbors created thereby. These statements
include the plans and objectives of management for future
operations. The forward-looking statements included herein
and elsewhere are based on current expectations that involve
judgments which are difficult or impossible to predict
accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any
of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements will
prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements, the
inclusion of such information should not be regarded as a
representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
Item 8. Financial Statements and Supplementary Data
The following financial statements are included in this
Report:
Page
Independent Auditors' Report F-1
Consolidated Statements of Operations for the years ended
April 30, 1999, 1998 and 1997 F-2
Consolidated Balance Sheets as of April 30, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the years ended
April 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for the
years ended April 30, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements for the years
ended April 30, 1999, 1998 and 1997 F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of Hauser, Inc.:
We have audited the accompanying consolidated balance sheets
of Hauser, Inc. (a Colorado Corporation) and its subsidiaries
as of April 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended April 30,
1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Hauser, Inc. and its subsidiaries as of April 30,
1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended April
30, 1999 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
/s/
Denver, Colorado,
June 14, 1999.
<PAGE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Years ended April 30,
1999 1998 1997
REVENUES:
<S> <C> <C> <C>
Natural products $ 13,826,862 $ 13,674,832 $ 6,308,221
Technical services 17,220,146 14,507,424 9,034,787
Pharmaceuticals 5,218,413 3,855,272 9,882,758
Total revenues 36,265,421 32,037,528 25,225,766
COST OF REVENUES:
Natural products 12,499,299 11,335,201 7,557,875
Technical services 12,612,525 10,102,016 7,766,976
Pharmaceuticals 3,887,429 3,103,786 5,377,235
Write-off of inventory 19,700,000 - -
Total cost of revenues 48,699,253 24,541,003 20,702,086
GROSS (LOSS) PROFIT (12,433,832) 7,496,525 4,523,680
OPERATING EXPENSES:
Research and development 1,593,880 2,229,843 2,240,992
Sales and marketing 2,732,057 2,390,602 1,619,937
General and administrative 6,648,404 6,021,622 6,704,147
Product warranty - 1,500,000 -
Write-off of assets 5,900,000 - -
Total operating expenses 16,874,341 12,142,067 10,565,076
LOSS FROM OPERATIONS (29,308,173) (4,645,542) (6,041,396)
OTHER INCOME (EXPENSE):
Interest income and other income 153,987 315,280 528,424
Interest expense (581,920) (44,931) (18,947)
Gain from sale of investment - 361,461 -
Total other (expense) income (427,933) 631,810 509,477
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX (29,736,106) (4,013,732) (5,531,919)
INCOME TAX BENEFIT - 879,723 1,628,993
NET LOSS FROM CONTINUING OPERATIONS (29,736,106) (3,134,009) (3,902,926)
DISCONTINUED OPERATION:
Loss from discontinued operation, net of applicable income
tax benefit of $0, $0, and $321,568, respectively - - (528,464)
Loss on disposal of discontinued operation, net of applicable
income tax benefit of $0, $0 and $1,283,386, respectively - - (2,100,146)
LOSS FROM DISCONTINUED OPERATION - - (2,628,610)
NET LOSS $(29,736,106) $ (3,134,009) $ (6,531,536)
LOSS PER SHARE BASIC AND DILUTED:
Continuing operations $ (11.36) $ (1.20) $ (1.52)
Discontinued operation $ - $ - $ (1.00)
Loss per share $ (11.36) $ (1.20) $ (2.52)
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 2,617,166 2,609,950 2,597,278
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HAUSER, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
April 30,
ASSETS 1999 1998
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,610,825 $ 2,081,796
Restricted cash 567,032 139,346
Accounts receivable, less allowance for doubtful accounts:
1999, $158,421; 1998, $430,518 6,812,444 9,090,005
Inventory, at cost 9,665,832 10,111,688
Inventory, at net realizable value 6,034,525 -
Prepaid expenses and other 292,808 349,570
Net deferred income tax asset 2,313,594 1,946,339
Total current assets 29,297,060 23,718,744
PROPERTY AND EQUIPMENT:
Land and buildings 7,692,252 7,635,216
Laboratory and processing equipment 23,972,862 31,883,787
Furniture and fixtures 3,970,364 4,671,647
Total property and equipment 35,635,478 44,190,650
Accumulated depreciation and amortization (19,064,412) (21,846,032)
Net property and equipment 16,571,066 22,344,618
OTHER ASSETS:
Goodwill, less accumulated amortization:
1999, $847,509; 1998, $936,670 1,373,471 1,961,462
Inventory, non-current - 14,787,837
Deposits 1,953,041 4,013,992
Net deferred income tax asset 642,899 1,010,154
Other 66,000 456,774
TOTAL $ 49,903,537 $68,293,581
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,953,559 $ 1,764,294
Current portion of long-term debt 6,750,342 1,911,498
Accrued salaries and benefits 1,347,040 1,201,201
Deposits 3,807,798 670,155
Product warranty - 1,500,000
Accrued exit costs 3,537,203 -
Other current liabilities 185,148 -
Total current liabilities 18,581,090 7,047,148
LONG-TERM DEBT 486,596 692,733
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
shares issued and outstanding: 1999, 2,618,017; 1998, 2,616,115 2,618 2,616
Additional paid-in capital 58,890,398 58,872,143
(Accumulated deficit) retained earnings (28,057,165) 1,678,941
Net stockholders' equity 30,835,851 60,553,700
TOTAL $ 49,903,537 $ 68,293,581
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years ended April 30,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(29,736,106) $ (3,134,009) $ (6,531,536)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,010,701 4,022,965 4,171,790
Provision for bad debts 111,151 235,574 105,000
Provision for excess inventories 223,142 41,829 562,057
(Expenditure) provision for product warranty (1,500,000) 1,500,000 -
Provision for paclitaxel and other related assets 25,600,000 - -
Change in accrued exit costs (1,512,797) - -
Loss on disposal of discontinued operation - - 3,383,532
Loss on disposal of assets - 92,319 344,255
Gain on sales of investment - (361,461) -
Deferred income tax benefit - (879,723) (2,412,827)
Change in deposits and other (2,581,994) (2,535,737) (1,139,985)
Change in assets and liabilities, net of effects from
the purchase of Shuster:
Accounts receivable 2,166,410 (4,364,447) 910,073
Income taxes receivable - 1,445,046 1,220,418
Inventories (1,199,444) (3,304,476) (5,305,498)
Prepaid expenses and other (259,378) 56,755 (111,692)
Accounts payable 1,189,265 277,795 1,036,684
Customer deposits 3,137,643 470,155 25,628
Other accrued liabilities 330,987 75,056 (185,331)
Net cash used in operating activities (20,420) (6,362,359) (3,927,432)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,907,986) (2,058,167) (2,729,671)
Proceeds from sale of investment - 458,479 -
Purchase of Shuster's common stock, net of cash acquired - (63,569) -
Sale of Ironwood net assets - - 250,000
Collection on note receivable - 108,411 -
Issuance of notes receivable - (60,000) -
Purchase of investments - (194,922) (293,865)
Maturity of investments - 391,673 7,900,000
Net change in restricted cash (427,686) (139,346) -
Net cash (used in) provided by investing activities (2,335,672) (1,557,441) 5,126,464
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank debt 4,500,000 1,500,000 -
Proceeds from issuance of long-term debt - - 274,833
Repayments of long-term debt (633,136) (120,229) (781,518)
Payment of notes receivable - - -
Proceeds from issuance of common stock and warrants 18,257 242,274 258,452
Net cash provided by (used in) financing activities 3,885,121 1,622,045 (248,233)
Net increase (decrease) in cash and cash equivalents 1,529,029 (6,297,755) 950,799
Cash and cash equivalents, beginning of year 2,081,796 8,379,551 7,428,752
Cash and cash equivalents, end of year $ 3,610,825 $ 2,081,796 $ 8,379,551
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest $ 581,920 $ 44,934 $ 18,947
Cash received during the year for income taxes refunded $ - $ 1,625,855 $ 2,052,637
Non-cash investing and financing activity:
Capital lease obligations incurred through lease of
laboratory and processing equipment $ 765,843 $ 930,780 $ 64,538
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Accumulated
Other
Comprehen-
Additional Comprehen- sive Retained Total
Common Stock Paid-in Treasury Stock sive Income Earnings Stockholders'
Shares Amount Capital Shares Amount (Loss) (Loss) (Deficit) Equity
BALANCES,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APRIL 30, 1996 2,641,153 $ 2,641 $59,426,204 (50,275) $(1,054,812) $ 465,100 $ 11,344,486 $70,183,619
Exercise of stock
options 13,879 55 210,152 - - - - 210,166
Tax benefit from
employee exercise
of stock options - - 48,286 - - - - 48,286
Retirement of
treasury stock (50,275) (50) (1,054,762) 50,275 1,054,812 - - -
Change in unrealized
gain on available-
for-sale investment
net of income tax
effect of $146,553 - - - - - $ (218,981) (218,981) - (218,981)
Net loss - - - - - (6,531,536) - (6,531,536) (6,531,536)
Comprehensive loss - - - - - $(6,750,517) - - -
BALANCES,
APRIL 30, 1997 2,604,757 2,605 58,629,880 - - 246,119 4,812,950 63,691,554
Exercise of stock
options 11,358 11 223,915 - - - - 223,926
Tax benefit from
employee exercise
of stock options - - 18,348 - - - - 18,348
Change in unrealized
gain on available-
for-sale investment,
net of income tax
effect of $15,010 - - - - - $ (23,477) (23,477) - (23,477)
Reclassification adjustment
for gains included in
net income, net of
income tax
effect of $135,837 - - - - - (222,642) (222,642) - (222,642)
Net loss - - - - - (3,134,009) - (3,134,009)(3,134,009)
Comprehensive loss - - - - - $(3,356,651) - - -
BALANCES,
APRIL 30, 1998 2,616,115 2,616 58,872,143 - - - 1,678,941 60,553,700
Exercise of stock
options 1,902 2 18,255 - - - - 18,257
Net loss - - - - - - (29,736,106)(29,736,106)
BALANCES,
APRIL 30, 1999 2,618,017 $ 2,618 $58,890,398 - $ - $ - $(28,057,165) $30,835,851
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HAUSER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION
Hauser, Inc. (the "Company"), a Colorado corporation, and its
wholly owned subsidiary, Shuster Laboratories, Inc., is a
manufacturer of special products from natural sources, using
its proprietary technologies in extraction and purification.
The Company also provides interdisciplinary laboratory testing
services, chemical engineering services, and contract research
and development. The Company's existing products are
principally marketed to the pharmaceutical, dietary
supplements and food ingredients industries.
On June 11, 1999, the Company completed a merger with three
subsidiaries of privately-held Zuellig Group N. A., Inc.,
("ZGNA") and Zuellig Botanicals, Inc. ("ZBI"). The Company
acquired Zuellig Botanical Extracts, Inc., Wilcox Drug
Company, Inc., and ZetaPharm, Inc., (collectively the
"Contributed Subsidiaries") thereby creating a leading U.S.
supplier of herbal extracts, botanical raw materials and
related products to the fast-growing nutritional industry. Pro
forma combined (unaudited) sales for the three contributed
companies and Hauser for the four quarters ended April 30,
1999, exceeded $100 million.
The Company issued approximately 2.5 million of the Company's
common shares for the common stock of the Contributed
Subsidiaries. Upon closing, the Company's existing
shareholders owned 51.0% of the combined company, while ZGNA
owned 49.0%. The number of shares to be issued to ZGNA are
subject to downward adjustment under certain circumstances.
The Company also assumed approximately $22 million of the
contributed subsidiaries' bank debt. Wells Fargo Bank, N.A.
has provided a $35.0 million line of credit and a $10.0
million fixed asset line in support of the merged companies.
As a result of the Merger, the Company decided to discontinue
its paclitaxel activities. In the quarter ended January 31,
1999, the Company incurred a one-time charge to earnings of
$25.6 million. The charge to cost of sales was comprised of a
reduction of bulk paclitaxel inventory ($10.2 million) to its
estimated net realizable value, a write-off of advanced
payments made for the purchase of cultivated yew trees ($4.5
million) and the estimated costs of terminating cultivar
nursery contracts ($5.0 million). The charge to operating
expenses includes the write-off of paclitaxel related
equipment ($4.7 million) and miscellaneous other related
assets consisting primarily of intangibles ($1.2 million).
The net realizable inventory value was determined based upon a
contract signed on February 11, 1999 to sell bulk paclitaxel
over the next nine months for a sales value of $9.5 million.
The cost to terminate the cultivar nursery contracts was based
on the current contractual terms. The specialized paclitaxel
equipment and related intangibles have no alternative use and
were written down to zero. The Company does not anticipate
any significant reduction in workforce as a result of the
decision to cease production of paclitaxel. The Company
should complete its exit of the paclitaxel business within the
next nine months.
The Merger was treated as a purchase of the Contributed
Subsidiaries for accounting purposes. Goodwill of
approximately $33,470,000 will be recognized and amortized
over a twenty year period. The allocation of the purchase
price will be made upon completion of a study to be undertaken
by the Company to determine the fair value of the assets and
liabilities acquired from the contributed subsidiaries,
including intangible assets.
The following pro forma unaudited consolidated results of
operations for the year ended April 30, 1999, have been
prepared assuming the Merger occurred at the beginning of the
fiscal year. These pro forma results do not purport to be
indicative of the results of operations which actually would
have resulted had the acquisition taken effect at the
beginning of the year.
<TABLE>
Costs to Exit
Contributed Pharmaceutical Pro forma Hauser
Hauser Subsidiaries Business Adjustments Pro forma
<S> <C> <C> <C> <C> <C>
Revenue $ 36,265,421 $86,572,440 - $1,100,000<F1> $123,937,861
Cost of Revenue 48,699,253 74,044,242 (19,700,000) - 103,043,495
Gross Profit (Loss) (12,433,832) 12,528,198 19,700,000 1,100,000 20,894,366
Operating Expenses 16,874,341 8,979,312 (5,900,000) 1,673,485<F2> 21,627,138
Net Income (Loss) From Operations (29,308,173) 3,548,886 25,600,000 (573,485) (732,772)
Net (Loss) Income $(29,736,106) $ 979,128 25,600,000 $ (573,485) $ (3,730,463)
Net Loss Per Share Basic
and Diluted $ (11.36) N/A N/A N/A $ (0.73)
Weighted Average Shares
Outstanding, Basic and Diluted 2,617,165 2,515,349 5,132,514
<FN>
<F1> Reflects the estimated additional revenue to be realized from the sale of product from Wilcox (a Contributed Subsidiary)
to ZBI during the year ended April 30, 1999. During this period, Wilcox sold product to ZBI at cost. The parties have agreed
that Wilcox will charge ZBI prices not less favorable than those charged to unrelated parties.
<F2>Reflects the estimated amortization of goodwill using a twenty year life that would have occurred during the pro forma
period.
</FN>
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial
statements include those of the Company and its wholly-owned
subsidiary. All significant intercompany transactions have
been eliminated in consolidation.
Discontinued Operations - On October 11, 1996, the Company
sold substantially all of the net assets of Ironwood for
$250,000 in cash, notes receivable of $150,000 and certain
performance-based earnouts. Revenue of Ironwood was $2,670,389
in fiscal year 1997.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of these
financial statements. Actual results could differ from those
estimates. Significant estimates that are reasonably possible
of change within the next twelve months include the estimated
costs to exit the paclitaxel business of $25.6 million.
Concentration of Credit Risk - The Company's cash and cash
equivalents and financial instruments which potentially
subjects it to concentrations of credit risk are accounts
receivable. Cash and cash equivalents may exceed amounts
federally insured by the U.S. Government. The Company
generally grants credit to its customers without collateral.
The Company's creditors are concentrated in the food
processing, dietary supplement and pharmaceutical industries.
The Company's principal customers (Note 8) accounted for 35%
and 36% of the Company's accounts receivable as of April 30,
1999 and 1998. The Company has no significant financial
instruments with off-balance sheet risk of accounting loss,
such as foreign exchange contracts, option contracts or
foreign currency hedging arrangements.
Product Warranty - During the fourth quarter of fiscal 1998,
the Company took a charge to earnings and reserved $1,500,000
in anticipation of product returns, rework costs, legal and
professional fees, and process development costs related to
the discovery of a common fungicide, quintozene, in its bulk
Panax ginseng. Sales of Panax ginseng accounted for less than
5% of total revenues in fiscal 1998. The cost of reworking the
Panax Ginseng and settling related claims approximated the
warranty charge of $1,500,000.
Advertising - The Company expenses advertising costs as they
are incurred. Expenditures for advertising for fiscal years
ended 1999, 1998 and 1997, were $156,104, $165,694, and
$58,489, respectively.
Cash and Cash Equivalents - Cash and cash equivalents include
investments in highly liquid instruments with original
maturities of 90 days or less.
Inventory - Raw material, work in process, and finished goods
inventory, which include costs of materials, direct labor and
manufacturing overhead, are priced at the lower of average
cost or market. Writedowns for excess and obsolete inventory
are charged to expense in the period when conditions giving
rise to the writedowns are first recognized. The Company
purchases raw material inventory during harvest seasons,
generally in the spring and fall. These purchases may take
place well in advance of scheduled production of finished
product, which subjects the Company to risk of obsolescence,
spoilage and excess inventory.
Non-current inventory represents raw materials and work in
process in various stages of completion in excess of shipments
expected to occur in the next fiscal year.
Inventory as of April 30 consisted of the following:
<TABLE>
1999 1998
<S> <C> <C>
Raw materials $ 2,694,883 $ 5,224,750
Work in process 3,562,96 11,763,470
Finished goods 3,407,982 7,911,305
Total inventories 9,665,832 24,899,525
Less non-current inventories - 14,787,837
Current portion of inventories $ 9,665,832 $10,111,688
</TABLE>
Bulk paclitaxel held for sale as of April 30, 1999 at a net
realizable value of $6,034,525, not included in the table
above, includes finished goods of $3,234,121 and work in
process of $2,800,404.
Investments - The Company accounts for equity securities that
have a readily determinable value and debt securities that are
available-for-sale at quoted fair values. Unrealized gains are
recorded in stockholders' equity net of the related income tax
effect. The Company sold an investment in a publicly traded
company during fiscal 1998 for $458,479 and a realized gain of
$361,461.
The Company has also invested short-term excess cash in a bond
mutual fund which is considered to be a cash equivalent. At
April 30, 1999 and 1998, the fund had a quoted market value of
$0 and $1,120,513, respectively.
Property and Equipment - Significant additions and
improvements are capitalized at cost, while maintenance and
repairs which do not improve or extend the life of the
respective assets are charged to expense as incurred.
Depreciation and amortization is recognized on a straight-line
basis over the following estimated useful lives:
Equipment, furniture and fixtures 2 - 15 years
Buildings 39 years
Leasehold improvements 5 - 10 years
Depreciation and amortization was $3,775,577, $3,738,158, and
$3,888,336 for fiscal years 1999, 1998 and 1997, respectively.
Impairment of Long-Lived Assets - The Company reviews its
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable from future undiscounted cash flows.
Impairment losses are recorded for the difference between the
carrying value and fair value of the long-lived asset.
During 1999, the Company determined that its long-lived assets
related to its pharmaceutical business were impaired and
recognized an impairment charge of $5.9 million. These assets
were written down to zero because of their specialized nature
and the lack of alternative uses for the equipment.
Goodwill - Goodwill resulting from acquisitions is being
amortized using the straight-line method over an estimated
useful life of 10 years. The goodwill resulting from the
Merger with the Contributed Subsidiaries will be amortized
using the straight-line method over an estimated useful life
of 20 years.
Revenue Recognition - Natural product processing revenues are
recognized when title and risk of ownership passes to the
customer, which generally is upon shipment of processed
product. Technical services revenues are recognized upon
completion of specified contract requirements. Unbilled
receivables result from costs incurred on uncompleted
contracts and are included in accounts receivable in the
accompanying balance sheets. Unbilled accounts receivable at
April 30, 1999 and 1998, were $420,505 and $434,629,
respectively. Anticipated losses from contracts in progress
are provided for in the period the loss is identified. No
losses have been accrued as of April 30, 1999 and 1998.
Royalty revenues are recognized upon completion of the
Company's performance obligations with respect to these
revenues and coincident with the billing requirements defined
in the supply contract (generally upon sale of the product to
an end-user).
Research and Development - Research and development costs are
charged to expense as incurred.
Stock Based Compensation - The Company accounts for its stock
based compensation plans for employees using the intrinsic
value method under which no compensation expense is generally
recognized for grants equal to or in excess of the fair value
of the underlying security. Equity instruments granted to
non-employees are recognized at fair value.
Earnings (Loss) Per Share - Basic earnings or loss per share
is computed by dividing the net earnings or loss by the
weighted average number of shares of common stock outstanding.
Diluted earnings or loss per share is determined by dividing
the net earnings or loss by the sum of (1) the weighted
average number of common shares outstanding and (2) if not
anti-dilutive, the effect of outstanding warrants and stock
options determined utilizing the treasury stock method.
In fiscal 1999, 1998 and 1997, stock options and warrants
totaling 252,354, 177,264, and 137,091, respectively were
excluded from the calculation of diluted earnings (loss per
share) since the result would have been anti-dilutive.
Fair Value of Financial Instruments - Due to the short-term
nature of the Company's debt, accounts receivable and other
financial instruments, the fair value of such financial
instruments approximates their carrying amount.
Reclassifications - Certain prior year amounts have been
reclassified to conform to the current year presentation.
Reverse Stock Split - On June 11, 1999, the Company's
stockholders approved a one-for-four reverse stock split. All
per share and equivalent share amounts in the accompanying
financial statements have been adjusted to reflect the reverse
stock split.
Recently Issued Accounting Standards - Statement of Position
98-1. In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of Position
98-1. ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." In general,
SOP 98-1 requires that certain costs to develop software for
internal use be capitalized. This statement is effective for
fiscal years beginning after December 15, 1998, although
earlier adoption is permitted. These requirements are to be
applied prospectively from the date of adoption. The adoption
of SOP 98-1 will not materially impact the Company's financial
statements.
Statements of Position 98-5. In April 1998, the AICPA issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities". SOP 98-5 provides guidance on
the financial reporting of start-up and organization costs and
requires costs of start-up activities and organization costs
to be expensed as incurred. SOP 98-5 is effective for the
fiscal years beginning after December 15, 1998. The adoption
of SOP 98-5 will not materially impact the Company's financial
statements.
In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - An Amendment of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to financial quarters and financial years
beginning after June 15, 2000. SFAS 133 establishes accounting
and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and
for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments
at fair value. Management believes that the adoption of SFAS
133 will not have a significant impact on the Company's
financial condition and results of operations.
3. LONG-TERM DEBT
Future minimum payments for the years ending April 30 are as
follows:
<TABLE>
Capital lease
obligations Line Of Credit
(11.2% to 15%) (variable)
<C> <C> <C>
2000 $ 750,342 $ 6,000,000
2001 520,562 -
2002 135,241 -
2003 9,132 -
Total 1,415,277 6,000,000
Less: interest 178,339 -
April 30, 1999 $ 1,236,938 $ 6,000,000
April 30, 1998 $ 1,104,231 $ 1,500,000
</TABLE>
At April 30, 1999 and 1998, property and equipment includes
items under capital leases with a net book value of $1,298,564
and $1,032,293, respectively, and accumulated depreciation of
$647,884 and $247,570, respectively.
Lines of Credit - The Company had an $8,850,000 bank line of
credit which allowed the Company to obtain advances or letters
of credit against a borrowing base of eligible accounts
receivable, inventory and fixed assets. As of April 30, 1999,
$6,000,000 had been borrowed against the line. The line of
credit had an annual fee of 0.50% of the unused portion of the
line and interest was payable monthly at the bank's prime rate
plus 0.75% (9.25% at April 30, 1999). The line of credit was
secured by all assets of the Company, with the exception of
intangibles.
Under the terms of the lending agreement, the Company could
not pay any dividends without the consent of the bank and was
required to maintain certain financial ratios and minimum
working capital and equity amounts. As of April 30, 1999, the
Company was not in compliance with a financial covenant for
the line of credit, which required the Company to report
profitability in the fourth quarter of fiscal 1999. The
Company obtained a waiver from the bank for this covenant as
of April 30, 1999.
Restricted cash is equal to interest due over one year based
on the amount borrowed and is required to be maintained on
deposit at a financial institution as security for the
Company's line of credit. Cash on deposit at April 30, 1999
and 1998 was $567,032 and $139,346.
In addition, the Company had a lease line of credit for
$564,000, of which $444,875 was available for use at April 30,
1999. The interest rate on the lease line was the bank's cost
of funds plus 2.5% (8.21% at April 30, 1999).
Upon consummation of the Merger, the above lines of credit
were terminated and the Company entered into a $35.0 million
line of credit and a $10.0 million line of credit with Wells
Fargo Bank, N.A. The lines of credit are subject to borrowing
base limitations on inventory and is secured by all of the
Company's assets. Additionally, the line of credit contains
affirmative and negative covenants, including certain
financial covenants.
4. STOCKHOLDERS' EQUITY
Non-Qualified Stock Options - The Company's 1987 Stock Option
Plan (the "1987 Plan") authorizes the granting of
non-qualified stock options for up to 304,680 shares of the
Company's common stock to directors, employees, and
consultants. As of April 30, 1999, there were 236,611 shares
of common stock committed under this plan. Exercise terms,
ranging from one to ten years for options granted under the
1987 Plan, are determined by the Board of Directors at the
time of grant. A summary of the status of the Company's 1987
Non-Qualified Stock Option Plan follows:
<TABLE>
FY 1999 FY 1998 FY 1997
<S> <C> <C> <C>
Balance outstanding at beginning of fiscal year: 69,017 41,168 49,078
Granted 34,109 38,712 5,006
Exercised (1,426) (4,149) (11,003)
Canceled (123) (6,714) (1,913)
Outstanding at April 30 101,577 69,017 41,168
Exercisable at April 30 69,295 60,688 40,793
Weighted average exercise prices:
At beginning of period $ 23.13 $ 21.80 $ 19.68
At end of period $ 23.11 $ 23.13 $ 21.80
Exercisable at end of period $ 22.96 $ 23.04 $ 21.80
Options granted $ 22.71 $ 23.96 $ 25.76
Options exercised $ 19.16 $ 18.40 $ 14.80
Options canceled $ 20.54 $ 23.00 $ 17.56
Weighted average, fair value of options granted
during period $ 14.74 $ 15.68 $ 13.44
</TABLE>
<TABLE>
April 30, 1999
Options Outstanding Options Exercisable
Remaining
Range of Weighted Average Contractual Weighted Average
Exercise Prices Shares Exercise Price Life (Years) Share Exercise Price
<C> <C> <C> <C> <C> <C>
$10.25 - $20.50 13,286 $17.57 3.03 13,286 $17.57
$20.51 - $23.38 35,349 $23.19 8.01 7,160 $22.43
$23.39 - $23.75 30,249 $23.75 8.46 26,156 $23.75
$23.75 - $33.13 22,693 $25.37 5.53 22,693 $25.37
101,577 69,295
</TABLE>
Incentive Stock Options - The Company's 1992 Stock Option Plan
("1992 Plan") authorizes the granting of 175,000 shares of
common stock to employees at fair market value on the date of
grant. As of April 30, 1999, there were 152,550 shares
committed under this plan. Exercise terms, ranging from one
month to ten years for options granted under the 1992 Plan,
are determined by the Board of Directors at the time of grant.
A summary of the status of the Company's 1992 Plan follows:
<TABLE>
FY 1999 FY 1998 FY 1997
<S> <C> <C> <C>
Balance outstanding at beginning of fiscal year: 96,127 83,804 61,844
Granted 43,155 32,575 36,625
Exercised (475) (7,209) (2,876)
Canceled (149) (13,043) (11,789)
Outstanding at April 30 138,658 96,127 83,805
Exercisable at April 30 66,940 52,077 56,354
Weighted average exercise prices:
At beginning of period $ 23.73 $ 24.16 $ 23.48
At end of period $ 23.59 $ 23.73 $ 24.16
Exercisable at end of period $ 23.86 $ 24.08 $ 24.16
Options granted $ 23.29 $ 23.64 $ 25.08
Options exercised $ 23.56 $ 23.76 $ 23.92
Options canceled $ 23.83 $ 26.12 $ 23.44
Weighted average, fair value of options
granted during period $ 15.01 $ 15.44 $ 11.32
</TABLE>
<TABLE>
April 30, 1999
Options Outstanding Options Exercisable
Remaining
Range of Weighted Average Contractual Weighted Average
Exercise Prices Shares Exercise Price Life (Years) Share Exercise Price
<C> <C> <C> <C> <C> <C>
$10.50 - $23.24 20,871 $22.40 3.29 11,421 $22.25
$23.25 - $23.25 28,125 $23.25 9.00 5,625 $23.25
$23.26 - $23.69 43,980 $23.39 8.95 6,412 $23.44
$23.70 - $30.25 45,682 $24.54 5.77 43,482 $24.42
138,658 66,940
</TABLE>
Warrants - The Company has issued to consultants and
stockholders warrants for the purchase of common stock.
Exercise terms were determined by the Board of Directors at
the time of grant. During fiscal 1998 and 1999, no warrants
were issued. During fiscal 1997, 12,119 warrants were issued
at a weighted average exercise price of $24.12 and a grant
date fair value of $147,306. At April 30, 1999 and 1998,
12,119 warrants remained outstanding at exercise prices
ranging from $22.68 to $24.88 per warrant.
Valuation - The weighted average fair value of each option
grant or warrant has been estimated as of the date of grant
using the Black-Scholes option-pricing model using the
following assumptions.
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Dividend rate 0.00% 0.00% 0.00%
Expected volatility 60.00% 40.00% 50.00%
Risk-free interest rate 5.44% 5.79% 6.37%
Expected life (in years) 7.0 5.6
</TABLE>
Had compensation cost been recorded based on the fair value of
the option or warrant grants, the Company's pro-forma net loss
and net loss per share would have been as follows for the
years ended April 30:
<TABLE>
FY 1999 FY 1998 FY 1997
<S> <C> <C> <C>
Net loss from continuing operations:
As reported $(29,736,106) $(3,134,009) $(3,902,926)
Pro forma $(31,000,801) $(3,455,707) $(4,109,299)
Net loss from continuing operations per
share basic and diluted
As reported $ (11.36) $ (1.20) $ (1.52)
Pro forma $ (11.85) $ (1.32) $ (1.60)
</TABLE>
5. INCOME TAXES
Income tax benefit from continuing operations for the years ended
April 30, 1997, 1998 and 1999 is comprised of the following components:
<TABLE>
Federal State Total
1997
<S> <C> <C> <C>
Current $ 60,780 $ - $ 60,780
Deferred (1,614,745) (200,128) (1,814,873)
Valuation Allowance 111,932 13,168 125,100
Total $(1,442,033) $ (186,960) $(1,628,993)
1998
Current $ - $ - $ -
Deferred (1,199,285) (98,719) (1,298,004)
Valuation Allowance 374,251 44,030 418,281
Total $ (825,034) $ (54,689) $ (879,723)
1999
Current $ - $ - $ -
Deferred (9,522,035) (1,680,359) 11,202,394)
Valuation Allowance 9,522,035 1,680,359 11,202,394
Total $ - $ - $ -
</TABLE>
As of April 30, 1999 and 1998, temporary differences which result in deferred
tax assets and liabilities are as follows:
<TABLE>
1999 1998
Current:
<S> <C> <C>
Inventories capitalized for income tax purposes $ 1,068,139 $ 1,008,199
Bad debt reserves 55,868 201,597
Inventory reserves 3,428,424 229,477
Accrued vacation 235,176 119,716
Prepaid expenses 59,125 -
Product warranty reserve - 570,000
Accrued exit costs 1,344,137 -
Less: Valuation allowance (3,877,275) (182,650)
Net Current Deferred Tax Asset $ 2,313,594 $ 1,946,339
Noncurrent
Federal NOL carryforward $ 8,427,687 $ 1,469,501
State NOL carryforward 1,778,924 977,479
AMT credit carryforward 1,484,151 1,484,151
R&D credit carryforward 544,068 510,265
Capital loss carryforward 106,261 243,616
Excess of tax over book depreciation (4,027,561) (3,648,241)
Income for tax purposes, not book 304,000 304,000
Other (26,232) 110,013
Less: Valuation allowance (7,948,399) (440,630)
Net Noncurrent Deferred tax Asset $ 642,899 $ 1,010,154
</TABLE>
The Company has approximately $24.8 million of federal and
$44.5 million of state net operating loss carry forwards that
expire in varying amounts through the year 2014 and
approximately $279,633 of capital loss carry forwards expiring
in 2001. The Company also has available income tax credits of
$544,068, expiring on varying dates through 2014 and
alternative minimum tax credits of $1,484,151, which do not
expire. Realization is dependent on generating sufficient
taxable income or realization of future taxable temporary
differences prior to expiration of the carryforwards. Although
realization is not assured, management believes it is more
likely than not that the recorded net deferred tax assets will
be realized.
During fiscal 1999, the Company increased its valuation
allowance by approximately $11.2 million due to uncertainty
regarding the realizability of the tax assets generated during
fiscal 1999. In assessing the amount of its net deferred tax
assets considered realizable, management has considered the
following factors: (1) taxable income projected within the
next twenty-four months; (2) the expiration dates of its net
operating loss and tax credit carryovers; (3) tax planning
strategies which would allow Hauser to generate significant
taxable income from existing assets (including possible
sale-leaseback scenarios for its land, property and equipment
held fee simple).
The Company recognized a reduction of income taxes payable of
$18,348, and $48,286 as a result of the exercise of stock
options by employees and others during the years ended April
30, 1998, and 1997, respectively.
A reconciliation of the expected income tax benefit from
continuing operations at the federal statutory income tax rate
to the Company's actual income tax expense at its effective
income tax rate is as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
Computed "expected" income tax benefit ($10,110,276) ($1,364,669) ($1,880,852)
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit (1,109,037) (160,549) (186,960)
General business credit carryforward (18,000) (75,000) -
Non-deductible expenses 111,000 116,735 103,375
Change in valuation allowance 11,202,394 418,281 125,100
Other (76,081) 185,479 210,344
Actual income tax benefit - ($879,723) ($1,628,993)
Effective income tax rate 0.0% 21.9% 29.4%
</TABLE>
6. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan (the "Plan") for all
employees who have completed one year of service. Participants
may contribute up to 20% of their annual compensation subject
to dollar limitations of Section 402(g) of the Internal
Revenue Code. At the discretion of the Board of Directors, the
Company may make a matching contribution. The Company has
reserved 200,000 shares of common stock for issuance under the
Plan. The Company's matching portion vests 20% per year over 5
years. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974. The Company did not
make a contribution to the Plan for the years ended April 30,
1999, 1998, and 1997.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases its office and operating
facilities and various equipment under non-cancelable
agreements. Under the terms of the lease agreement covering
the Company's primary production facility, the Company has the
option to purchase the building through February 29, 2000. The
purchase price of the building is adjusted on an annual basis
and ranges between $3,500,000 and $3,700,000. The lease also
provides for renewal options.
Rent expense from continuing operations was $1,498,071,
$1,204,226, and $1,150,977, for the years ended April 30,
1999, 1998, and 1997, respectively.
Future minimum lease payments under operating leases for the
years ending April 30 are as follows:
<TABLE>
<C> <C>
2000 $ 1,531,893
2001 899,726
2002 225,807
2003 199,525
2004 56,708
Total $ 2,913,659
</TABLE>
Purchase Commitments - The Company has entered into growing
contracts with numerous nurseries for the future purchase of
natural raw materials to be used in the Company's
manufacturing processes. In some cases, the Company may, at
its option, decide at any time to discontinue the payments on
these contracts. If such decisions are made in the future, the
Company would not be able to recover deposits made on the
growing contracts.
Commitments related to growing contracts for the purchase of
cultivars intended for the production of paclitaxel totaled
approximately $3.5 million at April 30, 1999. The cost to exit
these commitments was fully accrued at April 30, 1999.
Commitments related to growing contracts for natural products
totaled approximately $2.0 million at April 30, 1999.
Loan Guarantee - During the year ended April 30, 1998, the
Company guaranteed a bank loan in the amount of $650,000 for
another company and has pledged 25,000 shares of stock as
collateral against the loan. The Company provided this
guarantee to obtain exclusive sales and marketing
rights for a unique dietary supplement and functional food
product.
8. INDUSTRY SEGMENTS
Segments:
The Company's two business segments are Natural Products
Processing and Technical Services, each having a separate
management team and infrastructure, offering different
products and services, and utilizing different marketing
strategies to target customers. Included in corporate and
other are the results of the Company's pharmaceutical
activities, which are being terminated in connection with the
Merger with the Contributed Subsidiaries.
Selected financial information from the Company's business
segments are as follows:
<TABLE>
Year Ended April 30, 1999
Natural Product Technical Corporate
Processing Services and Other Total
<S> <C> <C> <C> <C>
Revenues $ 13,826,862 $ 17,220,146 $ 5,218,413 $ 36,265,421
Cost of revenues $ 12,499,299 $ 12,612,525 $ 23,587,429 $ 48,699,253
Gross profit (loss) $ 1,327,563 $ 4,607,621 $(18,369,016) $(12,433,832)
Operating expenses $ 4,603,711 $ 3,944,742 $ 8,325,889 $ 16,874,342
(Loss) income from operations $ (3,276,148) $ 662,879 $(26,694,904) $(29,308,173)
Net loss from continuing operations $ (3,276,148) $ 662,879 $(27,122,837) $(29,736,106)
Capital expenditures $ - $ - $ 1,907,986 $ 1,907,986
Depreciation & amortization $ - $ - $ 4,010,701 $ 4,010,701
Identifiable assets $ - $ - $ 49,903,537 $ 49,903,537
Captial leases $ - $ - $ 765,843 $ 765,843
Year Ended April 30, 1999
Natural Product Technical Corporate
Processing Services and Other Total
Revenues $ 13,674,832 $ 14,507,424 $ 3,855,272 $ 32,037,528
Cost of revenues $ 11,335,201 $ 10,102,016 $ 3,103,786 $ 24,541,003
Gross profit (loss) $ 2,339,631 $ 4,405,408 $ 751,486 $ 7,496,525
Operating expenses $ 5,182,933 $ 3,638,151 $ 3,320,983 $ 12,142,067
(Loss) income from operations $ (2,843,302) $ 767,257 $ (2,569,497) $ (4,645,542)
Net loss from continuing operations $ (2,843,302) $ 767,257 $ (1,057,964) $ (3,134,009)
Capital expenditures $ - $ - $ 2,058,167 $ 2,058,167
Depreciation & amortization $ - $ - $ 4,023,036 $ 4,023,036
Identifiable assets $ - $ - $ 68,293,581 $ 68,293,581
Captial leases $ - $ - $ 930,780 $ 930,780
Year Ended April 30, 1999
Natural Product Technical Corporate
Processing Services and Other Total
Revenues $ 6,308,221 $ 9,034,787 $ 9,882,758 $ 25,225,766
Cost of revenues $ 7,557,875 $ 7,766,976 $ 5,377,235 $ 20,702,086
Gross profit (loss) $ (1,249,654) $ 1,267,811 $ 4,505,523 $ 4,523,680
Operating expenses $ 3,171,653 $ 3,286,509 $ 4,106,914 $ 10,565,076
(Loss) income from operations $ (4,421,307) $ (2,018,698) $ 398,609 $ (6,041,396)
Net loss from continuing operations $ (4,421,307) $ (2,018,698) $ 2,537,079 $ (3,902,926)
Capital expenditures $ - $ - $ 2,729,671 $ 2,729,671
Depreciation & amortization $ - $ - $ 4,171,790 $ 4,171,790
Identifiable assets $ - $ - $ 66,797,878 $ 66,797,878
Captial leases $ - $ - $ 64,538 $ 64,538
</TABLE>
The Company determines segment results consistent with its
consolidated accounting policies. Included in corporate and
other in 1999 are charges of $19.7 million on cost of revenues
and $5.9 million in operating expenses to exit the
pharmaceutical business.
Major Customers:
The Company's revenue is concentrated among customers
primarily in the nutraceutical and pharmaceutical industries.
The following represents customers comprising more than 10% of
the Company's revenues from continuing operations:
<TABLE>
Year ended April 30,
1999 1998 1997
Revenues:
<S> <C> <C> <C>
Customer A $3,888,498 $ 389,885 $ 595
Customer B $4,800,081 $3,242,344 $ 215,134
Customer C $2,899,121 $4,783,683 $ 52,945
Customer D $ - $ 999,651 $3,575,062
Customer E $ 11,875 $ 681,000 $2,550,000
Percent of Total Revenues:
Customer A 10.7% 1.2% 0.0%
Customer B 13.2% 10.1% 0.9%
Customer C 8.0% 14.9% 0.2%
Customer D 0.0% 3.1% 14.2%
Customer E 0.0% 2.1% 10.1%
</TABLE>
As of April 30, 1999, and 1998, amounts owed the Company from
these customers were $2,393,084, and $3,241,475, respectively.
Foreign Sales
Export sales were $2,269,434, $2,226,875, and $4,189,256 in
fiscal 1999, 1998, and 1997, respectively. The Company has no
foreign assets.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There have been no disagreements between the Company and its
independent accountants on any matter of accounting principles
or practices or financial
statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information in response to this item is incorporated by
reference from the Registrant's Definitive Proxy Statement to
be filed within 120 days after the close of the Registrant's
fiscal year.
Item 11. Executive Compensation.
Information in response to this item is incorporated by
reference from the Registrant's Definitive Proxy Statement to
be filed within 120 days after the close of the Registrant's
fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information in response to this item is incorporated by
reference from the Registrant's Definitive Proxy Statement to
be filed within 120 days after the close of the Registrant's
fiscal year.
Item 13. Certain Relationships and Related Transactions.
Information in response to this item is incorporated by
reference from the Registrant's Definitive Proxy Statement to
be filed within 120 days after the close of the Registrant's
fiscal year.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and
Reports on Form 8-K.
(a)(1) and (2) The following financial statements and
financial statement schedules are filed as part of this
report:
Page
Independent Auditors' Report F-1
Consolidated Statements of Operations for the years ended
April 30, 1999, 1998 and 1997 F-2
Consolidated Balance Sheets as of April 30, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the years ended
April 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for the
years ended April 30, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements for the years
ended April 30, 1999, 1998 and 1997 F-6
All other schedules have been omitted because they are not
applicable, not required, or the required information is shown
in the consolidated financial statements or notes thereto.
(b) The following exhibits are filed with this reports;
10.1 Credit Agreement dated as of June 11, 1999 among
Hauser, Inc., Zuellig Botanical Extracts, Inc., Zetapharm,
Inc., Wilcox Drug Company, Inc., Shuster Laboratories, Inc.
and Wells Fargo Bank, N.A.
10.2 Revolving Credit Note dated June 11, 1999
10.3 Term Note dated June 11, 1999
10.4 Security Agreement dated June 11, 1999m among Hauser,
Inc., Shuster Laboratories, Inc. and Wells Fargo Bank, N.A.
10.5 Collateral Assignment of Trademarks, Trademark
Applications, Patent and Patent Applications dated June 11,
1999
10.6 Collateral Assignment of Patents and Patent
Applications dated June 11, 1999
10.7 Amended and Restated Security Agreement dated as of
June 11, 1999, among Zuellig Botanical Extracts, Inc., Wilcox
Drug Company, Inc., Zetapharm, Inc., and Wells Fargo Bank,
N.A.
10.8 Pledge and Security Agreement dated June 11, 1999
10.9 Deed of Trust, Assignment of Rents, Security
Agreement and Financing Statement dated June 11, 1999
(c) Exhibits and Reports on Form 8-K
(1) Report on Form 8-K dated June 25, 1999
<PAGE>
FORM 10K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: July 26, 1999
HAUSER, INC.
By: By:
/s/Dean P. Stull /s/Volker Wypyszyk
Co-CEO / Chairman Co-CEO / President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/Dean P. Stull Chairman of the Board of Directors,
Co-Chief Executive Officer,
(Principal Executive Officer)
July 26, 1999
/s/Volker Wypyszyk Co-Chief Executive Officer,
President
(Principal Executive Officer)
July 26, 1999
/s/Ralph L. Heimann Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
July 26, 1999
/s/Rodolfo C. Bryce Director
July 26, 1999
/s/William E. Coleman Director
July 26, 1999
/s/Herbert Elish Director July 26, 1999
James R. Mellor Director
July 26, 1999
/s/Robert F. Saydah Director
July 26, 1999
/s/Harvey Sperry Director
July 26, 1999
Peter Zuellig Director
July 26, 1999
Exhibit 10.1
TABLE OF CONTENTS
<TABLE>
<S> <S> <C>
Page
ARTICLE I Definitions 1
SECTION 1.01. Defined Terms 1
SECTION 1.02. Classification of Loans and Borrowings 20
SECTION 1.03. Terms Generally 20
SECTION 1.04. Accounting Terms; GAAP 20
ARTICLE II The Credits 21
SECTION 2.01. Commitments 21
SECTION 2.02. Loans and Borrowings 22
SECTION 2.03. Requests for Borrowings 23
SECTION 2.04. Letters of Credit 24
SECTION 2.05. Funding of Borrowings 24
SECTION 2.06. Interest Elections 25
SECTION 2.07. Termination and Reduction of Commitments 26
SECTION 2.08. Repayment of Loans; Evidence of Debt 27
SECTION 2.09. Prepayment of Loans; Mandatory Reduction of
Commitments 27
SECTION 2.10. Commitment Fee 28
SECTION 2.11. Interest 28
SECTION 2.12. Additional LIBOR Provisions 30
SECTION 2.13 Increased Costs 31
SECTION 2.14. Break Funding Payments 31
SECTION 2.15. Taxes 32
SECTION 2.16. Payments Generally 33
ARTICLE III Representations and Warranties 33
SECTION 3.01. Organization; Powers 33
SECTION 3.02. Authorization; Enforceability 34
SECTION 3.03. Governmental Approvals; No Conflicts,
No Defaults 34
SECTION 3.04. Financial Condition; No Material Adverse
Change 34
SECTION 3.05. Properties 35
SECTION 3.06. Litigation and Environmental Matters 36
SECTION 3.07. Compliance with Laws and Agreements; Permits 37
SECTION 3.08. Investment and Holding Company Status;
Margin Regulations 38
SECTION 3.09. Taxes 38
SECTION 3.10. ERISA 38
SECTION 3.11. Subsidiaries 38
SECTION 3.12. SEC Matters 39
SECTION 3.13. Labor Matters 39
SECTION 3.14. Security Documents 39
SECTION 3.15. Lock Boxes 40
SECTION 3.16. Restrictive Agreements 40
SECTION 3.17. Disclosure 40
SECTION 3.18. Real Property 40
SECTION 3.19. Year 2000 Compliance 40
ARTICLE IV Conditions 42
SECTION 4.01. Effective Date 42
SECTION 4.02. Each Credit Event 46
ARTICLE V Affirmative Covenants 47
SECTION 5.01. Financial Statements and Other Information 47
SECTION 5.02. Notices of Certain Events 49
SECTION 5.03. Existence; Conduct of Business 50
SECTION 5.04. Payment of Obligations 50
SECTION 5.05. Maintenance of Properties; Insurance 50
SECTION 5.06. Books and Records; Inspection Rights 51
SECTION 5.07. Compliance with Laws; Environmental Laws 51
SECTION 5.08. Use of Proceeds and Letters of Credit 51
SECTION 5.09. Further Assurances 51
SECTION 5.10. Year 2000 Compliance 52
SECTION 5.11. Leases 52
SECTION 5.12 Collateral Audits 52
ARTICLE VI Negative Covenants 52
SECTION 6.01. Indebtedness 53
SECTION 6.02. Liens 53
SECTION 6.03. Certain Changes; Prohibited Transactions 53
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions 54
SECTION 6.05. Hedging Agreements 54
SECTION 6.06. Restricted Payments 54
SECTION 6.07. Certain Financial Covenants 55
SECTION 6.08. Transactions with Affiliates 55
SECTION 6.09. Restrictive Agreements 55
SECTION 6.10. Amendment of Certain Documents 56
SECTION 6.11. Leases 56
ARTICLE VII Events of Default 56
ARTICLE VIII Miscellaneous 59
SECTION 8.01. Notices 59
SECTION 8.02. Waivers; Amendments 59
SECTION 8.03. Expenses; Indemnity; Damage Waiver 60
SECTION 8.04. Successors and Assigns 61
SECTION 8.05. Survival 62
SECTION 8.06. Counterparts; Integration; Effectiveness 62
SECTION 8.07. Severability 62
SECTION 8.08. Right of Setoff 63
SECTION 8.09. Arbitration 63
SECTION 8.10. GOVERNING LAW; JURISDICTION;
CONSENT TO SERVICE OF PROCESS 65
SECTION 8.11. WAIVER OF JURY TRIAL 66
SECTION 8.12. Headings 67
SECTION 8.13. Interest Rate Limitation 67
ARTICLE IX Joint Borrowers 67
</TABLE>
<PAGE>
$35,000,000 Revolving Credit Facility
$10,000,000 Term Loan Facility
CREDIT AGREEMENT
dated as of
June 11,1999
among
HAUSER, INC.
ZUELLIG BOTANICAL EXTRACTS, INC.
ZETAPHARM, INC.
WILCOX DRUG COMPANY, INC.
