<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 0-15242
DURAMED PHARMACEUTICALS, INC.
Incorporated Under the IRS Employer I.D.
Laws of the State No. 11-2590026
of Delaware
7155 East Kemper Road
Cincinnati, Ohio 45249
(513) 731-9900
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Common Stock, $.01 par value per share:
Shares Outstanding as of October 29, 1998 17,993,271
Page 1 of 23 pages
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets .................................... 3-4
Consolidated Statements of Operations .......................... 5
Consolidated Statements of Cash Flows .......................... 6
Consolidated Statements of Stockholders' Equity ................ 7
Notes to Consolidated Financial Statements ..................... 8-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .............. 11-19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ..... 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings .............................................. 20-21
ITEM 4. Submission of Matters to a Vote of Security Holders ............ 21
ITEM 6. Exhibits and Reports on Form 8-K ............................... 22
SIGNATURES .............................................................. 23
</TABLE>
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<PAGE> 3
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,500 $ 3,500
Trade accounts receivable,
less allowance for doubtful accounts:
$939,000 and $1,482,000,
in 1998 and 1997 respectively 7,676,031 8,108,462
Inventories 19,400,567 10,435,942
Prepaid expenses and other assets 2,561,757 2,650,274
----------- -----------
Total current assets 29,641,855 21,198,178
Property, plant and equipment:
Land 1,000,000 1,000,000
Buildings and improvements 19,123,917 18,785,948
Equipment, furniture and fixtures 25,044,987 24,441,717
----------- -----------
45,168,904 44,227,665
Less accumulated depreciation
and amortization 17,692,909 15,808,609
----------- -----------
Property, plant and equipment - net 27,475,995 28,419,056
Deposits and other assets 968,601 508,707
----------- -----------
Total assets $58,086,451 $50,125,941
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 4
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
Unaudited
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,704,426 $ 4,129,712
Accrued liabilities 5,793,060 4,973,354
Current portion of long-term
debt and other liabilities 2,888,350 6,913,909
Current portion of capital lease obligations 714,769 1,064,210
------------ ------------
Total current liabilities 13,100,605 17,081,185
------------ ------------
Long-term debt, less current portion 18,217,006 10,903,498
Long-term capital leases, less current portion 624,280 1,105,571
Mandatory redeemable convertible preferred stock 12,000,000 150,000
------------ ------------
Total liabilities 43,941,891 29,240,254
------------ ------------
Stockholders' equity:
Common stock - authorized 50,000,000 shares,
par value $.01; issued and outstanding
17,987,589 and 17,881,287 shares in 1998
and 1997 respectively 179,875 178,812
Additional paid-in capital 90,675,413 90,728,595
Accumulated deficit (76,710,728) (70,021,720)
------------ ------------
Total stockholders' equity 14,144,560 20,885,687
------------ ------------
Total liabilities and stockholders' equity $ 58,086,451 $ 50,125,941
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 5
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $11,249,591 $11,112,962 $35,672,485 $ 33,544,362
Cost of goods sold 7,612,335 8,491,124 26,978,484 24,728,906
----------- ----------- ----------- ------------
Gross profit 3,637,256 2,621,838 8,694,001 8,815,456
----------- ----------- ----------- ------------
Operating expenses:
Product development 988,624 2,843,454 3,836,613 12,926,000
Selling 1,025,821 738,487 2,324,642 2,527,870
General and administrative 2,820,235 1,974,742 7,524,996 5,867,628
----------- ----------- ----------- ------------
4,834,680 5,556,683 13,686,251 21,321,498
----------- ----------- ----------- ------------
Operating loss (1,197,424) (2,934,845) (4,992,250) (12,506,042)
Net interest expense 619,965 255,967 1,696,758 902,601
----------- ----------- ----------- ------------
Loss before income tax and
preferred stock dividends (1,817,389) (3,190,812) (6,689,008) (13,408,643)
Preferred stock dividends 150,000 105,125 391,662 140,741
----------- ----------- ----------- ------------
Net loss applicable
to common stockholders $(1,967,389) $(3,295,937) $(7,080,670) $(13,549,384)
=========== =========== =========== ============
Basic and diluted loss per share $ (0.11) $ (0.21) $ (0.39) $ (0.91)
=========== =========== =========== ============
Weighted average number of
common and common
equivalent shares outstanding 17,960,329 15,384,609 17,928,015 14,957,717
=========== =========== =========== ============
</TABLE>
See accompanying notes.
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<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,689,008) $(13,408,643)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 2,084,508 1,689,691
Provision for doubtful accounts 137,356 122,559
Common stock issued in connection with
employee compensation plans 167,025 143,397
Changes in assets and liabilities:
Trade accounts receivable 295,075 (693,130)
Inventories (8,964,625) 3,100,157
Prepaid expenses and other assets 388,829 (727,647)
Accounts payable (425,286) (945,525)
Accrued liabilities 779,416 435,149
Other (285,209) (153,528)
----------- ------------
Net cash (used in) operating activities (12,511,919) (10,437,520)
----------- ------------
Investing activities:
Cash expenditures (941,239) (1,046,851)
Deposits on capital equipment (74,581) (55,738)
----------- ------------
Net cash (used for) investing activities (1,015,820) (1,102,589)
----------- ------------
Cash flows from financing activities:
Payments of long-term debt, including current
maturities (2,597,966) (8,130,408)
Net increase in revolving credit facility 3,927,859 ---
Long-term borrowings 1,127,324 9,024,878
Issuance of preferred stock - net 11,399,376 9,481,190
Cash redemption of preferred stock (149,971) ---
Issuance of common stock 172,489 311,947
Preferred stock dividends paid (351,372) (269,312)
----------- ------------
Net cash provided by financing activities....... 13,527,739 10,418,295
----------- ------------
Net change in cash.............................. --- (1,121,814)
Cash at beginning of period..................... 3,500 1,811,182
----------- ------------
Cash at end of period........................... $ 3,500 $ 689,368
=========== ============
Supplemental cash flow disclosures:
Interest paid................................. $ 1,470,785 $ 923,042
</TABLE>
See accompanying notes.
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<PAGE> 7
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------------------------------ ---------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1997 17,881,287 $178,812 $90,728,595 $(70,021,720) $20,885,687
Issuance of stock in connection
with benefit plans 32,454 324 166,701 167,025
Issuance of stock in connection
with stock options 70,967 710 171,779 172,489
Conversion of Series E
Preferred Stock 2,881 29 29
Preferred Stock dividend (391,662) (391,662)
Net loss for 1998 (6,689,008) (6,689,008)
---------- -------- ----------- ------------ -----------
BALANCE - SEPTEMBER 30, 1998 17,987,589 $179,875 $90,675,413 $(76,710,728) $14,144,560
========== ======== =========== ============ ===========
</TABLE>
See accompanying notes.
-7-
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Interim Financial Data
- - ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in the Annual Report of Duramed
Pharmaceuticals, Inc. (the "Company" or "Duramed") on Form 10-K for the year
ended December 31, 1997, (the "1997 10-K").
Note 2: Loss Per Common Share
- - -----------------------------
The following table presents the calculation of losses applicable to common
stockholders:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ---------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net loss $(1,817,389) $(3,190,182) $(6,689,008) $(13,408,643)
Less dividends on
preferred shares 150,000 105,125 391,662 140,741
----------- ----------- ----------- ------------
Net loss applicable to $(1,967,389) $(3,295,937) $(7,080,670) $(13,549,384)
common stockholders =========== =========== =========== ============
</TABLE>
Weighted-average common shares outstanding for the computation of basic and
diluted loss per share were 17,960,329 and 17,928,015 for the three and nine
month periods ended September 30, 1998 and 15,384,609 and 14,957,717 for the
same periods in 1997.
For the nine month periods ended September 30, 1998 and 1997 the recognition of
outstanding options and warrants in the amount of 4,731,921 and 4,213,085,
respectively, were not recognized in computing net loss per share as their
effect would be anti-dilutive.
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<PAGE> 9
Note 3: Inventories
- - -------------------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Components of inventories include:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Raw materials $ 5,643,540 $ 3,855,477
Work-in-process 278,710 882,835
Finished goods 15,012,075 7,327,177
Obsolescence reserve (1,533,758) (1,629,547)
-------------- -------------
Net inventory $ 19,400,567 $ 10,435,942
============== =============
</TABLE>
The Company had manufactured a commercial launch quantity of its generic
conjugated estrogens product. On May 5, 1997, the Company was notified by the
Food and Drug Administration ("FDA") that at that time, it would not approve a
generic conjugated estrogens product, although the product had been developed in
accordance with the guidance established by the FDA in 1991 and current official
USP compositional standards. In view of the FDA's decision, the Company
determined that it was prudent to write-off the generic conjugated estrogens
inventory; accordingly, a charge in the amount of $3,465,000 was recorded and is
reflected in product development expenses for the quarter ended March 31, 1997.
The product currently meets the required stability criteria and will be retained
until such time as it no longer passes those tests. On March 30, 1998, the
Company filed a New Drug Application ("NDA") for its synthetic conjugated
estrogens product. In the event the Company is ultimately successful in
obtaining approval for the product, some or all of the inventory write-off may
be recovered.
Note 4: Debt
- - ------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------
<S> <C> <C>
Mandatory redeemable
convertible preferred stock $ 12,000,000 $ 150,000
Revolving credit facility (1) 8,390,515 4,462,656
Promissory note mortgage loan (1) 8,075,000 8,393,750
Equipment notes (1) 2,822,092 3,601,214
Equipment loans (1) 727,106 1,323,623
Note payable to strategic alliance partner 1,054,222 ---
Installment notes payable 36,421 36,164
------------ ------------
33,105,356 17,967,407
Less amount classified as current 2,888,350 6,913,909
------------ ------------
$ 30,217,006 $ 11,053,498
============ ============
</TABLE>
(1) These obligations have been subsequently paid off from the proceeds of the
Company's financing agreements with NationsCredit Commercial Corporation
("NationsCredit") and Merrill Lynch Business Financial Services, Inc.
("Merrill Lynch").
-9-
<PAGE> 10
During the third quarter of 1998, the Company funded its operations through
borrowings under its existing revolving credit facility.
Subsequent Event - New Debt Financing
On November 9, 1998 the Company executed a new debt financing agreement with
NationsCredit Commercial Corporation, through its NationsCredit Commercial
Funding Division ("NationsCredit"). The term of the financing agreement is four
years with provisions for renewals. The financing agreement provides for a
revolving credit facility collateralized by the Company's receivables and
inventory and a $5,631,913 term note secured by the Company's equipment. The
Company's borrowing capacity under the revolving credit facility adjusts based
on the change in receivables and inventory and bears an interest rate of prime
plus 0.5% (8.75% at November 10, 1998). As of November 10, 1998 the Company's
borrowing capacity under this revolving credit facility was $16.6 of which the
Company has utilized $8.1 million leaving a net availability of $8.5 million.
The $5,631,913 term note bears an interest rate of prime plus 0.75% (9.00% at
November 10, 1998) and requires monthly principal payments of $67,047 plus
interest for a seven year period, subject to renewal of the financing agreement.
The Company used the proceeds from the NationsCredit financing to pay off the
Company's existing revolving credit facility, as well as, the equipment note
held by Ortho-McNeil Pharmaceutical Corporation and various equipment notes held
by its previous bank.
Additionally, the Company refinanced its existing mortgage loan on its
Cincinnati, Ohio manufacturing facility with a $8.1 million note payable to
Merrill Lynch, which is guaranteed by the Warner-Lambert Company
("Warner-Lambert"). Warner-Lambert holds a first mortgage on the Company's
Cincinnati, Ohio manufacturing facility. The note payable to Merrill Lynch bears
a variable interest rate based upon the average commercial paper dealer rate
plus 2.65% (5.16%) on November 9, 1998. The monthly principal payment required
is $33,912 plus interest. Principal payments are based upon a twenty year
amortization with a balloon payment due on October 1, 2007 of $4,250,000.
The terms of the NationsCredit financing also provides for a financing
commitment of up to $3,000,000, subject to the results of an appraisal, to allow
the Company to purchase its Somerset, New Jersey facility and a $5,000,000
credit line for the purchase of new eligible equipment based upon an appraisal
value.
Other Debt as of September 30, 1998
The note payable to strategic alliance partner is an unsecured note. The note
requires payments of $600,000 and $550,000 on April 30, 1999 and April 30, 2000,
respectively.
Other long-term debt also includes facilities of varying amounts and terms which
are generally collateralized by the assets financed.
The carrying value of the Company's debt approximates fair market value.
-10-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including those concerning management's expectations with respect to future
financial performance and future events, particularly relating to sales of
current products as well as the introduction of new manufactured and distributed
products. Such statements involve known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company, which could
cause actual results and outcomes to differ materially from those expressed
herein. Factors that might affect such forward-looking statements set forth in
this Form 10-Q include, among others, (i) increased competition from new and
existing competitors and pricing practices from such competitors, (ii) the
amount of funds continuing to be available for internal research and development
and for research and development joint ventures, (iii) research and development
project delays or delays in obtaining regulatory approvals, (iv) the ability of
the Company to retain and attract personnel in key operational areas, (v) the
outcome of pending litigation, and (vi) the status of strategic alliances.
Duramed manufactures and distributes a line of prescription drug products in
tablet, capsule and liquid forms to customers throughout the United States.
Products sold by the Company include those of its own manufacture and those it
markets under certain arrangements with other drug manufacturers. The Company's
results include expenses associated with a product development program designed
to generate a stream of new product offerings. The Company's strategy has been
to focus its product development activities primarily on prescription drugs,
principally hormonal products, with attractive market opportunities and
potentially limited competition due to technological barriers of entry. The
Company's product development pursuits have expanded to include controlled
release technologies as well as controlled substances.
Duramed has invested substantial resources in the development of a synthetic
conjugated estrogens product. An Abbreviated New Drug Application ("ANDA") for
the product was filed in 1994. In May 1997, the Company was notified by the FDA
that, at that time, it would not approve a generic conjugated estrogens product,
although the product had been developed based on the guidance established by the
FDA in 1991 and current official USP compositional standards. Following that
decision, Duramed management decided, in addition to appealing the FDA's
decision, to pursue a New Drug Application ("NDA") branded product strategy for
its synthetic conjugated estrogens product. In February 1998, the Company
announced the successful completion of a multi-center, double-blind,
placebo-controlled trial to evaluate its drug in the treatment of postmenopausal
vasomotor symptoms in women. This trial provided Duramed with the clinical data
that constituted the basis for the filing of an NDA with the FDA on March 30,
1998. On June 15, 1998, the Company announced that it had moved beyond the first
stage in the FDA review of the NDA. The FDA's preliminary review, done in a
sixty-day time frame from the filing of the new drug application, has determined
that the application was sufficiently complete to proceed with the substantive
review for approval.
-11-
<PAGE> 12
OUTLOOK
Management is pursuing a business strategy designed to return the Company to
profitability. The Company's ability to attain profitability, the time frame
required to do so, and the potential level of such profitability, are dependent
primarily upon several factors including: (1) the ability of the Company to
maintain the contribution from its current business base; (2) the level and
timing of the profit contribution from products approved by the FDA in recent
months; and, (3) the approval of pending, or not yet filed, applications with
the FDA. Additionally, in September 1997, Duramed entered into a ten year
renewable manufacturing agreement with Warner-Lambert Company
("Warner-Lambert").
Management continues to be encouraged by the results to date from the Company's
product development program and has concluded that it is in the best interests
of the Company and its stockholders to continue spending for research and
development and for hiring incremental personnel and procuring necessary
equipment to prepare for the production and launch of certain products on file.
Since the beginning of 1997, Duramed has received approval from the FDA for six
ANDAs for products developed by the Company. ANDAs also have been approved for a
product developed by Stason Pharmaceuticals, Inc. ("Stason"), an affiliate of
Standard Chemical and Pharmaceutical Company, Ltd. of Taiwan, and for a product
developed by Kiel Laboratories ("Kiel"). In 1995, Duramed and Kiel entered into
an agreement for the development and manufacture of selected oncology products
for Duramed's exclusive marketing. Duramed and Stason entered into a long-term
agreement in July 1997 under which Duramed has exclusive marketing rights in the
United States for products developed by Stason.
The Company presently has seven ANDAs on file in addition to the NDA for its
synthetic conjugated estrogens product. Three of the ANDAs on file are for
hormonal products. The market for one of the hormonal products is estimated by
IMS America, Ltd. ("IMS") to be $150 million with no generic equivalent
available currently. IMS data estimates the market for the other six products on
file at $750 million. The Company plans to submit ANDAs for other projects later
this year or early in 1999.
Management recognizes that continued investment in product development is likely
to result in operating losses until such time as new products make a meaningful
contribution to results. Based on the Company's anticipated market share for
products approved in recent months and the anticipated timing of approval for
currently pending applications with the FDA, the Company expects to begin
generating more positive results in the fourth quarter of 1998 with the most
significant impact from new product offerings in 1999 and beyond.
In the meantime, the Company's product development program will not be supported
from the Company's operations and therefore will be funded principally through
borrowings under its line of credit.
-12-
<PAGE> 13
RESULTS OF OPERATIONS
NET SALES
Net sales for the three and nine month periods ended September 30, 1998 were
$11.2 million and $35.7 million as compared to $11.1 million and $33.5 million
for the same periods in 1997. Net sales for the three month period ended
September 30, 1998 were comparable to the same period in 1997. Net sales
increased $ 2.2 million (6.6%) for the nine month period ended September 30,
1998 as compared to the same period in 1997. The increase in net sales was
primarily attributable to shipment of products sourced from other manufacturers
that were in a backorder status at December 31, 1997 and the contribution from
recently approved products offset by a decline in revenues from the Company's
methylprednisolone product. Late in the second quarter the Company adjusted the
selling price on selected low margin products which has reduced unit sales
volume while improving margins. The Company has agreements with several
manufacturers, including Ortho-McNeil, whereby the Company markets and
distributes their prescription drug products. The terms of these agreements
vary, but typically provide for a sharing of profits between the Company and
the manufacturer. For the three and nine month periods ended September 30,
1998, the percentage of the Company's sales comprised of products marketed for
others was 41% and 45% as compared to 39% and 36% for the same periods in 1997.
GROSS MARGIN
The gross margin, and the corresponding percentage of net sales, was $3.6
million (32.3%) and $8.7 million (24.4%) for the three and nine months ended
September 30, 1998 compared to $2.6 million (23.6%) and $8.8 million (26.3%) for
the same periods in 1997. The increased gross margin in the third quarter of
1998 as compared to the same period in 1997 reflects the favorable impacts of
pricing actions taken toward the end of the second quarter, contract revenues
from Warner-Lambert, and contributions from recently approved higher margin
products. The lower gross margin for the nine months ended September 30, 1998
compared to the same period in 1997 is the result of increased competition on
the Company's methylprednisolone product early in the year, which has since
stabilized. For the nine months ended September 30, 1998, the lower margin on
the methylprednisolone product was offset in part by contributions from the
pricing actions on existing products, recently approved products, and contract
revenues from Warner-Lambert.
There can be no assurance that, with the Company's current product line, the
present gross margin levels can be maintained if the Company's products,
particularly methylprednisolone, should experience increased competition.
-13-
<PAGE> 14
OPERATING EXPENSES
Product Development
Excluding a $3,465,000 conjugated estrogens inventory charge in 1997, product
development expenditures decreased by $1.9 million (65.2%) and $5.6 million
(59.4%) for the three and nine month periods ended September 30, 1998 compared
to the same periods in 1997. The decrease was due principally to a reduction of
spending for bioequivalency studies. Spending on bioequivalency studies for a
given period will vary significantly depending on the cost of studies, which
varies based upon the product, as well as the number of studies the Company
initiates. Additionally, product development expenses during the 1998 periods
were impacted by reduced spending on Duramed Europe operations and efficiencies
obtained through the consolidation of the Company's product development
activities to its Somerset, New Jersey facility. The product development
emphasis is on hormonal therapies and controlled release technology, focusing on
products with high margin potential and limited competition. Product development
expenses for the remainder of the year are dependent on the timing of biostudies
and the Company's continuing efforts to balance product development spending and
available resources.
Selling
The Company's sales and marketing expenses increased by $287,334 (38.9%) and
$96,772 (4.3%) for the three and nine month periods ended September 30, 1998
compared to the same periods in 1997 excluding a charge in the first quarter of
1997 of $300,000 in connection with certain contractual commitments associated
with its generic conjugated estrogens product. The increase in selling expenses
is a result of increased costs associated with preparing to launch the synthetic
conjugated estrogens product as a branded product under the name Cenestin (TM).
The Company intends to limit spending on its brand marketing effort for Cenestin
prior to approval; however, upon approval, the Company expects to substantially
increase spending on its marketing program in order to maximize the performance
of its Cenestin product.
General and Administrative
General and administrative expenses increased $0.8 million (42.8%) and $1.7
million (28.2%) for the three and nine month periods ended September 30 1998
compared to the same periods in 1997 due principally to increased legal fees
associated with pending litigation with Schein Pharmaceutical, Inc. and other
legal matters. Additionally, the Company has expanded its information technology
infrastructure to address the needs of implementing its Year 2000 compliance
program as well as other information technology needs.
Net Interest Expense
Interest expense for the three and nine month periods ended September 30, 1998
increased $363,998 (142.2%) and $794,157 (88.0%) compared to the same period in
1997 due to an increase in average borrowings under the Company's revolving
credit facility, the increase in the mortgage on the Company's manufacturing
facility, as well as the amortization of expenses incurred in connection with
the Series F Mandatory Redeemable Convertible Preferred Stock ("Series F
Preferred Stock").
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<PAGE> 15
Income Taxes
Due to the net losses in the first three quarters of 1997 and 1998, no
provisions for income tax were recorded.
Preferred Dividends
Preferred dividends in the first nine months of 1998 were $391,662, of which
$150,000 was in the quarter ended September 30, 1998. All dividends in 1998 are
attributable to the Company's Series F Preferred Stock. In 1997, preferred stock
dividends were paid on the Company's Series D and E Preferred Stock, which
subsequently were converted into common stock or redeemed.
LIQUIDITY AND CAPITAL RESOURCES
During 1998 the Company financed its operations and a $9.0 million increase in
inventory with a private placement of $12.0 million Series F Preferred Stock and
borrowings under both its revolving credit facility and a note payable to a
strategic business partner.
The increase in inventory resulted from stocking of new products, both Duramed
produced products as well as products sourced through other manufacturers.
Additionally, inventory levels for certain of the Company's products were
adjusted to improve customer service. The decrease in payables relates to
payments issued for products sourced from other manufacturers. As a result of
the Company's continued investment in working capital, as of September 30, 1998
the Company had $27.0 million in receivables and inventory.
During the third quarter the Company pursued obtaining a financing package which
would address a number of financing needs including: 1) expanding its borrowing
capacity under its revolving line of credit, in view of its working capital
base, 2) refinancing certain equipment loans over a longer term, 3) obtaining
financing to be in a position to exercise an option to purchase its leased
Somerset, New Jersey facility, and 4) financing its anticipated capital
equipment needs that would result from executing its business plan.
On November 9, 1998 the Company executed a new debt financing agreement with
NationsCredit Commercial Corporation, through its NationsCredit Commercial
Funding Division ("NationsCredit"). The term of the financing agreement is four
years with provisions for renewals. The financing agreement provides for a
revolving credit facility collateralized by the Company's receivables and
inventory and a $5.6 million term note secured by the Company's equipment. The
Company's borrowing capacity under the revolving credit facility adjusts based
on the change in receivables and inventory. As of November 10, 1998 the
Company's borrowing capacity under this revolving credit facility was $16.6
million of which the Company has utilized $8.1 million, leaving a net
availability of $8.5 million.
-15-
<PAGE> 16
The Company used the proceeds from the NationsCredit financing to pay off the
Company's previous revolving credit facility, the equipment note held by
Ortho-McNeil Pharmaceutical Corporation and various equipment notes held by its
previous bank.
Additionally, the Company refinanced its existing mortgage loan on its
Cincinnati, Ohio manufacturing facility with a $8.1 million note payable to
Merrill Lynch, which is guaranteed by Warner-Lambert.
The terms of the NationsCredit financing also provides for a financing
commitment of up to $3.0 million, subject to the results of an appraisal, to
allow the Company to exercise an option to purchase its Somerset, New Jersey
facility, and a $5.0 million credit line for the purchase of new eligible
equipment based upon an appraisal value (see Note 4: Debt for further
information on the NationsCredit transaction).
As previously discussed in February 1998, the Company issued $12.0 million in
Series F Preferred Stock to raise funds necessary to continue to execute the
Company's business plan. The Series F Preferred Stock is convertible into shares
of common stock and pays a dividend of 5% annually, payable quarterly in
arrears, on all unconverted shares. Any of the Series F Preferred Stock that
remains outstanding will be redeemed automatically on February 4, 2000. The
terms of the preferred limit the number of shares of common stock that can be
issued upon conversion to 3,582,000, with an option for the Company to satisfy
any remaining unconverted Series F Preferred Stock in cash or stock. As of
November 12, 1998, $2 million of the Series F Preferred Stock has been converted
into 851,786 common shares at an average conversion price of $2.35. When the
Company negotiated the terms of the Series F Preferred Stock in January and
February 1998, the Company's Common Stock was trading in the $4.88 to $5.56
price range. While recognizing that there could be no certainties in this
regard, management anticipated that, as a result of FDA product approvals and
new product introductions, the trading price of the Company's Common Stock would
increase during 1998. With that in mind, the terms of the Series F Preferred
Stock were structured so that one-half of the shares were convertible from
issuance at a price equal to $7.30 per share. Beginning 240 days after issuance,
the remaining shares became convertible and the conversion price for all of the
shares of Series F Preferred Stock adjusted to several alternative prices, the
most relevant of which is equal to 83% of the market price (as defined) of the
shares of Common Stock at the time of conversion. The conversion price will
reduce to 78% of the market price (as defined) beginning December 7, 1998.
Management's February 1998 expectation with respect to the market price of the
Common Stock has not been met. Instead, the stock has been trading recently at
prices lower than during February 1998. This has resulted in a current
conversion price based upon the calculation period of approximately $2.44 per
share.
The effect of these events is that if the holders of the Series F Preferred
Stock should submit all of that stock for conversion currently, the Company
would be required to issue all of the 3,850,252 shares authorized for that
purpose. Under current circumstances, this would still leave approximately
33,500 shares of Series F Preferred Stock with a stated value of $3.35 million
outstanding.
-16-
<PAGE> 17
The holders can require that these remaining shares of Series F Preferred Stock
be redeemed for cash. The redemption price is calculated by dividing the stated
value by the applicable conversion price and multiplying this times the
applicable market price (as defined) of the Common Stock. At present, this would
result in a cash redemption price of approximately $4.0 million. This cash
redemption amount may increase significantly as the market value of the Common
Stock increases. The terms of the NationsCredit financing arrangement imposes
certain criteria, which the Company does not currently meet, in order for the
Company to redeem any Series F Preferred Stock through advances on its revolving
credit facility.
The Company, however, has the option of satisfying the cash redemption amount
through issuance of such number of shares of Common Stock as would be issued if
all unconvertible shares of Series F Preferred Stock were converted into shares
of Common Stock. At present an additional 1,371,000 shares would be required. In
the event the Company is unable to meet conversion or redemption obligations,
the terms of the Preferred provides for liquidating damages in cash.
Management is unable to predict if, ultimately, there will be a requirement to
satisfy any Series F Preferred Stock cash redemption obligation remaining after
the issuance of the maximum number of shares. This obligation is dependent on
future events, namely the stock price level during the conversion calculation
period at the time the Series F holder decides to convert.
