<PAGE>
Commission File Number 1-10827
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10--Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
PHARMACEUTICAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3122182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 425-7100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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18,696,629
Number of shares of Common Stock outstanding as of February 5, 1997.
This is page 1 of 97 pages. The exhibit index is on page 13.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
DECEMBER 28, SEPTEMBER 30,
ASSETS 1996 1996
- ------ -------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents - $ 299
Temporary investments $ 123 158
Accounts receivable, net of allowances of
$3,474 and $2,643 7,835 7,645
Inventories 18,263 19,352
Prepaid expenses and other current assets 1,120 3,894
------- -------
Total current assets 27,341 31,348
Property, plant and equipment, at cost less
accumulated depreciation and amortization 25,569 26,068
Deferred charges and other assets 1,170 1,222
Investments 6,904 8,672
Investment in joint venture 2,880 3,028
Non-current deferred tax benefit 14,608 14,608
------- -------
Total assets $78,472 $84,946
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 261 $ 2,142
Short term debt 3,624 -
Accounts payable 3,026 4,163
Accrued salaries and employee benefits 2,584 3,299
Accrued expenses and other current liabilities 1,017 1,028
------- -------
Total current liabilities 10,512 10,632
Long-term debt, less current portion 1,308 2,971
Accrued pension liability 719 719
Shareholders' equity:
Common Stock, par value $.01 per share; authorized 60,000,000 shares;
issued and outstanding 18,696,629 and 18,661,869 shares 187 187
Additional paid in capital 67,095 67,081
Accumulated (deficit) (4,488) (1,509)
Additional minimum liability related to defined benefit pension plan (117) (117)
Unrealized gain on investment 3,256 4,982
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Total shareholders' equity 65,933 70,624
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Total liabilities and shareholders' equity $78,472 $84,946
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Net sales $12,470 $14,859
Cost of goods sold
11,238 10,762
Gross margin ------- -------
1,232 4,097
Operating expenses:
Research and development 704 363
Selling, general and administrative 3,124 4,231
------- -------
Total operating expenses 3,828 4,594
------- -------
Operating (loss) (2,596) (497)
Other income 109 289
Interest expense (82) (121)
(Loss) before provision (credit) for income taxes (2,569) (329)
Provision (credit) for income taxes 410 (131)
-------
NET (LOSS) (2,979) (198)
Retained earnings (deficit), beginning of period (1,509) 6,783
------- -------
Retained earnings (deficit), end of period $(4,488) $ 6,585
======= =======
NET (LOSS) PER SHARE OF COMMON STOCK $(.16) $(.01)
Weighted average number of common and
common equivalent shares outstanding 18,667 18,448
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
--3--
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(2,979) $ (198)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
(Credit) for income tax expense - (131)
Joint venture research and development 148 153
Depreciation and amortization 686 730
Allowances against accounts receivable (831) (697)
Write-off of inventories 333 316
Other - (10)
Changes in assets and liabilities:
Decrease in accounts receivable 641 1,636
Decrease (increase) in inventories 756 (1,676)
Decrease (increase) in prepaid expenses and other assets 2,908 (233)
(Decrease) in accounts payable (1,137) (490)
(Decrease) in accrued expenses and other liabilities (726) (102)
------- -------
Net cash (used in) operating activities (201) (702)
Cash flows from investing activities:
Capital expenditures (269) (1,117)
Decrease (increase) in investments 42 (1,000)
Decrease in temporary investments 35 83
------- -------
Net cash (used in) investing activities (192) (2,034)
Cash flows from financing activities:
Proceeds from issuance of capital stock 14 39
Net proceeds from revolving credit line, proceeds from issuance
of notes payable and other debt 3,624 4,050
Principal payments under long-term debt and other borrowings (3,544) (4,196)
Payments due to stock conversion - (5)
------- -------
Net cash provided by (used in) financing activities 94 (112)
Net (decrease) in cash and cash equivalents (299) (2,848)
Cash and cash equivalents at beginning of period $ 299 17,986
------- -------
Cash and cash equivalents at end of period - $15,138
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
--4--
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1996
(UNAUDITED)
Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates in one
business segment, the manufacture and distribution of generic pharmaceuticals.
Marketed products are principally in oral solid (tablet, caplet and capsule)
form, with a small number of products in the form of creams and liquids.
BASIS OF PREPARATION:
The accompanying financial statements at December 28, 1996 and for the three-
month periods ended December 28, 1996 and December 30, 1995 are unaudited;
however, in the opinion of management of PRI, such statements include all
adjustments (consisting of normal recurring accruals) necessary to a fair
statement of the information presented therein. The balance sheet at September
30, 1996 was derived from the audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for audited financial statements. Accordingly,
these statements should be read in conjunction with PRI's most recent annual
financial statements.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.
SHORT TERM DEBT:
On December 27, 1996, Par entered into a Loan and Security Agreement (the
"Loan Agreement") with General Electric Capital Corporation ("GECC") which
provides Par with a three-year revolving line of credit. Pursuant to the Loan
Agreement, Par is permitted to borrow up to the lesser of (i) the borrowing base
established under the Loan Agreement or (ii) $20,000,000. The borrowing base is
limited to 85% of eligible accounts receivable plus 50% of eligible inventory of
Par as determined from time to time by GECC. The interest rate charge on the
line of credit is based upon a per annum rate of 2.50% above the 30-day
commercial paper rate for high-grade unsecured notes adjusted monthly. The line
of credit with GECC is secured by the assets of Par and PRI other than real
property and is guaranteed by PRI. As a condition to such facility, Par, PRI,
and their affiliates have established a cash management system pursuant to which
all cash and cash equivalents received by any of such entities are deposited
into a lockbox account over which GECC has sole operating control and which are
applied on a daily basis to reduce amounts outstanding under the line of credit.
As of December 28, 1996, approximately $3,600,000 was outstanding under such
line of credit. The revolving credit facility, which is subject to covenants
which are based on various financial benchmarks, replaced PRI's previous
$16,000,000 revolving facility and $4,000,000 term loan facility with Fleet
Bank, N.A. Any significant reduction in the borrowing base will adversely
affect the Company's liquidity.
INCOME TAXES:
Based on the Company's recent performance and the uncertainty of the generic
business in which it operates, management believes that future operating income
might not be sufficient to recognize fully the net operating loss carryforwards
of the Company. Therefore, the Company is not recognizing a benefit for its
operating loss this quarter. If the Company is unable to generate sufficient
taxable income in the future, increases in the valuation will be required
through a charge to expense. The Company incurred income tax expense of
$410,000 in the current quarter due to interest relating to a settlement with
the Internal Revenue Service in fiscal 1995 for the disallowance of the
Company's tax credit in prior periods with respect to certain research and
development credits.
--5--
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 28, 1996
(UNAUDITED)
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Retirement Plans:
The Company has a defined contribution, social security integrated Retirement
Plan providing retirement benefits to eligible employees as defined in the Plan.
The Board of Directors of Par authorized the cessation of employer contributions
effective December 30, 1996. Consequently, participants in the Retirement Plan
will no longer be entitled to any employer contributions under such plan for
1996 or subsequent years. The Company also maintains a Retirement Savings Plan
whereby eligible employees are permitted to contribute from 1% to 12% of pay to
this Plan. The Company contributes an amount equal to 50% of the first 6% of
the pay contributed by the employee. In fiscal 1997, the Company intends to
merge the Retirement Plan into the Retirement Savings Plan.
Legal Proceedings:
The Company is involved in certain litigation matters, including certain
product liability actions and actions by two former officers for, among other
things, breach of contract. Such actions seek damages from the Company,
including compensatory and punitive damages. The Company intends to defend
these actions vigorously. The Company believes that these actions are
incidental to the conduct of its business and that the ultimate resolution
thereof will not have a material adverse effect on its financial condition or
results of operations.
Restructuring and Cost Reductions:
The Company implemented measures during the fourth quarter of fiscal
1996, which continued in the first quarter of fiscal 1997, in an effort to
reduce costs and increase operating efficiencies. Such measures provided for a
reduction of the work force, changes in senior management, a reorganization of
certain existing personnel and reductions in certain expenses.
--6--
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 RESEARCH AND DEVELOPMENT JOINT VENTURES, (III) RESEARCH AND DEVELOPMENT
PROJECT DELAYS OR DELAYS IN OBTAINING REGULATORY APPROVALS, AND (IV) THE ABILITY
OF THE COMPANY TO RETAIN AND ATTRACT MANAGEMENT PERSONNEL IN KEY OPERATIONAL
AREAS.
RESULTS OF OPERATIONS
GENERAL
The Company incurred an operating loss for the three-month period ended
December 28, 1996 of $2,596,000 compared to a loss of $497,000 in the
corresponding period of the prior fiscal year. The loss is principally due to
sales and gross margin declines, as described below. If sales declines are not
offset by increased sales of new distributed or manufactured products, net sales
and gross margin declines will continue and, accordingly, result in continuing
losses. As a result of the recent losses, the Company is continuing to search
for strategic alternatives to improve its financial condition and product line.
The continued price and profit margin erosion on certain of the Company's
products reflects a trend currently being experienced in the generic drug
industry in the United States. The factors contributing to the intense
competition and affecting both the introduction of new products and the pricing
and profit margins of the Company, include, among other things, (i) introduction
of other generic drug manufacturer's products in direct competition with the
Company's significant products, (ii) competition from brand name drug
manufacturers selling generic versions of their drugs, (iii) increased ability
of generic competitors to enter the market after patent expiration, diminishing
the amount and duration of significant profits, and (iv) willingness of generic
drug customers, including wholesale and retail customers, to switch among
pharmaceutical manufacturers.
In response to recent results and industry trends, the Company has
implemented measures to reduce costs and increase operating efficiencies (see
"Notes to Financial Statements-Commitments, Contingencies and Other Matters-
Restructuring and Cost Reductions"). These measures have begun to reduce
operating costs in fiscal 1997. No assurances can be given that reduced costs
will return the Company to profitability.
The Company plans to continue to invest in its internal research and
development efforts in addition to pursuing additional products for sale through
new and existing distribution agreements and research and development joint
ventures. There have been no significant sales of any new manufactured or
distributed products introduced in the first quarter of the current fiscal year.
The Company is engaged in efforts, subject to U.S. Food and Drug Administration
("FDA") approval and other factors, to introduce new products as a result of its
research and development efforts and distribution agreements. No assurance can
be given that any additional products for sale by the Company will happen or
that sales of additional products will reduce losses or return the Company to
profitability. Continuing losses will adversely affect the Company's liquidity
and, accordingly, its ability to fund research and development or ventures
relating to the sale of new products (see "-Financial Condition-Liquidity and
Capital Resources").
NET SALES
Net sales of $12,470,000 for the three months ended December 28, 1996
decreased $2,389,000, or 16%, from the corresponding period of the prior fiscal
year. The decline is primarily due to decreased sales of manufactured
--7--
<PAGE>
products which resulted, in large, part from lower pricing and decreases in
volume of one of the Company's significant products, and to a lesser extent, one
other significant product. The reduction in pricing and volume results from
increased competition from other drug manufacturers. Sales of distributed
products were consistent with the levels achieved in the corresponding period of
the prior fiscal year.
Levels of sales are principally dependent upon, among other things, (i)
pricing levels and competition, (ii) market penetration for the existing product
line, (iii) approval of Abbreviated New Drug Applications ("ANDAs") and
introduction of new manufactured products, (iv) introduction of new distributed
products and (v) the level of customer service.
GROSS MARGIN
The Company's gross margin of $1,232,000 (10% of net sales) for the three
months ended December 28, 1996 decreased by $2,865,000 from $4,097,000 (28% of
net sales) in the corresponding period of the prior fiscal year. The gross
margin decline is primarily due to lower selling prices and decreased volumes of
certain significant manufactured products resulting from the introduction of
other generic drug manufacturers' products in direct competition with the
Company's significant products. Gross margins on distributed products for the
current three-month period were comparable to gross margins for the quarter
ended December 30, 1995.
Inventory write-offs, taken in the normal course of business, amounted to
$333,000 for the three-month period ended December 28, 1996, compared to
$316,000 in the corresponding period of the prior year. The inventory write-
offs are related to the disposal of finished products due to short shelf life
and work in process inventory not meeting the Company's quality control
standards.
OPERATING EXPENSES
Research and Development
Research and development expenses for the three months ended December 28,
1996 were $704,000 versus $363,000 for the three months ended December 30, 1995.
In the current quarter, there were no payments to or reimbursements from Sano
Corporation ("Sano"), while in the prior year payments of $1,075,000 were more
than offset by a reimbursement from Sano of $1,500,000. The Company has a
distribution agreement with Sano to distribute generic transdermal products
developed by Sano. The Company recorded its share of the Clal joint venture's
(see below) research and development expenses of $148,000 for the current three-
month period compared to $153,000 for the corresponding period of the prior
year.
To further expand its product line, the Company is continuing its efforts
to introduce new products from internal research and development and from
existing joint ventures, as well as searching for additional research and
development joint ventures. In May 1995, the Company formed an alliance with
Clal Pharmaceutical Industries Ltd. ("Clal") to develop, manufacture and
distribute generic pharmaceuticals worldwide. A research and development joint
venture, formed in Israel and owned 49% by the Company and 51% by Clal, has
commenced operations and identified approximately 35 products for research.
Selling, General and Administrative
Selling, general and administrative costs are $3,124,000 (25% of net sales)
for the three month period ended December 28, 1996 versus $4,231,000 (28% of net
sales) for the corresponding period in the prior fiscal year. The decrease in
the period is primarily attributable to a decline in personnel costs resulting
from recent headcount reductions and the amendment of a pension plan (see "Notes
to Financial Statements-Commitments, Contingencies and Other Matters-Retirement
Plans" and "-Restructuring and Cost Reductions"). In addition, fees for
consulting and professional services, costs for advertising and developmental
marketing and bad debt expense have been reduced in the current fiscal quarter.
The prior year's costs included severance expenses related to management
reorganization at that time.
--8--
<PAGE>
Income Taxes
Management has determined, based on the Company's performance and the
uncertainty of the generic business in which it operates, that future operating
income might not be sufficient to recognize fully the net operating loss
carryforwards of the Company. Therefore, the Company is not recognizing a
benefit for its operating loss this quarter. The Company incurred income tax
expense of $410,000 in the current quarter due to interest relating to a
settlement with the Internal Revenue Service in fiscal 1995 for the disallowance
of the Company's tax credit for prior periods with respect to certain research
and development credits. The Company recorded an income tax benefit of $131,000
during the first quarter of fiscal 1996 which was reversed during the fourth
quarter of the same year.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital of $16,829,000 at December 28, 1996 represents a decrease
of $3,887,000 from September 30, 1996. The decrease is principally due to the
use of funds to fund operating losses. As a result of a cash management system
pursuant to the financing agreement that the Company entered into with General
Electric Capital Corporation ("GECC"), there is no cash balance at December 28,
1996 (see "-Financing"). The working capital ratio of 2.6x declined from 2.9x
at fiscal year end.
During the first quarter of fiscal 1997, the Company sold 7,000 shares of
Sano stock yielding net proceeds of approximately $135,000. In January 1997,
the Company advanced to Sano $1,957,000 as funding for the research and
development costs of certain generic transdermal products.
The Company is committed to invest $3,920,000 (which includes the balance
of the commitment from fiscal year 1996) in the Clal joint venture through
fiscal 1997. The Company and Clal are negotiating to amend their remaining
funding commitments in order to reflect the present and contemplated capital
requirements of the Joint Venture, although they have not yet amended their
written agreement. In the event that the Company and Clal do not reach a
written agreement and either party makes an additional contribution to the joint
venture, the other party's share in the profits and capital of the joint venture
will be diluted.
The Company expects to fund its research and development activities,
including its obligations under the existing distribution and development
arrangements discussed above, out of its working capital, and if necessary with
borrowings against its line of credit, to the extent then available (see "--
Financing"). If, however, the Company continues to experience significant
losses, its liquidity and, accordingly, its ability to fund research and
development or ventures relating to the distribution of new products will be
materially and adversely affected.
FINANCING
As of December 28, 1996, the Company's total outstanding short-term and
long-term debt amounted to $3,624,000 and $1,569,000, respectively. The short-
term debt consists of the outstanding amount under the Company's line of credit
with GECC and the long-term debt consists primarily of an outstanding mortgage
loan to another bank.
On December 27, 1996, Par entered into a Loan and Security Agreement (the
"Loan Agreement") with GECC which provides Par with a three-year revolving line
of credit. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing base established under the Loan Agreement or (ii)
$20,000,000. The borrowing base is limited to 85% of eligible accounts
receivable plus 50% of eligible inventory of Par, each as determined from time
to time by GECC. The interest rate on the line of credit is based upon a per
annum rate of 2.50% above the 30-day commercial paper rate for high-grade
unsecured notes adjusted monthly. The line of credit with GECC is secured by the
assets of Par and PRI other than real property and is guaranteed by PRI. As a
condition to such facility, Par, PRI and their affiliates have established a
cash management system pursuant to which all cash and cash equivalents received
by any of such entities are deposited into a lockbox
--9--
<PAGE>
account over which GECC has sole operating control and which are applied on a
daily basis to reduce amounts outstanding under the line of credit. The
revolving credit facility, which is subject to covenants based on various
financial benchmarks, replaced PRI's previous $16,000,000 revolving facility and
$4,000,000 term loan facility with Fleet Bank, N.A. Any significant reduction in
the borrowing base will adversely affect the Company's liquidity.
--10--
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits:
10.37 - Pledge Agreement, dated December 27, 1996, between Par
Pharmaceutical, Inc. and General Electric Capital
Corporation.
10.38 - Pledge Agreement, dated December 27, 1996, between
Pharmaceutical Resources, Inc. and General Electric Capital
Corporation.
10.39 - Loan and Security Agreement, dated December 27, 1996, between
Par Pharmaceutical, Inc. and General Electric Capital
Corporation.
11 - Computation of per share data.
21 - Subsidiaries of Registrant.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
--11--
<PAGE>
SIGNATURE
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.
PHARMACEUTICAL RESOURCES, INC.
------------------------------
(Registrant)
February 11, 1997 /s/ Kenneth I. Sawyer
-----------------------------------------
Kenneth I. Sawyer
President and Chief Executive Officer
(Principal Executive Officer)
February 11, 1997 /s/ Dennis J. O'Connor
--------------------------------------------
Dennis J. O'Connor
Vice President - Chief Financial Officer and
Secretary
(Principal Accounting and Financial Officer)
--12--
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description Page Number
-------------- ------------ -----------
10.37 Pledge Agreement, dated December 27, 1996, 14
between Par Pharmaceutical, Inc. and General
Electric Capital Corporation.
10.38 Pledge Agreement, dated December 27, 1996, 25
between Pharmaceutical Resources, Inc. and General
Electric Capital Corporation.
10.39 Loan and Security Agreement, dated December 27, 36
1996, between Par Pharmaceutical, Inc. and General
Electric Capital Corporation.