SHUSTER LABORATORIES, INC.
and
WELLS FARGO BANK,
NATIONAL ASSOCIATION
<PAGE>
CREDIT AGREEMENT dated as of June 11, 1999, among HAUSER, INC., a Colorado
corporation, ZUELLIG BOTANICAL EXTRACTS, INC., a Delaware corporation,
ZETAPHARM, INC., a New York corporation, WILCOX DRUG COMPANY, INC., a
Delaware corporation, SHUSTER LABORATORIES, INC., a Massachusetts
corporation, and WELLS FARGO BANK, NATIONAL ASSOCIATION.
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01 Defined Terms . As used in this Agreement, the
following terms have the meanings specified below:
"Account Creditors Aged Listing" means a list of the names, addresses and
telephone numbers of all of the Borrowers' account creditors and an aged
listing of the balances owed to such account creditors.
"Account Debtor" means any Person who is or may become obligated
under, with respect to or on account of an Account Receivable.
"Accounts Receivable" of a Person shall mean (i) all present and
future accounts, chattel paper and documents, as such terms are defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, of
such Person, (ii) all right, title and interest, and all the rights,
remedies, security and liens, in, to and in respect of any Accounts
Receivable of such Person, including, without limitation, guaranties or
other contracts of suretyship with respect to Accounts Receivable,
deposits, or other security for the obligation of any Account Debtor, and
credit and other insurance, and (iii) all right, title and interest of such
Person in, to and in respect of invoices or other documents or instruments
with respect to, or otherwise representing or evidencing, any Account
Receivable.
"Acquisition Cost" means the price payable, and paid, by a
Borrower to acquire an item of Equipment or as a payment for the
construction referred to in Section 2.01(b)(iii), in each case as evidenced
by the invoice of the seller of such Equipment or the Person performing or
furnishing such construction.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Applicable Margin" means, with respect to any Loan, the margin
specified in Section 2.11.
"Availability Period" means the period from and including the
Effective Date to but excluding the date of termination of the Revolving
Credit Facility and the Term Loan Facility, in each case as provided in
Section 2.07(a).
"Base Rate" means, for any Base Rate Borrowing, a rate of
interest per annum equal to the Prime Rate, minus the Applicable Margin.
Each change in the Base Rate will be effective as of the effective date of
any change in the Prime Rate giving rise thereto.
"Base Rate Borrowing" means any Borrowing for which the rate of
interest is determined by reference to the Base Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means each of Hauser, Inc., a Colorado corporation,
Zuellig Botanical Extracts, Inc., a Delaware corporation, ZetaPharm, Inc.,
a New York corporation, Wilcox Drug Company, Inc., a Delaware corporation,
and Shuster Laboratories, Inc., a Massachusetts corporation.
"Borrowing" means a group of Loans of the same Type, made,
converted or continued on the same date and, in the case of LIBOR Loans, as
to which a single Interest Period is in effect.
"Borrowing Base", with respect to a Borrower, means an amount
equal to the difference as of the date of determination between (A) the sum
of (i) Eligible Receivables multiplied by 80%, and (ii) the lesser of (x)
Eligible Inventory multiplied by 50% or (y) an amount equal to (I) Twenty
Million Dollars ($20,000,000) less (II) the aggregate principal amount of
Revolving Loans of all Borrowers outstanding as of the date of
determination based on Eligible Inventory, and (B) for so long as any
Letters of Credit issued for the account of such Borrower are in effect or
any amounts drawn thereunder have not been repaid to the Lender, the
aggregate face amount of all such Letters of Credit.
"Borrowing Base Certificate" means a certificate in the form
attached hereto and marked Exhibit A.
"Borrowing Request" means a request by a Borrower for a Borrowing
in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in California are authorized or
required by law to remain closed; provided that, when used in connection
with a LIBOR Loan, the term "Business Day" shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London
interbank market.
"Capital Expenditures" means, for any period, the sum (without
duplication) of all amounts that would, in accordance with GAAP, be
included as additions to property, plant and equipment and other capital
expenditures on a consolidated statement of cash flows for the Company and
its Subsidiaries during such period (including the amount of assets leased
under any Capital Lease Obligation).
"Capital Lease" means any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, the obligations of the lessee under which are required to be
classified and accounted for as capital leases on the balance sheet of such
lessee under GAAP.
"Capital Lease Obligations" of any Person means the obligations
of such Person to pay rent or other amounts under any Capital Lease, and
the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. Paragraphs 9601 et
seq.), as
amended from time to time.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of
the Securities and Exchange Commission thereunder as in effect on the date
hereof) other than the Zuellig Group, of shares representing more than 25%
of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Company; (b) occupation of a majority of
the seats (other than vacant seats) on the board of directors of any
Borrower by Persons who were neither (i) nominated by the board of
directors of such Borrower nor (ii) appointed by directors so nominated;
(c) the acquisition of direct or indirect Control of any Borrower by any
Person or group other than the Zuellig Group; (d) the ownership by any
Person other than the Company of any capital stock of a Borrower other than
the Company; or (e) the ownership by any Person other than the Zuellig
Owners of any capital stock of the Zuellig Group.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law,
rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance
by Lender with any request, guideline or directive (whether or not having
the force of law) of any Governmental Authority made or issued after the
date of this Agreement.
"Character", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans or Term Loans.
"Chief Financial Officer" of a Borrower means the individual
designated as such in the by-laws of the relevant Borrower or by
resolutions of such Borrower's Board of Directors duly adopted in
accordance with such by-laws, or if no such individual is so designated,
any Financial Officer of such Borrower.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" means any property or rights in which, pursuant to
the Security Documents, there has been granted (or purported to have been
granted) to, or for the benefit of, the Lender a security interest.
"Collateral Assignments" shall mean either or both of the
Collateral Assignment of Trademarks, Trademark Applications, Patents and
Patent Applications substantially in the form of Exhibit 1.01-A to the
Security Agreements and the Collateral Assignment of Patents and Patent
Applications substantially in the form of Exhibit 1.01-B to the Security
Agreements.
"Collateral Audit" means an audit or inspection performed by the
Lender or another auditor or inspector acceptable to the Lender as to the
values and conditions of the assets and properties of the Borrowers.
"Commitment" means the Lender's Term Loan Facility Commitment and
the Lender's Revolving Credit Commitment, as such commitments may be
reduced from time to time pursuant to Section 2.07. The initial amount of
the Lender's Revolving Credit Commitment is $35,000,000 and the initial
amount of the Lender's Term Loan Facility Commitment is $10,000,000.
"Company" means Hauser, Inc., a Colorado corporation.
"Consolidated Current Assets" means, at the date of
determination, all items that would, in accordance with GAAP, be classified
on a consolidated balance sheet of the Company and its Subsidiaries as
current assets.
"Consolidated Current Liabilities" means, at the date of
determination, all amounts that would, in accordance with GAAP, be
classified on a consolidated balance sheet of the Company and its
Subsidiaries as current liabilities.
"Consolidated Debt Service Coverage Ratio" means, with respect to
the Company and its Subsidiaries as at the end of a fiscal year, the ratio
of (i) the Consolidated Net Income before depreciation and amortization of
properties (including intangible properties) of the Company and its
Subsidiaries, and before Consolidated Interest Expense and Taxes, to (ii)
the sum of Consolidated Interest Expense plus the current portion of
Consolidated Funded Indebtedness.
"Consolidated Funded Indebtedness" means, as of the date of
determination, (i) all Indebtedness of the Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, that by its
terms matures more than one year after the date of calculation, (ii) any
such Indebtedness maturing within one year from such date that is renewable
or extendable at the option of the obligor to a date more than one year
from such date, and (iii) all Operating Lease Obligations of the Company
and its Subsidiaries under Lender Operating Leases.
"Consolidated Interest Expense" means, for any period (i) the
amount of interest expense, both expensed and capitalized, of the Company
and its Subsidiaries, for such period on the aggregate principal amount of
their Indebtedness, determined on a consolidated basis in accordance with
GAAP, plus (ii) to the extent not included by virtue of the preceding
clause (i), the portion of the rent or other amounts payable under Lender
Operating Leases for such period that is attributable to implicit interest
charges.
"Consolidated Liquid Assets" means, at the date of determination,
all assets of the Company and its Subsidiaries that consist of unrestricted
cash, unrestricted marketable securities and Accounts Receivable
convertible into cash.
"Consolidated Net Income" means, for any period, the net income
(or deficit) of the Company and its Subsidiaries for such period, which
would be included as net income (or deficit) on the statements of income of
the Company and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP (but excluding any extraordinary gains or losses
attributable to such period).
"Consolidated Net Worth" means, as of the date of determination,
all amounts which in conformity with GAAP would be included under
shareholders' equity on a consolidated balance sheet of the Company and its
Subsidiaries at such date.
"Consolidated Tangible Net Worth" means, as of the date of
determination, Consolidated Net Worth plus Indebtedness which is
subordinated to the Obligations to the Lender under a subordination
agreement in form and substance acceptable to the Lender or by
subordination language acceptable to the Lender in the instrument
evidencing such Indebtedness, less (i) all assets which would be classified
as intangible assets under GAAP, including goodwill, patents, trademarks,
trade names, copyrights, capitalized software and organizational costs,
licenses and franchises, and (ii) assets which the Lender determines in its
business judgment would not be available or would be of relatively small
value in a liquidation of the Borrowers' businesses, including loans to
officers or Affiliates and other items.
"Consolidated Working Capital" means, as of the date of
determination, Consolidated Current Assets at such date minus Consolidated
Current Liabilities at such date.
"Construction Advances" has the meaning set forth in Section
2.01(b)(iii).
"Construction Financing Agreements" has the meaning set forth in
Section 2.01(c).
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract
or otherwise. "Controlling" and "Controlled" have meanings correlative
thereto.
"Deed of Trust" has the meaning set forth in Section 4.01(a)
hereof.
"Default" means any event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"dollars" or "$" refers to lawful money of the United States of
America.
"Effective Date" means the date on which the conditions specified
in Section 4.01 are satisfied (or waived in accordance with Section 8.02).
"Eligible Inventory" of a Borrower shall mean only such Inventory
of such Borrower as is comprised of finished goods (other than shipping and
packaging materials) or raw materials, valued at the lower of cost or fair
market value, is subject to no Liens other than a first priority fully
perfected Lien in favor of the Lender, and is located at such Borrower's
warehouses in the United States; provided, however, that Eligible Inventory
shall not include Inventory that is itemized as "Exclusions from Inventory"
in the Borrowing Base Certificate.
"Eligible Receivables" of a Borrower shall mean and include all
unpaid Accounts Receivable of such Borrower that are subject to no Liens
other than a first priority fully perfected Lien in favor of the Lender,
other than such Accounts Receivable as are itemized as "Exclusions from
Accounts Receivable" in the Borrowing Base Certificate.
"Environmental Laws" means all present and future laws, rules,
regulations, codes, ordinances, regulations, orders, decrees, judgments,
licenses, permits, directives, injunctions, notices or binding agreements,
or the equivalent of any of the foregoing, issued, promulgated or entered
into by any Governmental Authority, or duties under the common law,
relating in any way to the environment, wastes, pollution, preservation or
reclamation of natural resources, the management, release or threatened
release of any Hazardous Material or to health and safety matters,
including CERCLA, the Hazardous Materials Transportation Act (49 U.S.C.
Paragraphs 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C.
Paragraphs 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
Paragraphs 2601 et seq.) and the Clean Air Act (42 U.S.C. Paragraphs 7401
et seq.), all as amended from time to time.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs, fees (including
attorneys' and consultants' fees), expenses and disbursements, natural
resource damages, costs of environmental remediation and other compliance
or remedial measures, settlements, awards, fines, penalties or
indemnities), of any Borrower directly or indirectly resulting from or
based upon (a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment,
including on-site or off-site contamination of surface or subsurface soil
or water, or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of
the foregoing.
"Equipment" of a Person shall mean all present and future
machinery, equipment (including, without limitation, a spray dryer and
related peripheral items, all Itemized Equipment, and all other
manufacturing, warehouse, and office equipment), fixtures, trade fixtures,
engineering drawings and diagrams, tools and tooling (including any rights
in respect of tools or tooling in the possession of others), computer and
other data processing equipment, furniture, office furniture, production or
data processing supplies on hand or in transit, other miscellaneous
supplies and other tangible property of any kind now owned or hereafter
acquired by such Person or in which such Person now has or may hereafter
acquire any right, title or interest and wheresoever located, including all
equipment of such Person as defined in the Uniform Commercial Code in
effect in any applicable jurisdiction and all such property located in any
plant, warehouse, office or other space leased, owned or occupied by such
Person and all of such Person's interest in all leasehold improvements and
any and all additions, accessions and appurtenances thereto, substitutions
therefor and replacements thereof, together with all attachments,
components, parts and accessories installed thereon or affixed thereto.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with any Borrower, is treated as a single
employer under Section 414(b) or (c) of the Code or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to
a Plan (other than an event for which the 30-day notice period is waived);
(b) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of
the Code or Section 303(d) of ERISA of an application for a waiver of the
minimum funding standard with respect to any Plan; (d) the incurrence by
any Borrower or any of its ERISA Affiliates of any liability under Title IV
of ERISA with respect to the termination of any Plan, (e) the receipt by
any Borrower or any ERISA Affiliate from the PBGC or a plan administrator
of any notice relating to an intention to terminate any Plan or Plans or to
appoint a trustee to administer any Plan; (f) the incurrence by any
Borrower or any of its ERISA Affiliates of any liability with respect to
the withdrawal or partial withdrawal from any Plan or Multiemployer Plan;
or (g) the receipt by any Borrower or any ERISA Affiliate of any notice, or
the receipt by any Multiemployer Plan from any Borrower or any ERISA
Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA.
"Event of Default" has the meaning given to such term in Article
VII.
"Excluded Taxes" means, with respect to the Lender, income or
franchise taxes imposed on (or measured by) its net income.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Company.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing any Indebtedness or other
obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, and including any obligation of the
guarantor, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other obligation
or to purchase (or to advance or supply funds for the purchase of) any
security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to
pay such Indebtedness or other obligation or (d) as an account party in
respect of any letter of credit or letter of guaranty issued to support
such Indebtedness or obligation; provided, that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course
of business.
"Hazardous Materials" means all materials or substances that,
whether by their nature or use, are now or hereafter defined as hazardous
wastes, hazardous substances, pollutants or contaminants under any
Environmental Law, or which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
which now or hereafter regulated under any Environmental Law, or which are
or contain petroleum, petroleum distillates, asbestos, polychorinated
biphenyls, radon gas, medical wastes, gasoline, diesel fuel or another
petroleum hydrocarbon product.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement
or other interest or currency exchange rate or commodity price hedging
arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding current accounts payable incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned or acquired by
such Person, whether or not the Indebtedness secured thereby has been
assumed, (g) all Guarantees by such Person of Indebtedness of others, (h)
all Capital Lease Obligations of such Person, (i) all obligations,
contingent or otherwise, of such Person as an account party in respect of
letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Interest Election Request" means a request by a Borrower to
convert or continue a Borrowing in accordance with Section 2.06.
"Interest Payment Date" means the last day of each calendar
month.
"Interest Period" means, with respect to any LIBOR Borrowing, the
period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two,
three, six, or twelve months thereafter, as the Borrower thereof may elect,
provided, that (i) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (ii) any Interest Period that commences on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of
such Interest Period and (iii) no Interest Period may be selected for any
LIBOR Term Borrowing that would end later than a Term Loan Repayment Date
occurring on or after the first day of such Interest Period if, after
giving effect to such selection, the aggregate outstanding amount of (x)
the LIBOR Term Borrowings with Interest Periods ending on or prior to such
Term Loan Repayment Date and (y) the LIBOR Term Borrowings would not be at
least equal to the principal amount of Term Borrowings to be paid on such
Term Loan Repayment Date. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and, thereafter
shall be the effective date of the most recent conversion or continuation
of such Borrowing.
"Itemized Equipment" has the meaning set forth in Section
2.01(b)(iv).
"Inventory" of a Person shall mean all present and future
inventory, goods held for sale or lease or to be furnished under contracts
for service, goods so leased or furnished, raw materials, component parts,
work in process or materials used or consumed in such Person's business now
owned or hereafter acquired by such Person or in which such Person now has
or may hereafter acquire any right, title or interest and wheresoever
located, including all inventory of such Person as defined in the Uniform
Commercial Code in effect in any applicable jurisdiction.
"LC Disbursement" means a payment made by the Lender pursuant to
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the undrawn
amount of all Letters of Credit at such time plus (b) the aggregate amount
of all LC Disbursements that have not yet been reimbursed at such time.
"Leases" means the leases of real property set forth on Schedule
1.01-1.
"Lender" means Wells Fargo Bank, National Association and any
other Person that shall have become a party hereto pursuant to a "Transfer"
(as defined in Section 8.04(b)), other than any such Person that purchases
a participation herein or that ceases to be a party hereto pursuant to a
further Transfer.
"Lender Capital Leases" means Capital Leases between the Lender
or an Affiliate thereof as lessor and a Borrower as lessee.
"Lender Leases" means Lender Operating Leases and Lender Capital
Leases.
"Lender Operating Leases" means Operating Leases between the
Lender or any Affiliate thereof as lessor and a Borrower as lessee.
"Letter of Credit" means any letter of credit issued by the
Lender pursuant to the facility described in Section 2.04.
"LIBOR" means the rate per annum (rounded upward, if necessary,
to the nearest whole 1/100 of 1%) and determined pursuant to the following
formula:
LIBOR = LIBOR Base Rate
100% - LIBOR Reserve Percentage
"LIBOR Base Rate" means the rate per annum for United States
dollar deposits quoted by the Lender as the Inter-Bank Market Offered Rate,
with the understanding that such rate is quoted by the Lender for the
purpose of calculating effective rates of interest for loans making
reference thereto, on the first day of an Interest Period for delivery of
funds on said date for a period of time approximately equal to the number
of days in such Interest Period and in an amount approximately equal to the
principal amount to which such Interest Period applies. Borrowers
understand and agree that the Lender may base its quotation of the Inter-
Bank Market Offered Rate upon such offers or other market indicators of the
Inter-Bank Market as the Lender in its discretion deems appropriate,
including the rate offered for U.S. dollar deposits on the London Inter-
Bank Market.
"LIBOR Borrowing" means a Borrowing for which the rate of
interest is determined by reference to the LIBOR Rate.
"LIBOR Rate" means, for the Interest Period for any LIBOR
Borrowing, a rate of interest per annum equal to LIBOR plus the Applicable
Margin, which in either case shall be adjusted monthly on the first day of
each month for each Interest Period for a LIBOR Loan. The LIBOR Rate shall
be adjusted for any change in the Reserve Requirement so that Lender shall
receive the same yield.
"LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D),
adjusted by the Lender for expected changes in such reserve percentage
during the applicable Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic
effect as any of the foregoing) relating to such asset and (c) in the case
of securities, any purchase option, call or similar right of a third party
with respect to such securities.
"Loan Documents" means this Agreement, the Notes delivered
pursuant hereto, the Security Documents, any Letter of Credit Agreements
(as defined in Section 2.04) or applications made in respect of any Letter
of Credit, any agreements between the Lender or any Affiliate thereof and a
Borrower pertaining to Lender Leases, any Construction Financing Agreements
and any instruments or agreements executed and delivered pursuant to any of
the foregoing, in each case as supplemented, amended or modified from time
to time, and any document, instrument, or agreement supplementing,
amending, or modifying, or waiving any provision of, any of the foregoing.
"Loan Debt" has the meaning given to such term in Article IX(c).
"Loans" means the loans made by the Lender pursuant to this
Agreement.
"Material Adverse Effect" means, in respect of any Person, a
material adverse effect on (a) the business, assets, operations, prospects
or condition, financial or otherwise, of such Person, (b) the ability of
such Person to perform any of its obligations under this Agreement or any
other Loan Document to which it is a party or (c) the rights of or benefits
available to the Lender in respect of such Person under this Agreement or
any other Loan Document.
"Material Indebtedness" means, in respect of any Person,
Indebtedness (other than the Loans or obligations under Lender Leases), or
obligations in respect of one or more Hedging Agreements, of any one or
more of such Person and its Subsidiaries in an aggregate principal amount
exceeding $500,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of any Person or any Subsidiary in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that such Person would be
required to pay if such Hedging Agreement were terminated at such time.
"Maturity Date," in the case of the Revolving Loan, means the
date that is the second anniversary of the Effective Date, and in the case
of the Term Loan, means the date that is the fifth anniversary of the
Effective Date.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001 (a)(3) of ERISA.
"Notes" means the Revolving Credit Note and the Term Note.
"Obligations" means, without duplication, all obligations defined
as "Obligations" in the Security Documents.
"Operating Lease" means any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, the obligations of the lessee under which are not required to be
classified and accounted for as capital leases on the balance sheet of such
lessee under GAAP.
"Operating Lease Obligations" of any Person means the obligations
of such Person to pay rent or other amounts under any Operating Lease.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution,
delivery or enforcement of, or otherwise with respect to, this Agreement or
any other Loan Document.
"Paclitaxel Patents" means the patents and patent applications
listed on Exhibit A to Exhibit 1.01-B to the Security Agreements.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Perfection Certificates" means the Perfection Certificates
prepared by the Company or any other Borrower and delivered pursuant to the
Security Agreements.
"Permit" means any license, permit, franchise or authorization of
a Governmental Authority.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or
are being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 30 days or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment insurance
and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in
the ordinary course of business;
(e) (i) as to real properties leased to any Borrower,
easements, zoning restrictions, rights-of-way and similar encumbrances on
real property imposed by law or arising in the ordinary course of business
that do not secure any monetary obligations and do not materially detract
from the value of the affected property or interfere with the ordinary
conduct of business of any Borrower, and (ii) as to real properties owned
by any Borrower, the matters set forth in Schedule B-1 of each of the title
insurance policies insuring the Liens of the Lender under the Deeds of
Trust, and any other encumbrances approved by the Lender in writing; and
(f) Liens arising under or in connection with equipment
leases or conditional sale agreements listed on Schedule 4.01(h);
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness or any Lien on any Collateral.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of any
commercial bank organized under the laws of the United States of America or
any state thereof which has a combined capital and surplus and undivided
profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria described
in clause (c) above; and
(e) shares of any money market mutual fund registered under
the Investment Company Act of 1940 having assets in excess of
$1,000,000,000 and in respect of which a Lender or an Affiliate of a Lender
acts as investment advisor.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 302 of ERISA, and in respect of which
any Borrower or any ERISA Affiliate is (or, if such plan were terminated,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined
in Section 3(5) of ERISA.
"Pledge Agreement" has the meaning given to such term in Section
4.01(a).
"Powders Option" means the Agreement for Option to Acquire
Powders Business from Zuellig Botanicals, Inc. annexed as Exhibit G to the
Merger Agreement (as defined in the Proxy Statement).
"Prime Rate" means at any time the rate of interest most recently
announced within the Lender at its principal office as its Prime Rate, with
the understanding that the Prime Rate is one of the Lender's base rates and
serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording
thereof after its announcement in such internal publication or publications
as the Lender may designate. Each change in the Prime Rate shall be
effective from and including the date such change is so announced as being
effective.
"Proxy Statement" means the Proxy Statement of the Company dated
May 11, 1999.
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System (or any successor thereto) as the same may be
amended or supplemented from time to time.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares
of any class of capital stock of a Borrower, any payment (whether in cash,
securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such shares of capital stock of a
Borrower, or any option, warrant or other right to acquire any such shares
of capital stock of a Borrower, or any payment of principal, interest, or
any other amount in respect of or for the purchase of any Indebtedness of
any Borrower that is subordinated to any obligations arising under the Loan
Documents.
"Revolving Credit Commitment" means the commitment of the Lender
to make Revolving Loans hereunder as set forth in Section 2.01, in a
principal amount not to exceed $35,000,000, and to issue Letters of Credit
as set forth in Section 2.04.
"Revolving Credit Exposure" means, with respect to the Lender at
any time, the sum of the outstanding principal amount of the Lender's
Revolving Loans and its LC Exposure at such time.
"Revolving Credit Facility" means the revolving credit facility
and Letter of Credit facility available on the Effective Date.
"Revolving Credit Note" has the meaning given to such term in
Section 4.01(d).
"Revolving Loan" means a Loan made by the Lender to a Borrower
pursuant to the Revolving Credit Commitment.
"S&P" means Standard & Poor's, a Division of The McGraw-Hill
Companies, Inc.
"Secured Party" means the Lender.
"Security Agreements" has the meaning given to such term in
Section 4.01(a).
"Security Documents" means each of the Security Agreements,
Pledge Agreement, Deeds of Trust, Collateral Assignments, security
agreements, pledge agreements, deeds of trust or similar agreements
executed as part of the Construction Financing Agreements and any
instruments or agreements executed and delivered pursuant to any of the
foregoing, in each case as supplemented, amended or modified from time to
time, and any document, instrument or agreement supplementing, amending or
modifying, or waiving any provision of, any of the foregoing.
"Subsidiary" means, with respect to any Person (the "parent") at
any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated
with those of the parent in the parent's consolidated financial statements
if such financial statements were prepared in accordance with GAAP as of
such date, as well as any other corporation, limited liability company,
partnership, association or other entity (a) of which securities or other
ownership interests representing more than 50% of the equity or more than
50% of the ordinary voting power or, in the case of a partnership, more
than 50% of the general partnership interests are, as of such date, owned,
controlled or held, or (b) that is, as of such date, otherwise Controlled
by the parent or one or more subsidiaries of the parent or by the parent
and one or more subsidiaries of the parent.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Term Loan" means a Loan made by the Lender to a Borrower
pursuant to the Term Loan Facility.
"Term Loan Borrowing Limit" means the limit applicable to a Term
Loan, as set forth in Section 2.01(b) and determined in accordance with the
Term Loan Borrowing Limit Certificate with respect to such Term Loan.
"Term Loan Borrowing Limit Certificate" means a certificate in
the form attached hereto and marked Exhibit B.
"Term Loan Exposure" means, with respect to the Lender at any
time, the sum of (i) the outstanding principal amount of the Term Loans
plus (ii) the outstanding Operating Lease Obligations and Capital Lease
Obligations under Lender Leases, each at such time.
"Term Loan Facility" means the term loan facility available on
the Effective Date.
"Term Loan Facility Commitment" means the commitment of the
Lender to make Term Loans hereunder as set forth in Section 2.01, in an
aggregate maximum principal amount not to exceed $10,000,000, as the same
may be reduced from time to time pursuant to Section 2.07, and subject to
each Term Loan Borrowing Limit.
"Term Loan Repayment Amount" has the meaning given to such term
in Section 2.08(a).
"Term Loan Repayment Date" has the meaning given to such term in
Section 2.08(a).
"Term Note" has the meaning given to such term in Section
4.01(d).
"Total Exposure" means, at any time, the sum of the Lender's
Revolving Credit Exposure at such time and Term Loan Exposure at such time.
"Transactions" means the execution, delivery and performance by
each Borrower of this Agreement and each other Loan Document to which such
Borrower is a party, the creation of the security interests contemplated by
the Security Documents, the borrowing of Loans, the use of the proceeds of
Loans and the other transactions contemplated by the Loan Documents.
"Type," when used in reference to any Loan or Borrowing, refers
to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the LIBOR Rate or the Base
Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Zuellig Credit Agreement" means the Credit Agreement dated June
11, 1999 between the Lender and Zuellig Botanicals, Inc., and all "Loan
Documents" (as defined therein), as the same may be supplemented, modified
or amended from time to time.
"Zuellig Group" means Zuellig Group N.A., Inc., a Delaware
corporation.
"Zuellig Owners" means any of Zatpack Inc., a British Virgin
Islands company, which is the sole shareholder of Zuellig Group, the trusts
established for the benefit of certain members of the Zuellig family that
are referred to in the Proxy Statement that are shareholders of Zatpack
Inc. or the beneficiaries of such trusts.
SECTION 1.02 Classification of Loans and Borrowings. For purposes
of this Agreement, Loans may be classified and referred to by Character
(e.g., a "Revolving Loan") or by Type (e.g., a "LIBOR Loan") or by
Character and Type (e.g., a "LIBOR Revolving Loan"). Borrowings also may
be classified and referred to by Character (e.g., a "Revolving Borrowing")
or by Type (e.g., a "LIBOR Borrowing") or by Character and Type (e.g., a
"LIBOR Revolving Borrowing").
SECTION 1.03 Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation." The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument
or other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein), (b) any reference herein to
any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein," "hereof" and "hereunder," and words of
similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references
herein to Articles, Sections, Exhibits and Schedules shall be construed to
refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrowers notify the Lender that the Borrowers request an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Lender requests an amendment to
any provision hereof for such purpose), regardless of whether any such
notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis of GAAP as
in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision
amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01 Commitments.
(a) Revolving Loan Commitment. Subject to the terms and conditions set
forth herein, the Lender agrees to make Revolving Loans to any Borrower
from time to time during the Revolving Credit Facility Availability Period,
for general working capital purposes, in an aggregate principal amount that
will not result in the Lender's Revolving Credit Exposure exceeding the
Lender's Revolving Credit Commitment, provided that immediately after
giving effect to each Revolving Loan, the aggregate amount of Revolving
Loans outstanding shall not exceed such Borrower's Borrowing Base. Within
the foregoing limits and subject to the terms and conditions set forth
herein, the Borrowers may borrow, repay and reborrow Revolving Loans.
(b) Term Loan Commitment. Subject to the terms and conditions set forth
herein, the Lender agrees to make Term Loans to any Borrower from time to
time during the Term Loan Facility Availability Period, for the purposes
and subject to the limitations as to amount and use (each a "Term Loan
Borrowing Limit") set forth to below, in an aggregate principal amount that
will not result in the Lender's Term Loan Exposure exceeding the Lender's
Term Loan Commitment:
(i) to finance the purchase of a new spray dryer, subject
to the Lender receiving a copy of the contract for the purchase of such
spray dryer, which contract shall be satisfactory in form and substance to
the Lender, and subject to a Term Loan Borrowing Limit of Two Million
Dollars ($2,000,000);
(ii) to finance the purchase of various peripheral
Equipment necessary for the installation of the spray dryer referred to in
clause (i) above, subject to a Term Loan Borrowing Limit of one hundred
percent (100%) of the Acquisition Cost of each item of new peripheral
Equipment and eighty percent (80%) of the Acquisition Cost of each item of
used peripheral Equipment, and to an aggregate Term Loan Borrowing Limit of
Three Million Dollars ($3,000,000);
(iii) in the case of the Company, and subject to Section
2.01(c), to finance the construction of an expansion to its existing
manufacturing facility located at 4161 Specialty Place, Del Camino PUD,
County of Weld, Colorado for the purpose of housing the spray dryer
referred to in clause (i) above (Term Loans made pursuant to this clause
(iii) are sometimes referred to herein as "Construction Advances"), subject
to a Term Loan Borrowing Limit of one hundred percent (100%) of the
Acquisition Cost of each portion of such construction, and to an aggregate
Term Loan Borrowing Limit equal to the lesser of (x) the aggregate
Acquisition Cost of such construction or (y) Two Million Five Hundred
Thousand Dollars ($2,500,000); and
(iv) to finance the acquisition of other new or used items
of Equipment listed on Schedule 2.01-1 ("Itemized Equipment"), subject to a
Term Loan Borrowing Limit of one hundred percent (100%) of the Acquisition
Cost of each item of new Itemized Equipment and eighty percent (80%) of the
Acquisition Cost of each item of used Itemized Equipment, and to an
aggregate Term Loan Borrowing Limit of Three Million Dollars ($3,000,000).
Amounts paid or prepaid in respect of Term Loans may not be reborrowed.
(c) Construction Advances. Without limiting any other provision of this
Agreement, the availability of Construction Advances shall be subject to
the Lender's standard lending practices and procedures applicable to
building loans, including the Company (and the other Borrowers, if
applicable) furnishing to the Lender the documents and other information
listed on Schedule 2.01-2 and executing and delivering to the Lender a
building loan agreement, building loan promissory note, construction deed
of trust and such other agreements, documents and instruments as the Lender
may require (collectively, "Construction Financing Agreements"). In the
event of any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any Construction Financing
Agreement, the terms and conditions of this Agreement shall control.
SECTION 2.02 Loans and Borrowings.
(a) Subject to Section 2.12, each Borrowing shall be comprised entirely
of Base Rate Loans or LIBOR Loans as the Borrower thereof may request in
accordance herewith.
(b) At the commencement of each Interest Period for any LIBOR Borrowing,
such Borrowing shall be in an aggregate amount that is not less than
$250,000 or a multiple of $10,000 in excess of such amount. A Base Rate
Revolving Loan balance of less than $250,000, which, as a result of
additional Base Rate Revolving Loan Borrowings, first equals $250,000 (or a
multiple of $10,000 in excess of such amount) may thereafter be converted
into a LIBOR Borrowing. At the time that each Base Rate Term Loan
Borrowing is made, such Borrowing shall be in an aggregate amount that is
not less than $1,000 or a multiple of $1,000 in excess of such amount.
There shall be no minimum amount or increment for Base Rate Revolving
Borrowings. Borrowings of more than one Type and Character may be
outstanding at the same time.
(c) Notwithstanding any other provision of this Agreement, no Borrower
shall be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end
after the applicable Maturity Date.
(d) No Borrower shall be entitled to request a Term Loan Borrowing
hereunder unless, at least three (3) Business Days prior to requesting the
same pursuant to Section 2.03, such Borrower shall have submitted to the
Lender, by hand delivery or telecopy, a Term Loan Borrowing Limit
Certificate in respect of such Borrowing.
SECTION 2.03 Requests for Borrowings. To request a Borrowing, the
Borrower thereof shall notify the Lender of such request by telephone (a)
in the case of a LIBOR Borrowing, not later than 11:00 a.m., California
time, three (3) Business Days before the date of the proposed Borrowing, or
(b) in the case of a Base Rate Borrowing, not later than 11:00 a.m.,
California time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Lender of (i) a written
Borrowing Request, confirming that the conditions contained in Section 4.02
have been satisfied and in a form approved by the Lender and signed by the
Borrower thereunder and (ii) in the case of a Term Loan Borrowing, a Term
Loan Borrowing Limit Certificate, accompanied by a true and complete copy
of each invoice setting forth the applicable Acquisition Cost, each of
which invoices shall be satisfactory in form and substance to the Lender.
Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be a Revolving Loan
Borrowing or a Term Loan Borrowing;
(iv) whether such Borrowing is to be a Base Rate Borrowing
or a LIBOR Borrowing;
(v) in the case of a LIBOR Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the requirements
of Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be a Base Rate Borrowing. If no Interest Period is
specified with respect to any requested LIBOR Borrowing, then the Borrower
thereof shall be deemed to have selected an Interest Period of one month's
duration.
SECTION 2.04 Letters of Credit .
(a) Letter of Credit Facility. As a subfeature under the Revolving
Credit Commitment, the Lender agrees from time to time during the
Availability Period therefor to issue standby, sight or usance Letters of
Credit for the account of any Borrower; provided however, that the form and
substance of each Letter of Credit shall be subject to approval by the
Lender, in its sole discretion; and provided further, that the LC Exposure
shall not at any time exceed One Million Dollars ($1,000,000.00). Each
Letter of Credit shall be issued for a term not to exceed one hundred fifty
(150) days, as designated by the Borrower. The amount of the LC Exposure
shall be reserved under the Revolving Credit Commitment and shall not be
available for borrowings thereunder.
(b) Documentation. Each Letter of Credit shall be subject to the
additional terms and conditions of the Letter of Credit Agreement and
related documents, if any, required by the Lender in connection with the
issuance thereof (each, a "Letter of Credit Agreement" and collectively,
"Letter of Credit Agreements"). In the event of any inconsistency between
the terms and conditions of this Agreement and the terms and conditions of
any Letter of Credit Agreement, the terms and conditions of this Agreement
shall control.
(c) Reimbursement. If the Lender shall make any LC Disbursement in
respect of a Letter of Credit, the Borrowers shall reimburse such LC
Disbursement in accordance with the applicable Letter of Credit Agreement;
provided that the Borrowers may, subject to the conditions to borrowing set
forth herein, request in accordance with Section 2.03 that such payment be
financed with a Base Rate Revolving Loan Borrowing in an equivalent amount
and, to the extent so financed, the Borrowers' obligation to make such
payment shall be discharged and replaced by the resulting Base Rate
Revolving Loan Borrowing.
SECTION 2.05 Funding of Borrowings. The Lender will make each Loan
to be made by it hereunder (other than a Base Rate Revolving Loan made to
finance the reimbursement of an LC Disbursement as provided in Section
2.04(c)) available to the Borrower thereof by promptly crediting such
amount to an account of the Borrower thereof maintained with the Lender and
designated by such Borrower in the applicable Borrowing Request.
SECTION 2.06 Interest Elections. (a) Each Borrowing initially
shall be of the Type specified in the applicable Borrowing Request and, in
the case of a LIBOR Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower thereof may
elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a LIBOR Borrowing, may elect Interest Periods
therefor, all as provided in this Section. The Borrower thereof may elect
different options with respect to different portions of the affected
Borrowing, in which case the Loans comprising each such portion shall be
considered a separate Borrowing.
(b) To make an election pursuant to this Section, the appropriate
Borrower shall notify the Lender of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if such
Borrower were requesting a Borrowing of the Type resulting from such
election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Lender of a written
Interest Election Request in a form approved by the Lender and signed by
the appropriate Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified pursuant
to clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to
such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be a Base Rate
Borrowing or a LIBOR Borrowing; and
(iv) if the resulting Borrowing is a LIBOR Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period."
If any such Interest Election Request requests a LIBOR Borrowing but does
not specify an Interest Period, then the Borrower thereof shall be deemed
to have selected an Interest Period of one month's duration.
(d) Any portion of a Borrowing maturing or required to be repaid in less
than one month may not be converted into or continued as a LIBOR Borrowing.
The foregoing shall not apply to any Base Rate Revolving Loan balance of
less than $250,000, which, as a result of additional Base Rate Revolving
Loan Borrowings, first equals $250,000 (or a multiple of $10,000 in excess
of such amount), which may thereafter be converted into a LIBOR Borrowing
in accordance with the other provisions of this Agreement. Any portion of
a LIBOR Borrowing that cannot be converted into or continued as a LIBOR
Borrowing by reason of the preceding sentence shall be automatically
converted at the end of the Interest Period in effect for such Borrowing
into a Base Rate Borrowing.
(e) If the Borrower thereof fails to deliver a timely Interest Election
Request in accordance herewith with respect to a LIBOR Borrowing prior to
the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period
such Borrowing shall be converted to a Base Rate Borrowing.
Notwithstanding any contrary provision hereof, if an Event of Default has
occurred and is continuing, then, (i) no outstanding Borrowing may be
converted to or continued as a LIBOR Borrowing and (ii) unless repaid, each
LIBOR Borrowing shall be converted to a Base Rate Borrowing at the end of
the Interest Period applicable thereto.
SECTION 2.07 Termination and Reduction of Commitments. (a) The
Revolving Credit Facility Commitment and the Term Loan Facility Commitment,
unless previously terminated, shall automatically terminate at 5:00 p.m.
California time, on the second anniversary of the Effective Date.
(b) The Borrowers may at any time terminate, or from time to time reduce,
the Term Loan Commitment; provided that (i) each reduction of the Term Loan
Commitment shall be in an amount that is an integral multiple of $100,000
and not less than $100,000 and (ii) the Borrowers shall not terminate or
reduce the Term Loan Commitment if, after giving effect to any concurrent
prepayment of the Term Loan in accordance with Section 2.09, the sum of the
Term Loan Exposures would exceed the total Term Loan Commitment.
(c) The Borrowers shall notify the Lender of any election to terminate or
reduce the Term Loan Commitment under paragraph (b) of this Section at
least three (3) Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Each notice delivered by the Borrowers pursuant to this Section
shall be irrevocable. Any termination or reduction of the Term Loan
Commitment shall be permanent.
SECTION 2.08 Repayment of Loans; Evidence of Debt. (a) The
Borrowers hereby, jointly and severally, unconditionally promise to pay (i)
to the Lender the then unpaid principal amount of each Revolving Loan and
(to the extent not previously paid) each Term Loan, together with any
accrued but unpaid interest thereon, on the respective Maturity Date, and
(ii) to the Lender an aggregate principal amount of the Term Loan (subject
to adjustment pursuant to Section 2.09) on the dates (each, a "Term Loan
Repayment Date"), and in the respective amounts (such amount, as adjusted
pursuant to Section 2.09(b), the "Term Loan Repayment Amount"), set forth
in Schedule 2.08; such promise of each Borrower to repay each Loan shall
apply unconditionally to each Loan irrespective of which Borrower was the
Borrower of such Loan.
(b) The Lender shall maintain in accordance with its usual practice an
account or accounts in which it shall record (i) the amount of each Loan
made hereunder, the Character and Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrowers to the Lender
hereunder and (iii) the amount of any payment received by the Lender
hereunder.
(c) The entries made in the accounts maintained pursuant to
paragraph (b) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein absent manifest
error; provided that the failure of the Lender to maintain such accounts or
any error therein shall not in any manner affect the joint and several
obligation of the Borrowers to repay the Loans in accordance with the terms
of this Agreement or the Notes.
(d) The Loans made by the Lender will be evidenced by the
Notes (subject, in the case of Construction Advances, to any Construction
Financing Agreements that the Lender may require).
SECTION 2.09 Prepayment of Loans; Mandatory Reduction of
Commitments. (a) The Borrowers shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, without premium
or penalty, subject, however, to prior notice in accordance with paragraph
(b) of this Section and subject to the other applicable terms and
provisions hereof, including Section 2.14.
(b) The Borrowers shall notify the Lender by telephone
(confirmed by telecopy) of any such prepayment hereunder (i) in the case of
prepayment of a LIBOR Borrowing, not later than 11:00 a.m., California
time, three (3) Business Days before the date of prepayment, or (ii) in the
case of prepayment of a Base Rate Borrowing, not later than 11:00 a.m.,
California time, on the date of prepayment. Each such notice shall be
irrevocable and shall specify the Borrower of such Borrowing, the
prepayment date, whether the prepayment relates to a Borrowing of Revolving
Loans or Term Loans, and the respective principal amounts of each such
Borrowing (or portion thereof) to be prepaid. Optional prepayments of Term
Loans shall be applied to remaining installments of principal thereof in
the inverse order of maturity. Each partial prepayment of any Borrowing
shall be in an amount that would be permitted in the case of an advance of
a Borrowing of the same Type as provided in Section 2.02. Each such
prepayment of a Borrowing shall be applied ratably to the Loans included in
the prepaid Borrowing, and shall be applied first to Base Rate Loans
outstanding of the Character to be prepaid, and then to outstanding LIBOR
Loans of that Character, subject to Section 2.14. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.11.
(c) In the event that the Revolving Credit Exposure of the Lender with
respect to any Borrower shall at any time exceed the Borrowing Base with
respect to such Borrower, the Borrowers agree, jointly and severally,
immediately to repay to the Lender the excess amount.
SECTION 2.10 Commitment Fee. The Borrowers agree, jointly and
severally, to pay to the Lender a commitment fee, which shall accrue at the
rate of one quarter of one percent (.25%) per annum on the daily unused
amount of the Term Loan Commitment during the period from and including the
Effective Date to but excluding the date on which such Term Loan Commitment
terminates. The accrued commitment fee shall be payable in arrears on the
last day of March, June, September and December of each year and on the
date on which the Term Loan Commitment terminates, commencing on the first
such date to occur after the date hereof. The commitment fee shall be
computed on the basis of a year of 360 days and shall be payable in
immediately available funds for the actual number of days elapsed
(including the first day but excluding the last day). Fees paid shall not
be refundable under any circumstances.
SECTION 2.11 Interest. (a) The Loans shall bear interest as
follows:
(i) Base Rate Term Loan Borrowings shall bear interest at
the Base Rate minus a margin of one-half of one percent (0.50%);
(ii) LIBOR Term Loan Borrowings shall bear interest at the
LIBOR Rate for the Interest Period in effect for such Borrowing plus a
margin of one and three quarters percent (1.75%), provided that if, on the
one year anniversary of the Effective Date, the Borrowers are in compliance
with all terms and conditions of this Agreement and the other Loan
Documents, then effective as of such date, and for Interest Periods
commencing on and after such date, such margin will be reduced to one and
sixty-five one-hundredths percent (1.65%);
(iii) Base Rate Revolving Loan Borrowings shall bear
interest at the Base Rate minus a margin of three-quarters of one percent
(0.75%); and
(iv) LIBOR Revolving Loan Borrowings shall bear interest at
the LIBOR Rate for the Interest Period in effect for such Borrowing plus a
margin of one and one-half percent (1.50%), provided that if, on the one
year anniversary of the Effective Date, the Borrowers are in compliance
with all terms and conditions of this Agreement and the other Loan
Documents, then effective as of such date, and for Interest Periods
commencing on and after such date, such margin will be reduced to one and
forty one-hundredths percent (1.40%).
(b) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrowers
hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after
as well as before judgment, at a rate per annum equal to (i) in the case of
overdue principal of any Loan, 2% plus the rate otherwise applicable to
such Loan as provided in the preceding paragraphs of this Section or (ii)
in the case of any other amount, 2% plus the rate applicable to Base Rate
Loans as provided in paragraph (a) of this Section.
(c) Accrued interest on each Loan shall be payable by the
Borrowers, jointly and severally, in arrears on each Interest Payment Date
for such Loan and, in the case of Revolving Loans, upon termination of the
Revolving Credit Commitment; provided that (i) interest accrued pursuant to
paragraph (b) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan (other than a prepayment of a
Base Rate Revolving Loan prior to the end of the Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable
on the date of such repayment or prepayment and (iii) in the event of any
conversion of any LIBOR Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(d) All interest hereunder shall be computed on the basis
of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). The
applicable Base Rate or LIBOR Rate shall be determined by the Lender, and
such determination shall be conclusive absent manifest error.
SECTION 2.12 Additional LIBOR Provisions. (a) If the Lender at any
time shall determine that for any reason adequate and reasonable means do
not exist for ascertaining LIBOR, then the Lender shall promptly give
notice thereof to the Borrowers. If such notice is given and until such
notice has been withdrawn by Bank, then (i) no new LIBOR option may be
selected by the Borrowers, and (ii) any LIBOR Borrowing then outstanding
shall, following the end of the then applicable Interest Period, be made as
a Base Rate Borrowing.
(b) If any Change in Law shall make it unlawful for the
Lender (i) to make LIBOR options available hereunder, or (ii) to maintain
interest rates based on LIBOR, then in the former event, any obligation of
the Lender to make available such unlawful LIBOR options shall immediately
be cancelled, and in the latter event, any such unlawful LIBOR-based
interest rates then outstanding shall be converted, at the Lender's option,
so that interest on the portion of the outstanding principal balance
subject thereto is determined in relation to the Base Rate; provided
however, that if any such Change in Law shall permit any LIBOR-based
interest rates to remain in effect until the expiration of the Interest
Period applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Interest Period.
Upon the occurrence of any of the foregoing events, the Borrowers shall pay
to the Lender immediately upon demand such amounts as may be necessary to
compensate the Lender for any fines, fees, charges, penalties or other
costs incurred or payable by the Lender as a result thereof and which are
attributable to any LIBOR options made available to the Borrowers
hereunder, and any reasonable allocation made by the Lender among its
operations shall be conclusive and binding upon the Borrowers.
(c) If any Change in Law or compliance by the Lender with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority shall:
(i) subject the Lender to any tax, duty or other charge
with respect to any LIBOR Loans, or change the basis of taxation of
payments to the Lender of principal, interest, fees or any other amount
payable hereunder (except for changes in the rate of tax on the overall net
income of the Lender); or
(ii) impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or loans
by, or any other acquisition of funds by any office of the Lender; or
(iii) impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the
Lender of making, renewing or maintaining any LIBOR Loans hereunder and/or
to reduce any amount receivable by the Lender in connection therewith, then
in any such case, the Borrowers shall pay to the Lender immediately upon
demand such amounts as may be necessary to compensate the Lender for any
additional costs incurred by the Lender and/or reductions in amounts
received by the Lender which are attributable to such LIBOR Loans. In
determining which costs incurred by the Lender and/or reductions in amounts
received by the Lender are attributable to any LIBOR Loans made available
to the Borrowers hereunder, any reasonable allocation made by the Lender
among its operations shall be conclusive and binding upon the Borrowers.
SECTION 2.13 Increased Costs. (a) If the Lender determines that
any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on the Lender's capital or on the
capital of the Lender's holding company, if any, as a consequence of this
Agreement or the Loans made by, or issuance or maintenance of any Letter of
Credit by, the Lender, to a level below that which the Lender or the
Lender's holding company could have achieved but for such Change in Law
(taking into consideration the Lender's policies and the policies of the
Lender's holding company with respect to capital adequacy), then from time
to time the Borrowers will pay to the Lender, within ten (10) days after
written demand therefor, such additional amount or amounts as will
compensate the Lender or the Lender's holding company for any such
reduction suffered. The Lender's determination as to such amount or
amounts shall be conclusive absent manifest error.