The Company is, however, pursing various options in order to prepare for any
potential cash redemption obligation including: 1) negotiating with the Series F
stockholders and 2) taking certain steps required by The Nasdaq Stock Exchange
to provide the Company with the option of satisfying any resulting cash
redemption requirement through the issuance of additional shares.
Subject to a resolution of any potential Series F Preferred Stock cash
redemption requirement, the Company believes that the financing available under
the terms of the NationsCredit agreement is sufficient to execute its business
plan. This judgment is based upon its expectations relative to its current
business base and expectations relative to the timing of approvals for products
on file with the FDA as well as their ultimate commercial value.
Year 2000 Compliance
The Company has initiated a program to identify areas of impact as a result of
the Year 2000 issue. The identified areas of the Company's information
technology ("IT") consists of the primary business and science information
systems, electronic data interchange ("EDI") with customers, personal
computer/terminal hardware and related network software. Non-IT systems include
primarily manufacturing, facility and telecommunication equipment that is
computer controlled. External to the Company, the Year 2000 compliance program
has identified third parties on whom the Company is dependent for critical
products (raw materials, finished goods and/or services).
Regarding those IT elements of the Year 2000 compliance program for the
business information systems which are internal to the Company, the Year 2000
compliant software upgrades have been completed, testing has been in process
for the past few months and the systems are expected to be confirmed as
compliant late in 1998 or early 1999. A Year 2000 compliant science information
system has been installed and is operational at the Company's Somerset, New
Jersey facility and a similar system upgrade is scheduled at the Company's
Cincinnati facility in the first quarter of 1999. Upgrade of the Company's
network of PCs and terminals was commenced in mid-1998, is continuing with the
evaluation of all installed personal computer hardware and the full upgrade of
all units for Year 2000 compliance is expected by mid-1999. EDI compliance
evaluation and testing has been continuing since September 1998 and compliance
is expected to be completed by December 1998. The analysis of the Company's
non-IT systems has been substantially completed and for the most part the items
identified as possibly being effected by the Year 2000 issue have been
concluded to be compliant. All others are being addressed in order to be
compliant before the end of the second quarter of 1999.
At present the Company has not completed a formal contingency plan for
addressing its needs in the event of noncompliance. This will be developed
between now and the end of the first quarter of 1999 as the Company's program
for compliance is implemented and to the extent that it identifies areas for
which compliance has not been confirmed.
The Company is dependent upon its customers and suppliers in meeting its ongoing
business needs. The Company's Year 2000 compliance program includes identifying
these third parties and determining, based on both written and verbal
communication, that such parties are either in compliance or expect to be in
compliance. Lack of compliance by a third party on whom the Company depends for
critical goods and services could have a material adverse effect on the
Company's operations in the absence of the third parties ability to meet the
Company's needs through a contingency plan or the Company's ability to obtain
the goods or services elsewhere.
The Company estimates the cost of hardware and system upgrades in order to
address the IT aspects of the Year 2000 issue to be approximately $500,000. For
non-IT aspects of the Year 2000 issue the cost of compliance is estimated to be
approximately $250,000. Of these cost estimates, approximately $450,000
represents capital expenditures which will be amortized over the estimated
useful life of the asset. The remaining $300,000 is expensed as incurred and is
expected to be included in the Company's operating results between June 1998 and
October 1999. The amounts do not include the cost incurred by the Company as a
result of the use of its own employees but does include approximately $40,000
for the use of outside consultants who are assisting the Company in evaluating,
implementing and testing aspects of the Year 2000 issue and the Company's
compliance program. To the extent that the implementation of the Company's
program identifies additional areas of noncompliance it is possible that the
estimated cost of compliance could increase. Additionally, the inability to
achieve the expected compliance dates of the Company's internal systems and/or
the Company's indentification of Year 2000 Compliance issues with third parties
which may materially effect the Company's ability to operate may result in
additional backup plan requirements the cost of which will not be known or
estimable until additional information is obtained.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-17-
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Duramed Pharmaceuticals, Inc. (the "Company") is a party to an Agreement dated
June 26, 1992 and amended on April 7, 1994 (the "Schein Agreement") with Schein
Pharmaceutical, Inc. ("Schein") relating to the development of a generic version
of the conjugated estrogens product Premarin(R). On August 7, 1997, the Company
filed a complaint for a declaratory judgment against Schein in the Court of
Common Pleas, Hamilton County, Ohio, Case No. A9705498 ("Ohio action"). The
Company seeks a declaration that the Schein Agreement applies only to a product
approved on the basis of an ANDA and which would be fully substitutable for
Premarin(R) and that the Schein Agreement does not apply to the Company's
efforts to develop or market any conjugated estrogens product which would be
approved and marketed on the basis of an NDA.
In apparent response to the Company's action, on September 29, 1997, Schein
filed a complaint against the Company and other unnamed defendants in the
Superior Court of New Jersey, Chancery Division, Morris County, Docket No.
MRS-C-187-97 ("New Jersey action"). Schein alleges that the Company breached its
obligations to Schein under an alleged joint venture arising between the parties
and that the unnamed defendants tortuously interfered with Schein's prospective
business advantage and are liable to Schein. Schein seeks various forms of
relief against the Company, including injunctions barring the Company from the
development of a conjugated estrogens product with any person or company other
than Schein and requiring specific performance from the Company according to the
terms of the Schein Agreement and alleged joint venture and accounting and money
damages and a constructive trust.
On October 9, 1997, Schein filed a motion to dismiss the Ohio action based upon
the pending New Jersey action. The court denied this motion on November 13,
1997. On October 17, 1997, the Company filed a motion to dismiss or, in the
alternative, to stay the New Jersey action because of the previously-filed Ohio
action. On November 14, 1997, the New Jersey court granted the Company's motion
in part and stayed the New Jersey action.
On January 30, 1998, Schein amended its answer in the Ohio action and asserted a
counterclaim against the Company and other unnamed defendants similar to the New
Jersey complaint. As a result, on March 4, 1998, the Company renewed its motion
to dismiss the New Jersey action because Schein had brought the same basic
claims as a counterclaim in the Ohio action. On April 17, 1998, the Court
dismissed without prejudice the New Jersey action.
On September 11, 1998, both the Company and Schein filed cross motions for
summary judgment. These motions have been fully briefed and are pending before
the Court. The case currently is scheduled to go to trial on November 30, 1998,
but Schein has moved the court to grant a continuance of the trial date.
-18-
<PAGE> 19
The Company intends vigorously to prosecute its claim for declaratory relief in
the Ohio action and vigorously to defend against Schein's counterclaim in the
Ohio action, however, the outcome of these claims cannot be predicted with
certainty.
The Company is involved in various additional lawsuits and claims which arise in
the ordinary course of business. Although the outcome of such lawsuits and
claims cannot be predicted with certainty, the disposition thereof will not, in
the opinion of management, result in a material adverse effect on the Company's
financial position or results of operations.
-19-
<PAGE> 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1998 Annual Meeting of Shareholders of Duramed Pharmaceuticals, Inc.
(the "Meeting") was held on September 10, 1998. The holders of 16,077,717
shares of the Company's 17,928,222 then outstanding shares of common stock
(approximately 89.68%) were present at the Meeting in person or by proxy.
(b) At the Meeting, the following five individuals were duly nominated and
properly elected as Directors of the Company to serve until the Annual
Meeting of Shareholders in 1999 or until their successors are elected and
qualified - E. Thomas Arington, Jeffrey T. Arington, George W. Baughman,
Peter R. Seaver and S. Sundararaman. The number of votes cast for and
withheld with respect to each nominee for office are indicated below:
<TABLE>
<CAPTION>
Against/
For Withheld
--- --------
<S> <C> <C>
E. Thomas Arington 15,860,518 217,199
Jeffrey T. Arington 15,812,093 265,624
George W. Baughman 15,857,106 220,611
Peter R. Seaver 15,861,184 216,533
S. Sundararaman 15,868,391 209,326
</TABLE>
(c) At the Meeting, a proposal to approve the amendments to the Company's 1991
Stock Option Plan for non-employee Directors increasing the number of shares
of Common Stock issuable upon exercise of options granted under the Plan
from 150,000 to 300,000 shares and extending the expiration date of the Plan
until November 7, 2006.
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<S> <C> <C> <C>
14,326,649 989,312 223,455 538,301
</TABLE>
(d) At the meeting, a proposal to ratify the appointment of Ernst & Young LLP as
the Company's independent auditors for fiscal 1998 was approved as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<S> <C> <C> <C>
15,856,052 86,668 134,997 - 0 -
</TABLE>
-20-
<PAGE> 21
ITEM 6. EXHIBITS
10.14 Loan and Security Agreement dated November 6, 1998, between NationsCredit
Commercial Corporation through its NationsCredit Commercial Funding
Division and the Company.
10.15 Term WCMA Loan Agreement No. 9808880201 dated as of October 1, 1998
between the Company and Merrill Lynch Business Financial Services, Inc.
10.16 Term WMA Note dated October 1, 1998, granted by the Company to Merrill
Lynch Business Financial Services, Inc. in the principal sum of
$8,500,000.00.
10.17 Reimbursement Agreement dated November 5, 1998, between the Company and
Warner-Lambert Company.
10.18 Open-End Mortgage granted by the Company to Warner-Lambert Company.
10.19 Unconditional Guaranty dated October 1, 1998, granted by Warner-Lambert
Company to Merrill Lynch Business Financial Services, Inc.
(27) Financial Data Schedule
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DURAMED PHARMACEUTICALS, INC.
Dated: November 16, 1998 by: /s/ E. Thomas Arington
------------------------- --------------------------------
E. Thomas Arington
President, Chairman of the Board
Chief Executive Officer
Dated: November 16, 1998 by: /s/ Timothy J. Holt
-------------------------- ---------------------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
-22-
<PAGE> 1
NATIONSCREDIT COMMERCIAL FUNDING
- - --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this
"AGREEMENT") is entered into on November 6, 1998 between NATIONSCREDIT
COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION
("LENDER"), having an address at 1177 Avenue of the Americas, 36th Floor, New
York, New York 10036 and DURAMED PHARMACEUTICALS, INC. ("BORROWER"), whose chief
executive office is located at 7155 East Kemper Road, Cincinnati 45249
("BORROWER'S ADDRESS"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used, but not
defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("REVOLVING LOANS"), and make letters of credit, bankers acceptances and other
credit accommodations ("CREDIT ACCOMMODATIONS") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; PROVIDED, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(INCLUDING the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Facility Amount set forth in Section 1(a) of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "AVAILABILITY" means:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit, if any, set forth in
Section 1(c) of Schedule A;
PLUS
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section
1(b)(ii) of Schedule A, but not to exceed the Inventory Sublimit(s) set
forth in Section 1(d) of Schedule A;
-1-
<PAGE> 2
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
MINUS
(iii) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
MINUS
(iv) the outstanding balance of all of the monetary Obligations
(EXCLUDING the Credit Accommodation Balance and the principal balance of
the Term Loan); and
PLUS
(v) the Overadvance Amount, if any, set forth in Section 1(g) of
Schedule A.
(b) TERM LOAN. Make (i) on the date of this Agreement an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
owned by Borrower on the date of this Agreement (the "EQUIPMENT ADVANCE") in the
principal amount, if any, set forth in Section 2(a)(i) of Schedule A, (ii) on
the later of the date of this Agreement and the date on which Borrower has
satisfied the Real Property Advance Conditions Precedent an advance to Borrower
computed with respect to the value of Borrower's Eligible Real Property (the
"REAL PROPERTY ADVANCE") in the principal amount, if any, set forth in Section
2(a)(ii) of Schedule A and (iii) upon at least fifteen days prior written
request by Borrower, one or more advances to Borrower computed with respect to
the value of Borrower's Capital Expenditure Equipment to be acquired with the
proceeds of such advance (each, a "CAPITAL EXPENDITURE ADVANCE") in a principal
amount, if any, set forth in Section 2(a)(iii) of Schedule A; PROVIDED, that
each Capital Expenditure Advance requested by Borrower shall be in a principal
amount of not less than $100,000. The Equipment Advance, the Real Property
Advance and all Capital Expenditure Advances are collectively referred to as the
"TERM LOAN." Each Capital Expenditure Advance will be evidenced by a term note
in the form attached hereto as Exhibit A.
1.2 RESERVES. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("RESERVES") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii),
-2-
<PAGE> 3
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
(iii), (v) and (vi) of the definition of Eligible Inventory, (b) which is or
will be in transit to one of the locations set forth in Section 9(d) of Schedule
A, (c) which is fully insured in a manner satisfactory to Lender and (d) with
respect to which Lender is in possession of all bills of lading and all other
documentation which Lender has requested, all in form and substance satisfactory
to Lender in its sole discretion, establish a Reserve equal to the cost of such
Inventory (plus all duties, freight, taxes, insurance, costs and other charges
and expenses relating to such Credit Accommodation or such Eligible Inventory)
multiplied by a percentage equal to 100% minus the Inventory Advance Rate
applicable to Eligible Inventory and (y) in the case of any other Credit
Accommodation issued for any purpose, establish a Reserve equal to the full
amount of such Credit Accommodation plus all costs and other charges and
expenses relating to such Credit Accommodation. In addition, (x) Lender shall
establish a permanent Reserve in the amount, if any, set forth in Section 1(f)
of Schedule A, and (y) if the outstanding principal balance of any Term Loan
advance with respect to Eligible Equipment exceeds the percentage set forth in
Section 2(a)(i) or 2(a)(iii) of Schedule A of the appraised value of such
Eligible Equipment, Lender may establish an additional Reserve in the amount of
such excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Inventory as ineligible. In no event shall the establishment of a
Reserve in respect of a particular actual or contingent liability obligate
Lender to make advances hereunder to pay such liability or otherwise obligate
Lender with respect thereto.
1.3 OTHER PROVISIONS APPLICABLE TO CREDIT ACCOMMODATIONS. Lender may,
in its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; PROVIDED, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 REPAYMENT. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately upon telephonic or other
demand by Lender pay to Lender such amounts (or provide cash collateral to
Lender with respect to the Credit Accommodation Balance in the
-3-
<PAGE> 4
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
manner set forth in Section 7.3), as shall cause Borrower to be in full
compliance with all of the Loan Limits. Notwithstanding the foregoing, Lender
may, in its sole discretion, make or permit Revolving Loans, the Term Loan, any
Credit Accommodations or any other monetary Obligations to be in excess of any
of the Loan Limits; PROVIDED, that Borrower shall, upon Lender's demand, pay to
Lender such amounts as shall cause Borrower to be in full compliance with all of
the Loan Limits. All unpaid monetary Obligations shall be payable in full on the
Maturity Date (as defined in Section 7.1) or, if earlier, the date of any early
termination pursuant to Section 7.2.
1.5 MINIMUM BORROWING. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so; PROVIDED, that any breach by Borrower of the foregoing provision of this
Section 1.5 shall not constitute an Event of Default if Borrower timely pays all
minimum borrowing fees due and payable pursuant to Section 2.2(e). However,
Lender shall not be obligated to loan Borrower the Minimum Loan Amount other
than in accordance with all of the terms and conditions of this Agreement.
2. INTEREST AND FEES.
2.1 INTEREST. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; PROVIDED, that after the occurrence and during the continuance of an
Event of Default, all Loans and other monetary Obligations shall, at Lender's
option, bear interest at a rate per annum equal to two percent (2%) in excess of
the rate otherwise applicable thereto (the "DEFAULT RATE") until paid in full
(notwithstanding the entry of any judgment against Borrower or the exercise of
any other right or remedy by Lender), and all such interest shall be payable on
demand. Changes in the Interest Rate shall be effective as of the date of any
change in the Prime Rate. Notwithstanding anything to the contrary contained in
this Agreement, the aggregate of all amounts deemed to be interest hereunder and
charged or collected by Lender is not intended to exceed the highest rate
permissible under any applicable law, but if it should, such interest shall
automatically be reduced to the extent necessary to comply with applicable law
and Lender will refund to Borrower any such excess interest received by Lender.
2.2 FEES. Borrower shall pay Lender the following fees, which are in
addition to all interest and other sums payable by Borrower to Lender under this
Agreement, and are not refundable:
(a) CLOSING FEE. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of, and payable
on, the date hereof.
-4-
<PAGE> 5
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
(b) FACILITY FEES. A facility fee for the Initial Term in the amount
set forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of
the date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary of the date of this Agreement during the
Initial Term, other than the Maturity Date), and a facility fee for each Renewal
Term in the amount set forth in Section 6(b)(ii) of Schedule A (which shall be
fully earned and payable on the first day of such Renewal Term); PROVIDED, that
if the Loans are repaid more than eighteen months after the date of the
Agreement through financing provided by NationsBank, N.A. or any Affiliate of
NationsBank, N.A., then all installments of such facility fees which are not
then due and payable shall not be charged to Borrower.
(c) SERVICING FEE. A monthly servicing fee in the amount, if any,
set forth in Section 6(c) of Schedule A, in consideration of Lender's
administration and other services for each month (or part thereof), which shall
be fully earned as of, and payable in advance on, the date of this Agreement and
on the first day of each month thereafter so long as any of the Obligations are
outstanding.
(d) UNUSED LINE FEE. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount exceeds the greater of (i) $10,000,000 and
(ii) the average daily outstanding principal balance of the Loans and the Credit
Accommodation Balance during the immediately preceding month (or part thereof),
which fee shall be payable, in arrears, on the first day of each month so long
as any of the Obligations are outstanding and on the Maturity Date.
(e) MINIMUM BORROWING FEE. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section 6(e)(i) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the last day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing
with the immediately following period.
(f) SUCCESS FEE. A success fee in the amount, if any, set forth in
Section 6(f) of Schedule A, which shall be fully earned as of the date of this
Agreement and payable as set forth in Section 6(f) of Schedule A.
(g) [INTENTIONALLY OMITTED.]
(h) CREDIT ACCOMMODATION FEES. The fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A, payable, in arrears, on
the first day of each month so long as any of the Obligations are outstanding
and on the Maturity Date, plus all costs and fees charged by the issuer, payable
as and when such costs and fees are charged.
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2.3 COMPUTATION OF INTEREST AND FEES. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 LOAN ACCOUNT; MONTHLY ACCOUNTINGS. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "LOAN ACCOUNT"), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or omissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the
Obligations, Borrower hereby grants to Lender a continuing security interest in
all of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising, wherever
located, including Borrower's interest in all of the following, whether or not
eligible for lending purposes: (i) all Accounts, Chattel Paper, Instruments,
Documents, Goods (including Inventory, Equipment, farm products and consumer
goods), Investment Property, General Intangibles, Deposit Accounts and money,
(ii) the motor vehicle(s) listed on Exhibit B hereto, (iii) all proceeds and
products of all of the foregoing (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties for loss or any
destruction of any of the foregoing) and (iv) all books and records relating to
any of the foregoing.
4. ADMINISTRATION.
4.1 LOCK BOXES AND BLOCKED ACCOUNTS. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("ACCOUNT PROCEEDS"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of
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Lender (a "LOCK BOX") or (ii) depositing all Account Proceeds received by
Borrower into one or more bank accounts maintained for Lender's benefit (each, a
"BLOCKED ACCOUNT"), under an arrangement acceptable to Lender with a depository
bank acceptable to Lender, pursuant to which all funds deposited into each
Blocked Account are to be transferred to Lender in such manner, and with such
frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing. However, Lender has
no present intention of requiring Borrower to alter the Lock Box arrangement in
place on the date of this Agreement absent (A) the occurrence of a Default or
Event of Default, (B) Lender's determination that the existing arrangement is
not working in a satisfactory manner, or (C) Lender's determination that some
other change in circumstances has made the establishment of a Lock Box
desirable.
4.2 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 APPLICATION OF PAYMENTS. Prior to the occurrence of a Default or an
Event of Default, Lender shall apply all cash and non-cash proceeds of
Collateral or other payments received with respect to the Obligations (i) first,
to any of the Obligations then due and owing, consisting of interest, fees and
costs, (ii) second, to any of the Obligations then due and owing, consisting of
principal, and (iii) third, to Obligations under the Revolving Loans consisting
of principal; and after payment of the Revolving Loans in full, Lender shall
remit all cash proceeds of the Collateral received by it to Borrower unless and
until such time as any of the Obligations become due and owing or any
Obligations consisting of outstanding principal under the Revolving Loans exist,
at which time such proceeds shall be applied to the Obligations in the order set
forth in this Section 4.3 above. After the occurrence and during the continuance
of a Default or an Event of Default, Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due. For purposes of
determining Availability, such amounts will be credited to the Loan Account and
the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the
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Obligations, such items shall be deemed applied by Lender two Business Days
after Lender's receipt of advice of deposit thereof at Lender's Bank.
4.4 NOTIFICATION; VERIFICATION. Lender or its designee may, from time
to time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; and (ii) notify Account Debtors that Lender has a security interest
in the Accounts and that payment thereof is to be made directly to Lender,
PROVIDED that prior to the occurrence of a Default or Event of Default, Lender
shall use good faith efforts, over a period not to exceed three business days,
to obtain Borrower's approval of the form of such notice, BUT PROVIDED FURTHER,
that if it has not obtained such approval within such period, Lender shall be
entitled to provide such notice without Borrower's approval. Lender or its
designee may, from time to time, after the occurrence of a Default or Event of
Default, demand, collect or enforce payment of any Accounts and Chattel Paper
(but without any duty to do so).
4.5 POWER OF ATTORNEY. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) after the occurrence and during the continuance of a
Default or Event of Default, execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or lease (as lessor or lessee) any real or personal property which is
part of the Collateral or in which Lender has an interest; (iii) after the
occurrence and during the continuance of a Default or Event of Default, execute
on behalf of Borrower any invoices relating to any Accounts, any draft against
any Account Debtor, any proof of claim in bankruptcy, any notice of Lien or
claim, and any assignment or satisfaction of mechanic's, materialman's or other
Lien; (iv) after the occurrence and during the continuance of a Default or Event
of Default, execute on behalf of Borrower any notice to any Account Debtor; (v)
receive and otherwise take control in any manner of any cash or non-cash items
of payment or proceeds of Collateral; (vi) endorse Borrower's name on all checks
and other forms of remittances received by Lender; (vii) pay, contest or settle
any Lien (other than Permitted Liens which have not been enforced (or
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attempted to be enforced) against the Collateral), charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (viii)
after the occurrence of a Default or Event of Default, grant extensions of time
to pay, compromise claims relating to, and settle Accounts, Chattel Paper and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (ix) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (x) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.12; (xi) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xii) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xiii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail and receive and
open all mail addressed to Borrower. Any and all sums paid, and any and all
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred, by Lender with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
Borrower agrees that Lender's rights under the foregoing power of attorney or
any of Lender's other rights under this Agreement or the other Loan Documents
shall not be construed to indicate that Lender is in control of the business,
management or properties of Borrower.
4.6 DISPUTES. Borrower shall promptly notify Lender, in its reports
submitted to Lender with respect to the Collateral, of all disputes or claims
relating to Accounts and Chattel Paper. Borrower will not, without Lender's
prior written consent, compromise or settle any Account or Chattel Paper for
less than the full amount thereof, grant any extension of time of payment of any
Account or Chattel Paper, release (in whole or in part) any Account Debtor or
other person liable for the payment of any Account or Chattel Paper or grant any
credits, discounts, allowances, deductions, return authorizations or the like
with respect to any Account or Chattel Paper; except that prior to the
occurrence of an Event of Default, Borrower may take any of such actions in the
ordinary course of its business, PROVIDED that Borrower reports the same to
Lender in its next report submitted to Lender with respect to the Collateral.
4.7 INVOICES. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 INVENTORY.
(a) RETURNS. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a
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credit memorandum to the Account Debtor in the appropriate amount (and promptly
send a copy of such credit memorandum to Lender upon Lender's request). After
the occurrence of an Event of Default, Borrower will not accept any return
without Lender's prior written consent. Upon Lender's demand, regardless of
whether an Event of Default has occurred, Borrower will (i) hold the returned
Inventory in trust for Lender; (ii) segregate all returned Inventory from all of
Borrower's other property; (iii) conspicuously label the returned Inventory as
Lender's property; and (iv) immediately notify Lender of the return of such
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory and, at Lender's request, deliver such returned Inventory
to Lender at an address specified by Lender.
(b) OTHER COVENANTS. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A or (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis. All of the Inventory has been produced only in accordance with the Fair
Labor Standards Act of 1938 and all rules, regulations and orders promulgated
thereunder.
4.9 ACCESS TO COLLATERAL, BOOKS AND RECORDS. Lender or its agents shall
have the right to inspect the Collateral, and the right to examine and copy
Borrower's books and records, at reasonable times, and on one Business Day's
notice, prior to the occurrence of a Default or an Event of Default (PROVIDED,
however, that prior to the occurrence of a Default or Event of Default, Lender
shall use its best efforts to (but shall not be obligated to, or incur any
liability to Borrower for its failure to) provide Borrower with three Business
Day's notice), and at any time and with or without notice after the occurrence
of a Default or an Event of Default, Lender or its agents shall have the right
to inspect the Collateral, and the right to examine and copy Borrower's books
and records. Lender shall take reasonable steps to keep confidential all
information obtained in any such inspection or examination, but Lender shall
have the right to disclose any such information to its auditors, regulatory
agencies, attorneys and participants, and pursuant to any subpoena or other
legal process. Borrower agrees to give Lender access to any or all of Borrower's
premises to enable Lender to conduct such inspections and examinations. Such
inspections and examinations shall be at Borrower's expense and the charge
therefor shall be $750 per person per day (or such higher amount as shall
represent Lender's then current standard charge), plus reasonable out-of-pocket
expenses. After the occurrence of an Event of Default, Lender may, at Borrower's
expense, use Borrower's personnel, computer and other equipment, programs,
printed output and computer readable media, supplies and premises for the
collection, sale or other disposition of Collateral to the extent Lender, in its
sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to Lender, at Borrower's
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding Borrower. Borrower
will not enter into any agreement with any accounting firm, service bureau or
third party to store Borrower's
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books or records at any location other than Borrower's Address without first
obtaining Lender's written consent (which consent may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give Lender the
same rights with respect to access to books and records and related rights as
Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 EXISTENCE AND AUTHORITY. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Borrower is qualified and licensed to do business in
all jurisdictions in which any failure to do so would have a material adverse
effect on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth all Persons
holding more than five percent (5%) of the common stock of Borrower and the
names and ownership of Borrower's Subsidiaries as of the date of this Agreement.
Borrower has no shares of preferred stock outstanding other than 120,000 shares
of its Cumulative Convertible Preferred Stock, Series F, with a stated value of
$100 per share.
5.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least thirty days' prior written notice before changing its name
or doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender
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and the other terms of this Agreement and (iii) all schedules of Accounts,
including any sales made or services rendered using any trade name shall show
Borrower's name as assignor.