11 Computation of per share data 95
21 Subsidiaries of Registrant 96
27 Financial Data Schedule 97
--13--
<PAGE>
Exhibit 10.37
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into as of
---------
December 15, 1996 by PAR PHARMACEUTICAL, INC., a New Jersey corporation
("Pledgor), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
- ---------
corporation ("Lender").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor is the legal and beneficial owner of the outstanding shares
of stock set forth on Schedule I hereto (the "Pledged Shares") and issued by the
--------------
corporations identified on Schedule I hereto (together with any future
Subsidiaries of Pledgor, each an "Issuer" and, collectively, the "Issuers");
------ -------
WHEREAS, Pledgor, the other credit parties signatory thereto and Lender have
entered into the Loan and Security Agreement dated as of December 15, 1996 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), providing for the making of revolving credit advances by
- ---------------
Lender to Pledgor. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Loan Agreement; and
WHEREAS, Lender has required, as a condition to their entering into the Loan
Agreement, that Pledgor pledge and grant to Lender, a security interest in the
Pledged Collateral (as defined herein) to secure the payment and performance by
Pledgor of the Secured Obligations (as defined herein);
NOW, THEREFORE, in consideration of the premises and mutual covenants and in
order to induce Lender to extend credit under the Loan Agreement, Pledgor hereby
agrees with the Lender, as follows:
SECTION 1. PLEDGE. Pledgor hereby pledges and grants to Lender, a
------
continuing security interest in all of the following property now owned or at
any time hereafter acquired by Pledgor or in which Pledgor now has, or may
acquire in the future, any right, title or interest thereto (collectively, the
"Pledged Collateral"):
------------------
(a) the Pledged Shares of Pledgor; and
(b) all additional shares of Stock of the Issuers hereafter acquired,
received or owned by Pledgor (the "Additional Shares"); and
-----------------
(c) the certificates representing the Pledged Shares and the Additional
Shares (all of which shall be deemed to be part of the Pledged Shares), and all
products and Proceeds of any of such Pledged Shares, including, without
limitation, all dividends, cash, instruments, subscriptions, warrants and any
other rights and options and other property from time to time received,
receivable or otherwise distributed to Pledgor in respect of or in exchange for
any or all of such Pledged Shares.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of the
Obligations, whether now existing or hereafter incurred, whether arising under
the Loan Agreement, this Agreement, the other Loan Documents or otherwise
(collectively, the "Secured Obligations").
-------------------
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Lender pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Lender.
--14--
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants to Lender as follows:
(a) The Pledged Shares have been duly authorized and validly issued and
the Pledged Shares are fully paid and non-assessable. There are no existing
options, warrants, calls or commitments of any character whatsoever relating to
any of the Pledged Shares. None of the Pledged Shares is subject to any
shareholder agreement, voting trust agreement or any other agreement in respect
of the rights of shareholders.
(b) Pledgor is the sole legal and beneficial owner of the Pledged
Collateral, free and clear of any Lien or claims of any Person except for the
security interest created by this Agreement. None of the Pledged Shares has
been issued or transferred in violation of the securities registration,
securities disclosure or similar laws of any applicable jurisdiction.
(c) The pledge and delivery of the Pledged Collateral pursuant to this
Agreement creates a valid first priority perfected security interest in the
Pledged Collateral pledged by Pledgor (assuming possession at all times by
Lender of the stock certificates representing the Pledged Shares), securing the
payment of the Secured Obligations.
(d) No authorization, approval, or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required either
(i) for the pledge by Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
Pledgor or (ii) for the exercise by Lender of the voting or other rights
provided for in this Agreement or the remedies in respect of the Pledged
Collateral of Pledgor pursuant to this Agreement (except as may be required in
connection with the disposition of the Pledged Collateral by laws affecting the
offering and sale of securities generally).
(e) The Pledged Shares constitute the percentage of the issued and
outstanding capital stock of all classes of each Issuer as set forth on Schedule
I hereto.
The foregoing representations and warranties shall be deemed to have been
made by Pledgor on each date of each extension of credit by Lender under the
Loan Agreement and the other Loan Documents.
SECTION 5. FURTHER ASSURANCES; ADDITIONAL SHARES.
-------------------------------------
(a) Pledgor agrees that at any time and from time to time, at its expense,
Pledgor will promptly execute and deliver, or cause to be executed and
delivered, all stock powers, proxies, assignments, instruments and documents and
take all further action, at Lender's request, that is reasonably necessary, in
order to perfect, or maintain perfection of, any security interest granted or
purported to be granted hereby or to enable Lender to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral pledged by
Pledgor and to carry out the provisions and purposes hereof.
(b) Pledgor further agrees that it will, upon obtaining any Additional
Shares pledge such Additional Shares to Lender and promptly (and in any event
within three (3) Business Days) deliver to Lender a duly executed Pledge
Agreement Supplement in substantially the form of Schedule II hereto (a "Pledge
------
Agreement Supplement") identifying the Additional Shares which are pledged by
- --------------------
Pledgor pursuant to this Agreement. Pledgor hereby authorizes Lender to attach
each executed Pledge Agreement Supplement to this Agreement and agrees that all
Additional Shares listed on any Pledge Agreement Supplement delivered to Lender
shall for all purposes hereunder constitute Pledged Shares and Pledged
Collateral.
(c) Pledgor agrees to defend the title to the Pledged Collateral pledged
by Pledgor and the security interest therein of Lender under this Agreement
against the Lien or claim of any Person and to maintain and preserve such
security interest until the Termination Date.
SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC.
-----------------------------
(a) Subject to Section 6(d) hereof, Pledgor shall be entitled to exercise
------------
any and all voting, corporate and other consensual rights pertaining to the
Pledged Shares or any part thereof; provided, however, that Pledgor shall
-------- -------
--15--
<PAGE>
not exercise or shall refrain from exercising any such right if such action or
inaction could have a material adverse effect on the value of the Pledged
Collateral or any part thereof or affect the priority or perfection of Lender's
Lien thereon or be inconsistent with or violate any provisions of this Agreement
(including without limitation, Section 11 hereof), the Loan Agreement or any of
----------
the other Loan Documents. Subject to Section 6(d) hereof, Lender shall execute
------------
and deliver (or cause to be executed and delivered) to Pledgor all such proxies
and other instruments as Pledgor may reasonably request for the purpose of
enabling Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to this Section 6(a).
------------
(b) Subject to Section 6(d) hereof, and to the extent permitted by the
------------
Loan Agreement, Pledgor shall be entitled to receive all cash dividends paid
from time to time in respect of the Pledged Shares in the normal course of
business of Issuers to the extent permitted under the Loan Agreement, including,
without limitation, Section 5(i) thereof.
(c) Any and all (i) dividends or other distributions paid or payable in
the form of instruments and other property (other than cash dividends permitted
under Section 6(b) hereof) received, receivable or otherwise distributed in
------------
respect of, or in exchange for, any Pledged Collateral, (ii) dividends and other
distributions paid or payable in cash in respect of any Pledged Shares in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in-surplus, and (iii) cash
paid, payable or otherwise distributed in redemption of, or in exchange for, any
Pledged Shares, shall be in each case forthwith delivered to Lender to be held
as Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of Lender, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Lender as Pledged Collateral in the same
form as so received (with any necessary endorsements).
(d) Upon the occurrence and during the continuance of an Event of Default,
(i) all rights of Pledgor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to this Section 6
---------
hereof and as sole legal and beneficial owner of the Pledged Collateral shall
cease, and all such rights shall thereupon become vested in Lender which shall
thereupon have the sole right to exercise such voting and other consensual
rights and (ii) all cash dividends or other distributions payable in respect of
the Pledged Shares shall be paid to Lender and Pledgor's right to receive such
payments and distributions pursuant to Section 6(b) hereof and otherwise as sole
------------
legal and beneficial owner of the Pledged Collateral shall immediately cease.
(e) All dividends or other distributions which are received by Pledgor
contrary to the provisions of this Section 6 shall be received in trust for the
---------
benefit of Lender, shall be segregated from other funds of Pledgor and shall be
forthwith paid over to Lender as Pledged Collateral in the same form as so
received (with any necessary endorsements).
SECTION 7. COVENANTS. Pledgor covenants and agrees with Lender from and
---------
after the date of this Agreement that until the Termination Date Pledgor will
not (a) sell, transfer or otherwise dispose of, or grant any option with respect
to, any of the Pledged Collateral pledged by Pledgor without the prior written
consent of Lender, except as expressly provided for and pursuant to the terms
and conditions of Section 5 (i) of the Loan Agreement, (b) create or permit to
-------------
exist any Lien upon or with respect to any of the Pledged Collateral pledged by
Pledgor, except for the security interest granted under this Agreement, and (c)
enter into any agreement or understanding that purports to or may restrict or
inhibit Lender's rights or remedies hereunder, including, without limitation,
Lender's right to sell or otherwise dispose of the Pledged Collateral pledged by
Pledgor.
SECTION 8. LENDER MAY PERFORM. If Pledgor fails to perform any agreement
------------------
contained herein, Lender may itself perform, or cause performance of, such
agreement, and the expenses of Lender incurred in connection therewith shall be
payable by Pledgor.
SECTION 9. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights and
----------------------------------------
powers granted to Lender hereunder are being granted in order to preserve and
protect Lender's security interest in and to the Pledged Collateral granted
hereby and shall not be interpreted to, and shall not, impose any duties on
Lender in connection therewith. Pledgor agrees that Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which Lender accords its own securities and
property, it being understood that Lender shall not have any
--16--
<PAGE>
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, tenders or other matters relative to any Pledged
Collateral, whether or not Lender has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral.
SECTION 10. SUBSEQUENT CHANGES AFFECTING COLLATERAL. Pledgor represents
---------------------------------------
to Lender that Pledgor has made its own arrangements for keeping informed of
changes or potential changes affecting the Pledged Collateral pledged by Pledgor
(including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, reorganization or other exchanges, tender offers and voting
rights), and Pledgor agrees that Lender shall have no responsibility or
liability for informing Pledgor of any such changes or potential changes or for
taking any action or omitting to take any action with respect thereto. Pledgor
covenants that it will not, without the prior written consent of Lender, except
as expressly provided for and pursuant to the terms and conditions of Section
6.8(c) or (d) of the Loan Agreement, vote to enable, or take any other action to
permit, any Issuer to issue any capital stock or to sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral pledged
by Pledgor or create or permit to exist any Lien upon or with respect to any of
the Pledged Collateral pledged by Pledgor, except for the security interests
granted under this Agreement.
SECTION 11. DEFAULTS AND REMEDIES.
---------------------
(a) Upon the occurrence of an Event of Default and during the continuation
of such Event of Default, Lender (personally or through an agent) is hereby
authorized and empowered to transfer and register in its name or in the name of
its nominee the whole or any part of the Pledged Collateral, to exchange
certificates or instruments representing or evidencing the Pledged Collateral
for certificates or instruments of smaller or larger denominations, to exercise
the voting rights with respect thereto, to collect and receive all cash
dividends and other distributions made thereon, to sell in one or more sales
after five (5) days' notice of the time and place of any public sale or of the
time after which a private sale is to take place (which notice Pledgor agrees is
commercially reasonable), but without any previous notice or advertisement, the
whole or any part of the Pledged Collateral and to otherwise act with respect to
the Pledged Collateral as though Lender was the outright owner thereof;
provided, however, Lender shall not have any duty to exercise any such right or
- -------- -------
to preserve the same and shall not be liable for any failure to do so or for any
delay in doing so. Any sale shall be made at a public or private sale at
Lender's place of business, or at any public building in New York, New York or
elsewhere to be named in the notice of sale, either for cash or upon credit or
for future delivery at such price as Lender may deem fair, and Lender may be the
purchaser of the whole or any part of the Pledged Collateral so sold and hold
the same thereafter in its own right free from any claim of Pledgor or any right
of redemption. Each sale shall be made to the highest bidder, but Lender
reserves the right to reject any and all bids at such sale which, in its
discretion, it shall deem inadequate. Demands of performance, except as
otherwise herein specifically provided for, notices of sale, advertisements and
the presence of property at sale are hereby waived and any sale hereunder may be
conducted by an auctioneer or any officer, employee or agent of Lender.
(b) If, at the original time or times appointed for the sale of the whole
or any part of the Pledged Collateral, the highest bid, if there be but one
sale, shall be inadequate to discharge in full all the Secured Obligations, or
the Pledged Collateral be offered for sale in lots, if at any of such sales, the
highest bid for the lot offered for sale would indicate to Lender, in its
discretion, the unlikelihood of the proceeds of the sales of the whole of the
Pledged Collateral being sufficient to discharge all the Secured Obligations,
Lender may, on one or more occasions and in its discretion, postpone any of said
sales by public announcement at the time of sale or the time of previous
postponement of sale, and no other notice of such postponement or postponements
of sale need be given, any other notice being hereby waived; provided, however,
-------- -------
that any sale or sales made after such postponement be after five (5) days'
notice to Pledgor.
(c) Pledgor further agrees that a breach of any of the covenants contained
in this Section 11 will cause irreparable injury to Lender, that Lender has no
----------
adequate remedy at law in respect of such breach and, as a consequence, agrees
that each and every covenant contained in this Section 11 shall be specifically
----------
enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants.
(d) In addition to remedies set forth in Section 11 above, Lender may, in
----------
its discretion (subject only to applicable requirements of law), sell such
Pledged Collateral or a part thereof by private sale in such manner and
--17--
<PAGE>
under such circumstances as Lender may deem necessary or advisable. Without
limiting the generality of the foregoing, in any such event, Lender may, in its
discretion, in accordance with applicable securities laws, (x) proceed to make
such private sales, (y) approach and negotiate with a single possible purchaser
to effect such sale, and (z) restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for
investment and not with a view to the distribution or sale of such Pledged
Collateral or part thereof. In addition to a private sale as provided above in
this Section 11, if any of the Pledged Collateral shall not be freely
----------
distributable to the public without registration under the Securities Act of
1933, as amended (or similar statute) (the "Act") at the time of any proposed
---
sale pursuant to this Section 11, then Lender shall not be required to effect
----------
such registration or cause the same to be effected but, in its discretion
(subject only to applicable requirements of law), may require that any sale
hereunder or under any of the other Loan Documents (including a sale at auction)
be conducted subject to restrictions (i) as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale, (ii) as to
the content of legends to be placed upon any certificates representing the
Pledged Collateral sold in such sale, including restrictions on future transfer
thereof, (iii) as to the representations required to be made by each Person,
bidding or purchasing at such sale relating to that Person's access to financial
information about Pledgor and such Person's intentions as to the holding of the
Pledged Collateral so sold for investment, for its own account, and not with a
view to the distribution thereof, and (iv) as to such other matters as Lender
may, in its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure to so register) may be effected in compliance with
11 U.S.C. Sec. 101 et seq., as from time to time amended, and any successor or
-- ---
similar statute and other laws affecting the enforcement of creditors' rights
and the Act and all applicable state securities laws.
(e) Pledgor acknowledges that notwithstanding the legal availability of a
private sale or a sale subject to the restrictions described above in paragraph
(d), Lender may, in its discretion, elect to register any or all the Pledged
Shares under the Act (or any applicable state securities law) in accordance with
its rights hereunder. Pledgor, however, recognizes that Lender may be unable to
effect a public sale of any or all the Pledged Shares and may be compelled to
resort to one or more private sales thereof. Pledgor also acknowledges that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Lender shall be under no obligation
to delay a sale of any of the Pledged Shares for the period of time necessary to
permit the registrant to register such securities for public sale under the Act,
or under applicable state securities laws, even if Pledgor would be willing to
do so.
SECTION 12. APPLICATION OF PROCEEDS. Any cash held by Lender as Pledged
-----------------------
Collateral and all cash proceeds received by Lender in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied by Lender in accordance with the terms of the Loan
Agreement.
SECTION 13. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. Pledgor
---------------------------------------------------
hereby authorizes and instructs each Issuer to comply with any instruction
received by such Issuer from Lender in writing that (a) states that an Event of
Default has occurred and is continuing and (b) is otherwise in accordance with
the terms of this Agreement, without any other or further instructions from
Pledgor, and Pledgor agrees that such Issuer shall be fully protected in so
complying.
SECTION 14. MISCELLANEOUS PROVISIONS.
------------------------
SECTION 14.1 No Waiver; Cumulative Remedies. Except by a written
------------------------------
instrument pursuant to Section 14.5 hereof, neither Lender nor any Lender shall,
------------
by any act, delay, indulgence, omission or otherwise, be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by Lender of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Lender would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
SECTION 14.2 Notices. All notices, approvals, consents or other
-------
communications required or desired to be given hereunder shall be in the form
and manner, and delivered, if to Pledgor or any Issuer, at the address as set
--18--
<PAGE>
forth on the signature page hereof and, if to Lender at their respective
addresses as set forth or referred to in, and in accordance with, Section 10.7
------------
of the Loan Agreement.
SECTION 14.3 Headings. The headings in this Agreement are for purposes
--------
of reference only and shall not affect the meaning or construction of any
provision of this Agreement.
SECTION 14.4 Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
SECTION 14.5 Amendments, Waivers and Consents. Any amendment or waiver
--------------------------------
of any provision of this Agreement and any consent to any departure by Pledgor
from any provision of this Agreement shall be effective only if made pursuant to
a written instrument executed by Pledgor and Lender.
SECTION 14.6 Interpretation of Agreement. Time is of the essence in each
---------------------------
provision of this Agreement of which time is an element. All terms not defined
herein or in the Loan Agreement shall have the meaning set forth in the
applicable Uniform Commercial Code, except where the context otherwise requires.
To the extent a term or provision of this Agreement conflicts with the Loan
Agreement and is not dealt with herein with more specificity, the Loan Agreement
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant to determine the meaning of this Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
SECTION 14.7 Continuing Security Interest. This Agreement shall create a
----------------------------
continuing security interest in the Pledged Collateral and shall (i) remain in
full force and effect until the Termination Date, (ii) be binding upon Pledgor,
its successors and permitted assigns under the Loan Documents, and (iii) inure
to the benefit of Lender and its successors, transferees and assigns.
SECTION 14.8 Survival of Provisions. All representations, warranties and
----------------------
covenants of Pledgor contained herein shall survive the execution and delivery
of this Agreement, and shall terminate only on the Termination Date.
SECTION 14.9 Lien Absolute. All rights of Lender hereunder, and all
-------------
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement, any
other Loan Document or any other agreement or instrument governing or evidencing
any Secured Obligations;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any part of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Loan Agreement, any other
Loan Document or any other agreement or instrument governing or evidencing any
Secured Obligations;
(c) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty
or repurchase obligation, for all or any of the Secured Obligations; or
(d) any other circumstances which might otherwise constitute a defense
available to, or a discharge of, Pledgor.
SECTION 14.10 Reinstatement. This Agreement shall remain in full force
-------------
and effect and continue to be effective should any petition be filed by or
against Pledgor for liquidation or reorganization, should Pledgor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any
--19--
<PAGE>
significant part of Pledgor's assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference,"
"fraudulent conveyance," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
SECTION 14.11 Waivers. Pledgor waives notice of acceptance of this
-------
Agreement, and also presentment, demand, protest and notice of dishonor or
default of any and all of the Secured Obligations, and all other notices to
which Pledgor might otherwise be entitled, except as otherwise expressly
provided herein or in the Loan Agreement.
SECTION 14.12 Final Expression. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of this Agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof. Acceptance of or acquiescence in
a course of performance rendered under this Agreement shall not be relevant in
determining the meaning of this Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
SECTION 14.13 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same agreement.
SECTION 15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
-------------
OF THE OTHER LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
SECTION 16. Dating. Although this Pledge Agreement is dated as of the
------
date first written above for convenience, this Pledge Agreement shall be
effective on December __, 1996.
--20--
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
executed and delivered by their duly authorized officer as of the date first
above written.
PLEDGOR:
PAR PHARMACEUTICAL, INC.