(b) Failure or delay on the part of the Lender to demand compensation
pursuant to this Section shall not constitute a waiver of the Lender's
right to demand such compensation; provided that the Borrowers shall not be
required to compensate the Lender pursuant to this Section for any
increased costs or reductions incurred more than 180 days prior to the date
that the Lender notifies the Borrowers of the Change in Law giving rise to
such increased costs or reductions and of the Lender's intention to claim
compensation therefor; provided further that, if the Change in Law giving
rise to such increased costs or reductions is retroactive, then the 180-day
period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.14 Break Funding Payments. In the event of (a) the
payment of any principal of any LIBOR Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any LIBOR Loan other than on the last day
of the Interest Period applicable thereto, or (c) the failure to borrow,
convert, continue or prepay any Loan on the date specified in any notice
delivered pursuant hereto, then, in any such event, the Borrowers shall
compensate the Lender, within ten (10) days after written demand therefor,
for the loss, cost and expense attributable to such event. In the case of
a LIBOR Loan, such loss, cost or expense to the Lender shall be deemed to
include an amount determined by the Lender to be the excess, if any, of (i)
the amount of interest which would have accrued on the principal amount of
such Loan had such event not occurred, at the LIBOR Rate that would have
been applicable to such Loan, for the period from the date of such event to
the last day of the then current Interest Period therefor (or, in the case
of a failure to borrow, convert or continue, for the period that would have
been the Interest Period for such Loan), over (ii) the amount of interest
which would accrue on such principal amount for such period at the interest
rate which the Lender would bid were it to bid, at the commencement of such
period, for dollar deposits of a comparable amount and period from other
banks in the eurodollar market. The Lender's determination as to the
amount or amounts that the Lender is entitled to receive pursuant to this
Section shall be conclusive absent manifest error.
SECTION 2.15 Taxes. (a) Any and all payments by or on account of
any obligation of the Borrowers hereunder shall be made free and clear of
and without deduction for any Indemnified Taxes or Other Taxes; provided
that if any Borrower shall be required to deduct any Indemnified Taxes or
Other Taxes from such payments, then (i) the sum payable shall be increased
as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the
Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrowers shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) The Borrowers shall indemnify the Lender, within ten
(10) days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Lender, on or with respect to
any payment by or on account of any obligation of the Borrowers hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. The
Lender's determination as to the amount or amounts that the Lender is
entitled to receive pursuant to this Section shall be conclusive absent
manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by a Borrower to a Governmental Authority, the
Borrowers shall deliver to the Lender the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, and
a copy of the return reporting such payment or other evidence of such
payment reasonably satisfactory to the Lender.
SECTION 2.16 Payments Generally. (a) Each Borrower shall make each
payment required to be made by it hereunder (whether of principal,
interest, fees or reimbursement of LC Disbursements, or of amounts payable
under Section 2.12, 2.13, 2.14 or 2.15, or otherwise) and under any other
Loan Document prior to 1:00 p.m., California time, on the date when due, in
immediately available funds, without set-off, deduction or counterclaim.
Any amounts received after such time on any date may, in the discretion of
the Lender, be deemed to have been received on the next succeeding Business
Day for purposes of calculating interest thereon. All such payments shall
be made to the Lender at its offices at c/o Wells Fargo HSBC Trade Bank,
N.A., 333 South Grand Avenue, 8th Floor, Los Angeles, California 90071, or
at such other place as the Lender may designate, except that payments
pursuant to Section 8.03 shall be made directly to the Persons entitled
thereto. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Lender to pay fully all amounts of principal, unreimbursed
LC Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
and (ii) second, towards payment of principal and unreimbursed LC
Disbursements then due hereunder.
ARTICLE III
Representations and Warranties
The Borrowers jointly and severally represent and warrant to the
Lender that:
SECTION 3.01 Organization; Powers. Each Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to
carry on its business as now conducted and, except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect in respect of such Borrower, is
qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required.
SECTION 3.02 Authorization; Enforceability. The Transactions are
within the corporate powers of the Borrowers and have been duly authorized
by all necessary corporate (including, if required, stockholder) action.
This Agreement and each other Loan Document has been duly executed and
delivered by each Borrower that is a party thereto and constitutes a legal,
valid and binding obligation of such Borrower, enforceable in accordance
with its respective terms.
SECTION 3.03 Governmental Approvals; No Conflicts, No Defaults.
The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force
and effect, (b) will not violate any applicable law or regulation or the
charter, by-laws or other organizational documents of any Borrower or any
order of any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument binding upon any
Borrower or its assets, or give rise to a right thereunder to require any
payment to be made by any Borrower, and (d) will not result in the creation
or imposition of any Lien (except in favor of the Lender) on any asset now
owned or hereafter acquired of any Borrower. No Borrower is in default
under, or violation of, in any manner, and no condition exists which, upon
notice or the passage of time (or both) would constitute a default under,
any provision of (i) any indenture or other agreement, contract or
instrument evidencing Indebtedness, or (ii) any other material agreement,
contract or instrument to which it is a party or by which it or any of its
properties or assets are or may be bound.
SECTION 3.04. Financial Condition; No Material Adverse Change.
(a) The Company has heretofore furnished to the Lender (i) its consolidated
balance sheet and statements of income, stockholders equity and cash flows
as of and for the fiscal year ended April 30, 1998, reported on by Arthur
Andersen LLP, independent public accountants, (ii) consolidating balance
sheets of the Company setting forth such information separately for the
Company and each Subsidiary and related consolidating statements of
operations for the Company setting forth such information separately for
the Company and each Subsidiary as of and for the fiscal year ended April
30, 1998, and including in comparative form the figures for the preceding
fiscal year, certified by its Chief Financial Officer, and (iii) a copy of
the consolidated financial statements of the Company as of and for the
fiscal period ended January 31, 1999 included with the Company's Form 10-Q
filed with the United States Securities and Exchange Commission on March
17, 1999. All such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows
of the Company and of its Subsidiaries as of such dates and for such
periods in accordance with GAAP.
(b) The Company has heretofore furnished to the Lender a
balance sheet and statement of income, stockholders equity and cash flows
as of and for the fiscal year ended March 31, 1999 with respect to each of
Zuellig Botanical Extracts, Inc., ZetaPharm, Inc. and Wilcox Drug Company,
Inc., including in each case in comparative form the figures for the
preceding fiscal year, certified by each such corporation's respective
Chief Financial Officer. Such financial statements present fairly, in all
material respects, the financial position and results of operations and
cash flows of each such Borrower as of such date and for such period in
accordance with GAAP.
(c) Except as disclosed on Schedule 3.04, the Borrowers
have no liabilities, contingent or otherwise, not disclosed on the
financial statements referred to in this Section, other than in respect of
goods and services arising in the ordinary course of business.
(d) Except as disclosed in the Proxy Statement or on
Schedule 3.04, since May 11, 1999, there has been no (i) change or event
which could reasonably be expected to have a Material Adverse Effect with
respect to any Borrower (other than general trends or new laws, rules, or
regulations applicable to similarly situated companies), (ii) declaration,
setting aside or payment of any dividend or other distribution with respect
to the capital stock of any Borrower, (iii) issuance of capital stock or
options, warrants or rights to acquire capital stock of any Borrower, (iv)
material loss, destruction or damage to any property of any Borrower,
whether or not insured, (v) acceleration or prepayment of any indebtedness
for borrowed money or capital leases or the refunding of any such
indebtedness, (vi) labor trouble involving any Borrower or any material
change in its personnel or the general terms and conditions of employment
of key employees, (vii) waiver of any valuable right in favor of any
Borrower, (viii) loan or extension of credit to any officer or employee of
any Borrower other than advances for travel-related expenses and similar
advances to officers and employees in the ordinary course of business, (ix)
acquisition, material writedown or write-off for accounting purposes or
disposition of any material assets (or any contract or arrangement
therefor) of or with respect to any Borrower, (x) redemption or repurchase
of any capital stock of any Borrower, or any other material transaction by
any Borrower otherwise than for fair value in the ordinary course of
business or (xi) termination of any contract, agreement or arrangement
which is or was material to the business, assets, operations, prospects or
condition, financial or otherwise, of any Borrower.
SECTION 3.05 Properties. (a) Each Borrower has good title (free of
Liens except such as are permitted under Section 6.02) to, or valid
leasehold interests in, all its real and personal property material to its
business, except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes. Except as set forth on Schedule
4.01(h), no Borrower is a party to any contract, agreement, lease or
instrument (other than the Loan Documents) the performance of which, either
unconditionally or upon the happening of any event, will result in or
require the creation of a Lien (except in favor of the Lender) on any of
its property or assets (now owned or hereafter acquired) or otherwise
result in a violation of any Loan Documents.
(b) Each Borrower owns free and clear of any Liens, or is
licensed to use, all patents (and applications therefor), patent
disclosures, marks (and applications therefor), trade names, copyrights
(and applications therefor), inventions, discoveries, processes, know-how,
scientific, technical, engineering and marketing data, formulae, techniques
and other intellectual property material to its business, and the use
thereof by such Borrower does not infringe upon the rights of any other
Person. All such intellectual property, including, where applicable,
registration or issuance information, and identification of the owner
thereof, is set forth on Schedule 3.05.
SECTION 3.06 Litigation and Environmental Matters. (a) Except as
disclosed on Schedule 3.06 annexed hereto, there are no actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of any Borrower, threatened against or
affecting any Borrower (i) which, if adversely determined, could reasonably
be expected, individually or in the aggregate, to result in a Material
Adverse Effect in respect of any Borrower or (ii) that involve this
Agreement or the Transactions. To the knowledge of the Borrowers, there is
no fact which might result in or form the basis for any such action, suit
or proceeding. No Borrower is subject to any order, writ, judgment,
injunction, decree, determination or award of any court or other
Governmental Authority which could reasonably be expected to have a
Material Adverse Effect on such Borrower.
(b) Notwithstanding anything to the contrary contained in
this Agreement and in addition to the other representations and warranties
contained herein: (i) Each Borrower and its respective operations are in
compliance with all applicable Environmental Laws and have obtained and
maintained in effect all licenses, permits and other authorizations or
registrations required under all Environmental Laws and are in material
compliance therewith; (ii) no Borrower has performed or suffered any act
which could give rise to, or has otherwise incurred, Environmental
Liability to any Person (governmental or not), nor has any Borrower
received notice of any such liability or any claim therefor or submitted
notice pursuant to Section 103 of CERCLA to any Governmental Authority with
respect to any of its assets; (iii) no Hazardous Material has been
released, placed, dumped or otherwise come to be located on, at, beneath or
near any of the assets or properties owned or leased by any Borrower or any
surface waters or groundwaters thereon or thereunder in violation of any
Environmental Laws or that could subject any Borrower to liability under
any Environmental Laws (provided, however, that as to actions of Persons
other than Borrowers or their predecessors this item (iii) is only to the
best knowledge of the Borrowers); (iv) no Borrower owns or operates, or has
ever owned or operated, aboveground or underground storage tanks used for
storing petroleum products and which are subject to underground storage
tank removal or clean-up requirements in effect on the date hereof; (v)
with respect to any or all of the real property owned or leased by any
Borrower, to the Borrowers' best knowledge (A) there are no Hazardous
Materials present at any such properties, and (B) there are no wetlands, as
defined under any Environmental Law, located on any such properties; (vi)
to the Borrowers' best knowledge none of such real properties (A) has been
used or is now used for the generation, transportation, storage, handling,
treatment or disposal of any Hazardous Materials, or (B) is identified on a
federal, state or local listing of sites which require or might require
environmental cleanup; (vii) to the best of the Borrowers' knowledge, no
condition exists on any of the real properties owned or leased by any
Borrower that upon the failure to act, the passage of time or the giving of
notice would give rise to liability under any Environmental Law; (viii)
there are no ongoing investigations or negotiations, or pending or, to the
best of the Borrowers' knowledge, threatened, administrative, judicial or
regulatory proceedings, or consent decrees or other agreements in effect,
that relate to environmental conditions in, on, under, about or related to
any Borrower, its respective operations or the real properties owned or
leased by any of them; and (ix) neither any Borrower nor its respective
operations is subject to reporting requirements under the federal Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. 11001 et seq., or
analogous state statutes and related regulations.
SECTION 3.07 Compliance with Laws and Agreements; Permits. (a)
Each Borrower is in compliance with, and is not in violation or default
under (i) all laws, regulations, ordinances, rules and orders of any
Governmental Authority applicable to it or its property, including, without
limitation, laws or regulations relating to: the Food and Drug
Administration, the Foreign Corrupt Practices Act, occupational safety and
health, employee benefits, ERISA plans, wages and hours of work, work place
safety and equal employment opportunity and discrimination, zoning, land
use and building and fire codes, (ii) all indentures, agreements and other
instruments binding upon it or its property, and (iii) the requirements of
(1) any insurance policies covering the properties of each Borrower and (2)
any insurance underwriting or similar organization, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred
and is continuing.
(b) Each Borrower has all Permits necessary to the
ownership of its respective property and to the operation of its respective
business, which if violated or not obtained could reasonably be expected to
have a Material Adverse Effect. No Borrower has finally been denied any
application for any such Permit. There is no action pending, or to the
best knowledge of the Borrowers, threatened or recommended by any
Governmental Authority to revoke, withdraw, or suspend any such Permit, or
which would have a material adverse effect on any such Permit.
SECTION 3.08 Investment and Holding Company Status; Margin
Regulations. No Borrower is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935. No Borrower is engaged principally,
or as one of its important activities, in the business of extending credit
for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board). No part of the proceeds of any Loan
or of any Letter of Credit will be used, directly or indirectly and whether
immediately, incidentally or ultimately, for any purpose which entails a
violation of or which is inconsistent with, the provisions of the
regulations of the Board, including, without limitation, Regulation G, T, U
or X thereof.
SECTION 3.09 Taxes. Each Borrower has timely filed or caused to be
filed all Tax returns and reports required to have been filed and has paid
or caused to be paid all Taxes required to have been paid by it, except
Taxes that are being contested in good faith by appropriate proceedings and
for which such Borrower has set aside on its books adequate reserves.
SECTION 3.10 ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect in respect of
any Borrower. The present value of all accumulated benefit obligations
under each Plan (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$50,000 the fair market value of the assets of such Plan, and the present
value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $150,000
the fair market value of the assets of all such underfunded Plans.
SECTION 3.11 Subsidiaries. The Subsidiaries of the Company and
their jurisdictions of organization, addresses and number of shares
authorized, issued and outstanding are set forth on Schedule 3.11. All of
the issued and outstanding capital stock of each Subsidiary of the Company
has been duly authorized and validly issued, is fully paid and non-
assessable, and is owned of record and beneficially by the Company, free
and clear of any Lien, claim or other legal or equitable encumbrance,
limitation or restriction. There are no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire, or commitments to issue or
transfer, any issued or unissued shares of capital stock of any Subsidiary
of the Company. No Borrower other than the Company has any Subsidiaries or
investments in, or joint ventures or partnerships with, any Person as of
the Effective Date.
SECTION 3.12 SEC Matters. The Company is current in all required
disclosure and otherwise in compliance in all respects with applicable
federal and state securities laws and/or rules and regulations of the
Securities and Exchange Commission, and with applicable state securities
laws and/or rules and regulations of state securities authorities and of
any stock exchanges or other self regulatory organizations having
jurisdiction of the Company and/or its securities.
SECTION 3.13 Labor Matters. Except as set forth on Schedule 3.13,
there are no strikes or other material labor disputes or grievances pending
or, to the knowledge of any Borrower, threatened, against any Borrower.
Except as set forth on Schedule 3.13, no Borrower is a party to any
collective bargaining agreement.
SECTION 3.14 Security Documents.
(a) Each of the Security Agreements, upon execution and
delivery by the parties thereto, will create in favor of the Lender a
legal, valid and enforceable security interest in the Collateral (as such
term is defined in such Security Agreement), and when financing statements
or Collateral Assignments in appropriate form are filed in the offices
specified therein, the Lien created under each Security Agreement will
constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Borrowers signatory thereto in such Collateral in
each case prior and superior in right to any other Person, subject only to
Permitted Encumbrances.
(b) The Pledge Agreement, upon execution and delivery by
the parties thereto, will create in favor of the Lender a legal, valid and
enforceable security interest in the Collateral (as such term is defined in
this Pledge Agreement) and, when such Collateral is delivered to the Lender
together with duly executed, undated instruments of transfer, the Pledge
Agreement and the Lien created thereunder will constitute a fully perfected
first priority Lien on, and security interest in such Collateral, in each
case prior and superior in right to any other Person.
(c) The Deeds of Trust, when executed and delivered by the
Company, will create a valid first Lien in favor of the Lender on the
properties described therein, subject to no Liens or encumbrances other
than the Permitted Encumbrances.
SECTION 3.15 Lock Boxes. No Borrower is a party to, or bound or
affected by, any agreement or other document establishing or pertaining to
lock boxes or similar arrangements involving the collection or processing
of Accounts Receivable or otherwise dealing with the proceeds of the sale
of Inventory of such Borrower.
SECTION 3.16 Restrictive Agreements. No Borrower is a party to any
agreement or other arrangement that prohibits, restricts or imposes any
condition upon (a) the ability of such Borrower to create, incur or permit
to exist any Lien upon any of its property or assets, or (b) the ability of
any Borrower to pay dividends or other distributions with respect to any
shares of its capital stock or other equity interests; other than (i)
restrictions and conditions imposed by law or by this Agreement and the
other Loan Documents and (ii) restrictions and conditions existing on the
date hereof identified on Schedule 3.16.
SECTION 3.17 Disclosure. The Borrowers have disclosed to the
Lender all agreements, instruments and corporate or other restrictions to
which each Borrower is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in
a Material Adverse Effect in respect of any Borrower. None of the reports,
financial statements, certificates or other information furnished by or on
behalf of the Borrowers to the Lender in connection with the negotiation of
this Agreement or any other Loan Document or delivered hereunder or
thereunder (as modified or supplemented by other information so furnished),
contains any misstatement of a material fact or omits to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 3.18 Real Property. The Borrowers own or lease no real
property other than the properties listed in Schedule 3.18. Each lease of
real property so listed is in full force and effect and has not been
modified except as provided in Schedule 3.18. The tenant under each such
lease has not assigned its interest thereunder (other than to the Lender)
and has not sublet any portion of the leased premises except as indicated
in Schedule 3.18. Neither party is in default under any such lease, and
the tenant thereunder has received no notice of default or other material
notice from the landlord thereunder. All rentals payable under such leases
which are due through the date hereof have been paid in full.
SECTION 3.19 Year 2000 Compliance. (a) The Borrowers have
conducted "year 2000" reviews with respect to (i) all of the internal
systems that are material to the business or operations of the Borrowers,
including computer hardware systems, software applications, firmware,
equipment containing embedded microchips and other embedded systems and
(ii) all of the software, hardware, firmware and other technology which
constitute part of the products and services manufactured, marketed or sold
by the Borrowers, in accordance with the "Y2K Report" attached as Schedule
3.19. The Borrowers have commenced reasonable efforts to obtain "year
2000" certifications with respect to all third-party systems that are
material to the business or operations of the Borrowers, including systems
belonging to their respective suppliers, service providers and customers.
The Borrowers have furnished to the Lender true and correct copies of all
"year 2000" audits, certifications, reports and other similar documents
that have been prepared or performed by or on behalf of the Borrowers or
any third party with respect to the Borrowers' business or operations.
(b) To the knowledge of the Borrowers, except as set out in
Schedule 3.19, there is no failure to be "Year 2000 Compliant" (as
hereinafter defined) of any third-party system that is material to the
business or operations of any Borrower, including any system belonging to
any of their respective suppliers, service providers or customers.
(c) For purposes of this Agreement, "Year 2000 Compliant"
means that the applicable system or item: (i) will accurately receive,
record, store, provide, recognize and process all date and time data from,
during, into and between the twentieth and twenty-first centuries, the
years 1999 and 2000 and all leap years; (ii) will accurately perform all
date-dependent calculations and operations (including, without limitation,
mathematical operations, sorting, comparing and reporting) from, during,
into and between the twentieth and twenty-first centuries, the years 1999
and 2000 and all leap years; and (iii) will not malfunction, cease to
function or provide invalid or incorrect results as a result of (x) the
change of years from 1999 to 2000 or from 2000 to 2001, (y) date data,
including date data which represents or references different centuries,
different dates during 1999 and 2000, or more than one century or (z) the
occurrence of any particular date; in each case without human intervention,
other than original data entry; provided, in each case, that all
applications, hardware and other systems used in conjunction with such
system or item which are not owned or licensed by any Borrower correctly
exchange date data with or provide data to such system or item.
(d) Any reprogramming required to make Year 2000 Compliant
all of (i) the Borrowers' internal systems that are material to the
business or operations of any Borrower, including computer hardware
systems, software applications, firmware, equipment containing embedded
microchips and other embedded systems, and (ii) the software, hardware,
firmware and other technology which constitutes part of the products and
services manufactured, marketed or sold by the Borrowers, and the testing
of all such systems and items, as so reprogrammed, is currently expected to
be completed by September 30, 1999. The aggregate cost to the Borrowers of
such reprogramming and testing and of the reasonably foreseeable
consequences to the Borrowers of year 2000 or of becoming or failing to
become Year 2000 Compliant will not have a Material Adverse Effect.
(e) Except as set forth on Schedule 3.19, no Borrower has
provided any guarantee or warranty for any product sold or licensed, or
service provided, by any Borrower to the effect that such product or
service (i) complies with or accounts for the fact of the arrival of the
year 2000, (ii) will not be adversely affected with respect to
functionality, interoperability, performance or volume capacity (including,
without limitation the processing and reporting of data) by virtue of the
arrival of the year 2000 or (iii) is otherwise Year 2000 Compliant.
ARTICLE IV
Conditions
SECTION 4.01 Effective Date. The obligations of the Lender to make
Loans hereunder shall not become effective until the date on which each of
the following conditions is satisfied (or waived in accordance with Section
8.02):
(a) The Lender shall have received (i) from each Borrower either a
counterpart of this Agreement signed on behalf of such Borrower or written
evidence satisfactory to the Lender (which may include telecopy
transmission of a signed signature page of this Agreement) that such
Borrower has signed a counterpart of this Agreement;(ii) from each
Borrower, as applicable, a duly executed counterpart of the Security
Agreement in the form of Exhibit 4.01-A or the Amended and Restated
Security Agreement in the form of Exhibit 4.01-B, as applicable (as either
may be supplemented, amended, or modified from time to time, a "Security
Agreement" and collectively, the "Security Agreements"), together with Form
UCC-1 financing statements in connection therewith in proper form for
filing in the offices therein specified; (iii) from the Company, a duly
executed counterpart of the Pledge and Security Agreement in the form of
Exhibit 4.01-C (as it may be supplemented, amended or modified from time to
time, the "Pledge Agreement"), together with certificates representing the
securities pledged thereunder and related undated stock powers endorsed in
blank; (iv) from the Company, the duly executed Deeds of Trust in the forms
of Exhibits 4.01-D, E and F (as each may be supplemented, amended or
modified from time to time, each a "Deed of Trust" and collectively, the
"Deeds of Trust"); (v) from the appropriate Borrowers, duly executed
Collateral Assignments; and (vi) from the appropriate Borrowers, a landlord
waiver and an estoppel certificate from the landlord under each Lease, in
form and substance satisfactory to the Lender.
(b) The Lender shall have received a favorable written opinion of
Chrisman, Bynum & Johnson, P.C., counsel for the Borrowers, addressed to
the Lender, dated the Effective Date and substantially in the form of
Exhibit C, and covering such other matters relating to the Borrowers, this
Agreement, the other Loan Documents or the Transactions as the Lender shall
reasonably request. The Borrowers hereby request such counsel to deliver
such opinion.
(c) The Lender shall have received (i) a copy of the certificate of
incorporation, including all amendments thereto, of each Borrower,
certified as of a recent date by the Secretary of State of the state of its
organization, (ii) a certificate as to the good standing of each Borrower
as of a recent date, from the Secretary of State of the state of its
organization; (iii) a certificate of the Secretary or Assistant Secretary
of each Borrower, dated the Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of such Borrower as in
effect on the Effective Date and at all times since a date prior to the
date of the resolutions described in clause (B) below, (B) that attached
thereto is a true and complete copy of resolutions duly adopted by the
Board of Directors (and, if required, stockholders) of such Borrower,
authorizing the execution, delivery and performance of the Loan Documents
and (in the case of each Borrower) the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and are in full
force and effect as of the Effective Date, (C) that the certificate of
incorporation of such Borrower has not been amended since the date of the
last amendment thereto shown on the certificate of good standing furnished
pursuant to clause (ii) above and (D) as to the incumbency and specimen
signature of each officer executing any Loan Document or any other document
delivered in connection herewith on behalf of such Borrower; (iii) a
certificate of another officer as to the incumbency and specimen signature
of the Secretary or Assistant Secretary executing the certificate pursuant
to clause (ii) above; and (iv) such other documents as the Lender or its
counsel may reasonably request.
(d) The Lender shall have received a duly executed Revolving Credit Note
(a "Revolving Credit Note"), and a duly executed Term Note (a "Term Note"),
in the forms of Exhibit D and E, respectively.
(e) The Lender shall have received the results of a search of the Uniform
Commercial Code (or equivalent filings) filings made with respect to each
Borrower in the states (or other jurisdictions) in which the chief
executive offices of such Persons are located, or in which any offices of
such Persons in which records have been kept relating to Accounts are
located and in the other jurisdictions in which Uniform Commercial Code
filings (or equivalent filings) are to be made pursuant to the Security
Documents, together with copies of the financing statements (or similar
documents) disclosed by such search, and accompanied by evidence
satisfactory to the Lender that the Liens indicated in any such financing
statement, other than any Liens in favor of the Lender, have been released.
(f) The Lender shall have received Perfection Certificates with respect
to each of the Borrowers dated the Effective Date and duly executed by the
Chief Financial Officer of the Company.
(g) The Lender shall have received a copy of the insurance policies
satisfying the requirements of Section 5.05, each of which shall be
endorsed or otherwise amended to include a lender's loss payable
endorsement (except in the case of liability policies) and to name the
Lender as a loss payee as its interest may appear and shall provide for at
least thirty (30) days' prior written notice from such insurance company to
the Lender of any change, termination or cancellation thereof, in form and
substance reasonably satisfactory to the Lender.
(h) After giving effect to the Transactions, on the Effective Date the
Borrowers shall have no Indebtedness other than Indebtedness under the Loan
Documents and Indebtedness set forth on Schedule 4.01(h).
(i) On the Effective Date, immediately prior to the effectiveness hereof,
there shall be no Default or Event of Default (as such terms are used in
the Zuellig Credit Agreement) under the Zuellig Credit Agreement, and the
chief executive officer of Zuellig Botanicals, Inc. shall have delivered to
the Lender a certificate to such effect.
(j) The Lender shall have received a certificate, dated the Effective
Date and signed by the Chief Executive Officer and Chief Financial Officer
of each Borrower, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 4.02.
(k) The Lender shall have received ALTA Loan policies of title insurance
from an insurer acceptable to the Lender, covering all of the real property
owned by the Company, insuring the Liens of the Deeds of Trust as valid
first Liens on such property, subject to no Liens or encumbrances other
than the Permitted Encumbrances, and containing (x) such affirmative
coverage with respect to specific Permitted Encumbrances as the Lender may
require and (y) an ALTA-9 endorsement and such other endorsements as the
Lender may require, and (ii) if the Lender requires reinsurance with
respect to such title insurance policies.
(l) The Lender shall have received ALTA surveys of each parcel
of real property owned by the Company, certified to the Lender and the
Lender's title insurer, prepared by a surveyor satisfactory to the Lender
and showing no encroachments or other items which are not acceptable to the
Lender. Without limiting the generality of the foregoing, each such survey
shall show the location of all easements affecting the property covered
thereby.
(m) The Lender shall have received satisfactory appraisals of each parcel
of real property owned by the Company, indicating an aggregate value not
less than Six Million, Nine Hundred Thousand Dollars ($6,900,000).
(n) The Lender shall have received satisfactory Phase I Environmental
Studies with respect to each parcel of real property owned by the Company,
and, if in the Lender's reasonable judgment, the results of any Phase I
Environmental Study indicate that a Phase II Environmental Study should be
performed, the Lender shall have received a satisfactory Phase II
Environmental Study for the applicable property, and if any such study
indicates the presence of Hazardous Materials or the violation or possible
violation of Environmental Laws, the Lender shall have received from the
Company an acceptable plan for the remediation or clean-up of the condition
in question.
(o) The Lender shall have received reasonably satisfactory evidence that
all parcels of real property owned by the Company, and the property covered
by the Leases, comply with all applicable zoning and land use laws,
regulations, ordinances and other legal requirements.
(p) The Lender shall have received true and complete copies of all
certificates of occupancy for any building located on any parcel of real
property owned by the Company, and the use and occupancy of any such
building shall be permitted by the applicable certificate of occupancy.
(q) The Lender shall have received satisfactory evidence that no building
on any real property owned by the Company, and no property leased under any
of the Leases, is subject to any violation of any law, ordinance,
regulation or other legal requirement (or, if any such violation exists,
the Borrowers shall have provided to the Lender evidence that the same has
been cured or is being cured). The Borrowers agree that any such violation
will be promptly discharged of record upon the cure thereof.
(r) If any Borrower is the landlord or sublandlord under any lease or
sublease, the Lender shall have received a copy of the applicable lease or
sublease, together with evidence satisfactory to the Lender that (i)
neither party is in default thereunder, (ii) all rental payments are then
current and (iii) no such lease or sublease contains any option to purchase
or right of first refusal.
(s) The Lender shall have received copies of all of the Leases.
(t) The Lender shall be satisfied that the consummation of the
Transactions will not (i) violate any applicable law, statute, rule or
regulation or (ii) conflict with, or result in a default or event of
default under any material agreement of any Borrower.
(u) The Lender shall have received evidence satisfactory to it that there
has been no material adverse change in the business, assets, operations,
prospects or conditions, financial or otherwise, of any Borrower since the
date of the Proxy Statement.
(v) The Lender shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all expenses required to be
reimbursed or paid by the Borrowers hereunder.
(w) All legal matters incident to this Agreement and the Borrowing
hereunder shall be satisfactory to the Lender and its counsel.
The Lender shall notify the Borrowers of the Effective Date, and such
notice shall be conclusive and binding. Notwithstanding the foregoing, the
obligations of the Lender to make Loans hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 8.02) at or prior to 3:00 p.m., California time, on
June 30, 1999 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 4.02 Each Credit Event. The obligation of the Lender to
make a Loan on the occasion of any Borrowing, or to continue or convert any
Loan, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrowers set forth in this
Agreement shall be true and correct on and as of the date of such Borrowing
or the date of such continuation or conversion, as applicable.
(b) In the case of each Revolving Credit Borrowing, such Borrowing shall
comply with the applicable Borrower's Borrowing Base Limit as demonstrated
by the Borrowing Base Certificate most recently delivered pursuant to
Section 5.01(f).
(c) In the case of each Term Loan Borrowing, such Borrowing shall comply
with the Term Loan Borrowing Limit as demonstrated by the Term Loan
Borrowing Limit Certificate required by Section 2.03(ii).
(d) At the time of and immediately after giving effect to such Borrowing
or such continuation or conversion, as applicable, no Default shall have
occurred and be continuing.
Each Borrowing and each continuation or conversion of any Loan shall be
deemed to constitute a representation and warranty by the Borrowers on the
date thereof as to the matters specified in paragraphs (a), (b) or (c) (as
applicable) and (d) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall
have been paid in full and any Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, the
Borrowers covenant and agree, jointly and severally, with the Lender that:
SECTION 5.01 Financial Statements and Other Information. The
Borrowers will furnish to the Lender:
(a) within 120 days after the end of each fiscal year of the Company, (i)
its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on by Arthur Andersen, LLP or other
independent public accountants of recognized national standing (without a
"going concern" or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the Company
and its Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, and (ii) consolidating balance sheets setting forth
such information separately for the Company and for each other Borrower as
of the end of such fiscal year and consolidating statements of operations
setting forth such information separately for the Company and for each
other Borrower for such fiscal year, such consolidating balance sheet and
consolidating statements of operations to be certified by the Chief
Financial Officer of the Company as fairly presenting the financial
condition and results of operations of the Company and each other Borrower
as of the end of, and for, such fiscal period in accordance with GAAP;
(b) within 60 days after the end of the first three fiscal quarters of
each fiscal year of the Company, (i) its consolidated balance sheet and
related statements of operations and cash flows as of the end of and for
such fiscal quarter (except in the case of the statements of cash flows)
and the then elapsed portion of the fiscal year, setting forth in each case
in comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by its Chief Financial Officer as presenting
fairly in all material respects the financial condition and results of
operations of the Company and its Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes, and (ii) consolidating balance
sheets of the Company and of each other Borrower setting forth such
information separately for the Company and for each other Borrower and
related consolidating statements of operations of the Company and of each
other Borrower setting forth such information separately for the Company
and each other Borrower as of the end of and for such quarter and the then
elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or
in the case of the balance sheets, as of the end of) the previous fiscal
year, all of which shall be certified by the Chief Financial Officer of the
Company as fairly presenting the financial condition and results of
operations therein shown in accordance with GAAP consistently applied
subject to normal year-end adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause
(a) or (b) above, a certificate of the Chief Financial Officer of the
Company (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.07 and (iii)
stating whether any change in the application of GAAP in respect of the
audited financial statements referred to in Section 3.04 has occurred and,
if any such change has occurred, specifying the effect of such change on
the financial statements accompanying such certificate;
(d) promptly after receipt by the Company or any other Borrower, a copy
of each management letter (if prepared) of the accounting firm that
reported on the financial statements referred to in clause (a) above
(together with any response thereto prepared by the Company or such
Borrower);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Company or any Subsidiary thereof with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or
distributed by the Company to its shareholders generally, as the case may
be; and copies of any documents and information furnished by any Borrower
to any other government agency (except if in the ordinary course of
business), including the Internal Revenue Service;
(f) within fifteen (15) days after the end of each calendar month, (i)
consolidated Accounts Receivable aging schedules, Account Creditors Aged
Listings and consolidated Inventory schedules of the Borrowers, and (ii) a
Borrowing Base Certificate of each Borrower;
(g) promptly, a copy of any amendment or waiver of any provision of any
instrument referred to in Section 6.10; and
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of each
Borrower or compliance with the terms of this Agreement or the other Loan
Documents, as the Lender may reasonably request.
SECTION 5.02 Notices of Certain Events. The Borrowers will furnish
to the Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting any
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect in respect of
such Borrower;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of any Borrower in an aggregate amount exceeding One
Hundred Twenty-Five Thousand Dollars ($125,000);
(d) (i) any matter materially affecting the value, enforceability or
collectability of any portion of the Collateral (x) having a value of Two
Hundred Fifty Thousand Dollars ($250,000) or more or (y) which, together
with all other matters affecting any portion of the Collateral occurring
during the twelve (12) month period preceding the occurrence of such matter
and which have not been fully remedied or resolved, affects Collateral
having an aggregate value of Five Hundred Thousand Dollars ($500,000) or
more, or any Borrower's reclamation or repossession of, or the return to
any Borrower of, goods having a value of Two Hundred Fifty Thousand Dollars
($250,000) or more, or claims or disputes asserted by any customer or other
obligor of a Borrower where the potential loss to such Borrower equals Two
Hundred Fifty Thousand Dollars ($250,000) or more, and (ii) any material
adverse change in the relationship between any Borrower and any of its
suppliers that is not an Affiliate of such Borrower, which supplier
accounted for at least twenty percent (20%) of such Borrower's aggregate
sources of supply as of the immediately preceding fiscal year end of such
Borrower; and
(e) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect in respect of any
Borrower.
Each notice delivered under this Section shall be accompanied by a
statement of a Financial Officer or other executive officer of a Borrower
setting forth the details of the event or development requiring such notice
and any action taken or proposed to be taken with respect thereto.
SECTION 5.03 Existence; Conduct of Business. Each Borrower will do
or cause to be done all things necessary to preserve, renew and keep in
full force and effect its legal existence and the rights, licenses,
permits, privileges and franchises material to the conduct of its business.
SECTION 5.04 Payment of Obligations. Each Borrower will pay its
obligations, including liabilities for Taxes that, if not paid, could
result in a Material Adverse Effect in respect of such Borrower, before the
same shall become delinquent or in default, except where (a) the validity
or amount thereof is being contested in good faith by appropriate
proceedings, (b) such Borrower has set aside on its books adequate reserves
with respect thereto in accordance with GAAP, (c) the failure to make
payment pending such contest could not reasonably be expected to result in
a Material Adverse Effect in respect of such Borrower, and (d) the same
shall be paid or discharged or fully and adequately bonded before it might
become a Lien upon any property or asset of such Borrower.
SECTION 5.05 Maintenance of Properties; Insurance. Each Borrower
will (a) keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear
excepted, and (b) maintain, with financially sound and reputable insurance
companies, insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar
businesses operating in the same or similar locations, including, without
limitation, insurance against fire, and public liability insurance against
such risks and in such amounts, and having such deductible amounts as are
customary, with companies in the same or similar businesses and which is no
less than may be required by law, which insurance policies shall name the
Lender as loss payee (or mortgagee, as set forth in the Deeds of Trust with
respect to the real property subject thereto) as its interest may appear
and shall provide for at least thirty (30) days' prior written notice from
such insurance company to the Lender of any change, termination or
cancellation thereof.
SECTION 5.06 Books and Records; Inspection Rights. Each Borrower
will keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to
its business and activities. Each Borrower will permit any representatives
designated by the Lender, upon reasonable prior notice, to visit and
inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its
officers and independent accountants, and to verify the status of any
Collateral, all at such reasonable times and as often as reasonably
requested.
SECTION 5.07 Compliance with Laws; Environmental Laws. (a) Each
Borrower will comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect in respect of such
Borrower.
(b) Without limiting the preceding paragraph, each Borrower will (i)
comply in all material respects with, and use reasonable best efforts to
ensure compliance in all material respects by all tenants and subtenants,
if any, with, all applicable Environmental Laws; and (ii) conduct and
complete (or cause to be conducted and completed) all investigations,
studies, sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and in a timely fashion comply in all
material respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws except to the extent that the same
are being contested in good faith by appropriate proceedings and the
pendency of such proceedings could not be reasonably expected to have a
Material Adverse Effect in respect of any Borrower.
SECTION 5.08 Use of Proceeds and Letters of Credit. The proceeds
of the Term Loans will be used only as provided in Section 2.01(b). The
proceeds of the Revolving Loans will be used only for working capital
purposes. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of any of
the Regulations of the Board, including Regulations G, U and X. Any
Letters of Credit will be used only to support payment obligations to the
respective beneficiaries thereof.
SECTION 5.09 Further Assurances. Each Borrower will execute any
and all further documents, financing statements, agreements and
instruments, and take all further action (including filing Uniform
Commercial Code and other financing statements) that may be required under
applicable law, or that the Lender may request, in order to effectuate the
transactions contemplated by the Loan Documents and in order to grant,
preserve, protect and perfect the validity and first priority of the
security interests created or intended to be created by the Security
Documents, it being understood that it is the intent of the parties that
the Obligations shall be secured by, among other things, all the real and
personal property of each Borrower, including any such real and personal
property acquired subsequent to the Effective Date. Such security
interests and Liens will be created under the Security Documents and other
security agreements, and other instruments and documents in form and
substance satisfactory to the Lender, and the Borrowers shall deliver or
cause to be delivered to the Lender all such instruments and documents
(including legal opinions, and lien searches) as the Lender shall
reasonably request to evidence compliance with this Section. The Borrowers
agree to provide such evidence as the Lender shall reasonably request as to
the perfection and priority status of each such security interest and Lien.
SECTION 5.10 Year 2000 Compliance. Each Borrower will perform all
acts reasonably necessary to ensure that (a) the Borrowers and any business
in which any Borrower holds a substantial interest, and (b) all customers,
suppliers and vendors that are material to any Borrower's or other such
entity's business, become Year 2000 Compliant in a timely manner.
SECTION 5.11 Leases. Each Borrower will (a) comply with the terms
of each Lease to which it is a party; (b) exercise all renewal options that
may be available under any such Lease; and (c) furnish to the Lender
promptly, a copy of any notice given or received by such Borrower under or
in connection with such Lease.
SECTION 5.12 Collateral Audits. Each Borrower will permit the
Lender to conduct, or cause to be conducted, at the Borrowers' expense, a
Collateral Audit within ninety (90) days after the Effective Date, and
during the periods April 1, 2000 through May 31, 2000 and April 1, 2001
through May 31, 2001, and will provide such access to its facilities, books
and records, and furnish such other cooperation, as the Lender may request
in connection therewith. The Borrowers agree that each such Collateral
Audit must reflect values and conditions of the assets and properties of
the Borrowers that are satisfactory to the Lender.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have
been paid in full and any Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, the
Borrowers covenant and agree, jointly and severally, that without the prior
written consent of the Lender:
SECTION 6.01 Indebtedness. No Borrower will create, incur, assume
or permit to exist any Indebtedness, including, without limitation,
Indebtedness between or among Borrowers, except Indebtedness created
hereunder or under the other Loan Documents and Indebtedness set forth on
Schedule 4.01(h).
SECTION 6.02 Liens. No Borrower will create, incur, assume or
permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except Liens
arising under the Loan Documents and Permitted Encumbrances.
SECTION 6.03 Certain Changes; Prohibited Transactions. (a) No
Borrower will (i) liquidate or dissolve, or merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate
with it, or (ii) other than in the ordinary course of business, sell,
transfer, lease or otherwise dispose of (in one transaction or in a series
of transactions) assets in an amount such that after giving effect thereto
the aggregate of all such sales, transfers, leases, or other dispositions
by all Borrowers shall have exceeded $500,000; provided, however, that the
Company shall be permitted, without the prior written consent of the
Lender, to sell or otherwise dispose of the Paclitaxel Patents and other
assets directly used by it in its discontinued paclitaxel business so long
as at the time of and immediately after such sale or other disposition, no
Default or Event of Default shall have occurred and be continuing.
(b) No Borrower will (i) change its accounting policies in any way that
could have a material effect on the presentation of financial reports, (ii)
alter in any material respect the nature of the business of such Borrower
from that conducted on the Effective Date, or (iii) change its fiscal year
from the fiscal year in effect on the Effective Date; provided that such
accounting policies may change to accord with a change in GAAP; provided
further that in the event of any such change, all financial reports
required hereunder that are thereby affected relating to the fiscal quarter
(including, if such fiscal quarter is the fourth quarter, the fiscal year
end), immediately following such change, shall be presented in two formats,
one of which shall reflect such change and the other of which shall reflect
the original accounting policy.
(c) No Borrower will sell, assign, discount or otherwise dispose of
notes, Accounts Receivable or other rights to receive payment, with or
without recourse, except for collections and credits (to the extent
permitted under the Security Documents) in the ordinary course of business.
(d) No Borrower will enter into any arrangement, directly or indirectly,
with any Person whereby it shall sell or transfer any property, real or
personal, and used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other
property that it intends to use for substantially the same purpose or
purposes as the property being sold or transferred.
SECTION 6.04 Investments, Loans, Advances, Guarantees and
Acquisitions. (a) No Borrower will establish any new Subsidiaries, or
purchase, hold or acquire (including pursuant to any merger with any Person
that was not a wholly owned Subsidiary prior to such merger) any capital
stock, evidences of indebtedness or other securities (including any option,
warrant or other right to acquire any of the foregoing) of, make or permit
to exist any loans or advances to, Guarantee any obligations of, or make or
permit to exist any investment or any other interest in, any other Person,
or purchase or otherwise acquire (in one transaction or a series of
transactions) any assets of any other Person constituting a business unit,
except Permitted Investments and the Company's investments existing on the
date hereof in the capital stock of the other Borrowers.
(b) Notwithstanding the foregoing or any other provision hereof, the
Company may, without the prior written consent of the Bank, exercise its
option under the Powders Option in accordance with the terms thereof, if at
such time and immediately after the acquisition contemplated thereby, no
Default or Event of Default shall have occurred and be continuing and no
default or event of default under the Zuellig Credit Agreement shall have
occurred and be continuing; provided, however, that if, in lieu of
exercising the option set forth therein, the Company shall acquire all or
any portion of the stock of Zuellig Botanicals, Inc., it shall be a
condition to the Company's right to complete such acquisition that
simultaneously therewith, the Company shall cause such stock to be pledged
to the Lender in accordance with the terms of the Pledge Agreement and
shall execute and deliver or cause to be executed and delivered to the
Lender such supplements to the Pledge Agreement, and other instruments and
documents, as the Lender may require.
SECTION 6.05 Hedging Agreements. No Borrower will enter into any
Hedging Agreement for purposes of speculation or investment, or otherwise
outside of the ordinary course of the business of such Borrower.
SECTION 6.06 Restricted Payments. No Borrower will pay, declare or
make, or agree to pay or make, directly or indirectly, any Restricted
Payment, other than cash dividends to the Company from the other Borrowers.
SECTION 6.07 Certain Financial Covenants.
(a) The Borrowers shall not make or permit to be made, during any fiscal
year commencing with the fiscal year ending April 30, 2000, Capital
Expenditures exceeding, in the aggregate $10,000,000.
(b) The Borrowers shall not permit the Consolidated Tangible Net Worth at
the end of any fiscal quarter of the Company to be less than $38,000,000
until January 31, 2000 and $40,000,000 thereafter.
(c) The Borrowers shall not permit the Consolidated Net Income for any
fiscal year to be less than $3,000,000.
(d) The Borrowers will not permit the ratio of Consolidated Funded
Indebtedness to Consolidated Tangible Net Worth at the end of any fiscal
quarter of the Company to be greater than 2.0 to 1.0.
(e) The Borrowers will not permit the ratio of (i) Consolidated Liquid
Assets to (ii) the sum of (x) Consolidated Current Liabilities (excluding
Accounts Receivable of Affiliates) plus (y) the Revolving Credit Exposure
to be less than 0.35 to 1.0 at the end of the fiscal quarter of the Company
ending July 31, 1999; 0.40 to 1.0 at the end of the fiscal quarter of the
Company ending October 31, 1999; 0.45 to 1.0 at the end of the fiscal
quarter of the Company ending January 31, 2000; or 0.50 to 1.0 at the end
of the fiscal quarter of the Company ending April 30, 2000 or at the end of
any subsequent fiscal quarter of the Company.
(f) The Borrowers will not permit the Consolidated Debt Service Coverage
Ratio at the end of any fiscal year of the Company to be less than 2.25 to
1.00.
SECTION 6.08 Transactions with Affiliates. No Borrower will sell,
lease or otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise engage in
any other transactions with, any of its Affiliates, except in the ordinary
course of business at prices and on terms and conditions not less favorable
to such Borrower than could be obtained on an arm's length basis from
unrelated third parties.
SECTION 6.09 Restrictive Agreements. No Borrower will, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of such Borrower to create, incur or permit to exist any Lien upon
any of its property or assets, or (b) the ability of such Borrower to pay
dividends or other distributions with respect to any shares of its capital
stock or other equity interests; provided that the foregoing shall not
apply to restrictions and conditions imposed by law or by this Agreement or
the other Loan Documents.
SECTION 6.10 Amendment of Certain Documents. The Borrowers will
not permit any amendment, waiver or modification to the Certificate of
Incorporation or By-Laws of any Borrower except for amendments,
modifications or waivers that are not adverse in any respect to the Lender.
SECTION 6.11 Leases. The Borrowers will not (a) commit, suffer or
permit to exist any default under, or breach or violation of, any Lease; or
(b) without the Lender's prior written consent, amend, modify or terminate,
or assign, or sublet any portion of the premises subject to, any Lease.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrowers shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrowers shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become
due and payable;
(c) any representation or warranty made or deemed made by or on behalf of
any Borrower in or in connection with this Agreement or any other Loan
Document, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with this Agreement or any
other Loan Document, shall prove to have been incorrect in any material
respect when made or deemed made;
(d) the Borrowers shall fail to observe or perform any covenant,
condition or agreement contained in Article V or in Article VI hereof, or
in any Security Document;
(e) the Borrowers shall fail to observe or perform any other covenant,
condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Lender to the Company;
(f) any Borrower shall fail to make any payment (whether of principal or
interest and regardless of amount) in respect of any Material Indebtedness,
when and as the same shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of any Borrower or its debts, or of a substantial part of
its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for any Borrower or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall continue
undismissed for sixty (60) days or an order or decree approving or ordering
any of the foregoing shall be entered;
(i) any Borrower shall (i) voluntarily commence any proceeding or file
any petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect, (ii) consent to the institution of, or fail
to contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestration, conservator
or similar official for such Borrower or for a substantial part of its
assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(j) any Borrower shall become unable, admit in writing or fail generally
to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate amount
in excess of $500,000 shall be rendered against any Borrower and the same
shall remain undischarged for a period of thirty (30) consecutive days
during which execution shall not be effectively stayed, or any action shall
be legally taken by a judgment creditor to attach or levy upon any assets
of any Borrower to enforce any such judgment;
(l) the shares of Common Stock, par value $.001 per share, of the Company
shall not be approved and eligible to be publicly traded on the Nasdaq
National Market or on the New York Stock Exchange or the American Stock
Exchange;
(m) an ERISA Event shall have occurred that, in the opinion of the
Lender, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of any Borrower in an
aggregate amount exceeding (i) $50,000 in any year or (ii) $150,000 for all
periods;
(n) a Change in Control shall occur;
(o) Volker Wypyszyk shall cease to be actively employed by the Company as
one of the two Co-Chief Executive Officers of the Company on a full-time
day-to-day basis, with key management responsibilities acceptable to the
Lender, and shall not have been replaced within sixty (60) days thereafter
with another individual acceptable to the Lender;
(p) A Default or Event of Default (as therein defined) under any Lender
Lease shall occur; or
(q) (i) any security interest or mortgage in favor of or for the
benefit of the Lender created or purported to be created under the Security
Agreement, the Deeds of Trust, the Collateral Assignments (other than as
permitted by the Security Agreement to which the Company is a party, in
connection with the sale by the Company of the Paclitaxel Patents and other
assets of its paclitaxel business as permitted by Section 6.03), or under
any other Security Document shall, in any such case, no longer provide the
lien or priority contemplated by such Security Document or any party having
granted any such security interests or mortgages (or any successor thereto
or representative thereof) shall make any claim or assertion to such
effect, or (ii) any Borrower (or any successor thereto or representative
thereof) shall claim or assert that this Agreement or any other Loan
Document or any right or remedy of the Lender hereunder shall not be
enforceable in accordance with its terms, or any Person (other than the
Lender) shall claim or assert that any other Loan Document or any right or
remedy of the Lender thereunder shall not be enforceable in accordance with
its terms;
then, and in every such event (other than an event described in clause (h)
or (i) of this Article), and at any time thereafter during the continuance
of such event, the Lender may, by notice to the Borrowers, take any of the
following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately,
(ii) declare the Loans then outstanding to be due and payable in whole (or
in part, in which case any principal not so declared to be due and payable
may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the
Borrowers accrued hereunder, shall become due and payable immediately,
without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrowers, and (iii) enforce rights or cause
the enforcement of rights or exercise or cause the exercise of any remedies
available under any Loan Document or otherwise; and in case of any Event of
Default described in clause (h) or (i) of this Article, the Commitments
shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrowers.