5.3 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower has good and
marketable title to the Collateral. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances
(including, without limitation, equipment leases under which Borrower is the
lessor) and adverse claims, except for Permitted Liens. Lender now has, and will
continue to have, a first-priority perfected and enforceable security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times defend Lender and the Collateral against all claims of others. None
of the Collateral which is Equipment and which is not a fixture as of the date
of this Agreement (other than (i) Equipment hereafter acquired by Borrower with
financing provided by a Person other than Lender and which Borrower intends to
become a fixture and (ii) items of Equipment, with an original cost not to
exceed $100,000 in the aggregate, hereafter acquired by Borrower with Revolving
Loans and which Borrower intends to become fixtures) will be hereafter affixed
to any real property in such a manner, or with such intent, as to become a
fixture. Except for leases or subleases as to which Borrower has delivered to
Lender a landlord's waiver in form and substance satisfactory to Lender,
Borrower is not, as of the date of this Agreement, a lessee or sublessee under
any real property lease or sublease pursuant to which the lessor or sublessor
may obtain any rights in any of the Collateral, and no such lease or sublease
now prohibits, restrains, impairs or conditions, or will prohibit, restrain,
impair or condition, Borrower's right to remove any Collateral from the
premises. Borrower shall not permit any Collateral to be located upon premises
in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), unless Borrower has
caused each such third party to execute and deliver to Lender, in form and
substance acceptable to Lender, such waivers and subordinations as Lender shall
specify, so as to ensure that Lender's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party; PROVIDED, that
notwithstanding the foregoing Borrower may temporarily allow items of Equipment
to be located on such premises for repair in the ordinary course of Borrower's
business as long as, (A) no Default or Event of Default exists, and (B) if at
any time such items of Equipment have a value in excess of $25,000 in the
aggregate, Borrower has provided Lender with written notice of all such items of
Equipment and the locations thereof; and PROVIDED FURTHER, that notwithstanding
the foregoing Borrower may allow items of Inventory to be located on such
premises as long as, (A) no Default or Event of Default exists or would be
caused by the locating of Inventory on such premises, (B) such items of
Inventory at no time have a value in excess of $25,000 in the aggregate, and (C)
Borrower has provided Lender with written notice of all such items of Inventory
(all of which Inventory shall be ineligible for borrowing purposes) and the
locations thereof. Borrower will keep in full force and effect, and will comply
with all the terms of, any lease of real property where any of the Collateral
now or in the future may be located.
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5.4 ACCOUNTS AND CHATTEL PAPER. As of each date reported by Borrower,
all Accounts which Borrower has reported to Lender as being Eligible Accounts
comply in all respects with the criteria for eligibility established by Lender
and in effect at such time. All Accounts and Chattel Paper are genuine and in
all respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 INVESTMENT PROPERTY. Borrower will take any and all actions
reasonably requested by Lender, or as may be required, from time to time, to (i)
cause Lender to obtain exclusive control of any Investment Property in a manner
acceptable to Lender and (ii) obtain from any issuers of Investment Property and
such other Persons as Lender shall specify, for the benefit of Lender, written
confirmation of Lender's exclusive control over such Investment Property and
take such other actions as Lender may request to perfect Lender's security
interest in such Investment Property. For purposes of this Section 5.5, Lender
shall have exclusive control of Investment Property if (A) such Investment
Property consists of certificated securities and Borrower delivers such
certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) Borrower delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least thirty
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
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5.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements delivered to Lender by or on behalf of Borrower have been prepared in
conformity with GAAP and completely and fairly reflect the financial condition
of Borrower, at the times and for the periods therein stated, PROVIDED, that
financial statements delivered to Lender under Section 5.13(c) may be subject to
year-end adjustments and need not contain notes. Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date such Loan is
made or such Credit Accommodation is provided), there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
solvent and able to pay its debts as they come due, and has sufficient capital
to carry on its business as now conducted and as proposed to be conducted. All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed all tax returns and reports required by applicable law, has timely
paid all applicable taxes, assessments, deposits and contributions owing by
Borrower and will timely pay all such items in the future as they became due and
payable. Borrower may, however, defer payment of any contested taxes; PROVIDED,
that Borrower (i) in good faith contests Borrower's obligation to pay such taxes
by appropriate proceedings promptly and diligently instituted and conducted;
(ii) notifies Lender in writing of the commencement of, and any material
development in, the proceedings; (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a Lien upon any of the
Collateral; and (iv) maintains adequate reserves therefor in conformity with
GAAP. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to pay, all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, permitted partial or complete termination of,
or permitted the occurrence of any other event with respect to, any such plan
which could result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or any other governmental agency.
5.9 COMPLIANCE WITH LAWS. Borrower has complied in all material
respects with all provisions of all applicable laws and regulations, including
those relating to Borrower's ownership of real or personal property, the conduct
and licensing of Borrower's business, the payment and withholding of taxes,
ERISA and other employee matters, safety and environmental matters.
5.10 LITIGATION. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the
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best of Borrower's knowledge) threatened by or against Borrower in any court or
before any governmental agency (or any basis therefor known to Borrower) which
may result, either separately or in the aggregate, in any material adverse
change in the financial condition or business of Borrower, or in any material
impairment in the ability of Borrower to carry on its business in substantially
the same manner as it is now being conducted. To the best of Borrower's
knowledge, there is no claim, suit, litigation, proceeding or investigation, to
which Borrower is not (or will not be) a party, pending or threatened in any
court or before any governmental agency which could reasonably be expected to
cause, any material adverse change in the financial condition or business of
Borrower or any material impairment in the ability of Borrower to carry on its
business in substantially the same manner as it is now being conducted. Borrower
will promptly inform Lender in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower
other than (i) worker's compensation claims to the extent fully covered by
insurance (subject to applicable deductibles), (ii) claims brought by
individuals who took fenfluramine and phentermine hydrochloride in combination
to the extent fully covered by insurance, and (iii) other claims not exceeding
$50,000 in the aggregate.
5.11 USE OF PROCEEDS. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 INSURANCE. Borrower will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrower will provide evidence of such insurance to Lender, so that
Lender is satisfied that such insurance is, at all times, in full force and
effect. Each property insurance policy shall name Lender as loss payee and shall
contain a lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured, and each
business interruption insurance policy shall be collaterally assigned to Lender,
all in form and substance satisfactory to Lender. All policies of insurance
shall provide that they may not be cancelled or changed without at least thirty
days' prior written notice to Lender, shall contain breach of warranty coverage,
and shall otherwise be in form and substance satisfactory to Lender. Lender has
reviewed the insurance of Borrower as in place on the date of this Agreement,
and such insurance currently is acceptable to Lender, and Lender has no present
intent to change Borrower's insurance requirements under this Section 5.12
absent the occurrence of (i) a Default or Event of Default, (ii) a change in the
Collateral or Borrower's business, or (iii) some other change in circumstances
resulting in Lender's determination that such insurance requirements should be
changed. Upon receipt of the proceeds of any such insurance prior to the
occurrence of a Default or an Event of Default, Lender shall apply such proceeds
in reduction of the Obligations, (A) first, to any of the Obligations then due
and owing, consisting of interest, fees and costs, (B) second, to any of the
Obligations then due and owing, consisting of principal, (C) third, (1) to the
extent that such insurance proceeds relate to a casualty involving an item of
Eligible Equipment, to the Obligations consisting of
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the principal amount of the Equipment Advance not yet due and owing, in an
amount up to the currently outstanding amount advanced against such item of
Eligible Equipment (as determined by Lender in good faith), (2) to the extent
that such insurance proceeds relate to a casualty involving Eligible Real
Property, to the Obligations consisting of the principal amount of the Real
Property Advance not yet due and owing, (3) to the extent that such insurance
proceeds relate to a casualty involving an item of Capital Expenditure
Equipment, to the Obligations consisting of the principal amount of the Capital
Expenditure Advance not yet due and owing, in an amount up to the currently
outstanding amount advanced against such item of Capital Expenditure Equipment
(as determined by Lender in good faith), and (4) otherwise, to Obligations under
the Revolving Loans consisting of principal; and after payment of the Revolving
Loans in full, Lender shall remit all such insurance proceeds received by it to
Borrower unless and until such time as any of the Obligations become due and
owing or any Obligations consisting of principal under the Revolving Loans
exist, at which time such insurance proceeds shall be applied to the Obligations
in the order set forth in this Section 5.12 above. Upon receipt of the proceeds
of any such insurance after the occurrence and during the continuance of a
Default or an Event of Default, Lender shall apply such proceeds in reduction of
the Obligations as Lender shall determine in its sole discretion, whether or not
the Obligations are due. Borrower will promptly deliver to Lender copies of all
reports made to insurance companies.
5.13 FINANCIAL AND COLLATERAL REPORTS. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender, and PROVIDED that financial statements
delivered to Lender under Section 5.13(c) may be subject to year-end adjustments
and need not contain notes):
(a) COLLATERAL REPORTS. On or before the fifteenth day of each
month, an aging of Borrower's Accounts, Chattel Paper and notes receivable, and
weekly Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; PROVIDED, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower, at Lender's request, shall furnish Lender with copies (or,
at Lender's request, duplicate originals) of all contracts, orders, invoices,
and other similar documents, and all original shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Accounts, and Borrower warrants
the genuineness of all of the foregoing. In addition, Borrower shall deliver to
Lender the originals of all Instruments,
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Chattel Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts, immediately upon receipt thereof and in the
same form as received, with all necessary endorsements. Lender may destroy or
otherwise dispose of all documents, schedules and other papers delivered to
Lender pursuant to this Agreement (other than originals of contracts, orders,
invoices, other similar documents, shipping instructions, delivery receipts,
bills of lading, other evidence of the delivery of Goods, and Instruments,
Chattel Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts) six months after Lender receives them,
unless Borrower requests their return in writing in advance and arranges for
their return to Borrower at Borrower's expense.
(b) ANNUAL STATEMENTS. Not later than ninety days after the close of
each fiscal year of Borrower, unqualified (except for a qualification for a
change in accounting principles with which the accountant concurs) (i) audited
financial statements of Borrower and its Subsidiaries as of the end of such
year, on a consolidated basis, certified by a firm of independent certified
public accountants of recognized standing selected by Borrower but reasonably
acceptable to Lender, together with a copy of any management letter issued in
connection therewith and an executed letter from Borrower to such accountants
indicating that Lender is relying on such financial statements and (ii)
unaudited consolidating schedules of Borrower and its Subsidiaries as of the end
of such year, certified by the principal financial officer of Borrower as
prepared in accordance with GAAP;
(c) INTERIM STATEMENTS. Not later than fifteen business days after
the end of each month hereafter (but twenty-five business days after the end of
each January hereafter), including the last month of Borrower's fiscal year,
unaudited interim financial statements (including, without limitation, cash flow
statements) of Borrower and its Subsidiaries as of the end of such month and of
the portion of Borrower's fiscal year then elapsed, on a consolidated basis,
certified by the principal financial officer of Borrower as prepared in
accordance with GAAP and fairly presenting the consolidated financial position
and results of operations of Borrower and its Subsidiaries for such month and
period subject only to changes from audit and year-end adjustments and except
that such statements need not contain notes;
(d) PROJECTIONS, ETC. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower and
its Subsidiaries as Lender shall request from time to time. Absent the existence
of a Default or Event of Default, Lender presently intends only to request that
Borrower provide it, not later than 30 days after the close of each fiscal year,
with the documents described in this Section 5.13(d) for the following fiscal
year (broken down on a quarterly basis);
(e) SHAREHOLDER REPORTS, ETC. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and
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Exchange Commission or any governmental authority which may be substituted
therefor, or any national securities exchange;
(f) ERISA REPORTS. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto; and
(g) OTHER INFORMATION. Such other data and information (financial
and otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or Borrower's and each of its Subsidiary's
financial condition or results of operations.
5.14 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Lender with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Lender, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 MAINTENANCE OF COLLATERAL, ETC. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 NOTIFICATION OF CHANGES. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 FURTHER ASSURANCES. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 NEGATIVE COVENANTS. Except as set forth in Section 13 of Schedule
A or as otherwise permitted by this Agreement and the other Loan Documents,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of
business; (iii) enter into any transaction outside the ordinary course of
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business; (iv) sell or transfer any Collateral or other assets, except that
Borrower may sell finished goods Inventory in the ordinary course of its
business; (v) make any loans to, or investments in, any Affiliate or other
Person in the form of money or other assets; (vi) incur any debt outside the
ordinary course of business; (vii) guaranty or otherwise become liable with
respect to the obligations of another party or entity; (viii) pay or declare any
dividends or other distributions on Borrower's stock, if Borrower is a
corporation (except for dividends payable solely in capital stock of Borrower)
or with respect to any equity interests, if Borrower is not a corporation; (ix)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's capital stock or other equity interests; (x) make any change in
Borrower's capital structure; (xi) dissolve or elect to dissolve; (xii) pay any
principal or interest on any indebtedness owing to an Affiliate, (xiii) enter
into any transaction with an Affiliate other than on arms-length terms; or (xiv)
agree to do any of the foregoing.
5.19 FINANCIAL COVENANTS.
(a) CAPITAL EXPENDITURES. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year without Lender's
prior written consent.
(b) NET WORTH. Borrower will at all times maintain a net worth of at
least the amount set forth in Section 8(b) of Schedule A.
(c) TANGIBLE NET WORTH. Borrower will at all times maintain a
minimum tangible net worth of at least the amount set forth in Section 8(c) of
Schedule A.
(d) WORKING CAPITAL. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
(e) NET LOSSES. Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.
(f) NET INCOME. Borrower will not permit its cumulative net income
to be less than the amount set forth in Section 8(f) of Schedule A.
(g) LEVERAGE. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) OTHER FINANCIAL COVENANTS. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
5.20 YEAR 2000 COMPLIANCE. Borrower has (i) initiated a review and
assessment of all areas within its and each of its Affiliates' business and
operations (including those affected by suppliers and vendors) that could be
materially and adversely affected by the "YEAR 2000
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PROBLEM" (that is, the risk that computer applications used by Borrower or any
of its Affiliates (or its suppliers and vendors) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Borrower reasonably
believes that all computer applications (including those of its suppliers and
vendors) that are material to its or any of its Affiliates' business and
operations will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "YEAR
2000 COMPLIANT"), except to the extent that a failure to do so could not
reasonably be expected to have a material adverse effect on Borrower's business
or operations or on the condition or value of the Collateral (a "MATERIAL
ADVERSE EFFECT"). Borrower will promptly notify Lender in the event Borrower
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to its or any of its Affiliates'
business and operations will not be Year 2000 compliant on a timely basis,
except to the extent that such failure could not reasonably be expected to have
a Material Adverse Effect.
6. RELEASE AND INDEMNITY.
6.1 RELEASE. Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "RELEASED PARTIES")
from any and all liability arising from acts or omissions under or pursuant to
this Agreement, whether based on errors of judgment or mistake of law or fact,
except for those arising from gross negligence or willful misconduct. However,
in no circumstance will any of the Released Parties be liable for lost profits
or other special or consequential damages. Such release is made on the date
hereof and remade upon each request for a Loan or Credit Accommodation by
Borrower. Without limiting the foregoing, and except as provided above:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of Borrower's obligations under
any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any
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instructions as to acceptance or rejection of any documents or goods, to execute
for Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 INDEMNITY. Borrower hereby agrees to indemnify the Released Parties
and hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which the Released Parties may sustain or incur based upon or
arising out of any of the transactions contemplated by this Agreement or the
other Loan Documents or any of the Obligations, including any transactions or
occurrences relating to the issuance of any Credit Accommodation, the Collateral
relating thereto, any drafts thereunder and any errors or omissions relating
thereto (including any loss or claim due to any action or inaction taken by the
issuer of any Credit Accommodation) (and for this purpose any charges to Lender
by any issuer of Credit Accommodations shall be conclusive as to their
appropriateness and may be charged to the Loan Account), or any other matter,
cause or thing whatsoever occurred, done, omitted or suffered to be done by
Lender relating to Borrower or the Obligations (except any such amounts
sustained or incurred as the result of the gross negligence or willful
misconduct of the Released Parties). Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this Section
shall survive any termination of this Agreement.
7. TERM.
7.1 MATURITY DATE. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Initial Maturity Date set forth in Section 7 of Schedule A (the
"INITIAL TERM"); PROVIDED, that such date shall automatically be extended (the
Initial Maturity Date, as it may be so extended, being referred to as the
"MATURITY DATE") for successive additional terms of one year each (each a
"RENEWAL TERM"), unless one party gives written notice to the other, not less
than sixty days prior to the Maturity Date, that such party elects not to extend
the Maturity Date. This Agreement and the other Loan Documents and Lender's
security interests in and Liens upon the Collateral, and all representations,
warranties and covenants of Borrower contained herein and therein, shall remain
in full force and effect after the Maturity Date until all of the monetary
Obligations are indefeasibly paid in full.
7.2 EARLY TERMINATION. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default,
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without notice, effective immediately; PROVIDED, that if any Affiliate of
Borrower is also a party to a financing arrangement with Lender, no such early
termination shall be effective unless such Affiliate simultaneously terminates
its financing arrangement with Lender. If so terminated under this Section 7.2,
Borrower shall pay to Lender (i) an early termination fee (the "EARLY
TERMINATION FEE") in the amount set forth in Section 6(h) of Schedule A plus
(ii) any earned but unpaid Facility Fee. Such fee shall be due and payable on
the effective date of termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations. In addition, if
Borrower so terminates and repays the Obligations without having provided Lender
with at least thirty days' prior written notice thereof, an additional amount
equal to thirty days of interest at the applicable Interest Rate(s), based on
the average outstanding amount of the Obligations for the six month period
immediately preceding the date of termination.
7.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the Maturity
Date or on any earlier effective date of termination, there are any outstanding
Credit Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
7.4 EFFECT OF TERMINATION. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
(and the provision of cash collateral with respect to any Credit Accommodation
Balance as required by Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "EVENT OF DEFAULT" under this Agreement, and Borrower shall
give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender by
Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest on
any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document or
fails to perform any other non-monetary Obligation; (iv) if any levy,
assessment, attachment, seizure, lien or encumbrance
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(other than a Permitted Lien) is made or permitted to exist on all or any part
of the Collateral and remains undischarged, unvacated, unbonded or unstayed for
a period of ten (10) days; (v) if one or more judgments aggregating in excess of
$100,000, or any injunction or attachment, is obtained against Borrower or any
Obligor which remains unstayed for more than ten days or is enforced; (vi) (A)
the occurrence of any default (not cured within any applicable cure period)
under any financing agreement(s), security agreement(s) or other agreement(s),
instrument(s) or document(s) involving obligations of Borrower aggregating in
excess of $100,000 and executed and delivered by Borrower with, or in favor of,
any Person other than Lender or (B) the occurrence of any default (not cured
within any applicable cure period) under any financing agreement(s), security
agreement(s) or other agreement(s), instrument(s) or document(s) executed and
delivered by Borrower or any Affiliate of Borrower with, or in favor of, Lender
or any Affiliate of Lender; (vii) the dissolution, death, termination of
existence in good standing, insolvency or business failure or suspension or
cessation of business as usual of Borrower or any Obligor (or of any general
partner of Borrower or any Obligor if it is a partnership) or the appointment of
a receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations attempts to limit or
terminate its subordination agreement; (xi) if there is any actual or threatened
indictment of Borrower or any Obligor under any criminal statute or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which the potential penalties or remedies sought or
available include forfeiture of any property of Borrower or such Obligor; (xii)
if there is any change in the chief executive officer, chief operating officer
or chief financial officer of Borrower (except such a change resulting from such
an officer's death if such office is filled within sixty days of such death by a
Person whose professional qualifications are equal to or greater than were the
professional qualifications of such officer); or (xiii) if an Event of Default
occurs under any Loan and Security Agreement between Lender and an Affiliate of
Borrower; PROVIDED, that any breach of the foregoing clauses (i)-(xiii) of this
Section 8.1 above (other than (A) a breach of clause (ii) of this Section 8.1
above, (B) a breach resulting from Borrower's fraud, dishonesty or other willful
misconduct, or (C) a breach which is incapable of being timely cured (as
determined by Lender in good faith)) shall not constitute an Event of Default
unless such
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breach is not cured within (1) three days after the occurrence of such breach
(if Borrower knew, or could reasonably have been expected to know, of such
breach) or (2) three days after Borrower's receipt of telephonic or other notice
from Lender of such breach (if Borrower neither knew, nor could reasonably have
been expected to know, of such breach).
8.2 REMEDIES. Upon the occurrence and during the continuance of any
Default, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof, without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; PROVIDED,
that if Lender seeks to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession, (B)
any demand for possession prior to the commencement of any suit or action to
recover possession thereof and (C) any requirement that Lender retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make it
available to Lender at one or more places designated by Lender which are
reasonably convenient to Lender and Borrower, and to remove the Collateral to
such locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Lender shall have the right to
use Borrower's premises, vehicles and other Equipment and all other property
without charge; (vi) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private sales, in
lots or in bulk, for cash, exchange or other property, or on credit (a "SALE"),
and to adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any of
the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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Collateral is defective as to title, physical condition or otherwise at the time
of sale); (vii) demand payment of and collect any Accounts, Chattel Paper,
Instruments and General Intangibles included in the Collateral and, in
connection therewith, Borrower irrevocably authorizes Lender to endorse or sign
Borrower's name on all collections, receipts, Instruments and other documents,
to take possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of Collateral or proceeds thereof and, in
Lender's sole discretion, to grant extensions of time to pay, compromise claims
and settle Accounts, General Intangibles and the like for less than face value;
and (viii) demand and receive possession of any of Borrower's federal and state
income tax returns and the books and records utilized in the preparation thereof
or relating thereto. In addition to the foregoing remedies, upon the occurrence
of any Event of Default resulting from a breach of any of the financial
covenants set forth in Section 5.19, Lender may, at its option, upon not less
than ten days' prior notice to Borrower, reduce any or all of the Advance Rates
set forth in Section 1(b) of Schedule A to the extent Lender, in its sole
discretion, deems appropriate. In addition to the rights and remedies set forth
above, Lender shall have all the other rights and remedies accorded a secured
party after default under the UCC and under all other applicable laws, and under
any other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a public sale or the time after which any private sale or other disposition
is to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment is collected by Lender.
8.3 APPLICATION OF PROCEEDS. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by Lender
to the Obligations in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
mail or certified mail return receipt requested, addressed to Lender or Borrower
at the address shown in the heading to this Agreement, or by facsimile to the
facsimile number shown in Section 9(i) of Schedule A, or at any other address
(or to any other facsimile number) designated in writing by one party to the
other party in the manner prescribed in this Section 9.1. All notices shall be
deemed to have been given when received or when delivery is refused by the
recipient.
9.2 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.3 INTEGRATION. This Agreement and the other Loan Documents represent
the final, entire and complete agreement between Borrower and Lender and
supersede all prior and contemporaneous negotiations, oral representations and
agreements, all of which are merged and integrated into this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 WAIVERS. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 AMENDMENT. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 ATTORNEYS' FEES AND COSTS. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
incurred by Lender, pursuant to, in connection with, or relating to this
Agreement, including all reasonable attorneys' fees and costs Lender incurs to
prepare and negotiate this Agreement and the other Loan Documents; to obtain
legal advice in connection with this Agreement and the other Loan Documents or
Borrower or any Obligor; to administer this Agreement and the other Loan
Documents (including the cost of periodic financing statement, tax lien and
other searches conducted by Lender); to enforce, or seek to enforce, any of its
rights; prosecute actions against, or defend actions by, Account Debtors; to
commence, intervene in, or defend any action or proceeding; to enforce and
protect, or to seek to enforce and protect, any of its rights and interests in
any bankruptcy case of Borrower, including, without limitation, by initiating
and prosecuting any motion for relief from the automatic stay and by initiating,
prosecuting or defending any other contested matter or adversary proceeding in
bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. Without limiting the foregoing, Borrower shall
reimburse Lender for all payments made by Lender pursuant to, in connection
with, or relating to, any support agreement entered into by any officer or
employee of Borrower in favor of Lender in connection with any liquidation of
the Collateral following an Event of Default. If either Lender or Borrower files
any lawsuit against the other predicated on a breach of this Agreement, the
prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which Lender may be entitled
pursuant to this Section shall immediately become part of the Obligations, shall
be due on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations.
9.8 BENEFIT OF AGREEMENT; ASSIGNABILITY. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Borrower and
Lender; PROVIDED, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Lender, and any
prohibited assignment shall be void. No consent by Lender to any assignment
shall release Borrower from its liability for any of the Obligations. Lender
shall have the right to assign all or any of its rights and obligations under
the Loan Documents. Lender shall also have the right to sell participating
interests therein, to one or more other Persons, PROVIDED, that Lender shall
remain the lead lender following any sale of any participating interests, and
FURTHER PROVIDED, that Lender shall not sell participating interests aggregating
more than forty-nine percent (49%) of the Obligations as long as the Maximum
Facility Amount is not amended so as to exceed $33,000,000. Borrower agrees to
execute all agreements, instruments and documents requested by Lender in
connection with each such assignment and participation.