By:______________________________________
Dennis J. O'Connor
Title:
Accepted and Acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION
By:___________________________________
Martin S. Greenberg
Duly Authorized Signatory
--21--
<PAGE>
SCHEDULE I
PLEDGED SHARES
--------------
<TABLE>
<CAPTION> Share
Class of Certificate Number of Percentage of
Issuer Stock Number(s) Pledged Shares Outstanding
- ------ ----- -------- -------------- -----------
<S> <C> <C> <C> <C>
Quad Pharmaceuticals, Inc. Series B
Preferred B-1 100 100%
Quad Pharmaceuticals, Inc. Common 3 60 100%
Nutriceutical Resources, Inc. Common 1 100 100%
</TABLE>
--22--
<PAGE>
SCHEDULE II
-----------
PLEDGE AGREEMENT SUPPLEMENT
---------------------------
This Pledge Agreement Supplement, dated as of _______, 19__, is delivered
pursuant to Section 5 of the Pledge Agreement referred to below. The
---------
undersigned hereby agrees that this Pledge Agreement Supplement may be attached
to the Pledge Agreement dated as of December 15, 1996 (as amended, restated,
supplemented or otherwise modified from time to time, the "Pledge Agreement";
----------------
the terms defined therein and not otherwise defined herein being used as therein
defined), made by Par Pharmaceutical, Inc. to General Electric Capital
Corporation) and that the shares of capital stock or other securities listed on
this Pledge Agreement Supplement shall be and become part of the Pledged Shares
and Pledged Collateral referred to in the Pledge Agreement and shall secure all
Secured Obligations.
The undersigned agrees that the shares listed below of [Name of Company]
-----------------
shall for all purposes constitute Pledged Shares and Pledged Collateral and
shall be subject to the security interest created by the Pledge Agreement.
The undersigned hereby certifies that the representations and warranties
set forth in Section 4 of the Pledge Agreement of the undersigned are true and
---------
correct as to the Pledged Collateral listed herein on and as of the date hereof.
PAR PHARMACEUTICAL, INC.
By:
--------------------
Title:
Stock
Class of Certificate Par Number
Stock Number(s) Value of Shares
- ---------- -------------- ----- ---------
--23--
<PAGE>
ACKNOWLEDGMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Pledge
Agreement dated as of December 15, 1996, made and entered into by and between
PAR PHARMACEUTICAL, INC. and GENERAL ELECTRIC CAPITAL CORPORATION ("Lender"),
------
(as amended, restated, supplemented or otherwise modified from time to time, the
"Pledge Agreement"). Each of the undersigned agrees for the benefit of Lender
----------------
as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement and will
comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify Lender promptly in writing of the occurrence of
any of the events described in Section 6(c) of the Pledge Agreement.
3. The terms of Section 11(c) of the Pledge Agreement shall apply to the
undersigned, mutatis mutandis, with respect to all actions that may be
------- --------
required of it under or pursuant to or arising out of Section 11 of the
Pledge Agreement.
[NAME OF ISSUER]
By:__________________________
Name:
Title:
--24--
<PAGE>
Exhibit 10.38
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into as of
---------
December 15, 1996 by PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation
("Pledgor), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
- ---------
corporation ("Lender").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor is the legal and beneficial owner of the outstanding
shares of stock set forth on Schedule I hereto (the "Pledged Shares") and issued
--------------
by the corporations identified on Schedule I hereto (together with any future
Subsidiaries of Pledgor, each an "Issuer" and, collectively, the "Issuers");
------ -------
WHEREAS, Pledgor, the other credit parties signatory thereto and Lender
have entered into the Loan and Security Agreement dated as of December 15, 1996
(as amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), providing for the making of revolving credit advances by
--------------
Lender to Par Pharmaceutical, Inc. Capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the Loan
Agreement; and
WHEREAS, Lender has required, as a condition to their entering into the
Loan Agreement, that Pledgor pledge and grant to Lender, a security interest in
the Pledged Collateral (as defined herein) to secure the payment and performance
by Pledgor of the Secured Obligations (as defined herein);
NOW, THEREFORE, in consideration of the premises and mutual covenants and
in order to induce Lender to extend credit under the Loan Agreement, Pledgor
hereby agrees with the Lender, as follows:
SECTION 1. PLEDGE. Pledgor hereby pledges and grants to Lender, a
------
continuing security interest in all of the following property now owned or at
any time hereafter acquired by Pledgor or in which Pledgor now has, or may
acquire in the future, any right, title or interest thereto (collectively, the
"Pledged Collateral"):
- -------------------
(a) the Pledged Shares of Pledgor; and
(b) all additional shares of Stock of the Issuers hereafter acquired,
received or owned by Pledgor (the "Additional Shares"); and
-----------------
(c) the certificates representing the Pledged Shares and the Additional
Shares (all of which shall be deemed to be part of the Pledged Shares), and all
products and Proceeds of any of such Pledged Shares, including, without
limitation, all dividends, cash, instruments, subscriptions, warrants and any
other rights and options and other property from time to time received,
receivable or otherwise distributed to Pledgor in respect of or in exchange for
any or all of such Pledged Shares.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of the
Obligations, whether now existing or hereafter incurred, whether arising under
the Loan Agreement, this Agreement, the other Loan Documents or otherwise
(collectively, the "Secured Obligations").
-------------------
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Lender pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Lender.
--25--
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants to Lender as follows:
(a) The Pledged Shares (other than the shares of Stock of Sano
Corporation (the "Sano Pledged Shares")) have been duly authorized and validly
-------------------
issued and the Pledged Shares are fully paid and non-assessable. There are no
existing options, warrants, calls or commitments of any character whatsoever
relating to any of the Pledged Shares. None of the Pledged Shares is subject to
any shareholder agreement, voting trust agreement or any other agreement in
respect of the rights of shareholders.
(b) Pledgor is the sole legal and beneficial owner of the Pledged
Collateral, free and clear of any Lien or claims of any Person except for the
security interest created by this Agreement. None of the Pledged Shares has
been issued or transferred in violation of the securities registration,
securities disclosure or similar laws of any applicable jurisdiction.
(c) The pledge and delivery of the Pledged Collateral pursuant to this
Agreement creates a valid first priority perfected security interest in the
Pledged Collateral pledged by Pledgor (assuming possession at all times by
Lender of the stock certificates representing the Pledged Shares), securing the
payment of the Secured Obligations.
(d) No authorization, approval, or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required either
(i) for the pledge by Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
Pledgor or (ii) for the exercise by Lender of the voting or other rights
provided for in this Agreement or the remedies in respect of the Pledged
Collateral of Pledgor pursuant to this Agreement (except as may be required in
connection with the disposition of the Pledged Collateral by laws affecting the
offering and sale of securities generally).
(e) The Pledged Shares constitute the percentage of the issued and
outstanding capital stock of all classes of each Issuer as set forth on Schedule
I hereto.
The foregoing representations and warranties shall be deemed to have been
made by Pledgor on each date of each extension of credit by Lender under the
Loan Agreement and the other Loan Documents.
SECTION 5. FURTHER ASSURANCES; ADDITIONAL SHARES.
-------------------------------------
(a) Pledgor agrees that at any time and from time to time, at its
expense, Pledgor will promptly execute and deliver, or cause to be executed and
delivered, all stock powers, proxies, assignments, instruments and documents and
take all further action, at Lender's request, that is reasonably necessary, in
order to perfect, or maintain perfection of, any security interest granted or
purported to be granted hereby or to enable Lender to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral pledged by
Pledgor and to carry out the provisions and purposes hereof.
(b) Pledgor further agrees that it will, upon obtaining any Additional
Shares pledge such Additional Shares to Lender and promptly (and in any event
within three (3) Business Days) deliver to Lender a duly executed Pledge
Agreement Supplement in substantially the form of Schedule II hereto (a "Pledge
------
Agreement Supplement") identifying the Additional Shares which are pledged by
- --------------------
Pledgor pursuant to this Agreement. Pledgor hereby authorizes Lender to attach
each executed Pledge Agreement Supplement to this Agreement and agrees that all
Additional Shares listed on any Pledge Agreement Supplement delivered to Lender
shall for all purposes hereunder constitute Pledged Shares and Pledged
Collateral.
(c) Pledgor agrees to defend the title to the Pledged Collateral pledged
by Pledgor and the security interest therein of Lender under this Agreement
against the Lien or claim of any Person and to maintain and preserve such
security interest until the Termination Date.
SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC.
-----------------------------
(a) Subject to Section 6(d) hereof, Pledgor shall be entitled to exercise
------------
any and all voting, corporate
--26--
<PAGE>
and other consensual rights pertaining to the Pledged Shares or any part
thereof; provided, however, that Pledgor shall not exercise or shall refrain
-------- -------
from exercising any such right if such action or inaction could have a material
adverse effect on the value of the Pledged Collateral or any part thereof or
affect the priority or perfection of Lender's Lien thereon or be inconsistent
with or violate any provisions of this Agreement (including without limitation,
Section 11 hereof), the Loan Agreement or any of the other Loan Documents.
- ----------
Subject to Section 6(d) hereof, Lender shall execute and deliver (or cause to be
------------
executed and delivered) to Pledgor all such proxies and other instruments as
Pledgor may reasonably request for the purpose of enabling Pledgor to exercise
the voting and other rights which it is entitled to exercise pursuant to this
Section 6(a).
- ------------
(b) Subject to Section 6(d) hereof, and to the extent permitted by the
------------
Loan Agreement, Pledgor shall be entitled to receive all cash dividends paid
from time to time in respect of the Pledged Shares in the normal course of
business of Issuers to the extent permitted under the Loan Agreement, including,
without limitation, Section 5(i) thereof.
(c) Any and all (i) dividends or other distributions paid or payable in
the form of instruments and other property (other than cash dividends permitted
under Section 6(b) hereof) received, receivable or otherwise distributed in
------------
respect of, or in exchange for, any Pledged Collateral, (ii) dividends and other
distributions paid or payable in cash in respect of any Pledged Shares in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in-surplus, and (iii) cash
paid, payable or otherwise distributed in redemption of, or in exchange for, any
Pledged Shares, shall be in each case forthwith delivered to Lender to be held
as Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of Lender, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Lender as Pledged Collateral in the same
form as so received (with any necessary endorsements).
(d) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of Pledgor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant to this Section
-------
6 hereof and as sole legal and beneficial owner of the Pledged Collateral shall
- -
cease, and all such rights shall thereupon become vested in Lender which shall
thereupon have the sole right to exercise such voting and other consensual
rights and (ii) all cash dividends or other distributions payable in respect of
the Pledged Shares shall be paid to Lender and Pledgor's right to receive such
payments and distributions pursuant to Section 6(b) hereof and otherwise as sole
------------
legal and beneficial owner of the Pledged Collateral shall immediately cease.
(e) All dividends or other distributions which are received by Pledgor
contrary to the provisions of this Section 6 shall be received in trust for the
---------
benefit of Lender, shall be segregated from other funds of Pledgor and shall be
forthwith paid over to Lender as Pledged Collateral in the same form as so
received (with any necessary endorsements).
SECTION 7. COVENANTS. Pledgor covenants and agrees with Lender from and
---------
after the date of this Agreement that until the Termination Date Pledgor will
not (a) sell, transfer or otherwise dispose of, or grant any option with respect
to, any of the Pledged Collateral pledged by Pledgor without the prior written
consent of Lender, except as expressly provided for and pursuant to the terms
and conditions of Section 5 (i) of the Loan Agreement, (b) create or permit to
-------------
exist any Lien upon or with respect to any of the Pledged Collateral pledged by
Pledgor, except for the security interest granted under this Agreement, and (c)
enter into any agreement or understanding that purports to or may restrict or
inhibit Lender's rights or remedies hereunder, including, without limitation,
Lender's right to sell or otherwise dispose of the Pledged Collateral pledged by
Pledgor.
SECTION 8. LENDER MAY PERFORM. If Pledgor fails to perform any agreement
------------------
contained herein, Lender may itself perform, or cause performance of, such
agreement, and the expenses of Lender incurred in connection therewith shall be
payable by Pledgor.
SECTION 9. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights and
----------------------------------------
powers granted to Lender hereunder are being granted in order to preserve and
protect Lender's security interest in and to the Pledged Collateral granted
hereby and shall not be interpreted to, and shall not, impose any duties on
Lender in connection therewith. Pledgor agrees that Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially
--27--
<PAGE>
equal to that which Lender accords its own securities and property, it being
understood that Lender shall not have any responsibility for (a) ascertaining or
taking action with respect to calls, conversions, exchanges, tenders or other
matters relative to any Pledged Collateral, whether or not Lender has or is
deemed to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.
SECTION 10. SUBSEQUENT CHANGES AFFECTING COLLATERAL. Pledgor represents
---------------------------------------
to Lender that Pledgor has made its own arrangements for keeping informed of
changes or potential changes affecting the Pledged Collateral pledged by Pledgor
(including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, reorganization or other exchanges, tender offers and voting
rights), and Pledgor agrees that Lender shall have no responsibility or
liability for informing Pledgor of any such changes or potential changes or for
taking any action or omitting to take any action with respect thereto. Pledgor
covenants that it will not, without the prior written consent of Lender, except
as expressly provided for and pursuant to the terms and conditions of Section
6.8(c) or (d) of the Loan Agreement, vote to enable, or take any other action to
permit, any Issuer to issue any capital stock or to sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral pledged
by Pledgor or create or permit to exist any Lien upon or with respect to any of
the Pledged Collateral pledged by Pledgor, except for the security interests
granted under this Agreement.
SECTION 11. DEFAULTS AND REMEDIES.
---------------------
(a) Upon the occurrence of an Event of Default and during the
continuation of such Event of Default, Lender (personally or through an agent)
is hereby authorized and empowered to transfer and register in its name or in
the name of its nominee the whole or any part of the Pledged Collateral, to
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations,
to exercise the voting rights with respect thereto, to collect and receive all
cash dividends and other distributions made thereon, to sell in one or more
sales after five (5) days' notice of the time and place of any public sale or of
the time after which a private sale is to take place (which notice Pledgor
agrees is commercially reasonable), but without any previous notice or
advertisement, the whole or any part of the Pledged Collateral and to otherwise
act with respect to the Pledged Collateral as though Lender was the outright
owner thereof; provided, however, Lender shall not have any duty to exercise any
-------- -------
such right or to preserve the same and shall not be liable for any failure to do
so or for any delay in doing so. Any sale shall be made at a public or private
sale at Lender's place of business, or at any public building in New York, New
York or elsewhere to be named in the notice of sale, either for cash or upon
credit or for future delivery at such price as Lender may deem fair, and Lender
may be the purchaser of the whole or any part of the Pledged Collateral so sold
and hold the same thereafter in its own right free from any claim of Pledgor or
any right of redemption. Each sale shall be made to the highest bidder, but
Lender reserves the right to reject any and all bids at such sale which, in its
discretion, it shall deem inadequate. Demands of performance, except as
otherwise herein specifically provided for, notices of sale, advertisements and
the presence of property at sale are hereby waived and any sale hereunder may be
conducted by an auctioneer or any officer, employee or agent of Lender.
(b) If, at the original time or times appointed for the sale of the whole
or any part of the Pledged Collateral, the highest bid, if there be but one
sale, shall be inadequate to discharge in full all the Secured Obligations, or
the Pledged Collateral be offered for sale in lots, if at any of such sales, the
highest bid for the lot offered for sale would indicate to Lender, in its
discretion, the unlikelihood of the proceeds of the sales of the whole of the
Pledged Collateral being sufficient to discharge all the Secured Obligations,
Lender may, on one or more occasions and in its discretion, postpone any of said
sales by public announcement at the time of sale or the time of previous
postponement of sale, and no other notice of such postponement or postponements
of sale need be given, any other notice being hereby waived; provided, however,
-------- -------
that any sale or sales made after such postponement be after five (5) days'
notice to Pledgor.
(c) Pledgor further agrees that a breach of any of the covenants
contained in this Section 11 will cause irreparable injury to Lender, that
----------
Lender has no adequate remedy at law in respect of such breach and, as a
consequence, agrees that each and every covenant contained in this Section 11
----------
shall be specifically enforceable against Pledgor, and Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants.
(d) In addition to remedies set forth in Section 11 above, Lender may, in
----------
its discretion (subject only
--28--
<PAGE>
to applicable requirements of law), sell such Pledged Collateral or a part
thereof by private sale in such manner and under such circumstances as Lender
may deem necessary or advisable. Without limiting the generality of the
foregoing, in any such event, Lender may, in its discretion, in accordance with
applicable securities laws, (x) proceed to make such private sales, (y) approach
and negotiate with a single possible purchaser to effect such sale, and (z)
restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment and not with a view
to the distribution or sale of such Pledged Collateral or part thereof. In
addition to a private sale as provided above in this Section 11, if any of the
----------
Pledged Collateral shall not be freely distributable to the public without
registration under the Securities Act of 1933, as amended (or similar statute)
(the "Act") at the time of any proposed sale pursuant to this Section 11, then
--- ----------
Lender shall not be required to effect such registration or cause the same to be
effected but, in its discretion (subject only to applicable requirements of
law), may require that any sale hereunder or under any of the other Loan
Documents (including a sale at auction) be conducted subject to restrictions (i)
as to the financial sophistication and ability of any Person permitted to bid or
purchase at any such sale, (ii) as to the content of legends to be placed upon
any certificates representing the Pledged Collateral sold in such sale,
including restrictions on future transfer thereof, (iii) as to the
representations required to be made by each Person, bidding or purchasing at
such sale relating to that Person's access to financial information about
Pledgor and such Person's intentions as to the holding of the Pledged Collateral
so sold for investment, for its own account, and not with a view to the
distribution thereof, and (iv) as to such other matters as Lender may, in its
discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure to so register) may be effected in compliance with
11 U.S.C. Sec. 101 et seq., as from time to time amended, and any successor or
-- ---
similar statute and other laws affecting the enforcement of creditors' rights
and the Act and all applicable state securities laws.
(e) Pledgor acknowledges that notwithstanding the legal availability of a
private sale or a sale subject to the restrictions described above in paragraph
(d), Lender may, in its discretion, elect to register any or all the Pledged
Shares (other than the Sano Pledged Shares) under the Act (or any applicable
state securities law) in accordance with its rights hereunder. Pledgor,
however, recognizes that Lender may be unable to effect a public sale of any or
all the Pledged Shares and may be compelled to resort to one or more private
sales thereof. Pledgor also acknowledges that any such private sale may result
in prices and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. Lender shall be under no obligation to delay a sale of any of the
Pledged Shares for the period of time necessary to permit the registrant to
register such securities for public sale under the Act, or under applicable
state securities laws, even if Pledgor would be willing to do so.
SECTION 12. APPLICATION OF PROCEEDS. Any cash held by Lender as Pledged
-----------------------
Collateral and all cash proceeds received by Lender in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied by Lender in accordance with the terms of the Loan
Agreement.
SECTION 13. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER.
---------------------------------------------------
Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by such Issuer from Lender in writing that (a) states that
an Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from Pledgor, and Pledgor agrees that such Issuer shall be fully
protected in so complying.
SECTION 14. MISCELLANEOUS PROVISIONS.
------------------------
SECTION 14.1 No Waiver; Cumulative Remedies. Except by a written
------------------------------
instrument pursuant to Section 14.5 hereof, neither Lender nor any Lender shall,
------------
by any act, delay, indulgence, omission or otherwise, be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by Lender of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Lender would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
SECTION 14.2 Notices. All notices, approvals, consents or other
-------
communications required or desired
--29--
<PAGE>
to be given hereunder shall be in the form and manner, and delivered, if to
Pledgor or any Issuer, at the address as set forth on the signature page hereof
and, if to Lender at their respective addresses as set forth or referred to in,
and in accordance with, Section 10.7 of the Loan Agreement.