ARTICLE VIII
Miscellaneous
SECTION 8.01 Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices
and other communications provided for herein shall be in writing and shall
be delivered by hand or overnight courier service, with confirmed delivery
receipt, mailed by certified or registered mail or sent by telecopy, with
confirmed delivery receipt, as follows:
(a) if to the Borrowers or to any Borrower, to the Borrowers c/o the
Company at 5555 Airport Boulevard, Boulder, Colorado 80301, Attention of
Dean Stull (Telecopy No. (303) 441-5802); and
(b) if to the Lender, to Wells Fargo Bank, National Association, c/o
Wells Fargo HSBC Trade Bank, N.A., 333 South Grand Avenue, 8th Floor, Los
Angeles, California 90071, Attention of Thomas Q. Petersmeyer (Telecopy No.
(213) 625-1055), with a copy to G. Carla Axelrod, Esq., Wells Fargo Bank,
National Association, 333 South Grand Avenue, 10th Floor, Los Angeles,
California 90071 (Telecopy No. (213) 628-9918).
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on
the date of receipt.
SECTION 8.02 Waivers; Amendments. (a) No failure or delay by the
Lender in exercising any right or power hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance
of steps to enforce such a right or power, preclude any other or further
exercise thereof or the exercise of any other right or power. The rights
and remedies of the Lender hereunder or under any other Loan Document are
cumulative and are not exclusive of any rights or remedies that it would
otherwise have. No waiver of any provision of this Agreement or any other
Loan Document or consent to any departure by the Borrowers therefrom shall
in any event be effective unless the same shall comply with paragraph (b)
of this Section, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. Without
limiting the generality of the foregoing, the making of a Loan shall not be
construed as a waiver of any Default, regardless of whether the Lender may
have had notice or knowledge of such Default at the time.
(b) Neither this Agreement or any of the other Loan Documents nor any
provision hereof or thereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the
Borrowers and the Lender.
SECTION 8.03 Expenses; Indemnity; Damage Waiver. (a) The Borrowers
shall pay (i) all out-of-pocket expenses incurred by the Lender, including
the reasonable fees, charges and disbursements of counsel for the Lender
(including counsel employed in-house by the Lender), in connection with the
preparation and administration of this Agreement and the other Loan
Documents, or any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all out-of-pocket expenses incurred by
the Lender in connection with the issuance, amendment, renewal or extension
of any Letter of Credit or any demand for payment thereunder and (iii) all
out-of-pocket expenses incurred by the Lender, including the reasonable
fees, charges and disbursements of counsel for the Lender (including
counsel employed in-house by the Lender), in connection with the
enforcement or protection of its rights against any Borrower in connection
with this Agreement or the other Loan Documents, including its rights
against any Borrower under this Section, or against any Borrower in
connection with the Loans made hereunder or any Letter of Credit or any
Collateral, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letter
of Credit or Collateral.
(b) The Borrowers shall indemnify the Lender and each Related Party of
the Lender (each such Person being called an "Indemnitee") against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result
of (i) the execution or delivery of this Agreement, any other Loan
Document, or any agreement or instrument contemplated hereby or thereby,
the performance by the parties hereto or thereto of their respective
obligations hereunder or thereunder or the consummation of the Transactions
or any other transactions contemplated hereby or thereby, (ii) any Loan or
the Letter of Credit or the use of the proceeds therefrom (including any
refusal by the Lender to honor a demand for payment under any Letter of
Credit if the documents presented in connection with such demand do not
strictly comply with the terms of such Letter of Credit), (iii) any actual
or alleged presence or release of Hazardous Materials on or from any
property owned or operated by any Borrower, or any Environmental Liability
related in any way to any Borrower, or (iv) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of
such Indemnitee.
(c) To the extent permitted by applicable law, the Borrowers shall not
assert, and each Borrower hereby waives, any claim against any Indemnitee,
on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of,
in connection with, or as a result of, this Agreement, any other Loan
Document, or any agreement or instrument contemplated hereby or thereby,
the Transactions, any Loan or any Letter of Credit or the use of the
proceeds thereof.
(d) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 8.04 Successors and Assigns. (a) The provisions of this
Agreement and the other Loan Documents shall be binding upon and inure to
the benefit of the parties hereto and thereto and their respective
successors and assigns permitted hereby and thereby, except that the
Borrowers may not assign or otherwise transfer any of their rights or
obligations hereunder or thereunder without the prior written consent of
the Lender (and any attempted assignment or transfer by a Borrower without
such consent shall be null and void). Nothing in this Agreement, expressed
or implied, shall be construed to confer upon any Person (other than the
parties hereto, their respective successors and assigns permitted hereby
and, to the extent expressly contemplated hereby, the Related Parties of
the Lender) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
(b) The Lender may sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, its rights and
obligations under this Agreement and the other Loan Documents (including
all or a portion of its Commitments and the Loans at the time owing to it)
(each a "Transfer"). In connection therewith, the Lender may disclose all
documents and information which the Lender now has or may hereafter acquire
relating to the Borrowers, their respective businesses or any Collateral.
SECTION 8.05 Survival. All covenants, agreements, representations
and warranties made by the Borrowers herein and in the other Loan Documents
and in the certificates or other instruments delivered in connection with
or pursuant to this Agreement or any other Loan Documents shall be
considered to have been relied upon by the Lender and shall survive the
execution and delivery of this Agreement and the making of any Loans,
regardless of any investigation made by the Lender or on its behalf and
notwithstanding that the Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and
8.03 shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of any Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 8.06 Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original, but
all of which when taken together shall constitute a single contract. This
Agreement and the other Loan Documents constitute the entire contract among
the parties thereto relating to the subject matter hereof and supersede any
and all previous agreements and understandings, oral or written, relating
to the subject matter hereof.
SECTION 8.07 Severability. Any provision of this Agreement or any
other Loan Document held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such invalidity, illegality or unenforceability without affecting the
validity, legality and enforceability of the remaining provisions hereof;
and the invalidity of a particular provision in a particular jurisdiction
shall not invalidate such provision in any other jurisdiction.
SECTION 8.08 Right of Setoff. If an Event of Default shall have
occurred and be continuing, the Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other obligations at any time owing by the
Lender to or for the credit or the account of a Borrower against any of and
all the obligations of the Borrowers now or hereafter existing under this
Agreement or any other Loan Document held by the Lender, irrespective of
whether or not the Lender shall have made any demand under this Agreement
or such other Loan Document and although such obligations may be unmatured.
The rights of the Lender under this Section are in addition to other rights
and remedies (including other rights of setoff) which the Lender may have.
SECTION 8.09 Arbitration. (a) Agreement. Upon the demand of
either the Lender or any Borrower (which demand of such Borrower will bind
all of the Borrowers), any Dispute shall be resolved by binding arbitration
(except as set forth in paragraph (e) below) in accordance with the terms
of this Agreement. A "Dispute" shall mean any action, dispute, claim or
controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement or any of the
other Loan Documents, or any past, present or future extensions of credit
and other activities, transactions or obligations of any kind related
directly or indirectly to this Agreement or any of the other Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to this Agreement or any of the other Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration
of a Dispute. Any party who fails or refuses to submit to arbitration
following a lawful demand by the other party shall bear all costs and
expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in accordance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in
this Agreement or any of the other Loan Documents. The arbitration shall
be conducted at a location in California selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof and
any such rules, the terms and procedures set forth herein shall control.
All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any
court having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by the Lender of the protections afforded to
it under 12 U.S.C. 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of the Lender to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or
personal property Collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver,
from a court of competent jurisdiction before, after or during the pendency
of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior
to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the State of California,
(ii) may grant any remedy or relief that a court of the State of California
could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount
in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more
than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the State of California, and (iii) the parties shall
have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review
of (A) whether the findings of fact rendered by the arbitrators are
supported by substantial evidence, and (B) whether the conclusions of law
are erroneous under the substantive law of the State of California.
Judgment confirming an award in such a proceeding may be entered only if a
court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the State of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns Collateral comprised of real property
or interests therein unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid and
enforceable. If any such Dispute is not submitted to arbitration, the
Dispute shall be referred to a referee in accordance with California Code
of Civil Procedure Section 638 et seq., and this general reference
agreement is intended to be specifically enforceable in accordance with
said Section 638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA's selection procedures.
Judgment upon the decision rendered by a referee shall be entered in the
court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with
the AAA. No arbitrator or other party to an arbitration proceeding may
disclose the existence, content or results thereof, except for disclosures
of information by a party required in the ordinary course of its business,
by applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to this Agreement or the other
relevant Loan Documents or the subject matter of the Dispute shall control.
This arbitration provision shall survive termination, amendment or
expiration of this Agreement and any of the other Loan Documents or any
relationship between the parties.
SECTION 8.10 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA.
(b) Each Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Superior
Court of the State of California sitting in Los Angeles County and of the
United States District Court for the Central District of California, and
any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement not subject to arbitration under
Section 8.09, or for recognition or enforcement of any judgment or arbitral
award, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such California State or, to the
extent permitted by law, such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
(other than Section 8.09, if applicable) shall affect any right that the
Lender may otherwise have to bring any action or proceeding relating to
this Agreement against any Borrower or its properties in the courts of any
jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any court referred to in paragraph (b) of this Section. Each
Borrower hereby irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 8.01. Nothing in
this Agreement will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
SECTION 8.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT
IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
SECTION 8.12 Headings. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part
of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 8.13 Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any
Loan, together with all fees, charges and other amounts which are treated
as interest on such Loan under applicable law (collectively the "Charges"),
shall exceed the maximum lawful rate (the "Maximum Rate") which may be
contracted for, charged, taken, received or reserved by the Lender in
accordance with applicable law, the rate of interest payable in respect of
such Loan hereunder, together with all Charges payable in respect thereof,
shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan
but were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to the Lender in respect of
other Loans or periods shall be increased (but not above the Maximum Rate
therefor) until such cumulated amount, together with interest thereon at
the Base Rate to the date of repayment, shall have been received by the
Lender.
ARTICLE IX
Joint Borrowers
Each Borrower agrees that the representations and warranties made by,
and the liabilities, obligations, and covenants of and applicable to any or
all of the Borrowers under this Agreement, shall in every case (whether or
not specifically so stated in each such case herein) be joint and several.
Every notice by or to any Borrower shall be deemed also to constitute
notice by and to the other Borrowers, every act or omission by any Borrower
also shall be binding upon the other Borrowers, and the Lender is fully
authorized by each Borrower to act and rely also upon the representations
and warranties, covenants, notices, acts, and omissions of the other
Borrowers. Without limiting the foregoing:
(a) Each Borrower has determined and represents to the Lender that it is in
its best interests and in pursuance of its legitimate business purposes to
induce the Lender to extend credit pursuant to this Agreement. Each
Borrower acknowledges and represents that its business is related to the
business of the other Borrowers, the availability of the commitments
provided for herein benefits all Borrowers, and advances and other credit
extensions made hereunder will be for and inure to the benefit of
Borrowers, individually and as a group.
(b) Each Borrower has determined and represents to the Lender that it has,
and
after giving effect to the transactions contemplated by this Agreement will
have, assets having a fair saleable value in excess of its debts, after
giving effect to any rights of contribution or subrogation which may be
available to such Borrower, each Borrower has, and will have, access to
adequate capital for the conduct of its business and the ability to pay it
debts as such debts mature, and that no Borrower intends to, nor does it
believe that it will, incur debts beyond its ability to pay such debts as
they mature.
(c) Each Borrower agrees that it is jointly and severally liable to the
Lender
for, and each Borrower agrees to pay to the Lender when due the full amount
of, all indebtedness, obligations and liabilities now existing or hereafter
arising to the Lender under or in connection with this Agreement and the
other Loan Documents ("Loan Debt") and all modifications, extensions and
renewals thereof, including all Loans made to any Borrower, all interest
which accrues thereon, all fees, costs, and expenses chargeable to the
Borrowers or any of them in connection therewith. The obligations of the
Borrowers to the Lender for the Loan Debt shall be in addition to any
obligations of Borrowers to the Lender under any other agreement heretofore
or hereafter given to the Lender unless said other agreement is expressly
modified or revoked in writing, and this Agreement shall not, unless
expressly herein provided, affect or invalidate any such other agreement.
(d) The liability of each Borrower for the Loan Debt shall be reinstated
and
revived and the rights of the Lender shall continue if and to the extent
that for any reason any amount at any time paid on account of any of the
Loan Debt is rescinded or must otherwise be restored by the Lender, whether
as a result of any proceedings in bankruptcy or reorganization or other
wise, all as though such amount had not been paid.
(e) Each Borrower authorizes the Lender, without notice to or demand on
such
Borrower, and without affecting such Borrower's liability for the Loan
Debt, from time to time to:
(1) alter, compromise, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of, the liabilities and
obligations of any other Borrower to the Lender on account of the Loan
Debt;
(2) take and hold security from the other Borrowers for the payment of the
Loan Debt, and exchange, enforce, waive, subordinate or release any such
security;
(3) apply such security and direct the order or manner of sale thereof,
including without limitation, a non-judicial sale permitted by the terms of
the controlling security agreement or deed of trust, as the Lender in its
discretion may determine;
(4) release or substitute any one or more of the endorsers or any
guarantors
of the Loan Debt, or any other party obligated thereon; and
(5) apply payments received by the Lender from any other Borrower to
indebtedness of such other Borrower to the Lender other than the Loan Debt;
(f) Each Borrower represents and warrants to the Lender that it has
established adequate means of obtaining from each other Borrower on a
continuing basis financial and other information pertaining to each other
Borrower's financial condition, and each Borrower agrees to keep adequately
informed from such means of any facts, events or circumstances which might
in any way affect its risks hereunder. Each Borrower further agrees that
the Lender shall have no obligation to disclose to it any information or
material about any other Borrower which is acquired by the Lender in any
manner.
(g) Each Borrower waives any right to require the Lender to:
(1) proceed against any other Borrower or any other person;
(2) proceed against or exhaust any security held from any other Borrower or
any other person;
(3) pursue any other remedy in the Lender's power;
(4) apply payments received by the Lender from any other Borrower to the
Loan Debt; or
(5) make any presentments or demands for performance, or give any notices
of
nonperformance, protests, notices of protest, or notices of dishonor
in connection with the Loan Debt.
(h) Each Borrower waives any defense to its liability for the Loan
Debt
based upon or arising by reason of:
(1) any disability or other defense of any other Borrower or any
other person;
(2) the cessation or limitation for any cause whatsoever, other
than payment in full, of the liability of any other Borrower for the Loan
Debt;
(3) any lack of authority of any officer, director, partner, agent
or other person acting or purporting to act on behalf of any other Borrower
or any defect in the formation of any other Borrower;
(4) the application by any other Borrower of the proceeds of the
Loan Debt for the purposes other than the purposes intended or understood
by the Lender or the Borrower;
(5) any act or omission by the Lender which directly or indirectly
results in or aids the discharge of any other Borrower by operation of law
or otherwise, or which in any way impairs or suspends any rights or
remedies of the Lender against any other Borrower;
(6) any impairment of the value of any interest in any security for
the Loan Debt, including the failure to obtain or maintain perfection or
recordation of any interest in any such security, the release of any such
security without substitution, and /or failure to preserve the value of, or
to comply with applicable law in disposing of, any such security; or
(7) any modification of the obligations or liabilities of any other
Borrower for the Loan Debt, including the renewal, extension, acceleration
or other change in time for payment of, or other change in the terms of,
the indebtedness of any other Borrower for the Loan Debt, including
increase or decrease of the rate of interest thereon. Until the Loan Debt
and all indebtedness of each Borrower to the Lender arising under or in
connection with this Agreement shall have been indefeasibly paid in full,
no Borrower shall have any right of subrogation against any other Borrower,
in connection with or by virtue of any payment by such Borrower of any of
the Loan Debt or otherwise. Each Borrower waives all rights and defenses
it may have arising out of:
(i) any election of remedies by the Lender, even though that election
of remedies, such as non-judicial foreclosure with respect to any security
for the Loan Debt, destroys its rights of subrogation or its rights to
proceed against other Borrowers for reimbursement, or
(ii) any loss of rights it may suffer by reason of any rights, powers
or remedies of any other Borrower in connection with any anti-deficiency
laws or any other laws limiting, qualifying, or discharging any Borrower's
indebtedness for the Loan Debt, whether by operation of Sections 726 or
580d of the California Code of Civil Procedure as from time to time
amended, or otherwise. Until the Loan Debt and all indebtedness of all
Borrowers to the Lender arising under or in connection with this Agreement
shall have been indefeasibly paid in full, each Borrower waives any right
to enforce any remedy which the Lender now has or may hereafter have
against any other Borrower or any other person, and waives any benefit of,
or any right to participate in, any security now or hereafter held by the
Lender.
(i) If any of the waivers herein is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to the
extent permitted by law.
(j) It is the position of the Borrowers that each Borrower benefits
from the credit facilities that have been made available by the Lender
under this Agreement and from each extension of credit hereunder,
regardless of whether such credit is disbursed to a joint account of some
or all of the Borrowers or to or for the account of any other Borrower.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day
and year first above written.
HAUSER, INC.
By:_________________________________
Name:
Title:
ZUELLIG BOTANICAL EXTRACTS, INC.
By:_________________________________
Name:
Title:
ZETAPHARM, INC.
By:_________________________________
Name:
Title:
WILCOX DRUG COMPANY, INC.
By:_________________________________
Name:
Title:
SHUSTER LABORATORIES, INC.
By:_______________________________
Name:
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:________________________________
Name:
Title:
Exhibit 10.2
EXHIBIT D
TO CREDIT AGREEMENT
REVOLVING CREDIT NOTE
$35,000,000
Los Angeles, California
June 11, 1999
FOR VALUE RECEIVED, the undersigned, HAUSER, INC., a Colorado
corporation, ZUELLIG BOTANICAL EXTRACTS, INC., a Delaware corporation,
ZETAPHARM, INC., a New York corporation, WILCOX DRUG COMPANY, INC., a
Delaware corporation and SHUSTER LABORATORIES, INC., a Massachusetts
corporation (collectively, the "Borrowers"), hereby jointly and severally,
unconditionally promise to pay to the order of Wells Fargo Bank, National
Association (the "Lender"), at [c/o Wells Fargo HSBC Trade Bank, N.A., 333
South Grand Avenue, 8th Floor, Los Angeles, California 90071], or at such
other place as the holder of this Note may direct, on the Maturity Date in
lawful money of the United States of America and in immediately available
funds, the principal amount of (a) THIRTY-FIVE MILLION DOLLARS
($35,000,000), or, if less, (b) the aggregate unpaid principal amount of
all Revolving Loans made by the Lender pursuant to the Credit Agreement
(referred to below). The Borrowers further agree, jointly and severally,
to pay interest on the unpaid principal amount outstanding hereunder from
time to time from the date hereof in like money at such office at the rates
and on the dates specified in the Credit Agreement. For the purpose of
determining such interest rates, the Applicable Margin shall be as set
forth on Schedule 1 annexed hereto.
The holder of this Note is authorized to record on Schedules 2 and 3
annexed hereto or on a continuation thereof the date, Type and amount of
each Revolving Loan made pursuant to the Credit Agreement, each
continuation thereof, each conversion of all or a portion thereof to
another Type, the date and amount of each payment or repayment of principal
thereof and, in the case of LIBOR Loans, the length of each Interest Period
with respect thereto; provided, however, that the failure to make any such
recordation shall not affect the obligations of the Borrowers in respect of
such Revolving Loans.
This Note is the Revolving Credit Note referred to in the Credit
Agreement dated as of June 11, 1999 (the "Credit Agreement"), among the
Borrowers and the Lender, is secured as provided therein and in the
Security Documents and is subject to optional and mandatory prepayment as
set forth in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on
this Note shall become, or may be declared to be, immediately due and
payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Terms defined in the Credit Agreement are used herein with their
defined meanings unless otherwise defined herein. This Note shall be
governed by, and construed and interpreted in accordance with, the laws of
the State of California.
HAUSER, INC.
By:
Name:
Title:
ZUELLIG BOTANICAL EXTRACTS, INC.
By:
Name:
Title:
ZETAPHARM, INC.
By:
Name:
Title:
WILCOX DRUG COMPANY, INC.
By:
Name:
Title:
SHUSTER LABORATORIES, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE 1
TO REVOLVING CREDIT NOTE
APPLICABLE MARGINS
Base Rate Loans - minus three-quarters of one percent (0.75%)
LIBOR Loans - plus one and one-half percent (1.50%); if, on
the one year anniversary of the Effective Date,
the Borrowers are in compliance with all terms and
conditions of the Credit Agreement and the other Loan
Documents, then effective as of such date, and for
Interest Periods commencing on and after such date,
the Applicable Margin will be reduced to one and forty
one-hundredths percent (1.40%)
<PAGE>
SCHEDULE 2
TO REVOLVING CREDIT NOTE
LOANS, CONVERSIONS AND PAYMENTS OF BASE RATE LOANS
<TABLE>
Amount Amount of Unpaid
of Base LIBOR Loans Principal
Amount of Amount of Rate Loans Converted Balance
Base Rate Principal Converted to to Base of Base Notation
Date Loans Repaid LIBOR Loans Rate Loans Rate Loans Made By
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 3
TO REVOLVING CREDIT NOTE
LOANS, CONVERSIONS AND PAYMENTS OF LIBOR LOANS
<TABLE>
Amount of Amount of Unpaid
LIBOR Loans Base Rate Principal
Amount of Amount of Converted to Loans Balance
LIBOR Principal Base Rate Converted to of LIBOR
Notation
Date Loans Repaid Loans LIBOR Loans Loans Made By
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Exhibit 10.3
EXHIBIT E
TO CREDIT AGREEMENT
TERM NOTE
$10,000,000 Los Angeles, California
June 11, 1999
FOR VALUE RECEIVED, the undersigned, HAUSER, INC., a Colorado
corporation, ZUELLIG BOTANICAL EXTRACTS, INC., a Delaware corporation,
ZETAPHARM, INC., a New York corporation, WILCOX DRUG COMPANY, INC., a
Delaware corporation and SHUSTER LABORATORIES, INC., a Massachusetts
corporation (collectively, the "Borrowers"), hereby jointly and severally,
unconditionally promise to pay to the order of Wells Fargo Bank, National
Association (the "Lender"), at [c/o Wells Fargo HSBC Trade Bank, N.A., 333
South Grand Avenue, 8th Floor, Los Angeles, California 90071], or at such
other place as the holder of this Note may direct, (i) on the Maturity
Date, the aggregate unpaid principal amount of all Term Loans made by the
Lender pursuant to the Credit Agreement (referred to below) and (ii) on
each Term Loan Repayment Date prior to the Maturity Date, the principal
amount of Term Loans made by the Lender pursuant to the Credit Agreement
and payable to the Lender on such Term Loan Repayment Date as provided in
the Credit Agreement, in each case in lawful money of the United States of
America and in immediately available funds. The Borrowers further agree,
jointly and severally, to pay interest on the unpaid principal amount
outstanding hereunder from time to time from the date hereof in like money
at such office at the rates and on the dates specified in the Credit
Agreement. For the purpose of determining such interest rates, the
Applicable Margin shall be as set forth on Schedule 1 annexed hereto.
The holder of this Note is authorized to record on Schedules 2 and 3
annexed hereto or on a continuation thereof the date, Type and amount of
each Term Loan made pursuant to the Credit Agreement, each continuation
thereof, each conversion of all or a portion thereof to another Type, the
date and amount of each payment or repayment of principal thereof and, in
the case of LIBOR Loans, the length of each Interest Period with respect
thereto; provided, however, that the failure to make any such recordation
shall not affect the obligations of the Borrowers in respect of such Term
Loans.
This Note is the Term Note referred to in the Credit Agreement dated
as of June 11, 1999 (the "Credit Agreement"), among the Borrowers and the
Lender, is secured as provided therein and in the Security Documents and is
subject to optional and mandatory prepayment as set forth in the Credit
Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on
this Note shall become, or may be declared to be, immediately due and
payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Terms defined in the Credit Agreement are used herein with their
defined meanings unless otherwise defined herein. This Note shall be
governed by, and construed and interpreted in accordance with, the laws of
the State of California.
HAUSER, INC.
By:
Name:
Title:
ZUELLIG BOTANICAL EXTRACTS, INC.
By:
Name:
Title:
ZETAPHARM, INC.
By:
Name:
Title:
WILCOX DRUG COMPANY, INC.
By:
Name:
Title:
SHUSTER LABORATORIES, INC.
By:
Name:
Title:
SCHEDULE 1
TO TERM NOTE
APPLICABLE MARGINS
Base Rate Loans - minus one-half of one percent (0.50%)
LIBOR Loans - plus one and three-quarters percent (1.75%); if, on
the one year anniversary of the Effective Date, the
Borrowers are in compliance with all terms and
conditions of the Credit Agreement and the other
Loan Documents, then effective as of such date, and
for Interest Periods commencing on and after such
date, the Applicable Margin will be reduced to one
and sixty-five one-hundredths percent (1.65%)
SCHEDULE 2
TO TERM NOTE
LOANS, CONVERSIONS AND PAYMENT OF BASE RATE LOANS
<TABLE>
Amount Amount of Unpaid
of Base LIBOR Loans Principal
Amount of Amount of Rate Loans Converted Balance
Base Rate Principal Converted to to Base of Base Notation
Date Loans Repaid LIBOR Loans Rate Loans Rate Loans Made By
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 3
TO TERM NOTE
LOANS, CONVERSIONS AND PAYMENTS OF LIBOR LOANS
<TABLE>
Amount of Amount of Unpaid
LIBOR Loans Base Rate Principal
Amount of Amount of Converted to Loans Balance
LIBOR Principal Base Rate Converted to of LIBOR Notation
Date Loans Repaid Loans LIBOR Loans Loans Made By
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Exhibit 10.4
Exhibit 4.01-A
to
Credit Agreement
SECURITY AGREEMENT dated as of June 11, 1999, among Hauser, Inc.,
a Colorado corporation, Shuster Laboratories, Inc., a Massachusetts
corporation (each, a "Debtor" and collectively, the "Debtors"), and Wells
Fargo Bank, National Association (the "Secured Party").
Reference is hereby made to the Credit Agreement dated as of June
11, 1999 (as amended, supplemented or modified from time to time, the
"Credit Agreement") among the Debtors, Zuellig Botanical Extracts, Inc.,
ZetaPharm, Inc., Wilcox Drug Company, Inc. and the Secured Party. Terms
used herein as defined terms and not otherwise defined herein shall have
the meanings given thereto in the Credit Agreement.
The Secured Party has agreed to make Loans to the Debtors, all
upon the terms and subject to the conditions specified in the Credit
Agreement. The obligation of the Secured Party to make Loans is
conditioned on, among other things, the execution and delivery by the
Debtors of a security agreement in the form hereof.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
Section 1.01 Definitions. In addition to the terms defined above, the
following words and terms shall have the respective meanings as follows:
"Account Debtor" shall mean any Person who is or may become
obligated under, with respect to or on account of an Account Receivable.
"Accounts Receivable" shall mean in respect of any Debtor, (i)
all present and future "accounts," "chattel paper" and "documents," as such
terms are defined in the Uniform Commercial Code in effect in any
applicable jurisdiction, of such Debtor, (ii) without limiting the
foregoing, all right, title and interest, and all the rights, remedies,
security and Liens, in, to and in respect of any Accounts Receivable of
such Debtor, including, without limitation, all right, title and interest
of such Person in any returned goods, all guaranties or other contracts of
suretyship with respect to Accounts Receivable, deposits, or other security
for the obligation of any Account Debtor, any credit or other insurance,
any rights to stoppage in transit, replevin, reclamation, or resale, and
(iii) without limiting the foregoing, all right, title and interest of such
Debtor in, to and in respect of invoices or other documents or instruments
with respect to, or otherwise representing or evidencing, any Account
Receivable.
"Agreement" shall mean this Security Agreement, as it shall be
amended, supplemented or otherwise modified from time to time.
"Collateral" shall mean and collectively refer to all of the
present and future right, title and interest of each Debtor in (i) all of
its Accounts Receivable, General Intangibles, Inventory, Equipment and
Records, and all other personal property of such Debtor and (ii) all
Proceeds, rent, issues, profits, and products of, and all distributions and
collections in respect of, the foregoing property described in clause (i);
in each case whether now owned or hereafter acquired and wherever located.
"Collateral Assignments" shall have the meaning set forth in the
Credit Agreement.
"Equipment" shall mean, in respect of any Debtor, all present and
future machinery, equipment (including all manufacturing, warehouse, and
office equipment), fixtures, trade fixtures, engineering drawings and
diagrams, tools and tooling (including any rights in respect of tools or
tooling in the possession of others), computer and other data processing
equipment, furniture, office, production or data processing supplies on
hand or in transit, other miscellaneous supplies and other tangible
property of any kind now owned or hereafter acquired by such Debtor or in
which such Debtor now has or may hereafter acquire any right, title or
interest and wheresoever located, in all its forms, including, without
limitation, all "equipment" of such Debtor within the meaning of the
Uniform Commercial Code in effect in any applicable jurisdiction, and all
such property located in any plant, warehouse, office or other space
leased, owned or occupied by such Debtor and all of such Debtor's interest
in all leasehold improvements and any and all additions, accessions and
appurtenances thereto, substitutions therefor and replacements thereof,
together with all attachments, components, parts and accessories installed
thereon or affixed thereto.
"Excluded Patents" means the patents and patent applications
listed on Schedule 1.01-1 to this Agreement.
"General Intangibles" shall mean, in respect of any Debtor, all
general intangibles of such Person of every nature, whether now existing or
hereafter acquired, arising or created, and shall include, in any event,
all "general intangibles" within the meaning of the Uniform Commercial Code
in effect in any applicable jurisdiction, and, without limiting the
foregoing, all Intellectual Property, all goodwill and deposit accounts and
all contracts, causes of action and choses in action, suits, judgments,
statutory and other claims and demands, whether or not now known to exist,
including in respect of intercompany loans, and including all Federal,
state and other income tax refunds of such Person and all rights and claims
of subrogation, recoupment, contribution or indemnity (whether in equity,
at law, by contract or otherwise) of such Person against any other Person,
including any letter of credit, guarantee, claim, security interest, or
other security held to secure payment by an Account Debtor of any Account
Receivable.
"Intellectual Property" shall mean, in respect of any Debtor, all
intellectual and similar property of such Debtor of every kind and nature
now owned or hereafter acquired by such Debtor, including inventions,
designs, patents, patent applications, copyrights, copyright registrations,
applications to register copyrights, licenses, trademarks (including
service marks), trademark or service mark applications, trade names, trade
secrets, inventions, discoveries, processes, formulae, techniques,
scientific, technical or marketing data, confidential or proprietary
technical and business information, know-how, show-how or other data or
information, software and databases and all embodiments or fixations
thereof and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records describing
or used in connection with, any of the foregoing, other than the Excluded
Patents.
"Inventory" shall mean, in respect of any Debtor, all present and
future inventory of such Debtor of every type or description, including all
goods now owned or hereafter acquired, held for sale or lease, or furnished
or to be furnished under contracts of service or consumed in such Debtor's
business (including all such goods that have been returned or repossessed),
whether raw, in process or finished, all materials or equipment useable in
processing the same, scrap inventory, spare parts, all supplies, all
packaging materials, all documents of title covering any inventory and all
additions and accessions thereto, and shall include, in any event, all
"inventory" within the meaning of the Uniform Commercial Code in effect in
any applicable jurisdiction, wherever located.
"Obligations" shall mean, collectively, (a) the due and punctual
payment of (i) the principal of and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Loans when and as due, whether at maturity, by
acceleration, upon one or more dates on which repayment or prepayment is
required, or otherwise, (ii) each payment required to be made by the
Debtors or any other Borrower under the Credit Agreement in respect of any
Letter of Credit when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide
cash collateral and (iii) all other monetary obligations, including fees,
costs, expenses and indemnities, whether primary, secondary, direct,
contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding), of the Debtors or any other Borrower to the Secured Party
under the Credit Agreement or any other Loan Documents (including this
Agreement), and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Debtors or any other
Borrower under or pursuant to the Credit Agreement and under the other Loan
Documents (including this Agreement).
"Paclitaxel Assignment" shall mean the Collateral Assignment of
Patents and Patent Applications substantially in the form of Exhibit 1.01-B
to this Agreement.
"Perfection Certificate" shall have the meaning given thereto in
Section 2.02(c).
"Proceeds" shall have the meaning assigned to it under the
Uniform Commercial Code and, in any event, shall include but not be limited
to any consideration received from the sale, exchange, lease or other
disposition of any asset or property which constitutes Collateral, any
distribution in respect thereof or payment or collection thereon, and any
payment received from any insurer or other Person as a result of the
destruction, loss, theft or other involuntary conversion of whatever nature
of any asset or property that constitutes Collateral, and shall include all
cash and negotiable instruments received or held by the Secured Party
pursuant to any lockbox or similar arrangement relating to the payment of
Accounts Receivable.
"Records" shall mean, in respect of any Debtor, all instruments,
files, ledgers and books of account and other records of such Debtor,
including all customer lists, computer programs, computer disks and tapes,
printouts and other materials upon which is stored any information relating
to such Debtor's business, now owned or hereafter acquired, wherever
located.
Section 1.02 Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation." All references herein to Articles, Sections,
Exhibits, and Schedules shall be deemed references to Articles and Sections
of, and Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. References to provisions of statutes, rules,
regulations, and other documents shall be deemed to include successor
provisions thereto. Except as otherwise expressly provided herein, all
terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time.
ARTICLE II.
Section 2.01 Security Interest. As security for the due and punctual
payment and performance of the Obligations, each Debtor hereby mortgages,
pledges, assigns, transfers, sets over, hypothecates, conveys, grants and
delivers to the Secured Party, for the benefit of the Secured Party, a
first priority security interest in all of such Debtor's right, title and
interest in, to and under the Collateral.
Section 2.02 Representations, Warranties and Covenants. Each Debtor
hereby represents and warrants to, and covenants with, the Secured Party,
as follows:
(a) Except for the foregoing security interest granted to the Secured
Party, such Debtor is and will at all times continue to be the direct owner
of, and have good and marketable title to the Collateral in respect of
which it has purported to grant a security interest hereunder, free and
clear of all Liens, and has not made and will not make any assignment,
pledge, hypothecation or transfer of, or create or suffer to exist any Lien
on, any such Collateral other than in favor of, and for the benefit of, the
Secured Party. Notwithstanding the foregoing, the Company may sell or
otherwise dispose of the Intellectual Property described in the Paclitaxel
Assignment, without violating this Agreement and free and clear of the
security interest granted to the Secured Party hereunder, so long as at the
time of and immediately after such sale or other disposition, no Default or
Event of Default shall have occurred and be continuing. The Company agrees
to give the Secured Party prompt notice of any such sale or disposition.
The Secured Party agrees that unless a Default or Event of Default shall
have occurred and be continuing, it will not record the Paclitaxel
Assignment prior to the expiration of the twelve (12) month period
beginning on the date hereof. At any time after the expiration of such
twelve (12) month period, or on the occurrence of a Default or Event of
Default, the Secured Party shall be free to record the Paclitaxel
Assignment with the United States Patent and Trademark Office ("PTO") and
the related Uniform Commercial Code Financing statement with the offices
specified in Schedule 6 to the Perfection Certificate with respect to any
items of Intellectual Property described therein as to which the Secured
Party has not, prior thereto, received notice from the Company of the sale
or disposition. The Company hereby agrees that the Secured Party may
modify the Exhibit to the Paclitaxel Intellectual Property Assignment or
such related Uniform Commercial Code financing statement, or attach a
substitute Exhibit thereto, solely to delete therefrom any items of
Intellectual Property that have been sold or disposed of by the Company in
accordance with the provisions of this section.
(b) Such Debtor (i) has, and at all times will have,
good right and full legal power and authority to grant, confirm and
continue the security interest granted hereunder and to execute, deliver
and perform its obligations hereunder, all without the consent or approval
of any party, other than any such consent or approval as has been obtained
and (ii) will defend its title and interest to the Collateral and the
security interest (and priority thereof) of the Secured Party against any
and all attachments, Liens or other impediments of any nature, however
arising, of all persons whomsoever.
(c) The Perfection Certificate in the form of Exhibit
2.02 hereto (the "Perfection Certificate") has been duly prepared,
completed and executed and the information set forth therein is correct and
complete. Fully executed Uniform Commercial Code financing statements, the
Collateral Assignments or other appropriate filings, recordings or
registrations (other than, in respect of copyrights, such as would be made
in the United States Copyright Office) containing a description of the
Collateral have been delivered to the Secured Party for filing in each
governmental, municipal or other office specified in Schedule 6 to the
Perfection Certificate, which are all the filings, recordings and
registrations that are necessary to publish notice of and protect the
validity of and to establish a valid and perfected security interest in
favor of the Secured Party in respect of all Collateral (other than
copyrights, to the extent that recordings and registration in the United
States Copyright Office may be necessary) in which the security interest
granted hereunder may be perfected by filing, recording or registration in
the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any
such jurisdiction, except (i) as provided under applicable law with respect
to the filing of continuation statements, (ii) that recordation in addition
to registration of any unregistered copyrights in the United States
Copyright Office may be necessary with respect to Collateral consisting of
copyrights, and (iii) that recordation of the Collateral Assignments with
the PTO is necessary with respect to Collateral consisting of United States
patents and patent applications, and trademarks registered with, or
trademark applications on file with, the PTO.
(d) Such Debtor will not (i) change its chief
executive office or Taxpayer Identification Number or remove its Records,
except if otherwise permitted hereunder and if to a location within the
continental United States and upon at least thirty (30) days' prior written
notice to the Secured Party thereof or (ii) change its name (or do business
under other names), identity or structure (including by merger or
consolidation, whether or not permitted under the Credit Agreement) unless
the Secured Party shall have received at least thirty (30) days' prior
notice thereof and (in any such case under clause (i) or (ii)) prior to
effecting or permitting any such change such Debtor shall have taken such
action, satisfactory to the Secured Party, to maintain the security
interest of the Secured Party in all the Collateral granted hereunder at
all times valid, fully perfected and in full force and effect.
(e) Such Debtor shall not permit or suffer any of the
Equipment or Inventory to be located at any place other than the locations
specified in the Perfection Certificate (except in connection with sales of
such Inventory permitted in the ordinary course of business) unless the
Secured Party shall have received thirty (30) days' prior written notice
thereof and such Debtor shall have taken such action, satisfactory to the
Secured Party, to maintain the security interest in such Equipment or
Inventory at all times following such change of location valid, fully
perfected and in full force and effect.
(f) Such Debtor shall at all times keep such accurate
and complete accounting records with respect to the Collateral as is
consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar
to those in which such Debtor is engaged and, at such time or times as the
Secured Party may reasonably request, promptly prepare and deliver to the
Secured Party a duly certified schedule or schedules in form and detail
reasonably satisfactory to the Secured Party showing the identity, amount
and location of any and all Collateral.
(g) The security interest of the Secured Party
hereunder constitutes a valid security interest in all the Collateral, and
such security interest secures the payment and performance of the
Obligations, prior to any other Lien in any of the Collateral.
(h) When appropriately completed Uniform Commercial
Code financing statements have been filed as contemplated by paragraph (c),
above, the security interest of the Secured Party hereunder shall be a
fully perfected security interest in all of the Collateral in which a
security interest may be perfected by filing or recording, except (i) for
recordation or registration in respect of copyrights, and (ii) to the
extent that perfection of such security interest in the Intellectual
Property described in the Collateral Assignments depends upon recordation
of such Collateral Assignments with the PTO, as to which, when the
Collateral Assignments are recorded with the PTO, the security interest of
the Secured Party hereunder shall be a fully perfected security interest in
such Intellectual Property.
(i) Such Debtor has not and will not consent to the
filing or recording by any Person of, or in respect of, any Lien in any
Collateral (except by or on behalf of the Secured Party in respect of the
security interest hereunder).
Section 2.03 No Assumption of Liability. The security interest
hereunder is granted as security only and shall not subject the Secured
Party to, or in any way alter or modify, any obligation or liability of any
Debtor with respect to or arising out of any of the Collateral. Each
Debtor shall remain liable to, at its own cost and expense, duly and
punctually observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Debtor agrees to indemnify and hold harmless the Secured
Party from and against any and all liability for such performance.
Section 2.04 Periodic Certification. Each year, at the time that
delivery of annual financial statements with respect to the preceding
fiscal year as required pursuant to the Credit Agreement, each Debtor shall
deliver to the Secured Party a certificate executed by the chief financial
officer of such Debtor setting forth the information required pursuant to
Section 2 of the Perfection Certificate.
Section 2.05 Matters Relating to Collateral.
(a) Each Debtor agrees, at its expense, to execute, acknowledge, deliver
and cause to be duly filed all such further instruments and documents and
take all such actions as the Secured Party may from time to time reasonably
request to better assure, preserve, protect and perfect the security
interest and the rights and remedies created hereby, including the payment
of any fees and taxes required in connection with the execution and
delivery of this Agreement, the granting of the security interest hereunder
and the filing of any financing statements or other documents in connection
herewith. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument (other than a check issued in payment in the ordinary course of
business and timely deposited), such note or instrument shall be
immediately pledged and delivered to the Secured Party, duly endorsed in a
manner satisfactory to the Secured Party (and shall be received and held
uncommingled in trust for the benefit of the Secured Party pending such
endorsement and delivery).
(b) The Secured Party and such persons as the Secured Party may
reasonably designate shall have the right, at any reasonable time or times
upon reasonable notice and at the respective Debtor's own cost and expense,
to inspect the Collateral, all Records related thereto (and to make
extracts and copies from such Records) and the premises upon which any of
the Collateral is located, to discuss any Debtor's affairs with the
officers of such Debtor and its independent accountants and to verify under
reasonable procedures the validity, amount, quality, quantity, value,
condition and status of or any other matter relating to, the Collateral,
including, in the case of Accounts Receivable or Collateral in the
possession of any third party, by contacting Account Debtors or the third
party in possession of such Collateral for the purpose of making such a
verification.
(c) At its option, the Secured Party may discharge past due taxes,
assessments, charges, fees or Liens, at any time levied or placed on the
Collateral (or any part thereof), and may pay for the maintenance and
preservation of the Collateral to the extent any Debtor fails to do so as
required by this Agreement or the other Loan Documents, and each Debtor
agrees to reimburse the Secured Party on demand for any payment made or any
reasonable and documented expense incurred by the Secured Party pursuant to
the foregoing authorization; provided, however, that nothing in this
paragraph shall be interpreted as excusing any Debtor from the performance
of, or imposing any obligation on the Secured Party to cure or perform, any
covenants or other promises of any Debtor with respect to taxes,
assessments, charges, fees or Liens or maintenance as set forth herein or
in the other Loan Documents.
(d) If at any time any Debtor shall take and perfect a security interest
in any property of an Account Debtor or any other Person to secure payment
and performance of an Account Receivable, such Debtor shall promptly assign
such security interest to the Secured Party. Such assignment need not be
filed of public record unless necessary to continue the perfected status of
the security interest against creditors of and transferees from the Account
Debtor or other person granting the security interest.
Section 2.06 Use of Collateral. The Debtors may use but not dispose
of the Collateral in any lawful manner not inconsistent with the provisions
of this Agreement, the Credit Agreement or any other Loan Document, except
that the Debtors may dispose of Collateral (including sale of Inventory in
the ordinary course of business) to the extent expressly permitted by
provisions of the Loan Documents, including Section 2.02(a). Without
limiting the generality of the foregoing, each Debtor agrees that it shall
not permit any Inventory to be in the possession or control of any
warehouseman, bailee, agent or processor at any time unless such
warehouseman, bailee, agent or processor shall have been notified of the
security interest hereunder and shall have agreed in a writing in form and
substance reasonably satisfactory to the Secured Party to hold the
Inventory subject to the security interest hereunder and the instructions
of the Secured Party and to waive and release any Lien held by it with
respect to such Inventory, whether arising by operation of law or
otherwise.
Section 2.07 Modifications, etc.
(a) None of the Debtors will, without the Secured
Party's prior written consent, grant any extension of the time of payment
of any of the Accounts Receivable, compromise, compound or settle the same
for less than the full amount thereof, release, wholly or partly, any
person liable for the payment thereof or allow any credit or discount
whatsoever thereon, other than extensions, credits, discounts, compromises
or settlements granted or made in the ordinary course of business and
consistent with prior practice. After a default or an Event of Default
shall have occurred and during the continuation thereof, the Secured Party
may notify the Debtors not to grant or make any such extension, credit,
discount, compromise, or settlement under any circumstances without its
prior written consent.
(b) Without limiting any other provisions of this Agreement, upon the
occurrence and during the continuation of an Event of Default, the Secured
Party may, in its sole discretion, in its name or in the name of any
Debtor, or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to,
any of the Collateral, but shall be under no obligation to do so, and the
Secured Party may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the
Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any liability of, any Debtor. The Secured Party will
not be required to take any steps to preserve any rights against prior
parties to the Collateral. The Secured Party may (but shall not be
obligated to), after notice to any Debtor, make such payments and take all
such other action as the Secured Party deems necessary to protect its
security interest in the Collateral hereunder and/or the value thereof, and
the Secured Party is hereby authorized (without limiting the general nature
of any authority elsewhere herein conferred) to pay, purchase, contest, or
compromise any Lien on any of the Collateral.
ARTICLE III.
Section 3.01 Remedies, Possession, Sale of Collateral, etc.
(a) Upon the occurrence and during the continuation
of an Event of Default, each Debtor agrees to deliver each item of
Collateral to the Secured Party on demand, and it is agreed that the
Secured Party shall have the right (subject to applicable law) to take any
of or all the following actions at the same or different times: (i) in
respect of any Collateral consisting of Intellectual Property, on demand,
to cause the security interest hereunder therein to become an assignment,
transfer and conveyance of any of or all such Collateral by such Debtor to
the Secured Party, and with respect to the Paclitaxel Patents, to affix a
date to and file with the PTO the Paclitaxel Assignment and with the PTO or
any other appropriate governmental office, any other instrument of
assignment held by the Secured Party for such purpose, including the
related Uniform Commercial Code financing statements; or to license or, to
the extent permitted by applicable law, sublicense, whether general,
special or otherwise, and whether on an exclusive or non-exclusive basis,
any such Collateral throughout the world on such terms and conditions and
in such manner as the Secured Party shall determine (other than in
violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (ii) with or without legal process and
with or without previous notice or demand for performance, to take
possession of the Collateral and without liability for trespass to enter
any premises where the Collateral may be located for the purpose of taking
possession of or removing the Collateral, to demand and receive Collateral
from any Person in possession thereof, to take such measures as it may deem
necessary or proper for the care or protection thereof, and, generally, to
exercise any and all rights afforded to a secured party under the Uniform
Commercial Code or other applicable law. Without limiting the generality
of the foregoing, the Secured Party may sell or cause to be sold, whenever
it shall decide, in one or more sales or parcels, at such prices as it may
deem best, and for cash, on credit or for future delivery, without
assumption of any credit risk, all or any portion of the Collateral, at any
broker's board or at public or private sale, without demand of performance
or notice of intention to sell or of time or place of sale (except ten (10)
days' written notice to the Debtors of the time and place of such sale,
which the Debtors hereby agree to be commercially reasonable, and such
other notices as may be required by applicable statute and cannot be
waived), the Secured Party shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold, and
any Person may be the purchaser of all or any portion of the Collateral so
sold and thereafter hold the same absolutely, free from any claim or right
of whatever kind, including any equity of redemption of any Debtor, any
such demand, notice, claim, right or equity being hereby expressly waived
and released. At any sale or sales made pursuant to this Agreement, the
Secured Party may bid for or purchase, free from any claim or right of
whatever kind, including any equity of redemption of any Debtor, any such
demand, notice, claim, right or equity being hereby expressly waived and
released, all or any portion of the Collateral offered for sale, and may
make any payment on account thereof by using any claim for money then due
and payable to the Secured Party from any Debtor as a credit against the
purchase price, and may hold, retain and dispose of such property without
further accountability to such Debtor in respect thereof. At any such
sale, the Collateral, or portion thereof, to be sold may be sold in one lot
as an entirety or in separate parcels, as the Secured Party may (in its
sole and absolute discretion) determine. The Secured Party shall not be
obligated to make any sale of any Collateral if it shall determine not to
do so, regardless of the fact that notice of sale of such Collateral shall
have been given. The Secured Party may, without notice or publication,
except as may be required by applicable statute and cannot be waived,
adjourn any public or private sale or cause the same to be adjourned from
time to time by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place to which
the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold
may be retained by the Secured Party until the sale price is paid in full
by the purchaser or purchasers thereof, but the Secured Party shall not
incur any liability in case any such purchaser or purchasers shall fail to
take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may be sold again as if not previously so sold.