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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9.9 HEADINGS; CONSTRUCTION. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL
IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT
ANY CLAIM OR DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF NEW YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
BORROWER: LENDER:
DURAMED PHARMACEUTICALS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ TIMOTHY J. HOLT By /s/ LYNNE CIACCIA
----------------------------------- ----------------------------------
Its Senior Vice President - Finance Its Authorized Signatory
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
SCHEDULE A
DESCRIPTION OF CERTAIN TERMS
This Schedule is an integral part of the Loan and Security Agreement
between DURAMED PHARMACEUTICALS, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $33,000,000
(b) Advance Rates:
(i) Accounts 85%; PROVIDED, that if the
Advance Rate: Dilution Percentage exceeds 5%,
Lender may, at its option, (A)
reduce such advance rate by the
number of full or partial
percentage points of such excess
or (B) establish a Reserve on
account of such excess
(ii) Inventory
Advance Rate(s):
(A) Finished goods: 60%
(B) Raw materials: 60%
(C) Bulk Inventory: 40%
(D) Work in process: Not Applicable
(c) Accounts Sublimit: Not Applicable
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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(d) Inventory
Sublimit(s):
(i) Overall sublimit The lesser of $12,000,000 and (A)
on advances during each of the first three fiscal
against Eligible quarters of each of Borrower's fiscal
Inventory years, 200% of the amount of
Availability with respect to Eligible
Accounts under Section 1.1(a)(i) of
the Agreement at any time of
determination during such period or
(B) during the fourth fiscal quarter
of each of Borrower's fiscal years,
210% of the amount of Availability
with respect to Eligible Accounts
under Section 1.1(a)(i) of the
Agreement at any time of determination
during such period
(ii) Sublimit on
advances
against finished
goods Not Applicable
(iii) Sublimit on
advances
against raw
materials Not Applicable
(iv) Sublimit on
advances
against work in
process Not Applicable
(v) Sublimit on
advances against Bulk
Inventory $2,500,000
(e) Credit Accommodation
Limit: $5,000,000
(f) Permanent Reserve Amount: Not Applicable
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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(g) Overadvance Amount:
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance The lesser of $6,000,000 and 85% of
the appraised auction sale value of
Borrower's Eligible Equipment
(ii) Real Property The lesser of $3,000,000 and 70% of
Advance: the appraised quick sale value of
Borrower's Eligible Real Property
(iii) Capital Expenditure A principal amount equal to 85% of the
Advances: appraised (by an appraiser acceptable
to Lender) auction sale value of
Borrower's Capital Expenditure
Equipment, up to a maximum principal
amount of $5,000,000 in the aggregate
for all Capital Expenditure Advances
(b) Repayment Schedule:
(i) Equipment Advance: The Equipment Advance shall be repaid
in equal consecutive monthly
installments amortized over 84 months
payable on the first day of each
calendar month commencing December 1,
1998, with the entire unpaid balance
due and payable on the Maturity Date;
PROVIDED, that if at any time Lender
determines that the unpaid principal
balance of the Equipment Advance
exceeds 85% of the value of Eligible
Equipment owned by Borrower on the
date of the Agreement as set forth on
the most recent of the Updated
Equipment Appraisals (as defined in
Section 12 of this Schedule A), then,
Borrower shall repay such excess in 6
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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equal consecutive monthly installments
payable on the first day of each
calendar month commencing with the
month immediately following the date
of such determination by Lender (which
payments shall be in addition to the
regular amortization payments set
forth above), AND PROVIDED FURTHER,
that if Borrower's cumulative pre-tax
loss (net of any Included Subordinated
Debt and any Additional Equity) from
October 1, 1998 through the end of the
Term exceeds $4,000,000 (the
occurrence of such a pre-tax loss in
excess of $4,000,000 being referred to
herein as an "EXCESSIVE LOSS"), the
Loan Limit with respect to the
Equipment Advance shall immediately
upon telephonic or other notice from
Lender to Borrower be reduced to the
lesser of $4,000,000 and 85% of the
appraised auction sale value of
Borrower's Eligible Equipment and
Borrower shall immediately repay to
Lender such amounts as shall cause
Borrower to be in full compliance with
such reduced Loan Limit (which payment
shall be in addition to the regular
amortization payments set forth
above); PROVIDED, that if Borrower
fails to pay immediately when due any
such amounts to Lender, such failure
shall constitute an Event of Default
under Section 8.1(ii) of the
Agreement, BUT PROVIDED FURTHER, that
if following the occurrence of an
Excessive Loss, Borrower has Cash Flow
greater than $0 for each of six
consecutive months, and if no Default
or Event of Default then exists,
Lender will consider entering into a
written amendment of the Agreement
increasing the Loan Limit with respect
to the Equipment Advance back to the
lesser of $6,000,000 and 85% of the
appraised
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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auction sale value of Borrower's
Eligible Equipment, but Lender shall
have no obligation to agree to any
such increase
(ii) Real Property The Real Property Advance shall be
Advance: repaid in equal consecutive monthly
installments amortized over 120 months
payable on the first day of each
calendar month commencing on the first
month which begins at least thirty
days after the funding of the Real
Property Advance, with the entire
unpaid balance due and payable on the
Maturity Date; PROVIDED, that if at
any time Lender determines that the
unpaid principal balance of the Real
Property Advance exceeds 70% of the
quick sale value of the Real Property
as set forth on the most recent of the
Updated Real Property Appraisals (as
defined in Section 12 of this Schedule
A), then, Borrower shall repay such
excess in 6 equal consecutive monthly
installments payable on the first day
of each calendar month commencing with
the month immediately following the
date of such determination by Lender
(which payments shall be in addition
to the regular amortization payments
set forth above)
(iii) Capital Each Capital Expenditure Advance shall
Expenditure be repaid in equal consecutive monthly
Advances: installments amortized over 84 months
payable on the first day of each
calendar month commencing with the
month following the date on which such
Capital Expenditure Advance was made,
with the entire unpaid balance due and
payable on the Maturity Date;
PROVIDED, that if at any time Lender
determines that the aggregate unpaid
principal balance of the Capital
Expenditure Advances exceeds 85% of
the
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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value of the applicable Capital
Expenditure Equipment as set forth on
the most recent of the Updated
Equipment Appraisals (as defined in
Section 12 of this Schedule A), then,
Borrower shall repay such excess in 6
equal consecutive monthly installments
payable on the first day of each
calendar month commencing with the
month immediately following the date
of such determination by Lender (which
payments shall be in addition to the
regular amortization payments set
forth above)
3. Interest Rates:
(a) Revolving Loans: 0.50% per annum in excess of the Prime
Rate
(b) Term Loan: 0.75% per annum in excess of the Prime
Rate
4. Minimum Loan Amount: $10,000,000
5. Maximum Days:
(a) Maximum days after 90 (or 120 with respect to Accounts
original INVOICE DATE owing by McKesson Drug Company with
for Eligible Accounts: respect to which the purchase order
terms are net 90 days)
(b) Maximum days after 60
original INVOICE DUE
DATE for Eligible
Accounts:
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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6. Fees:
(a) Closing Fee: $165,000, $82,500 of which was paid
pursuant to the Commitment Letter
between Lender and Borrower dated
August 31, 1998; PROVIDED, that if at
any time the Maximum Facility Amount
is increased (which increase will only
be pursuant to a written amendment of
the Agreement entered into by Lender
in its sole discretion) to an amount
in excess of $33,000,000, then
Borrower shall pay Lender an
additional closing fee equal to 0.50%
of the amount of such increase, which
additional closing fee shall be deemed
to be fully earned as of, and payable
on, the effective date of such
amendment
(b) Facility Fee:
(i) Initial Term: 0.75% of the Maximum Facility Amount
(ii) Renewal Term(s): 0.25% of the Maximum Facility Amount
(c) Servicing Fee: Not Applicable
(d) Unused Line Fee: 0.25% per annum
(e) Minimum Borrowing
Fee:
(i) Applicable period: Each month
(ii) Date payable: The first day of each month
(f) Success Fee: Not Applicable
(g) Warrants: Not Applicable
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(h) Early Termination 3% of the Maximum Facility Amount if
Fee: terminated during the first year of
the Initial Term, 2% of the Maximum
Facility Amount if terminated during
the second year of the Initial Term,
and 1% of the Maximum Facility Amount
if terminated during the third year of
the Initial Term, and 0% of the
Maximum Facility Amount if terminated
after the third year of the Initial
Term; PROVIDED, that there will be no
Early Termination Fee charged if the
Loans are repaid more than eighteen
months after the date of the Agreement
through financing provided by
NationsBank, N.A. or any Affiliate of
NationsBank, N.A.
(i) Fees for letters of credit .50% per annum of the face amount of
and other Credit each open Credit Accommodation
Accommodations (or
guaranties thereof by
Lender):
7. Initial Maturity Date: November ___, 2002
8. Financial Covenants:
(a) Capital Expenditure $6,500,000
Limitation:
(b) Minimum Net Worth Not Applicable
Requirement:
(c) Minimum Tangible Not Applicable
Net Worth:
(d) Minimum Working Not Applicable
Capital:
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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(e) Maximum Cumulative Not Applicable
Net Loss:
(f) Minimum Cumulative Not Applicable
Net Income:
(g) Maximum Leverage Not Applicable
Ratio:
(h) Limitation on Not Applicable
Purchase Money
Security Interests:
(i) Limitation on Not Applicable
Equipment Leases:
(j) Additional Financial Not Applicable
Covenants:
9. Borrower Information:
(a) Prior Names of Borrower: None
(b) Prior Trade Names None
of Borrower:
(c) Existing Trade Hallmark Pharmaceuticals
Names of Borrower: Strong, Cobb & Arner
(d) Inventory Locations: 5040 Duramed Drive
Cincinnati, Ohio 45213
7687 Innovation Way
Cincinnati, Ohio 45040
400 Campus Drive
Somerset, New Jersey 08873
Livingston Health Care
200 Lake Drive
Newark, Delaware
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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International Processing Corp.
1100 Enterprise Drive
Winchester, Kentucky
(e) Other Locations: 7155 East Kemper Drive
Cincinnati, Ohio 45249
(f) Litigation: Schein Pharmaceuticals (see Exhibit C)
Also involved in miscellaneous product
liability lawsuits and other legal
matters in the ordinary course of
business, none of which is expected to
result in judgments in excess of the
Company's product liability insurance.
(g) Ownership of Borrower: See Exhibit D
(h) Subsidiaries (and Duramed Europe Ltd.;
ownership thereof): Marketmaster Inc.;
Duramed Research & Development;
all 100% owned by Duramed
(i) Facsimile Numbers:
Borrower: (513) 458-6014
Lender: (212) 597-1666
10. Description of See Exhibit E
Real Property:
11. Lender's Bank: The First National Bank of Chicago/NBD
12. Other Covenants: (a) At the end of every eighteen-month
period, commencing with the end of the
eighteen-month period immediately
following the date of the Agreement,
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Lender will cause to be prepared and
delivered to Lender at Borrower's
expense updated auction sale value
appraisals of Borrower's Equipment
(the "UPDATED EQUIPMENT APPRAISAL")
and updated fair market and quick sale
value appraisals of Borrower's real
property performed in accordance with
FIRREA (the "UPDATED REAL PROPERTY
APPRAISAL"), all of which appraisals
shall be performed by independent
appraisers acceptable to Lender. Each
Updated Equipment Appraisal and
Updated Real Property Appraisal shall
be prepared and delivered to Lender
within thirty days of the end of the
applicable eighteen-month period. Each
Updated Equipment Appraisal shall
include, without limitation, all
Equipment acquired by Borrower after
the date of this Agreement
(b) Unless and until all of Borrower's
obligations under that letter
agreement between Borrower and
Ortho-McNeil Pharmaceutical
Corporation dated September 24, 1997,
have been discharged and terminated
and Borrower has provided Lender with
written notice of such discharge and
termination, Borrower will provide
Lender with written notice of any
attempt by Borrower to obtain formal
permission from the Federal Drug
Administration to market the CE
Product commercially based on an ANDA
for the CE Product, which notice of
such attempt shall be given within
five (5) business days of the filing
of such ANDA
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(c) Borrower shall not accept or agree
to accept any loss payment from
American Credit Indemnity Company
under Policy No. G-345, 784-1 without
Lender's written consent
13. Exceptions to Negative (a) Notwithstanding the provisions of
Covenants: Section 5.18 of the Agreement,
Borrower may invest or loan to Europe
an amount not to exceed $100,000 in
the aggregate during any fiscal
quarter of Borrower, as long as no
Default or Event of Default has
occurred and is continuing or would be
caused by the making of any such
investment or loan
(b) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower may pay regularly scheduled
dividends on the 5% Cumulative
Preferred Stock, Series F, with a
stated value of $100.00 per share (the
"PREFERRED STOCK") held by Shepherd
Investments International, Ltd. and
Stark International (collectively, the
"PREFERRED SHAREHOLDERS") as long as
no Default or Event of Default has
occurred and is continuing or would be
caused by the making of any such
payment, and Borrower may make
mandatory redemptions (as and when
regularly scheduled) of the Preferred
Stock held by the Preferred
Shareholders as long as (i) no Default
or Event of Default has occurred and
is continuing or would be caused by
the making of any such redemption,
(ii) Borrower's Net Availability,
after giving effect to each
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such redemption, will not then be less
than $3,000,000, (iii) Borrower's Cash
Flow, after giving effect to each such
redemption, will then be greater than
$0, and (iv) Borrower has attained at
least seventy-five percent (75%) of
its projected cumulative pre-tax
profit for the period from the date of
the Agreement through the date of each
such redemption (or, if Borrower has
projected a loss for any such period,
Borrower's cumulative pre-tax loss for
the period from the date of the
Agreement through the date of each
such redemption, does not exceed its
projected cumulative pre-tax loss for
such period by more than twenty-five
percent (25%)
(c) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower may make regularly scheduled
payments of interest on account of
Included Subordinated Debt so long as
no Default or Event of Default has
occurred and is continuing or would be
caused by the making of any such
payment, and Borrower may make
regularly scheduled payments of
principal on account of Included
Subordinated Debt so long as (i) no
Default or Event of Default has
occurred and is continuing or would be
caused by the making of any such
payment, (ii) Borrower's Net
Availability, after giving effect to
each such payment, will not then be
less than $3,000,000 and (iii)
Borrower's Cash Flow, after giving
effect to each such payment, will then
be greater than $0
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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(d) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower may acquire Capital
Expenditure Equipment with Capital
Expenditure Advances or with purchase
money financing provided by Persons
other than Lender
(e) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower may sell or otherwise dispose
of obsolete or worn-out Equipment, so
long as the fair market value of all
such Equipment sold or otherwise
disposed of by Borrower during any
twelve-month period is less than
$50,000 in the aggregate
(f) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower may make advances to its
employees for business travel
expenses, relocation expenses and
other business related expenses, to
the extent such advances are made in
the ordinary course of Borrower's
business as presently and as
heretofore conducted
(g) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower shall be permitted to have
its currently outstanding loans in the
approximate amount of $360,000 to its
employees, and Borrower may make
additional loans to its employees, the
outstanding amount of which additional
loans shall not exceed at
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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any time $200,000 for all employees in
the aggregate
(h) Notwithstanding the provisions of
Section 5.18 of the Agreement,
Borrower may issue Additional Equity
or warrants for the purchase of
Additional Equity, provided, that
Borrower shall not issue Additional
Equity or warrants for the purchase of
Additional Equity to any Person who,
as a result of such issuance, would
(or could through the exercise of such
warrants) hold more than 39.9% of all
of the issued and outstanding shares
of Borrower's common stock at any time
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as
of the date set forth in the heading to the Agreement.
BORROWER: LENDER:
DURAMED PHARMACEUTICALS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ TIMOTHY J. HOLT By /s/ LYNNE CIACCIA
---------------------------------- ------------------------------------
Its Senior Vice President--Finance Its Authorized Signatory
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement
between DURAMED PHARMACEUTICALS, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
As used in the Agreement, the following terms have the following
meanings:
"ACCOUNT" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the obligor on an Account or Chattel Paper.
"ACCOUNT PROCEEDS" has the meaning set forth in Section 4.1.
"ADDITIONAL EQUITY" means (i) common or other stock of Borrower issued
subsequent to the date of this Agreement with respect to which there are no
rights to receive dividends, rights of redemption or other rights to payments of
any kind (other than rights to receive additional shares of Borrower's common
stock in exchange for such stock) and (ii) other stock of Borrower issued
subsequent to the date of this Agreement with respect to which (A) cash
dividends may only be paid as long as no Default or Event of Default exists or
would be caused by the making of such payments and (B) redemptions (other than
by the issuance of additional shares of Borrower's common stock in exchange for
such stock) and other cash payments may be made only as long as (1) no Default
or Event of Default exists or would be caused by the making of such redemptions
or cash payments, (2) Borrower's Net Availability, after giving effect to each
such redemption or cash payment, will not then be less than $3,000,000 and (3)
Borrower's Cash Flow, after giving affect to each such redemption or cash
payment, will then be greater than $0, and (C) a written subordination agreement
(containing payment subordination, lien subordination and "standstill"
provisions) in favor of Lender, and in form and substance acceptable to Lender,
has been delivered to Lender by the applicable stockholder.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise, PROVIDED, that a shareholder of Borrower shall not be deemed to be an
Affiliate unless such shareholder owns at least five percent (5%) of the stock
of Borrower.
"AGREEMENT" and "THIS AGREEMENT" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
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"ANDA" means an abbreviated new drug application as described in 21
C.F.R. section 314.94.
"AVAILABILITY" has the meaning set forth in Section 1.1(a).
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
section 101 et seq.).
"BLOCKED ACCOUNT" has the meaning set forth in Section 4.1.
"BORROWER" has the meaning set forth in the heading to the Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the heading to the
Agreement.
"BULK INVENTORY" means Inventory which (i) is finished goods in all
respects except for the fact that it has not been packaged by Borrower for
distribution, and (ii) is and has heretofore been commonly referred to by
Borrower as "bulk" or "bulk inventory."
"BUSINESS DAY" means a day other than a Saturday or Sunday or any other
day on which Lender or banks in New York are authorized to close.
"CAPITAL EXPENDITURE ADVANCE" has the meaning set forth in Section
1.1(b).
"CAPITAL EXPENDITURE EQUIPMENT" means Eligible Equipment acquired by
Borrower after the date of this Agreement with Capital Expenditure Advances.
"CAPITAL EXPENDITURES" means amount capitalized (including, without
limitation, with respect to capitalized leases) for the period, as determined in
accordance with GAAP.
"CASH FLOW" means at any time of calculation, on a cumulative basis
from the date of the Agreement through the date of calculation, Borrower's net
income (or net loss) before taxes for such period, plus depreciation and
amortization deducted in determining net income for such period, less Capital
Expenditures for such period not financed, less all current principal maturities
(including, without limitation, the principal portion of scheduled payments of
capital lease obligations) paid or scheduled to be paid during such period, all
as determined by Lender, on a consistent basis, based upon the most recent
financial statements received by Lender from Borrower.
"CE PRODUCT" means the solid oral dosage forms and concentrations or
strengths of the conjugated estrogen product heretofore or hereafter developed
by Borrower, and which will be manufactured by Borrower as a generic equivalent
to the brand name Premarin(R) product, and that Borrower may make available for
commercial sale at any time, but excluding any product that is a combination of
conjugated estrogens with another active ingredient or any product that is
approved by the Federal Drug Administration and marketed on the basis of an NDA.
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"CHATTEL PAPER" has the meaning set forth in the UCC.
"COLLATERAL" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"CREDIT ACCOMMODATION" has the meaning set forth in Section 1.1(a).
"CREDIT ACCOMMODATION BALANCE" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's good faith estimation, likely to
become due in connection therewith.
"DEFAULT" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"DEFAULT RATE" has the meaning set forth in Section 2.1.
"DEPOSIT ACCOUNT" has the meaning set forth in the UCC.
"DILUTION PERCENTAGE" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"DOCUMENT" has the meaning set forth in the UCC.
"EARLY TERMINATION FEE" has the meaning set forth in Section 7.2.
"ELIGIBLE ACCOUNT" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (PROVIDED, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrower). An Account shall be deemed to meet the
current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower; (ii) it does not
remain unpaid more than the earlier to occur of (A) the number of days after the
original INVOICE DATE set forth in Section 5(a) of Schedule A or (B) the number
of days after the original INVOICE DUE DATE set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to Borrower comprising more than 50% of all of the Accounts owing
to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts owing by
the Account Debtor or its Affiliates do not represent more than 20% (or 25% with
respect to Accounts owing by Cardinal Health, Inc.) of all otherwise Eligible
Accounts (PROVIDED, that Accounts which are deemed to be ineligible solely by
reason of this clause (iv) shall be considered Eligible Accounts to the extent
of the amount thereof which does not exceed 20% (or 25% with respect to Accounts
owing by Cardinal Health, Inc.) of all otherwise Eligible Accounts); (v) no
covenant, representation or warranty contained in this Agreement with respect to
such Account (including any of the representations set forth in
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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Section 5.4) has been breached; (vi) the Account is not subject to any contra
relationship, counterclaim, dispute or set-off (PROVIDED, that Accounts which
are deemed to be ineligible solely by reason of this clause (vi) shall be
considered Eligible Accounts to the extent of the amount thereof which is not
affected by such contra relationships, counterclaims, disputes or set-offs);
(vii) the Account Debtor's chief executive office or principal place of business
is located in the United States or Provinces of Canada which have adopted the
Personal Property Security Act or a similar act, unless (A) the sale is fully
backed by a letter of credit, guaranty or acceptance acceptable to Lender in its
sole discretion, and if backed by a letter of credit, such letter of credit has
been issued or confirmed by a bank satisfactory to Lender, is sufficient to
cover such Account, and if required by Lender, the original of such letter of
credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender or
(B) such Account is subject to credit insurance payable to Lender issued by an
insurer and on terms and in an amount acceptable to Lender; (viii) it is
absolutely owing to Borrower and does not arise from a sale on a bill-and-hold,
guarantied sale, sale-or-return, sale-on-approval, consignment, retainage or any
other repurchase or return basis or consist of progress billings; (ix) Lender
shall have verified the Account in a manner satisfactory to Lender; (x) the
Account Debtor is not the United States of America or any state or political
subdivision (or any department, agency or instrumentality thereof), unless
Borrower has complied with the Assignment of Claims Act of 1940 (31 U.S.C.
section 203 et seq.) or other applicable similar state or local law in a manner
satisfactory to Lender; (xi) it is at all times subject to Lender's duly
perfected, first priority security interest and to no other Lien that is not a
Permitted Lien, and the goods giving rise to such Account (A) were not, at the
time of sale, subject to any Lien except Permitted Liens and (B) have been
delivered to and accepted by the Account Debtor, or the services giving rise to
such Account have been performed by Borrower and accepted by the Account Debtor;
(xii) the Account is not evidenced by Chattel Paper or an Instrument of any kind
and has not been reduced to judgment; (xiii) the Account Debtor's total
indebtedness to Borrower does not exceed the amount of any credit limit
established by Borrower or Lender and the Account Debtor is otherwise deemed to
be creditworthy by Lender (PROVIDED, that Accounts which are deemed to be
ineligible solely by reason of this clause (xiii) shall be considered Eligible
Accounts to the extent the amount of such Accounts does not exceed the lower of
such credit limits); (xiv) there are no facts or circumstances existing, or
which could reasonably be anticipated to occur, which might result in any
adverse change in the Account Debtor's financial condition or impair or delay
the collectibility of all or any portion of such Account; (xv) Lender has been
furnished with all documents and other information pertaining to such Account
which Lender has requested, or which Borrower is obligated to deliver to Lender,
pursuant to this Agreement; (xvi) Borrower has not made an agreement with the
Account Debtor to extend the time of payment thereof beyond the time periods set
forth in clause (ii) above; (xvii) Borrower has not posted a surety or other
bond in respect of the contract under which such Account arose; (xviii) the
Account Debtor is not Warner-Lambert Company, unless Warner-Lambert Company has
delivered to Lender a no-offset agreement in form and substance satisfactory to
Lender in its sole discretion;
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and (xix) the Account is not owing with respect to the sale of Premarin(R) or
any conjugated estrogen products which are a generic version of Premarin(R).
"ELIGIBLE EQUIPMENT" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"ELIGIBLE INVENTORY" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (PROVIDED,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen days' prior written
notice to Borrower). Inventory shall be deemed to meet the current general
criteria if (i) it consists of raw materials or finished goods, or Bulk
Inventory that is readily marketable in its current form; (ii) it is in good,
new and saleable condition; (iii) it is not slow-moving, obsolete or
unmerchantable; (iv) it is not in the possession of a processor, consignee or
bailee, or located on premises leased or subleased to Borrower, or on premises
subject to a mortgage in favor of a Person other than Lender, unless such
processor, consignee, bailee or mortgagee or the lessor or sublessor of such
premises, as the case may be, has executed and delivered all documentation which
Lender shall require to evidence the subordination or other limitation or
extinguishment of such Person's rights with respect to such Inventory and
Lender's right to gain access thereto; (v) it meets all standards imposed by any
governmental agency or authority; (vi) it conforms in all respects to any
covenants, warranties and representations set forth in the Agreement; (vii) it
is at all times subject to Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien; (viii) it is situated at an
Inventory Location listed in Section 9(d) of Schedule A or other location of
which Lender has been notified as required by Section 5.6; (ix) it is not
Inventory to be distributed for, or pursuant to any agreement with, Gedeon
Richter, Ltd. ("Gedeon") , unless Gedeon has delivered to Lender an agreement,
in form and substance satisfactory to Lender in its sole discretion, pursuant to
which Gedeon agrees that following the occurrence of an Event of Default, Lender
or its agents will be entitled to dispose of all such Inventory pursuant to the
terms of the Agreement and applicable law, without interference from Gedeon; and
(x) it is not Inventory consisting of Premarin(R) or any conjugated estrogen
products which are a generic version of Premarin(R), unless Schein
Pharmaceutical, Inc. ("SCHEIN") either has delivered to Lender an agreement, in
form and substance satisfactory to Lender in its sole discretion, pursuant to
which Schein subordinates any security interest it may claim in such Inventory
in favor of Lender's security interest therein and agrees not to enforce any
such security interest against such Inventory while any of the Obligations
remain outstanding or Schein has legally terminated any security interest it may
claim in such Inventory pursuant to documentation acceptable to Lender.
"ELIGIBLE REAL PROPERTY" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"EQUIPMENT" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a
non-profit organization or
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governmental subdivision or agency and which are not Inventory, farm products or
consumer goods, including all machinery, molds, machine tools, motors,
furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dies and jigs, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to, or spare parts for,
any of the foregoing.
"EQUIPMENT ADVANCE" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"EUROPE" means "Duramed Europe Ltd.", a Subsidiary of Borrower.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
"GENERAL INTANGIBLES" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
"GOODS" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"INCLUDED SUBORDINATED DEBT" means indebtedness of Borrower which (i)
is incurred subsequent to the date of this Agreement, (ii) is subordinated in
payment to payment of
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the Obligations, (iii) is either unsecured or secured by Lien junior and
subordinate to Lender's Liens upon the Collateral, (iv) may not be enforced
unless and until the Obligations have been paid in full, and (v) is otherwise
subject to a written subordination agreement in favor of Lender in form and
substance acceptable to Lender.
"INITIAL TERM" has the meaning set forth in Section 7.1.
"INSTRUMENT" has the meaning set forth in the UCC.
"INVENTORY" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"INVESTMENT PROPERTY" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"LENDER" has the meaning set forth in the heading to the Agreement.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"LOAN ACCOUNT" has the meaning set forth in Section 2.4.
"LOAN DOCUMENTS" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"LOAN LIMITS" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term Loan.
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"LOCK BOX" has the meaning set forth in Section 4.1.
"MATURITY DATE" has the meaning set forth in Section 7.1.
"MAXIMUM FACILITY AMOUNT" means the amount set forth in Section 1(a) of
Schedule A.
"NDA" means a new drug application under 21 U.S.C. section 355(b)(1) or
an equivalent submission to the Federal Drug Administration.
"NET AVAILABILITY" means the amount of Availability at any time, less
the amount of Borrower's accounts payable which are then more than sixty days
past due, and less the amount of any taxes then due and payable by Borrower.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement or any
other Loan Document, whether arising from an extension of credit, opening of a
Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, Closing Fees, Facility Fees, Servicing Fees, Unused Line Fees,
Minimum Borrowing Fees, Success Fees, Credit Accommodation Fees and any other
sums chargeable to Borrower under this Agreement or under any other Loan
Document.
"OBLIGOR" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"PERMITTED LIENS" means: (i) purchase money security interests in
specific items of Equipment not included in Eligible Equipment of which Borrower
has notified Lender in writing at or prior to the creation thereof; (ii) leases
(under which Borrower is the lessee) of specific items of Equipment not included
in Eligible Equipment of which Borrower has notified Lender in writing at or
prior to the creation thereof; (iii) Liens for taxes not yet due and payable;
(iv) additional Liens which are fully subordinate to the security interests of
Lender and are consented to in writing by Lender; (v) security interests being
terminated concurrently with the execution of this Agreement; (vi) Liens of
materialmen, mechanics, warehousemen or carriers arising in the ordinary course
of business and securing obligations which are not delinquent;
B-8
<PAGE> 53
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
(vii) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clause (i) or (ii)
above; PROVIDED, that any extension, renewal or replacement Lien is limited to
the property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; (ix) security
deposits posted in connection with real property leases or subleases; (x) a
first-priority Lien in favor of Warner-Lambert Company upon Borrower's real
property commonly known as 5040 Duramed Drive, Cincinnati, Ohio 45213; and (xi)
a Lien (the existence of which Borrower disputes and which is currently the
subject of litigation) in favor of Schein in Borrower's right, title and
interest in and to conjugated estrogen tablets which are a generic version of
Premarin(R) (the "PRODUCT"), including, without limitation, all proprietary
information relating to the Product, all information and technology relating
thereto, all manufacturing technology, know-how, formulas, marketing
information, clinical data, studies and analyses relating thereto, all sums
contributed to Borrower by Schein under their June 26, 1992 agreement and in the
possession or control of Borrower, and any Federal Food and Drug Administration
approval of the Abbreviated New Drug Application under the June 26, 1992
agreement between Borrower and Schein. Lender will have the right to require, as
a condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"PRIME RATE" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"REAL PROPERTY" means the real property described in Section 10 of
Schedule A.
"REAL PROPERTY ADVANCE" has the meaning set forth in Section 1.1(b).