------------
SECTION 14.3 Headings. The headings in this Agreement are for purposes
--------
of reference only and shall not affect the meaning or construction of any
provision of this Agreement.
SECTION 14.4 Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
SECTION 14.5 Amendments, Waivers and Consents. Any amendment or waiver
--------------------------------
of any provision of this Agreement and any consent to any departure by Pledgor
from any provision of this Agreement shall be effective only if made pursuant to
a written instrument executed by Pledgor and Lender.
SECTION 14.6 Interpretation of Agreement. Time is of the essence in each
---------------------------
provision of this Agreement of which time is an element. All terms not defined
herein or in the Loan Agreement shall have the meaning set forth in the
applicable Uniform Commercial Code, except where the context otherwise requires.
To the extent a term or provision of this Agreement conflicts with the Loan
Agreement and is not dealt with herein with more specificity, the Loan Agreement
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant to determine the meaning of this Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
SECTION 14.7 Continuing Security Interest. This Agreement shall create a
----------------------------
continuing security interest in the Pledged Collateral and shall (i) remain in
full force and effect until the Termination Date, (ii) be binding upon Pledgor,
its successors and permitted assigns under the Loan Documents, and (iii) inure
to the benefit of Lender and its successors, transferees and assigns.
SECTION 14.8 Survival of Provisions. All representations, warranties and
----------------------
covenants of Pledgor contained herein shall survive the execution and delivery
of this Agreement, and shall terminate only on the Termination Date.
SECTION 14.9 Lien Absolute. All rights of Lender hereunder, and all
-------------
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement, any
other Loan Document or any other agreement or instrument governing or evidencing
any Secured Obligations;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Loan Agreement,
any other Loan Document or any other agreement or instrument governing or
evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty
or repurchase obligation, for all or any of the Secured Obligations; or
(d) any other circumstances which might otherwise constitute a defense
available to, or a discharge of, Pledgor.
SECTION 14.10 Reinstatement. This Agreement shall remain in full force
-------------
and effect and continue to be effective should any petition be filed by or
against Pledgor for liquidation or reorganization, should
--30--
<PAGE>
Pledgor become insolvent or make an assignment for the benefit of creditors or
should a receiver or trustee be appointed for all or any significant part of
Pledgor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
SECTION 14.11 Waivers. Pledgor waives notice of acceptance of this
-------
Agreement, and also presentment, demand, protest and notice of dishonor or
default of any and all of the Secured Obligations, and all other notices to
which Pledgor might otherwise be entitled, except as otherwise expressly
provided herein or in the Loan Agreement.
SECTION 14.12 Final Expression. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of this Agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof. Acceptance of or acquiescence in
a course of performance rendered under this Agreement shall not be relevant in
determining the meaning of this Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
SECTION 14.13 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same agreement.
SECTION 15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
-------------
ANY OF THE OTHER LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
SECTION 16. Dating. Although this Pledge Agreement is dated as of the
------
date first written above for convenience, this Pledge Agreement shall be
effective on December __, 1996.
--31--
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
executed and delivered by their duly authorized officer as of the date first
above written.
PLEDGOR:
PHARMACEUTICAL RESOURCES, INC.
By:___________________________________
Dennis J. O'Connor
Title:
Accepted and Acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION
By:_______________________________
Martin S. Greenberg
Duly Authorized Signatory
--32--
<PAGE>
SCHEDULE I
PLEDGED SHARES
--------------
<TABLE>
<CAPTION>
Share
Class of Certificate Number of Percentage of
Issuer Stock Number(s) Pledged Shares Outstanding
- ----- ----- -------- -------------- -----------
<S> <C> <C> <C> <C>
Par Pharmaceutical, Inc. Common 28,157 1000 100%
Nutriceutical Resources, Inc. Common 100 100%
PRX Distributors, Ltd. Common 1 100 100%
ParCare, Ltd. Common TBD TBD 100%
PRI-Research, Inc. Common 100%
Sano Corporation Common
D-609 Corp. (now known as Par Common 1 1000 100%
Pharma, Group Ltd.)
</TABLE>
--33--
<PAGE>
SCHEDULE II
-----------
PLEDGE AGREEMENT SUPPLEMENT
---------------------------
This Pledge Agreement Supplement, dated as of _______, 19__, is delivered
pursuant to Section 5 of the Pledge Agreement referred to below. The
---------
undersigned hereby agrees that this Pledge Agreement Supplement may be attached
to the Pledge Agreement dated as of December 15, 1996 (as amended, restated,
supplemented or otherwise modified from time to time, the "Pledge Agreement";
----------------
the terms defined therein and not otherwise defined herein being used as therein
defined), made by Pharmaceutical Resources, Inc. to General Electric Capital
Corporation) and that the shares of capital stock or other securities listed on
this Pledge Agreement Supplement shall be and become part of the Pledged Shares
and Pledged Collateral referred to in the Pledge Agreement and shall secure all
Secured Obligations.
The undersigned agrees that the shares listed below of [Name of Company]
-----------------
shall for all purposes constitute Pledged Shares and Pledged Collateral and
shall be subject to the security interest created by the Pledge Agreement.
The undersigned hereby certifies that the representations and warranties
set forth in Section 4 of the Pledge Agreement of the undersigned are true and
---------
correct as to the Pledged Collateral listed herein on and as of the date hereof.
PHARMACEUTICAL RESOURCES, INC.
By: _______________________________________
Title:
Stock
Class of Certificate Par Number
Stock Number(s) Value of Shares
---------- -------------- ----- ---------
--34--
<PAGE>
ACKNOWLEDGMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Pledge
Agreement dated as of December 15, 1996, made and entered into by and between
PHARMACEUTICAL RESOURCES, INC. and GENERAL ELECTRIC CAPITAL CORPORATION
("Lender"), (as amended, restated, supplemented or otherwise modified from time
------
to time, the "Pledge Agreement"). Each of the undersigned agrees for the
----------------
benefit of Lender as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement and will
comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify Lender promptly in writing of the occurrence of
any of the events described in Section 6(c) of the Pledge Agreement.
3. The terms of Section 11(c) of the Pledge Agreement shall apply to the
undersigned, mutatis mutandis, with respect to all actions that may be
------- --------
required of it under or pursuant to or arising out of Section 11 of the
Pledge Agreement.
[NAME OF ISSUER]
By:__________________________
Name:
Title:
--35--
<PAGE>
Exhibit 10.39
GE CAPITAL Commercial Finance
This LOAN AND SECURITY AGREEMENT is dated as of December 15, 1996, and agreed to
by and between PAR PHARMACEUTICAL, INC., a New Jersey corporation ("Borrower"),
any other Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower a revolving credit
loan having the following general description:
TRANSACTION SUMMARY
REVOLVING CREDIT LOAN
Maximum Amount: $20,000,000
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Term: 3 years
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Revolving Credit Rate: Index Rate plus 2.50%
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Borrowing Base: The sum of (i) 85% (or such lesser percentage
-------------- as may be specified by Lender from time to
time by written notice to Borrower) of the
value (as determined by Lender) of Borrower's
Eligible Accounts; plus (ii) the lesser of (a)
$8,000,000 and (b) 50% (or such lesser
percentage as may be specified by Lender from
time to time by written notice to Borrower) of
the value of Borrower's Eligible Inventory as
determined by Lender, valued on a first-in,
first-out basis (at the lower of cost or
market).
Collection Days: One Business Day
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FEES
Closing Fee: $100,000
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Collateral Monitoring Fee: $30,000 per annum
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Unused Line Fee: 0.375% per annum if average unused daily
--------------- balance of the Revolving Credit Loan is less
than $10,000,000; 0.250% per annum if average
unused balance of the Revolving Credit Loan is
greater than or equal to $10,000,000 and less
than $20,000,000; and 0.125% per annum if
average unused balance of the Revolving Credit
Loan is equal to $20,000,000.
Prepayment Fee: 1.0% in year one; 0.75% in year two; and 0.50%
-------------- in year three.
THE REVOLVING CREDIT LOAN DESCRIBED GENERALLY HERE IS ESTABLISHED AND GOVERNED
BY THE TERMS AND CONDITIONS SET FORTH BELOW IN THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AND IF THERE IS ANY CONFLICT BETWEEN THIS GENERAL DESCRIPTION AND THE
EXPRESS TERMS AND CONDITIONS BELOW OR ELSEWHERE IN THE LOAN DOCUMENTS, SUCH
OTHER EXPRESS TERMS AND CONDITIONS SHALL CONTROL.
B. Borrower desires to obtain the Revolving Credit Loan and other financial
accommodations from Lender and Lender is willing to provide the Revolving Credit
Loan and accommodations all in accordance with the terms of this Agreement.
C. Capitalized terms used herein shall have the meanings assigned to them in
Schedule A and, for purposes of this Agreement and the other Loan Documents, the
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rules of construction set forth in Schedule A shall govern. All Schedules,
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Disclosure Schedules, Attachments and Exhibits (collectively, "Appendices")
hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together, constitute but a single agreement. Unless
otherwise expressly set forth herein, or in a written amendment referring to
such Appendices, all Appendices referred to herein shall mean the Appendices as
in effect on the Closing Date. These Recitals shall be construed as part of
this Agreement.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. Amount and terms of credit
1.1 Revolving Credit Loan. (a) Subject to the terms and conditions of this
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Agreement, from the Closing Date and until the Commitment Termination Date (i)
Lender agrees to make available advances (each, a "Revolving Credit Advance") in
an aggregate outstanding amount not to exceed the Borrowing Availability, and
(ii) Borrower may at its request from time to time borrow, repay and reborrow
Revolving Credit Advances under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by notice given in
writing (by telecopy, hand delivery, or United States mail) to Lender's
representative responsible for Borrower's account as identified in Schedule
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1.1 given no later than 11:00 AM (New York time) on the Business Day of the
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proposed Revolving Credit Advance. Each such notice (a "Notice of Revolving
Credit Advance") shall be substantially in the form of Exhibit A. Lender
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shall be fully protected under this Agreement in relying upon, and shall be
entitled to rely upon, (i) any Notice of Revolving Credit Advance believed
by Lender to be genuine, and (ii) the assumption that the Persons making
electronic requests or executing and delivering a Notice of Revolving
Credit Advance were duly authorized, unless the responsible individual
acting thereon for Lender shall have actual knowledge to the contrary.
(c) To evidence the Revolving Credit Loan, Borrower shall execute and deliver
to Lender the Revolving Credit Note, which shall represent the Obligation
of Borrower to pay the Revolving Credit Loan. The date and amount of each
Revolving Credit Advance and each payment of principal with respect thereto
shall be recorded on the books of Lender, which books shall be presumed to
correctly and accurately record the transactions between Borrower and
Lender and shall, absent manifest error, be conclusive and binding upon
Borrower. The entire unpaid balance of the Revolving Credit Loan, together
with all other outstanding and non-contingent Obligations, shall be
immediately due and payable on the Commitment Maturity Date.
(d) Borrower agrees that Lender, in making any Revolving Credit Advance or
incurring any other Obligation hereunder, shall be entitled to rely upon
the most recent Borrowing Base Certificate delivered to Lender by Borrower
and other information available to Lender. Borrower further agrees that
Lender shall be under no obligation to make any further Revolving Credit
Advance or incur any other Obligation if Borrower shall have failed to
deliver a Borrowing Base Certificate to Lender by the time specified in
Section 4.1(b).
1.2 Term and Prepayment. The obligation of Lender to make Revolving Credit
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Advances shall be in effect from the Closing Date until the Commitment
Termination Date. Upon the Commitment Maturity Date Borrower shall pay to
Lender in full, in cash all outstanding Revolving Credit Advances and all
interest earned, but unpaid, thereon, and all other non-contingent Obligations
due to or incurred by Lender. Upon payment of the amounts specified in the
immediately preceding sentence, Borrower's obligation to pay the Unused Line Fee
shall simultaneously terminate. Prior to repayment of all Obligations to Lender
in full, in cash on the Commitment Maturity Date:
(a) If the Revolving Credit Loan shall at any time exceed the Borrowing
Availability, then Borrower shall immediately repay the Revolving Credit
Loan in the amount of such excess; such excess balance shall nevertheless
constitute Obligations that are evidenced by the Revolving Credit Note,
secured by the Collateral and entitled to all of the benefits of the Loan
Documents.
(b) Borrower shall have the right, at any time upon 30 days prior written
notice to Lender and payment of the applicable Prepayment Fee, (i) to
terminate voluntarily Borrower's right to receive and Lender's obligation
to make Revolving Credit Advances, and (ii) to prepay all of the
Obligations. The effective date of termination of the Revolving Credit
Loan specified in such notice shall be the Commitment Maturity Date.
(c) Immediately upon receipt by Borrower or any Subsidiary thereof of proceeds
of any asset disposition (including insurance and condemnation proceeds and
proceeds of the sale of all or a portion of the Sano Stock Collateral, but
excluding proceeds of the sale of Inventory in the ordinary course of
business), Borrower shall prepay Revolving
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Credit Advances in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees and
expenses properly attributable to such transaction and payable by Borrower
in connection therewith (in each case, paid to non-Affiliates), (B)
transfer taxes, and (C) amounts payable to holders of senior Liens (to the
extent such Liens constitute Permitted Encumbrances hereunder), if any. If
Parent or Borrower issues Stock or any debt securities, no later than the
Business Day following the date of receipt of the proceeds thereof,
Borrower shall prepay Revolving Credit Advances in an amount equal to all
such proceeds, net of underwriting discounts and commissions and other
reasonable costs paid to non-Affiliates in connection therewith. Any
Revolving Credit Advances prepaid under this Section 1.2(c) may, subject to
the provisions hereof, be reborrowed.
1.3 Use of Proceeds. Borrower shall use the proceeds of the Revolving Credit
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Loan to refinance existing indebtedness with Fleet Bank and Fleet Credit
Corporation on the Closing Date and to pay certain fees and expenses relating to
the transactions under the Loan Documents and for Borrower's working capital
purposes.
1.4 Single Loan. The Revolving Credit Loan and all of the other Obligations
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of Borrower to Lender shall constitute one general obligation of Borrower
secured by all of the Collateral.
1.5 Interest. i. Borrower shall pay interest to Lender on the
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aggregate outstanding Revolving Credit Advances at a floating rate equal
to the Index Rate plus two and one-half percent (2.50%) per annum (the
"Revolving Credit Rate").
(b) Interest shall be payable on the outstanding Revolving Credit Advances (i)
in arrears for the preceding calendar month on the first day of each
calendar month, commencing on January 1, 1997, (ii) on the Commitment
Maturity Date, and (iii) if any interest accrues or remains payable after
the Commitment Maturity Date, upon demand by Lender.
(c) All computations of interest shall be made by Lender on the basis of a
three hundred and sixty (360) day year, in each case for the actual number
of days occurring in the period for which such interest or fee is payable.
The Index Rate shall be determined (i) on the first Business Day
immediately prior to the Closing Date and (ii) thereafter, on the last
Business Day of each calendar month for calculation of interest for the
following month. Each determination by Lender of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(d) Effective upon the occurrence of any Event of Default and for so long as
any Event of Default shall be continuing, the Revolving Credit Rate shall,
upon notice by Lender to Borrower, be increased by two percentage points
(2.00%) per annum (the "Default Rate"), and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest from the date
of such Event of Default at the Default Rate applicable to such
Obligations.
(e) If any interest or other payment to Lender under this Agreement becomes due
and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day and, with respect to
payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(f) In no event will Lender charge interest at a rate that exceeds the highest
rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Amounts
paid or to be collected by Lender in excess of interest calculated at the
highest rate permitted by law will be applied by Lender as provided for in
Section 1.11.
1.6 Eligible Accounts. Based on the most recent Borrowing Base Certificate
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delivered by Borrower to Lender and on other information available to Lender,
Lender shall determine in its reasonable credit judgment which Accounts shall be
deemed to be "Eligible Accounts" for purposes of determining the credit to be
extended to Borrower. In determining whether any particular Account constitutes
an Eligible Account (and without limiting Lender's right to determine
eligibility or ineligibility of any item of Collateral or its inclusion in the
Borrowing Base), Lender shall not include any Account that meets any of the
criteria set forth in Schedule 1.6.
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1.7 Eligible Inventory. Based on the most recent Borrowing Base Certificate
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delivered by Borrower to Lender and on other information available to Lender,
Lender shall determine in its reasonable credit judgment which Inventory shall
be deemed to be "Eligible Inventory" for purposes of determining the credit to
be extended to Borrower. In determining whether any particular Inventory
constitutes Eligible Inventory (and without limiting Lender's right to determine
eligibility or ineligibility of any item of Collateral or its inclusion in the
Borrowing Base), Lender shall not
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<PAGE>
include Inventory that meets any of the criteria set forth in Schedule 1.7.
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1.8 Cash Management System. On or prior to the Closing Date and until the
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Termination Date, Borrower will establish and maintain the cash management
system described in Schedule C.
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1.9 Fees. As compensation for Lender's costs, skills and efforts incurred
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and expended in entering into this Agreement and in consideration of Lender's
making the Revolving Credit Loan available to Borrower, Borrower agrees to pay
to Lender the Fees set forth in Schedule D.
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1.10 Receipt of Payments. Borrower shall make each payment under this Agreement
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(not otherwise made pursuant to Section 1.11) not later than 2:00 PM (New York
time) on the day when due in lawful money of the United States of America in
immediately available funds to the Collection Account. For purposes of
computing interest and fees, all payments shall be deemed received by Lender one
(1) Business Day following receipt of good funds in the Collection Account. For
purposes of determining the Borrowing Availability, payments shall be deemed
received by Lender upon receipt of good funds in the Collection Account.
1.11 Application and Allocation of Payments. Borrower irrevocably agrees that
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Lender shall have the continuing and exclusive right to apply any and all
payments against the then due and payable Obligations, as Lender may deem
advisable. In the absence of a specific determination by Lender with respect
thereto, the same shall be applied in the following order: (a) then due and
payable Fees and expenses; (b) then due and payable interest payments; (c) then
due and payable Obligations other than Fees, expenses and interest and principal
payments; and (d) then due and payable principal payments on the Revolving
Credit Loan. Lender is authorized to, and at its option may (without notice or
precondition and at any time or times), but shall not be obligated to, make or
cause to be made Revolving Credit Advances on behalf of Borrower for: (x)
payment of all Fees, expenses, indemnities, charges, costs, principal, interest,
or other Obligations owing by Borrower under this Agreement or any of the other
Loan Documents, (y) the payment, performance or satisfaction of any of
Borrower's obligations with respect to preservation of the Collateral or
otherwise under this Agreement, or (z) any premium in whole or in part required
in respect of any of the policies of insurance required by this Agreement, even
if the making of any such Revolving Credit Advance causes the outstanding
balance of the Revolving Credit Loan to exceed the Borrowing Availability, and
Borrower agrees to repay immediately, in cash, any amount by which the Revolving
Credit Loan exceeds the Borrowing Availability.