For purposes hereof, (i) a written agreement to purchase the Collateral or
any portion thereof shall be treated as a sale thereof, (ii) the Secured
Party shall be free to carry out such sale pursuant to such agreement and
(iii) no Debtor shall be entitled to the return of the Collateral or any
portion thereof subject thereto, notwithstanding the fact that after the
Secured Party shall have entered into such an agreement all Events of
Default shall have been remedied and the Obligations paid in full. The
Secured Party shall in any such sale have no obligation or responsibility
whatsoever to make any representations or warranties with respect to the
Collateral or any part thereof, and shall not be chargeable with any of the
obligations or liabilities of any Debtor. As an alternative to exercising
the power of sale herein conferred upon it, the Secured Party may proceed
by a suit or suits at law or in equity to foreclose upon the Collateral and
to sell the Collateral or any portion thereof pursuant to a judgment or
decree of a court or courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed receiver. Any sale pursuant to the
provisions of this Section shall be deemed to conform to the commercially
reasonable standards as provided in Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of California or its equivalent
in other jurisdictions.
(b) Each Debtor hereby agrees that it will indemnify and hold the Secured
Party, and its officers, directors, employees, agents and representatives
harmless (except for their own wilful misconduct or gross negligence) from
and against any and all claims with respect to the Collateral asserted both
before and after the taking of actual possession or control of the
Collateral by the Secured Party pursuant to this Agreement, or arising out
of any act or omission of any party other than the Secured Party prior to
such taking of actual possession or control by the Secured Party, or
arising out of any act or omission of such Debtor, or any agents thereof,
before or after the commencement of such actual possession or control by
the Secured Party. In any action hereunder the Secured Party shall be
entitled to the appointment, without notice, of a receiver to take
possession of all or any portion of the Collateral and to exercise such
powers as the court shall confer upon such receiver. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, and during the
continuation of such Event of Default, the Secured Party shall be entitled
to apply, without prior notice to any Debtor, any cash or cash items
constituting Collateral in the possession of the Secured Party to payment
of the Obligations.
Section 3.02 Grant of License to Use Intellectual Property. Subject
to any exclusive license heretofore granted by any Debtor to any Person,
for the purpose of enabling the Secured Party to exercise its rights and
remedies hereunder, each Debtor hereby grants to the Secured Party an
irrevocable, non-exclusive license (exercisable without payment of royalty
or other compensation to such Debtor) to use, license or sublicense any of
the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Debtor to the extent of the interest of such Debtor
therein at such time, and wherever the same may be located, and including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and to all computer software and programs
used for the compilation or printout thereof. The use of such licenses by
the Secured Party shall be exercised, at the option of the Secured Party
upon the occurrence and during the continuation of an Event of Default,
provided that any license, sublicense or other transaction entered into by
the Secured Party in accordance herewith shall be binding upon each Debtor
notwithstanding any subsequent cure of an Event of Default. In operating
under the license granted by each Debtor pursuant to this Section, the
Secured Party agrees that the goods sold and services rendered under the
trademarks included in the Intellectual Property shall be of a nature and
quality substantially consistent with those theretofore offered under the
trademarks by such Debtor and such Debtor shall have the right to inspect
during the term of such license, at any reasonable time or times upon
reasonable notice to the Secured Party, and at such Debtor's own cost and
expense, representative samples of goods sold and services rendered under
the trademarks.
Section 3.03 Application of Proceeds.
(a) Each Debtor hereby agrees that it shall upon the occurrence and
during the continuation of an Event of Default, (i) immediately turn over
to the Secured Party any instruments (with appropriate endorsements) or
other items constituting Collateral not then in the possession of the
Secured Party, the possession of which is required for the perfection of
the Secured Party's security interest, each of which shall be held in trust
for the benefit of the Secured Party and not commingled prior to its coming
into the Secured Party's possession, and (ii) take all steps necessary to
cause all sums, monies, royalties, fees, commissions, charges, payments,
advances, income, profits and other amounts constituting Proceeds of any
Collateral to be deposited directly in an account of the Debtors (or any of
them) with the Secured Party and to cause the same to be applied to the
satisfaction of the Obligations.
(b) All proceeds from any collection or sale of the Collateral pursuant
hereto, all Collateral consisting of cash, and all deposits in accounts of
any Debtor with the Secured Party shall be applied (i) first, to the
payment of the fees and expenses of the Secured Party incurred pursuant to
this Agreement or any other Loan Document, including costs and expenses of
collection or sale, reimbursement of any advances, and any other costs or
expenses in connection with the exercise of any rights or remedies
hereunder or thereunder (including reasonable fees and disbursements of
counsel, including counsel employed in-house by the Secured Party), (ii)
second, to the payment in full of the Obligations owed to the Secured Party
in respect of the Loans and LC Disbursements, and (iii) third, to the
payment of the Obligations (other than those referred to above). Any
amounts remaining after such applications shall be remitted to the Debtors
or as a court of competent jurisdiction may otherwise direct. The Secured
Party shall have absolute discretion as to the time of application of any
such proceeds, cash or balances in accordance with this Agreement.
Section 3.04 Power of Attorney.
(a) Each Debtor does hereby irrevocably make, constitute and appoint the
Secured Party or any officer or designee thereof its true and lawful
attorney-in-fact with full power in the name of the Secured Party, and of
such Debtor, with power of substitution, to, upon the occurrence and during
the continuation of an Event of Default, receive, open and dispose of all
mail addressed to such Debtor, to endorse any note, check, draft, money
order, or other evidence of payment relating to the Collateral that may
come into the possession of the Secured Party, with full power and right to
cause the mail of such Debtor to be transferred to the Secured Party's own
offices or otherwise; to communicate with any Account Debtor in respect of
any Accounts Receivable; to commence or prosecute any suits, actions or
proceedings to collect or otherwise realize upon any Collateral or enforce
any rights in respect thereof, to settle, compromise, adjust or defend any
claims in respect of any Collateral; to notify any Account Debtors or
otherwise require them to make payment directly to the Secured Party; to
use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do any and all
other acts necessary or proper to carry out the intent of this Agreement
and each other Loan Document and the grant, confirmation and continuation
of the security interests hereunder and thereunder. Such power of attorney
is coupled with an interest and is irrevocable, and shall survive the
bankruptcy, insolvency or dissolution of any or all of the Debtors.
Nothing herein contained shall be construed as requiring or obligating the
Secured Party to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by the Secured Party, or to
present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in
respect thereof or any property covered thereby. The Secured Party shall
be accountable only for amounts actually received as a result of the
exercise of the powers granted to it herein, and neither it nor its
officers, directors, employees or agents shall be responsible to any Debtor
for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct. The provisions of this Section shall in
no event relieve any Debtor of any of its obligations hereunder or under
the other Loan Documents with respect to the Collateral or any part thereof
or impose any obligation on the Secured Party to proceed in any particular
manner with respect to the Collateral or any part thereof, or in any way
limit the exercise by the Secured Party of any other or further right that
it may have on the date of this Agreement or hereafter, whether hereunder,
under any other Loan Document, by law or otherwise. Any sale of Collateral
pursuant to the provisions of this Section shall be deemed to conform to
the commercially reasonable standards as provided in Section 9-504(3) of
the Uniform Commercial Code as in effect in the State of California or its
equivalent in other jurisdictions.
(b) Without limiting the preceding paragraph, each Debtor does hereby
further irrevocably make, constitute and appoint the Secured Party or any
officer or designee thereof its true and lawful attorney-in-fact with full
power in the name of the Secured Party, and of such Debtor, with power of
substitution, (i) to enforce all of such Debtor's rights under and pursuant
to all agreements with respect to the Collateral, all for the sole benefit
of the Secured Party, (ii) to enter into and perform such agreements as may
be reasonably necessary in order to carry out the terms, covenants and
conditions of this Agreement that are required to be observed or performed
by such Debtor, (iii) to execute such other and further mortgages, pledges
and assignments of the Collateral and filings or recordations in respect
thereof as the Secured Party may require for the purpose of protecting,
maintaining or enforcing the security interest of the Secured Party
hereunder, (iv) to act as authorized in Section 3.05, and (v) to do any and
all other things reasonably necessary or proper to carry out the intention
of this Agreement and the grant, confirmation, continuation and perfection
of the security interests hereunder. Such power of attorney is coupled
with an interest and is irrevocable, and shall survive the insolvency,
bankruptcy, or dissolution of any or all of the Debtors.
Section 3.05 Financing Statements, Direct Payments, Confirmation of
Receivables and Audit Rights. Each Debtor hereby authorizes the Secured
Party to file Uniform Commercial Code financing statements (and any other
filings) required in connection with the perfection or preservation of the
security interest hereunder in respect of all or any part of the
Collateral, and amendments thereto and continuations thereof with regard to
such Collateral, without its signature, or, in the alternative, to execute
such items on behalf of such Debtor pursuant to the powers of attorney
granted in the preceding Section. Each Debtor further authorizes the
Secured Party to confirm with any Account Debtor the amounts payable to
such Debtor with regard to the Collateral and to participate with such
Debtor in the audits of its respective Account Debtors. Each Debtor hereby
further authorizes the Secured Party upon the occurrence and during the
continuation of an Event of Default to notify any Account Debtor that all
sums payable to such Debtor relating to the Collateral shall be paid
directly to the Secured Party.
Section 3.06 Termination. The security interest granted hereunder
shall terminate when all the Obligations have been fully, finally and
indefeasibly paid and performed, the Total Exposure of the Secured Party
shall be zero, and the Commitments of the Secured Party shall have
terminated. Thereupon, the Secured Party will execute and deliver, at each
Debtor's expense, Uniform Commercial Code termination statements and such
other documents as may be reasonably requested by such Debtor evidencing
the release of the security interest hereunder, all without recourse to or
warranty by the Secured Party.
Section 3.07 Remedies Not Exclusive. The remedies conferred upon or
reserved to the Secured Party in this Article and elsewhere in this
Agreement are intended to be in addition to, and not in limitation of, any
other remedy available to the Secured Party.
ARTICLE IV.
MISCELLANEOUS
Section 4.01 No Discharge. All rights of the Secured Party hereunder,
the security interest granted hereunder, and the obligations of each Debtor
under this Agreement shall be absolute and unconditional and shall remain
in full force and effect without regard to, and shall not be released,
discharged or in any way diminished by (i) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document (including
this Agreement), any agreement with respect to any of the Obligations or
any other agreement or instrument relating to any of the foregoing, (ii)
any change in the time, manner or place of payment of, or in any other term
of, all or any of the Obligations or any other amendment or waiver of or
any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to the foregoing,
(iii) any exchange, release or nonperfection of any other collateral, or
any release or amendment or waiver of or consent to or departure from any
guaranty, for all or any of the Obligations, (iv) any exercise or
nonexercise by the Secured Party of any right, remedy, power or privilege
under or in respect of this Agreement, any other Loan Document or
applicable law, including, without limitation, any failure by the Secured
Party to setoff or release in whole or in part any balance of any deposit
account or credit on its books in favor of any Debtor or any waiver,
consent, extension, indulgence or other action or inaction in respect of
any thereof, or (v) any other act or thing or omission or delay to do any
other act or thing which may or might in any manner or to any extent vary
the risk of any Debtor or would otherwise, but for this specific provision
to the contrary, operate as a discharge of or exonerate any Debtor as a
matter of law.
Section 4.02 Amendment; Waiver. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by any Debtor
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Secured Party. Any such waiver, consent or
approval shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on any Debtor in any case
shall entitle any Debtor to any other or further notice or demand in the
same, similar or other circumstances. No waiver by the Secured Party of
any breach or default of or by any Debtor under this Agreement shall be
deemed a waiver of any other previous breach or default or any thereafter
occurring.
Section 4.03 Survival; Severability.
(a) All covenants, agreements, representations and warranties made by the
Debtors herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other
Loan Document shall be considered to have been relied upon by the Secured
Party and shall survive the making by the Secured Party of the Loans, and
the execution and delivery to the Secured Party of the Notes evidencing
such Loans, regardless of any investigation made by the Secured Party or on
its behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any other fee or amount
payable under this Agreement or any other Loan Document is outstanding and
unpaid or the LC Exposure does not equal zero and as long as the
Commitments have not been terminated.
(b) Any provision of this Agreement that is illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such illegality, invalidity or
unenforceability without invalidating the remaining provisions hereof or
affecting the legality, validity or enforceability of such provisions in
any other jurisdiction. The parties hereto agree to negotiate in good
faith to replace any illegal, invalid or unenforceable provision of this
Agreement with a legal, valid and enforceable provision that, to the extent
possible, will preserve the economic bargain of this Agreement, or to
otherwise amend this Agreement to achieve such result.
Section 4.04 Successors and Assigns. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Debtor or the Secured Party
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns. No Debtor may assign or transfer
any of its rights or obligations hereunder or any interest herein or in the
Collateral except as expressly contemplated by this Agreement or the other
Loan Documents (and any such attempted assignment shall be void).
Section 4.05 Arbitration. (a) Agreement. Upon the demand of either
the Secured Party or any Debtor (which demand of such Debtor will bind all
of the Debtors), any Dispute shall be resolved by binding arbitration
(except as set forth in paragraph (e) below) in accordance with the terms
of this Agreement. A "Dispute" shall mean any action, dispute, claim or
controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement or any of the
other Loan Documents, or any past, present or future extensions of credit
and other activities, transactions or obligations of any kind related
directly or indirectly to this Agreement or any of the other Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to this Agreement or any of the other Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration
of a Dispute. Any party who fails or refuses to submit to arbitration
following a lawful demand by the other party shall bear all costs and
expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in accordance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in
this Agreement or any of the other Loan Documents. The arbitration shall
be conducted at a location in California selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof and
any such rules, the terms and procedures set forth herein shall control.
All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any
court having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by the Secured Party of the protections
afforded to it under 12 U.S.C. Paragraph 91 or any similar applicable state
law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of the Secured Party to exercise
self-help remedies such as setoff, foreclosure against or sale of any real
or personal property Collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver,
from a court of competent jurisdiction before, after or during the pendency
of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior
to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the State of California,
(ii) may grant any remedy or relief that a court of the State of California
could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount
in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more
than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the State of California, and (iii) the parties shall
have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review
of (A) whether the findings of fact rendered by the arbitrators are
supported by substantial evidence, and (B) whether the conclusions of law
are erroneous under the substantive law of the State of California.
Judgment confirming an award in such a proceeding may be entered only if a
court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the State of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns Collateral comprised of real property
or interests therein unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid and
enforceable. If any such Dispute is not submitted to arbitration, the
Dispute shall be referred to a referee in accordance with California Code
of Civil Procedure Section 638 et seq., and this general reference
agreement is intended to be specifically enforceable in accordance with
said Section 638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA's selection procedures.
Judgment upon the decision rendered by a referee shall be entered in the
court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within one hundred eighty (180) days of the filing
of the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party required in the
ordinary course of its business, by applicable law or regulation, or to the
extent necessary to exercise any judicial review rights set forth herein.
If more than one agreement for arbitration by or between the parties
potentially applies to a Dispute, the arbitration provision most directly
related to this Agreement or the relevant Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of this Agreement and any of
the other Loan Documents or any relationship between the parties.
Section 4.06 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA.
(b) Each Debtor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Superior
Court of the State of California sitting in Los Angeles County and of the
United States District Court for the Central District of California, and
any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement not subject to arbitration under
Section 4.05, or for recognition or enforcement of any judgment or arbitral
award, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such California State or, to the
extent permitted by law, such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
(other than Section 4.05, if applicable) shall affect any right that the
Secured Party may otherwise have to bring any action or proceeding relating
to this Agreement against any Debtor or its properties in the courts of any
jurisdiction.
(c) Each Debtor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any court
referred to in the preceding paragraph. Each of the parties hereto
irrevocably waives, to the fullest extent permitted by law, the defense of
an inconvenient forum to the maintenance of such action or proceeding in
any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 4.08. Nothing in
this Agreement will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
Section 4.07 Headings. The Article and Section headings in this
Agreement are for convenience only and shall not affect the construction
hereof.
Section 4.08 Notices. Notices, consents and other communications
provided for herein shall (except as otherwise expressly permitted herein)
be in writing and given as provided in Section 8.01 of the Credit
Agreement. Communications and notices to any Debtor shall be given to it
at its address set forth in Schedule 4.08 hereto.
Section 4.09 Reimbursement of the Secured Party.
(a) The Debtors jointly and severally agree to pay upon demand to the
Secured Party the amount of any and all reasonable and documented expenses,
including the reasonable and documented fees and expenses of its counsel
(including counsel employed in-house by the Secured Party) and of any
experts or agents, that the Secured Party may incur in connection with (i)
the administration of this Agreement (including the customary fees and
expenses of the Secured Party for any audits conducted by it with respect
to the Accounts Receivable or Inventory), (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of the
Secured Party hereunder, or (iv) the failure by any Debtor to perform or
observe any of the provisions hereof. If the Debtors shall fail to do any
act or thing that they have covenanted to do hereunder or any
representation or warranty of the Debtors hereunder shall be breached, the
Secured Party may (but shall not be obligated to) do the same or cause it
to be done or remedy any such breach and there shall be added to the
Obligations the cost or expense incurred by the Secured Party in so doing.
(b) Without limitation of their indemnification obligations under the
other Loan Documents, the Debtors jointly and severally agree to indemnify
the Secured Party and its officers, directors, employees, agents,
attorneys, and representatives ("Indemnitees") against, and hold each of
them harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating
hereto or to the Collateral, whether or not any Indemnitee is a party
thereto, provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses have resulted from the gross negligence or willful
misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The
provisions of this Section shall remain operative and in full force and
effect regardless of the termination of this Agreement, the consummation of
the transactions contemplated hereby, the repayment of any of the
Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation made by or
on behalf of the Secured Party. All amounts due under this Section shall
be payable on written demand therefor and shall bear interest at the
default rate (as provided in the Credit Agreement).
Section 4.10 Counterparts. (a) This Agreement may be executed in
separate counterparts (telecopy of any executed counterpart having the same
effect as manual delivery thereof), each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
agreement.
Section 4.11 Entire Agreement. Except as expressly herein provided,
this Agreement and the other Loan Documents constitute the entire agreement
among the parties relating to the subject matter hereof. Any previous
agreement among the parties with respect to the transactions contemplated
hereunder is superseded by this Agreement and the other Loan Documents.
Except as expressly provided herein or in the other Loan Documents, nothing
in this Agreement or in any other Loan Document, expressed or implied, is
intended to confer upon any party, other than the parties hereto, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement or such other Loan Documents.
Section 4.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers or
representatives as of the day and year first above written.
SECURED PARTY:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: ______________________________
Name:
Title:
DEBTORS:
HAUSER, INC.
By: ______________________________
Name:
Title:
SHUSTER LABORATORIES, INC.
By: ______________________________
Name:
Title:
<PAGE>
Schedule 1.01-1
to
Security Agreement
Excluded Patents
<PAGE>
Schedule 4.08
to
Security Agreement
Addresses for Notice
Party Mailing Address County
<PAGE>
Exhibit 2.02
to
Security Agreement
PERFECTION CERTIFICATE
Reference is made to the Credit Agreement dated as of June 11,
1999 (as supplemented, amended, or modified from time to time, the "Credit
Agreement"), among Hauser, Inc., a Colorado corporation (the "Company"),
Zuellig Botanical Extracts, Inc., a Delaware corporation, ZetaPharm, Inc.,
a New York corporation, Wilcox Drug Company, Inc., a Delaware corporation,
Shuster Laboratories, Inc., a Massachusetts corporation (collectively, the
Borrowers") and Wells Fargo Bank, National Association (the "Lender").
Terms used herein as defined terms and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement and the Security
Documents, as applicable.
The Borrowers have granted to the Lender security interests pursuant
to the Security Documents.
The undersigned, the Chief Financial Officer of the Company, does
hereby certify to the Lender as follows:
1. Names. (a) The exact name of each Borrower, as such name
appears in its respective currently effective certificate of incorporation,
is as set forth on Schedule la hereto.
(b) Set forth on Schedule lb hereto is each other name each
Borrower has had since its organization, together with the date of the
relevant change.
(c) Except as set forth in Schedule 1c hereto, no Borrower has
changed its identity or structure in any way within the past five years.
Changes in identity or structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organizations. [If any such change has occurred, include in
Schedule 1c the information required by Sections 1 and 2 of this
certificate as to each acquiree or constituent party to a merger or
consolidation.]
(d) Schedule 1d hereto contains a list of all other names
(including trade names or similar appellations) used by each Borrower or
any of its divisions or other business units in connection with the conduct
of its business or the ownership of its properties at any time during the
past five years.
(e) The Federal Taxpayer Identification Number of each Borrower
is as set forth in Schedule 1e hereto.
2. Current Locations. (a) The chief executive office of each
Borrower is located at the address set forth in Schedule 2a hereto.
(b) Set forth in Schedule 2b hereto are all locations where each
Borrower maintains any books or records relating to any Accounts Receivable
(with each location at which chattel paper, if any, is kept being indicated
by an "*").
(c) Set forth in Schedule 2c hereto are all the places of
business of each Borrower not identified in paragraphs (a) or (b) above.
(d) Set forth in Schedule 2d hereto are all the locations where
each Borrower maintains any Collateral not identified above.
(e) Set forth in Schedule 2e hereto are the names and addressees
of all persons other than the Borrowers who have possession of any of the
Collateral of any Borrower.
3. Unusual Transactions. All Accounts Receivable have been
originated by the Borrowers and all Inventory has been acquired by the
Borrowers in the ordinary course of business.
4. File Search Reports. (a) Attached hereto as Schedule 4a are
true copies of file search reports from the Uniform Commercial Code filing
offices where filings described in Section 5 hereof are to be made.
(b) Attached hereto as Schedule 4b is a true copy of each
financing statement or other filing identified in such file search reports.
5. UCC Filings. A duly signed financing statement on Form UCC-1
in substantially the form of Schedule 5a hereto has been delivered to the
Lender for filing in the respective Uniform Commercial Code filing offices
in the jurisdictions identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a
schedule setting forth, with respect to the filings described in Section 5
above, each filing office in which such filing is to be made.
7. Equity Ownership. Attached hereto as Schedule 7 is a true and
correct list of all the duly authorized, issued and outstanding stock of
each Borrower (other than the Company), the record and beneficial owners of
such stock, and a description of any voting relationships among the
Company, the other Borrowers and any Affiliate of the Company.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
11th day of June, 1999.
Name:
Title:
<PAGE>
Schedule la
to
Perfection Certificate
Exact Name of Each Debtor
1.
2.
3.
4.
5.
<PAGE>
Schedule lb
to
Perfection Certificate
Exact Other Name Each Debtor Has Had
1.
2.
<PAGE>
Schedule lc
to
Perfection Certificate
Changes in Identity or Corporate Structure
1.
2.
<PAGE>
Schedule ld
to
Perfection Certificate
Other Names Used
1.
2.
3.
4.
<PAGE>
Schedule le
to
Perfection Certificate
Federal Taxpayer Identification Numbers
NAME EIN
<PAGE>
Schedule 2a
to
Perfection Certificate
Chief Executive Office of Each Debtor
Name Mailing Address County State
<PAGE>
Schedule 2b
to
Perfection Certificate
Location of Books and Records Relating to Accounts Receivable
Name Mailing Address County State
<PAGE>
Schedule 2c
to
Perfection Certificate
Other Places of Business of Each Debtor
Name Mailing Address County State
<PAGE>
Schedule 2d
to
Perfection Certificate
Other Collateral Locations
Name Mailing Address County State
<PAGE>
Schedule 2e
to
Perfection Certificate
Other Persons Having Collateral
Name Mailing Address County State
Exhibit 10.5
Exhibit 1.01-A
to
Security Agreement
COLLATERAL ASSIGNMENT OF
TRADEMARKS, TRADEMARK APPLICATIONS,
PATENTS AND PATENT APPLICATIONS
THIS COLLATERAL ASSIGNMENT OF TRADEMARKS, TRADEMARK APPLICATIONS, PATENTS
AND PATENT APPLICATIONS is made as of June 11, 1999, by and among Hauser,
Inc., a Colorado corporation, Zuellig Botanical Extracts, Inc., a Delaware
corporation, ZetaPharm, Inc., a New York corporation, Wilcox Drug Company,
Inc., a Delaware corporation, Shuster Laboratories, Inc., a Massachusetts
corporation (each, an "Assignor" and collectively, the "Assignors"), and
Wells Fargo Bank, National Association (the "Assignee").
W I T N E S S E T H:
WHEREAS, Assignors are the owners of certain trademarks, trademark
applications, patents and patent applications listed in Exhibit A attached
to this document; and
WHEREAS, Assignors and Assignee have entered into that certain Credit
Agreement dated as of June 11, 1999 (as from time to time amended, modified
or supplemented, the "Credit Agreement"), pursuant to which, upon the
satisfaction by the Assignors of the terms and conditions contained
therein, Assignee will make loans to Assignors; and
WHEREAS, pursuant to the Credit Agreement, Assignors have agreed to grant
Assignee a security interest in all of their right, title and interest in
and to the trademarks, trademark applications, patents and patent
applications described in Exhibit A, and in and to the goodwill symbolized
by such trademarks (the "Goodwill"), as collateral security for the
Obligations as defined in the Credit Agreement; and
WHEREAS, except as noted on Exhibit A attached to this document, Assignors
are the owners of the entire right, title and interest in the trademarks,
trademark applications, patents and patent applications being assigned
hereby.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, Assignors hereby:
1. Assign, pledge and grant to Assignee, as security for the
Obligations, a security interest in and to the trademarks, trademark
applications, patents and patent applications listed in Exhibit A attached
to this document, and to the Goodwill, and a security interest in and to
all trademarks, trademark applications, Goodwill, patents and patent
applications acquired by Assignors after the date hereof.
2. Authorize and request the Commissioner of Patents and Trademarks
of the United States of America and the empowered officials of all other
governments to note in the record the existence of the security interest
granted hereunder with respect to each of the trademarks, trademark
applications, patents and patent applications listed in Exhibit A attached
to this document, and to the Goodwill, and to all trademarks, trademark
applications, Goodwill, patents and patent applications acquired by
Assignors after the date hereof.
3. Acknowledge that notices and other communications shall be in
writing and given as provided in Section 8.01 of the Credit Agreement.
Communications and notices to any Assignor shall be given to it at its
address set forth in Exhibit B attached to this document.
4. Agree upon the request of Assignee and at the expense of Assignors
to take any reasonable actions and execute any documents necessary to
effectuate this assignment and the security interest created in the
trademarks, trademark applications, patents and patent applications listed
in Exhibit A to this document.
IN WITNESS WHEREOF, Assignors have caused this Assignment to be signed
by their respective authorized officers as of the day and year first above
written.
ASSIGNEE:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:
Name:
Title:
ASSIGNORS:
HAUSER, INC.
By:
Name:
Title:
ZUELLIG BOTANTICAL EXTRACTS,
INC.
By:
Name:
Title:
ZETAPHARM, INC.
By:
Name:
Title:
WILCOX DRUG COMPANY, INC.
By:
Name:
Title:
SHUSTER LABORATORIES, INC.
By:
Name:
Title:
<PAGE>
Exhibit A
to
Collateral Assignment
ISSUED PATENTS
PROCESS FOR THE ISOLATION AND PURFICATION OF ISOFLAVONES
<TABLE>
Country Number Issue Date
<S> <C> <C>
US 5,679,806 10/21/1997
</TABLE>
ARTEMISININ DIMERS WITH ANTICANCER ACTIVITY
<TABLE>
Country Number Issue Date
<S> <S> <C> <C>
New US 5,677,468 10/14/1997
CON US 5,856,351 01/05/1999
CIP US 5,840,925 11/24/1998*
*Jointly owned by Hauser and Johns Hopkins University
</TABLE>
HIGH PURITY CARNOSIC ACID FROM ROSEMARY AND SAGE EXTRACTS BY PH-CONTROLLED
PRECIPITATION
<TABLE>
Country Number Issue Date
<S> <S> <C> <C>
DIV US 5,859,293 01/12/1999
</TABLE>
PENDING PATENTS
ARTEMISININ DIMERS WITH ANTICANCER ACTIVITY
<TABLE>
Country Number Filing Date
<S> <C> <C>
Australia 64058/96 06/27/1996
Canada 2,234,731 06/27/1996
European 96923582.9 06/27/1996
US 09/197,944 11/23/1998*
WIPO PCT/US96/11163 06/27/1996
WIPO PCT/US97/21777 12/01/1997*
*Jointly owned by Hauser and Johns Hopkins University
</TABLE>
FOODS AND BEVERAGES CONTAINING ANTHOCYANINS STABLIZED BY PLANT EXTRACTS
<TABLE>
Country Number Filing Date
<S> <C> <C>
Australia 74592/96 10/21/1996
Canada 2,235,312 10/21/1996
European 96936747.3 10/21/1996
US 08/546,502 12/04/1997
WIPO PCT/US96/16799 10/21/1996
</TABLE>
HIGH PURITY CARNOSIC ACID FROM ROSEMARY AND SAGE EXTRACTS BY PH-CONTROLLED
PRECIPITATION
<TABLE>
Country Number Filing Date
<S> <C> <C>
Australia 57248/96 05/03/1996
Canada 2,220,223 05/03/1996
European 96915486.3 05/03/1996
WIPO PCT/US96/06250 05/03/1996
</TABLE>
HIGH PURITY BETA-CAROTENE AND PROCESS FOR OBTAINING SAME
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 08/864,103 05/28/1997
</TABLE>
METHOD FOR STABILIZING CITRUS-FLAVORED COMPOSITIONS USING PLANT EXTRACTS
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 09/103,023 06/23/1998
WIPO PCT/US98/13002 06/23/1998
</TABLE>
C-10 CARBON-SUBSTITUTED ARTEMISININ-LIKE TRIOXANE COMPOUNDS HAVING
ANTIMALARIAL, ANTIPROLIFERATIVE AND ANTITUMOR ACTIVITIES
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 09/001,242 12/30/1997*
US 09/183,693 10/30/1998*
WIPO PCT/US98/27717 12/30/1998*
*Jointly owned by Hauser and Johns Hopkins University
</TABLE>
COMPOSITION FOR TREATING MOTION SICKNESS
<TABLE>
Country Number Filing Date
<S> <C> <C>
US To be assigned 04/20/1999
</TABLE>
METHOD FOR THE ISOLATION OF CAFFEINE-FREE CATECHINS FROM GREEN TEA
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 09/226,477 01/07/1999
</TABLE>
PROCESS FOR REMOVING IMPURITIES FROM NATURAL PRODUCT EXTRACTS
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 09/176,348 10/21/1998
</TABLE>
ARTEMISININ ANALOGS HAVING ANTIMALARIAL, ANTIPROLIFERATIVE, AND ANTITUMOR
ACTIVITIES AND CHEMOSELECTIVE METHODS OF MAKING THE SAME
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 09/228,668 01/12/1999*
*Jointly owned by Hauser and Johns Hopkins University
</TABLE>
<PAGE>
REGISTERED TRADEMARKS
HAUSER
<TABLE>
<S> <C> <C>
Country Number Registration Date
US 1,025,491 11/18/1975
HAUSER stylized
Country Number Registration Date
US 2,002,250 09/24/1996
NATURENHANCE
Country Number Registration Date
US 2,200,848 11/03/1998
ROSEOX
Country Number Registration Date
US 2,103,416 10/07/1997
ROSEOX 660
Country Number Registration Date
US 2,105,411 10/14/1997
SHUSTER
Country Number Registration Date
US 1,341,396 06/11/1985
SHUSTER & STYLIZED S
Country Number Registration Date
US 1,354,603 08/13/1985
STABILENHANCE
Country Number Registration Date
US 2,107,775 10/21/1997
STYLIZED S
Country Number Registration Date
US 1,360,960 09/17/1985
TAQA
Country Number Registration Date
US 2,212,495 12/22/1998
TECHNICALLY ADVANCED QUALITY ASSURANCE TAQA
Country Number Registration Date
US 2,214,090 12/29/1998
</TABLE>
PENDING TRADEMARKS
COLORENHANCE
<TABLE>
Country Number Filing Date
<S> <C> <C>
US 75/045,859 01/19/1996
CUSTOMER CONNECTED
Country Number Filing Date
US 75/588,599 11/10/1998
DELIVERING WHAT NATURE INTENDED
Country Number Filing Date
Australia 782607 01/08/1999
Canada 1,001,411 01/07/1999
European 001037589 01/08/1999
Japan To be assigned 01/11/1999
US 75/517,018 07/10/1998
HAUSER CERTIFIED ASSAY AND DESIGN
Country Number Filing Date
Canada 896,552 11/16/1998
US 75/485,921 05/15/1998
TT550
Country Number Filing Date
Australia 782606 01/08/1999
Canada 1,001,412 01/07/1999
European 001036656 01/07/1999
Japan To be assigned 01/11/1999
US 75/516,904 07/10/1998
</TABLE>
<PAGE>
Exhibit B
to
Collateral Assignment
ADDRESSES FOR NOTICE
Party Mailing Address
Exhibit 10.6
COLLATERAL ASSIGNMENT OF PATENTS
AND PATENT APPLICATIONS
THIS COLLATERAL ASSIGNMENT OF PATENTS AND PATENT APPLICATIONS is made as of
June 11, 1999 between Hauser, Inc., a Colorado corporation (the
"Assignor"), and Wells Fargo Bank, National Association (the "Assignee").
W I T N E S S E T H:
WHEREAS, the Assignor is the owner of certain patents and patent
applications listed in Exhibit A attached to this document; and
WHEREAS, Assignor, Assignee and certain subsidiaries of Assignor have
entered into a Credit Agreement dated as of June 11, 1999 (as from time to
time amended, modified or supplemented, the "Credit Agreement"), pursuant
to which, upon the satisfaction of the terms and conditions contained
therein, Assignee will make loans to Assignor and the abovementioned
subsidiaries of Assignee; and
WHEREAS, pursuant to the Credit Agreement, Assignor has agreed to grant
Assignee a security interest in all of its right, title and interest in and
to the patents and patent applications described in Exhibit A as collateral
security for the Obligations as defined in the Credit Agreement; and
WHEREAS, except as noted on Exhibit A attached to this document, Assignor
is the owner of the entire right, title and interest in the patents and
patent applications being assigned hereby.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, Assignor hereby:
1. Assigns, pledges and grants to Assignee, as security for the
Obligations, a security interest in and to the patents and patent
applications listed in Exhibit A attached to this document.
2. Authorizes and requests the Commissioner of Patents and Trademarks
of the United States of America and the empowered officials of all other
governments to note in the record the existence of the security interest
granted hereunder with respect to each of the patents and patent
applications listed in Exhibit A attached to this document.
3. Acknowledges that notices and other communications shall be in
writing and given as provided in Section 8.01 of the Credit Agreement.
Communications and notices to Assignor shall be given to it at its address
set forth in Exhibit B attached to this document.
4. Agrees upon the request of Assignee and at the expense of Assignors
to take any reasonable actions and execute any documents necessary to
effectuate this assignment and the security interest created in the patents
and patent applications listed in Exhibit A to this document.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be signed
by
its authorized officer as of the day and year first above written.
ASSIGNEE:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:
Name:
Title:
ASSIGNOR:
HAUSER, INC.
By:
Name:
Title:
Exhibit 10.7
Exhibit 4.01-B
to
Credit Agreement
AMENDED AND RESTATED SECURITY AGREEMENT dated as of June 11,
1999, among Zuellig Botanical Extracts, Inc., a Delaware corporation,
ZetaPharm, Inc., a New York corporation, Wilcox Drug Company, Inc., a
Delaware corporation (each, a "Debtor" and collectively, the "Debtors"),
and Wells Fargo Bank, National Association (the "Secured Party").
Each of the Debtors has previously executed a Continuing Guaranty
in favor of the Secured Party, dated as of December 8, 1998 (each a
"Guaranty"), pursuant to which it has guaranteed the obligations of Zuellig
Group N.A., Inc. ("ZGNA") to the Secured Party under that certain Credit
Agreement dated as of December 8, 1998 between ZGNA and the Secured Party
(the "Prior Credit Agreement"; such obligations of ZGNA are referred to
below as the "Guaranteed Indebtedness").
Each of the Debtors has previously granted to the Secured Party,
pursuant to a Third Party Security Agreement dated as of December 8, 1998,
as amended (each, an "Original Security Agreement"), a security interest in
certain Collateral (as defined in such Original Security Agreement) as
security for the performance of its obligations under its Guaranty.
Reference is hereby made to the Credit Agreement dated as of
June 11, 1999 (as amended, supplemented or modified from time to time, the
"Credit Agreement") among the Debtors, Hauser, Inc., Shuster Laboratories,
Inc. and the Secured Party. Terms used herein as defined terms and not
otherwise defined herein shall have the meanings given thereto in the
Credit Agreement. The Secured Party has agreed to make Loans to the
Debtors and the other Borrowers, all upon the terms and subject to the
conditions specified in the Credit Agreement. The obligation of the
Secured Party to make Loans is conditioned on, among other things, the
grant by each Debtor to the Lender of a security interest in all of such
Debtor's Collateral (as hereinafter defined).
The Guaranteed Indebtedness will be satisfied simultaneously with the
making of the initial Loans pursuant to the Credit Agreement. The Debtors
and the Secured Party intend and agree that: (i) simultaneously therewith,
the obligations of the Debtors in connection with the transactions
contemplated by the Credit Agreement ("New Obligations") shall be
substituted for the obligations of the Debtors in respect of the Guaranteed
Indebtedness; (ii) the security interest granted by each Debtor to the
Secured Party pursuant to its Original Security Agreement, and the Secured
Party's status as the holder of a perfected security interest in the assets
of each Debtor, shall remain in full force and effect notwithstanding such
substitution; and (iii) the New Obligations will be secured by the
Collateral simultaneously with the satisfaction of the Guaranteed
Indebtedness. Consequently, the Debtors and the Secured Party have agreed
to amend and restate the Original Security Agreement as herein set forth.
NOW, THEREFORE, the parties agree that the Original Security
Agreement is hereby amended and restated in its entirety to read as
follows:
ARTICLE I.
Section 1.01 Definitions. In addition to the terms defined above, the
following words and terms shall have the respective meanings as follows:
"Account Debtor" shall mean any Person who is or may become
obligated under, with respect to or on account of an Account Receivable.
"Accounts Receivable" shall mean in respect of any Debtor, (i)
all present and future "accounts," "chattel paper" and "documents," as such
terms are defined in the Uniform Commercial Code in effect in any
applicable jurisdiction, of such Debtor, (ii) without limiting the
foregoing, all right, title and interest, and all the rights, remedies,
security and Liens, in, to and in respect of any Accounts Receivable of
such Debtor, including, without limitation, all right, title and interest
of such Person in any returned goods, all guaranties or other contracts of
suretyship with respect to Accounts Receivable, deposits, or other security
for the obligation of any Account Debtor, any credit or other insurance,
any rights to stoppage in transit, replevin, reclamation, or resale, and
(iii) without limiting the foregoing, all right, title and interest of such
Debtor in, to and in respect of invoices or other documents or instruments
with respect to, or otherwise representing or evidencing, any Account
Receivable.
"Agreement" shall mean this Security Agreement, as it shall be
amended, supplemented or otherwise modified from time to time.
"Collateral" shall mean and collectively refer to all of the
present and future right, title and interest of each Debtor in (i) all of
its Accounts Receivable, General Intangibles, Inventory, Equipment and
Records, and all other personal property of such Debtor and (ii) all
Proceeds, rent, issues, profits, and products of, and all distributions and
collections in respect of, the foregoing property described in clause (i);
in each case whether now owned or hereafter acquired and wherever located.
"Collateral Assignment" means the Collateral Assignment of
Trademarks, Trademark Applications, Patents and Patent Applications
substantially in the form of Exhibit 1.01-A to this Agreement.
"Equipment" shall mean, in respect of any Debtor, all present and
future machinery, equipment (including all manufacturing, warehouse, and
office equipment), fixtures, trade fixtures, engineering drawings and
diagrams, tools and tooling (including any rights in respect of tools or
tooling in the possession of others), computer and other data processing
equipment, furniture, office, production or data processing supplies on
hand or in transit, other miscellaneous supplies and other tangible
property of any kind now owned or hereafter acquired by such Debtor or in
which such Debtor now has or may hereafter acquire any right, title or
interest and wheresoever located, in all its forms, including, without
limitation, all "equipment" of such Debtor within the meaning of the
Uniform Commercial Code in effect in any applicable jurisdiction, and all
such property located in any plant, warehouse, office or other space
leased, owned or occupied by such Debtor and all of such Debtor's interest
in all leasehold improvements and any and all additions, accessions and
appurtenances thereto, substitutions therefor and replacements thereof,
together with all attachments, components, parts and accessories installed
thereon or affixed thereto.
"General Intangibles" shall mean, in respect of any Debtor, all
general intangibles of such Person of every nature, whether now existing or
hereafter acquired, arising or created, and shall include, in any event,
all "general intangibles" within the meaning of the Uniform Commercial Code
in effect in any applicable jurisdiction, and, without limiting the
foregoing, all Intellectual Property, all goodwill and deposit accounts and
all contracts, causes of action and choses in action, suits, judgments,
statutory and other claims and demands, whether or not now known to exist,
including in respect of intercompany loans, and including all Federal,
state and other income tax refunds of such Person and all rights and claims
of subrogation, recoupment, contribution or indemnity (whether in equity,
at law, by contract or otherwise) of such Person against any other Person,
including any letter of credit, guarantee, claim, security interest, or
other security held to secure payment by an Account Debtor of any Account
Receivable.
"Intellectual Property" shall mean, in respect of any Debtor, all
intellectual and similar property of such Debtor of every kind and nature
now owned or hereafter acquired by such Debtor, including inventions,
designs, patents, patent applications, copyrights, copyright registrations,
applications to register copyrights, licenses, trademarks (including
service marks), trademark or service mark applications, trade names, trade
secrets, inventions, discoveries, processes, formulae, techniques,
scientific, technical or marketing data, confidential or proprietary
technical and business information, know-how, show-how or other data or
information, software and databases and all embodiments or fixations
thereof and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records describing
or used in connection with, any of the foregoing.
"Inventory" shall mean, in respect of any Debtor, all present and
future inventory of such Debtor of every type or description, including all
goods now owned or hereafter acquired, held for sale or lease, or furnished
or to be furnished under contracts of service or consumed in such Debtor's
business (including all such goods that have been returned or repossessed),
whether raw, in process or finished, all materials or equipment useable in
processing the same, scrap inventory, spare parts, all supplies, all
packaging materials, all documents of title covering any inventory and all
additions and accessions thereto, and shall include, in any event, all
"inventory" within the meaning of the Uniform Commercial Code in effect in
any applicable jurisdiction, wherever located.
"Obligations" shall mean, collectively, (a) the due and punctual
payment of (i) the principal of and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Loans when and as due, whether at maturity, by
acceleration, upon one or more dates on which repayment or prepayment is
required, or otherwise, (ii) each payment required to be made by the
Debtors or any other Borrower under the Credit Agreement in respect of any
Letter of Credit when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide
cash collateral and (iii) all other monetary obligations, including fees,
costs, expenses and indemnities, whether primary, secondary, direct,
contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding), of the Debtors or any other Borrower to the Secured Party
under the Credit Agreement or any other Loan Documents (including this
Agreement), and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Debtors or any other
Borrower under or pursuant to the Credit Agreement and under the other Loan
Documents (including this Agreement).
"Perfection Certificate" shall have the meaning given thereto in
Section 2.02(c).
"Proceeds" shall have the meaning assigned to it under the
Uniform Commercial Code and, in any event, shall include but not be limited
to any consideration received from the sale, exchange, lease or other
disposition of any asset or property which constitutes Collateral, any
distribution in respect thereof or payment or collection thereon, and any
payment received from any insurer or other Person as a result of the
destruction, loss, theft or other involuntary conversion of whatever nature
of any asset or property that constitutes Collateral, and shall include all
cash and negotiable instruments received or held by the Secured Party
pursuant to any lockbox or similar arrangement relating to the payment of
Accounts Receivable.
"Records" shall mean, in respect of any Debtor, all instruments,
files, ledgers and books of account and other records of such Debtor,
including all customer lists, computer programs, computer disks and tapes,
printouts and other materials upon which is stored any information relating
to such Debtor's business, now owned or hereafter acquired, wherever
located.
Section 1.02 Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation." All references herein to Articles, Sections,
Exhibits, and Schedules shall be deemed references to Articles and Sections
of, and Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. References to provisions of statutes, rules,
regulations, and other documents shall be deemed to include successor
provisions thereto. Except as otherwise expressly provided herein, all
terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time.
ARTICLE II.
Section 2.01 Security Interest. As security for the due and punctual
payment and performance of the Obligations, each Debtor hereby mortgages,
pledges, assigns, transfers, sets over, hypothecates, conveys, grants and
delivers to the Secured Party, for the benefit of the Secured Party, a
first priority security interest in all of such Debtor's right, title and
interest in, to and under the Collateral.
Section 2.02 Representations, Warranties and Covenants. Each Debtor
hereby represents and warrants to, and covenants with, the Secured Party,
as follows:
(a) Except for the foregoing security interest granted to the Secured
Party, such Debtor is and will at all times continue to be the direct owner
of, and have good and marketable title to the Collateral in respect of
which it has purported to grant a security interest hereunder, free and
clear of all Liens, and has not made and will not make any assignment,
pledge, hypothecation or transfer of, or create or suffer to exist any Lien
on, any such Collateral other than in favor of, and for the benefit of, the
Secured Party.
(b) Such Debtor (i) has, and at all times will have,
good right and full legal power and authority to grant, confirm and
continue the security interest granted hereunder and to execute, deliver
and perform its obligations hereunder, all without the consent or approval
of any party, other than any such consent or approval as has been obtained
and (ii) will defend its title and interest to the Collateral and the
security interest (and priority thereof) of the Secured Party against any
and all attachments, Liens or other impediments of any nature, however
arising, of all persons whomsoever.
(c) The Perfection Certificate in the form of Exhibit
2.02 hereto (the "Perfection Certificate") has been duly prepared,
completed and executed and the information set forth therein is correct and
complete. Fully executed Uniform Commercial Code financing statements or
other appropriate filings, recordings or registrations (other than the
Collateral Assignment and, in respect of copyrights, such as would be made
in the United States Copyright Office) containing descriptions of the
Collateral have been filed in each governmental, municipal or other office
specified in Schedule 6 to the Perfection Certificate, which are all the
filings, recordings and registrations that are necessary to publish notice
of and protect the validity of and to establish a valid and perfected
security interest in favor of the Secured Party in respect of all
Collateral (other than copyrights, to the extent that recordings and
registration in the United States Copyright Office may be necessary and
other than with respect to the Intellectual Property described in the
Collateral Assignment) in which the security interest granted hereunder may
be perfected by filing, recording or registration in the United States (or
any political subdivision thereof) and its territories and possessions, and
no further or subsequent filing, refiling, recording, rerecording,
registration or reregistration is necessary in any such jurisdiction,
except (i) as provided under applicable law with respect to the filing of
continuation statements, (ii) that recordation in addition to registration
of any unregistered copyrights in the United States Copyright Office may be
necessary with respect to Collateral consisting of copyrights, and (iii)
that recordation of the Collateral Assignment with the United States Patent
and Trademark Office ("PTO") is necessary with respect to the Collateral
described in the Collateral Assignment.
(d) Such Debtor will not (i) change its chief
executive office or Taxpayer Identification Number or remove its Records,
except if otherwise permitted hereunder and if to a location within the
continental United States and upon at least thirty (30) days' prior written
notice to the Secured Party thereof or (ii) change its name (or do business
under other names), identity or structure (including by merger or
consolidation, whether or not permitted under the Credit Agreement) unless
the Secured Party shall have received at least thirty (30) days' prior
notice thereof and (in any such case under clause (i) or (ii)) prior to
effecting or permitting any such change such Debtor shall have taken such
action, satisfactory to the Secured Party, to maintain the security
interest of the Secured Party in all the Collateral granted hereunder at
all times valid, fully perfected and in full force and effect.
(e) Such Debtor shall not permit or suffer any of the
Equipment or Inventory to be located at any place other than the locations
specified in the Perfection Certificate (except in connection with sales of
such Inventory permitted in the ordinary course of business) unless the
Secured Party shall have received thirty (30) days' prior written notice
thereof and such Debtor shall have taken such action, satisfactory to the
Secured Party, to maintain the security interest in such Equipment or
Inventory at all times following such change of location valid, fully
perfected and in full force and effect.