"REAL PROPERTY ADVANCE CONDITIONS PRECEDENT" means (i) Borrower shall
have acquired title to the Real Property free and clear of any Liens, (ii)
Borrower shall have granted Lender a first-priority Lien upon the Real Property
pursuant to a mortgage delivered to Lender in form and substance satisfactory to
Lender in its sole discretion, (iii) Borrower shall have caused to be delivered
to Lender a survey of the Real Property in form and substance satisfactory to
Lender in its sole discretion, (iv) Borrower shall have caused to be delivered
to Lender a title insurance
B-9
<PAGE> 54
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
policy on the Real Property in form and substance satisfactory to Lender in its
sole discretion, (v) Borrower shall have caused to be delivered to Lender a fair
market and quick sale value appraisal of the Real Property prepared in
accordance with FIRREA standards and otherwise in form and substance
satisfactory to Lender in its sole discretion, (vi) Borrower shall have caused
to be delivered to Lender a Phase I environmental study of the Real Property in
form and substance satisfactory to Lender in its sole discretion (the "PHASE I
REPORT") demonstrating that the Real Property complies with all current federal,
state and local environmental laws and regulations and that no remediation of
the Real Property is required by any such laws or regulations, (vii) if
indicated by the results of the Phase I Report, Borrower shall have caused to be
delivered to Lender a Phase II environmental study demonstrating that the Real
Property complies with all current federal, state and local environmental laws
and that no remediation of the Real Property is required by any such laws or
regulations, and (viii) Borrower shall have delivered or caused to be delivered
to Lender all such other documents as Lender shall deem necessary in its sole
discretion in connection with the Real Property Advance.
"RELEASED PARTIES" has the meaning set forth in Section 6.1.
"RENEWAL TERM" has the meaning set forth in Section 7.1.
"RESERVES" has the meaning set forth in Section 1.2.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(a).
"SALE" has the meaning set forth in Section 8.2.
"SUBSIDIARY" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"TERM" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the UCC, to the extent such terms are defined
therein. The term "INCLUDING," whenever used in this Agreement, shall mean
"including but not limited to." The singular form of any term shall include the
plural form, and vice versa, when the context so requires.
B-10
<PAGE> 55
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
References to Sections, subsections and Schedules are to Sections and
subsections of, and Schedules to, this Agreement. All references to agreements
and statutes shall include all amendments thereto and successor statutes in the
case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
BORROWER: LENDER:
DURAMED PHARMACEUTICALS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ TIMOTHY J. HOLT By /s/ LYNNE CIACCIA
---------------------------------- ------------------------------------
Its Senior Vice President--Finance Its Authorized Signatory
B-11
<PAGE> 56
NATIONSCREDIT COMMERCIAL FUNDING
- - --------------------------------------------------------------------------------
EXHIBIT A
FORM OF TERM NOTE FOR
CAPITAL EXPENDITURE ADVANCES
$ New York, New York
---------------
------- --, ----
FOR VALUE RECEIVED, the undersigned, Duramed Pharmaceuticals,
Inc., a __________ corporation ("BORROWER"), hereby unconditionally promises to
pay to the order of NationsCredit Commercial Corporation, through its
NationsCredit Commercial Funding Division ("LENDER"), at its office at 1177
Avenue of the Americas, 36th Floor, New York, New York 10036, or at such other
place as the holder of this Term Note ("TERM NOTE") may from time to time
designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of ________________________ and
__/100 Dollars ($____________). Reference is hereby made to the Loan and
Security Agreement between Borrower and Lender of even date herewith (the "LOAN
AGREEMENT") for a statement of the terms and conditions under which the loan
evidenced hereby was made and is to be repaid. This Term Note evidences a
Capital Expenditure Advance described in the Loan Agreement. Capitalized terms
used herein which are not otherwise specifically defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
The outstanding principal balance of this Term Note shall be
payable in full on the Maturity Date. Prior thereto, the Term Note shall be
repayable as set forth in the Loan Agreement.
Borrower further promises to pay interest on the outstanding
principal amount hereof from the date hereof until payment in full hereof at the
per annum rate equal to the Prime Rate in effect from time to time plus
three-quarters of one percent (0.75%). Following the occurrence and during the
continuance of an Event of Default the entire outstanding principal balance of
this Term Note shall, at Lender's option, bear interest until paid in full at a
per annum rate equal to the interest rate applicable to the Term Loan from time
to time in effect plus two percent (2.00%). Until maturity, interest on the
outstanding principal amount hereof shall be payable in arrears on the first day
of each month, commencing [INSERT DATE WHICH IS THE FIRST DAY OF THE CALENDAR
MONTH FOLLOWING THE MONTH IN WHICH SUCH CAPITAL EXPENDITURE ADVANCE WAS MADE]
and on the Maturity Date. After maturity, whether by acceleration or otherwise,
accrued interest
<PAGE> 57
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
shall be payable on demand. Interest as aforesaid shall be charged for the
actual number of days elapsed over a year consisting of three hundred sixty
(360) days on the actual daily outstanding balance hereof. Changes in the
interest rate provided for herein which are due to changes in the Prime Rate
shall be effective on the date of the change in the Prime Rate.
Notwithstanding anything to the contrary contained herein, the
aggregate of all interest hereunder and charged or collected by Lender is not
intended to exceed the highest rate permissible under any applicable law, but if
it should, such interest shall automatically be reduced to the extent necessary
to comply with applicable law and Lender will refund to Borrower any such excess
interest received by Lender.
Subject to Section 7.2 of the Loan Agreement, Borrower may,
prepay the outstanding principal balance hereof in whole or in part. Any partial
prepayment of the Term Loan shall be applied to the unpaid installments of the
Term Loan in the inverse order of their maturities.
Upon and after the occurrence of an Event of Default, this
Term Note may, at the option of Lender, and without demand, notice or legal
process of any kind, be declared, and immediately shall become, due and payable.
Payments received by Lender from Borrower on this Term Note
shall be applied to the Obligations as provided in the Loan Agreement.
Presentment, demand, protest and notice of presentment,
demand, nonpayment and protest are hereby waived by Borrower.
-2-
<PAGE> 58
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
THIS TERM NOTE SHALL BE INTERPRETED, AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. If any provision of this Term Note or the application thereof
shall be held to be void or unenforceable by any court of competent
jurisdiction, such defect shall not affect the remainder of this Term Note,
which shall continue in full force and effect. Whenever in this Term Note
reference is made to Lender or Borrower, such reference shall be deemed to
include, as applicable, a reference to their respective successors and assigns.
The provisions of this Term Note shall be binding upon Borrower and its
successors and assigns, and shall inure to the benefit of Lender and its
successors and assigns.
DURAMED PHARMACEUTICALS, INC.
By:
---------------------------------
Its:
--------------------------------
-3-
<PAGE> 59
NATIONSCREDIT COMMERCIAL FUNDING
- - --------------------------------------------------------------------------------
EXHIBIT B
VEHICLE TITLES
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
COUNTY/
NAME OF CURRENT STATE WHERE BODY CURRENT
OWNER TITLED MAKE YEAR MODEL STYLE VIN TITLE NUMBER
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Duramed Hamilton INTL 1994 470 TK 1HTSCACM7RH598531 3100411273
Pharmaceuticals County, Ohio
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 60
NATIONSCREDIT COMMERCIAL FUNDING
- - --------------------------------------------------------------------------------
EXHIBIT C
SCHEIN LITIGATION
Duramed Pharmaceuticals, Inc. (the "COMPANY") is a party to an
Agreement dated June 26, 1992 and amended on April 7, 1994 (the "SCHEIN
AGREEMENT") with Schein Pharmaceutical, Inc. ("SCHEIN") relating to the
development of a generic version of the conjugated estrogens product
Premarin(R). On August 7, 1997, the Company filed a complaint for a declaratory
judgment against Schein in the Court of Common Pleas, Hamilton County, Ohio,
Case No. A9705498 ("OHIO ACTION"). The Company seeks a declaration that the
Schein Agreement applies only to a product approved on the basis of an ANDA and
which would be fully substitutable for Premarin(R) and that the Schein Agreement
does not apply to the Company's efforts to develop or market any conjugated
estrogens product which would be approved and marketed on the basis of an NDA.
In apparent response to the Company's action, on September 29,
1997, Schein filed a complaint against the Company and other unnamed defendants
in the Superior Court of New Jersey, Chancery Division, Morris County, Docket
No. MRS-C-187-97 ("NEW JERSEY ACTION"). Schein alleges that the Company breached
its obligations to Schein under an alleged joint venture arising between the
parties and that the unnamed defendants tortuously interfered with Schein's
prospective business advantage and are liable to Schein. Schein seeks various
forms of relief against the Company, including injunctions barring the Company
from the development of a conjugated estrogens product with any person or
company other than Schein and requiring specific performance from the Company
according to the terms of the Schein Agreement and alleged joint venture and
accounting and money damages and a constructive trust.
On October 9, 1997, Schein filed a motion to dismiss the Ohio
action based upon the pending New Jersey action. The court denied this motion on
November 13, 1997. On October 17, 1997, the Company filed a motion to dismiss
or, in the alternative, to stay the New Jersey action because of the
previously-filed Ohio action. On November 14, 1997, the New Jersey court granted
the Company's motion in part and stayed the New Jersey action.
On January 30, 1998, Schein amended its answer in the Ohio
action and asserted a counterclaim against the Company and other unnamed
defendants similar to the New Jersey complaint. As a result, on March 4, 1998,
the Company renewed its motion to dismiss the New Jersey action because Schein
had brought the same basic claims as a
<PAGE> 61
NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
counterclaim in the Ohio action. On April 17, 1998, the Court dismissed without
prejudice the New Jersey action.
On September 11, 1998, both the Company and Schein filed cross
motions for summary judgment. These motions have been fully briefed and are
pending before the Court. The case currently is scheduled to go to trial on
November 30, 1998.
The Company intends vigorously to prosecute its claim for
declaratory relief in the Ohio action and vigorously to defend against Schein's
counterclaim in the Ohio action; however, the outcome of these claims cannot be
predicted with certainty.
-2-
<PAGE> 62
NATIONSCREDIT COMMERCIAL FUNDING
- - --------------------------------------------------------------------------------
EXHIBIT D
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT
The following table sets forth, as of July 9, 1998, certain
information with regard to the beneficial ownership of Common Stock of Duramed
Pharmaceuticals, Inc. (the "COMPANY") by (i) each of the Company's stockholders
known to hold more than 5% of the outstanding shares of Common Stock, (ii) each
continuing director, nominee for director and named executive officer,
individually, and (iii) all continuing directors, nominees and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------
Name Number of Shares (1) Percent
- - ---- -------------------- -------
<S> <C> <C>
E. Thomas Arington 1,945,209 10.2%
7155 East Kemper Road
Cincinnati, OH 45249
Jeffrey T. Arington 156,833 *
George W. Baughman 73,000 *
Peter R. Seaver -- --
S. Sundararaman 218,716 1.2%
Timothy J. Holt 123,981 *
All directors, nominees and executive 2,517,739 13.0%
officers as a group
(6 persons)
</TABLE>
- - ---------------
* Less than one percent.
<PAGE> 63
NATIONSCREDIT COMMERCIAL FUNDING
- - --------------------------------------------------------------------------------
EXHIBIT E
DESCRIPTION OF REAL PROPERTY
BEGINNING at a point in the Southeasterly line of Cottontail
Lane as established Twenty (20') feet in width, where the same is intersected by
the Northeasterly line of lands now or formerly of Martin Roppolo and wife;
thence running (1) North Twenty-one degrees Twenty-two minutes East (N.
21(Degree) 22' E.) along the Southeasterly line of Cottontail Lane, Three
Hundred Two and Seven-tenths (302.7') feet; thence (2) South sixty-nine degrees
Four minutes East (S. 69(Degree) 04' E.), Twenty (20') feet; thence (3) North
Twenty-one degrees Twenty-two minutes East (N. 21(Degree) 22' E.) continuing
along the Southeasterly line of Cottontail Lane as established Forty (40') feet
in width, Three Hundred Twenty and One one-hundredth (320.01') feet to the
Westerly line of Campus Drive, as established Sixty (60') feet in width; thence
(4) Southerly along said Westerly line of Campus Drive, on a curve to the left,
said curve having a radius of Five Hundred Thirty (530') feet and an arc length
of Seventy-one and Eighty-eight one-hundredths (71.88') feet to a point of
tangent (the chord of said arc having a bearing of South Ten degrees
Twenty-seven minutes Forty-three seconds East (S. 10(Degree) 27' 43" E.) and a
length of Seventy-one and Eighty-two one-hundredths (71.82') feet); thence (5)
South Fourteen degrees Twenty minutes Fifty seconds East (S. 14(Degree) 20' 50"
E.) along Campus Drive, Six Hundred Forty and Sixty-three one-hundredths
(640.63') feet; thence (6) South Twenty-one degrees Twenty-two minutes West (S.
21(Degree) 22' W.) along lands now or formerly of Martin Roppolo, Thirty-eight
and Forty-one one-hundredths (38.41') feet; thence (7) North Sixty-nine degrees
Four minutes West (N. 69(Degree) 04' W.) along said last mentioned lands, Four
Hundred Thirty-one and Eighty-five one-hundredths (431.85') feet to the place of
Beginning.
Containing Three and Two Hundred Twenty-seven one-thousandths
(3.227) Acres of land.
Being known as Lot 9 in Block 517 as shown on the Tax Map of
Franklin Township, New Jersey.
<PAGE> 1
Merrill Lynch No. 9808880201
================================================================================
$8,500,000.00 October 1, 1998
TERM WCMA(R) NOTE
FOR VALUE RECEIVED, DURAMED PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware ("Customer"), hereby promises
to pay to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a
corporation organized and existing under the laws of the State of Delaware
("MLBFS"), in lawful money of the United States, the principal sum of
$8,500,000.00, or, if more or less, an amount equal to the sum of the principal
balances from time to time outstanding under the "Term Note" and "WCMA Note"
included herein, plus accrued and unpaid interest thereon and any other charges
hereinafter set forth or payable in accordance with the terms of the Loan
Agreement, as follows:
DEFINITIONS
In addition to terms defined elsewhere in this Note, as used herein, the
following terms shall have the following meanings:
(i) "Closing Date" shall mean the date of the first
advancement of funds hereunder.
(ii) "Excess Interest" shall mean any amount of interest in excess
of the maximum amount of interest permitted to be charged by law.
(iii) "Initial Loan Amount" shall mean an amount equal to the sum of:
(a) the amount advanced on the Closing Date on account of the Term Note, and
(b) the Maximum WCMA Line of Credit immediately after activation of the WCMA
Line of Credit on the Closing Date.
(iv) "Interest Rate" shall mean a variable per annum rate equal to
the sum of (i) 2.65% per annum, and (ii) the interest rate from time to time
published in the "Money Rates" section of The Wall Street Journal for
30-day high-grade unsecured notes sold through dealers by major corporations
(the "30-Day Commercial Paper Rate"). The Interest Rate will change as of the
date of publication in The Wall Street Journal of a 30-Day Commercial Paper Rate
that is different from that published on the preceding Business Day. In the
event that The Wall Street Journal shall, for any reason, fail or cease to
publish the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate.
(v) "Loan Agreement" shall mean that certain TERM WCMA LOAN
AGREEMENT NO.9808880201 between Customer and MLBFS, as the same may have been or
may hereafter be amended or supplemented.
(vi) "Note" shall mean this TERM WCMA NOTE.
Capitalized terms used herein and not defined herein shall have the meaning set
forth in the Loan Agreement. Without limiting the foregoing, the terms
"Additional Agreements", "Bankruptcy Event", "Event of Default" and "WCMA Loan
Balance" shall have the meanings set forth in the Loan Agreement.
TERM NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, in
lawful money of the United States, an amount equal to the outstanding principal
balance of the term portion of the Term WCMA Loan, as increased from time to
time by additional fundings pursuant to the provisions of Section 2.2(c) of the
Loan Agreement (the "Term Note Balance"); together with interest on the Term
Note Balance, from the date of advancement of funds hereunder until payment, at
the Interest Rate.
Said indebtedness shall be payable in 120 consecutive monthly installments
commencing on the first day of the second calendar month following the Closing
Date, and continuing on the first day of each calendar month thereafter until
this Note shall be paid in full. The first 119 such installments shall each be
in an amount equal to the sum of (i) accrued and unpaid interest at the Interest
Rate (with the first such
<PAGE> 2
installment including interest accrued from the Closing Date), and (ii) 1/240th
of the Initial Loan Amount, and the 120th installment shall be a balloon in an
amount equal to the sum of all accrued and unpaid interest hereunder, the then
unpaid principal balance hereof and all other sums then payable hereunder. Each
payment received hereunder shall be applied first to any fees and expenses of
MLBFS payable by customer under the terms of the Loan Agreement, next to any
late charges payable hereunder, next to accrued and unpaid interest at the
Interest Rate, with the balance applied on account of the unpaid principal
hereof. All sums payable hereunder shall be payable at the office of MLBFS at 33
West Monroe Street, Chicago, Illinois 60603, or at such other place or places as
the holder hereof may from time to time appoint in writing.
WCMA NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in the Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the WCMA Maturity Date, the then WCMA Loan Balance; and (b)
interest at the Interest Rate on the outstanding WCMA Loan Balance, from and
including the date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full. Interest shall be payable in the manner and
on the dates specified in, or determined in accordance with, the Loan Agreement.
PROVISIONS APPLICABLE TO BOTH TERM NOTE AND WCMA NOTE
Customer may prepay this Note at any time in whole or in part without premium or
penalty. Any partial prepayment of the Term Note included herein shall be
applied to installments of the funded portion of the Term Note in inverse order
of maturity. Customer shall not have the right to reborrow amounts prepaid on
account of the Term Note.
Any part of the principal hereof or interest hereon or other sums payable
hereunder or under the Loan Agreement not paid within ten (10) days of the
applicable due date shall be subject to a late charge equal to the lesser of (i)
5% of the overdue amount, or (ii) the maximum amount permitted by law. All
interest shall be computed on the basis of actual days elapsed over a 360-day
year.
This Term WCMA Note constitutes and includes both the "Term Note" and the "WCMA
Note" referred to in, and is entitled to all of the benefits of the Loan
Agreement and any Additional Agreements. The Loan Agreement is by this reference
hereby incorporated as a part hereof.
If Customer shall fail to pay when due any installment or other sum due
hereunder, and any such failure shall continue for more than five(s) Business
Days after written notice thereof from the holder hereof to Customer, or if any
other Event of Default shall occur and be continuing, then at the option of the
holder hereof (or, upon the occurrence of any Bankruptcy Event, automatically,
without any action on the part of the holder hereof), and in addition to all
other rights and remedies available to such holder under the Loan Agreement, any
Additional Agreements, and otherwise, an amount equal to the sum of the WCMA
Loan Balance and the Term Note Balance at such time remaining unpaid, together
with all accrued and unpaid interest thereon and all other sums then owing by
Customer under the Loan Agreement, may be declared to be and thereby become
immediately due and payable.
It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Term WCMA Note at or after maturity, whether by acceleration or otherwise, or
shall affect the obligation of customer, which is also unconditional and
absolute, to pay the sums payable under this Term WCMA Note in accordance with
its terms. Except as otherwise expressly set forth herein or in the Loan
Agreement, Customer hereby waives presentment, demand for payment, protest and
notice of protest, notice of dishonor, notice of acceleration, notice of intent
to accelerate and all other notices and formalities in connection with this Term
WCMA Note.
Wherever possible each provision of this Term WCMA Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Term WCMA Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
-2-
<PAGE> 3
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Term WCMA Note. Notwithstanding any provision to the contrary
in this Term WCMA Note, the Loan Agreement or any of the Additional Agreements,
no provision of this Term WCMA Note, the Loan Agreement or any of the Additional
Agreements shall require the payment or permit the collection of any Excess
Interest. If any Excess Interest is provided for, or is adjudicated as being
provided for, in this Term WCMA Note, the Loan Agreement or any of the
Additional Agreements, then: (a) Customer shall not be obligated to pay any
Excess Interest; and (b) any Excess Interest that MLBFS may have received under
this Term WCMA Note, the Loan Agreement or any of the Additional Agreements
shall, at the opinion of MLBFS, be (i) applied as a credit against the then
unpaid principal balance of this Term WCMA Note, or accrued and unpaid interest
hereon not to exceed the maximum amount permitted by law, or both, (ii) refunded
to the payor thereof, or (iii) any combination of the foregoing.
This Term WCMA Note shall be construed in accordance with the laws of the State
of Illinois and may be enforced by the holder hereof in any jurisdiction in
which the Loan Agreement may be enforced.
IN WITNESS WHEREOF, this Term WCMA Note has been executed by Customer as of the
day and year first above written.
DURAMED PHARMACEUTICALS, INC.
By: /s/ Timothy J. Holt
- - --------------------------------------------------------------------------------
Signature (1) Signature (2)
Timothy J. Holt
- - --------------------------------------------------------------------------------
Printed Name Printed Name
Senior Vice President - Finance
- - --------------------------------------------------------------------------------
Title Title
-3-
<PAGE> 1
MERRILL LYNCH Term WCMA(R)Loan Agreement
================================================================================
TERM WCMA LOAN AGREEMENT NO. 9808880201 ("Loan Agreement") dated as of October
1, 1998 between DURAMED PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
5040 Duramed Drive, Cincinnati, OH 45213 ("Customer"), and MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the
laws of the State of Delaware having its principal office at 33 West Monroe
Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 636-07L06 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith, Customer
has requested that MLBFS make the Term WCMA Loan hereinafter described (the
"Loan"); and, subject to the terms and conditions herein set forth, MLBFS has
agreed to make the Loan to Customer.
The Loan combines the equivalent of ten successive one-year term loans, each
equal to that portion of the Loan which will be fully amortized in the ensuing
year, with a line of credit under the WCMA Program "WCMA Line of Credit") equal
to that portion of the Loan which will not be amortized in the ensuing year.
Subject to the terms hereof, each year after the initial funding there will be
an additional funding on account of the term portion of the Loan, with the
proceeds deposited into Customer's WCMA Account concurrently with a
corresponding reduction in the Maximum WCMA Line of Credit.
This structure provides Customer with substantially the same initial funding and
loan amortization as a conventional term loan. However, unlike most conventional
term loans, it permits both a prepayment in whole or in part at any time, and,
subject to the terms and conditions herein set forth, a reborrowing on a
revolving basis of any such amounts prepaid on account of the WCMA Line of
Credit portion of the Loan. The structure of the Loan therefore enables Customer
at its option to use any free cash balances that it may have from time to time
to reduce interest expense on the line of credit portion of the Loan without
impairing its working capital.
Accordingly and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations, and shall
include, without limitation, the Term WCMA Note.
(b) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to any Customer or any
Guarantor; or (ii) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (iii) Customer or any Guarantor shall make a general assignment for
the benefit of creditors; or (iv) Customer or any Guarantor shall generally fail
to pay or admit in writing its inability to pay its debts as they become due; or
(v) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent.
(c) "Business Day" shall mean any day other then a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
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(d) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the Loan shall have been met to the satisfaction of
MLBFS.
(e) "Commitment Expiration Date" shall mean November 1, 1998.
(f) "Commitment Fee" shall mean a fee of $42,500.00 due to MLBFS in connection
with this Loan Agreement.
(g) "Default" shall mean an "Event of Default" as defined in Section 4A hereof,
or an event which with the giving of notice, passage of time, or both, would
constitute such an Event of Default.
(h) "General Funding Conditions" shall mean each of the following conditions to
any advance by MLBFS hereunder: (i) no Default shall have occurred and be
continuing or would result from the making of such loan or advance hereunder by
MLBFS, (ii) there shall not have occurred and be continuing any material adverse
change in the business or financial condition of Customer or any Guarantor;
(iii) all representations and warranties of Customer or any Guarantor herein or
in any Additional Agreements shall then be true and correct in all material
respects; (iv) MLBFS shall have received this Loan Agreement and all Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (v) the
Commitment Fee shall have been paid in full; (vi) MLBFS shall have received, as
and to the extent applicable, copies of invoices, bills of sale, loan payoff
letters and/or other evidence reasonably satisfactory to it that the proceeds of
the Loan will satisfy the Loan Purpose; (vii) MLBFS shall have received evidence
reasonably satisfactory to it as to the ownership of and the perfection and
priority of MLBFS' liens and security interests on any collateral for the
Obligations furnished pursuant to any of the Additional Agreements; and (viii)
any additional conditions specified in the "Term WCMA Approval" letter executed
by MLBFS with respect to the transactions contemplated hereby shall have been
met to the reasonable satisfaction of MLBFS.
(i) "Guarantor" and "Business Guarantor" shall mean WARNER-LAMBERT COMPANY, a
Delaware corporation.
(j) "Interest Due Date" shall mean, with respect to the WCMA Line of Credit, the
last Business Day of each calendar month during the term hereof (or, if Customer
makes special arrangements with MLPF&S, the last Friday of each calendar month
during the term hereof).
(k) "Interest Rate" shall have the meaning set forth in the Term WCMA Note.
(l) "Loan Amount" shall mean an amount equal to the lesser of (i) 100% of the
amount required by Customer to satisfy or fulfill the Loan Purpose, (ii) the
aggregate amount which Customer shall request be advanced by MLBFS on account of
the Loan Purpose, or (iii) $8,500,000.00.
(m) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit to refinance an existing mortgage at Provident Bank.
(n) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be reduced from time to time in accordance with the
terms hereof.
(o) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and the Term
WCMA Note.
(p) "Term WCMA Note" shall mean and refer to the Term WCMA Note executed by
Customer and dated as of the date hereof which incorporates both a WCMA Note
evidencing amounts owing on account of the
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WCMA Line of Credit portion of the Loan, and a Term Note evidencing amounts
owing on account of the term portion of the Loan.
(q) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 636-07L06 and any
successor WCMA account.
(r) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit.
(s) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
Article II. THE LOAN
2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. Unless otherwise hereafter agreed by MLBFS, the entire proceeds of the
Loan will be disbursed either directly to the applicable third party or parties
on account of the Loan Purpose or to reimburse Customer for amounts directly
expended by it; all as directed by Customer in a Closing Certificate to be
executed and delivered to MLBFS prior to the date of funding.
2.2 Operation of Loan.
(a) Term WCMA Note. The Loan will be evidenced by and shall be repayable in
accordance with the terms of the Term WCMA Note and this Loan Agreement. The
Term WCMA Note combines two promissory notes, one evidencing the term portion of
the Loan (the "Term Note") and the other evidencing the WCMA Line of Credit
portion of the Loan (the "WCMA Note"). The balance owing by Customer on account
of the Loan at any time shall be an amount equal to the sum of the then
outstanding balances under the WCMA Note and the Term Note included in the Term
WCMA Note. The Term WCMA Note is hereby incorporated as a part hereof.
(b) Term Note Principal. The principal balance owing under the Term Note at any
time shall be an amount equal to the unpaid portion of the amount funded from
time to time on account of the Term Note, as hereinafter provided. So long as
there shall be any moneys owing by Customer to MLBFS hereunder or there shall be
a WCMA Line of Credit, no reduction in the unpaid principal balance of the Term
Note to zero shall be deemed a payment of the Term Note in full or an
extinguishment of any of the obligations of Customer thereunder or hereunder.
(c) Term Note Funding. Subject to the terms hereof, the Term Note will be funded
by MLBFS in ten annual installments, with the first nine installments each equal
to one-twentieth of the Loan Amount, and the final installment equal to
eleven-twentieths of the Loan Amount. The first one-twentieth installment funded
by MLBFS will be funded on the Closing Date and applied on account of the Loan
Purpose, as aforesaid. Subsequent installments will be funded on a date chosen
by MLBFS in its sole discretion which will be on or within two weeks before or
after each subsequent anniversary of the last day of the calendar month in which
the Closing Date occurs (each, a "Subsequent Funding Date"). Each Term Note
funding after the first shall be deposited into Customer's WCMA Account.
(d) Activation of WCMA Line. On the Closing Date, MLBFS will activate and make
available as an integral part of the Loan a WCMA Line of Credit equal to
nineteen-twentieths of the Loan Amount, all of which will be immediately
disbursed on account of the Loan Purpose as part of the Loan in accordance with
the directions of Customer set forth in the Closing Certificate, as aforesaid.