1.12 Accounting. Lender will provide a monthly accounting of transactions under
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the Revolving Credit Loan to Borrower. Borrower shall, within 30 days after the
date any such accounting is rendered, notify Lender in writing of any objection
that Borrower may have to any such accounting, describing the basis for such
objection with specificity. Unless so objected to, each and every such
accounting shall (absent manifest error) be deemed final, binding and conclusive
upon Borrower in all respects. Only those items expressly objected to in such
notice shall be deemed to be disputed by Borrower. Lender shall review any item
objected to within 30 days following Borrower's timely objection, and Lender's
determination, based upon the facts available, of any item so objected to in
such notice shall (absent manifest error) likewise be final, binding and
conclusive on Borrower.
1.13 Indemnity. (a) Borrower and each other Credit Party executing this
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Agreement shall jointly and severally indemnify and hold Lender and Lender's
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any Claim which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended or not extended under this Agreement and
the other Loan Documents or otherwise in connection with or arising out of the
transactions contemplated hereunder or thereunder, including any Claim for
Environmental Liabilities and Costs and legal costs and expenses of disputes
between the parties to this Agreement; provided, that Borrower and such other
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Credit Party shall not be liable for indemnification of an Indemnified Person to
the extent that any such Claim is finally determined by a court of competent
jurisdiction to have resulted solely from such Indemnified Person's gross
negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR
LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD
PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED OR NOT EXTENDED UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
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<PAGE>
(b) In any suit, proceeding or action brought by Lender relating to any item of
Collateral or any sum owing hereunder, or to enforce any provision of any
item of Collateral, Borrower and each other Credit Party executing this
Agreement shall save, indemnify and keep Lender harmless from and against
all expense (including reasonable attorneys' fees), loss or damage suffered
by reason of such action or any defense, setoff, or counterclaim asserted
for any reason by the other party or parties to such litigation and however
arising. All obligations of Borrower or any other Credit Party with
respect to any item of Collateral shall be and remain enforceable against,
and only against, Borrower or such other Credit Party, as the case may be,
and shall not be enforceable against Lender.
1.14 Taxes. (a) All payments to Lender under any Loan Document shall be made
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free and clear of, and without deduction for, any Taxes. In order to protect
Lender's economic returns, if Borrower shall be required by law to deduct any
Taxes from any payment to Lender under any Loan Document, then the amount
payable to Lender shall be increased so that, after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.14), Lender receives an amount equal to that which it would have
received had no such deductions been made. Borrower shall then make the
required deduction, pay the full amount deducted to the relevant taxing
authority, and promptly furnish to Lender tax receipts evidencing such payment.
(b) Borrower shall indemnify Lender for, and pay within 10 days of demand
therefor, the full amount of Taxes (including any Taxes imposed by any
jurisdiction on amounts payable under Section 1.13) paid by Lender and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes were correctly or legally
asserted.
1.15 Reserves. Without limiting any other rights and remedies of Lender
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hereunder or under the other Loan Documents, the Revolving Credit Loan shall be
subject to Lender's continuing right to withhold from Borrowing Availability
reserves, and to increase and decrease such reserves from time to time, if and
to the extent that in Lender's reasonable credit judgment such reserves are
necessary, including to protect Lender against possible non-payment of Accounts
for any reason by Account Debtors or possible diminution of the value of any
Inventory or possible non-payment of any of the Obligations or in respect of any
state of facts which could, with notice or passage of time or both, have a
possible adverse effect on any Collateral or constitute a Default. Lender may,
at its option, implement reserves by designating as ineligible a sufficient
amount of Accounts or Inventory which would otherwise be Eligible Accounts or
Eligible Inventory, as the case may be, so as to reduce the Borrowing Base by
the amount of the intended reserves.
2. Conditions precedent
2.1 Conditions to Initial Revolving Credit Advance. Lender shall not be
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obligated to make any Revolving Credit Advances, or to take, fulfill, or perform
any other action hereunder, until the following conditions have been satisfied
to Lender's complete satisfaction:
(a) the Loan Documents to be delivered on or before the Closing Date shall have
been duly executed and delivered by the appropriate parties, all as set
forth in the Schedule of Documents;
(b) Lender shall have received evidence satisfactory to it that: (i) all of the
obligations of Borrower to Fleet Bank and Fleet Credit Corporation under
its financing documents as in effect immediately prior to the Closing Date
will be performed and paid in full from the proceeds of the initial
Revolving Credit Advance; and (ii) all Liens upon any of the property of
Borrower or any other Credit Party in favor of Fleet Bank and Fleet Credit
Corporation shall have been terminated immediately upon such payment;
(c) Lender shall have received evidence satisfactory to it that each Credit
Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required
pursuant to the terms of, or prior to the execution and delivery of, this
Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby and such consents or
acknowledgements have not been rescinded and remain in full force and
effect;
(d) Lender shall have received evidence satisfactory to it that the insurance
policies provided for in Section 3.18 and the Disclosure Schedule (3.18)
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are in full force and effect, together with appropriate evidence showing
loss payable or additional insured clauses or endorsements, as appropriate,
in favor of Lender and in form and substance satisfactory
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<PAGE>
to Lender;
(e) all of the assets supporting the initial Revolving Credit Advance to be
made, and the amount, if any, of the reserves to be established on the
Closing Date, shall be sufficient in value, as determined by Lender, to
provide Borrower with Net Borrowing Availability of not less than
$5,000,000 (after giving effect to such initial Revolving Credit Advance),
without increase in Borrower's other current liabilities above the average
of those reflected on Borrower's balance sheet for the three months
preceding the Closing Date;
(f) payment by Borrower of the Closing Fee and all other fees, costs, and
expenses of closing (including fees of consultants and counsel to Lender
presented as of the Closing Date);
(g) no action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court, Governmental
Authority or legislative body to enjoin, restrain or prohibit, or to obtain
damages in respect of, or which is related to or arises out of, this
Agreement or any other Loan Document or the consummation of the
transactions contemplated hereby or thereby and which, in Lender's sole
judgment, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any other Loan Document; and
(h) since the date of Borrower's most recent annual audited financial
statements delivered to Lender prior to the Closing Date, no event has
occurred which has had, or could reasonably be expected to have, a Material
Adverse Effect.
If any other term of any Loan Document should conflict, or appear to conflict,
with this Section 2.1, the terms of this Section 2.1 shall control, and Borrower
shall have no rights under this Agreement or any other Loan Document until each
of the conditions of this Section 2.1 has been complied with to Lender's
satisfaction or specifically waived in a writing by Lender identifying by
section number the condition to be waived and the specific circumstance with
respect to which the condition is waived.
2.2 Further Conditions to Revolving Credit Advances. It shall be a further
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condition to the funding of any Revolving Credit Advances that the following
statements shall be true on the date of each such funding:
(a) all of each Credit Party's representations and warranties contained herein
or in any of the other Loan Documents shall have been true and correct on
and as of the Closing Date;
(b) no event shall have occurred and be continuing, or would result from the
funding of any Revolving Credit Advance, which constitutes or would
constitute a Default;
(c) after giving effect to such Revolving Credit Advance, the Revolving Credit
Loan shall not exceed the Borrowing Availability; and
(d) each of the conditions set forth in Section 2.1(c), (d), (g) and (h) shall
continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance shall be deemed to constitute, as of the date of such request and as of
the date of such acceptance, (i) a representation and warranty by Borrower that
the conditions in this Section 2.2 have been satisfied and (ii) a confirmation
by Borrower of the granting and continuance of Lender's Liens pursuant to the
Loan Documents.
3. Representations, warranties and affirmative covenants
To induce Lender to enter into this Agreement and to make the Revolving Credit
Loan, Borrower and each other Credit Party executing this Agreement represent
and warrant to Lender, and promise to and agree with Lender (each of which
representations and warranties shall be true and correct on the Closing Date and
shall survive the execution and delivery of this Agreement, and each of which
covenants and agreements shall continue to be kept, honored and maintained at
all times from the Closing Date until the Termination Date) as follows:
3.1 Corporate Existence; Compliance with Law. Each Credit Party: (a) is, as
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of the Closing Date, and will
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<PAGE>
continue to be (i) a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) duly
qualified to do business and in good standing in each other jurisdiction where
its ownership or lease of property or the conduct of its business requires such
qualification, (c) in compliance with its charter and by-laws, and (iv) in
compliance in all material respects with all applicable provisions of law and
regulations; and (b) has and will continue to have (i) the requisite corporate
power and authority and the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the property it operates under
lease, and to conduct its business as now, heretofore or proposed to be
conducted, and to execute, deliver and perform its obligations under the Loan
Documents, and (ii) all licenses, permits, franchises, rights, powers, consents
or approvals from or by all Persons or Governmental Authorities having
jurisdiction over such Credit Party which are necessary or appropriate for the
conduct of its business. As of the Closing Date, each Credit Party has made and
will continue to make all filings with any Governmental Authority that are
necessary or appropriate for the conduct of its business and has given and will
continue to give all notices to the extent required for the ownership, operation
and conduct of its property and business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business. The
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locations of each Credit Party's executive offices, principal place of business,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept are as set forth in Disclosure
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Schedule (3.2) and, except as set forth in such Disclosure Schedule, such
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locations have not changed during the preceding twelve months. As of the
Closing Date, during the prior five years, except as set forth in Disclosure
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Schedule (3.2), no Credit Party has been known as or conducted business in any
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other name. No Credit Party shall change its (a) name, (b) chief executive
office, (c) principal place of business, (d) corporate offices, (e) warehouses
or other Collateral locations, or (f) location of its records concerning the
Collateral, or acquire, lease or use any real estate after the Closing Date
without such Person, in each instance, giving thirty (30) days prior written
notice thereof to Lender and taking all actions deemed necessary or appropriate
by Lender to continuously protect and perfect Lender's Liens upon the
Collateral.
3.3 Corporate Power; Authorization; Enforceable Obligations. The execution,
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delivery and performance by each Credit Party of the Loan Documents to which it
is a party, and the creation of all Liens provided for herein and therein: (a)
are and will continue to be within such Person's corporate power; (b) have been
and will continue to be duly authorized by all necessary or proper corporate and
shareholder action; (c) are not and will not be in contravention of any
provision of such Person's charter or by-laws; (d) do not and will not violate
any law or regulation, or any order or decree of any court or Governmental
Authority; (e) do not and will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not and will not result in the creation or imposition
of any Lien (other than Permitted Encumbrances) upon any of the Collateral; and
(g) do not and will not require the consent or approval of any Governmental
Authority or any other Person, except those referred to in Section 2.1(c) (all
of which will have been duly obtained, made or complied with on or before the
Closing Date and will be in full force and effect on the Closing Date). As of
the Closing Date, each Loan Document shall have been duly executed and delivered
for the benefit of or on behalf of each Credit Party, and each such Loan
Document shall then be and will continue to be a legal, valid and binding
obligation of such Person, to the extent it is a party thereto, enforceable
against it in accordance with its terms.
3.4 Financial Statements and Projections; Books and Records. (a) Borrower
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has delivered as of the Closing Date (i) the Financial Statements for its most
recently ended Fiscal Year and Fiscal Month, which Financial Statements are
true, correct and complete and reflect fairly and accurately the financial
condition of Borrower as of the date of each of such Financial Statement, and
(ii) the Projections attached hereto as Disclosure Schedule (3.4), which
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Projections have been prepared in good faith, with care and diligence and use
assumptions that are reasonable under the circumstances at the time such
Projections were prepared and as of the Closing Date and are disclosed in the
Projections.
(b) Borrower promises that Borrower and each other Credit Party shall keep
adequate Books and Records with respect to the Collateral and such Person's
business activities, in which proper entries, reflecting all consolidated
and consolidating financial transactions, and payments received on any and
all credits granted to, and all other dealings with, the Collateral, are
made in accordance with GAAP and on a basis consistent with the Financial
Statements.
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3.5 Material Adverse Change. Between the date of Borrower's most recently
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audited Financial Statements delivered to Lender and the Closing Date: (a) no
Credit Party has incurred any obligations, contingent or non-contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the pro forma balance sheet of
Borrower and which could, alone or in the aggregate, reasonably be expected to
have a Material Adverse Effect; (b) there has been no material deviation from
the Projections delivered at or prior to the Closing Date; (c) no contract,
lease, agreement or other instrument to which any Credit Party has become a
party or by which it or any of its properties or assets is bound or affected,
and no provision of applicable law or governmental regulation has had or could
reasonably be expected to have a Material Adverse Effect; (d) no Credit Party is
in default, and to such Credit Party's knowledge no third party is in default
under or with respect to any material contract, agreement, lease or other
instrument to which it is a party, which alone or in the aggregate could
reasonably be expected to have a Material Adverse Effect; and (e) no event has
occurred, and such Credit Party will not permit or suffer to occur any event or
events, which alone or in the aggregate could reasonably be expected to have a
Material Adverse Effect.
3.6 Ownership of Property; Liens. As of the Closing Date, the real estate
----------------------------
listed in Disclosure Schedule (3.6) constitutes all of the real property owned,
-------------------------
leased, or used in its business by each Credit Party, and such Credit Party will
not execute any material agreement or contract in respect of such real estate
after the Closing Date without giving Lender prompt written notice thereof.
Each Credit Party holds and will continue to hold good and marketable fee simple
title to all of its owned real estate, and good and marketable title to all of
its other properties and assets, and valid leasehold interests in all of its
leases (both as lessor and lessee, sublessee or assignee), and none of the
properties and assets of each Credit Party are or will be subject to any Liens,
except Permitted Encumbrances. All permits required to allow the real property
owned or leased by each Credit Party to be lawfully occupied and used, for all
of the purposes for which they are occupied and used on the Closing Date, have
been lawfully issued and are in full force and effect, and that all such permits
will be obtained and maintained. Each Credit Party will obtain a landlord's or
mortgagee's agreement in form acceptable to Lender from the lessor or mortgagee
of any new leased or acquired premises after the Closing Date.
3.7 Labor Matters. As of the Closing Date, there are no strikes or other
-------------
labor disputes against any Credit Party that are pending or, to any Credit
Party's knowledge, threatened. All payments due from any Credit Party on
account of employee health and welfare insurance have been and will continue to
be paid or accrued as a liability on the books of such Credit Party. Disclosure
----------
Schedule (3.7) identifies each collective bargaining agreement, management
- --------------
agreement with an executive officer, or any other material employment agreement
to which any Credit Party is a party in effect as of the Closing Date, and a
copy of each such agreement has been made available to Lender. Promptly upon
the execution of any such agreement or incurrence of such obligation after the
Closing Date and until the Termination Date, each Credit Party shall provide to
Lender prompt written notice of such event and a copy of such agreement. As of
the Closing Date (a) there is no organizing activity involving any Credit Party
pending or, to any Credit Party's knowledge, threatened by any labor union or
group of employees, (b) there are no representation proceedings pending or, to
any Credit Party's knowledge, threatened with the National Labor Relations
Board, and (c) no labor organization or group of employees of any Credit Party
has pending any demand for recognition, and such Credit Party shall give to
Lender prompt written notice of any of the foregoing occurring after the Closing
Date.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. (a) As of the Closing Date, all outstanding Stock and
Indebtedness of each Credit Party, and the holders (including group or
affiliated holders known to any Credit Party) of 10% or more of the Stock of
each Credit Party is as described in Disclosure Schedule (3.8). Except as set
-------------------------
forth in Disclosure Schedule (3.8), as of the Closing Date, there are no
-------------------------
outstanding rights to purchase, options, warrants or similar rights or
agreements pursuant to which any Credit Party may be required to issue, sell,
repurchase or redeem any of its Stock or other equity securities or any Stock or
other equity securities of its Subsidiaries. After the Closing Date each Credit
Party will give Lender prompt notice of (i) each issuance of Stock or change in
ownership representing 10% or more of the ownership of any of its Stock, (ii)
any issuance or transfer of its Stock that is intended to be an item of
Collateral, and (iii) any Change of Control.
(b) Borrower has no Subsidiaries other than Quad Pharmaceuticals, Inc., an
Indiana corporation, and Borrower currently owns and shall at all times own
100% of the Stock of each of its Subsidiaries. Parent currently owns and
shall at all times own 100% of the Stock of Borrower and each of its other
Subsidiaries. Quad Pharmaceuticals, Inc. is an inactive Subsidiary of
Borrower, PRX Distributors, Ltd., a Delaware corporation, is an inactive
Subsidiary of Parent, and Par Pharma Group, Ltd., a Delaware corporation,
is an inactive Subsidiary of PRX Distributors, Ltd.; and no such
--43--
<PAGE>
Subsidiary currently owns or will own any property or assets (other than
PRX Distributors, Ltd.'s ownership of the Stock of Par Pharma Group, Ltd.)
or engage in any business or activity, have any employees or any
Indebtedness, liability or obligation and are not and will not become
parties to any transaction or bound by any agreement, instrument or other
document. PRI-Research, Inc., a Delaware corporation, is a limited partner
of Clal Pharmaceutical Resources, L.P. and, except as relates to its
interest in such partnership, currently does not own nor will it own any
property or assets or engage in any business or activity, have any
employees or any Indebtedness, liability or obligation is not and will not
become party to any transaction or bound by any agreement, instrument or
other document. ParCare currently does not own nor will it own any material
property or assets, have any employees or any Indebtedness, liability or
obligation, is not and will not become party to any transaction or bound by
any agreement, instrument or other document (other than the Loan
Documents).
3.9 Government Regulation. No Credit Party is or will be subject to or be
---------------------
regulated under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act or any other Federal or state
statute, rule or regulation that restricts or limits such Person's ability to
incur Indebtedness, pledge its assets, or to perform its obligations under the
Loan Documents. The making of the Revolving Credit Advances, the application of
the proceeds and repayment thereof by Borrower or any other Credit Party, and
the consummation of the transactions contemplated by the Loan Documents do not
and will not violate any provision of any such statute or any rule, regulation
or order issued by the Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party owns or will own any "margin
------------------
security," as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), other
than the Sano Stock Collateral. None of the proceeds of the Revolving Credit
Loan will be used directly or indirectly for (a) purchasing or carrying any
margin security, (b) reducing or retiring any Indebtedness which was originally
incurred to purchase or carry any margin security, or (c) any purpose which
might cause any of the Revolving Credit Advances or this Agreement to be
considered a "purpose credit" within the meaning of Regulation G, T, U or X of
the Federal Reserve Board. No Credit Party will take or permit to be taken any
action which might cause any Loan Document to violate any regulation of the
Federal Reserve Board.
3.11 Taxes. (a) All tax returns, reports and statements required by any
-----
Governmental Authority to be filed by Borrower or any other Credit Party have,
as of the Closing Date, been filed and will, until the Termination Date, be
filed with the appropriate Governmental Authority, and all Charges and other
impositions shown thereon have been and will be paid when due. Proper and
accurate amounts have been and will be withheld by Borrower and each other
Credit Party from their respective employees for all periods in full and
complete compliance with the tax, social security and unemployment withholding
provisions of all applicable law, and such withholdings have and will be timely
paid to the respective Governmental Authorities. Borrower and each other Credit
Party executing this Agreement represents and promises that neither Borrower nor
any other Credit Party: (i) has executed or filed, or will execute or file,
with any Governmental Authority, any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Charges; (ii) has agreed or been requested to make any adjustment in accounting
method; (iii) is a party to any tax sharing agreement; or (iv) is currently
being audited by any Governmental Authority. Except as set forth on Disclosure
----------
Schedule (3.11), there are no assessments or threatened assessments outstanding
- ---------------
against any Credit Party.