(f) Such Debtor shall at all times keep such accurate
and complete accounting records with respect to the Collateral as is
consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar
to those in which such Debtor is engaged and, at such time or times as the
Secured Party may reasonably request, promptly prepare and deliver to the
Secured Party a duly certified schedule or schedules in form and detail
reasonably satisfactory to the Secured Party showing the identity, amount
and location of any and all Collateral.
(g) The security interest of the Secured Party
hereunder constitutes a valid security interest in all the Collateral, and
such security interest secures the payment and performance of the
Obligations, prior to any other Lien in any of the Collateral.
(h) The security interest of the Secured Party
hereunder constitutes a fully perfected security interest in all of the
Collateral in which a security interest may be perfected by filing or
recording except (i) for recordation or registration in respect of
copyrights) and (ii) to the extent that perfection of such security
interest in the Intellectual Property described in the Collateral
Assignment depends upon recordation of such Collateral Assignment with the
PTO, as to which, when the Collateral Assignment is recorded with the PTO,
the security interest of the Secured Party hereunder shall be a fully
perfected security interest in such Intellectual Property.
(i) Such Debtor has not and will not consent to the
filing or recording by any Person of, or in respect of, any Lien in any
Collateral (except by or on behalf of the Secured Party in respect of the
security interest hereunder).
Section 2.03 No Assumption of Liability. The security interest
hereunder is granted as security only and shall not subject the Secured
Party to, or in any way alter or modify, any obligation or liability of any
Debtor with respect to or arising out of any of the Collateral. Each
Debtor shall remain liable to, at its own cost and expense, duly and
punctually observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Debtor agrees to indemnify and hold harmless the Secured
Party from and against any and all liability for such performance.
Section 2.04 Periodic Certification. Each year, at the time that
delivery of annual financial statements with respect to the preceding
fiscal year is required pursuant to the Credit Agreement, each Debtor shall
deliver to the Secured Party a certificate executed by the chief financial
officer of such Debtor setting forth the information required pursuant to
Section 2 of the Perfection Certificate.
Section 2.05 Matters Relating to Collateral.
(a) Each Debtor agrees, at its expense, to execute, acknowledge, deliver
and cause to be duly filed all such further instruments and documents and
take all such actions as the Secured Party may from time to time reasonably
request to better assure, preserve, protect and perfect the security
interest and the rights and remedies created hereby, including the payment
of any fees and taxes required in connection with the execution and
delivery of this Agreement, the granting of the security interest hereunder
and the filing of any financing statements or other documents in connection
herewith. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument (other than a check issued in payment in the ordinary course of
business and timely deposited), such note or instrument shall be
immediately pledged and delivered to the Secured Party, duly endorsed in a
manner satisfactory to the Secured Party (and shall be received and held
uncommingled in trust for the benefit of the Secured Party pending such
endorsement and delivery).
(b) The Secured Party and such persons as the Secured Party may
reasonably designate shall have the right, at any reasonable time or times
upon reasonable notice and at the respective Debtor's own cost and expense,
to inspect the Collateral, all Records related thereto (and to make
extracts and copies from such Records) and the premises upon which any of
the Collateral is located, to discuss any Debtor's affairs with the
officers of such Debtor and its independent accountants and to verify under
reasonable procedures the validity, amount, quality, quantity, value,
condition and status of or any other matter relating to, the Collateral,
including, in the case of Accounts Receivable or Collateral in the
possession of any third party, by contacting Account Debtors or the third
party in possession of such Collateral for the purpose of making such a
verification.
(c) At its option, the Secured Party may discharge past due taxes,
assessments, charges, fees or Liens, at any time levied or placed on the
Collateral (or any part thereof), and may pay for the maintenance and
preservation of the Collateral to the extent any Debtor fails to do so as
required by this Agreement or the other Loan Documents, and each Debtor
agrees to reimburse the Secured Party on demand for any payment made or any
reasonable and documented expense incurred by the Secured Party pursuant to
the foregoing authorization; provided, however, that nothing in this
paragraph shall be interpreted as excusing any Debtor from the performance
of, or imposing any obligation on the Secured Party to cure or perform, any
covenants or other promises of any Debtor with respect to taxes,
assessments, charges, fees or Liens or maintenance as set forth herein or
in the other Loan Documents.
(d) If at any time any Debtor shall take and perfect a security interest
in any property of an Account Debtor or any other Person to secure payment
and performance of an Account Receivable, such Debtor shall promptly assign
such security interest to the Secured Party. Such assignment need not be
filed of public record unless necessary to continue the perfected status of
the security interest against creditors of and transferees from the Account
Debtor or other person granting the security interest.
Section 2.06 Use of Collateral. The Debtors may use but not dispose
of the Collateral in any lawful manner not inconsistent with the provisions
of this Agreement, the Credit Agreement or any other Loan Document, except
that the Debtors may dispose of Collateral (including sale of Inventory in
the ordinary course of business) to the extent expressly permitted by
provisions of the Loan Documents. Without limiting the generality of the
foregoing, each Debtor agrees that it shall not permit any Inventory to be
in the possession or control of any warehouseman, bailee, agent or
processor at any time unless such warehouseman, bailee, agent or processor
shall have been notified of the security interest hereunder and shall have
agreed in a writing in form and substance reasonably satisfactory to the
Secured Party to hold the Inventory subject to the security interest
hereunder and the instructions of the Secured Party and to waive and
release any Lien held by it with respect to such Inventory, whether arising
by operation of law or otherwise.
Section 2.07 Modifications, etc.
(a) None of the Debtors will, without the Secured
Party's prior written consent, grant any extension of the time of payment
of any of the Accounts Receivable, compromise, compound or settle the same
for less than the full amount thereof, release, wholly or partly, any
person liable for the payment thereof or allow any credit or discount
whatsoever thereon, other than extensions, credits, discounts, compromises
or settlements granted or made in the ordinary course of business and
consistent with prior practice. After a default or an Event of Default
shall have occurred and during the continuation thereof, the Secured Party
may notify the Debtors not to grant or make any such extension, credit,
discount, compromise, or settlement under any circumstances without its
prior written consent.
(b) Without limiting any other provisions of this Agreement, upon the
occurrence and during the continuation of an Event of Default, the Secured
Party may, in its sole discretion, in its name or in the name of any
Debtor, or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to,
any of the Collateral, but shall be under no obligation to do so, and the
Secured Party may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the
Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any liability of, any Debtor. The Secured Party will
not be required to take any steps to preserve any rights against prior
parties to the Collateral. The Secured Party may (but shall not be
obligated to), after notice to any Debtor, make such payments and take all
such other action as the Secured Party deems necessary to protect its
security interest in the Collateral hereunder and/or the value thereof, and
the Secured Party is hereby authorized (without limiting the general nature
of any authority elsewhere herein conferred) to pay, purchase, contest, or
compromise any Lien on any of the Collateral.
ARTICLE III.
Section 3.01 Remedies, Possession, Sale of Collateral, etc.
(a) Upon the occurrence and during the continuation
of an Event of Default, each Debtor agrees to deliver each item of
Collateral to the Secured Party on demand, and it is agreed that the
Secured Party shall have the right (subject to applicable law) to take any
of or all the following actions at the same or different times: (i) in
respect of any Collateral consisting of Intellectual Property, on demand,
to cause the security interest hereunder therein to become an assignment,
transfer and conveyance of any or all such Collateral by such Debtor to the
Secured Party; or to license or, to the extent permitted by applicable law,
sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any such Collateral throughout the world
on such terms and conditions and in such manner as the Secured Party shall
determine (other than in violation of any then-existing licensing
arrangements to the extent that waivers cannot be obtained), and (ii) with
or without legal process and with or without previous notice or demand for
performance, to take possession of the Collateral and without liability for
trespass to enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral, to demand and
receive Collateral from any Person in possession thereof, to take such
measures as it may deem necessary or proper for the care or protection
thereof, and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law.
Without limiting the generality of the foregoing, the Secured Party may
sell or cause to be sold, whenever it shall decide, in one or more sales or
parcels, at such prices as it may deem best, and for cash, on credit or for
future delivery, without assumption of any credit risk, all or any portion
of the Collateral, at any broker's board or at public or private sale,
without demand of performance or notice of intention to sell or of time or
place of sale (except ten (10) days' written notice to the Debtors of the
time and place of such sale, which the Debtors hereby agree to be
commercially reasonable, and such other notices as may be required by
applicable statute and cannot be waived), the Secured Party shall have the
right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold, and any Person may be the purchaser of all
or any portion of the Collateral so sold and thereafter hold the same
absolutely, free from any claim or right of whatever kind, including any
equity of redemption of any Debtor, any such demand, notice, claim, right
or equity being hereby expressly waived and released. At any sale or sales
made pursuant to this Agreement, the Secured Party may bid for or purchase,
free from any claim or right of whatever kind, including any equity of
redemption of any Debtor, any such demand, notice, claim, right or equity
being hereby expressly waived and released, all or any portion of the
Collateral offered for sale, and may make any payment on account thereof by
using any claim for money then due and payable to the Secured Party from
any Debtor as a credit against the purchase price, and may hold, retain and
dispose of such property without further accountability to such Debtor in
respect thereof. At any such sale, the Collateral, or portion thereof, to
be sold may be sold in one lot as an entirety or in separate parcels, as
the Secured Party may (in its sole and absolute discretion) determine. The
Secured Party shall not be obligated to make any sale of any Collateral if
it shall determine not to do so, regardless of the fact that notice of sale
of such Collateral shall have been given. The Secured Party may, without
notice or publication, except as may be required by applicable statute and
cannot be waived, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed
for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by the Secured Party until the sale
price is paid in full by the purchaser or purchasers thereof, but the
Secured Party shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again as if not
previously so sold. For purposes hereof, (i) a written agreement to
purchase the Collateral or any portion thereof shall be treated as a sale
thereof, (ii) the Secured Party shall be free to carry out such sale
pursuant to such agreement and (iii) no Debtor shall be entitled to the
return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Secured Party shall have entered
into such an agreement all Events of Default shall have been remedied and
the Obligations paid in full. The Secured Party shall in any such sale
have no obligation or responsibility whatsoever to make any representations
or warranties with respect to the Collateral or any part thereof, and shall
not be chargeable with any of the obligations or liabilities of any Debtor.
As an alternative to exercising the power of sale herein conferred upon it,
the Secured Party may proceed by a suit or suits at law or in equity to
foreclose upon the Collateral and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver. Any sale pursuant to the provisions of this Section shall be
deemed to conform to the commercially reasonable standards as provided in
Section 9-504(3) of the Uniform Commercial Code as in effect in the State
of California or its equivalent in other jurisdictions.
(b) Each Debtor hereby agrees that it will indemnify and hold the Secured
Party, and its officers, directors, employees, agents and representatives
harmless (except for their own wilful misconduct or gross negligence) from
and against any and all claims with respect to the Collateral asserted both
before and after the taking of actual possession or control of the
Collateral by the Secured Party pursuant to this Agreement, or arising out
of any act or omission of any party other than the Secured Party prior to
such taking of actual possession or control by the Secured Party, or
arising out of any act or omission of such Debtor, or any agents thereof,
before or after the commencement of such actual possession or control by
the Secured Party. In any action hereunder the Secured Party shall be
entitled to the appointment, without notice, of a receiver to take
possession of all or any portion of the Collateral and to exercise such
powers as the court shall confer upon such receiver. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, and during the
continuation of such Event of Default, the Secured Party shall be entitled
to apply, without prior notice to any Debtor, any cash or cash items
constituting Collateral in the possession of the Secured Party to payment
of the Obligations.
Section 3.02 Grant of License to Use Intellectual Property. Subject
to any exclusive license heretofore granted by any Debtor to any Person,
for the purpose of enabling the Secured Party to exercise its rights and
remedies hereunder, each Debtor hereby grants to the Secured Party an
irrevocable, non-exclusive license (exercisable without payment of royalty
or other compensation to such Debtor) to use, license or sublicense any of
the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Debtor to the extent of the interest of such Debtor
therein at such time, and wherever the same may be located, and including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and to all computer software and programs
used for the compilation or printout thereof. The use of such licenses by
the Secured Party shall be exercised, at the option of the Secured Party
upon the occurrence and during the continuation of an Event of Default,
provided that any license, sublicense or other transaction entered into by
the Secured Party in accordance herewith shall be binding upon each Debtor
notwithstanding any subsequent cure of an Event of Default. In operating
under the license granted by each Debtor pursuant to this Section, the
Secured Party agrees that the goods sold and services rendered under the
trademarks included in the Intellectual Property shall be of a nature and
quality substantially consistent with those theretofore offered under the
trademarks by such Debtor and such Debtor shall have the right to inspect
during the term of such license, at any reasonable time or times upon
reasonable notice to the Secured Party, and at such Debtor's own cost and
expense, representative samples of goods sold and services rendered under
the trademarks.
Section 3.03 Application of Proceeds.
(a) Each Debtor hereby agrees that it shall upon the occurrence and
during the continuation of an Event of Default, (i) immediately turn over
to the Secured Party any instruments (with appropriate endorsements) or
other items constituting Collateral not then in the possession of the
Secured Party, the possession of which is required for the perfection of
the Secured Party's security interest, each of which shall be held in trust
for the benefit of the Secured Party and not commingled prior to its coming
into the Secured Party's possession, and (ii) take all steps necessary to
cause all sums, monies, royalties, fees, commissions, charges, payments,
advances, income, profits and other amounts constituting Proceeds of any
Collateral to be deposited directly in an account of the Debtors (or any of
them) with the Secured Party and to cause the same to be applied to the
satisfaction of the Obligations.
(b) All proceeds from any collection or sale of the Collateral pursuant
hereto, all Collateral consisting of cash, and all deposits in accounts of
any Debtor with the Secured Party shall be applied (i) first, to the
payment of the fees and expenses of the Secured Party incurred pursuant to
this Agreement or any other Loan Document, including costs and expenses of
collection or sale, reimbursement of any advances, and any other costs or
expenses in connection with the exercise of any rights or remedies
hereunder or thereunder (including reasonable fees and disbursements of
counsel, including counsel employed in-house by the Secured Party), (ii)
second, to the payment in full of the Obligations owed to the Secured Party
in respect of the Loans and LC Disbursements, and (iii) third, to the
payment of the Obligations (other than those referred to above). Any
amounts remaining after such applications shall be remitted to the Debtors
or as a court of competent jurisdiction may otherwise direct. The Secured
Party shall have absolute discretion as to the time of application of any
such proceeds, cash or balances in accordance with this Agreement.
Section 3.04 Power of Attorney.
(a) Each Debtor does hereby irrevocably make, constitute and appoint the
Secured Party or any officer or designee thereof its true and lawful
attorney-in-fact with full power in the name of the Secured Party, and of
such Debtor, with power of substitution, to, upon the occurrence and during
the continuation of an Event of Default, receive, open and dispose of all
mail addressed to such Debtor, to endorse any note, check, draft, money
order, or other evidence of payment relating to the Collateral that may
come into the possession of the Secured Party, with full power and right to
cause the mail of such Debtor to be transferred to the Secured Party's own
offices or otherwise; to communicate with any Account Debtor in respect of
any Accounts Receivable; to commence or prosecute any suits, actions or
proceedings to collect or otherwise realize upon any Collateral or enforce
any rights in respect thereof, to settle, compromise, adjust or defend any
claims in respect of any Collateral; to notify any Account Debtors or
otherwise require them to make payment directly to the Secured Party; to
use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do any and all
other acts necessary or proper to carry out the intent of this Agreement
and each other Loan Document and the grant, confirmation and continuation
of the security interests hereunder and thereunder. Such power of attorney
is coupled with an interest and is irrevocable, and shall survive the
bankruptcy, insolvency or dissolution of any or all of the Debtors.
Nothing herein contained shall be construed as requiring or obligating the
Secured Party to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by the Secured Party, or to
present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in
respect thereof or any property covered thereby. The Secured Party shall
be accountable only for amounts actually received as a result of the
exercise of the powers granted to it herein, and neither it nor its
officers, directors, employees or agents shall be responsible to any Debtor
for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct. The provisions of this Section shall in
no event relieve any Debtor of any of its obligations hereunder or under
the other Loan Documents with respect to the Collateral or any part thereof
or impose any obligation on the Secured Party to proceed in any particular
manner with respect to the Collateral or any part thereof, or in any way
limit the exercise by the Secured Party of any other or further right that
it may have on the date of this Agreement or hereafter, whether hereunder,
under any other Loan Document, by law or otherwise. Any sale of Collateral
pursuant to the provisions of this Section shall be deemed to conform to
the commercially reasonable standards as provided in Section 9-504(3) of
the Uniform Commercial Code as in effect in the State of California or its
equivalent in other jurisdictions.
(b) Without limiting the preceding paragraph, each Debtor does hereby
further irrevocably make, constitute and appoint the Secured Party or any
officer or designee thereof its true and lawful attorney-in-fact with full
power in the name of the Secured Party, and of such Debtor, with power of
substitution, (i) to enforce all of such Debtor's rights under and pursuant
to all agreements with respect to the Collateral, all for the sole benefit
of the Secured Party, (ii) to enter into and perform such agreements as may
be reasonably necessary in order to carry out the terms, covenants and
conditions of this Agreement that are required to be observed or performed
by such Debtor, (iii) to execute such other and further mortgages, pledges
and assignments of the Collateral and filings or recordations in respect
thereof as the Secured Party may require for the purpose of protecting,
maintaining or enforcing the security interest of the Secured Party
hereunder, (iv) to act as authorized in Section 3.05, and (v) to do any and
all other things reasonably necessary or proper to carry out the intention
of this Agreement and the grant, confirmation, continuation and perfection
of the security interests hereunder. Such power of attorney is coupled
with an interest and is irrevocable, and shall survive the insolvency,
bankruptcy, or dissolution of any or all of the Debtors.
Section 3.05 Financing Statements, Direct Payments, Confirmation of
Receivables and Audit Rights. Each Debtor hereby authorizes the Secured
Party to file Uniform Commercial Code financing statements (and any other
filings) required in connection with the perfection or preservation of the
security interest hereunder in respect of all or any part of the
Collateral, and amendments thereto and continuations thereof with regard to
such Collateral, without its signature, or, in the alternative, to execute
such items on behalf of such Debtor pursuant to the powers of attorney
granted in the preceding Section. Each Debtor further authorizes the
Secured Party to confirm with any Account Debtor the amounts payable to
such Debtor with regard to the Collateral and to participate with such
Debtor in the audits of its respective Account Debtors. Each Debtor hereby
further authorizes the Secured Party upon the occurrence and during the
continuation of an Event of Default to notify any Account Debtor that all
sums payable to such Debtor relating to the Collateral shall be paid
directly to the Secured Party.
Section 3.06 Termination. The security interest granted hereunder
shall terminate when all the Obligations have been fully, finally and
indefeasibly paid and performed, the Total Exposure of the Secured Party
shall be zero, and the Commitments of the Secured Party shall have
terminated. Thereupon, the Secured Party will execute and deliver, at each
Debtor's expense, Uniform Commercial Code termination statements reasonably
requested by such Debtor evidencing the release of the security interest
hereunder, all without recourse to or warranty by the Secured Party.
Section 3.07 Remedies Not Exclusive. The remedies conferred upon or
reserved to the Secured Party in this Article and elsewhere in this
Agreement are intended to be in addition to, and not in limitation of, any
other remedy available to the Secured Party.
ARTICLE IV.
MISCELLANEOUS
Section 4.01 No Discharge. All rights of the Secured Party hereunder,
the security interest granted hereunder, and the obligations of each Debtor
under this Agreement shall be absolute and unconditional and shall remain
in full force and effect without regard to, and shall not be released,
discharged or in any way diminished by (i) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document (including
this Agreement), any agreement with respect to any of the Obligations or
any other agreement or instrument relating to any of the foregoing, (ii)
any change in the time, manner or place of payment of, or in any other term
of, all or any of the Obligations or any other amendment or waiver of or
any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to the foregoing,
(iii) any exchange, release or nonperfection of any other collateral, or
any release or amendment or waiver of or consent to or departure from any
guaranty, for all or any of the Obligations, (iv) any exercise or
nonexercise by the Secured Party of any right, remedy, power or privilege
under or in respect of this Agreement, any other Loan Document or
applicable law, including, without limitation, any failure by the Secured
Party to setoff or release in whole or in part any balance of any deposit
account or credit on its books in favor of any Debtor or any waiver,
consent, extension, indulgence or other action or inaction in respect of
any thereof, or (v) any other act or thing or omission or delay to do any
other act or thing which may or might in any manner or to any extent vary
the risk of any Debtor or would otherwise, but for this specific provision
to the contrary, operate as a discharge of or exonerate any Debtor as a
matter of law.
Section 4.02 Amendment; Waiver. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by any Debtor
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Secured Party. Any such waiver, consent or
approval shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on any Debtor in any case
shall entitle any Debtor to any other or further notice or demand in the
same, similar or other circumstances. No waiver by the Secured Party of
any breach or default of or by any Debtor under this Agreement shall be
deemed a waiver of any other previous breach or default or any thereafter
occurring.
Section 4.03 Survival; Severability.
(a) All covenants, agreements, representations and warranties made by the
Debtors herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other
Loan Document shall be considered to have been relied upon by the Secured
Party and shall survive the making by the Secured Party of the Loans, and
the execution and delivery to the Secured Party of the Notes evidencing
such Loans, regardless of any investigation made by the Secured Party or on
its behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any other fee or amount
payable under this Agreement or any other Loan Document is outstanding and
unpaid or the LC Exposure does not equal zero and as long as the
Commitments have not been terminated.
(b) Any provision of this Agreement that is illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such illegality, invalidity or
unenforceability without invalidating the remaining provisions hereof or
affecting the legality, validity or enforceability of such provisions in
any other jurisdiction. The parties hereto agree to negotiate in good
faith to replace any illegal, invalid or unenforceable provision of this
Agreement with a legal, valid and enforceable provision that, to the extent
possible, will preserve the economic bargain of this Agreement, or to
otherwise amend this Agreement to achieve such result.
Section 4.04 Successors and Assigns. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Debtor or the Secured Party
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns. No Debtor may assign or transfer
any of its rights or obligations hereunder or any interest herein or in the
Collateral except as expressly contemplated by this Agreement or the other
Loan Documents (and any such attempted assignment shall be void).
Section 4.05 Arbitration. (a) Agreement. Upon the demand of either
the Secured Party or any Debtor (which demand of such Debtor will bind all
of the Debtors), any Dispute shall be resolved by binding arbitration
(except as set forth in paragraph (e) below) in accordance with the terms
of this Agreement. A "Dispute" shall mean any action, dispute, claim or
controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement or any of the
other Loan Documents, or any past, present or future extensions of credit
and other activities, transactions or obligations of any kind related
directly or indirectly to this Agreement or any of the other Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to this Agreement or any of the other Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration
of a Dispute. Any party who fails or refuses to submit to arbitration
following a lawful demand by the other party shall bear all costs and
expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in accordance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in
this Agreement or any of the other Loan Documents. The arbitration shall
be conducted at a location in California selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof and
any such rules, the terms and procedures set forth herein shall control.
All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any
court having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by the Secured Party of the protections
afforded to it under 12 U.S.C. Paragraph 91 or any similar applicable state
law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of the Secured Party to exercise
self-help remedies such as setoff, foreclosure against or sale of any real
or personal property Collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver,
from a court of competent jurisdiction before, after or during the pendency
of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior
to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the State of California,
(ii) may grant any remedy or relief that a court of the State of California
could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount
in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more
than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the State of California, and (iii) the parties shall
have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review
of (A) whether the findings of fact rendered by the arbitrators are
supported by substantial evidence, and (B) whether the conclusions of law
are erroneous under the substantive law of the State of California.
Judgment confirming an award in such a proceeding may be entered only if a
court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the State of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns Collateral comprised of real property
or interests therein unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid and
enforceable. If any such Dispute is not submitted to arbitration, the
Dispute shall be referred to a referee in accordance with California Code
of Civil Procedure Section 638 et seq., and this general reference
agreement is intended to be specifically enforceable in accordance with
said Section 638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA's selection procedures.
Judgment upon the decision rendered by a referee shall be entered in the
court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within one hundred eighty (180) days of the filing
of the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party required in the
ordinary course of its business, by applicable law or regulation, or to the
extent necessary to exercise any judicial review rights set forth herein.
If more than one agreement for arbitration by or between the parties
potentially applies to a Dispute, the arbitration provision most directly
related to this Agreement or the relevant Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of this Agreement and any of
the other Loan Documents or any relationship between the parties.
Section 4.06 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA.
(b) Each Debtor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Superior
Court of the State of California sitting in Los Angeles County and of the
United States District Court for the Central District of California, and
any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement not subject to arbitration under
Section 4.05, or for recognition or enforcement of any judgment or arbitral
award, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such California State or, to the
extent permitted by law, such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
(other than Section 4.05, if applicable) shall affect any right that the
Secured Party may otherwise have to bring any action or proceeding relating
to this Agreement against any Debtor or its properties in the courts of any
jurisdiction.
(c) Each Debtor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any court
referred to in the preceding paragraph. Each of the parties hereto
irrevocably waives, to the fullest extent permitted by law, the defense of
an inconvenient forum to the maintenance of such action or proceeding in
any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 4.08. Nothing in
this Agreement will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
Section 4.07 Headings. The Article and Section headings in this
Agreement are for convenience only and shall not affect the construction
hereof.
Section 4.08 Notices. Notices, consents and other communications
provided for herein shall (except as otherwise expressly permitted herein)
be in writing and given as provided in Section 8.01 of the Credit
Agreement. Communications and notices to any Debtor shall be given to it
at its address set forth in Schedule 4.08 hereto.
Section 4.09 Reimbursement of the Secured Party.
(a) The Debtors jointly and severally agree to pay upon demand to the
Secured Party the amount of any and all reasonable and documented expenses,
including the reasonable and documented fees and expenses of its counsel
(including counsel employed in-house by the Secured Party) and of any
experts or agents, that the Secured Party may incur in connection with (i)
the administration of this Agreement (including the customary fees and
expenses of the Secured Party for any audits conducted by it with respect
to the Accounts Receivable or Inventory), (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of the
Secured Party hereunder, or (iv) the failure by any Debtor to perform or
observe any of the provisions hereof. If the Debtors shall fail to do any
act or thing that they have covenanted to do hereunder or any
representation or warranty of the Debtors hereunder shall be breached, the
Secured Party may (but shall not be obligated to) do the same or cause it
to be done or remedy any such breach and there shall be added to the
Obligations the cost or expense incurred by the Secured Party in so doing.
(b) Without limitation of their indemnification obligations under the
other Loan Documents, the Debtors jointly and severally agree to indemnify
the Secured Party and its officers, directors, employees, agents,
attorneys, and representatives ("Indemnitees") against, and hold each of
them harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating
hereto or to the Collateral, whether or not any Indemnitee is a party
thereto, provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses have resulted from the gross negligence or willful
misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The
provisions of this Section shall remain operative and in full force and
effect regardless of the termination of this Agreement, the consummation of
the transactions contemplated hereby, the repayment of any of the
Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation made by or
on behalf of the Secured Party. All amounts due under this Section shall
be payable on written demand therefor and shall bear interest at the
default rate (as provided in the Credit Agreement).
Section 4.10 Counterparts. (a) This Agreement may be executed in
separate counterparts (telecopy of any executed counterpart having the same
effect as manual delivery thereof), each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
agreement.
Section 4.11 Entire Agreement. Except as expressly herein provided,
this Agreement and the other Loan Documents constitute the entire agreement
among the parties relating to the subject matter hereof. Any previous
agreement among the parties with respect to the transactions contemplated
hereunder is superseded by this Agreement and the other Loan Documents.
Except as expressly provided herein or in the other Loan Documents, nothing
in this Agreement or in any other Loan Document, expressed or implied, is
intended to confer upon any party, other than the parties hereto, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement or such other Loan Documents.
Section 4.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers or
representatives as of the day and year first above written.
SECURED PARTY:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: ______________________________
Name:
Title:
DEBTORS:
ZUELLIG BOTANICAL EXTRACTS, INC.
By: ______________________________
Name:
Title:
ZETAPHARM, INC.
By: ______________________________
Name:
Title:
WILCOX DRUG COMPANY, INC.
By: ______________________________
Name:
Title:
<PAGE>
Schedule 4.08
to
Security Agreement
Addresses for Notice
Party Mailing Address County
<PAGE>
Exhibit 2.02
to
Security Agreement
PERFECTION CERTIFICATE
Reference is made to the Credit Agreement dated as of June 11,
1999 (as supplemented, amended, or modified from time to time, the "Credit
Agreement"), among Hauser, Inc., a Colorado corporation (the "Company"),
Zuellig Botanical Extracts, Inc., a Delaware corporation, ZetaPharm, Inc.,
a New York corporation, Wilcox Drug Company, Inc., a Delaware corporation,
Shuster Laboratories, Inc., a Massachusetts corporation (collectively, the
Borrowers") and Wells Fargo Bank, National Association (the "Lender").
Terms used herein as defined terms and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement and the Security
Documents, as applicable.
The Borrowers have granted to the Lender security interests pursuant
to the Security Documents.
The undersigned, the Chief Financial Officer of the Company, does
hereby certify to the Lender as follows:
1. Names. (a) The exact name of each Borrower, as such name
appears in its respective currently effective certificate of incorporation,
is as set forth on Schedule la hereto.
(b) Set forth on Schedule lb hereto is each other name each
Borrower has had since its organization, together with the date of the
relevant change.
(c) Except as set forth in Schedule 1c hereto, no Borrower has
changed its identity or structure in any way within the past five years.
Changes in identity or structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organizations. [If any such change has occurred, include in
Schedule 1c the information required by Sections 1 and 2 of this
certificate as to each acquiree or constituent party to a merger or
consolidation.]
(d) Schedule 1d hereto contains a list of all other names
(including trade names or similar appellations) used by each Borrower or
any of its divisions or other business units in connection with the conduct
of its business or the ownership of its properties at any time during the
past five years.
(e) The Federal Taxpayer Identification Number of each Borrower
is as set forth in Schedule 1e hereto.
2. Current Locations. (a) The chief executive office of each
Borrower is located at the address set forth in Schedule 2a hereto.
(b) Set forth in Schedule 2b hereto are all locations where each
Borrower maintains any books or records relating to any Accounts Receivable
(with each location at which chattel paper, if any, is kept being indicated
by an "*").
(c) Set forth in Schedule 2c hereto are all the places of
business of each Borrower not identified in paragraphs (a) or (b) above.
(d) Set forth in Schedule 2d hereto are all the locations where
each Borrower maintains any Collateral not identified above.
(e) Set forth in Schedule 2e hereto are the names and addressees
of all persons other than the Borrowers who have possession of any of the
Collateral of any Borrower.
3. Unusual Transactions. All Accounts Receivable have been
originated by the Borrowers and all Inventory has been acquired by the
Borrowers in the ordinary course of business.
4. File Search Reports. (a) Attached hereto as Schedule 4a are
true copies of file search reports from the Uniform Commercial Code filing
offices where filings described in Section 5 hereof are to be made.
(b) Attached hereto as Schedule 4b is a true copy of each
financing statement or other filing identified in such file search reports.
5. UCC Filings. A duly signed financing statement on Form UCC-1
in substantially the form of Schedule 5a hereto has been delivered to the
Lender for filing in the respective Uniform Commercial Code filing offices
in the jurisdictions identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a
schedule setting forth, with respect to the filings described in Section 5
above, each filing office in which such filing is to be made.
7. Equity Ownership. Attached hereto as Schedule 7 is a true and
correct list of all the duly authorized, issued and outstanding stock of
each Borrower (other than the Company), the record and beneficial owners of
such stock, and a description of any voting relationships among the
Company, the other Borrowers and any Affiliate of the Company.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
11th day of June, 1999.
Name:
Title:
<PAGE>
Schedule la
to
Perfection Certificate
Exact Name of Each Debtor
1.
2.
3.
4.
5.
<PAGE>
Schedule lb
to
Perfection Certificate
Exact Other Name Each Debtor Has Had
1.
2.
<PAGE>
Schedule lc
to
Perfection Certificate
Changes in Identity or Corporate Structure
1.
2.
<PAGE>
Schedule ld
to
Perfection Certificate
Other Names Used
1.
2.
3.
4.
<PAGE>
Schedule le
to
Perfection Certificate
Federal Taxpayer Identification Numbers
NAME EIN
<PAGE>
Schedule 2a
to
Perfection Certificate
Chief Executive Office of Each Debtor
Name Mailing Address County State
<PAGE>
Schedule 2b
to
Perfection Certificate
Location of Books and Records Relating to Accounts Receivable
Name Mailing Address County State
<PAGE>
Schedule 2c
to
Perfection Certificate
Other Places of Business of Each Debtor
Name Mailing Address County or Counties State
<PAGE>
Schedule 2d
to
Perfection Certificate
Other Collateral Locations
Name Mailing Address County State
<PAGE>
Schedule 2e
to
Perfection Certificate
Other Persons Having Collateral
Name Mailing Address County State
Exhibit 10.8
PLEDGE AND SECURITY AGREEMENT dated as of June 11, 1999, made by
Hauser, Inc., a Colorado corporation (the "Pledgor"), in favor of Wells
Fargo Bank, National Association (the "Secured Party").
Reference is hereby made to the Credit Agreement dated as of June
11, 1999 (as amended, supplemented or modified from time to time, the
"Credit Agreement") among the Pledgor, Zuellig Botanical Extracts, Inc.,
ZetaPharm, Inc., Wilcox Drug Company, Inc., Shuster Laboratories, Inc. and
the Secured Party. Terms used herein as defined terms and not otherwise
defined herein shall have the meanings given thereto in the Credit
Agreement.
The Secured Party has agreed to make Loans to the Borrowers upon
the terms and subject to the conditions specified in the Credit Agreement.
The obligation of the Secured Party to make Loans is conditioned on, among
other things, the execution and delivery by the Pledgor of an agreement in
the form hereof.
NOW, THEREFORE, the parties agree as follows:
Definitions. In addition to the terms defined above, the following words
and terms shall have the respective meanings as follows:
"Agreement" shall mean this Pledge and Security Agreement, as it
shall be amended, supplemented or otherwise modified from time to time.
"Obligations" shall mean, collectively, (a) the due and punctual
payment of (i) the principal of, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Loans when and as due, whether at maturity, by
acceleration, upon one or more dates set for repayment or prepayment or
otherwise, (ii) each payment required to be made by the Borrowers under the
Credit Agreement in respect of any Letter of Credit when and as due,
including payments in respect of reimbursement of disbursements, interest
thereon and obligations to provide cash collateral and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding), of the
Borrowers under the Credit Agreement or any other Loan Documents (including
obligations of the Pledgor under this Agreement), and (b) the due and
punctual performance of all covenants, agreements, obligations and
liabilities of the Borrowers under or pursuant to the Credit Agreement and
of the Borrowers under the other Loan Documents (including, in the case of
the Pledgor, this Agreement).
Terms Generally. The definitions in Section 1.01 shall apply equally to
both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation." All
references herein to Articles, Sections, Exhibits, and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules
to, this Agreement unless the context shall otherwise require. References
to provisions of statutes, rules, regulations, and other documents shall be
deemed to include successor provisions thereto. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature
shall be construed in accordance with GAAP, as in effect from time to time.
Pledge and Grant of Security Interest. (a) As security for the payment and
performance in full of the Obligations, the Pledgor hereby transfers,
grants, bargains, sells, conveys, hypothecates, pledges, sets over and
delivers unto the Secured Party, a first priority security interest in the
shares of capital stock listed on Schedule I and any shares of stock of any
Subsidiary obtained in the future by the Pledgor, and the certificates
representing all such shares (the "Pledged Stock"), (ii) all other property
that may be delivered to and held by the Secured Party pursuant to the
terms hereof, (iii) subject to Section 2.05, all payments of dividends and
distributions, including all cash, instruments and other property, from
time to time received, receivable or otherwise paid or distributed, in
respect of, or in exchange for or upon the conversion of the securities and
other property referred to in clause (i) or (ii) above, (iv) subject to
Section 2.05, all rights and privileges of the Pledgor with respect to the
securities and other property referred to in clauses (i), (ii) and (iii)
above, (v) any and all custodial accounts or other safekeeping accounts in
which any of the foregoing property (and any property described in the
following clause (vi)) may be deposited, and any security entitlements or
other rights relating thereto, and (vi) all proceeds of any of the
foregoing (the items referred to in clauses (i) through (vi) above being
collectively referred to as the "Collateral").
(b) Upon delivery to the Secured Party, any stock certificates, notes
or other securities now or hereafter included in the Collateral (the
"Pledged Securities") shall be accompanied by undated stock powers duly
executed in blank or other instruments of transfer satisfactory to the
Secured Party and by such other instruments and documents as the Secured
Party may request. All other property comprising part of the Collateral
shall be accompanied by proper instruments of assignment duly executed by
the Pledgor and such other instruments or documents as the Secured Party
may request. Each delivery of Pledged Securities shall be accompanied by a
schedule describing the securities theretofore and then being pledged
hereunder, which schedule shall be attached hereto as Schedule I, and made
a part hereof (provided that the failure to deliver any such schedule shall
not impair the security interest hereunder of the Secured Party in any
Pledged Securities). Each schedule so delivered (except to the extent in
error) shall supersede any prior schedules so delivered.
Deliveries. The Pledgor agrees promptly to deliver or cause to be
delivered to the Secured Party any and all Pledged Securities, and any and
all certificates or other instruments or documents representing Collateral,
and any other instruments referred to in Section 2.01(b).
Representations; Warranties; Covenants. The Pledgor hereby represents,
warrants and covenants to and with the Secured Party that:
the Pledged Stock has been delivered to the Secured Party in pledge
hereunder, and represents that percentage as set forth in Schedule I of the
issued and outstanding shares of each class of the capital stock of the
issuer with respect thereto;
the Pledgor (i) is and will at all times continue to be the direct owner,
beneficially and of record, of the Collateral indicated on Schedule I, (ii)
holds the same free and clear of all Liens, except for the security
interest granted hereunder, (iii) will make no assignment, pledge,
hypothecation or transfer of or create or suffer to exist any security
interest in or other Lien on, the Collateral, other than pursuant hereto,
and (iv) subject to Section 2.05, will cause any and all Collateral to be
forthwith deposited with the Secured Party and pledged or otherwise subject
to the security interest created hereunder;
the Pledgor (i) has the power and authority to pledge and grant a security
interest in the Collateral in the manner hereby done or contemplated and
(ii) will defend its title or interest thereto or therein and the Lien of
the Secured Party against any and all other Liens, however arising, of all
persons whomsoever;
no consent or approval (i) of any Governmental Authority or any securities
exchange or (ii) of any other Person except any such Person whose consent
has been obtained in writing and delivered to the Secured Party, was or is
necessary to the validity of the pledge or grant of a Security Interest
effected hereby;
when the Pledged Securities, certificates, instruments or other documents
representing or evidencing the Collateral are delivered to the Secured
Party in accordance with this Agreement, the Secured Party will have a
valid and perfected first Lien upon and security interest in such Pledged
Securities as security for the payment and performance of the Obligations;
and
the pledge and the grant of a security interest effected hereby are
effective to vest in the Secured Party the rights of the Secured Party in
the Collateral as set forth herein.
Registration in Nominee Name, Denominations; Further Assurances. (a) The
Secured Party shall have the right (in its sole and absolute discretion) to
hold the Pledged Securities in its own name, the name of its nominee or the
name of the Pledgor, endorsed or assigned in blank or in favor of the
Secured Party. The Pledgor will promptly give to the Secured Party copies
of any notices or other communications received by it with respect to
Pledged Securities. The Secured Party shall at all times have the right to
exchange the certificates representing Pledged Securities for certificates
of smaller or larger denominations for any purpose consistent with this
Agreement (and the surrender of any certificates to the issuer or any agent
thereof for such purpose shall not constitute a release of the security
interest of the Secured Party in any such Pledged Securities represented
thereby).
(b) The Pledgor agrees, at its expense, to execute, acknowledge,
deliver and cause to be duly filed all such further instruments and
documents and take all such actions as the Secured Party may from time to
time reasonably request to better assure, preserve, protect and perfect the
pledge and the security interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection
with the execution and delivery of this Agreement, the pledge and the
granting of the security interest hereunder and the filing of any financing
statements or other documents in connection herewith.
Voting Rights; Dividends. (a) Unless and until an Event of Default shall
have occurred and be continuing;
(i) The Pledgor shall be entitled to exercise any and
all voting and/or other consensual rights and powers accruing to it as
owner of the Pledged Securities for any purpose consistent with the terms
of this Agreement, the Credit Agreement and the other Loan Documents;
provided, however, that such action would not adversely affect the rights
inuring to a holder of the Pledged Securities or the rights and remedies of
the Secured Party under this Agreement or any other Loan Document or the
ability of the Secured Party to exercise the same.
(ii) The Pledgor shall be entitled to receive and
retain any and all cash dividends and distributions paid on the Pledged
Securities to the extent and only to the extent that such cash dividends
are permitted by, and otherwise paid in accordance with, the terms and
conditions of the Credit Agreement, the other Loan Documents and applicable
laws. All noncash dividends and distributions, and all dividends and
distributions (whether in cash or otherwise) in connection with a partial
or total liquidation or dissolution, return of capital, capital surplus or
paid-in surplus, and all other payments, dividends, and distributions made
on or in respect of the Pledged Securities, whether paid or payable in cash
or otherwise, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of the issuer of any
Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer
may be a party or otherwise, shall be and become part of the Collateral,
and, if received by the Pledgor, shall not be commingled by the Pledgor
with any of its other funds or property but shall be held separate and
apart therefrom, shall be held in trust for the benefit of the Secured
Party and shall be forthwith delivered to the Secured Party in the same
form as so received (with any necessary endorsement) (any such cash to be
applied in accordance with Section 2.07).
(b) Upon the occurrence and during the continuation of an
Event of Default, all rights of the Pledgor to exercise the voting and
consensual rights and powers it is entitled to exercise pursuant to
paragraph (a)(i) of this Section 2.05, shall cease, and all such rights
shall thereupon become vested in the Secured Party, which shall have the
sole and exclusive right and authority to exercise such voting and
consensual rights and powers.
(c) Upon the occurrence and during the continuation of an
Event of Default, all rights of the Pledgor to dividends and other
distributions that the Pledgor is authorized to receive pursuant to the
first sentence of paragraph (a)(ii) above shall cease, and all such rights
shall thereupon become vested in the Secured Party, which shall have the
sole and exclusive right and authority to receive and retain such dividends
and other distributions. All dividends and other distributions received by
the Pledgor contrary to the provisions of this Section 2.05 shall be held
in trust for the benefit of the Secured Party, shall be segregated from
other property or funds of the Pledgor and shall be forthwith delivered to
the Secured Party upon demand in the same form as so received (with any
necessary endorsement) and shall be applied in accordance with the
provisions of Section 2.07.
Possession, Sale of Collateral, Etc.
Upon the occurrence and during the continuation of an Event of Default, the
Secured Party may sell or cause to be sold, whenever it shall decide, in
one or more sales or parcels, at such prices as it may deem best, and for
cash, on credit or for future delivery, without assumption of any credit
risk, all or any portion of the Collateral, at any broker's board or at
public or private sale, without demand of performance or notice of
intention to sell or of time or place of sale (except ten (10) days'
written notice to the Pledgor of the time and place of such sale, which the
Pledgor hereby agrees to be commercially reasonable, and such other notices
as may be required by applicable statute and cannot be waived), and any
Person may be the purchaser of all or any portion of the Collateral so sold
and thereafter hold the same absolutely, free from any claim or right of
whatever kind, including any equity of redemption, of the Pledgor, any such
demand, notice, claim, right or equity being hereby expressly waived and
released. The Secured Party shall be authorized at any such sale (if it
deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing
the Collateral for their own account for investment and not with a view to
the distribution or sale thereof. At any sale or sales made pursuant to
this Agreement, the Secured Party may bid for or purchase, free from any
claim or right of whatever kind, including any equity of redemption of the
Pledgor, any such demand, notice, claim, right or equity being hereby
expressly waived and released, all or any portion of the Collateral offered
for sale, and may make any payment on account thereof by using any claim
for money then due and payable to the Secured Party by the Pledgor as a
credit against the purchase price. At any such sale, the Collateral, or
portion thereof, to be sold may be sold in one lot as an entirety or in
separate parcels, as the Secured Party may (in its sole and absolute
discretion) determine. The Secured Party shall not be obligated to make
any sale of any Collateral if it shall determine not to do so, regardless
of the fact that notice of sale of such Collateral shall have been given.
The Secured Party may, without notice or publication, except as may be
required by applicable statute and cannot be waived, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was
so adjourned. In case any sale of all or any part of the Collateral is
made on credit or for future delivery, the Collateral so sold may be
retained by the Secured Party until the sale price is paid in full by the
purchaser or purchasers thereof, but the Secured Party shall not incur any
liability in case any such purchaser or purchasers shall fail to take up
and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. For purposes hereof, (a) a
written agreement to purchase the Collateral or any portion thereof shall
be treated as a sale thereof, (b) the Secured Party shall be free to carry
out such sale pursuant to such agreement and (c) the Pledgor shall not be
entitled to the return of the Collateral or any portion thereof subject
thereof, notwithstanding the fact that after the Secured Party shall have
entered into such an agreement all Events of Default shall have been
remedied and the Obligations paid in full. The Secured Party shall in any
such sale make no representations or warranties with respect to the
Collateral or any part thereof, and shall not be chargeable with any of the
obligations or liabilities of the Pledgor. As an alternative to exercising
the power of sale herein conferred upon it, the Secured Party may proceed
by a suit or suits at law or in equity to foreclose upon the Collateral and
to sell the Collateral or any portion thereof pursuant to a judgment or
decree of a court or courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed receiver. Any sale pursuant to the
provisions of this Section shall be deemed to conform to the commercially
reasonable standards as provided in Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of California or its equivalent
in other jurisdictions.
The Pledgor hereby agrees that it will indemnify and hold the Secured
Party, and its officers, directors, employees, agents and representatives
harmless (except for its or his own wilful misconduct or gross negligence)
from and against any and all claims with respect to the Collateral asserted
both before and after the taking of actual possession or control of the
Collateral by the Secured Party pursuant to this Agreement, or arising out
of any act or omission of any party other than the Secured Party prior to
such taking of actual possession or control by the Secured Party, or
arising out of any act or omission of the Pledgor, or any agents thereof,
before or after the commencement of such actual possession or control by
the Secured Party. In any action hereunder the Secured Party shall be
entitled to the appointment, without notice, of a receiver to take
possession of all or any portion of the Collateral and to exercise such
powers as the court shall confer upon such receiver. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, and during the
continuation of such Event of Default, the Secured Party shall be entitled
to apply, without prior notice to the Pledgor, any cash or cash items
constituting Collateral in the possession of the Secured Party to payment
of the Obligations.
Application of Proceeds.
The Pledgor hereby agrees that it shall, upon the occurrence and during the
continuation of an Event of Default, (i) immediately turn over to the
Secured Party any instruments (with appropriate endorsements) or other
items constituting Collateral not then in the possession of the Secured
Party, the possession of which is required for the perfection of the
Secured Party's security interest, all of which shall be held in trust for
the benefit of the Secured Party and not commingled prior to its coming
into the Secured Party's possession, and (ii) take all steps necessary to
cause all sums, monies, royalties, fees, commissions, charges, payments,
advances, income, profits and other amounts constituting proceeds of any
Collateral to be deposited directly in an account of the Pledgor with the
Secured Party and to cause the same to be applied to the satisfaction of
the Obligations.
All proceeds from any collection or sale of the Collateral pursuant hereto,
all Collateral consisting of cash, and all deposits in accounts of the
Pledgor with the Secured Party shall be applied (i) first, to the payment
of the fees and expenses of the Secured Party incurred pursuant to this
Agreement or any other Loan Document, including costs and expenses of
collection or sale, reimbursement of any advances, and any other costs or
expenses in connection with the exercise of any rights or remedies
hereunder or thereunder (including reasonable fees and disbursements of
counsel, including counsel employed in-house by the Secured Party), (ii)
second, to the payment in full of the Obligations owed to the Secured Party
in respect of the Loans and LC Disbursements, and (iii) third, to the
payment of the Obligations (other than those referred to above). Any
amounts remaining after such applications shall be remitted to the Pledgor
or as a court of competent jurisdiction may otherwise direct. The Secured
Party shall have absolute discretion as to the time of application of any
such proceeds, cash or balances in accordance with this Agreement.
Power of Attorney.