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(e) Subsequent Fundings. On the first Subsequent Funding Date, concurrently with
MLBFS' funding of the second installment of the debt evidenced by the Term Note
into the WCMA Account, the Maximum WCMA Line of Credit will be reduced to an
amount equal to eighteen-twentieths of the Loan Amount. On the second Subsequent
Funding Date, the Maximum WCMA Line of Credit will be reduced to an amount equal
to seventeen-twentieths of the Loan Amount; on the third Subsequent Funding Date
the Maximum WCMA Line of Credit will be reduced to an amount equal to
sixteen-twentieths of the Loan Amount; on the fourth Subsequent Funding Date the
Maximum WCMA Line of Credit will be reduced to an amount equal to
fifteen-twentieths of the Loan Amount; on the fifth Subsequent Funding Date, the
Maximum WCMA Line of Credit will be reduced to an amount equal to
fourteen-twentieths of the Loan Amount; on the sixth Subsequent Funding Date,
the Maximum WCMA Line of Credit will be reduced to an amount equal to
thirteen-twentieths of the Loan Amount; on the seventh Subsequent Funding Date,
the Maximum WCMA Line of Credit will be reduced to an amount equal to
twelve-twentieths of the Loan Amount; and on the eighth Subsequent Funding Date,
the Maximum WCMA Line of Credit will be equal to an amount equal to
eleven-twentieths of the Loan Amount.
(f) WCMA Maturity Date. On the ninth Subsequent Funding Date (the "WCMA Maturity
Date"), the WCMA Line of Credit will be terminated and the WCMA Account, at the
option of Customer, will either be converted to a WCMA Cash Account (subject to
any requirements of MLPF&S) or terminated.
2.3 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligation to
make the Loan on the Closing Date are subject to the prior fulfillment of each
of the following conditions: (a) MLBFS shall have received a written request
from Customer that the Loan be funded in accordance with the terms hereof,
together with a written direction from Customer as to the method of payment and
payee(s) of the proceeds of the Loan, which request and direction shall have
been received by MLBFS not less than two Business Days prior to any requested
funding date; (b) the Commitment Expiration Date shall not then have occurred;
and (c) each of the General Funding Conditions shall then have been met or
satisfied to the reasonable satisfaction of MLBFS.
2.4 Conditions of Subsequent Fundings. The obligation of MLBFS to fund
installments of the term portion of the Loan on any Subsequent Funding Date
shall be subject to each of the conditions specified in Section 2.3(c) hereof
being met at such date and the further condition that all payments due under the
Term Note on or prior to any Subsequent Funding Date shall have been paid in
full provided, however, that notwithstanding the failure of any such conditions
to have been met, MLBFS may in its sole discretion fund such installment and/or
any other installments, and no such funding shall constitute a waiver by MLBFS
of any of its rights hereunder or under any of the Additional Agreements.
Without limiting the foregoing, it is understood that no funding by MLBFS of any
sum hereunder while a Default shall have occurred and is continuing shall under
any circumstances be deemed a waiver by MLBFS of such Default, or a waiver of
any of MLBFS' rights hereunder.
2.5 Acknowledgments of Customer. Customer acknowledges, covenants and agrees
that:
(a) Payment of WCMA Interest; Additional Deposits. Under the terms of this Loan
Agreement, interest accrued on amounts outstanding on the WCMA Line of Credit
each month will, subject to the terms hereof, be paid from the proceeds of a
borrowing of an additional sum under the WCMA Line of Credit. Because all or
substantially all of the Maximum WCMA Line of Credit will ordinarily be drawn on
the Closing Date, Customer agrees that it will, without demand, invoicing or the
request of MLBFS, from time to time make sufficient deposits into the WCMA
Account in order to assure that the Maximum WCMA Line of Credit is not exceeded.
Installments of principal and interest under the Term Note shall be paid
directly to MLBFS in accordance with the terms of the Term Note.
(b) Additional Interest Charges. SUBJECT TO THE TERMS HEREOF, ON EACH SUBSEQUENT
FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA ACCOUNT. DUE TO
POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN RECOGNITION OF DEPOSITS
INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE CREDIT FOR THE AMOUNT
DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN AN INTEREST CHARGE FOR
THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA ACCOUNT. ON THE OTHER HAND,
BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL
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OF THE FUNDS THAT IT LENDS ON THE DATE OF FUNDING, IT MUST CHARGE INTEREST ON
THE AMOUNT FUNDED ON EACH SUBSEQUENT FUNDING DATE FROM THE DATE OF ITS DEPOSIT
INTO THE WCMA ACCOUNT, WHETHER OR NOT SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED.
THE TIMING DIFFERENCES BETWEEN THE DATE OF DEPOSIT AND DATE OF RECOGNITION OF
THE DEPOSIT IN THE WCMA ACCOUNT WILL THEREFORE RESULT IN EXTRA INTEREST CHARGES
TO CUSTOMER, WHICH CUSTOMER ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND
HEREBY UNCONDITIONALLY AGREES TO PAY.
2.6 Commitment Fee. In consideration of the agreement by MLBFS to extend the
Loan to Customer in accordance with and subject to the terms hereof, Customer
has paid or shall, on or before the Closing Date pay, the Commitment Fee to
MLBFS. Customer acknowledges and agrees that the Commitment Fee has been fully
earned by MLBFS, and that it will not under any circumstances be refundable.
Article III. THE WCMA LINE OF CREDIT
3.1 WCMA Note.
All amounts owing under the WCMA Line of Credit shall be deemed owing under and
evidenced by the WCMA Note included in the Term WCMA Note.
3.2 WCMA Loans.
(a) Loan Commitment and Requests. Subject to the terms and conditions hereof:
(i) on the Closing Date, MLBFS will make a WCMA Loan to Customer in an amount
equal to the Maximum WCMA Line of Credit the entire proceeds of which will be
disbursed on account of the Loan Purpose, as aforesaid; and (ii) during the
Period from and after the Closing Date to the WCMA Maturity Date: (x) Customer
may repay said WCMA Loan and any other WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid on
a revolving basis, and (y) in addition to WCMA Loans automatically made to pay
accrued interest, as herein provided, MLBFS will make such additional WCMA Loans
as Customer may from time to time request in accordance with the terms hereof.
Customer may request WCMA Loans by use of WCMA Checks, FTS, Visa? charges, wire
transfers, or such other means of access to the WCMA Line of Credit as may be
permitted by MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account
which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.
(b) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) an event shall have occurred and be continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(c) Limitation of Liability. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
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(d) Interest. (i) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Closing Date
shall occur. Unless otherwise hereafter directed in writing by MLBFS on or after
the first to occur of the WCMA Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof, such interest will be
automatically charged to the WCMA Account on the applicable Interest Due Date,
and, to the extent not paid with free credit balances or the proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by a
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(ii) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (A) Customer shall not be obligated to pay any Excess
Interest; and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall at the option of MLBFS, be: (1)
applied as a credit against the then unpaid WCMA Loan Balance, (2) refunded to
the payer thereof, or (3) any combination of the foregoing.
(e) Payments. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. The acceptance by or on behalf of MLBFS of a check or other payment
for a lesser amount than shall be due from Customer, regardless of any
endorsement or statement thereon or transmitted therewith, shall not be deemed
an accord and satisfaction or anything other than a payment on account, and
MLBFS or anyone acting on behalf of MLBFS may accept such check or other payment
without prejudice to the rights of MLBFS to recover the balance actually due or
to pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
Loan and WCMA Line of Credit are subject to final collection.
(f) Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(g) Irrevocable Instructions to MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Agreement shall be
in effect: (i) to immediately and prior to application for any other purpose pay
to MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (ii) if such available free credit balances are insufficient
to pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other then any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
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Article IV. GENERAL PROVISIONS
4.1 Representations and Warranties.
Customer represents and warrants to MLBFS that:
(a) Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (ii) do not
and will not breach or violate any of the provisions of, and will not result in
a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.
(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement, the Term WCMA Note and the other
Additional Agreements to which it is a party.
(d) Enforceability. This Loan Agreement, the Term WCMA Note and such of the
other Additional Agreements to which Customer or any Guarantor is a party are
the respective legal, valid and binding obligations of Customer and such
Guarantor, enforceable against it or them, as the case may be, in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy and other similar laws affecting the rights of creditors generally or
by general principles of equity.
(e) Financial Statements. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(f) Litigation. To the knowledge of customer no litigation, arbitration,
administrative or governmental proceedings are pending or threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(g) Tax Returns. To the knowledge of Customer, all federal, state and local tax
returns, reports and statements required to be filed by Customer and each
Guarantor have been filed with the appropriate governmental agencies and all
taxes due and payable by Customer and each Guarantor have been timely paid
(except to the extent that any such failure to file or pay will not materially
and adversely affect either the liens and security interests of MLBFS hereunder
or under any of the Additional Agreements, the financial condition of Customer
or any Guarantor, or the continued operations of Customer or any Business
Guarantor).
For the purpose of making the foregoing representations and warranties as the
same pertain to Guarantor, Customer has made no investigation or inquiry to
determine the accuracy of the same. It is understood, nevertheless, that the
breach of any such representations and warranties as they pertain to Guarantor
shall
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constitute an Event of Default hereunder notwithstanding the failure of Customer
to make investigation or inquiry. Each of the foregoing representations and
warranties: (i) has been and will be relied upon as an inducement to MLBFS to
make the Loan, and (ii) is continuing and shall be deemed remade by Customer on
the Closing Date, on each Subsequent Funding Date and concurrently with each
request for a WCMA Loan.
4.2 Financial and Other Information.
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer and each Business Guarantor, Customer shall furnish or cause to
be furnished to MLBFS: (i) a copy of the annual audited financial statements of
Customer and each Business Guarantor, consisting of at least a balance sheet as
at the close of such fiscal year and related statements of income, retained
earnings and cash flows, certified by its current independent certified public
accountants or other independent certified public accountants reasonably
acceptable to MLBFS, and (ii) a copy of Customer's and each Business Guarantor's
10-K report, when and as filed with the Securities Exchange Commission.
(b) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer and each Business Guarantor, Customer shall furnish or cause
to be furnished to MLBFS: a copy of Customer's and each Business Guarantor's
10-Q report, when and as filed with the Securities Exchange Commission.
(c) Other Information. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or any Guarantor.
4.3 Other Covenants. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) Financial Records; Inspection. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, the financial condition of Customer or any
Guarantor or the continued operations of Customer or any Business Guarantor.
(c) Compliance With Laws and Agreements. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either any liens and
security interests of MLBFS under any Additional Agreements, the financial
condition of Customer or any Guarantor, or the continued operations of customer
or any Business Guarantor.
(d) Use of Loan Proceeds; Securities Transactions. The proceeds of the Loan
(including the initial WCMA Loan) shall be used by Customer solely for the Loan
Purpose or, with the prior written consent of MLBFS, for other lawful business
purposes of Customer not prohibited hereby. The proceeds of each WCMA Loan other
than the initial WCMA Loan shall be used by Customer solely for working capital
in the ordinary course of Customer's business or with the prior written consent
of MLBFS, for other lawful business purposes of Customer not prohibited hereby.
Customer agrees that under no circumstances will the Loan or funds borrowed from
MLBFS through the Term WCMA Line of Credit be used: (i) for personal, family or
household purposes of any person whatsoever, or (ii) to purchase, carry or trade
in securities, or repay debt incurred to purchase, carry or trade in securities,
whether in or in connection with the WCMA Account,
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<PAGE> 9
another account of Customer with MLPF&S or an account of Customer at any other
broker or dealer in securities.
(e) Notification By Customer. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; and (iii) any information which indicates that any financial
statements of Customer or any Guarantor fail in any material respect to present
fairly the financial condition and results of operations purported to be
presented in such statements. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the event or information being taken to rectify
or remedy such event or information.
(f) Notice of Change. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(g) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor or, (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdiction(s) of
establishment and operation; (iii) neither Customer nor any Business Guarantor
shall engage in any material business substantially different from their
respective business in effect as of the date of application by Customer for
credit from MLBFS, or cease operating any such material business; (iv) neither
Customer nor any Business Guarantor shall cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer
or such Business Guarantor, and (v) neither Customer nor any Business Guarantor
shall cause or permit any material change in its controlling ownership.
4.4 Events of Default.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Exceeding the Maximum WCMA Line of Credit. If the WCMA Loan Balance shall at
anytime exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within 5 Business Days after the receipt
by Customer of the first to be received of either: (i) any written notice
thereof from MLBFS, or (ii) a statement from MLPF&S showing a WCMA Loan Balance
in excess of the Maximum WCMA Line of Credit.
(b) Other Failure to Pay. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by customer under this Loan Agreement or the Term WCMA Note, or shall
fail to pay when due any other Obligations, and any such failure shall continue
for more then five (5) Business Days after written notice thereof shall have
been given by MLBFS to Customer.
(c) Failure to Perform. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements (not constituting an Event of Default under any
other clause of this Section), and such default shall continue unremedied for
ten (10) Business Days after written notice thereof shall have been given by
MLBFS to Customer.
(d) Breach of Warranty. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement, the Term WCMA Note or any of the
other Additional Agreements shall at any time prove to have been incorrect in
any material respect when made.
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<PAGE> 10
(e) Default Under Other Agreement. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(f) Bankruptcy Event. Any Bankruptcy Event shall occur.
(g) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements to which Customer or such Guarantor is a party has been
materially impaired. The existence of such a material impairment shall be
determined in a manner consistent with the intent of Section 1-208 of the UCC.
(h) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
4.5 Remedies.
(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice: (a) terminate its obligation to make
the Loan (if the Loan has not then been funded), or fund any further amount on
account of the Term WCMA Note, (b) terminate the WCMA Line of Credit, and (c)
terminate any obligation to otherwise extend any credit to or for the benefit of
Customer (it being understood, however, that upon the occurrence of any
Bankruptcy Event the WCMA Line of Credit and all such obligations shall
automatically terminate without any action on the part of MLBFS); and upon any
such termination MLBFS shall be relieved of all such obligations.
(ii) Acceleration. MLBFS may declare the principal of and interest on the Term
Note and WCMA Note included in the Term WCMA Note, and all other obligations to
be forthwith due and payable, whereupon all such amounts shall be immediately
due and payable, without presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate or other notice or formality of any kind, all of which are hereby
expressly waived; provided, however, that upon the occurrence of any Bankruptcy
Event all such principal, interest and other obligations shall automatically
become due and payable without any action on the part of MLBFS.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, all securities
accounts with MLPF&S and all cash and securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Customer hereby
collaterally assigns and grants to MLBFS a continuing security interest in all
such property as additional security for the Obligations. Upon the occurrence
and during the continuance of an Event of Default, MLBFS shall have all rights
in such property available to collateral assignees and secured parties under all
applicable laws, including, without limitation, the UCC.
(c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Term WCMA Note, the other Additional Agreements, at
law or in equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively.
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<PAGE> 11
4.6 Miscellaneous
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or
any of the other Additional Agreements shall operate as a waiver thereof, and no
single or partial exercise of any such right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement, the Term
WCMA Note or any of the other Additional Agreements, nor any consent to any
departure by Customer therefrom, shall be effective unless the same shall be in
writing and signed by MLBFS. Any waiver of any provision of the Loan Agreement,
the Term WCMA Note or any of the other Additional Agreements and any consent to
any departure by Customer from the terms thereof shall be effective only in the
specific instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on Customer shall in
any case entitle Customer to any other or future notice or demand in similar or
other circumstances.
(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) Communications. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in any collateral for the
obligations; (ii) any and all stamp, transfer and other taxes and fees payable
or determined to be payable in connection with the execution, delivery and/or
recording of this Loan Agreement or any of the Additional Agreements; and (iii)
all reasonable fees and out of pocket expenses (including, but not limited to,
reasonable fees and expenses of outside counsel) incurred by MLBFS in connection
with the collection of any sum payable hereunder or under any of the Additional
Agreements not paid when due, the enforcement of this Loan Agreement or any of
the Additional Agreements and the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and normal overhead attributable to
MLBFS' employees. The obligations of Customer under this Paragraph shall survive
the expiration or termination of this Loan Agreement and the discharge of the
other Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) Late Charge. Any payment required to be made by Customer pursuant to this
Loan Agreement or any of the Additional Agreements not paid within ten (10) days
of the applicable due date shall be subject to a late charge in an amount equal
to the lesser of (i) 5% of the overdue amount, or (ii) the maximum amount
permitted by applicable law. Such late charge shall be payable on demand, or,
without demand may in the
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<PAGE> 12
sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan
Balance in the same manner as provided herein for accrued interest with respect
to the WCMA Line of Credit.
(g) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements.
(h) Binding Effect. This Loan Agreement, the Term WCMA Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements without
the prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements.
(i) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) Governing Law. This Loan Agreement, the Term WCMA Note and, unless otherwise
expressly provided therein, each of the other Additional Agreements, shall be
governed in all respects by the laws of the State of Illinois.
(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement, the Term WCMA Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Loan Agreement, the Term WCMA Note and the other Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and subject to the terms hereof, shall
continue in effect so long thereafter as either MLBFS shall be obligated to make
the Loan, or, after the Closing Date, there shall be any moneys outstanding
under the Term Note or WCMA Note included in the Term WCMA Note or under this
Loan Agreement, or there shall be any other Obligations outstanding.
(m) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN
ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER
WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER
FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY OTHER
ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT.
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(o) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS
THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT OFFICIAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING
THE FOREGOING, CUSTOMER ACKNOWLEDGES THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN
MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR
REPRESENTATIVES TO MAKE THE LOAN ON ANY TERMS OTHER THAN AS EXPRESSLY SET FORTH
HEREIN AND IN THE TERM WCMA NOTE, OR TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND
ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; AND (II) EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND
ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS
TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO
AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS
TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
MLBFS, CUSTOMER AND THE GUARANTOR.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
DURAMED PHARMACEUTICALS, INC.
By: /s/ Timothy J. Holt
- - --------------------------------------------------------------------------------
Signature (1) Signature (2)
Timothy J. Holt
- - --------------------------------------------------------------------------------
Printed Name Printed Name
Senior Vice President - Finance
- - --------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ Brian R. Conners - Assistant Vice President
------------------------------------------------
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<PAGE> 1
REIMBURSEMENT AGREEMENT
This Reimbursement Agreement (the "Agreement") is made and
entered into as of November 5, 1998 by and between WARNER-LAMBERT COMPANY
("W-L"), a Delaware corporation, and DURAMED PHARMACEUTICALS, INC., a Delaware
corporation ("Duramed").
A. Duramed has requested that Merrill Lynch Business Financial
Services, Inc. ("Lender"), a Delaware corporation, make a loan to Duramed in the
original principal amount of $8,500,000 (the "Loan");
B. The Lender has agreed to make the Loan provided that W-L
guarantees the repayment of the Loan;
C. As a condition to W-L guaranteeing to Lender the repayment
of the Loan by Duramed, W-L is requiring that Duramed reimburse W-L the full
amount of any payment made by W-L to Lender pursuant to its guaranty of the
obligation of Duramed to repay the Loan to Lender;
D. In consideration of Duramed's agreement to reimburse W-L
for any payment made by W-L to Lender pursuant to its guaranty of the obligation
of Duramed to repay the Loan to Lender, W-L and Duramed desire to enter into
this Agreement.
NOW, THEREFORE, in consideration of the premises, of the
agreements of W-L and Duramed contained herein, and of the making of the Loan by
Lender to Duramed, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms, as used
herein, have the following meaning:
"Agreement" means this Reimbursement Agreement, as the same
may from time to time be amended, supplemented, or extended, including all
exhibits hereto and any other documents executed and delivered as a part hereof.
"Business Day" means a day of the year, other than (i) a
Saturday, Sunday or legal holiday on which banking institutions in the State of
Ohio are authorized or required by law to close or (ii) a day on which The New
York Stock Exchange is closed.
"Default Rate of Interest" means a rate per annum equal to the
sum of the Prime Rate plus four (4) percentage points (computed on the basis of
a year of 360 days and the actual number of days elapsed).
<PAGE> 2
"Dollars" and the sign "$" mean freely transferable money of
the United States of America.
"Event of Default" shall mean any of the events specified in
Article VI of this Agreement, provided that any requirement for the giving of
notice or for the lapse of time has been satisfied in connection with such
event.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"Guaranty" shall mean a certain Guaranty Agreement executed by
W-L in favor of Lender of even date herewith.
"Guaranteed Documents" is defined in Section 2.01 of this
Agreement.
"Loan" is defined in paragraph A of the preamble hereof.
"Obligations" is defined in Section 2.01 of this Agreement.
"Other Loan Documents" means the Security Documents, and any
other instrument, document, agreement or certificate related to any of the
foregoing.
"Person" means an individual, a corporation, a partnership, an
association, a trust or trustee thereof or any other entity, fiduciary or
organization, including a government or political subdivision thereof.
"Prime Rate" means such rate of interest as publicly announced
from time to time by ________ as its prime rate, which may not be __________'s
lowest rate of interest charged to borrowers, such rate changing automatically
and immediately from time to time effective as of the effective date of each
such announced change.
"Security Documents" means a certain Open-end Mortgage of even
date herewith given by Duramed to W-L and any other document from time to time
evidencing, guaranteeing or securing the obligations of Duramed to W-L under
this Agreement.
ARTICLE II
GUARANTY
Section 2.01. Guaranty.
W-L has executed in favor of Lender the Guaranty of even date
herewith pursuant to which W-L guarantees the prompt and punctual payment and
performance, as the case may be, of the
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<PAGE> 3
Obligations (as defined in the Guaranty) of Duramed to Lender under the
Guaranteed Documents (as defined in the Guaranty) as more particularly provided
in the Guaranty.
Section 2.02. Reimbursement and Other Payments.
(a) Demand for Payment. If (i) W-L makes any payment to Lender
pursuant to the Guaranty in order to satisfy an Obligation of Duramed to Lender
then due and unpaid or (ii) W-L pays any third party in order to cause the
performance of any Obligation of Duramed to Lender then due and unperformed, W-L
shall, unless prohibited by any law, regulation or judicial or administrative
order, notify Duramed, and in the case of payments to third parties, shall
provide to Duramed reasonable evidence of the payment of such expense and the
purpose of the expenditure. Within five (5) days following the receipt of such
notice, Duramed shall pay, and unconditionally promises to pay, without offset,
statement, withholding or other reduction whatsoever, W-L the amount of such
payment, together with interest on such amount at the Default Rate of Interest
accruing from and after the date of receipt of such notice.
Section 2.03. Payment on Non-Business Days. Whenever any
payment to be made hereunder by Duramed shall be stated to be due on a day which
is not a Business Day, such payment shall be made on or before the preceding
Business Day.
Section 2.04. Security Documents. As security for all of
Duramed's obligations to W-L under this Agreement, Duramed shall execute and
deliver on the date hereof the Security Documents.
ARTICLE III
CONDITIONS OF ISSUANCE
Section 3.01. Conditions Precedent to this Agreement. The
obligation of W-L to enter into this Agreement is subject to the condition
precedent that W-L shall have received on or before the date hereof the
following addressed to W-L, in form and substance reasonably satisfactory to
W-L:
(a) A certificate of the Secretary or Assistant Secretary of
Duramed, certifying the accuracy and completeness of copies of the resolutions
or actions by unanimous written consent of the board of directors of Duramed
authorizing or ratifying the execution, delivery and performance of this
Agreement and the Other Loan Documents.
(b) A certificate of the Secretary or Assistant Secretary of
Duramed certifying the names and true signatures of the officers or other
representatives of Duramed authorized to sign this Agreement and the Other Loan
Documents.
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<PAGE> 4
(c) Opinion of counsel for Duramed, addressed to W-L, in
substantially the form of Exhibit A hereto.
(d) Executed copies of this Agreement and all Other Loan
Documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of Duramed.
Duramed hereby represents and warrants to W-L as follows:
(a) Except as previously disclosed to W-L in writing, Duramed
has filed all Federal, state and local tax returns required to be filed and has
paid all taxes shown to be due on such returns, and has made provision for all
liabilities not so paid or accrued under returns not yet due. Except as
previously disclosed to W-L in writing, Duramed has no knowledge of any pending
assessments or adjustments to its taxes payable with respect to any year.
(b) Duramed's obligations under this Agreement and the Other
Loan Documents are not subordinate in any manner to any other obligation of
Duramed.
(c) There is no claim, action, temporary restraining order,
injunction, suit, proceeding, inquiry or investigation, at law or in equity,
before or by any judicial or administrative court, governmental agency, public
board or body, pending or, to the best of Duramed's knowledge, threatened
against or affecting, or involving the properties or businesses, or any
securities of, Duramed nor, to the best of Duramed's knowledge, is there any
basis therefor, (i) contesting the existence or powers of Duramed or the
authority of its directors, officers, or partners, as the case may be, or (ii)
wherein an unfavorable decision, ruling or finding would in any way adversely
affect Duramed's ability to carry out its obligations under this Agreement or
the Other Loan Documents.
(d) The transactions contemplated by this Agreement, and the
transactions contemplated by the Other Loan Documents have not been entered into
by Duramed in contemplation of Duramed's insolvency and neither have such
transactions been entered into with the intent of Duramed to hinder, delay or
defraud the equityholders or the creditors of Duramed.
(e) Duramed is not regularly engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System).
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<PAGE> 5
ARTICLE V
COVENANTS OF Duramed
Section 5.01. Financial Statements. (a) Duramed shall furnish
to W-L as soon as practical after the end of each calendar quarter, and in any
event within 30 days thereafter, (i) a balance sheet of Duramed as at the end of
such calendar quarter, (ii) an income statement and a reconciliation of retained
earnings for Duramed for such calendar quarter, and (iii) a statement of cash
flows for Duramed for such calendar quarter. All financial statements required
to be furnished to W-L pursuant to this Section 5.01(a) shall be in consolidated
form, if applicable, and shall be in reasonable detail and certified by the
chief financial officer of Duramed as having been prepared in accordance with
GAAP, as being true, complete and correct in all material respects, and as
presenting fairly the financial position, of Duramed as of the respective dates
of such balance sheet and the results of its operations for the respective
periods covered. On each occasion on which Duramed is required to furnish a
financial statement to W-L pursuant to this Section 5.01(a), Duramed shall also
furnish to W-L a certificate of Duramed's chief executive officer or chief
financial officer that such officer has caused the provisions of this Agreement
to be reviewed and, after reasonable investigation, has no knowledge of the
occurrence of any event or condition which either constitutes or with the lapse
of time or giving of notice or both would constitute an Event of Default, or if
such officer has such knowledge, specifying such event or condition and what
action Duramed has taken, is taking or proposes to take with respect thereto.
(b) Within ninety (90) days after the last day of each fiscal
year, Duramed shall furnish to W-L a copy of its financial statements, reviewed
by independent certified public accountants, including statements of financial
condition as of the end of such fiscal year, and related statements of income
and cash flows, a reconciliation of retained earnings and changes in financial
condition for the fiscal year then ended, setting forth in comparative form the
corresponding figures as of the end of or for the previous fiscal year, all in
reasonable detail and all in conformity with GAAP. Duramed shall also furnish
promptly to W-L such other information respecting the business, properties,
condition or operations, financial or otherwise, of Duramed as W-L may
reasonably request. If an Event of Default shall have occurred and be
continuing, W-L may require any financial statements required by this subsection
to be audited and certified by independent certified public accountants.