(b) Each Credit Party may contest, by proper legal actions or proceedings, the
validity or amount of any Charges; provided, that at the time of
--------
commencement of any such action or proceeding (i) adequate reserves with
respect thereto are established on the books of the contesting Person in
accordance with GAAP; (ii) such contest operates to suspend collection of
the contested Charges and is maintained and prosecuted continuously with
diligence; (iii) none of the Collateral would be subject to forfeiture or
loss of Lien thereby; (iv) no Lien shall be imposed or be attempted to be
imposed by any Governmental Authority for such Charges or claims during
such action or proceeding; (v) the contesting Person shall promptly pay or
discharge any contested Charge and shall deliver to Lender evidence
acceptable to Lender of such compliance, payment or discharge, if such
contest is terminated or discontinued adversely; and (vi) Lender has not
advised any Credit Party in writing that Lender reasonably believes that
nonpayment or nondischarge thereof could reasonably be expected to have a
Material Adverse Effect.
--44--
<PAGE>
3.12 ERISA. (a) Disclosure Schedule (3.12) lists all Plans in effect as of the
----- --------------------------
Closing Date. Each Credit Party is and will remain in compliance with all
requirements of each Plan, and each Plan complies with and is operated, and will
continue to be operated, in compliance with all applicable provisions of law in
all respects. Each Qualified Plan and each related trust has been determined by
the IRS to qualify and will continue to qualify under, and be exempt from tax
under, the IRC. Nothing has occurred or will be permitted to occur which would
cause the loss of such qualification or tax-exempt status. All required
contributions have been and will be made in accordance with the provisions of
each Plan, and with respect to any Credit Party or any ERISA Affiliate, there
are and will be no Unfunded Pension Liabilities or Withdrawal Liabilities. No
Credit Party has engaged or will engage in a prohibited transaction, as defined
in Section 4975 of the IRC or Section 406 of ERISA.
(b) No ERISA Event has occurred or will be permitted to occur. No Retiree
Welfare Plan exists or will be adopted (except as may be required by law or
Plans disclosed on Disclosure Schedule (3.12)). No liability under any
--------------------------
Title IV Plan has been or will be funded, nor has such obligation been (nor
will it be) satisfied with, the purchase of a contract from an insurance
company that is not rated AAA by Standard & Poor's Corporation and the
equivalent by each other nationally recognized rating agency.
3.13 Litigation. As of the Closing Date, except as disclosed in Disclosure
---------- ----------
Schedule (3.13) no Claim is pending or threatened against any Credit Party which
- ---------------
(a) challenges any such Person's right, power, or competence to enter into or
perform any of its obligations under the Loan Documents, the validity or
enforceability of any Loan Document or any action taken thereunder, or (b)
whether or not determined adversely, could reasonably be expected to have a
Material Adverse Effect. Each Credit Party shall notify Lender in writing
promptly upon learning of the existence or commencement of any Claim commenced
or threatened against any Credit Party that: (x) may involve an amount in
excess of $100,000; (y) could reasonably be expected to have a Material Adverse
Effect whether or not determined adversely; or (z) regardless of amount (i) is
asserted or instituted, against any Plan, its fiduciaries or its assets, or
against any Credit Party or any ERISA Affiliate in connection with any Plan,
(ii) includes any demand for injunctive relief, (iii) alleges criminal
misconduct by any Credit Party, or (iv) alleges the violation of any law
regarding, or seeks remedies in connection with, any Environmental Liabilities
and Costs.
3.14 Brokers. Except in respect of the fee of $180,000 payable to Neil Sussman,
-------
no broker or finder acting on behalf of any Credit Party brought about the
obtaining, making or closing of any Revolving Credit Advances or the
transactions contemplated by the Loan Documents, and no Credit Party has any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Credit Party owns or
---------------------
has the right to use and will own or have the right to use all Intellectual
Property necessary to continue to conduct its business as now or heretofore
conducted by it or proposed to be conducted by it in the most recent Projections
delivered to Lender, and each such item (that is registrable) of Intellectual
Property is listed, together with application or registration numbers, where
applicable, in Disclosure Schedule (3.15). Each Credit Party will give Lender
--------------------------
prompt written notice of any change in the status of any of its Intellectual
Property. Each Credit Party conducts and will continue to conduct its affairs
and business without infringement of or interference with any Intellectual
Property of any other Person. Each Credit Party shall notify Lender immediately
if it knows or discovers that any of any Credit Party's Intellectual Property is
or may become infringed upon, misappropriated or abandoned, or of any other
adverse determination or development.
3.16 Full Disclosure. No information contained in the Loan Documents, the
---------------
Financial Statements or any written statement furnished by or on behalf of any
Credit Party under this Agreement, or to induce Lender to execute the Loan
Documents, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made; provided
--------
that with respect to such written statements the statements therein shall, to
the extent applicable, be deemed modified or supplemented by the statements
contained in the Loan Documents and the Financial Statements. As of the Closing
Date, each Credit Party has provided Lender and will continue to provide Lender
with a true, complete and correct copy of each material contract executed by any
Credit Party.
3.17 Hazardous Materials. (a) As of the Closing Date, each real property
-------------------
location owned, leased or occupied by each Credit Party (the "Subject Property")
is and will continue to be maintained free of contamination from any Hazardous
Material. Each Credit Party: (i) shall comply in all material respects with
all applicable Environmental Laws and Environmental Permits; (ii) shall notify
Lender in writing within seven days if and when it becomes aware
--45--
<PAGE>
of any incident or ongoing case of non-compliance or Release (regardless of when
such Release may have occurred) upon any Subject Property; and (iii) shall
promptly forward to Lender a copy of any order, notice, permit, application, or
any communication or report received by it or any other Credit Party in
connection with any such Release or any other matter relating to the
Environmental Laws that may affect Borrower or any other Credit Party. As of the
Closing Date, Disclosure Schedule (3.17) discloses existing or potential
--------------------------
environmental liabilities of each Credit Party that could result in
Environmental Liabilities and Costs, and each Credit Party will promptly notify
Lender in writing of any such liabilities arising after the Closing Date. As of
the Closing Date, no Credit Party has caused, permitted or suffered, or will
cause, permit or suffer to occur any Release at, under, above or within any
Subject Property, or the presence, use, generation, manufacture, installation,
or storage of any Hazardous Materials on, under, in or about any Subject
Property or the transportation of any Hazardous Materials to or from any Subject
Property except to the extent such use, generation, manufacture, installation,
storage or transportation is conducted in compliance with all Environmental Laws
and Environmental Permits. Neither Borrower nor any other Credit Party is or
will become involved in operations that could lead to the imposition of
Environmental Liabilities or Costs, and no sub-tenant of any Credit Party is
permitted, or will be permitted, to engage in any such activity.
(b) Each Credit Party executing this Agreement acknowledges and agrees that
Lender (i) is not now, and has not ever been, in control of any of the
Subject Property or the affairs of Borrower or any other Credit Party, and
(ii) does not have the capacity through the provisions of the Loan
Documents to influence Borrower's or any other Credit Party's conduct with
respect to the ownership, operation or management of any of the Subject
Property.
3.18 Insurance. As of the Closing Date, Disclosure Schedule (3.18) lists all
--------- --------------------------
insurance of any nature maintained for current occurrences by Borrower and each
other Credit Party, as well as a summary of the terms of such insurance. Each
Credit Party executing this Agreement shall deliver to Lender endorsements to
all of its and those of its Subsidiaries' (a) "All Risk" and business
interruption insurance policies naming Lender loss payee, and (b) general
liability and other liability policies naming Lender as an additional insured.
All policies of insurance on real and personal property will contain an
endorsement, in form and substance acceptable to Lender, showing loss payable to
Lender (Form 438 BFU or equivalent) and extra expense and business interruption
endorsements. Such endorsement, or an independent instrument furnished to
Lender, will provide that the insurance companies will give Lender at least 30
days prior written notice before any such policy or policies of insurance shall
be altered or cancelled and that no act or default of Borrower or any other
Person shall affect the right of Lender to recover under such policy or policies
of insurance in case of loss or damage. Each Credit Party executing this
Agreement hereby directs all present and future insurers under its "All Risk"
policies of insurance to pay all proceeds payable thereunder directly to Lender.
Lender reserves the right at any time, upon review of each Credit Party's risk
profile, to require additional forms and limits of insurance to adequately
protect Lender's interests in accordance with Lender's normal practice for
similarly situated borrowers, and if the circumstances are unusual, in Lender's
sole opinion. Each Credit Party executing this Agreement shall, on each
anniversary of the Closing Date and from time to time at Lender's request,
deliver to Lender a report by a reputable insurance broker, satisfactory to
Lender, with respect to such Person's insurance policies.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all
--------------------------------- --------------------------
banks and other financial institutions at which each Credit Party maintains
deposits and/or other accounts, including the Disbursement Account, and such
Disclosure Schedule correctly identifies the name, address and telephone number
of each such depository, the name in which the account is held, a description of
the purpose of the account, and the complete account number. No Credit Party
will establish any other depository or other bank account with any financial
institution of any kind. All payments to the Credit Parties shall be made to or
paid into the accounts specified by Lender in Schedule C.
----------
3.20 Accounts. Borrower promises to perform and comply with all obligations in
--------
respect of each item of Collateral. Borrower represents and promises that, as of
the date of each Borrowing Base Certificate delivered to Lender, each Account
shown on such Borrowing Base Certificate is an Eligible Account. Borrower has
not agreed and will not agree: (a) with any Account Debtor for any deduction
from any Account except a discount or allowance allowed by Borrower in the
ordinary course of its business for prompt payment; (b) to any extension of the
time of payment of any Eligible Account; (c) to compromise or settle any
Eligible Account for less than the full amount thereof; or (d) to release, in
whole or in part, any Person liable for the payment of any Account; provided,
--------
that Borrower may permit deductions, extensions, compromises, settlements and
releases of the Accounts described in clauses (b) through (d) which, in the
aggregate during any Fiscal Quarter will not exceed $150,000.
3.21 Inventory. Borrower represents and promises that, as of the date of each
---------
Borrowing Base Certificate delivered
--46--
<PAGE>
to Lender, each item of Inventory shown on such Borrowing Base Certificate is
Eligible Inventory.
3.22 Payment of Obligations. Each Credit Party: (a) will pay and discharge or
----------------------
cause to be paid and discharged all Obligations in a timely manner; and (b)
prior to an Event of Default, (i) will pay and discharge, or cause to be paid
and discharged, its Indebtedness (other than the Obligations) in the ordinary
course of business, (ii) subject to Section 3.11(b), will pay and discharge, or
cause to be paid and discharged promptly, all Charges, and (iii) will pay all
lawful claims for labor, materials, supplies and services or otherwise, before
any thereof shall become in default.
3.23 Confidentiality and Press Releases. Lender and each Credit Party executing
----------------------------------
this Agreement agree that the terms and conditions of this Agreement are
confidential. No Credit Party executing this Agreement shall use the name of or
refer to General Electric Capital Corporation (or any Affiliate thereof) or "GE
Capital," or issue any press release regarding or make other public disclosure
of the existence of this Agreement or its terms, without the prior written
consent of Lender, except as may be required by law (including by rules and
regulations of the Securities and Exchange Commission); provided, that to the
--------
extent required by law (including filings with the Securities and Exchange
Commission), Borrower or any other Credit Party may make such disclosures, but
only if Borrower shall first have afforded Lender a reasonable opportunity to
review and comment upon any such legally required disclosure, press release, or
use of such name.
3.24 Conduct of Business. Each Credit Party (a) shall conduct its business
-------------------
substantially as now conducted or as otherwise permitted hereunder, and (b)
shall at all times maintain, preserve and protect all of the Collateral and such
Credit Party's other property, in use or useful in the conduct of its business
and keep the same in good repair, working order and condition (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
3.25 Further Assurances; Disclosure Schedule Supplements. At any time and from
---------------------------------------------------
time to time, upon the written request of Lender and at the sole expense of
Borrower, Borrower and each other Credit Party shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable (a) to obtain the full
benefits of this Agreement, (b) to protect, preserve and maintain Lender's
rights in the Collateral, or any of it, and under this Agreement, or (c) to
enable Lender to exercise all or any of the rights and powers herein granted.
On each anniversary of the Closing Date (or as often as Lender may require upon
the occurrence and continuation of a Default), Borrower will supplement each
Disclosure Schedule with respect to any matter hereafter arising that, if
existing or occurring as of the Closing Date, would have been required to be set
forth or described in such Disclosure Schedule; provided, that such supplement
--------
shall not be deemed to be an amendment thereof unless expressly consented to in
writing by Lender.
3.26 Sano Stock Collateral. Parent is the sole legal and beneficial owner of
---------------------
the Sano Stock Collateral, free and clear of any Lien or claims of any Person
except for the security interest in favor of Lender created by this Agreement.
None of the shares of Sano Stock Collateral have been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any applicable jurisdiction.
4. Financial matters; reports
4.1 Reports and Notices. Borrower represents, agrees and promises that from
-------------------
and after the Closing Date until the Termination Date, Borrower shall deliver to
Lender:
(a) within 15 days following the end of each Fiscal Month, an aged trial
balance by Account Debtor and a reconciliation in the form of Exhibit F of
---------
such aged trial balance to the accounts receivable balance as shown on the
most recently submitted Notice of Revolving Credit Advance; and as soon as
available but in no event later than 30 days following the end of each
Fiscal Month, a continuation of such reconciliation to Parent's general
ledger and from the general ledger to the Financial Statements for such
Fiscal Month, accompanied by supporting detail and documentation as Lender
may request;
(b) as frequently as Lender may request and in any event no later than 15 days
following the end of each Fiscal Month, a Borrowing Base Certificate in the
form of Exhibit C as of the last day of the previous Fiscal Month
---------
--47--
<PAGE>
detailing ineligible Accounts and Inventory for adjustment to the Borrowing
Base;
(c) within 20 days following the end of each Fiscal Month (other than any such
end of a Fiscal Month which is also the end of a Fiscal Quarter) and within
45 days following the end of each Fiscal Quarter, the Financial Statements
for such Fiscal Month or Fiscal Quarter, as the case may be, which
Financial Statements shall provide comparisons to budget and actual results
for the corresponding period during the prior Fiscal Year, both on a
monthly or quarterly, as the case may be, and year-to-date basis, and
accompanied by a certification by the Chief Executive Officer or Chief
Financial Officer of Parent that such Financial Statements are complete and
correct, that there was no Default (or specifying those Defaults that he or
she was aware), and showing in reasonable detail the calculations used in
determining compliance with the financial covenants hereunder;
(d) within 90 days following the close of each Fiscal Year, the Financial
Statements for such Fiscal Year certified without qualification by an
independent certified accounting firm acceptable to Lender, together with
comparisons prepared by Parent to budget and actual results for the prior
Fiscal Year, both on a monthly and annual basis, and shall be accompanied
by (i) a statement in reasonable detail showing the calculations used in
determining compliance with the financial covenants hereunder, (ii) a
report from Parent's accountants to the effect that in connection with
their audit examination nothing has come to their attention to cause them
to believe that a Default has occurred or specifying those Defaults of
which they are aware, and (iii) any management letter that may be issued;
(e) not less than 30 days prior to the close of each Fiscal Year, the
Projections, which Projections will be prepared by Borrower in good faith,
with care and diligence, and using assumptions which are reasonable under
the circumstances at the time such Projections are prepared and at the time
such Projections are delivered to Lender and disclosed in the Projections
when delivered; and
(f) such other information respecting the business, financial condition,
prospects or projections of Borrower or any other Credit Party or
Subsidiary thereof as Lender may request from time to time.
4.2 Financial Covenants. Borrower shall not breach any of the financial
-------------------
covenants set forth in Schedule F.
----------
4.3 Other Reports. Borrower shall notify Lender promptly of any occurrence
-------------
causing a material loss or decline in value of any Collateral and the estimated
(or actual, if available) amount of such loss or decline. Borrower shall, upon
the request of Lender, furnish to Lender such other reports in connection with
the affairs, business, financial condition, operations, prospects or management
of Borrower or any other Credit Party or the Collateral as Lender may request,
all in reasonable detail, and Borrower shall advise Lender promptly, in
reasonable detail, of: (a) any Lien, other than Permitted Encumbrances,
attaching to or asserted against any of the Collateral; (b) any material change
in the composition of the Collateral; and (c) the occurrence of any other event
which could reasonably be expected to have a Material Adverse Effect.
5. Negative covenants
Borrower and each Credit Party executing this Agreement covenants and agrees
(for itself and each other Credit Party) that, without Lender's prior written
consent, from the Closing Date until the Termination Date, neither Borrower nor
any other Credit Party shall, directly or indirectly, by operation of law or
otherwise:
(a) merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with, any Person or
business or form any Subsidiary;
(b) except as otherwise permitted in this Section 5 below, make any investment
(including any investment in or advance to any other Person for research
and development) in, or make or accrue loans or advances of money to, any
Person, other than investments for research and development in Persons
which are not Credit Parties which, together with the aggregate amount of
research and development expenses of the Credit Parties, do not exceed
$6,000,000 in any Fiscal Year;
(c) create, incur, assume or permit to exist any Indebtedness, except: (i) the
Obligations; (ii) Indebtedness other than the Obligations in an aggregate
outstanding amount not exceeding $500,000; (iii) deferred taxes; (iv) other
Indebtedness set forth in Disclosure Schedule (5(c)), and (v) Indebtedness
--------------------------
of Borrower secured by Borrower's real
--48--
<PAGE>
property in a maximum aggregate amount outstanding (together with any such
Indebtedness secured by Borrower's real property set forth as Disclosure
----------
Schedule (5(c))) not to exceed $5,000,000);
----------------
(d) enter into any lending, borrowing or other commercial transaction with any
of its employees, directors, Affiliates or any other Credit Party
(including upstreaming and downstreaming of cash and intercompany advances,
and payments by a Credit Party on behalf of another Credit Party which are
not otherwise permitted hereunder) other than (i) loans to employees in the
ordinary course of business in an aggregate outstanding amount not
exceeding $50,000, and (ii) indebtedness consisting of intercompany loans
made by Borrower to Parent provided that (A) Borrower and Parent shall
--------
record all intercompany transactions on their books and records in a manner
satisfactory to Lender, (B) no Default or Event of Default would occur and
be continuing after giving effect to any such proposed intercompany loan,
and (C) the aggregate amount of all such intercompany loans made by
Borrower to Parent shall not exceed (together with any dividends under
Section 5(l)(iv) below) $1,200,000 in any Fiscal Year;
(e) make any changes in any of its business objectives, purposes, or operations
which could have or reasonably be expected to have a Material Adverse
Effect;
(f) amend its charter or by-laws or other organizational documents;
(g) incur any Guaranteed Indebtedness except (i) by endorsement of instruments
or items of payment for deposit to the general account of Borrower, and
(ii) for Guaranteed Indebtedness incurred for the benefit of Borrower if
the primary obligation is permitted by this Agreement;
(h) create or permit any Lien on any of its properties or assets, except for
Permitted Encumbrances;
(i) sell, transfer, convey, assign or otherwise dispose of any of its assets or
properties, including its Accounts, or issue any shares of its Stock;
provided, that the foregoing shall not prohibit (i) the sale of Inventory
--------
or obsolete or unnecessary Equipment or real estate in the ordinary course
of its business, (ii) the sale by Parent of its Common Stock at Fair Market
Value for cash consideration so long as the proceeds thereof are applied to
prepayment of Revolving Credit Advances pursuant to Section 1.2(c), (iii)
the sale of all or a portion of the Sano Stock Collateral at Fair Market
Value for cash consideration so long as the proceeds thereof are applied to
prepayment of Revolving Credit Advances pursuant to Section 1.2(c) and, so
long as no Event of Default has occurred and is continuing, upon three
Business Days' prior notice, Lender agrees to release its security interest
in the Sano Stock Collateral then being sold, and deliver the stock
certificates then held by Lender in respect thereof, against receipt of the
proceeds of such sale, (iv) issuance by Parent of shares of its Common
Stock upon exercise of the Warrants, and (v) issuance by Parent to its
employees of options to purchase its Common Stock pursuant to the Stock
Option Plans and issuance of Common Stock upon exercise of such options;
(j) take any action or omit to take any action, which act or omission would
constitute a material default or an event of default pursuant to, or
noncompliance with, any contract, lease, mortgage, deed of trust or
instrument to which it is a party or by which it or any of its property is
bound, or any document creating a Lien;
(k) cancel any debt owing to it, except for reasonable consideration and in the
ordinary course of its business or as otherwise permitted in Section 3.20;
(l) make or permit any Restricted Payment, except (i) intercompany loans from
Borrower to Parent to the extent permitted by Section 5(d) above, (ii)
employee loans permitted under Section 5(d) above, (iii) dividends by
Subsidiaries of Parent (other than Borrower) paid to Parent, and (iv)
dividends by Borrower paid to Parent in an amount not to exceed (together
with any intercompany loans under Section 5(d)(ii) above) $1,200,000 in any
Fiscal Year, provided that no Default or Event of Default would occur and
--------
be continuing after giving effect to any such proposed dividend; or
(m) engage in any business other than that presently engaged in or proposed to
be engaged in the Projections delivered to Lender on the Closing Date.