The Pledgor does hereby irrevocably make, constitute and appoint the
Secured Party or any officer or designee thereof its true and lawful
attorney-in-fact with full power in the name of the Secured Party, and of
the Pledgor, with power of substitution, to, upon the occurrence and during
the continuation of an Event of Default, communicate with any issuer of
Pledged Securities; to commence or prosecute any suits, actions or
proceedings to collect or otherwise realize upon any Collateral or enforce
any rights in respect thereof; to settle, compromise, adjust or defend any
claims in respect of the Collateral; to notify any issuer of Pledged
Securities or otherwise require it to make payment directly to the Secured
Party; to use, sell, assign, transfer, pledge, make any agreement with
respect to or otherwise deal with all or any of the Collateral, and to do
any and all other acts necessary or proper to carry out the intent of this
Agreement and each other Loan Document and the grant, confirmation and
continuation of the security interests hereunder and thereunder. Such
power of attorney is coupled with an interest and is irrevocable, and shall
survive the bankruptcy, insolvency or dissolution of the Pledgor. Nothing
herein contained shall be construed as requiring or obligating the Secured
Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Secured Party, or to present or
file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in
respect thereof or any property covered thereby. The Secured Party shall
be accountable only for amounts actually received as a result of the
exercise of the powers granted to it herein, and neither it nor its
officers, directors, employees or agents shall be responsible to the
Pledgor for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct. The provisions of this Section shall in
no event relieve the Pledgor of any of its obligations hereunder or under
the other Loan Documents with respect to the Collateral or any part thereof
or impose any obligation on the Secured Party to proceed in any particular
manner with respect to the Collateral or any part thereof, or in any way
limit the exercise by any Secured Party of any other or further right that
it may have on the date of this Agreement or hereafter, whether hereunder,
under any other Loan Document, by law or otherwise. Any sale of Collateral
pursuant to the provisions of this Section shall be deemed to conform to
the commercially reasonable standards as provided in Section 9-504(3) of
the Uniform Commercial Code as in effect in the State of California or its
equivalent in other jurisdictions.
Without limiting the preceding paragraph, the Pledgor does hereby further
irrevocably make, constitute and appoint the Secured Party or any officer
or designee thereof its true and lawful attorney-in-fact with full power in
the name of the Secured Party, and of the Pledgor, with power of
substitution, (i) to enforce all of the Pledgor's rights under and pursuant
to all agreements with respect to the Collateral, all for the sole benefit
of the Secured Party, (ii) to enter into and perform such agreements as may
be reasonably necessary in order to carry out the terms, covenants and
conditions of this Agreement that are required to be observed or performed
by the Pledgor, (iii) to execute such other and further mortgages, pledges
and assignments of the Collateral and filings or recordations in respect
thereof as the Secured Party may require for the purpose of protecting,
maintaining or enforcing the security interest of the Secured Party
hereunder, (iv) to act as authorized in the following Section, and (v) to
do any and all other things reasonably necessary or proper to carry out the
intention of this Agreement and the grant, confirmation, continuation and
perfection of the security interests hereunder. Such power of attorney is
coupled with an interest and is irrevocable, and shall survive the
insolvency, bankruptcy, or dissolution of the Pledgor.
Financing Statements, Direct Payments, Confirmation. The Pledgor hereby
authorizes the Secured Party to file Uniform Commercial Code financing
statements (and any other filings) required in connection with the
perfection or preservation of the security interest hereunder in respect of
all or any part of the Collateral, and amendments thereto and continuations
thereof with regard to such Collateral, without the Pledgor's signature,
or, in the alternative, to execute such items on behalf of the Pledgor
pursuant to the powers of attorney granted in the preceding Section. The
Pledgor further authorizes the Secured Party to confirm with any issuer of
Pledged Securities the amounts payable to the Pledgor with regard to the
Collateral. The Pledgor hereby further authorizes the Secured Party upon
the occurrence and during the continuation of an Event of Default to notify
any issuer of Pledged Securities that all sums payable to the Pledgor
relating to the Collateral shall be paid directly to the Secured Party.
Termination. The security interest granted hereunder shall terminate when
all the Obligations have been fully, finally and indefeasibly paid and
performed, the Total Exposure of the Secured Party shall be zero, and when
the Commitments of the Secured Party shall have terminated. Thereupon, the
Secured Party will return to the Pledgor the Pledged Securities and execute
and deliver, at the Pledgor's expense, Uniform Commercial Code termination
statements reasonably requested by the Pledgor evidencing the release of
the security interest hereunder, all without recourse to or warranty by the
Secured Party.
Remedies Not Exclusive. The remedies conferred upon or reserved to the
Secured Party in this Article and elsewhere in this Agreement are intended
to be in addition to, and not in limitation of, any other remedy available
to the Secured Party.
Securities Laws, etc. In view of the position of the Pledgor in relation
to the Pledged Securities, or because of other current or future
circumstances, issues may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statue as from time to
time in effect being called the "Federal Securities Laws") with respect to
any disposition of the Pledged Securities permitted hereunder. The Pledgor
understands that compliance with the Federal Securities Laws might very
strictly limit the course of conduct of the Secured Party if the Secured
Party were to attempt to dispose of all or any part of the Pledged
Securities, and might also limit the extent to which or the manner in which
any subsequent transferee of any Pledged Securities could dispose of the
same. Similarly, there may be other legal restrictions or limitations
affecting the Secured Party in any attempt to dispose of all or part of the
Pledged Securities under applicable Blue Sky or other state securities laws
or similar laws analogous in purpose or effect. The Pledgor recognizes
that in light of the foregoing restrictions and limitations the Secured
Party may, with respect to any sale of the Pledged Securities, limit the
purchasers to those who will agree, among other things, to acquire such
Pledged Securities for their own account, for investment, and not with a
view to the distribution or resale thereof. The Pledgor acknowledges and
agrees that in light of the foregoing restrictions and limitations, the
Secured Party, in its sole and absolute discretion, (a) may proceed to make
such a sale whether or not a registration statement for the purpose of
registering such Pledged Securities or part thereof shall have been filed
under the Federal Securities Laws and (b) may approach and negotiate with a
single potential purchaser to effect such sale. The Pledgor acknowledges
and agrees that any such sale might result in prices and other terms less
favorable to the seller than if such sale were a public sale without such
restrictions. In the event of any such sale, the Secured Party shall incur
no responsibility or liability for selling all or any part of the Pledged
Securities at a price that the Secured Party, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might
have been realized if the sale were deferred until after registration as
aforesaid or if more than a single purchaser were approached. The
provisions of this Section will apply notwithstanding the existence of a
public or private market upon which the quotations or sales prices may
exceed substantially the price at which the Secured Party sells.
No Assumption of Liability. The pledge and security interest hereunder is
granted as security only and shall not subject the Secured Party to, or in
any way alter or modify, any obligation or liability of the Pledgor with
respect to or arising out of any of the Collateral. The Pledgor shall
remain liable to, at its own cost and expense, duly and punctually observe
and perform all the conditions and obligations to be observed and performed
by it under each contract, agreement or instrument relating to the
Collateral, all in accordance with the terms and conditions thereof, and
the Pledgor agrees to indemnify and hold harmless the Secured Party from
and against any and all liability for such performance.
MISCELLANEOUS
No Discharge. All rights of the Secured Party hereunder, the security
interest granted hereunder, and the obligations of the Pledgor under this
Agreement shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be released, discharged
or in any way diminished by (i) any lack of validity or enforceability of
the Credit Agreement, any other Loan Document (including this Agreement),
any agreement with respect to any of the Obligations or any other agreement
or instrument relating to any of the foregoing, (ii) any change in the
time, manner or place of payment of, or in any other term of, all or any of
the Obligations or any other amendment or waiver of or any consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument relating to the foregoing, (iii) any exchange,
release or nonperfection of any other collateral, or any release or
amendment or waiver of or consent to or departure from any guarantee, for
all or any of the Obligations, (iv) any exercise or nonexercise by the
Secured Party of any right, remedy, power or privilege under or in respect
of this Agreement, any other Loan Document or applicable law, including,
without limitation, any failure by the Secured Party to setoff or release
in whole or in part any balance of any deposit account or credit on its
books in favor of any Borrower or any waiver, consent, extension,
indulgence or other action or inaction in respect of any thereof, or (v)
any other act or thing or omission or delay to do any other act or thing
which may or might in any manner or to any extent vary the risk of any
Borrower or would otherwise, but for this specific provision to the
contrary, operate as a discharge of or exonerate the Pledgor as a matter of
law.
Amendment; Waiver. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Pledgor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
the Secured Party. Any such waiver, consent or approval shall be effective
only in the specific instance and for the purpose for which given. No
notice to or demand on the Pledgor in any case shall entitle the Pledgor to
any other or further notice or demand in the same, similar or other
circumstances. No waiver by the Secured Party of any breach or default of
or by the Pledgor under this Agreement shall be deemed a waiver of any
other previous breach or default or any thereafter occurring.
Section 3.03. Survival; Severability.
All covenants, agreements, representations and warranties made by the
Pledgor herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or by the
Pledgor or any other Borrower in or pursuant to any other Loan Document
shall be considered to have been relied upon by the Secured Party and shall
survive the making by the Secured Party of the Loans, and the execution and
delivery to the Secured Party of any Notes evidencing such Loans,
regardless of any investigation made by the Secured Party or on its behalf,
and shall continue in full force and effect as long as the principal of or
any accrued interest on any Loan or any other fee or amount payable under
this Agreement or any other Loan Document is outstanding and unpaid or the
LC Exposure does not equal zero and as long as the Commitments have not
been terminated.
Any provision of this Agreement that is illegal, invalid or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such illegality, invalidity or unenforceability without
invalidating the remaining provisions hereof or affecting the legality,
validity or enforceability of such provisions in any other jurisdiction.
The parties hereto agree to negotiate in good faith to replace any illegal,
invalid or unenforceable provision of this Agreement with a legal, valid
and enforceable provision that, to the extent possible, will preserve the
economic bargain of this Agreement, or to otherwise amend this Agreement to
achieve such result.
Successors and Assigns. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Pledgor or the Secured Party that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns. The Pledgor may not assign or transfer
any of its rights or obligations hereunder or any interest herein or in the
Collateral except as expressly contemplated by this Agreement or the other
Loan Documents (and any such attempted assignment shall be void).
Arbitration. (a) Agreement. Upon the demand of either the Secured Party
or the Pledgor, any Dispute shall be resolved by binding arbitration
(except as set forth in paragraph (e) below) in accordance with the terms
of this Agreement. A "Dispute" shall mean any action, dispute, claim or
controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement or any of the
other Loan Documents, or any past, present or future extensions of credit
and other activities, transactions or obligations of any kind related
directly or indirectly to this Agreement or any of the other Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to this Agreement or any of the other Loan Documents. Either
party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. A party who fails or refuses to submit to
arbitration following a lawful demand by the other party shall bear all
costs and expenses incurred by such other party in compelling arbitration
of any Dispute.
Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in accordance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in
this Agreement or any of the other Loan Documents. The arbitration shall
be conducted at a location in California selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof and
any such rules, the terms and procedures set forth herein shall control.
All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any
court having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by the Secured Party of the protections
afforded to it under 12 U.S.C. Paragraph 91 or any similar applicable state
law.
No Waiver; Provisional Remedies, Self-Help and Foreclosure. No provision
hereof shall limit the right of the Secured Party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or
personal property Collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver,
from a court of competent jurisdiction before, after or during the pendency
of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.
Arbitrator Qualifications and Powers; Awards. Arbitrators must be active
members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior
to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the State of California,
(ii) may grant any remedy or relief that a court of the State of California
could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount
in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more
than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
Judicial Review. Notwithstanding anything herein to the contrary, in any
arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the State of California, and (iii) the parties shall
have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review
of (A) whether the findings of fact rendered by the arbitrators are
supported by substantial evidence, and (B) whether the conclusions of law
are erroneous under the substantive law of the State of California.
Judgment confirming an award in such a proceeding may be entered only if a
court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the State of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns Collateral comprised of real property
or interests therein unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid and
enforceable. If any such Dispute is not submitted to arbitration, the
Dispute shall be referred to a referee in accordance with California Code
of Civil Procedure Section 638 et seq., and this general reference
agreement is intended to be specifically enforceable in accordance with
said Section 638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA's selection procedures.
Judgment upon the decision rendered by a referee shall be entered in the
court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within one hundred eighty (180) days of the filing
of the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party required in the
ordinary course of its business, by applicable law or regulation, or to the
extent necessary to exercise any judicial review rights set forth herein.
If more than one agreement for arbitration by or between the parties
potentially applies to a Dispute, the arbitration provision most directly
related to this Agreement or the relevant Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of this Agreement and any of
the other Loan Documents or any relationship between the parties.
GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF CALIFORNIA.
The Pledgor hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of the Superior Court of the
State of California sitting in Los Angeles County and of the United States
District Court for the Central District of California, and any appellate
court from any thereof, in any action or proceeding arising out of or
relating to this Agreement not subject to arbitration under Section 3.05,
or for recognition or enforcement of any judgment or arbitral award, and
each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard
and determined in such California State or, to the extent permitted by law,
such Federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement (other than Section
3.05, if applicable) shall affect any right that the Secured Party may
otherwise have to bring any action or proceeding relating to this Agreement
against any Debtor or its properties in the courts of any jurisdiction.
The Pledgor hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
the preceding paragraph. Each of the parties hereto irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum
to the maintenance of such action or proceeding in any such court.
Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 3.08. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in
any other manner permitted by law.
Headings. The Article and Section headings in this Agreement are for
convenience only and shall not affect the construction hereof.
Notices. Notices, consents and other communications provided for herein
shall (except as otherwise expressly permitted herein) be in writing and
given as provided in Section 8.01 of the Credit Agreement. Communications
and notices to the Pledgor shall be given to it at its address set forth in
Schedule 3.08 hereto.
Reimbursement of the Secured Party.
The Pledgor agrees to pay upon demand to the Secured Party the amount of
any and all reasonable and documented expenses, including the reasonable
and documented fees and expenses of its counsel (including counsel employed
in-house by the Secured Party) and of any experts or agents, that the
Secured Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise
or enforcement of any of the rights of the Secured Party hereunder, or (iv)
the failure by the Pledgor to perform or observe any of the provisions
hereof. If the Pledgor shall fail to do any act or thing that it has
covenanted to do hereunder or any representation or warranty of the Pledgor
hereunder shall be breached, the Secured Party may (but shall not be
obligated to) do the same or cause it to be done or remedy any such breach
and there shall be added to the Obligations the cost or expense incurred by
the Secured Party in so doing.
Without limitation of its indemnification obligations under the other Loan
Documents, the Pledgor agrees to indemnify the Secured Party and its
officers, directors, employees, agents, attorneys, and representatives
("Indemnitees") against, and hold each of them harmless from, any and all
losses, claims, damages, liabilities and related expenses, including
reasonable counsel fees and expenses, incurred by or asserted against any
of them arising out of, in any way connected with, or as a result of, the
execution, delivery or performance of this Agreement or any claim,
litigation, investigation or proceeding relating hereto or to the
Collateral, whether or not any Indemnitee is a party thereto, provided that
such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses have
resulted from the gross negligence or willful misconduct of such
Indemnitee.
Any amounts payable as provided hereunder shall be additional Obligations
secured hereby and by the other Security Documents. The provisions of this
Section shall remain operative and in full force and effect regardless of
the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the
invalidity or unenforceability of any term or provision of this Agreement
or any other Loan Document or any investigation made by or on behalf of the
Secured Party. All amounts due under this Section shall be payable on
written demand therefor and shall bear interest at the default rate (as
provided in the Credit Agreement).
Counterparts. This Agreement may be executed in separate counterparts
(telecopy of any executed counterpart having the same effect as manual
delivery thereof), each of which shall constitute an original, but all of
which, when taken together, shall constitute but one Agreement.
Entire Agreement. Except as expressly herein provided, this Agreement and
the other Loan Documents constitute the entire agreement among the parties
relating to the subject matter hereof. Any previous agreement among the
parties with respect to the transactions contemplated hereunder is
superseded by this Agreement and the other Loan Documents. Except as
expressly provided herein or in the other Loan Documents, nothing in this
Agreement or in any other Loan Document, expressed or implied, is intended
to confer upon any party, other than the parties hereto, any rights,
remedies, obligations or liabilities under or by reason of this Agreement
or such other Loan Documents.
WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers or
representatives as of the day and year first above written.
WELLS FARGO BANK, HAUSER, INC.
NATIONAL ASSOCIATION
By: By:
Name: Name:
Title: Title:
<PAGE>
Schedule I
to
Pledge and Security Agreement
Pledged Stock
Pledgor Issuer Number of Shares Percentage
<PAGE>
Schedule 3.08
to
Pledge and Security Agreement
Addresses for Notice
Party Mailing Address County
Exhibit 10.9
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT, AND FINANCING STATEMENT
From HAUSER, INC. a Colorado corporation, to the PUBLIC TRUSTEE of the
County of Boulder, State of Colorado for the use and benefit of WELLS FARGO
BANK, NATIONAL ASSOCIATION, a national banking association
Dated as of June 11,1999
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT,
AND FINANCING STATEMENT
This DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT, AND FINANCING
STATEMENT (this "Deed of Trust") is made as of this 11th day of June, 1999
by HAUSER, INC., a Colorado corporation (the "Grantor"), whose address is
5555 Airport Boulevard, Boulder, Colorado 80301, to the PUBLIC TRUSTEE of
the County of Boulder, State of Colorado (the "Trustee"), for the use and
benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
association (the "Beneficiary"), whose address is 333 South Grand Avenue,
Los Angeles, California 90071.
RECITALS
A. The Grantor has executed and delivered to the Beneficiary two
promissory notes of even date herewith, in the principal amounts of THIRTY-
FIVE MILLION AND NO/100THS UNTED STATES DOLLARS (U.S. $35,000,000.00) (the
"Revolving Note") and TEN MILLION AND NO/l00THS UNITTED STATES DOLLARS
(U.S. $10,000,000.00) (the "Term Note"), respectively, both made jointly
and severally by the Grantor and the following affiliates (collectively,
the "Affiliates") of the Grantor: ZUELLIG BOTANICAL EXTRACTS, INC.,
ZETAPHARM, INC., WILCOX DRUG COMPANY, INC. AND SHUSTER LABORATORIES, INC.
Both promissory notes are payable to the order of the Beneficiary and bear
interest thereon at the rate set forth therein and in the Loan Agreement
(as hereinafter defined) and with principal and interest payable as
provided therein and in the Loan Agreement, with the balance of the
principal remaining unpaid, together with unpaid interest thereon, being
due and payable in full on June 11, 2001 in the case of the Revolving Note
and June 11, 2004 in the case of the Term Note. Such Revolving Note and
Term Note, and all modifications, amendments, increases, refinancings,
renewals, and extensi6ns thereof, are referred to collectively as the
"Note."
B. The Grantor, the Beneficiary and the Affiliates have also executed a
Credit Agreement of even date herewith relating to the indebtedness
evidenced by the Note. Such Credit Agreement and all modifications and
amendments of such Credit Agreement are referred to as the "Loan
Agreement." The Loan Agreement, this Deed of Trust, the Note, all documents
executed or delivered pursuant to the Loan Agreement (including, without
limitation, all of the "Security Documents" referred to therein) and this
Deed of Trust and all other documents or instruments now in existence or
hereafter executed, the purpose of which is to evidence or secure payment
of the Indebtedness (as defined below) or performance of the Secured
Obligations (as defined below), are collectively referred to herein as the
"Loan Documents." All amounts payable by the Grantor under the Note and the
other Loan Documents (including without limitation all advances made by the
Beneficiary pursuant to this Deed of Trust and the other Loan Documents)
are referred to as the "Indebtedness." All of the terms, provisions,
conditions and agreements on the Grantor's part to be performed or observed
as provided for in this Deed of Trust, the Loan Agreement, the Note and the
Loan Documents are referred to as the "Secured Obligations."
ARTICLE 1
GRANTING CLAUSE
To secure the Indebtedness and the Secured Obligations, the Grantor hereby
grants, sells and conveys to the Trustee, IN TRUST FOREVER, the following
property, whether now or hereafter existing:
1.1 The real property situated at 5505 Airport Boulevard in the County
of Boulder, Colorado, and more particularly described on Exhibit A attached
hereto and by this reference made a part hereof (the "Real Property").
1.2 TOGETHER WITH all improvements located, or erected upon the Real
Property or upon any real property interest which is now or hereafter
subject to the lien of this Deed of Trust (all hereinafter referred to as
the "Building").
1.3 TOGETHER WITH all right, title, and interest of the Grantor, now
owned or hereafter acquired, in and to all strips and gores of land, the
land within or under the streets, sidewalks, and alleys adjoining the Real
Property, the tenements, hereditaments, privileges, easements, franchises,
rights, appendages, and appurtenances belonging or in any way appertaining
to the Real Property.
1.4 TOGETHER WITH all right, title and interest of the Grantor in and
to all streets, roads, public places, easements and rights-of-way, existing
or proposed, public or private, adjacent or used in connection with,
belonging or pertaining to the Real Property.
1.5 TOGETHER WITH all goods, machinery, apparatus, equipment, fittings,
fixtures, signs, signage, furniture, furnishings, and other personal
property now or hereafter attached to or used in or intended to be
installed in the Real Property or the Building (the "Building Equipment").
1.6 TOGETHER WITH all rents, issues, royalties, profits, revenues,
incomes, all the Grantor's rights under all leases or subleases now or
hereafter demising any portion of the Real Property (such leases and
subleases are hereinafter referred to as the "Leases"), and all other
benefits of and from the property described in this Article 1, including
without limitation, cash, letters of credit and securities deposited
pursuant to the Leases to secure performance by the tenants of their
obligations thereunder.
1.7 TOGETHER WITH all awards or payments, all interest thereon, and all
rights to receive the same, which may be made with respect to the Real
Property as a result of: (a) the exercise of the right of eminent domain
against the Real Property, the Building, the Building Equipment, or any
right appurtenant thereto; (b) the alteration of the grade of any street,
change of curb cuts or other rights of access; or (c) any other injury to
or decrease in the value of the property described in this Article 1.
1.8 TOGETHER WITH all goods located on the Real Property which are now
or in the future owned by the Grantor and used in the operation or
occupancy of the Real Property or in any construction on the Real Property
but which are not effectively made real property under Section 1.5 or
Section 8.4 hereof, including but not limited to all appliances, furniture,
furnishings, carpeting, draperies, building service equipment, building
materials and supplies.
1.9 TOGETHER WITH all general intangibles relating to the development
or use of the Real Property or the Building, including but not limited to
all licenses and permits relating to construction on the Real Property, all
existing and future names under or by which the Real Property or the
Building may at any time be operated or known, and the goodwill associated
therewith, all rights to carry on business under any such names or any
variant thereof, and all existing and future trademarks and good will in
any way relating to the Real Property, all the Grantor's rights (but not
its obligations) under any contracts relating to the Real Property, the
Building, or the Building Equipment, and all warranties and guaranties of
the quality or performance of any portion of the Building or the Building
Equipment.
1.10 TOGETHER WITH all the Grantor's rights (but not its obligations)
under any documents, computer software and data, contract rights, accounts,
commitments, construction contracts, architectural agreements, and general
intangibles arising from or by virtue of any transactions relating to the
Real Property, the Building, or the Building Equipment.
1.11 TOGETHER WITH all of Grantor's right, title and interest in and to
decreed and undecreed water or water rights, ditches or ditch rights,
reservoirs or reservoir rights, well, spring, seepage and pond rights, and
all other types of rights to the ownership of water, tributary,
nontributary and not nontributary, which are underlying, appurtenant to or
customarily or historically used upon or associated with the Real Property,
all water and ditch company stock relating to the Real Property, all rights
to naturally occurring oil, gas, minerals, geothermal resources, timber and
crops under, through, upon, or appurtenant to the Real Property.
1.12 TOGETHER WITH all water, sewer, gas and electrical taps (including
the Grantor's interest in all applications to appropriate governmental
authorities for such taps and any waiting list position for such taps) and
all electrical main extensions, allocated or committed by appropriate
governmental authorities or other parties or otherwise obtained by the
Grantor in connection with the Real Property, the Building or the Building
Equipment and all refundable deposits and fees pertaining thereto.
1.13 TOGETHER WITH all plans and specifications for the Building.
1.14 TOGETHER WITH all shares of stock or other evidence of ownership
of any part of the Real Property that is owned by the Grantor in common
with others, and all existing and future documents of membership in any
owners or members' association or metropolitan district or similar group
having responsibility for managing or operating any part of the Real
Property or providing services to the Real Property.
1.15 TOGETHER WITH all deposits (including tenants' security deposits),
bank accounts (and the right to withdraw funds from such bank accounts),
funds, instruments, notes, chattel paper arising from or by virtue of any
transactions relating to the Real Property, the Building or the Building
Equipment.
1.16 TOGETHER WITH all proceeds arising from or by virtue of the sale,
lease or other disposition of the Real Property, the Building or the
Building Equipment.
1.17 TOGETHER WITH all proceeds (including premium refunds) of each
policy of insurance relating to the Real Property, the Building or the
Building Equipment.
1.18 TOGETHER WITH all and singular the privileges and appurtenances
belonging to any of the foregoing.
1.19 TOGETHER WITH all proceeds of the foregoing.
The Real Property, Building, Building Equipment, interests, privileges, and
appurtenances described in Section 1.1 through Section 1.19 hereof are
collectively referred to as the "Property."
AND the Grantor hereby grants to the Beneficiary a security interest in the
Property. TO HAVE AND TO HOLD the Property IN TRUST, for the purpose of
securing:
(a) the due and punctual payment by the Grantor to the Beneficiary of
all of the Indebtedness; and
(b) the due and punctual performance, observance and payment by the
Grantor of all of the Secured Obligations.
AND the Grantor hereby warrants, covenants and agrees that the Grantor is
the lawful owner of the Property, with good and marketable fee simple
title, free and clear of all encumbrances, liens or charges, subject only
to those matters set forth in Exhibit B attached hereto and made a part
hereof (the "Permitted Exceptions"); and that the Grantor will warrant and
defend the title of the Property and each and every part thereof, to
Trustee, his or her successors and assigns forever, against the claims of
all persons whomsoever.
ARTICLE 2
COVENANTS OF THE GRANTOR
2.1 Repayment of Indebtedness. The Grantor covenants and agrees to pay
promptly the principal of and interest on the Indebtedness, to pay promptly
all other sums due pursuant hereto, and to perform each and every agreement
and condition contained in the Note, this Deed of Trust, and the Loan
Documents.
2.2 Payment of Taxes and Assessments.
(a) The Grantor covenants and agrees to pay before they become
delinquent all taxes, special assessments, water and sewer rents or
assessments, and all other charges imposed by law upon or against the
Property, ordinary and extraordinary, unforeseen and foreseen (the
"Impositions").
(b) Upon the Beneficiary's request therefore, the Grantor will deposit
with the Beneficiary in equal, monthly installments, an amount which will
create a fund that the Beneficiary estimates to be sufficient to pay, when
due, all Impositions and insurance premiums (the "Escrow Fund"). The
Beneficiary shall hold the Escrow Fund as a non-interest-bearing account.
If the Beneficiary, in its sole discretion, determines that the Escrow Fund
will be insufficient to pay such items when due, the Grantor agrees to pay
upon demand of the Beneficiary the amount determined necessary by the
Beneficiary to increase the amount in the Escrow Fund to a sufficient level
and to increase such monthly payments thereafter. The Beneficiary shall use
the Escrow Fund proceeds to pay such Impositions and insurance premiums to
the appropriate authority or party on behalf of the Grantor. If the amount
of the Escrow Fund exceeds the amounts actually due, the Beneficiary shall,
in its sole and absolute discretion to the extent permitted by law, return
any excess to the Grantor, or credit such excess against future payments to
be made to the Escrow Fund, or apply the excess to the reduction of the
last accruing installment of the Note. In allocating such excess, the
Beneficiary may deal with the person or entity shown on the Beneficiary's
records as the owner of the Property.
(c) The Beneficiary may, in its sole discretion for any period of time
and on any terms and conditions, waive in writing the requirement that the
Grantor shall make the monthly payments to the Escrow Fund and allow the
Grantor to pay directly to the appropriate authorities or parties the
Impositions and insurance premiums as they become due. If the Beneficiary
allows the Grantor to pay the Impositions and insurance premiums directly,
the Grantor shall deliver to the Beneficiary evidence of such payment
within thirty (30) days after it is made. Such evidence shall be in the
form of the original or a photostatic copy of the official receipt
evidencing such payment or other proof of payment satisfactory to the
Beneficiary. The failure of the Grantor to deliver to the Beneficiary such
receipts or to submit other satisfactory proof of such payment to the
Beneficiary within five (5) business days after notice from Beneficiary
shall constitute a default hereunder.
2.3 Preservation of Lien Priority by the Grantor. The lien of this Deed
of Trust is and will be maintained as a valid first lien on the Property.
The Grantor will not, directly or indirectly, create or suffer or permit to
be created or to stand against all or any part of the Property or against
the rents, issues, profits, or income therefrom, any lien or charge prior
to, subordinate to, or on a parity with the lien of this Deed of Trust.
However, nothing in this Deed of Trust shall require the Grantor to pay any
Impositions prior to the time they become due and payable or require the
Grantor to pay any Imposition so long as the Grantor contests the amount,
applicability, or validity in good faith by appropriate proceedings
promptly initiated and diligently conducted if: (i) such nonpayment will
not result in a forfeiture or impairment of the priority of the lien of
this Deed of Trust; and
(ii) the Grantor has posted security with the Beneficiary in a form and
in an amount satisfactory to the Beneficiary, which the Beneficiary shall
use in its sole discretion to protect the priority of the lien of this Deed
of Trust. The Grantor will keep and maintain the Property free from all
liens of persons supplying labor and materials entering into the
construction, modification, or repair of the Building. If any such lien is
recorded against the Property, the Grantor shall post a bond, as provided
by statute, or discharge the same of record within thirty (30) days after
such lien is recorded. The Grantor shall not do, or permit to be done, or
omit to do, or permit the omission of, any act or thing, the doing of which
or the omission of which would impair the security of this Deed of Trust or
would constitute grounds for the termination by any tenant or subtenant of
the Lease.
(a) All property of every kind acquired by the Grantor after the date
hereof which, by the terms hereof, is required or intended to be subjected
to the lien of this Deed of Trust shall, immediately upon its acquisition
and without any further conveyance, assignment, or transfer, become subject
to the lien of this Deed of Trust. Nevertheless, the Grantor will do all
such further acts, and execute, acknowledge, and deliver all such further
conveyances, mortgages, security agreements, and assurances as the
Beneficiary may reasonably require in order to confirm the lien of this
Deed of Trust on the Property, and the Grantor shall pay all fees for
filing or recording such instruments.
(b) If any action or proceeding is instituted to evict the Grantor or
to recover possession of the Property or for any other purpose affecting
this Deed of Trust or the lien of this Deed of Trust, the Grantor shall
deliver to the Beneficiary a true copy of each precept, petition, summons,
complaint, notice of motion, order to show cause, and all other process,
pleadings, and papers, however designated, served in such action or
proceedings, immediately after the Grantor receives them.
2.4 Insurance.
(a) The Grantor, at its sole expense, shall keep and maintain
constantly during the time any of the Indebtedness remains outstanding,
with companies authorized to do business in Colorado and that have an A.M.
Best rating of "A" or better, the following:
(i) Insurance in an amount not less than the full replacement cost of
the Building insuring against "all risks" of direct physical damage,
including additional expense for demolition, debris removal and building
ordinance coverage;
(ii) Commercial General Liability insurance, in such form and in such
amounts approved by the Beneficiary in its sole discretion, naming the
Beneficiary as an additional insured;
(iii) Rents and rental value coverage insurance against loss of income
arising out of damage or destruction from fire or perils of so-called
"extended coverage" in an amount approved by the Beneficiary in its
reasonable discretion. The Grantor hereby assigns to the Beneficiary the
proceeds of such insurance as security for the payment of all such
installments of principal, interest, taxes, and insurance premiums, and in
the event the Beneficiary collects such proceeds, the Beneficiary shall,
out of such proceeds, pay such charges as they become due and hold the
remainder of any such proceeds as security for the payment of the
Indebtedness until such time as the Property has been restored and replaced
in full operation, at which time the Beneficiary, at its sole discretion,
may apply the remaining proceeds to the last maturing principal payment of
the Note or refund such remaining proceeds to the Grantor; and
(iv) Flood insurance if required by the Federal Disaster Protection Act of
1973 and regulations issued thereunder.
(b) All property insurance policies required by this Deed of Trust
shall contain a standard noncontributory lenders' loss payable and standard
mortgagee clause in favor of the Beneficiary and to the extent available a
waiver of subrogation rights. All insurance policies shall be primary and
non-contributing and shall provide that such policy shall not be canceled
without at least thirty (30) days' prior written notice to the Beneficiary.
(c) Upon the execution of this Deed of Trust, and thereafter not less
than thirty (30) days prior to the expiration dates of the expiring
insurance policies required by this Section, the Grantor shall deliver to
the Beneficiary certificates of insurance evidencing compliance with this
Section.
(d) The Grantor and the Beneficiary shall adjust with the insurance
companies the loss, if any, under any policies required by this Deed of
Trust in the case of any particular casualty resulting in damage or
destruction. The proceeds of any such insurance shall be payable to the
Beneficiary to be applied in accordance with the terms of Section 2.5
hereof.
(e) Approval by the Beneficiary of any insurance policy obtained or
delivered pursuant to this Section shall not be deemed a representation by
the Beneficiary as to the adequacy of coverage of such policy or the
solvency of the insurer.
(f) If the Grantor fails to procure, pay the premium of, or deliver to
the Beneficiary any of the insurance policies or renewals as required
herein, the Beneficiary may elect, but shall not be obligated, to effect
such insurance and pay the premiums. The Grantor shall pay to the
Beneficiary on demand any premiums so paid with interest thereon at the
rate per annum set forth in clause (ii) of Section 2.11(c) of the Loan
Agreement (the "Default Rate") from the time of the Beneficiary's payment,
and said advance and interest shall be secured by this Deed of Trust.
(g) In the event of foreclosure of this Deed of Trust, or other
transfer of title to the Property in extinguishment of the Indebtedness,
the purchaser of the Property shall succeed to all of the Grantor's rights,
including any rights to unearned premiums, and to all insurance policies
required by this Section, but the Grantor shall be entitled to a credit for
any such unearned premium with respect to the period after the transfer of
title as against any deficiency judgment obtained by the Beneficiary, and
if no such deficiency exists, to a return of such unearned premium.
(h) If the Beneficiary acquires title to the Property in any manner, it
shall thereupon (as between the Grantor and the Beneficiary) become the
sole and absolute owner of all insurance policies required by this Section,
with the sole right to collect and retain all unearned premiums thereon,
and the Grantor shall be entitled only to a credit, in reduction of the
then outstanding Indebtedness, in the amount of the short-rate cancellation
refund.
2.5 Casualty. (a) The Grantor shall promptly give written notice to the
Beneficiary of fire or other casualty to the Real Property encumbered by
the lien of this Deed of Trust, the Building, or the Building Equipment.
Regardless of the amount of any damage or destruction and whether or not
the insurance proceeds, if any, are sufficient for the purpose, the Grantor
shall, at its sole cost and expense, restore, repair, replace, rebuild, or
alter such Real Property, the Building, and the Building Equipment as
nearly as possible to their value, condition, and character immediately
prior to such damage or destruction, or make such changes or alterations as
the Beneficiary approves in writing. All insurance proceeds on account of
such damage or destruction shall be paid to the Beneficiary. Such proceeds,
less the reasonable costs, fees and expenses, if any, incurred in
connection with adjustment of the loss ("Net Proceeds"), shall, subject to
Section 2.5(b) below, be applied in the Beneficiary's sole discretion
either to the reduction of the Indebtedness, in the inverse order of
maturity, whether due or not, or to payment of the costs of such
restoration, repair, replacement, rebuilding, or alteration, including the
cost of temporary repairs or of the protection of the Property pending the
completion of permanent restoration, repair, replacement, rebuilding, or
alteration (all of which temporary repairs, protection of the Property, and
permanent restoration, repair, replacement, rebuilding, or alteration are
hereinafter collectively referred to as the "Restoration").
(b) Notwithstanding the provisions of Section 2.5(a) above:
(i) The Net Proceeds shall be disbursed by the Beneficiary in
accordance with the terms and conditions set forth herein to pay for the
costs and expenses of the Restoration provided (A) no Event of Default has
occurred and remains uncured, (B) the Grantor proceeds promptly after the
insurance claims are settled with the Restoration of the Real Estate, the
Building and the Building Equipment as nearly as possible to their
condition immediately prior to such fire or other casualty, (C) the
Restoration shall be done in compliance with all applicable laws,
ordinances, rules and regulations, (D) the plans and specifications for the
Restoration shall be submitted to the Beneficiary and shall be satisfactory
to the Beneficiary in all respects, (E) all costs and expenses incurred by
the Beneficiary in connection with making the Net Proceeds available for
the Restoration including, without limitation, counsel fees and inspecting
architect and engineer fees incurred by the Beneficiary shall be paid by
the Grantor, (F) the Beneficiary shall have approved a budget submitted by
the Grantor for the Restoration, and any modifications thereto, and (G) the
Grantor complies with any other reasonable requirements of the Beneficiary
with respect to construction or restoration work.
(ii) The Net Proceeds shall be held by the Beneficiary without interest
thereon and shall be paid by the Beneficiary to, or as directly by, the
Grantor from time to time during the course of the Restoration, upon
receipt of evidence, satisfactory to the Beneficiary, that (A) all
materials installed and work and labor performed (except to the extent they
are to be paid for out of the requested payment) in connection with the
Restoration have been paid for in full, (B) no notices of intention,
mechanics' or other liens or encumbrances on the Property arising out of
the Restoration exist, (C) the Grantor shall have provided to the
Beneficiary lien waivers from all contractors, subcontractors and suppliers
who performed work or supplied labor or materials in connection with the
Restoration, and (D) the balance of the Net Proceeds plus the balance of
any deficiency deposits given by the Grantor to the Beneficiary pursuant to
clause (iv) of this Section 2.5(b) shall be sufficient to pay in full the
balance of the cost of the Restoration.
(iii) Notwithstanding anything to the contrary contained herein, if the Net
Proceeds shall be less than $50,000.00, only one disbursement shall be
required, which shall be made upon the completion of the Restoration.
(iv) If at any time the Net Proceeds, or the undisbursed balance thereof,
shall not in the reasonable opinion of the Beneficiary be sufficient to pay
in full the balance of the cost of the Restoration, the Grantr shall
deposit the deficiency with the Beneficiary before any further disbursement
of the Net Proceeds shall be made.
(v) Any amount of the Net Proceeds received by the Beneficiary and not
required to be disbursed for the Restoration pursuant to the provisions of
this Section 2.5(b) shall, in the Beneficiary's sole discretion, either be
(A) retained and applied by the Beneficiary toward the payment of the
Indebtedness, whether or not then due and payable, in the inverse order of
maturity, or (B) paid in whole or in part to the Grantor for such purposes
as the Beneficiary shall designate.
2.6 Condemnation. If all or any part of the Property is taken in
condemnation proceedings or by exercise of any right of eminent domain, or
by conveyance in lieu of condemnation (hereinafter collectively called
"Proceedings"), the Grantor and the Beneficiary shall have the right to
participate in any Proceedings at the Grantor's expense, including
reasonable attorneys' fees, notwithstanding any provisions in any other
documents now in existence or hereafter executed. Any resulting award or
proceeds shall be deposited with the Beneficiary and distributed in the
manner set forth in this Section. The parties agree to execute any and all
further documents that may be required in order to facilitate collection of
any award or awards and the making of any such deposit. If tide to the
whole or materially all of the Property is taken in condemnation
proceedings or by agreement between the Grantor and the Beneficiary and
those authorized to exercise such right, the Beneficiary shall apply such
award or proceeds first to payment of the reasonable costs of their
collection, including reasonable attorneys' fees, second to payment of the
Indebtedness, in inverse order of maturity, whether due or not, and third
to the Grantor. "Materially all of the Property" shall be deemed to have
been taken if the portion of the Property not so taken cannot be repaired
or reconstructed so as to constitute a complete facility suitable for the
conduct of the Grantor's business. If title to less than the whole or
materially all of the Property is taken, the Beneficiary shall hold and
apply all of the award or proceeds in the Beneficiary's sole discretion to
the reduction of the Indebtedness, in inverse order of maturity, whether
due or not, or to the payment of the cost of demolition, repair, and
restoration, substantially in the same manner and subject to the same
conditions as those provided in Section 2.5 (pertaining to damage or
destruction with respect to insurance proceeds and other moneys). If the
Beneficiary elects to apply such award or proceeds to the cost of the
demolition, repair, and restoration, and if any balance remains after
payment of the cost of such demolition, repair, and restoration, the
Beneficiary shall apply such balance toward reduction of the Indebtedness,
in the inverse order of maturity, whether due or not. If the costs of such
demolition, repairs, and restoration exceed the net amount collected by the
Beneficiary, the Grantor shall pay the deficiency upon demand.
2.7 The Beneficiary's Interest In and Use of Deposits. The Grantor
hereby pledges, as additional security for the Indebtedness, any moneys on
deposit with the Beneficiary or other depository pursuant to the terms of
this Deed of Trust or any other Loan Document (collectively referred to
herein as the "`Deposits"). The Deposits shall be held in trust to be
irrevocably applied by the depository for the purposes for which such
Deposits are made and shall not be subject to the direction or control of
the Grantor; provided that neither the Beneficiary nor such depository
shall be liable for any failure to apply the Deposits to the payment of
taxes and assessments unless the Grantor, while not in default hereunder,
has requested said depository in writing to make application of the
Deposits to the payment of the particular taxes or assessments for payment
of which the Deposits are made, accompanied by the bills for such taxes and
assessments. When the Indebtedness has been fully paid, the Beneficiary
shall pay any remaining Deposits to the Grantor.
2.8 Maintenance of Property. The Grantor will not commit any waste on
the Property or take any actions that might invalidate any insurance
carried on the Property. The Grantor at its sole cost and expense will
maintain the Property and the landscaping, sidewalks, curbs, and vaults
adjoining the Building in good condition and make all necessary repairs,
interior and exterior, structural and non-structural, ordinary and
extraordinary, and foreseen and unforeseen. No improvements may be removed,
demolished, or materially altered without the prior written consent of the
Beneficiary. All repairs shall be equal in quality and class to the
original work. No personal property in which the Beneficiary has a security
interest may be removed from the Property unless it is immediately replaced
by similar property of at least equivalent value on which the Beneficiary
will immediately have a valid first lien and security interest.
2.9 Compliance. The Grantor agrees to comply promptly with all present
and future laws, statutes, ordinances, orders, rules, regulations,
restrictions, and requirements of all federal, state, and municipal
governments, courts, departments, commissions, boards, and officers, any
national or local Board of Fire Underwriters, or any other body exercising
similar functions, foreseen or unforeseen, ordinary or extraordinary, which
may be applicable to the Property, the landscaping, sidewalks, curbs, and
vaults adjoining the Property, or to the use or manner of use of the
Property whether or not such law, statute, ordinance, order, rule,
regulation, restriction, or requirement necessitates structural changes or
improvements, or the removal of any encroachments or projections,
ornamental, structural, or otherwise, onto or over the streets adjacent to
the Property, or onto or over property contiguous or adjacent thereto, and
including, without limitation, all zoning, building code, environmental
protection and equal employment opportunity laws, statutes, ordinances,
orders, rules, regulations, restrictions, and requirements. The Grantor and
the use of the Property shall comply with all conditions, covenants,
restrictions, easements, rights of way, licenses and other agreements or
instruments affecting the Property.
2.10 Use of the Property. The Grantor shall use the Property solely in
connection with the conduct of the Grantor's business, and shall not use or
permit the use of the Property for any other purpose without the prior
written consent of the Beneficiary.
2.11 Effect of Changes in Laws Regarding Taxation. In the event of the
passage of any law of the United States or of the State of Colorado which
for taxation purposes deducts any lien from the value of land, or imposes
upon the Beneficiary the payment of the whole or any part of the taxes or
assessments or charges or liens herein required to be paid by the Grantor,
or changes in any way laws relating to the taxation of deeds of trust or
debts secured by deeds of trust or the Beneficiary's interest in the
Property or the manner of collection of taxes, so as to affect this Deed of
Trust or the debt secured hereby, then the Grantor, upon demand by the
Beneficiary, shall pay the full amount of such taxes or assessments, or
reimburse the Beneficiary therefor; provided, however, that if in the
opinion of the Beneficiary's counsel (a) it may be unlawful to require the
Grantor to make such payment, or (b) the making of such payment might
constitute usury or render the loan or the Indebtedness wholly or partially
usurious under any of the terms or provisions of the Note or this Deed of
Trust or any other Loan Document, then the Beneficiary may elect, by
written notice to the Grantor, to declare all of the Indebtedness with
interest thereon to be and become due and payable within ninety (90) days
of the giving of such notice, or the Beneficiary may, at its option, pay
whatever amount or portion of such taxes as renders the Indebtedness
unlawful or usurious, in which event the Grantor shall concurrently pay the
remaining lawful and non-usurious portion or balance of said taxes.
2.12 Cost of Defending Title to Property. If the Beneficiary is made a
party to any action affecting this Deed of Trust or the title to the
Property, the Grantor agrees that the Beneficiary may at its option defend
such action. Furthermore, in the event of any actions or proceedings
affecting this Deed of Trust or title to the Property, the Beneficiary may,
at its option, elect to participate or join in any such actions or
proceedings. If the Beneficiary elects to so defend or participate, all
court costs and reasonable expenses, including attorneys' fees and costs of
evidence of title to the Property, shall become part of the Indebtedness
and be secured hereby.
2.13 Acceleration of Indebtedness. The full principal of the Note and
all obligations secured by this Deed of Trust, irrespective of the maturity
date expressed therein, at the option of the Beneficiary, and without
demand or notice, shall immediately become due and payable, and the Note
shall thereafter bear interest at the Default Rate if the Grantor without
the prior written consent of the Beneficiary does any one or more of the
following:
(a) voluntarily or involuntarily sells, assigns, transfers, leases with
option to purchase, disposes of, or further encumbers, or agrees to sell,
assign, transfer, lease with option to purchase, dispose of, or further
encumber, all or any portion of or any interest in the Property, including,
but not limited to, any development rights, air rights, or similar rights;
(b) is divested of title to all or part of the Property in any manner,
whether voluntarily or involuntarily; or
(c) permits or suffers the dissolution, liquidation or termination of
the existence of the Grantor, whether voluntarily or involuntarily.
2.14 Mineral and Other Interests. The Grantor agrees that exploring for
any oil, gas, water, or other mineral under, through, upon, or appurtenant
to the Property, or making any oil, gas, water, or other mineral lease with
respect to all or any part of the Property, or the sale or conveyance of
any water, oil, gas, or other mineral interest or the right to explore for
the same under, through, upon, or appurtenant to the Property would impair
the value of the Property as security for payment of the Indebtedness. The
Grantor shall have no right, power, or authority to explore for any oil,
gas, water, or other mineral under, through, upon, or appurtenant to the
Property, to lease all or any part of the Property for oil, gas, water, or
other mineral purposes, or to grant, assign, or convey any water, oil, gas,
or other mineral interest of any nature, or the right to explore for oil,
gas, water, and other minerals, without first obtaining the Beneficiary's
prior written consent, which consent if granted may be subject to such
conditions as the Beneficiary may solely determine and shall not be valid
until recorded. If the Grantor commences any such exploration or makes any
such lease or attempt to grant water rights or any such oil, gas, or other
mineral rights without such prior written consent, then the Beneficiary
may, without notice, declare the same to be an Event of Default (as
hereinafter defined), declare the Indebtedness immediately due and payable,
and exercise all of its other rights and remedies. Whether or not the
Beneficiary consents to such exploration, lease, or grant of the water,
mineral, oil, or gas rights, the Beneficiary shall, at its option, receive
the entire profits, revenues, and income resulting from such exploration
and the entire consideration to be paid for such lease or grant of the
water, mineral, oil, or gas rights, and shall apply such profits, revenues,
income, or consideration to the Indebtedness as a prepayment of the Note,
in inverse order of maturity, whether due or not, without premium or
penalty; provided, however, that the acceptance of such profits, revenues,
income, or consideration shall in no way impair the lien of this Deed of
Trust on the entire Property and all rights therein, and all water, oil,
gas, and other mineral rights, including any such rights covered by any
such consent, shall remain subject to this Deed of Trust. As used herein,
references to minerals and mineral rights shall include geothermal
resources.
2.15 Information to be Supplied by the Grantor to the Beneficiary. The
Grantor will deliver to the Beneficiary:
(a) within thirty (30) days after the Beneficiary's request, a written
statement in recordable form executed by the Grantor, setting forth the
amount then secured by this Deed of Trust and whether any offsets or
defenses exist against the Indebtedness and if any offsets or defenses are
alleged to exist, specifying the nature of such alleged offsets or
defenses;
(b) within a reasonable time after the Beneficiary's request, such
other information with respect to the Property as the Beneficiary
reasonably requests from time to time;
(c) immediately upon the occurrence, written notice of (i) the change
of the Grantor's name, (ii) any trade name or fictitious name which is
adopted for use by the Grantor, or (iii) any change of the Grantor's
principal place of business; and
(d) within ten (10) days following each anniversary of the date hereof
and at any other time upon the Beneficiary's request, a rent roll of the
Property indicating all tenants, their rental rate, commencement and
termination dates, square footage and any other information regarding the
tenants reasonably requested by the Beneficiary. The Grantor shall certify
that all such rent rolls are true and correct.
2.16 Waiver of Right to Marshal Assets. The Grantor, for itself and for
all persons hereafter claiming through or under it or who may at any time
hereafter become holders of liens junior to the lien of this Deed of Trust,
hereby expressly waives and releases all rights to have the Property and
any other property now or hereafter constituting security for the
Indebtedness marshaled upon any foreclosure of the lien of this Deed of
Trust. The Beneficiary shall have the right to sell the Property as a whole
or in separate parcels.