Section 5.02. Deliver Notice. Forthwith upon learning of any
of the following, Duramed shall deliver written notice thereof to W-L,
describing the same and the steps being taken by Duramed with respect thereto:
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<PAGE> 6
(a) the occurrence of an Event of Default or an event or
circumstance which would constitute an Event of Default, but for the requirement
that notice be given or time elapse or both;
(b) any action, suit or proceeding, by it or against it at law
or in equity, or before any governmental instrumentality or agency, or any of
the same which may be threatened, and which, if adversely determined, would
materially impair the right or ability of Duramed to carry on its business or
would materially impair the right or ability of Duramed to perform its
obligations under this Agreement and the Other Loan Documents, or would
materially and adversely affect its business, operations, properties, assets or
condition;
(c) any change in the name, address, identity or structure of
Duramed; or
(d) any uninsured or partially uninsured loss through fire,
theft, liability or property damage which may have an adverse material effect on
Duramed's financial condition or operations.
Section 5.03. Keep Books. Duramed shall keep true and proper
books of records and accounts in which full and correct entries are made of all
business transactions, and reflect in its financial statements adequate accruals
and appropriations to reserves, all in accordance with GAAP.
Section 5.04. Continued Existence. Duramed will remain in good
standing and qualified to do business under all applicable state and Federal
laws. Without the prior written consent of W-L, Duramed will not dissolve or
otherwise dispose of all or substantially all of its assets and will not
voluntarily consolidate with or merge into any other entity or permit one or
more entities to consolidate with or merge into it.
Section 5.05. Amendment of Other Documents. Without the prior
written consent of W-L, Duramed shall not enter into or consent to any amendment
or modification of the Guaranteed Documents or any Other Loan Document. Duramed
shall not enter into any agreement containing any provision which would be
violated or breached by the performance of its obligations hereunder or under
any Other Loan Document or under any instrument or document delivered or to be
delivered by it hereunder or in connection herewith.
Section 5.06. Affirmative Covenants. Unless the prior written
consent of W-L is first received, Duramed shall comply with all of the
affirmative covenants contained on Exhibit B hereto, which are hereby
incorporated herein by reference. If and to the extent that the terms and
provisions of any of the Security Documents conflict with the terms of such
affirmative
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covenants in Exhibit B, the terms and provisions of the Security Documents shall
govern and have precedence.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. The occurrence of any of the
following events shall be an "Event of Default" hereunder:
(a) Duramed shall fail to pay when due any amount payable
pursuant to Section 2.02 hereof; or
(b) Duramed shall fail to furnish any financial statements
required by Section 5.01 when required by Section 5.01 and such failure shall
continue for fifteen (15) days after notice thereof given as provided herein; or
(c) Duramed shall fail to perform or observe any of the terms,
covenants or agreements to be performed or observed by Duramed as set forth in
this Agreement (other than the failures described in subsections (a), (b) and
(c) of this Section 6.01), and any such failure shall continue for thirty days
after notice given as provided herein; or
(d) Any default shall have occurred under any of the Other
Loan Documents, including the Security Documents and the applicable grace or
cure period shall have expired; or
(e) Any representation or warranty made by Duramed herein or
in any Other Loan Document or in any other document delivered in connection with
this Agreement or any representation or warranty of any guarantor of the
obligations of Duramed under this Agreement or the Other Loan Documents shall
prove to have been incorrect in any material respect when made.
Section 6.02. Remedies Upon an Event of Default. If any Event
of Default shall have occurred and be continuing and shall not have been
specifically waived pursuant to Section 7.03 hereof, W-L may do any one or more
of the following:
(a) Declare the principal of all amounts owing under the
Guaranteed Documents, together with interest thereon, to be forthwith due and
payable, regardless of any other specified maturity or due date, without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind or character, and without
the necessity of prior recourse to any security; and
(b) Exercise any and all of its rights under the Other Loan
Documents (including the Security Documents), or otherwise as a secured
creditor, including, without limitation, foreclosing
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on any security, and exercising any other rights with respect to security
whether under the Security Documents or any other agreement or as provided by
law, all in such order and in such manner as W-L in its sole discretion may
determine.
The rights and remedies of W-L under the terms and provisions
of this Agreement, each of the Other Loan Documents, and at law or in equity,
shall be separate, distinct and cumulative, none of them shall be exclusive of
the others, and W-L may exercise all or any one of them successively or
concurrently. No act of W-L shall be deemed to be an election to proceed under
any one provision herein or any of the Other Loan Documents to the exclusion of
any other provision, anything herein or otherwise to the contrary
notwithstanding.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Amendments; Waivers. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by Duramed
therefrom, shall in any event be effective unless the same shall be in writing
and signed by W-L, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
Section 7.02. Notices. Except as otherwise provided herein,
whenever notice is required to be given pursuant to the provisions hereof, such
notice shall be in writing (including facsimile transmission) and shall be given
as follows:
(a) if to Duramed: 5040 Lester Road
Cincinnati, Ohio 45213
Attention: Chief Financial Officer
(b) if to W-L: 201 Tabor Road
Morris Plains, New Jersey 07950
Attention: Vice President,
Pharmaceuticals Manufacturing
with copies to: Attention: President and CEO
and
Attention: Vice President and
General Counsel
or to such other address as any Person listed in this Section may hereafter
specify for the purpose by written notice to each other Person listed in this
Section. Each such notice shall be effective and conclusively deemed received
(i) if given by certified or registered U.S. mail, when confirmation of delivery
is received or when notice of refusal to accept delivery is received, (ii) if
given by recognized overnight delivery service
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<PAGE> 9
that in the ordinary course of its business maintains a record of receipts of
each of its deliveries, when delivery is received or refused, or (iii) if hand
delivered, when delivered at the address specified in this Section.
Section 7.03. No Waiver; Remedies. No failure on the part of
W-L to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof, unless as permitted under Section 7.03 hereof; neither
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Section 7.04. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
Section 7.05. Computations. Where the character or amount of
any asset, liability or item of income or expense is required to be determined,
or any consolidation or other accounting computation is required to be made, for
the purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP.
Section 7.06. Further Assurances. Duramed shall do such
further acts and things and execute and deliver to W-L such additional
assignments, agreements, powers and instruments, as W-L may reasonably require
or deem advisable to carry into effect the purposes of this Agreement or to
better assure and confirm unto W-L its rights, powers and remedies hereunder.
Section 7.07. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Agreement.
Section 7.08. Binding Effect. This Agreement shall become
effective when it shall have been executed by Duramed and W-L and thereafter
shall be binding upon and inure to the benefit of Duramed and W-L and their
respective successors and assigns. W-L may assign to any financial institution
all or any part of, or any interest (undivided or divided) in, its rights and
benefits under this Agreement, and to the extent of that assignment such
assignee shall have the same rights and benefits against Duramed hereunder as it
would have had if such assignee were W-L.
Section 7.09. Severability. The parties hereto intend and
believe that each provision in this Agreement comports with all applicable
local, state and Federal laws and judicial
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<PAGE> 10
decisions. However, if any provision or provisions, or if any portion of any
provision or provisions, in this Agreement are found by a court of law to be in
violation of any applicable local, state or Federal ordinance, statute, law,
administrative or judicial decision, or public policy, and if such court should
declare such portion, provision or provisions of this Agreement to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent of
the parties hereto that such portion, provision or provisions shall be given
force and effect to the fullest possible extent, that the remainder of this
Agreement shall be construed as if such provision or provisions were not
contained herein and that the rights, obligations and interests of the parties
under the remainder of this Agreement shall continue in full force and effect.
Section 7.10. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Ohio, except to
the extent that such laws would direct the application of the laws of a
different state.
Section 7.11. Heading. Section headings and captions in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose and are not to be
considered as defining or limiting in any way the scope or intent of the
provisions of this Agreement.
Section 17.12. W-L's Attorney Fees. As of the date of this
Agreement, Duramed shall pay the reasonable fees of counsel hired by W-L to
negotiate this Agreement and the Other Loan Documents in connection with such
negotiation by wire transfer to such counsel in accordance with wiring
instructions furnished by such counsel.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective representatives
thereunto duly authorized as of the date first above written.
W-L: Duramed:
WARNER-LAMBERT COMPANY DURAMED PHARMACEUTICALS, INC.
By /s/ Carl Wheeldon By /s/ Timothy J. Holt
---------------------------------- -----------------------------------
Name Carl Wheeldon Name Timothy J. Holt
-------------------------------- ---------------------------------
Title Vice President - Manufacturing Title Senior Vice President
-------------------------------- --------------------------------
Finance
--------------------------------
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<PAGE> 11
EXHIBIT A
FORM OF DURAMED COUNSEL OPINION
A-1
<PAGE> 12
EXHIBIT B
AFFIRMATIVE COVENANTS
Affirmative Covenants
The following affirmative covenants are incorporated in the
Reimbursement Agreement as if fully set forth therein:
INSURANCE. Duramed shall maintain insurance upon all of its
assets and business properties subject to the Security
Documents (the "Property") and product liability insurance
with responsible and reputable insurers of such character and
amounts as are usually maintained by companies engaged in like
business. All insurance policies shall be written for the
benefit of Duramed and W-L as their interests may appear and
shall contain a provision requiring the insurance company to
provide W-L not less than thirty days' written notice prior to
cancellation of any such policy. All insurance policies or
certificates evidencing the same shall be furnished to W-L.
PAYMENT OF TAXES AND CLAIMS. Duramed shall pay all taxes,
assessments and other governmental charges imposed upon its
properties or assets or in respect of any of its franchises,
business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which
by law have or might become a lien or charge upon any of its
properties or assets, provided that (unless any material item
of property would be lost, forfeited or materially damaged as
a result thereof) no such charge or claim need be paid if the
amount, applicability or validity thereof is currently being
contested in good faith and if such reserve or other
appropriate provision, if any, as shall be required by GAAP
shall have been made therefor.
COMPLIANCE WITH LAWS. Duramed shall comply in all substantial
respects with all applicable statutes, laws, ordinances and
governmental rules, regulations and orders to which they are
subject or which are applicable to its business, properties
and assets if noncompliance therewith would materially
adversely affect such businesses; provided that (unless such
contest or noncompliance would materially adversely affect
such businesses) Duramed need not so comply if any such
statute, law, ordinance, or governmental rule, regulation or
order is currently being contested in good faith.
B-1
<PAGE> 1
OPEN-END MORTGAGE
Maximum Principal Amount $8,500,000.00
THIS OPEN-END MORTGAGE ("Mortgage") made as of the 5th day of
November, 1998 by DURAMED PHARMACEUTICALS, INC., a Delaware corporation, with a
mailing address of 5040 Lester Road, Cincinnati, Ohio 45213 (hereinafter
referred to as "Mortgagor,") to WARNER-LAMBERT COMPANY, a Delaware corporation,
a banking corporation with a mailing address of 201 Tabor Road, Morris Plains,
New Jersey 07950 (hereinafter, together with its successors and assigns called
"Mortgagee").
WHEREAS, Mortgagor and Mortgagee have entered into a certain
Reimbursement Agreement pursuant to which Mortgagor has agreed to reimburse
certain payments made by Mortgagee under a certain Unconditional Guaranty (the
"Guaranty") of even date herewith executed by Mortgagee in favor of Merrill
Lynch Business Financial Services, Inc., a Delaware corporation ("Merrill
Lynch") as more particularly provided in the Reimbursement Agreement.
WHEREAS, Mortgagee is requiring the execution of this Mortgage in favor
of Mortgagee as a condition to it entering the Reimbursement Agreement in order
to secure the obligation of Mortgagor to Mortgagee under the Reimbursement
Agreement;
ARTICLE 1
The Grant
NOW THEREFORE, in consideration of the entering of the Reimbursement
Agreement and the execution of the Guaranty, Mortgagor does hereby agree that
the Mortgage shall secure the following: (a) the payment when due of all amounts
due from Mortgagor to Mortgagee under the Reimbursement Agreement, with interest
thereon as provided therein, (b) the payment, performance and observance by
Mortgagor of all of the covenants and conditions contained in the Reimbursement
Agreement, this Mortgage, (c) the performance of all of the obligations of
Mortgagor as landlord under that certain Lease with W-L dated as of September
24, 1997; and (d) the performance of all of the obligations of Mortgagor under
that certain Manufacturing Agreement dated as of September 24, 1997, (items (a),
(b), (c) and (d) shall hereinafter collectively be referred to as the
"Indebtedness Hereby Secured"), and in order to charge the properties, interests
and rights hereinafter described with such payment, performance and observance,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Mortgagor does hereby mortgage, warrant, grant, bargain,
sell, assign, encumber, convey and grant a security interest to Mortgagee
forever in all of the estate, title, and interest of Mortgagor in the fee
simple, leasehold and easement
<PAGE> 2
estates in that certain real property situated in the County of Hamilton and
State of Ohio and more particularly described on Exhibit "A" attached hereto and
by reference made a part hereof ("Real Property");
TOGETHER WITH all and singular the tenements, hereditaments, and
appurtenances thereto belonging, all present and future buildings, structures,
annexations, access rights-of way or use, servitudes, licenses, and improvements
thereon, all of the rights, privileges, licenses, easements and appurtenances
belonging to such Real Property, together with all of the estates and rights in
and to lands lying in streets, alleys and roads adjoining the said Real Property
(collectively the "Improvements") and all Mortgagor's right, title, interest,
estate, claim and demand, either at law or in equity, in and to all fixtures,
including, without limiting the generality of the foregoing, all lighting,
heating, cooling, ventilating, air conditioning, incinerating, sprinkling, gas,
plumbing, waste removal and refrigeration systems, engines, furnaces, boilers,
pumps, tanks, heaters, generators, motors, fire prevention apparatus and all
pipes, wires, fixtures, and apparatus forming a part of or used in connection
therewith; elevators and motors, refrigeration plants or units, storm windows
and doors, window and door screens, awnings and window and door shades, all
drapes and curtains and related hardware and mounting devices, wall-to-wall
carpeting; fixtures situated on the Real Property and used or usable in
operation thereof as well as all additions, improvements and replacements
thereto, and proceeds thereof; all water, sanitary and storm sewer systems
including all water mains, service laterals and mineral rights, hydrants, valves
and appurtenances, all sanitary sewer lines, including mains, laterals, manholes
and appurtenances, all paving for streets, roads, walkways or entrance ways, all
minerals, soil, flowers, shrubs, crops, trees, timber and other emblements now
or hereafter on the Real Property or under or above the same or any part or
parcel thereof, all proceeds, or sums payable in lieu of or as compensation for
the loss or damage to Improvements or to the Real Property upon which the said
property covered hereby is or may be located including without limitation the
buildings or improvements now or hereafter located thereon, and all rights in
and to all pertinent present and future fire, hazard, business interruption,
rental interruption and other insurance policies maintained by Mortgagor on the
Improvements and Real Property, all payment and performance bonds received in
connection with any construction or other matter and all rights thereunder, all
plans, specifications, drawings, studies, surveys, appraisals and other similar
work product, all contracts for design, architectural, engineering or
construction services and all rights and claims thereunder; all other contract
rights and agreements for the protection of property or services to or in
connection with, or otherwise benefiting the Real Property, including without'
limitation all management agreements and cable television agreements; all
permits, licenses, variances,
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approvals and/or consents issued by any governmental entity, utility or other
entity; all awards made by any public body or created by any competent
jurisdiction for the taking or the degradation of value in any eminent domain
proceedings, or purchase in lieu thereof; all of Mortgagor's interest and rights
as lessor or lessee in and to all leases now or hereafter affecting the said
Real Property or part thereof; all contracts for the sale of all or any portion
of said Real Property; the Real Property, Improvements and fixtures are
hereinafter referred to as the "Premises".
Mortgagee is hereby subrogated to the rights of all mortgagees, lien
holders and owners paid off by the proceeds of the Loan secured hereby.
TO HAVE AND TO HOLD, the Premises unto the Mortgagee, its successors
and assigns forever for the uses and purposes hereinafter set forth.
ARTICLE 2
Representations and Warranties
2.1 Title. Mortgagor does hereby represent and warrant to Mortgagee
that it is lawfully seized of the Premises in fee simple and has full power to
convey the same and to execute this Mortgage; that the Premises are free, clear
and unencumbered of all easements, restrictions, and liens whatsoever, except
those easements, restrictions and liens set forth in the title evidence issued
to Mortgagee in connection herewith, if any ("Permitted Encumbrances"); that
Mortgagor does warrant and will defend the title to the Premises against the
claims and demands of all persons whomsoever except for the Permitted
Encumbrances; that Mortgagor will keep and observe all of the terms of this
Mortgage on Mortgagor's part to be performed; and that Mortgagor will make any
further assurances of title that Mortgagee may reasonably require.
2.2 Mechanics Lien Matters. Mortgagor represents and warrants that no
Notice of Commencement (as identified in Ohio Revised Code Section 1311.04) as
to the Premises has been filed or will be filed prior to the filing for record
of this Mortgage and that Mortgagor shall promptly provide Mortgagee with a copy
of all Notices of Furnishing (as identified in Ohio Revised Code Section
1311.05) received by Mortgagor.
ARTICLE 3
Covenants
Mortgagor further covenants and agrees with Mortgagee as follows:
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<PAGE> 4
3.1 Payments. To pay to Mortgagee, when due, all amounts payable by
Mortgagor to Mortgagee with interest thereon in accordance with the terms of the
Reimbursement Agreement and to pay all other Indebtedness Hereby Secured at the
times and in the manner herein and therein provided.
3.2 Taxes and other Impositions. To pay, when due according to law, all
taxes, assessments and other charges which are now due or may hereafter be
imposed or assessed upon the Premises, or any part thereof, or that may be
imposed or assessed against the holder of this Mortgage (except when contested
in good faith and when appropriate reserves are established) and the Note by
reason of ownership thereof, by any authority, be it federal, state, county or
city, including but not limited to charges imposed upon the Premises under any
applicable declaration of condominium. Upon the failure of Mortgagor promptly to
pay such taxes, assessments and other charges, Mortgagee shall have the option
to pay and discharge the same after written notice to Mortgagor, and any sum so
expended by Mortgagee shall at once become indebtedness owing from Mortgagor to
Mortgagee, shall be immediately due and payable by Mortgagor with interest
thereon to the extent legally enforceable at the Default Rate of Interest
provided in the Reimbursement Agreement in the event of default and shall
together be added to the Indebtedness Hereby Secured. Upon the request of
Mortgagee, Mortgagor will promptly provide Mortgagee with evidence of payment of
the above taxes, assessments and other charges imposed or assessed upon the
Premises.
3.3 Insurance. For the term of this Mortgage, to obtain and keep in
full force and effect at the sole cost and expense of Mortgagor or cause to be
obtained and kept policies of insurance to: (a) maintain comprehensive general
public liability insurance covering the legal liability of Mortgagor against
claims for bodily injury, and/or property damage arising out of the use,
maintenance and/or operation of the Premises and all areas appurtenant thereto
and/or the conduct of Mortgagor's business in such amounts as Mortgagee may
reasonably require but in no event less than $1,000,000 for personal injury or
death to one person, $1,000,000 for personal injury or deaths in one accident
and $1,000,000 for property damage; (b) maintain "Broad form/special perils"
insurance on any and all Improvements and Personal Property located on the
Premises against loss by fire or other hazards in an amount not less than the
full insurable value of the Improvements located on the Premises as Mortgagee
may reasonably require, but in no event less than $8,500,000; (c) in the event
any area of the Premises is located within a hundred year flood plain or area
designated as subject to flood by the Federal Emergency Management Agency or
other government agency, or when required by any federal, state or local law,
statute, regulation or ordinance, maintain flood insurance in an amount
Mortgagee reasonably deems appropriate; (d) satisfy all applicable workers'
compensation insurance requirements; (e)
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<PAGE> 5
maintain business interruption insurance and/or loss of "rental value" insurance
in such amounts, and with such coverages, as may be reasonably satisfactory to
Mortgagee, such insurance to be provided at such time as Mortgagee may specify
but in no event later than the commencement of occupancy by any tenant; (f)
during the course of any construction or repair of the Improvements on the
Premises, maintain builder's completed value risk insurance against "all risks
of physical loss," including collapse and transit coverage, in nonreporting
form, covering the total value of work performed and equipment, supplies and
materials furnished; (g) obtain and maintain any other insurance concerning the
Premises or operation of business thereon as Mortgagee may reasonably require,
including, but not limited to, any applicable condominium insurance or PUD
insurance.
All such policies of insurance shall be written by a company or
companies reasonably acceptable to Mortgagee; shall have attached thereto the
standard form of mortgagee clause; shall name Mortgagee and assigns as a named
insured, loss payee and as Mortgagee, without contribution; shall be delivered
to and held by Mortgagee or assigns; shall provide for thirty (30) days prior
written notice of cancellation or non-renewal to Mortgagee; shall have attached
thereto an agreed amount endorsement; shall include a provision stating that the
waiver of subrogation rights of the insured does not void the coverage; shall
contain endorsements that no act or negligence of the insured or any occupant
and no occupancy or use of the Premises for purposes more hazardous than
permitted by the terms of the policy, nor any breach of any warranty,
declaration or condition by the insured, will affect the validity or
enforceability of such insurance as against Mortgagee; shall contain the
agreement of the insurer waiving all rights of set off, counterclaim or
deductions against Mortgagor.
Mortgagor shall furnish or shall cause to be furnished to Mortgagee an
original policy of all required policies of insurance along with proof of
premiums paid for the current policy year and each subsequent year for the term
of this Mortgage. This Mortgage shall operate as an assignment to Mortgagee of
said policies of insurance, whether delivered or not. At the option of the
Mortgagee, if insurance proceeds are not paid within ninety (90) days of the
casualty or if Mortgagor cannot reinstate its business operations within a
reasonable period of time after the occurrence of a casualty, or if there is a
default, the proceeds of loss under any policy of insurance, whether endorsed
payable to the Mortgagee or not, may be applied in payment of amounts due under
the Reimbursement Agreement or any other sum secured by this Mortgage, whether
or not such sums are then due, or to the restoration or replacement of any
buildings on the Premises without in any way affecting the lien of this Mortgage
or the obligation of the Mortgagor or any other person for payment of the
Indebtedness Hereby Secured.
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<PAGE> 6
If the Premises are sold following foreclosure or if Mortgagee acquires
title to the Premises, Mortgagee shall have all the right, title and interest of
the Mortgagor in and to any insurance policies: and unearned premiums thereon
and in and to the proceeds resulting from any damage to the Premises prior to
such sale or acquisition.
Upon the failure of Mortgagor to provide or cause to be provided the
aforesaid insurance, Mortgagee shall have the option to procure and maintain
such insurance without notice to Mortgagor. Any sum so expended by Mortgagee
shall at once become indebtedness owing from Mortgagor to Mortgagee and shall
immediately become due and payable by Mortgagor with interest thereon to the
extent legally enforceable, at the rate of interest provided in the Note in the
event of a default, and shall together be added to the Indebtedness Hereby
Secured.
3.4 Condition of Property; Compliance with Law; Waste. To keep the
Premises in good condition and repair and to make all structural and
nonstructural repairs and maintenance necessary and to cause all repairs and
maintenance to be done in a material good and workmanlike manner; to comply in
all material respects with all statutes, laws, ordinances and governmental
rules, regulations and orders which are applicable to the Premises; (except for
items having a value of less than Ten Thousand and 00/100 Dollars ($10,000.00))
not to commit or permit waste on the Premises or remove or permit the removal of
any building, improvement, or fixture from the Premises without prior written
consent of the Mortgagee or unless replaced with an item of greater or equal
value; and not to perform or permit any act which may in any way materially
impair the value of the Premises.
3.5 No Further Encumbrances; No Disposition. Not to make, create, or
suffer to be made or created any sale, transfer, conveyance, assignment or
further encumbrance of the Premises, or any part thereof, or any interest
therein or any contract or agreement to do any of the same without Mortgagee's
prior written consent, which consent may be withheld in Mortgagee's sole and
absolute discretion. A sale, transfer, conveyance or assignment means the
conveyance by the Mortgagor of any legal or equitable right, title or interest
in the Premises, or any part thereof, whether such conveyance is voluntary or
involuntary, by outright sale, deed, installment sale contract, land contract,
lease option contract, or any other method of transferring any interest in real
property, except for the lease from Mortgagor to Mortgagee and a license back
from Mortgagee to Mortgagor. Any encumbrance means a lien, mortgage or any other
encumbrance subordinate to Mortgagee's Mortgage. Further, in the event of
default under any of the provisions of this Section 3.6, Mortgagee may, without
notice to Mortgagor, deal with such successor or successors in interest with
reference to this Mortgage and the Note and in the same manner as with the
Mortgagor and may forbear to sue or may extend time for payment
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<PAGE> 7
of the Note without discharging or in anyway affecting the liability of the
Mortgagor hereunder or under the Reimbursement Agreement.
3.6 Condemnation. To promptly notify Mortgagee of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect of the Premises, or part thereof, and Mortgagor shall appear in and
prosecute any such action or proceedings unless otherwise directed by Mortgagee
in writing. Mortgagor authorizes Mortgagee at Mortgagee's option, as attorney in
fact for Mortgagor, (which authorization shall be irrevocable) to commence,
appear in and prosecute, in Mortgagee's or Mortgagor's name, any action or
proceeding relating to any condemnation or other taking of the Premises, whether
direct or indirect and to settle or compromise any claim in connection with such
condemnation or other taking. The proceeds of any award, payment or claim for
damages, direct or consequential, in connection with any condemnation or other
taking, whether direct or indirect, of the Premises or any part thereof, or for
conveyance in lieu of condemnation, are hereby assigned to and shall be paid to
Mortgagee; and all condemnation money so received shall be forthwith applied by
Mortgagee in payment of any sum secured by this Mortgage whether or not such
sums are then due, or to the restoration or replacement of any part of the
Premises without in any way affecting the lien of this Mortgage or the
obligation of the Mortgagor or any other person for payment of Indebtedness
Hereby Secured; provided however that any excess over the balance due under the
Note and any other indebtedness secured by this Mortgage shall be delivered to
Mortgagor.
3.7 Books and Records; Financial Information. With respect to the
Premises and the operation thereof, Mortgagor will keep or cause to be kept
proper books of record in accordance with generally accepted accounting
principals consistently applied. Mortgagee shall have the right to inspect the
books and records of the operation of the Premises and make copies thereof at
all reasonable times and upon reasonable notice to Mortgagor. Mortgagor shall
furnish to Mortgagee within ninety (90) days after the end of each fiscal year
of Mortgagor, a statement of income and surplus of Mortgagor for such fiscal
year, in reasonable detail and stating in comparative form the figures as of the
end of the previous fiscal year, including statements of income and expense
relating to operations of the Premises, and at the request of Mortgagee,
certified as to the correctness by a certified public accountant. In addition,
Mortgagor will furnish to Mortgagee such interim financial statements and copies
of federal income tax returns as Mortgagee may reasonably request, certified by
Mortgagor in such form as may be reasonably acceptable to Mortgagee.
3.8 Liability For All Loan Administration and Enforcement Expenses.
Mortgagor shall pay all sums, including costs and
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<PAGE> 8
reasonable attorney fees for Mortgagee's outside counsel at such counsel's
standard hourly rates for time actually incurred in connection with the
enforcement of the Reimbursement Agreement, including title examination and
title insurance premiums and expenses, appraisal fees, survey fees, inspection
fees incurred by Mortgagee to establish or preserve the lien of this Mortgage or
its priority, or in connection with any suit to enforce this Mortgage to recover
the Indebtedness Hereby Secured, or to protect the security. of this Mortgage.
All such sums shall be immediately due and payable, shall bear interest at the
highest rate of interest provided in the Note in the event of default, and
shall, together with such interest, be added to the Indebtedness Hereby Secured.
3.9 Application of Funds. Unless applicable law provides otherwise, all
payments received by Mortgagee from Mortgagor under the Note or this Mortgage
shall be applied by Mortgagee in the following order of priority:
(a) Amounts advanced by Mortgagee in accordance with the terms of
this Mortgage, together with interest thereon;
(b) Interest payable under the Reimbursement Agreement;
(c) Principal payable under the Reimbursement Agreement; and
(e) All other Indebtedness Hereby Secured.