6. Security interest
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<PAGE>
6.1 Grant of Security Interest. (a) To secure the prompt and complete
--------------------------
payment, performance and observance of all of the Obligations, and to induce
Lender to enter into the Loan Documents and to make the Revolving Credit Loan
provided for herein, Borrower and each Guarantor executing this Agreement hereby
assigns and transfers to Lender, and grants to Lender a security interest in and
Lien upon, all of its right, title and interest in the Collateral.
(b) Borrower and each Guarantor executing this Agreement and Lender agree that
this Agreement creates, and is intended to create, valid and continuing
Liens upon the Collateral in favor of Lender. Borrower and each Guarantor
executing this Agreement represents, warrants and promises to Lender that:
(i) upon and as a result of the filing of appropriate financing statements
in the jurisdictions listed in Disclosure Schedule (6.1), such Liens are
-------------------------
and will be fully perfected Liens on and in all Collateral, which Liens are
and will, until the Termination Date, be enforceable as first priority,
fully perfected Liens as against all other creditors of, and purchasers
from, Borrower and each Guarantor (other than purchasers of Inventory in
the ordinary course of business); (ii) all action necessary or desirable to
protect and perfect such Liens in favor of Lender in all of the Collateral
has been duly taken; (iii) except for Permitted Encumbrances, Borrower and
each Guarantor is and will be the sole owner of each such item of the
Collateral in which a Lien is granted under the Loan Documents, and has and
will have good and marketable title to such Collateral free and clear of
any and all other Liens, and (iv) no effective security agreement,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is or will be on file
or of record in any public office, except those filed by Borrower and each
Guarantor in favor of Lender pursuant to the Loan Documents, and those
relating to other Permitted Encumbrances. Borrower and each Guarantor
promise to defend the right, title and interest of Lender in and to the
Collateral against the claims and demands of all Persons whomsoever, and
shall take such actions, including (1) the prompt delivery of all original
Instruments, Chattel Paper and certificated Stock (including the Sano Stock
Collateral) owned by Borrower or any Guarantor to Lender, (2) notification
of Lender's interest in Collateral at Lender's request, or (3) the
institution of litigation against third parties as shall be prudent in
order to protect and preserve Borrower's and Lender's respective and
several interests in the Collateral. Borrower and each Guarantor shall
mark its Books and Records pertaining to the Collateral to evidence the
Loan Documents and the Liens granted under the Loan Documents. All Chattel
Paper shall be marked with the following legend: "This writing and the
obligations evidenced or secured hereby are subject to the security
interest of General Electric Capital Corporation."
6.2 Lender's Rights. (a) Lender may (i) at any time in Lender's own name or
---------------
in the name of Borrower or any Guarantor, communicate with Account Debtors,
parties to Contracts, and obligors in respect of Instruments, Chattel Paper or
other Collateral to verify to Lender's satisfaction, the existence, amount and
terms of any such Accounts, Contracts, Instruments or Chattel Paper or other
Collateral, and (ii) at any time after the occurrence of a Default, and without
prior notice to Borrower, any Guarantor or any other Credit Party, notify
Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper,
Instruments, or other Collateral that the Collateral has been assigned to Lender
and that payments shall be made directly to Lender. Upon the request of Lender,
Borrower and each Guarantor shall so notify such Account Debtors, parties to
Contracts, and obligors in respect of Instruments, Chattel Paper or other
Collateral.
(b) Each Credit Party executing this Agreement hereby consents to the
assignment, transfer and granting of Liens in the Collateral pursuant to
this Section 6, including all Contracts, Instruments, Chattel Paper and
Licenses under which such Credit Party is a party or obligor. It is
expressly agreed by Borrower and each Guarantor executing this Agreement
that, notwithstanding anything herein to the contrary, Borrower and each
Guarantor shall remain liable under each Contract and License to observe
and perform all the conditions and obligations to be observed and performed
by it thereunder, and Lender shall have no obligation or liability
whatsoever to any Person under any Contract or License (between Borrower or
any Guarantor and any Person other than Lender) by reason of or arising out
of the execution, delivery or performance of this Agreement, and Lender
shall not be required or obligated in any manner (i) to perform or fulfill
any of the obligations of Borrower or any Credit Party, (ii) to make any
payment or inquiry, or (iii) to take any action of any kind to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times under or
pursuant to any Contract or License.
(c) Borrower and each Guarantor executing this Agreement shall, with respect to
each owned, leased, or controlled property or facility, during normal
business hours and upon reasonable advance notice (unless a Default shall
have occurred and be continuing, in which event no notice shall be required
and Lender shall have access at any and all
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<PAGE>
times): (i) provide access to such facility or property to Lender and any
of its officers, employees and agents, as frequently as Lender determines
to be appropriate; (ii) permit Lender and any of its officers, employees
and agents to inspect, audit and make extracts from all of Borrower's and
each Guarantor's Books and Records; and (iii) permit Lender to inspect,
review, evaluate and make physical verifications and appraisals of the
Inventory and other Collateral in any manner and through any medium that
Lender considers advisable, and Borrower and each Guarantor executing this
Agreement agree to render to Lender, at Borrower's and such Guarantor's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Borrower and each Guarantor shall make
available to Lender and its counsel, as quickly as practicable under the
circumstances, originals or copies of all Borrower's and each Guarantor's
Books and Records and any other instruments and documents which Lender may
request. Borrower shall deliver any document or instrument reasonably
necessary for Lender, as it may from time to time request, to obtain
records from any service bureau or other Person which maintains records for
Borrower or any Guarantor.
(d) After the occurrence and during the continuance of a Default, Borrower, at
its own expense, shall cause the certified public accountant then engaged
by Borrower to prepare and deliver to Lender at any time and from time to
time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may
request. Borrower, at its own expense, shall cause its certified
independent public accountants to deliver to Lender the results of any
physical verifications of all or any portion of the Inventory made or
observed by such accountants when and if such verification is conducted.
Lender shall be permitted to observe and consult with Borrower's
accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date Borrower
----------------------------------------
and each Guarantor executing this Agreement shall execute and deliver a Power of
Attorney in the form attached as Exhibit E. The power of attorney granted
---------
pursuant to each Power of Attorney is a power coupled with an interest and shall
be irrevocable until the Termination Date. The powers conferred on Lender under
each Power of Attorney are solely to protect Lender's interests in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Lender agrees and promises that (a) it shall not exercise any power or authority
granted under the Power of Attorney unless an Event of Default has occurred and
is continuing, (b) Lender shall only exercise the powers granted under the Power
of Attorney in respect of Collateral, and (c) upon request of Borrower or
Guarantor, Lender shall account for any moneys received by Lender in respect of
any foreclosure on or disposition of Collateral pursuant to use of any Power of
Attorney; provided, that, except as otherwise required by applicable law, Lender
--------
shall not have any other duty as to any Collateral, and Lender shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers. NONE OF LENDER OR ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO BORROWER OR ANY GUARANTOR FOR
ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS GRANTED UNDER THE POWER OF
ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
Borrower and each Guarantor executing this Agreement also hereby authorizes
Lender to file any financing or continuation statement without its signature to
the extent permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. For the
--------------------------------------------------------
purpose of enabling Lender to exercise its rights and remedies under the Loan
Documents, Borrower and each Guarantor executing this Agreement hereby grants to
Lender an irrevocable, non-exclusive license (exercisable upon the occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation) to use, transfer, license or sublicense any Intellectual
Property (other than any Intellectual Property licensed by a Credit Party from a
non-Affiliate with respect to which such Credit Party is prohibited from
granting a sublicense by the terms of such License) now owned, licensed to, or
hereafter acquired by Borrower or any such Guarantor, and wherever the same may
be located, and including in such license access to all media in which any of
the licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof,
and represents, promises and agrees that any such license or sublicense is not
and will not be in conflict with the contractual or commercial rights of any
third person; provided, that such license will terminate on the Termination
--------
Date.
6.5 Reinstatement. The provisions of this Section 6 shall remain in full
-------------
force and effect and continue to be effective even if: (a) any petition is
filed by or against any Credit Party for liquidation or reorganization; (b) any
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<PAGE>
Credit Party becomes insolvent or makes an assignment for the benefit of
creditors; (c) a receiver or trustee is appointed for all or any significant
part of any Credit Party's assets; or (d) at any time payment and performance of
the Obligations, or any part thereof, is, pursuant to applicable law, rescinded
or reduced in amount, or must otherwise be restored or returned by any obligee
of the Obligations, whether as a "voidable preference," "fraudulent transfer" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations and Lender's Liens in the Collateral shall be
reinstated and deemed reduced only by any amount paid and not so rescinded,
reduced, restored or returned.
7. Guaranty
7.1 Guaranty. (a) To induce Lender to enter into the Loan Documents and to
--------
make the Revolving Credit Loan provided for herein each Guarantor executing this
Agreement hereby unconditionally and irrevocably, jointly and severally,
guarantees to Lender, as primary obligor and not merely as a surety, the prompt
and complete payment and performance by Borrower and each other Credit Party
when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations. Each Guarantor executing this Agreement further agrees to, jointly
and severally, pay any and all reasonable expenses (including, without
limitation, all reasonable fees and disbursements of counsel) which may be paid
or incurred by Lender in enforcing, or obtaining advice of counsel in respect
of, any rights with respect to, or collecting, any or all of the Obligations
and/or enforcing any rights with respect to, or collecting against, each
Guarantor under this Section 7. This Section 7 shall remain in full force and
effect until the Termination Date.
(b) No payment or payments made by Borrower, any other Credit Party or any
other Person or received or collected by Lender from Borrower, any other
Credit Party or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application, at any time or from time to
time, in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantors
under this Section 7 which shall, notwithstanding any such payment or
payments, remain in full force and effect until the Termination Date. Each
Guarantor executing this Agreement agrees that whenever, at any time, or
from time to time, it shall make any payment to Lender on account of its
liability under this Section 7, it will notify Lender in writing that such
payment is made under this Section 7 for such purpose.
7.2 Nature of Liability. The liability of each Guarantor hereunder is
-------------------
exclusive and independent of any security for or other guaranty of the
Obligations whether executed by such Guarantor, any other Guarantor or by any
other Person, and a separate action or actions may brought and prosecuted
against each Guarantor whether or not action is brought against any other
Guarantor, any other guarantor, the Borrower, any other Credit Party or any
other Person and whether or not any other Guarantor, any other guarantor, the
Borrower, any other Credit Party or any other Person be joined in any such
action or actions. Each Guarantor executing this Agreement waives, to the
fullest extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment by
the Borrower or other circumstance which operates to toll any statute of
limitations as to the Borrower shall operate to toll the statute of limitations
as to any Guarantor.
7.3 No Subrogation, Contribution, Reimbursement or Indemnity.
--------------------------------------------------------
Notwithstanding anything to the contrary in this Section 7, no Guarantor shall
be entitled to be subrogated to any of the rights of Lender against Borrower or
any other Credit Party or any security interest in and Lien upon any collateral
security or guaranty therefor or right of offset held by Lender for the payment
of the Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from Borrower or any other Credit Party in respect
of payments made by such Guarantor hereunder, until the Termination Date. If
any amount shall be paid to any Guarantor on account of such subrogation rights
at any time prior to the Termination Date, such amount shall be held by such
Guarantor, in trust for Lender, segregated from other funds of such Guarantor,
and shall, forthwith upon receipt by such Guarantor, be turned over to Lender in
the exact form received by Lender (duly indorsed by such Guarantor to Lender, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as Lender may determine. The provisions of this paragraph shall
survive the termination of this Section 7 and the Termination Date.
7.4 Amendments, etc. with respect to the Obligations; Waiver of Rights. Each
------------------------------------------------------------------
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor, and without notice to or
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<PAGE>
further assent by any Guarantor, any demand for payment of any of the
Obligations made by Lender may be rescinded by Lender, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any security interest in and Lien upon any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
Lender, and this Agreement, the other Loan Documents and any other documents
executed and delivered in connection herewith or therewith may be amended,
modified, supplemented or terminated, in whole or in part, as Lender may deem
advisable from time to time, and any security interest in and Lien upon any
collateral security or guaranty for the Obligations or right of offset at any
time held by Lender for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Lender shall have no obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for this Section 7 or any property subject thereto. When making
any demand hereunder against any Guarantor, Lender may, but shall be under no
obligation to, make a similar demand on Borrower or any other Credit Party, and
any failure by Lender to make any such demand or to collect any payments from
Borrower or any such other Credit Party or any release of Borrower or such other
Credit Party shall not relieve any other Guarantor of its obligations or
liabilities under this Guaranty, and shall not impair or affect the rights and
remedies, express or implied, or as a matter of law, of Lender against any
Guarantor. For the purposes hereof "demand" shall include the commencement and
continuance of any legal proceedings.
7.5 Guaranty Absolute and Unconditional. Each Guarantor executing this
-----------------------------------
Agreement waives, to the fullest extent permitted by applicable law, any and all
notice of the creation, renewal, extension or accrual of any of the Obligations
and notice of or proof of reliance by Lender upon the guaranty contained in this
Section 7 or acceptance of the guaranty contained in this Section 7; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Section 7; and all dealings between Borrower or any Guarantor, on the
one hand, and Lender, on the other, shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Section 7. Each Guarantor
executing this Agreement waives, to the fullest extent permitted by applicable
law, diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon Borrower or any Guarantor with respect to the
Obligations. This Section 7 shall be construed as a continuing, absolute and
unconditional guaranty of payment without regard to (a) the validity, regularity
or enforceability of this Agreement, the Revolving Credit Note or any other Loan
Document entered into by any Credit Party with Lender, any of the Obligations or
any other security interest in and Lien upon the any collateral security or
guarantee therefor or right of offset with respect thereto at any time or from
time to time held by Lender, (b) any defense, set-off or counterclaim (other
than a defense of payment or performance) which may at any time be available to
or be asserted by any Credit Party against Lender or (c) any other circumstance
whatsoever (with or without notice to or knowledge of any Credit Party) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of any Credit Party for the Obligations, or of any Guarantor under
this Section 7, in bankruptcy or in any other instance. When pursuing its
rights and remedies hereunder against any Guarantor, Lender may, but shall be
under no obligation to, pursue such rights and remedies as it may have against
any other Credit Party or any other Person or against any security interest in
and Lien upon the any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by Lender to pursue
such other rights or remedies or to collect any payments from any other Credit
Party or any such other Person or to realize upon any such security interest in
and Lien upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of any other Credit Party or any such other
Person or of any such security interest in and Lien upon such collateral
security or any such guaranty or right of offset, shall not relieve any
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of
Lender against any Guarantor. This Section 7 shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon
each Guarantor and each of its successors, and shall inure to the benefit of
Lender until the Termination Date.
7.6 Subordination. Any indebtedness of any Credit Party now or hereafter
-------------
held by a Guarantor is hereby subordinated to the Obligations; and such
indebtedness of any Credit Party to a Guarantor, if Lender, after a Default has
occurred, so requests, shall be collected, enforced and received by such
Guarantor as trustee for the Lender and be paid over to the Lender on account of
the Obligations, but without affecting or impairing in any manner the liability
of such Guarantor under the other provisions of this Section 7. Prior to the
transfer by a Guarantor of any note or negotiable instrument evidencing any
indebtedness of any Credit Party to a Guarantor, such Guarantor shall mark such
note or negotiable instrument with a legend that the same is subject to this
subordination. The word "indebtedness" is used in this Section 7 in its most
comprehensive sense and includes any and all advances, debts,
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<PAGE>
obligations and liabilities of any Credit Party heretofore, now, or hereafter
made, incurred or created, whether voluntarily or involuntarily, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether or
not such indebtedness is from time to time reduced, or extinguished and
thereafter increased or incurred, whether such Credit Party may be or hereafter
become barred by any statute of limitations, and whether or not such
indebtedness may be or hereafter become otherwise unenforceable.
7.7 Reinstatement. This Section 7 shall continue to be effective, or be
-------------
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Credit Party or upon or as a result of the appointment of
a receiver, intervenor or conservator of, or trustee or similar officer for, any
Credit Party or any substantial part of its property, or otherwise, all as
though such payments had not been made.
7.8 Maximum Guaranteed Amount. Notwithstanding any other provision of this
-------------------------
Section 7 to the contrary, if the obligations of any Subsidiary Guarantor
hereunder would otherwise be held or determined by a court of competent
jurisdiction in any action or proceeding involving any state corporate law or
any state or Federal bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other law affecting the rights of creditors generally,
to be void, invalid or unenforceable to any extent on account of the amount of
such Guarantor's liability under this Section 7, then notwithstanding any other
provision of this Section 7 to the contrary, the amount of such liability of
such Guarantor shall, without any further action by such Guarantor or any other
Person, be automatically limited and reduced to the highest amount which is
valid and enforceable as determine in such action or proceeding.
7.9 Payments. Each Guarantor executing this Agreement hereby agrees that the
--------
Obligations will be paid to Lender without set-off or counterclaim in dollars at
the office of Lender as set forth in Section 10.7.