2.17 Zoning and Private Covenants. The Grantor will not initiate, join
in, or consent to any change in any zoning ordinance or classification, any
private restrictive covenant, or any other public or private restriction
limiting or defining the uses of all or any part of the Property without
the Beneficiary's prior written consent. If the use of all or any part of
the Property is or becomes a nonconforming use under applicable zoning
provisions, the Grantor will not cause or permit such use to be
discontinued or abandoned without the Beneficiary's prior written consent.
2.18 Periodic Accounting. Supplementing Section 5.01 of the Loan
Agreement, the Grantor agrees and promises to keep and maintain complete
and accurate books and records of the earnings and expenses relating to the
operation of the Property and, without expense to the Beneficiary, to
furnish to the Beneficiary, within ninety (90) days following the close of
its fiscal year, a certified operating statement of the Property which
shows all receipts, disbursements, and operating expenses received and made
in connection with the operation of the Property. All such statements and
reports shall be prepared in accordance with generally accepted accounting
principles and shall be certified as being correct by a certified public
accountant. The Beneficiary shall be permitted to examine books and records
relating to the Property, together with all supporting vouchers and data,
at all reasonable times in the Grantor's principal place of business within
the State of Colorado.
2.19 Condominium Declaration and Map. The Grantor shall not execute or
record any form of declaration of condominium ownership, any condominium
map, or any other document which purports to convert the Property into
condominiums or separate air space units without the Beneficiary's prior
written consent.
2.20 Special Districts. The Grantor shall not agree to or vote for the
formation of any quasi-governmental entity, including without limitation,
any special districts or metropolitan districts, with the power to assess
taxes or assessments against the Property.
2.21 Alterations. Without the Beneficiary's prior written consent,
which shall not be unreasonably withheld, the Grantor will not construct,
add to, alter, expand, or extend the Building or any other improvements on
the Property, or consent to or permit any such construction, addition,
alteration, expansion, or extension.
2.22 Replacement of Note. The Grantor will, if the Note is mutilated,
destroyed, lost or stolen, deliver to the Beneficiary, in substitution
therefor, a new promissory note, clearly marked as being a replacement
note, containing the same terms and conditions as the Note with a notation
thereon of the unpaid principal and accrued but unpaid interest. The
Grantor shall be furnished with satisfactory evidence of the mutilation,
destruction, loss or theft of the Note, and also such security or indemnity
as may be reasonably requested by the Grantor, it being expressly
understood and agreed that a statement by the Beneficiary and an
indemnification from the Beneficiary shall be deemed to satisfy the
foregoing requirements.
2.23 Expenses. The Grantor shall pay all taxes, assessments, recording
fees, documentary stamp taxes, registration taxes, title insurance
premiums, escrow fees, other title charges, loan brokerage commissions,
attorney's fees of the Beneficiary's counsel (including in-house counsel),
appraisal fees, and all other costs and expenses incurred by the
Beneficiary in connection with the Indebtedness.
2.24 Waiver of Jury Trial. THE GRANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS DEED OF TRUST OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE GRANTOR OR THE BENEFICIARY. THE GRANTOR ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BENEFICIARY EXTENDING THE LOAN
EVIDENCED BY THE NOTE AND EACH OTHER LOAN DOCUMENT.
2.25 Asbestos. The Grantor shall not install nor permit to be installed
in the Property any product or material containing more than 0.1% asbestos
by weight that when dry, may be crumbled, pulverized, or reduced to powder
by hand pressure. If the Grantor installs or permits to be installed in the
Property any material or product containing more than 0.1% asbestos by
weight, the Grantor shall prepare and implement on an on-going basis a
written asbestos operations and maintenance program prepared by a qualified
environmental consultant. Such plan shall ensure that (a) all persons are
protected from any release of asbestos fibers at the Property and (b)
asbestos fibers are not distributed throughout the Property during
Maintenance, repairs or renovations. The Grantor shall, in addition, comply
with all laws, regulations and orders with respect to any asbestos
installed in the Property and shall abate any damage or potential damage to
such materials or products. If the Grantor fails to abate any damage or
potential damage to such materials, or fails to comply with any
governmental requirements pertaining to asbestos, the Beneficiary may
declare an "Event of Default" hereunder and/or do whatever is necessary to
abate such damage or potential damage or comply with governmental
requirements (in which case, the Grantor shall give the Beneficiary and its
agents or employees access to the Property to respond to said asbestos
materials) and the costs thereof shall be added to the indebtedness
evidenced by the Note and secured by this Deed of Trust and the other Loan
Documents (regardless of whether such indebtedness causes the outstanding
balance of the Note to be in excess of the maximum principal amount
thereof). The Grantor agrees to defend, indemnify, and hold the Beneficiary
free and harmless from and against all loss, costs, damage and expense
(including attorneys' fees and expenses and other litigation expenses) the
Beneficiary may sustain by reason of the assertion against the Beneficiary
by any party of any claim that arises out of the presence, management or
removal of asbestos materials or compliance with any governmental
requirement pertaining to asbestos. The foregoing indemnification shall be
a recourse obligation of the Grantor and shall survive repayment of the
Note and the performance of all other obligations under the Loan Documents,
notwithstanding any limitation on liability contained herein or in any of
the Loan Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Grantor covenants, represents and warrants to the Beneficiary as
follows:
3.1 Character of Property for Foreclosure Purposes. Notwithstanding any
failure of the legal description of the property attached hereto as Exhibit
A to s6 recite, a portion of the real property encumbered by the lien of
this Deed of Trust is within a platted subdivision, and, therefore, the
Property is not "agricultural real estate" (as defined in Section 38-38-
302(4), C.R.S.) and is not subject to the statutory redemption period for
agricultural real estate provided in Section 38-38-302, C.R.S., as amended
from time to time.
3.2 Character of Property for Acceleration of Indebtedness Purposes.
The transaction contemplated herein and in the Note and in the Loan
Documents is solely a commercial transaction, and, as such, the
acceleration of indebtedness upon an event of default is not within the
scope of the restrictions on acceleration of indebtedness contained in
Section 38-30-165, C.R.S.
3.3 Leases. All representations made by the Grantor in the Leases are,
or when any Lease is executed will be, true and correct.
3.4 Conditions Preventing Compliance. No conditions exist to the best
knowledge of the Grantor which would prevent the Grantor or any of the
Affiliates from fully complying with the provisions of this Deed of Trust
or the Loan Documents within the time limits herein and therein set forth.
3.5 Pending Litigation. No actions, suits, or proceedings are pending
or threatened against or affecting the Grantor or the Property in any court
of law or in equity, or before or by any governmental department,
commission, board, bureau, agency, or other instrumentality which might
materially adversely affect the ability of the Grantor to perform its
obligations hereunder or might materially adversely affect the priority of
the Beneficiary's first lien on the Property.
3.6 Access. The Property is and will be contiguous to streets or roads
or highways to be adequately completed and maintained, and vehicular and
pedestrian access from the Property is and will be permitted to any such
streets or roads or highways.
3.7 Condemnation. No condemnation or eminent domain proceeding has been
commenced or threatened against the Property.
3.8 No Limits On Property There are no limitations (including without
limitation subdivision agreements, annexation agreements, or notes on
planned unit development maps or subdivision maps) on the Grantor's ability
to develop, operate and maintain the Property except the Permitted
Exceptions and applicable laws, statutes and regulations.
3.9 Special Districts. Except as provided in Exhibit B, the Property is
not within the boundaries of any quasi-governmental entity, including
without limitation, any special district or metropolitan district, with the
power to assess taxes or assessments against the Property.
ARTICLE 4
HAZARDOUS MATERIALS
4.1 Definitions. The following terms shall have the meaning specified:
(a) "Governmental Requirements" means all laws, ordinances, statutes,
codes, rules, regulations, orders and decrees of the United States, the
state, the county, the city, or any other political subdivision in which
the Property is located, and any other political subdivision, agency or
instrumentality exercising jurisdiction over the Grantor or the Property.
(b) "Hazardous Materials" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901
et seq.), as amended from time to time, and regulations promulgated
thereunder; (b) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.) ("CERCLA") and the regulations promulgated
thereunder; (c) any hazardous, toxic or dangerous waste, substance or
material as defined in any so-called "Superfund" or "Superlien" law, or any
other federal, state or local statute, law, ordinance, code or other
requirement of any governmental authority; (d) asbestos; (e)
polychlorinated biphenyls; (f) any substance the presence of which on the
Property is prohibited by any Governmental Requirements (as defined above);
(g) any petroleum-based products; (h) underground storage tanks; and (i)
any other substance which by any Governmental Requirements requires special
handling or notification of any federal, state or local governmental entity
in its collection, storage, treatment, or disposal. Hazardous Materials
shall not include cleaning solvents and products used in photocopiers and
similar materials customarily used in office, warehouse or industrial
buildings, provided such materials are only in such quantifies as are
necessary for day-to-day use in the ordinary course of the Grantor's
business, which quantities are smaller than the amounts regulated by
applicable statutes, and provided further that such materials are stored
and disposed of in accordance with all applicable laws.
(c) "Hazardous Materials Contamination" means the contamination
(whether presently existing or hereafter occurring) of the Property,
facilities, soil, groundwater, air or other elements on or of the Property
by Hazardous Materials, or the contamination of the buildings, facilities,
soil, groundwater, air or other elements on or of any other property as a
result of Hazardous Materials at any time (whether before or after the date
of this Deed of Trust) emanating from the Property.
(d) "Environmental Site Assessments" means the following:
(i) Phase I Environmental Site Assessment for the Hauser Facility, 5505
Airport Boulevard, Boulder, Colorado 80301, dated March 10, 1999, prepared
by ARCADIS Geraghty & Miller;
(ii) Phase I Environmental Site Assessment for the Hauser Gunbarrel
Facility, 4750 Nautilus Court South, Boulder, Colorado 80301, dated
December 18, 1998, prepared by ARCADIS Geraghty & Miller; and
(iii) Phase I Environmental Site Assessment for the Hauser Park Facility,
4161 Specialty Place, Longmont, Colorado 80504, dated December 18, 1998,
prepared by ARCADIS Geraghty & Miller; together with and inclusive of all
figures, photographs, maps, charts, diagrams and appendices included or
referenced therein.
4.2 The Grantor's Representation and Warranties. The Grantor hereby
represents and warrants that except as disclosed by or in the Environmental
Site Assessments, or with respect to any Hazardous Materials used in any
process identified in the Environmental Site Assessments:
(a) No Hazardous Materials are now located on the Property;
(b) Neither the Grantor nor, to the Grantor's knowledge, any other
person has ever caused or permitted any Hazardous Materials to be placed,
held, located or disposed of on, under or at the Property or any part
thereof;
(c) No part of the Property is being used or has ever been used for the
disposal, storage, treatment, processing, manufacturing or other handling
of Hazardous Materials;
(d) No part of the Property is affected by any Hazardous Materials
Contamination;
(e) To the Grantor's knowledge, no property adjoining the Property is
or has ever been used for the disposal, storage, treatment, processing,
manufacturing or other handling of Hazardous Materials;
(f) To the Grantor's knowledge, no property adjoining the Property is
affected by Hazardous Materials Contamination;
(g) To the Grantor's knowledge, no investigation, administrative order,
consent order and agreement, litigation or settlement with respect to
Hazardous Materials or Hazardous Materials Contamination is proposed,
threatened, anticipated or in existence with respect to the Property;
(h) To the Grantor's knowledge, the Property is not currently on, and
to the Grantor's knowledge, after diligent investigation and inquiry, has
never been on, any federal or state "Superfund" or "Superlien" list.
Notwithstanding that certain of the foregoing warranties and
representations are "to the Grantor's knowledge," except as disclosed by or
in the Environmental Site Assessments, or with respect to any Hazardous
Materials used in any process identified in the Environmental Site
Assessments, the existence of any of the foregoing at any time while the
Indebtedness is outstanding shall, at the Beneficiary's option, constitute
an Event of Default.
4.3 The Grantor's Covenants. The Grantor agrees to:
(a) give notice to the Beneficiary within twenty-four (24) hours after
the
Grantor's acquiring knowledge of the presence of any Hazardous Materials on
the Property
(other than those Hazardous Materials disclosed by or in the Environmental
Site Assessments or used in any process identified in the Environmental
Site Assessments) or of any Hazardous Materials Contamination with a full
description thereof;
(b) promptly comply with any Governmental Requirements with respect to
the existence, use, removal, treatment, storage, disposal or other handling
of Hazardous Materials or Hazardous Materials Contamination and, upon
request, provide the Beneficiary with satisfactory evidence of such
compliance;
(c) clean to the level required by Governmental Requirements any
Hazardous Material Contamination at the Property existing from time to
time, including, without limitation, any contamination of the air, soil,
groundwater or surface waters in, on or under the Property;
(d) provide the Beneficiary, within thirty (30) days after demand by
the
Beneficiary, with a bond, letter of credit or similar financial assurance
evidencing to the
Beneficiary's reasonable satisfaction that sufficient funds are available
to pay the cost of
removing, treating and disposing of Hazardous Materials associated with
Hazardous
Materials Contamination and discharging any assessments which may be
established on the
Property as a result thereof;
(e) conduct all operations on the Property in compliance with all
Governmental Requirements and in accordance with best management practices
as are reasonably required to keep the Property free of any potentially
harmful Hazardous Materials Contamination;
(f) keep the Property free of any lien imposed pursuant to any
Governmental Requirements; and
(g) pay immediately when due the costs of remedying any Hazardous
Material Contamination and the costs of complying and the costs of
complying with any applicable Governmental Requirement.
4.4 Site Assessments. If the Beneficiary shall ever have reason to
believe that there are Hazardous Materials or Hazardous Materials
Contamination that may adversely affect any of the Property or any
individuals on or about the Property, and, after the Beneficiary gives
notice to the Grantor, the Grantor refuses or fails to have a site
assessment promptly performed by an environmental consultant acceptable to
the Grantor and the Beneficiary, then the Beneficiary (by its officers,
employees and agents) at any time and from time to time, either prior to or
after the occurrence of an Event of Default, may contract for the services
of persons (the "Site Reviewers") to perform environmental site assessments
("Site Assessments") on the Property for the purpose of determining whether
there exists on the Property any environmental condition which could result
in any liability, cost or expense to the owner, occupier or operator of
such Property arising under any Governmental Requirements relating to
Hazardous Materials. The Site Assessments may be performed at any time or
times, upon reasonable notice, and under reasonable conditions established
by the Grantor which do not impede the performance of the Site Assessments.
The Site Reviewers are hereby authorized to enter upon the Property for
such purposes. The Site Reviewers are further authorized to perform both
above and below the ground testing for environmental damage or the presence
of Hazardous Materials on the Property and such other tests on the Property
as may be necessary to conduct the Site Assessments in the reasonable
opinion of the Site Reviewers. The Grantor will supply to the Site
Reviewers such historical and operational information regarding the
Property as may be reasonably requested by the Site Reviewers to facilitate
the Site Assessments and will make available for meetings with the Site
Reviewers appropriate personnel having knowledge of such matters. On
request, the Beneficiary shall make the results of such Site Assessments
fully available to the Grantor, which (prior to an Event of Default) may at
its election participate under reasonable procedures in the direction of
such Site Assessments and the description of tasks of the Site Reviewers.
The cost of performing such Site Assessments shall be paid by the Grantor
upon demand of the Beneficiary and any such obligations shall be
Indebtedness secured by this Deed of Trust and the Loan Documents.
4.5 Indemnification. Regardless of whether any Site Assessments are
conducted hereunder, the Grantor shall defend (using counsel acceptable to
the Beneficiary), indemnify and hold harmless the Beneficiary, its
directors, officers, employees, agents and their respective successors and
assigns from any and all liabilities (including strict liability), actions,
demands, penalties, losses, costs or expenses (including, without
limitation, consultants fees, investigation and laboratory fees, reasonable
attorneys' fees, expenses and remedial costs), suits, costs of any
settlement or judgment and claims of any and every kind whatsoever which
may now or in the future (whether before or after the release of this Deed
of Trust) be paid, incurred or suffered by or asserted against the
Beneficiary by any person or entity or governmental agency for, with
respect to, or as a direct or indirect result of, the presence on or under,
or the escape, seepage, leakage, spillage, discharge, emission or release
from the Property of any Hazardous Materials or any Hazardous Materials
Contamination or arise out of or result from the environmental condition of
the Property or the applicability of any Governmental Requirements relating
to Hazardous Materials (including, without limitation, CERCLA or any so-
called federal, state or local "Superfund" or "Superlien" laws, statute,
law, ordinance, code, rule, regulation, order or decree), regardless of
whether or not caused by or within the control of the Grantor or the
Beneficiary. The foregoing indemnification shall be a recourse obligation
of the Grantor, notwithstanding any limitations on recourse contained
herein or in any of the Loan Documents.
4.6 The Beneficiary's Right to Remove Hazardous Materials. The
Beneficiary shall have the right but not the obligation, without in any way
limiting the Beneficiary's other rights and remedies under this Deed of
Trust, to enter onto the Property or to take such other actions as it deems
necessary or advisable to clean up, remove, resolve or minimize the impact
of, or otherwise deal with, any Hazardous Materials or Hazardous Materials
Contamination on the Property following receipt of any notice from any
person or entity asserting the existence of any Hazardous Materials or
Hazardous Materials Contamination pertaining to the Property or any part
thereof which, if true, could result in an order, notice, suit, imposition
of a lien on the Property or other action and/or which, in the
Beneficiary's sole opinion, could jeopardize the Beneficiary's security
under this Deed of Trust. The Grantor shall give the Beneficiary and its
agents and its employees access to the Property to respond to such
conditions relating to Hazardous Materials. All reasonable costs and
expenses paid or incurred by the Beneficiary in the exercise of any such
rights shall be part of the Indebtedness secured by this Deed of Trust and
shall be payable by the Grantor upon demand.
4.7 Survival. The representations, covenants, warranties and
indemnification contained in this Article 4 shall survive the repayment of
the Note and performance of all other obligations under the Loan Documents,
the release of this Deed of Trust and the foreclosure of this Deed of
Trust.
ARTICLE 5
ASSIGNMENT OF RENTS AND
LESSOR'S INTEREST IN LEASES
5.1 Assignment of Rents. As additional security for the payment of the
Indebtedness, the Grantor hereby absolutely and unconditionally assigns,
transfers, and sets over to the Beneficiary: (i) the rents, profits, and
income derived from the Property, including all prepaid rent, security
deposits and liquidated damages following default under any Leases (the
"Rents"); (ii) all proceeds payable under any policy of insurance covering
loss of rents resulting from untenantability caused by damage to any part
of the Property; (iii) any award or other payment to which the Grantor may
become entitled with respect to the Leases as a result of or pursuant to
any bankruptcy, insolvency or reorganization or similar proceedings
involving the tenants under the Lease; and (iv) all payments made by or on
behalf of any tenant of any part of the Property in lieu of Rent. The
Grantor reserves and the Beneficiary grants to the Grantor a license to
collect the Rents as Trustee for the benefit of the Beneficiary and the
Grantor prior to an Event of Default. The Grantor shall apply the Rents
first to the payment of the Indebtedness in accordance with the terms of
the Note and thereafter to the account of the Grantor.
5.2 Assignment of Lessor's Interest in Leases. As additional security
for the Indebtedness, the Grantor hereby absolutely and unconditionally
assigns, transfers and sets over to the Beneficiary all right, title and
interest of the Grantor in and to the Leases, all guaranties of any
tenant's obligations under the Leases, and any modifications or renewals of
the Lease and such guaranties.
5.3 Termination of License.
(a) If an Event of Default occurs, the Beneficiary may terminate such
license without regard to the adequacy of its security hereunder and
without notice to or demand upon the Grantor, and shall thereafter have
full and complete right and authority to demand, collect, receive, and
receipt for the Rents, to take possession of the Property without having a
receiver appointed, to rent and manage the Property from time to time, and
to apply the net proceeds of the Rents to the Indebtedness until all
delinquencies, advances, and the Indebtedness are paid in full or until the
Beneficiary obtains title to the Property through foreclosure or otherwise.
The Grantor hereby irrevocably authorizes and directs the tenants under the
Lease, upon receipt of notice from the Beneficiary that an Event of Default
has occurred, to pay thereafter all Rents directly to the Beneficiary. Upon
the occurrence of an Event of Default, the Beneficiary or the holder of the
Certificate of Purchase (issued by the Trustee after the Trustee's Sale)
may enforce its rights to the Rents by any appropriate civil suit or
proceeding.
(b) The Beneficiary or the holder of such Certificate of Purchase shall
be entitled as a matter of right, with the irrevocable consent of the
Grantor hereby given and evidenced by the execution of this Deed of Trust,
to obtain appointment of a receiver by any court of competent jurisdiction
without further notice to the Grantor. The Beneficiary or the holder of
such Certificate of Purchase shall be entitled to the appointment of a
receiver for the Property without regard to the solvency or insolvency of
the Grantor or of the then owner of the Property or of the Property's
value. Such receiver shall be authorized and empowered to enter upon and
take possession of the Property, including all personal property used upon
or in connection with the Real Property and all bank accounts containing
funds associated with the Property, to let the Property, to receive all of
the Rents due or to become due and to apply the Rents after payment of all
necessary charges and expenses to reduction of the Indebtedness. At the
option of the Beneficiary, the receiver shall enter upon and take
possession of the Property by actual entry and possession or by notice to
the Grantor. The receiver so appointed by a court of competent jurisdiction
shall be empowered to issue receiver 5 certificates for funds advanced by
the Beneficiary for the purpose of protecting the value of the Property as
security for the Indebtedness. The amounts evidenced by receiver 5
certificates shall bear interest at the Default Rate and may be added to
the cost of redemption if the Grantor or a junior lienholder redeems to the
Property following a Public Trustee's Sale.
(c) Neither the foregoing assignment of Rents to the Beneficiary nor
the exercise by the Beneficiary of any of its rights or remedies hereunder
shall be deemed to make the Beneficiary a "mortgagee-in-possession `or
otherwise responsible or liable in any manner with respect to the Property
or the use, occupancy, enjoyment or operation of all or any part of the
Property, unless and until the Beneficiary, in person or by agent, obtains
title to the Property. The appointment of a receiver for the Property by
any court at the request of the Beneficiary or by agreement with the
Grantor, or the entering into possession of the Property by such receiver,
shall not be deemed to make the Beneficiary a mortgagee-in-possession or
otherwise responsible or liable in any manner with respect to the Property
or the use, occupancy, enjoyment or operation of all or any part of the
Property.
5.4 Representations Regarding the Leases and Rents. The Grantor
represents and warrants that:
(a) The Grantor is (or will be when any Lease is executed) the sole
and absolute owner of the landlord's interest in the Leases, with full
right and title to assign its interest in the Leases and the Rents.
(b) The Leases are (or when executed will be) valid, in full force and
effect, and have not been modified or amended except as stated herein.
(c) There is no outstanding assignment or pledge of the Rents or the
Grantor's interest in the Leases
(d) There are no existing defaults under the provisions of the Leases
on the part of either party and all Rents due to date have been collected.
(e) To the best of the Grantor's knowledge, the tenants have no
defense, set off, or counterclaim against the Grantor.
(f) No Rents have been collected more than one month in advance and no
Rents have been anticipated, discounted, released, waived, compromised, or
otherwise discharged.
(g) Except as expressly set forth in the Leases, the Grantor has not
received any funds or deposits from any tenant which has not been credited
as Rents.
5.5 The Grantor's Covenants Regarding the Leases and Rents.
(a) The Grantor shall diligently perform and observe all of its
obligations under the Leases.
(b) The Grantor shall promptly: (1) give immediate written notice to
the Beneficiary of any notice the Grantor receives from any tenant or
subtenant specifying any claimed default by the Grantor under any Lease,
and (2) deliver to the Beneficiary a true copy of each such notice.
(c) The Grantor shall diligently enforce the tenants' obligations under
the Leases.
(d) The Grantor shall not grant to any tenant any options to purchase
or rights of first refusal.
(e) The Grantor shall not execute any Lease on a form which the
Beneficiary has not approved.
(f) Within five (5) days after the Beneficiary's request, the Grantor
shall furnish to the Beneficiary a certificate setting forth the names of
all tenants under the Leases, the terms of their respective Leases, the
space occupied, the Rents payable thereunder, any security deposits paid
pursuant thereto, and the dates through which any and all rents have been
paid.
(g) Each Lease shall remain in full force and effect despite any merger
of the interest of the Grantor and any tenant thereunder.
(h) The Beneficiary shall be deemed to be the creditor of each tenant
with respect to any assignments for the benefit of creditors and any
bankruptcy, arrangement, reorganization, insolvency, dissolution,
receivership or other debtor-relief proceedings affecting such tenant
(without obligation on the part of the Beneficiary, however, to file timely
claims in such proceedings or otherwise pursue creditor's rights therein).
(i) The Beneficiary shall have the right to assign the Grantor's right,
title and interest in any Leases to any subsequent holder of this Deed of
Trust or any participating interest therein or to any person acquiring
title to all or any part of the Property through foreclosure or otherwise.
Any subsequent assignee shall have all the rights and powers herein
provided to the Beneficiary.
(j) Upon the occurrence of any Event of Default, the Beneficiary shall
have the right to execute a new Lease of any part of the Property,
including any Lease that extends beyond the term of this Deed of Trust. The
Beneficiary shall have the authority, as the Grantor's attorney-in-fact,
such authority being coupled with an interest and irrevocable, to sign the
name of the Grantor and to bind the Grantor on all papers and documents
relating to the operation, leasing and maintenance of the Property.
(k) The Grantor shall promptly after written request by the Beneficiary
notify the Beneficiary in writing of the status of the Lease and the
amounts of any security deposits paid pursuant thereto.
(1) Upon written demand by the Beneficiary, the Grantor shall obtain
from the tenant and furnish to the Beneficiary such instruments as are
required to be executed and delivered by the tenant pursuant to the
provisions of the Lease.
5.6 The Beneficiary's Prior Consent Required. Without the prior written
consent of the Beneficiary, the Grantor shall not:
(a) Take any action under or with respect to any Lease which would
decrease the monetary obligations of the tenant thereunder or otherwise
materially decrease the obligations of the tenant or the fights of remedies
of the lessor.
(b) In any other manner impair the Beneficiary's rights and interest to
the Rents.
(c) Permit an assignment of the Lease or any subletting thereunder
unless the right to sublet or assign is expressly reserved by the tenant or
unless the original tenant remains liable thereon without the Beneficiary's
prior written consent, nor anticipate for more than one month any rents
that may become collectible under the Lease.
(d) Execute any further assignment of the Rents or suffer or permit any
such assignment to occur by operation of law.
(e) Modify, amend, or cancel or terminate any Lease (except where the
tenant is in default) or any guarantees of any Lease without the prior
written consent of the Beneficiary.
(f) Enter into any Leases after the date hereof.
(g) Each Lease shall provide for the attornment of the tenant
thereunder to any person succeeding to the Grantor's interest as the result
of any foreclosure or transfer in lieu of foreclosure hereunder, said
provision to be in form and substance approved by the Beneficiary.
5.7 Settlement for Termination. The Grantor shall not make any
settlement for damages for termination of any of the Leases under the
Federal Bankruptcy Code, or under any other federal, state, or local
statute, without the prior written consent of the Beneficiary. Any check in
payment of such damages will be made payable to both the Grantor and the
Beneficiary. The Grantor hereby assigns any such payment to the
Beneficiary, to be applied to the Indebtedness as the Beneficiary may
elect, and agrees to endorse any check for such payment to the order of the
Beneficiary.
5.8 Beneficiary in Possession. The Beneficiary's acceptance of this
assignment shall not, prior to entry upon and taking possession of the
Property by the Beneficiary, be deemed to constitute the Beneficiary a
"mortgagee in possession," nor obligate the Beneficiary to appear in or
defend any proceeding relating to any of the Leases or to the Property,
take any action hereunder, expend any money, incur any expenses, or perform
any obligation or liability under the Leases, or assume any obligation for
any deposits delivered to the Grantor by any lessee and not delivered to
the Beneficiary. The Beneficiary shall not be liable for any injury or
damage to person or property in or about the Property.
5.9 Appointment of Attorney. The Grantor hereby irrevocably appoints
the Beneficiary its attorney-in-fact, coupled with an interest, empowering
the Beneficiary to subordinate any Leases to this Deed of Trust
5.10 Indemnification. The Grantor hereby indemnifies and holds the
Beneficiary harmless from all liability, damage, or expense imposed on or
incurred by the Beneficiary from any claims under the Leases, including,
without limitation, any claims by the Grantor with respect to payments of
Rents made directly to the Beneficiary after an Event of Default and claims
by tenants for security deposits or for rental payments more than one (1)
month in advance and not delivered to the Beneficiary. All amounts
indemnified against hereunder, including reasonable attorneys' fees, if
paid by the Beneficiary shall bear interest at the maximum lawful rate and
shall be payable by the Grantor immediately without demand and shall be
secured hereby.
5.11 Records. Upon request by the Beneficiary, the Grantor shall
deliver to the Beneficiary executed originals of all Leases and copies of
all records relating thereto.
5.12 Merger. There shall be no merger of the leasehold estates, created
by the Leases, with the fee estate of the Real Property without the prior
written consent of the Beneficiary.
5.13 Right to Rely. The Grantor hereby authorizes and directs the
tenants under the Leases to pay rents to the Beneficiary upon written
demand by the Beneficiary without further consent of the Grantor. The
tenants may rely upon any written statement delivered by the Beneficiary to
the tenants. Any such payment to the Beneficiary shall constitute payment
to the Grantor under the Leases. The Grantor shall at any time or from time
to time, upon request of the Beneficiary, transfer and assign to the
Beneficiary in such form as may be satisfactory to the Beneficiary, the
Grantor's interest the Rents or in any Lease, subject to and upon the
condition, however, that prior to the occurrence of any Event of Default
hereunder the Grantor shall have a license to collect and receive all Rents
under such Leases as set forth in this Article.
ARTICLE 6
DEFAULTS
Each of the following shall constitute an Event of Default ("Event of
Default") hereunder:
6.1 Loan Agreement Defaults. An "Event of Default" under Article VII of
the Loan Agreement occurs, including, without limitation, any failure to
make a payment under the Note, the Loan Agreement, this Deed of Trust or
any other Loan Document when the same becomes due and payable.
6.2 Acceleration. The Beneficiary has accelerated the payment of the
Indebtedness pursuant to the provisions of Section 2.13 hereof.
6.3 Default Under Further Security Instruments. A default occurs
pursuant to the terms of any assignment of the Grantor's interest in
leases, conditional assignments of rents, security agreements, financing
statements, deeds of trust, collateral assignments, pledges, contracts of
guarantee, or other additional securities which now or hereafter further
secure the Indebtedness, whether given by the Grantor and/or any Affiliate.
The Beneficiary may, at its option, exhaust any one or more of said
securities as well as the security hereunder, either concurrently or
independently and in such order as it may determine, and may apply the
proceeds to the Indebtedness without waiving or affecting the status of any
breach or default of any right or power, whether contained herein or
exercised hereunder or whether contained or exercised under any other
security.
6A All Other Breaches. The Grantor or any of the Affiliates commits any
other breach not expressly set forth above in the due observance and
performance of any covenant, condition, or agreement contained in this Deed
of Trust, and the Grantor fails to cure such breach within thirty (30) days
after the Beneficiary gives written notice to the Grantor of such breach;
provided that if a different period or notice requirement is specified for
any particular breach under this Deed of Trust, such specific provision
shall control.
ARTICLE 7
REMEDIES
The Beneficiary shall have the following rights and remedies:
7.1 Default Interest. Upon the occurrence and during the continuation
of any Event of Default, at the Beneficiary's election, the Indebtedness
shall thereafter bear interest at the Default Rate (as defined in the
Note), whether or not accelerated. Payment of such Default Rate interest
shall be secured by this Deed of Trust.
7.2 Acceleration.
(a) Upon the occurrence of any Event of Default described in clauses
(h), (i) and (1) of Article VII of the Loan Agreement (an "Insolvency
Default"), the Indebtedness, without notice, shall become immediately due
and payable. The Grantor hereby waives notice of intent to accelerate and
notice of acceleration.
(b) Upon the occurrence of any Event of Default other than an
Insolvency Default, the Beneficiary may declare the Indebtedness
immediately due and payable, without notice, whereupon the Indebtedness
shall become immediately due and payable. The Grantor hereby waives notice
of intent to accelerate and notice of acceleration.
7.3 Power of Sale. Upon the occurrence of any Event of Default, the
Beneficiary is authorized and empowered, without further notice, to file
with the Trustee, a Notice of Election and Demand for Sale, in writing, as
provided by law. After such filing, the Trustee may lawfully foreclose and
shall foreclose the lien of this Deed of Trust, and sell and dispose of the
Property en masse or in separate parcels (as the Beneficiary may elect) and
all the right, title, and interest of the Grantor therein, at a public
auction at any place then authorized by law as may be specified in the
notice of such sale, for the highest and best price (the "Trustee's Sale"),
four (4) weeks' public notice having previously been given of the time and
place of such sale by advertisement, weekly, in a newspaper of general
circulation at the time published in the County of Boulder, State of
Colorado, or upon such other notice as may then be required by law. The
Trustee shall issue, execute, and deliver a Certificate of Purchase, a
Trustee's Deed (which may be in the ordinary form of conveyance), or a
Certificate of Redemption in the manner provided by law to the party
entitled thereto. The Trustee shall apply the proceeds or avails of the
Trustee's Sale first to pay all reasonable fees, charges, costs of
conducting the Trustee's Sale and advertising the Property, and attorneys'
fees as herein provided, second to pay to the Beneficiary the then
outstanding amount of the Indebtedness with interest at the rate set forth
in the Note, and third to the Grantor. The Beneficiary may purchase all or
any part of the Property at the Trustee's Sale. Any purchaser at the
Trustee's Sale shall not be responsible for the application of the purchase
money. In the event of any express conflict between the provisions of this
Deed of Trust and the provisions of Colorado Revised Statutes; the
provisions of Colorado Revised Statutes shall apply.
7.4 Judicial Action. Upon the occurrence of any Event of Default, the
Beneficiary may bring an action in any court of competent jurisdiction to
foreclose this Deed of Trust or to specifically enforce any of the
covenants and agreements hereof or of the Note or any other Loan Document,
or in aid of the execution of any power granted in this Deed of Trust, or
for damages.
7.5 Use of Deposits. Upon the occurrence of any Event of Default, the
Beneficiary may, but shall not be obligated to, apply the Deposits to the
Indebtedness in such order and manner as the Beneficiary may elect.
7.6 The Beneficiary's Right to Cure the Grantor's Default. Upon the
occurrence of any Event of Default, if the Grantor fails to pay any sum due
hereunder prior to delinquency, whether for taxes, insurance premiums, or
other charges, the Beneficiary may (but shall not be obligated to) pay all
or part of such items. The Grantor agrees to repay immediately and without
demand all funds so advanced by the Beneficiary with interest thereon from
the date of such payments until repaid at the Default Rate, and all of such
advances and the interest thereon shall become part of the Indebtedness and
shall be secured by this Deed of Trust.
7.7 Receiver. Upon the occurrence and during the continuation of any
Event of Default, the Beneficiary shall have the right to obtain
appointment of a receiver by any court of competent jurisdiction without
notice to the Grantor. By execution of this Deed of Trust, the Grantor
irrevocably consents to the ex parte appointment of such receiver. Such
appointment shall be as a matter of right and without regard to or the
necessity to disprove the adequacy of the security for the Indebtedness or
the solvency of the Grantor or any other person liable for the payment of
the Indebtedness, and the Grantor and each other person so liable waives,
or shall be deemed to have waived, such necessity and consent and shall be
deemed to have consented to such appointment Any order appointing such
receiver may preclude any further transfer of an interest in, or
encumbrance of, the Property without the consent of the receiver, may
require that the Grantor turn over to the receiver any and all funds,
documents, records and reports in its possession relating to the Property
upon demand, shall permit the receiver to market the Property upon such
terms and conditions as the receiver may deem appropriate, either directly
or through the Beneficiary, and shall contain such other terms and
conditions as the Beneficiary may deem necessary or appropriate. Such
receiver shall be authorized and empowered to enter upon and take
possession of the Property, including all personal property used upon or in
connection with the Real Property and all bank accounts containing funds
associated with the Property, to let the Property, to manage the Property,
to receive all the Rents due or to become due, and apply the Rents after
payment of all necessary charges and expenses to reduction of the
Indebtedness. At the option of the Beneficiary, the receiver shall
accomplish such entry and taking possession of the Property by actual entry
and possession or by notice to the Grantor. The receiver so appointed by a
court of competent jurisdiction shall be empowered to issue receiver's
certificates for funds advanced by the Beneficiary for the purpose of
protecting the value of the Property as security for the Indebtedness. The
amounts evidenced by receiver's certificates shall bear interest at the
Default Rate and may be added to the cost of redemption if the owners of
the Property, the Grantor, a junior lienholder or any other party redeems
the Trustee's Sale.
7.8 Costs and Expenses in the Event of Foreclosure. If this Deed of
Trust is foreclosed by the Trustee, the Trustee shall allow a reasonable
amount of attorneys' fees for services rendered in the supervision of such
foreclosure proceedings as a part of the cost of foreclosure. If the
foreclosure proceedings are made through court proceedings, attorneys' fees
in an amount determined by the court to be reasonable shall be taxed by the
court as a part of the cost of such foreclosure proceedings.
7.9 Remedies Cumulative, Concurrent and Nonexclusive. The Beneficiary
shall have all rights, remedies, and recourse granted in the Loan Documents
and available at law or equity (including, without limitation, those
granted by the Code and applicable to the Property, or any portion thereof)
and the same (a) shall be cumulative and concurrent; (b) may be pursued
separately, successively, or concurrently against the Grantor or others
obligated for the Indebtedness, or any part thereof, or against any one or
more of them, or against the Property, at the sole discretion of the
Beneficiary; (c) may be exercised as often as occasion therefor shall
arise, it being agreed by the Grantor that the exercise or failure to
exercise any of the same shall in no event be construed as a waiver or
release thereof or of any other right, remedy, or recourse; and (d) are
intended to be, and shall be, nonexclusive.
7.10 Rate After Sale. If the Property is sold at a Trustee's Sale, the
sum for which the Property was sold shall, for purposes of redemption
(pursuant to Section 38-38-302, C.R.S., or the corresponding provisions of
any future law), bear interest at the lesser of (a) the maximum rate
permitted by applicable law or (b) the Default Rate from the date of the
Trustee's Sale until paid.
ARTICLE 8
MISCELLANEOUS
8.1 Waiver. Failure by the Beneficiary to insist upon the strict
performance of any covenant, agreement, term, or condition of this Deed of
Trust or to exercise any right or remedy consequent upon a breach thereof
shall not constitute a waiver of any such breach or of such covenant,
agreement, term, or condition. No covenant, agreement, term, or condition
in this Deed of Trust and no breach thereof, may be waived, altered, or
modified except by a written instrument executed by the Beneficiary. The
waiver of any breach shall not affect or alter this Deed of Trust, but each
and every covenant, agreement, term, and condition of this Deed of Trust
shall continue in full force and effect with respect to any other then
existing or subsequent breach thereof.
8.2 Notices. All notices, demands, and requests given or required to be
given hereunder shall be in writing and shall be deemed to have been
properly given when delivered in person or by overnight or similar courier
service, or sent by tested telex, telegram, or telecopier or three (3) days
after having been deposited in any post office, branch post office, or mail
depository regularly maintained by the U.S. Postal Service and sent by U.S.
registered or certified mail, postage prepaid, addressed as follows:
TO THE GRANTOR:
Hauser, Inc.
5555 Airport Boulevard
Boulder, Colorado 80301
Attn: Mr. Dean Stull
(Telecopy No. (303) 441-5802)
WITH A COPY TO:
Chrisman, Bynum & Johnson
1900 Fifteenth Street
Boulder, Colorado 80302
Attn: Laurie P. Glasscock, Esq.
TO THE BENEFICIARY:
Wells Fargo Bank, National Association
c/o Wells Fargo HSBC Trade Bank, N.A.
333 South Grand Avenue, 8th Floor
Los Angeles, California 90071
Attn: Thomas Q. Petersmeyer, Esq.
(Telecopy No. (213) 625-1055)
WITH A COPY TO:
G. Carla Axelrod, Esq.
Wells Fargo Bank, National Association
333 South Grand Avenue, 10th Floor
Los Angeles, California 90071
(Telecopy No. (213) 628-9918)
or addressed to each respective party at such other address as such party
may hereafter furnish to the other parties in writing. Notice given by
counsel to a party shall be deemed to be notice from such party.
8.3 Inspection of Property. The Beneficiary and its authorized
representatives may enter and inspect all portions of the Property upon
reasonable notice and at all reasonable times.
8.4 Deed of Trust as Security Agreement, Fixture Filing and Financing
Statement. This Deed of Trust shall cover the Building Equipment, all other
property affixed to or located upon the Real Property described herein, and
all articles of personal property and all materials delivered to the
Property for incorporation or use in any construction being conducted
thereon and owned by the Grantor (which to the fullest extent permitted by
law shall be deemed fixtures and a part of the real property). The extent
of this Deed of Trust covers property which is or may become so affixed to
the Real Property as to become fixtures, this Deed of Trust also
constitutes a fixture filing under Section 4-9-313, C.R.S. to the extent
this Deed of Trust covers property which is not fixtures, this Deed of
Trust constitutes a financing statement under Section 4-9-402, C.R.S. if
any property covered by this Deed of Trust consists of rights in action or
personal property covered by the Uniform Commercial Code, this Deed of
Trust constitutes a security agreement and financing statement and is
intended when recorded to create a perfected security interest in such
property in favor of the Beneficiary. This Deed of Trust shall be self-
operative with respect to such property, but the Grantor agrees to execute
and deliver on demand such security agreements, financing statements, and
other instruments as the Beneficiary may request in order to impose the
lien hereof more specifically upon any of such property and to pay all
recording and/or filing fees associated therewith. If the lien of this Deed
of Trust on any property is subject to a prior security agreement covering
such property, then if any Event of Default occurs, the Grantor hereby
assigns to the Beneficiary all its right, title, and interest in and to all
deposits thereon, together with the benefit of any payments now or
hereafter made thereon. For purposes of treating this Deed of Trust as a
security agreement, fixture filing and financing statement, the Beneficiary
shall be deemed to be the secured party and the Grantor shall be deemed to
be the debtor.
8.5 Effect of Foreclosure on Insurance Claims. In the event of
foreclosure of this Deed of Trust, or other transfer of title to the
Property in extinguishment of the Indebtedness, all right, title, and
interest of the Grantor in and to any insurance policies then in force
shall pass to the purchaser or grantee. If, prior to any such transfer of
title, any claim under any hazard insurance policy had not been paid and
distributed in accordance with the terms of this Deed of Trust and any such
claim is paid after any such transfer of title, then, to the extent the
Indebtedness was not fully discharged in conjunction with such transfer of
title, the insurance proceeds so paid shall be the property of the
Beneficiary and shall be paid to the Beneficiary, and the Grantor hereby
assigns, transfers, and sets over to the Beneficiary all of its right,
title, and interest in and to said sum. The balance, if any, shall belong
to the Grantor as its interests may appear. Notwithstanding the above, the
Grantor shall retain an interest in the insurance policies above described
during any redemption period.
8.6 Offset or Claim. No offset or claim that the Grantor now has or may
have in the future against the Beneficiary shall relieve the Grantor from
paying any amounts due under the Note or hereunder or from performing any
other obligations contained in the Loan Documents.
8.7 Inconsistencies with Loan Agreement. In the event of any direct
inconsistencies between the terms of this Deed of Trust and the Loan
Agreement, the terms of the Loan Agreement shall govern and control. The
presence of more restrictive provisions with respect to any particular
subject matter in either instrument shall not be deemed to be an
inconsistency, and in such case, the provisions imposing more restrictions
or greater limitations on the Grantor, or providing greater rights or
remedies to the Beneficiary, shall govern.
8.8 Severability of Clauses. If any term, covenant, condition, or
provision of this Deed of Trust or the Note is held to be invalid, illegal,
or unenforceable, this Deed of Trust or the Note shall be construed without
such provision.
8.9 Writing Required. No waiver, change, amendment, modification,
cancellation, or discharge of any provision of this Deed of Trust, or any
part hereof, will be valid unless in writing and signed by the parties
hereto.
8.10 Successors and Assigns. This Deed of Trust and every covenant,
agreement and other provision hereof shall be binding upon the Grantor and
its successors and assigns (including without limitation each and every
subsequent record owner of the Property or any other person having an
interest therein); and shall inure to the benefit of the Beneficiary and
Trustee and their successors and assigns. Wherever the Beneficiary is
referred to in this Deed of Trust, such reference shall be deemed to
include the holder from time to time of the Note, whether so expressed or
not; and each subsequent holder of the Note shall have and enjoy all of the
rights, privileges, powers, options and benefits afforded the Beneficiary
by and under this Deed of Trust, and may enforce all of the terms and
provisions hereof, as fully and to the same extent and with the same effect
as if such holder were herein by name specifically granted such rights,
privileges, powers, options and benefits and were herein by name designated
the Beneficiary.
8.11 Applicable Law. This Deed of Trust shall be governed by the laws
of the State of Colorado as such laws are applied to agreements between
Colorado residents entered into and to be performed entirely within said
State.
8.12 Headings. Headings of the sections and paragraphs of this Deed of
Trust are inserted for convenience only and shall not be deemed to
constitute a part hereof.
IN WITNESS WHEREOF, this Deed of Trust has been executed by the Grantor as
of the day and year first above written.
HAUSER, INC., a Colorado corporation
By Dean P. Stull
Name: Dean P. Stull
Title: CEO
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing Deed of Trust, Assignment of Rents, Security Agreement, and
Financing Statement was acknowledged before me this 10th day of June, 1999,
by
Dean P. Stull, as CEO of Hauser, Inc.
WITNESS my hand and official seal.
My commission expires: 4/15/02
Dianne Bush
Notary Public
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
ALL OF THAT PORTION OF LOT 3, LAKECENTRE, A SUBDIVISION IN THE COUNTY OF
BOULDER, STATE OF COLORADO, ACCORDING TO THE RECORDED PLAT THEREOF,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST SOUTHERLY CORNER OF SAID LOT 3, THENCE N49 DEGREES
39'24"E, 286.86 FEET ALONG THE SOUTHEASTERLY LINE OF SAID LOT 3;
THENCE N25 DEGREES 00'46"W, 624.49 FEET TO THE NORTH LINE OF SAID LOT 3;
THENCE N89 DEGREES 40'00"W, 227.08 FEET ALONG THE NORTH LINE OF SAID LOT 3;
THENCE S35 DEGREES 41`19"W, 288.27 FEET ALONG THE NORTHHESTERLY LINE OF
SAID LOT 3
TO THE MOST WESTERLY CORNER THEREOF;
THENCE 540 DEGREES 20'36"E, 680.69 FEET ALONG THE SOUTHWESTERLY LINE OF
SAID LOT 3
TO THE POINT OF BEGINNING;
Street address of above-described property: 5505 Airport Boulevard,
Boulder, Colorado
<PAGE>
EXHIBIT B
APPROVED EXCEPTIONS
1. Real Property taxes and assessments for 1999 and subsequent years.
2. Covenant as set forth in Deed recorded February 10, 1959 in Book 1101
at Page 190.
3. The effect of the inclusion of the subject property in the Northern
Colorado Water Conservancy District, as disclosed by the instrument
recorded January 8, 1990 on Film 1610 at Reception No. 01022403.
4. An Avigation easement granted to the City of Boulder by instrument
recorded January 30, 1990 on Film 1612 at Reception No. 01025758.
5. Terms, conditions, provisions, agreements, and obligations specified
under the Annexation Agreement recorded January 30, 1990 on Film 1612 at
Reception No. 01025761.
NQTE: Amendment recorded April 17, 1992 on Film 1727 at Reception
No.01176988.
6. Easements, notes terms, conditions, provisions, agreements and
obligations as shown on the plat of Lakecentre Subdivision recorded
November 14, 1990 on Film 1651 at Reception No. 01073973.
7. Terms, conditions, provisions, agreements, obligations specified under
the Subdivision Agreement recorded November 14, 1990 on Film 1651 at
Reception No. 01073974.
8. Covenants, conditions, easements, lien rights and restrictions, which
do not include a forfeiture or reverter c1ause, and any and all
supplements, amendments, and annexations thereto, as set forth in the
instrument(s) recorded November 14, 1990 on Film 1651 at Reception No.
01074090.
NOTE: Amendment of said covenants, conditions and restrictions by an
instrument
recorded November 21, 1990 on Film 1651 at Reception No. 01074942.
9. An easement for utilities and incidental purposes granted to the City
of
Boulder by the instrument recorded January 18, 1991 on Film 1659 at
Reception
No. 01084026, upon the terms and conditions set forth in the
instruments, over a
portion of the land.
10. Easements, notes, terms, conditions, provisions, agreements and
ob1igations as shown on the plat of Lakecentre Lot Line recorded August 30,
1991 on Film 1690 at Reception No. 01126917.
NOTE: City Review Certification recorded August 30, 1991 on Film
1690 at Reception
No. 01126918.
11. The fo11owing matters as disclosed by ALTA/ACSM Land Title Survey
No. 908-20G by Drexel Barre1 7 Co., dated Apri1 28, 1999;
a). Encroachment of asphalt onto subject,
b). Any loss or damage arising from the fence lines on or near me
boundary lines of the property