3.10 Environmental Conditions. Mortgagor represents and warrants to
Mortgagee (a) that, except as disclosed in environmental reports now or
previously provided to Mortgagee, Mortgagor has no knowledge or information
which would put a reasonable person on notice or cause such person to make
inquiry concerning the likelihood or presence of any hazardous waste condition
or any factor contributing to a risk to the environment located on or emanating
from the Premises; (b) that no environmental enforcement action(s) against or
concerning the Premises are pending or threatened and Mortgagor will notify
Mortgagee if any such action is commenced; (c) that Mortgagor will maintain and
operate the Premises during the term of the Mortgage in material compliance with
all applicable environmental laws of the state where the Premises are located
and of the United States of America; (d) that Mortgagor will remedy any
contamination that may be discovered on the Premises and which is required by
law to be remedied; and (e) the Mortgagor will indemnify and hold Mortgagee
harmless from and against all losses or damages arising from hazardous waste
conditions or risks to the environment which will result in claims against or
liability of Mortgagee as holder of this Mortgage or subsequent owner of the
Premises that are not covered by Mortgagee or its agents or
-8-
<PAGE> 9
employees or independent contractors retained by or on behalf of Mortgagee.
ARTICLE 4
Events of Default
Each of the following shall be deemed to be an "Event of Default":
4.1 Default in the payment of principal, interest or any other amounts
due under the Reimbursement Agreement within five (5) days of when due;
4.2 Default in the payment of any other Indebtedness Hereby Secured
within five (5) days of when due;
4.3 The failure to obtain and keep in force at all times all insurance
on the Premises and contents thereof and other insurance coverages in accordance
with the terms of this Mortgage and such failure is not fully cured within ten
(10) days after Mortgagee has given written notice thereof to Mortgagor;
4.4 An encumbrance on or sale of the Premises, or any part thereof, in
violation of Section 3.6 herein;
4.5 The filing of any lien unless contested in good faith and with
appropriate reserves established or charge against the Premises or any part
thereof which is not removed or bonded to the satisfaction of Mortgagee within a
period of thirty (30) days thereafter;
4.6 The failure to observe or perform any one or more of the other
terms, covenants or other obligations on the part of Mortgagor set forth in the
Reimbursement Agreement or this Mortgage, and such default is not fully cured
within thirty (30) days after Mortgagee has given written notice thereof to
Mortgagor; provided, however, that if such default is curable, and if and so
long as Mortgagor is proceeding with due diligence to cure the default, such
period will be extended to whatever reasonable period is required to permit the
Mortgagor to cure the default; provided that such additional curing period does
not, in Mortgagee's sole opinion, jeopardize its vital interest in the Premises;
4.7 The abandonment by Mortgagor of all or a part of the Premises;
4.8 In the case where Mortgagor is a corporation, partnership or trust
entity, the dissolution or cessation of existence as a legal entity of
Mortgagor;
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<PAGE> 10
4.9 Any certification, representation or warranty of Mortgagor under
this Mortgage or the Reimbursement Agreement or any other information provided
to Mortgagee by Mortgagor or his representatives in connection with the Premises
is determined to have been untrue and/or misleading in any material effect when
made;
4.10 Upon the filing of any bankruptcy proceeding by Mortgagor or upon
the filing of any bankruptcy proceeding against Mortgagor which is not dismissed
within sixty (60) days; any assignment by the Mortgagor of any of its property
for the benefit of creditors, or the placing of any of Mortgagor's property in
receivership, trusteeship or conservatorship with or without action or suit in
any court;
4.11 The death of any individual, or dissolution of any corporate
partnership or limited liability company, borrower, comaker or guarantor;
4.12 The insolvency or bankruptcy of a guarantor;
4.13 The occurrence of any Event of Default under the Reimbursement
Agreement.
ARTICLES
Remedies
5.1 Mortgagee's Remedies. Upon the occurrence of an Event of Default,
Mortgagee shall have the right to exercise all rights and remedies provided by
law or in equity to which Mortgagee is entitled, including without limitation,
(a) the right to proceed to protect and enforce its rights by any action at law,
in equity or other appropriate proceeding, whether for the specific performance
of any agreement contained herein or for an injunction against a violation of
any of the terms, conditions, or provisions hereof or in the aid of the exercise
of any power granted hereby or by law; (b) the right to declare all amounts due
under the Reimbursement Agreement and all interest thereon, or, at its option,
any part of the foregoing, to be immediately due and payable without further
demand or notice; (c) the right to, at any time or from time to time, proceed at
law or in equity or otherwise to foreclose the lien on this Mortgage as against
all or any part of the Premises; (d) upon the filing of a suit or other
commencement of judicial proceeding to enforce the rights of the Mortgagee under
this Mortgage, Mortgagee shall be entitled, as a matter of right, to the
appointment of a receiver or receivers of the Premises and to receive all
receipts therefrom pending such proceedings, with such power as the court making
such appointment shall confer; and (e) the right to demand that Mortgagor
surrenders the possession of the Premises subject to the rights of any lessee,
to take possession of all or any part of the Premises together with all books,
papers and accounts
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<PAGE> 11
of Mortgagor pertaining thereto and to operate and manage the same and from time
to time to make all needful repairs and improvements as Mortgagee may deem
reasonable; and to lease the Premises or any part thereof in the name of and for
the account of the Mortgagor and to collect and receive and sequester the rents,
revenues and other income after deducting all proper costs and expenses of so
taking, holding and managing the same including reasonable compensation to
Mortgagee.
5.2 Rights and Remedies Cumulative; No Waiver or Release of Obligation.
The rights and remedies of the Mortgagee as provided in this Mortgage and in the
Reimbursement Agreement, and in the warranties contained herein and therein
shall be cumulative and concurrent, may be pursued separately, successively or
together against Mortgagor or against the Premises, or both, in the sole
discretion of Mortgagee, and may be exercised as often as occasion therefor
shall arise.
Any failure by Mortgagee to insist upon strict performance by Mortgagor
of any of the terms and provisions of this Mortgage or of the Reimbursement
Agreement shall not be deemed a waiver of any of the terms or provisions of this
Mortgage or the Reimbursement Agreement. No delay or omission to exercise any
right or power accruing upon any Event of Default shall impair any right or
power or shall be construed to be a waiver of any such Event of Default or
acquiescence therein; every such right and power may be exercised from time to
time and as often as may be deemed expedient. No waiver of any default or Event
of Default hereunder by the Mortgagee shall extend to or shall affect any
subsequent Event of Default or shall impair any rights or remedies consequent
thereon.
Mortgagee may release, regardless of consideration, any part of the
security held for the indebtedness secured by this Mortgage without, as to the
reminder of the security, in any way impairing or affecting the lien of this
Mortgage or its priority over any subordinate lien.
5.3 Expenses. Upon an Event of Default hereunder, Mortgagor shall pay
to Mortgagee such further amount as shall be sufficient to reimburse it fully
for all costs and expenses of collection of the Note and the enforcement of any
security for the Reimbursement Agreement including without limitation,
Mortgagee's fees and expenses for enforcing this Mortgage or any rights
hereunder, reasonable attorneys', accountants' and appraisers' fees and
expenses, court costs and any taxes and fees or governmental charges incident to
such enforcement of rights and collection.
-11-
<PAGE> 12
ARTICLE 6
Miscellaneous
6.1 Binding Effect. All of the terms, covenants and conditions of this
Mortgage shall bind Mortgagor and its respective heirs, devisees,
administrators, executors, successors and assigns and shall inure to the benefit
of and be available to Mortgagee, and its successors and assigns.
6.2 Interpretation; Time of the Essence. All references to Mortgagor
and Mortgagee shall be read in the singular or plural and in the masculine,
feminine, or neuter gender, as the sentence may require. Time is of the essence
with respect to each and every obligation of Mortgagor under the Reimbursement
Agreement and the Mortgage.
6.3 Governing Law. This Mortgage shall be governed by the laws of the
State of Ohio. In the event that any provision of this Mortgage conflicts with
applicable law, such conflict shall not affect other provisions of this Mortgage
or the Reimbursement Agreement which can be given affect without the conflicting
provisions, and to this end the provisions of this Mortgage are declared to be
severable.
6.4 Covenants Run With Land. All of the covenants of this Mortgage
shall run with the land constituting the Premises.
6.5 Headings. The headings to the articles and sections hereof are for
reference only and do not limit in any way the content thereof.
6.6 Additional Assurances. Mortgagor hereby agrees to promptly execute
and deliver such further instruments and assurances and will do such further
acts as Mortgagee may reasonably request to perfect the security interest of
Mortgagee in all or any portion of the Premises and/or to more effectively carry
out the purposes of the Note, Mortgage and/or other Loan Documents.
6.7 Open-End Mortgage. In accordance with the provisions of Ohio
Revised Code Sections 5301.232 and 5301.233, this Mortgage is given to, and the
parties intend that it shall secure indebtedness in a maximum principal amount
of Eight Million Five Hundred Thousand and 00/100 Dollars ($8,500,000.00)
evidenced by the Reimbursement Agreement, which indebtedness may include
advances made by Mortgagee, after this Mortgage is filed of record. The making
of such advances is obligatory on the part of Mortgagee subject to the terms and
conditions provided for in the Reimbursement Agreement and Mortgage. The maximum
principal amount of the unpaid balance of such indebtedness, in the aggregate
and exclusive of interest thereon, which is or will be outstanding at any time,
is that set forth above, provided that
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<PAGE> 13
this Mortgage shall also secure unpaid balances of advances made for the payment
of taxes, assessments, insurance premiums, or costs incurred for the protection
of the Premises.
6.8 Ohio Revised Code Section 1311.14. Mortgagor covenants and agree
with Mortgagee that Mortgagee may, at its option, do all things provided to be
done by a Mortgagee under Section 1311.14 of the Ohio Revised Code, and any
amendments or supplements thereto, for the protection of Mortgagee's interest in
the Premises.
6.9 Obligations Unconditional. The obligations of the Mortgagor to make
payments of any and all amounts due hereunder shall be absolute and
unconditional without defense or set-off by reason of any default whatsoever,
including, without limitation a default by any tenant of the Premises under any
lease with the Mortgagor or under any other agreement or instrument between the
Mortgagee and the Mortgagor, and such payments to Mortgagee shall not be
decreased, abated, postponed or delayed for any reason whatsoever, including
without limitation, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Premises, the taking of any part
of the Premises, commercial frustration of purpose, failure of any person to
perform or observe any agreement, whether expressed or implied, or any duty,
liability or obligation arising out of or connected with this Mortgage, the
Reimbursement Agreement, or any other Loan Document, or failure of any resident
or occupant of the Premises to pay the fees, rentals or other charges owed to
Mortgagor, and irrespective of whether or not any such resident or occupant of
the Premises receives either partial or total reimbursement as a credit against
such payment, it being the intention of the parties that the payments required
of the Mortgagor hereunder will be paid in full when due without any delay or
diminution whatsoever.
6.10 Waiver of Jury Trial. In consideration for the execution of the
Guaranty by Mortgagee, Mortgagor hereby expressly waives the right to trial by
jury in any lawsuit or proceeding related to this Mortgage or arising in any way
from the Indebtedness Hereby Secured or the transactions between Mortgagor and
Mortgagee.
NOW, THEREFORE, if Mortgagor shall well and truly pay and discharge the
Indebtedness Hereby Secured as the same shall become due and payable and shall
perform and observe all of the terms, covenants and conditions to be performed
and observed by Mortgagor hereunder then this conveyance shall be null and void
and shall be released by Mortgagee at the expense of Mortgagor; otherwise this
Mortgage is to remain in full force and effect.
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<PAGE> 14
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the year
and date first above written.
WITNESSES: Mortgagor:
/s/ David J. Furniss
- - ----------------------------- DURAMED PHARMACEUTICALS, INC.,
Printed: David J. Furniss a Delaware corporation
---------------------
/s/ Jeffrey T. Arington
- - -----------------------------
Printed: Jeffrey T. Arington By: /s/ Timothy J. Holt
--------------------- -----------------------------------
Name: Timothy J. Holt
---------------------------------
Its: Senior Vice President - Finance
----------------------------------
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this 5th day of
November, 1998 by Timothy J. Holt as Senior Vice President - Finance of DURAMED
PHARMACEUTICALS, INC., a Delaware corporation, on behalf of the corporation.
/s/ Mary J. Lubbe
--------------------------------------
Notary Public
This instrument was prepared by:
Stephen M. Griffith, Jr.
Taft, Stettinius & Hollister LLP
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202-3957
(513) 381-2838
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<PAGE> 15
Exhibit "A"
LEGAL DESCRIPTION
FOR
CONSOLIDATION
14.790 Acre Parcel
Being a parcel of land situated in Columbia Township, City of
Cincinnati, Hamilton County, Ohio, Section 28 and Section 29, Town 4, Fractional
Range 2, and being part of the property as conveyed in Official Record Book
6330, Page 419 of the deed records of the Recorders Office of Hamilton County,
Ohio, and being located within the following described points and the boundary
thereof:
Commencing at the northwest corner of the northeast quarter of Section
28; thence along the north-south half section line of said Section 28, South
05(Degree)30'46" West, 115.50 feet to the east line of Lester Road, said point
being the Real Point of Beginning of the parcel herein described; thence with
the east line of said Lester Road on the following courses: (1) North
12(Degree)35'24" West, 64.85 feet; (2) on a curve deflecting to the left and
having a radius of 392.00 feet, an arc length of 68.20 feet, and a chord bearing
North 14(Degree)38'48" West, 68.11 feet to the south right-of-way line of the N
& W Railroad; thence with said south line on the following courses: (1) North
35(Degree)34'43" East, 48.18 feet; (2) on a curve deflecting to the right and
having a radius of 1,833.46 feet; an arc length of 1366.45 feet, and a chord
bearing North 88(Degree)40'07" East, 1,335.04 feet; (3) South 69(Degree)41'23"
East, 188.00 feet; (4) South 20(Degree)18'37: West, 15.00 feet; (5) South
69(Degree)38'07" East, 40.14 feet to the northwesterly Limited Access line of
Interstate 71; thence with said northwesterly line on the following courses: (1)
South 47(Degree)22'53" West, 101.58 feet; (2) South 17(Degree)30'03" West, 68.97
feet; (3) on a curve deflecting to the right and having a radius of 1,839.86
feet, an arc length of 315.10 feet, and a chord bearing South 69(Degree)37'01"
West, 314.72 feet; (4) South 82(Degree)22'48" West, 83.23 feet; (5) North
5(Degree)44'46" East, 42.43 feet; (6) South 76(Degree)47'12" West, 251.19 feet;
(7) South 72(Degree)35'28" West, 56.36 feet; (8) North 71(Degree)06'11" West,
53.62 feet; (9) South 51(Degree)46'24" West, 89.33 feet; (10) South
80(Degree)56'32" West, 159.04 feet; (11) South 85(Degree)44'06" West,
78(Degree)17'53" West, 57.31 feet; (14) North 88(Degree)30'50" West, 62.00 feet;
(15) North 65(Degree)43'31: West, 129.08 feet; (16) North 83(Degree)05'13" West,
47.44 feet to the east line of Lester Road; thence with said east line on the
following courses: (1) North 01(Degree)10'46" East, 142.95 feet; (2) North
12(Degree)35'24" West, 58.62 feet to the Real Point of Beginning containing
14.790 acres more or less.
The above description is the result of a survey prepared by Carl D.
Walker of Savage, Walker & Associates, Inc., Ohio Registered Surveyor No. 6260
dated June 7, 1994.
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<PAGE> 16
Exhibit "A" Continued
DESCRIPTION
FOR
CONSOLIDATION
2.302 Acre Parcel
Being a parcel of land situated in Columbia Township, City of
Cincinnati, Hamilton County, Ohio, Section 28, Town 4, Fractional Range 2 and
being part of the property as conveyed in Official Record Book 6330, Page 419
and all of the property as conveyed in Registered Land Certificate No. 159327 of
the deed records of the Recorders Office and Registered Land Office of Hamilton
County, Ohio, and being located within the following described points and the
boundary thereof:
Commencing at the northwest corner of the northeast quarter of Section
28; thence on the north-south half section line of said Section 28; South
05(Degree)30'46" West, 313.05 feet to the northwesterly limited access line of
Interstate 71; thence with said northwesterly line North 84(Degree)24'32"
West,21.18 feet to the Real Point of Beginning of the parcel herein described;
thence continuing with the said northwesterly line on the following courses: (1)
North 84(Degree)24'32" West, 61.17 feet; (2) South 78(Degree)08'00" West, 343.29
feet; (3) South 86(Degree)56'55" West, 127.85 feet; (4) South 48(Degree)47'12"
West, 18.99 feet; (5) North 41(Degree)14'07" West, 20.54 feet to the south
right-of-way line of the N & W Railroad; thence with said south line on a curve
deflecting to the right and having a radius of 1,833.46 feet, an arc length of
629.03 feet, and a chord bearing North 53(Degree)46'30" East, 625.95 feet to the
west right-of-way line of Lester Road; thence with said west line on the
following courses: (1) on a curve deflecting to the right and having a radius of
332.00 feet, an arch length of 32.36 feet, and a chord bearing South
41(Degree)17'58" East, 32.35 feet, (2) on a curve deflecting the right and
having a radius of 675.00 feet, an arc length of 89.71 feet, and a chord bearing
South 14(Degree)12'08" East, 89.64 feet; (3) South 38(Degree)47'14" East, 12.36
feet; (4) South 01(Degree)10'46" West, 72.10 feet; (5) on a curve deflecting to
the right and having a radius at 30.00 feet, an arc length of 8.88 feet, and a
chord bearing South 60(Degree)39'41" West, 8.85 feet; (6) on a curve deflecting
to the left and having a radius of 50.00 feet, an arc length of 125.97 feet and
a chord bearing South 03(Degree)24'52" East, 95.20 feet; (7) South
01(Degree)10'46" West, 9.11 feet to the Real Point of Beginning containing 2.302
acres more or less.
Included in the above described parcel is Registered Land Certificate
of Title No. 87180, described as follows:
Commencing at the northwest corner of the northeast quarter of Section
28; thence along the north-south half section line of said Section 28; South
05(Degree)30'46" West, 168.63 feet; thence leaving said north-south line North
38(Degree)47'14" West, 62.23 feet to
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<PAGE> 17
the west line of Lester Road, said point being the Real Point of Beginning of
the parcel herein described; thence leaving said west line North
38(Degree)47'14" West, 90.04 feet; thence on a curve deflecting to the right and
having a radius of 1830.08 feet, an arc length of 38.26 feet, and a chord
bearing North 64(Degree)05'11" East, 38.26 feet to the west line of Lester Road;
thence with said west line on a curve deflecting to the right having a radius of
675.00 feet, an arc length of 89.71 feet, and a chord bearing South
14(Degree)12'08" East, 89.64 feet to the Real Point of Beginning containing
.0407 acres more or less.
The above description is the result of a survey prepared by Carl D.
Walker of Savage, Walker & Associates, Inc., Ohio Registered Surveyor No. 6260
dated June 7, 1994.
-17-
<PAGE> 1
MERRILL LYNCH UNCONDITIONAL GUARANTY
================================================================================
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or continue to
extend credit to or for the benefit of DURAMED PHARMACEUTICALS, INC., a
corporation organized and existing under the laws of the State of Delaware (with
any successor in interest, including, without limitation, any successor by
merger or by operation of law, herein collectively referred to as "Customer")
under: (a) that certain TERM WCMA LOAN AGREEMENT NO. 9808880201 between MLBFS
and Customer (the "Loan Agreement"), (b) any "Additional Agreements", as that
term is defined in the Loan Agreement, and (c) all present and future
amendments, restatements, supplements and other evidences of any extensions,
increases, renewals, modifications and other changes of or to the Loan Agreement
or any Additional Agreements (collectively, the "Guaranteed Documents"), and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the undersigned, WARNER-LAMBERT COMPANY, a corporation
organized and existing under the laws of the State of Delaware ("Guarantor"),
hereby unconditionally guarantees to MLBFS: (i) the prompt and full payment when
due, by acceleration or otherwise, of all sums now or any time hereafter due
from Customer to MLBFS under the Guaranteed Documents, and (ii) the prompt, full
and faithful performance and discharge by Customer of each and every other
covenant and warranty of Customer set forth in the Guaranteed Documents
(collectively, the "Obligations"). Guarantor further agrees to pay all
reasonable costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect
or enforce performance of any of the Obligations, or in enforcing this Guaranty.
Guarantor acknowledges that MLBFS is relying on the execution and delivery of
this Guaranty in advancing moneys to or extending or continuing to extend credit
to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall
remain in effect until all of the Obligations shall have been fully and
indefeasibly paid, performed and discharged. Upon the occurrence and during the
continuance of any default or Event of Default under the Guaranteed Documents,
any or all of the indebtedness hereby guaranteed then existing shall, at the
option of MLBFS, become immediately due and payable from Guarantor (it being
understood, however, that upon the occurrence of any "Bankruptcy Event", as
defined in the Guaranteed Documents, all such indebtedness shall automatically
become due and payable without action on the part of MLBFS). Notwithstanding the
occurrence of any such event, this Guaranty shall continue and remain in full
force and effect. To the extent MLBFS receives payment with respect to the
Obligations, and all or any part of such payment is subsequently invalidated,
declared to be fraudulent or preferential, set aside, required to be repaid by
MLBFS or is repaid by MLBFS pursuant to a settlement agreement, to a trustee,
receiver or any other person or entity, whether under any Bankruptcy law or
otherwise (a "Returned Payment"), this Guaranty shall continue to be effective
or shall be reinstated, as the case may be, to the extent of such payment or
repayment by MLBFS, and the indebtedness or part thereof intended to be
satisfied by such Returned Payment shall be revived and continued in full force
and effect as if said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or
impaired by any of the following, any of which may be done or omitted by MLBFS
from time to time, without notice to or the consent of Guarantor: (a) any
renewals, amendments, restatements, modifications or supplements of or to any of
the Guaranteed Documents, or any extensions, forbearances, compromises or
releases of any of the Obligations or any of MLBFS' rights under any of the
Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or security
for, or other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
<PAGE> 2
No release or discharge in whole or in part of any other guarantor of
the Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any
claim, remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise. If, however, MLBFS shall make a demand
upon Guarantor hereunder and following such demand Guarantor shall pay to MLBFS
all outstanding Obligations, then, upon the written request of Guarantor to
MLBFS not later than 90 days thereafter, MLBFS will assign to Guarantor, without
warranty or recourse, all of its rights in and to the indebtedness of Customer
evidenced by the Guaranteed Documents (it being further understood, however,
that MLBFS will not in such case assign or allow the continued use of the
Merrill Lynch WCMA Account utilized to house part of the credit facility
evidenced by the Guaranteed Documents.)
MLBFS is hereby irrevocably authorized by Guarantor at any time during
the continuance of an Event of Default under the Loan Agreement or any other of
the Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
and all cash, securities and other financial assets therein or controlled
thereby, and all proceeds thereof. Guarantor hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the UCC.
Grantor agrees to furnish to MLBFS such financial information
concerning Guarantor as may be reasonably required by any of the Guaranteed
Documents or as MLBFS may otherwise from time to time reasonably request
Guarantor further hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Guarantor. MLBFS agrees to
mark its records with an instruction to its employees to furnish to Guarantor a
copy of each invoice and WCMA account statement with respect to the Guaranteed
Obligations; it being understood, however, that no failure or delay on the part
of MLBFS in furnishing any such copy shall affect the validity or enforceability
of this Guaranty, or give rise to any defense on the part of Guarantor hereunder
or any liability on the part of MLBFS to Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy
under the Guaranteed Documents, this Guaranty or any other agreement shall
operate as a waiver thereof, and, without limiting the foregoing, no delay in
the enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Guaranty.
This Guaranty shall be binding upon Guarantor and its successors and assigns,
and shall inure to the benefit of MLBFS and its successors and assigns.
NOTWITHSTANDING ANYTHING HEREINABOVE TO THE CONTRARY:
(A) AS CONDITIONS OF GUARANTOR'S OBLIGATION TO MAKE ANY PAYMENT
HEREUNDER: (I) MLBFS SHALL, UNLESS PROHIBITED BY ANY LAW, REGULATION OR
-2-
<PAGE> 3
JUDICIAL OR ADMINISTRATIVE ORDER, MAKE A WRITTEN DEMAND UPON CUSTOMER FOR
PAYMENT AND SEND A COPY OF SUCH WRITTEN DEMAND TO GUARANTOR; AND (II) IF SUCH
DEMAND IS NOT SO PROHIBITED, 30 DAYS SHALL ELAPSE AFTER MLBFS SHALL HAVE MADE
SUCH DEMAND (IT BEING FURTHER UNDERSTOOD THAT A FAILURE OR DELAY IN MAKING ANY
SUCH DEMAND OR FURNISHING A COPY THEREOF TO GUARANTOR SHALL ONLY DELAY
GUARANTOR'S OBLIGATIONS, BUT SHALL NOT EXCUSE OR DISCHARGE SUCH OBLIGATIONS.)
(B) THE MAXIMUM LIABILITY OF GUARANTOR HEREUNDER SHALL BE $8,500,000.00
PLUS ACCRUED AND UNPAID INTEREST AND ALL OUT-OF-POCKET COSTS AND EXPENSES OF
MLBFS IN ENFORCING THE GUARANTEED DOCUMENTS AND THIS GUARANTY, INCLUDING
REASONABLE ATTORNEYS' FEES AND EXPENSES.
This Guaranty shall be governed by the laws of the State of Illinois.
WITHOUT LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION
AND VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY
AT THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN
WHICH ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS.
Wherever possible each provision of this Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under such law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty. No modification or waiver of any of the
provisions of this Guaranty shall be effective unless in writing and signed by
both Guarantor and an officer of MLBFS. Each signatory on behalf of Guarantor
warrants that he or she has authority to sign on behalf of Guarantor, and by so
signing, to bind Guarantor hereunder.
Without affecting the validity or enforceability of this Guaranty with
respect to the Guaranteed Documents as the same may be from time to time
modified with the consent of MLBFS, Customer and Guarantor, it is understood
that no modification of any of the Guaranteed Documents shall be effective
unless in a writing signed by MLBFS, Customer and Guarantor.
Dated as of October 1, 1998.
WARNER-LAMBERT COMPANY
By: /s/ Carl Wheeldon
-----------------------------------------------------------------------------
Signature (1) Signature (2)
Carl Wheeldon
- - --------------------------------------------------------------------------------
Printed Name Printed Name
Vice President - Manufacturing
- - --------------------------------------------------------------------------------
Title Title
-3-
<PAGE> 4
Address of Guarantor:
- - ------------------------------------------
- - ------------------------------------------
- - ------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,500
<SECURITIES> 0
<RECEIVABLES> 8,615,031
<ALLOWANCES> 939,000
<INVENTORY> 19,400,567
<CURRENT-ASSETS> 29,641,855
<PP&E> 45,168,904
<DEPRECIATION> 17,692,909
<TOTAL-ASSETS> 58,086,451
<CURRENT-LIABILITIES> 13,100,605
<BONDS> 18,217,006
12,000,000
0
<COMMON> 179,875
<OTHER-SE> 13,964,685
<TOTAL-LIABILITY-AND-EQUITY> 58,086,451
<SALES> 35,672,485
<TOTAL-REVENUES> 35,672,485
<CGS> 26,978,484
<TOTAL-COSTS> 29,303,126
<OTHER-EXPENSES> 11,361,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,696,758
<INCOME-PRETAX> (6,689,008)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,689,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,080,670)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