8. Events of default, Rights and Remedies
8.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder which shall be deemed to be continuing until waived by Lender
in accordance with Section 10.3:
(a) Borrower shall fail to make any payment in respect of any Obligations when
due and payable or declared due and payable; or
(b) Borrower or any other Credit Party shall fail or neglect to perform, keep
or observe any of the covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in this Agreement or any
of the other Loan Documents, regardless of whether such breach involves a
covenant, promise, agreement, condition, requirement, term or provision
with respect to a Credit Party that has not signed this Agreement; or
(c) an event of default shall occur under any agreement, document or instrument
to which Borrower or any other Credit Party is a party, or by which any
such Person or its property is bound, and such event of default (i)
involves the failure to make any payment, whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other
than the Obligations) of such Person in an aggregate amount exceeding the
Minimum Actionable Amount, or (ii) causes (or permits any holder of such
Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof
in an aggregate amount exceeding the Minimum Actionable Amount to become
due prior to its stated maturity or prior to its regularly scheduled dates
of payment; or
(d) any representation or warranty in this Agreement or any other Loan
Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by
Borrower or any other Credit Party shall be untrue or incorrect as of the
date when made, regardless of whether such breach involves a representation
or warranty with respect to a Credit Party that has not signed this
Agreement; or
(e) any of the assets of Borrower or any other Credit Party shall be attached,
seized, levied upon or subjected to a writ or distress warrant or come
within the possession of any receiver, trustee, custodian or assignee for
the benefit
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<PAGE>
of creditors of such Person for a period of sixty (60) consecutive days; or
any Person other than Borrower shall apply for the appointment of a
receiver, trustee or custodian for any of Borrower's assets (or those of
any other Credit Party) and shall remain unstayed or undismissed for sixty
(60) consecutive days; or Borrower or any other Credit Party shall have
concealed, removed or permitted to be concealed or removed, any part of its
property with intent to hinder, delay or defraud its creditors or any of
them or made or suffered a transfer of any of its property or the incurring
of an obligation which may be fraudulent under any bankruptcy, fraudulent
transfer or other similar law; or
(f) a case or proceeding shall have been commenced involuntarily against
Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or
any other applicable Federal, state or foreign bankruptcy or other similar
law, and seeking either (a) the appointment of a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of such
Person or of any substantial part of its properties, or (b) the
reorganization or winding up or liquidation of the affairs of any such
Person and such case or proceeding shall remain undismissed or unstayed for
sixty (60) consecutive days or such court shall enter a decree or order
granting the relief sought in such case or proceeding; or (ii) invalidating
or denying (a) any Person's right, power, or competence to enter into or
perform any of its obligations under any Loan Document, or (b) the validity
or enforceability of this Agreement or any other Loan Document or any
action taken hereunder or thereunder; or
(g) Borrower or any other Credit Party shall (i) file a petition under the
United States Bankruptcy Code or any other applicable Federal, state or
foreign bankruptcy or other similar law, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of any such Person
or of any substantial part of its properties, (iii) fail generally to pay
(or admit in writing its inability to pay) its debts as such debts become
due, or (iv) take any corporate action in furtherance of any such action;
or
(h) final judgment or judgments (after the expiration of all times to appeal
therefrom) for the payment of money in excess of the Minimum Actionable
Amount in the aggregate shall be rendered against Borrower or any other
Credit Party, unless the same shall be (i) fully covered by insurance and
the issuer(s) of the applicable policies shall have acknowledged full
coverage in writing within fifteen (15) days of judgment, or (ii) vacated,
stayed, bonded, paid or discharged within a period of fifteen (15) days
from the date of such judgment; or
(i) any other event shall have occurred which could have or reasonably be
expected to have a Material Adverse Effect and Lender shall have given
Borrower notice thereof or a Change of Control shall have occurred; or
(j) any Lien or any provision of any Loan Document shall for any reason cease
to be valid, binding and enforceable in accordance with its terms, or any
Lien granted, or intended by the Loan Documents to be granted, to Lender
shall cease to be a valid and perfected Lien having the first priority (or
a lesser priority if expressly permitted in the Loan Documents) in any of
the Collateral covered or purported to be covered thereby.
8.2 Remedies. (a) If any Default shall have occurred and be continuing, then
--------
Lender may terminate or suspend its obligation to make further Revolving Credit
Advances. In addition, if any Event of Default shall have occurred and be
continuing, Lender may, without notice, take any one or more of the following
actions: (1) upon notice to Borrower from Lender, increase the rate of interest
applicable to the Revolving Credit Advances as provided in Section 1.5(d),
effective as of the date of the initial Event of Default; or (2) declare all or
any portion of the Obligations to be forthwith due and payable, whereupon such
Obligations shall become and be due and payable; or (3) exercise any rights and
remedies provided to Lender under the Loan Documents or at law or equity,
including all remedies provided under the Code; provided, that upon the
--------
occurrence of an Event of Default specified in Sections 8.1 (e), (f) or (g), the
Obligations shall become immediately due and payable (and any obligation of
Lender to make further Revolving Credit Advances, if not previously terminated,
shall immediately be terminated) without declaration, notice or demand by
Lender.
(b) Without limiting the generality of the foregoing, Borrower expressly agrees
that upon the occurrence and during the continuance of any Event of
Default, Lender may collect, receive, assemble, process, appropriate and
realize upon the Collateral, or any part thereof, and may forthwith sell,
lease, assign, give an option or options to purchase or otherwise dispose
of and deliver said Collateral (or contract to do so), or any part thereof,
in one or more parcels
--55--
<PAGE>
at public or private sale or sales, at any exchange at such prices as it
may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Lender shall have the right upon any such
public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Lender the whole or
any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Borrower hereby releases. Such sales
may be adjourned, or continued from time to time with or without notice.
Lender shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without rent
or other charge for such sales or other action with respect to the
Collateral for such time or times as Lender deems necessary or advisable.
(c) Borrower further agrees, upon the occurrence and during the continuance of
an Event of Default and at Lender's request, to assemble the Collateral and
make it available to Lender at places which Lender shall reasonably select,
whether at Borrower's premises or elsewhere. Until Lender is able to
effect a sale, lease, or other disposition of the Collateral, Lender shall
have the right to complete, assemble, use or operate the Collateral or any
part thereof, to the extent that Lender deems appropriate, for the purpose
of preserving such Collateral or its value or for any other purpose.
Lender shall have no obligation to Borrower to maintain or preserve the
rights of Borrower as against third parties with respect to any Collateral
while such Collateral is in the possession of Lender. Lender may, if it so
elects, seek the appointment of a receiver or keeper to take possession of
any Collateral and to enforce any of Lender's remedies with respect to such
appointment without prior notice or hearing. To the maximum extent
permitted by applicable law, Borrower waives all claims, damages, and
demands against Lender, its Affiliates, agents, and the officers and
employees of any of them arising out of the repossession, retention or sale
of any Collateral except such as are determined in a final judgment by a
court of competent jurisdiction to have arisen solely out of the gross
negligence or willful misconduct of such Person. Borrower agrees that ten
(10) days prior notice by Lender to Borrower of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Borrower shall remain liable for
any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Lender is entitled.
(d) Lender's rights and remedies under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies which Lender may have under
any Loan Document or at law or in equity. Recourse to the Collateral shall
not be required. All rights, remedies and powers provided in this
Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all provisions of
this Agreement are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited, to the extent
necessary, so that they do not render this Agreement invalid,
unenforceable, in whole or in part.
8.3 Waivers by Borrower. Except as otherwise provided for in this Agreement
-------------------
and to the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents, the
Revolving Credit Note or any other notes, commercial paper, Accounts, Contracts,
Documents, Instruments, Chattel Paper and guaranties at any time held by Lender
on which Borrower may in any way be liable, and hereby ratifies and confirms
whatever Lender may do in this regard; (b) all rights to notice and a hearing
prior to Lender's taking possession or control of, or to Lender's replevy,
attachment or levy upon, any Collateral or any bond or security which might be
required by any court prior to allowing Lender to exercise any of its remedies;
and (c) the benefit of all valuation, appraisal and exemption laws. Borrower
acknowledges that it has been advised by counsel of its choices and decisions
with respect to this Agreement, the other Loan Documents and the transactions
evidenced hereby and thereby.
8.4 Proceeds. The Proceeds of any sale, disposition or other realization
--------
upon any Collateral shall be applied by Lender upon receipt, in the following
order of priorities: first, to reimburse or pay in full the actual and
-----
reasonable expenses of Lender incurred in connection with such sale, disposition
or other realization, including all other expenses, liabilities and advances
incurred or made by Lender in connection therewith; second, to Lender as
------
specified in Section 1.11; and finally, after payment and satisfaction in full
-------
in cash of all of the Obligations, and after the payment by Lender of any other
amount required by any provision of law, including Section 9-504(1)(c) of the
Code (but only after Lender has received what Lender considers reasonable proof
of a subordinate party's security interest), the surplus, if any, to Borrower or
its representatives or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
9. Successors and assigns
--56--
<PAGE>
Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender, and
their respective successors and assigns, except as otherwise provided herein or
therein. Neither Borrower nor any other Credit Party may assign, transfer,
hypothecate, delegate or otherwise convey its rights, benefits, obligations or
duties under any Loan Document without the prior express written consent of
Lender. Any such purported assignment, transfer, hypothecation, delegation or
other conveyance by Borrower or such Credit Party without the prior express
written consent of Lender shall be void. The terms and provisions of this
Agreement and the other Loan Documents are for the purpose of defining the
relative rights and obligations of Borrower the other Credit Parties and Lender
with respect to the transactions contemplated hereby and thereby, and there
shall be no third party beneficiaries of any of the terms and provisions of any
of the Loan Documents. Lender reserves the right at any time to create and sell
participations in the Revolving Credit Loan and the Loan Documents and to sell,
transfer or assign any or all of its rights in the Revolving Credit Loan and
under the Loan Documents.
10. Miscellaneous
10.1 Complete Agreement; Modification of Agreement. The Loan Documents
---------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter hereof and thereof, supersede all prior agreements, commitments,
understandings or inducements (oral or written, expressed or implied), and may
not be modified, altered or amended except by a written agreement signed by
Lender, Borrower and any other Credit Party executing this Agreement or any
other Loan Document. Borrower and each other Credit Party executing this
Agreement or any other Loan Documents shall have all duties and obligations
under this Agreement and such other Loan Documents from the date of its
execution and delivery, regardless of whether the initial Loan has been funded
at that time.
10.2 Expenses. Borrower shall reimburse Lender for all reasonable out-of-pocket
--------
expenses as set forth in Schedule D.
----------
10.3 No Waiver. Neither Lender's failure, at any time or times, to require
---------
strict performance by Borrower or any other Credit Party of any provision of any
Loan Document, nor Lender's failure to exercise, nor any delay in exercising,
any right, power or privilege hereunder, (a) shall waive, affect or diminish any
right of Lender thereafter to demand strict compliance and performance
therewith, or (b) shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
future exercise thereof or the exercise of any other right, power or privilege.
Any suspension or waiver of a Default, or other provision under the Loan
Documents shall not suspend, waive or affect any other Default under any Loan
Document, whether the same is prior or subsequent thereto and whether of the
same or of a different type, and shall not be construed as a bar to any right or
remedy which Lender would otherwise have had on any future occasion. None of
the undertakings, indemnities, agreements, warranties, covenants and
representations of Borrower or any other Credit Party to Lender contained in any
Loan Document and no Default by Borrower or any other Credit Party under any
Loan Document shall be deemed to have been suspended or waived by Lender, unless
such waiver or suspension is by an instrument in writing signed by an officer or
other authorized employee of Lender and directed to Borrower specifying such
suspension or waiver (and then such waiver shall be effective only to the extent
therein set forth), and Lender shall not, by any act (other than execution of a
formal written waiver), delay, omission or otherwise, be deemed to have waived
any of its rights or remedies hereunder.
10.4 Severability. Wherever possible, each provision of the Loan Documents
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of any Loan Document shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement. Except as
otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement
under the Loan Documents shall in any way affect or impair the Obligations,
duties, indemnities, and liabilities of Borrower or any other Credit Party or
the rights of Lender relating to any unpaid Obligation, due or not due,
liquidated, contingent or unliquidated, or any transaction or event occurring
prior to such termination, or any transaction or event, the performance of which
is not required until after the Commitment Maturity Date. Except as otherwise
expressly provided herein or in any other Loan Document, all
--57--
<PAGE>
undertakings, agreements, covenants, warranties and representations of or
binding upon Borrower or any other Credit Party and all rights of Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive such termination or cancellation and shall continue in full force and
effect until the Termination Date; provided, that the indemnity obligations of
--------
the Credit Parties under the Loan Documents shall survive the Termination Date.
10.5 Conflict of Terms. Except as otherwise provided in any Loan Document by
-----------------
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any other Loan Document, the provision contained in this
Agreement shall govern and control.
10.6 Authorized Signature. Until Lender shall be notified by Borrower or any
--------------------
other Credit Party to the contrary, the signature upon any document or
instrument delivered pursuant hereto and believed by Lender or any of Lender's
officers, agents, or employees to be that of an officer of Borrower or such
other Credit Party listed in the Secretarial Certificate in the form of Exhibit
-------
D shall bind Borrower and such other Credit Party and be deemed to be the act of
- -
Borrower or such other Credit Party affixed pursuant to and in accordance with
resolutions duly adopted by Borrower's or such other Credit Party's Board of
Directors, and Lender shall be entitled to assume the authority of each
signature and authority of the person whose signature it is or appears to be
unless the person acting in reliance of such signature shall have actual
knowledge of the fact that such signature is false or the person whose signature
or purported signature is presented is without authority.
10.7 Notices. Except as otherwise provided herein, whenever any notice, demand,
-------
request, consent, approval, declaration or other communication shall or may be
given to or served upon any party by any other party, or whenever any party
desires to give or serve upon any other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (a) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (b)
upon transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
10.7), (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid or (d) when hand-delivered, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated in Schedule 1.1 or to such other address (or facsimile number)
------------
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower or Lender) designated in Schedule 1.1 to receive
------------
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
10.8 Section Titles. The Section titles and Table of Contents contained in any
--------------
Loan Document are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
10.9 Counterparts. Any Loan Document may be executed in any number of identical
------------
counterparts, which shall constitute an original and collectively and separately
constitute a single instrument or agreement.
10.10 Time of the Essence. Time is of the essence for performance of the
-------------------
Obligations under the Loan Documents.
10.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
-------------
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER THE LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF
LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER AND
EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE THAT
THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
SUCH CREDIT PARTY AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN
--58--
<PAGE>
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER, BORROWER AND SUCH CREDIT
--------
PARTY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF NEW YORK ; AND FURTHER PROVIDED, THAT NOTHING IN THIS
--- ------- --------
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER AND EACH
OTHER CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT AND CONSENT IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER AND SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
----- ---
CONVENIENS. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT
- ----------
HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED
IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINTS
AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER OR SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN SCHEDULE 1.1 OF THIS
------------
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER'S OR SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
10.12 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
--------------------
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
10.13 DATING. Although this Agreement is dated as of the date first written
------
above for convenience, this Agreement shall be effective on December 27, 1996.
--59--
<PAGE>
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as
of the date first written above.
BORROWER:
---------
PAR PHARMACEUTICAL, INC.
By:__________________________
Name:________________________
Title:_______________________
LENDER:
-------
GENERAL ELECTRIC CAPITAL CORPORATION
By:__________________________
Name:________________________
Title:_________________________
PARENT:
-------
PHARMACEUTICAL RESOURCES, INC.
By:___________________________
Name:_________________________
Title:__________________________
SUBSIDIARY GUARANTORS:
----------------------
NUTRICEUTICAL RESOURCES, INC.
By:___________________________
Name:_________________________
Title:__________________________
PARCARE, LTD.
By:___________________________
Name:_________________________
Title:__________________________
--60--
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
Schedule A - Definitions
Schedule B - Disclosure Schedules
Schedule C - Cash Management System
Schedule D - Fees and Expenses
Schedule E - Schedule of Documents
Schedule F - Financial Covenants
Schedule 1.1 - Lender's and Borrower's Representatives for Notices; Addresses
Schedule 1.6 - Eligible Accounts
Schedule 1.7 - Eligible Inventory
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Secretarial Certificate
Exhibit E - Form of Power of Attorney
Exhibit F - Form of Accounts Receivable Reconciliation
--61--
<PAGE>
Schedule A
DEFINITIONS
Capitalized terms used in the Agreement and the other Loan Documents shall have
(unless otherwise provided elsewhere in the Agreement or in the other Loan
Documents) the following respective meanings:
"Account Debtor" shall mean any Person who may become obligated with respect to,
--------------
or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code, now
--------
owned or hereafter acquired by any Person, including: (i) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments),
whether arising out of goods sold or services rendered or from any other
transaction (including any such obligations which may be characterized as an
account or contract right under the Code); (ii) all of such Person's rights in,
to and under all purchase orders or receipts for goods or services; (iii) all of
such Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (iv) all moneys
due or to become due to such Person under all purchase orders and contracts for
the sale of goods or the performance of services or both by such Person or in
connection with any other transaction (whether or not yet earned by performance
on the part of such Person), including the right to receive the proceeds of said
purchase orders and contracts; and (v) all collateral security and guarantees of
any kind given by any other Person with respect to any of the foregoing.
"Affiliate" shall mean, with respect to any Person: (i) each Person that,
---------
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Person; (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person; or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean the Loan and Security Agreement to which this Schedule A
--------- ----------
is attached or otherwise identified, including all Appendices attached or
otherwise identified thereto, restatements and modifications and supplements
thereto, and any appendices, exhibits or schedules to any of the foregoing, and
shall refer to the Agreement as the same may be in effect at the time such
reference becomes operative; provided, that except as specifically set forth in
--------
the Agreement, any reference to the Disclosure Schedules to the Agreement shall
be deemed a reference to the Disclosure Schedules as in effect on the Closing
Date or in a written amendment thereto executed by Borrower and Lender in
accordance with Section 3.25.
"Appendices" shall have the meaning assigned to it in the Recitals of the
----------
Agreement.
"Books and Records" shall mean all books, records, board minutes, contracts,
-----------------
licenses, insurance policies, environmental audits, business plans, files,
accounting books and records, financial statements (actual and pro forma), and
filings with Governmental Authorities.
"Borrower" shall mean the Person identified in the Recitals of the Agreement.
--------
"Borrowing Availability" shall mean, at any time, the lesser of (i) the Maximum
----------------------
Amount or (ii) the Borrowing Base, in each case less reserves established by
Lender from time to time.
--62--
<PAGE>
"Borrowing Base" shall mean at any time an amount equal to the sum at such time
--------------
of:
(a) Eighty-five percent (85%) (or such lesser percentage as may be
specified by Lender from time to time by written notice to Borrower)
of the value (as determined by Lender) of Borrower's Eligible
Accounts; plus
----
(b) the lesser of (i) $8,000,000 or (ii) fifty percent (50%) (or such
lesser percentage as may be specified by Lender from time to time by
written notice to Borrower) of the value of Borrower's Eligible
Inventory, as determined by Lender, valued on a first-in, first-out
basis (at the lower of cost or market).
"Borrowing Base Certificate" shall mean a certificate in the form of Exhibit C
-------------------------- ---------
and shall include the Schedule of Accounts and Schedule of Inventory.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day on
------------
which banks are required or permitted to be closed in the State of New York.
"Capital Expenditures" shall mean all payments or accruals (including Capital
--------------------
Lease Obligations) for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
-------------
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would be
disclosed as such in a note to such balance sheet, other than, in the case of
Borrower, any such lease under which Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease, the
------------------------
amount of the obligation of the lessee thereunder that, in accordance with GAAP,
would appear on a balance sheet of such lessee in respect of such Capital Lease
or otherwise be disclosed in a note to such balance sheet.
"Change of Control" shall mean, (i) the replacement of a majority of the Board
------------------
of Directors of Parent, over a two-year period, from the directors who
constituted the Board of Directors at the beginning of such period, which
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors of Parent then still in office who were either members of the
Board of Directors at the beginning of such period or whose appointment as a
member of the Board of Directors was previously so approved; (ii) as a result of
a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, a Person or entity or group of Persons acting in concert
as a partnership, joint venture, alliance or other group shall have become the
"beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act as
in effect on the Closing Date) of securities of Parent representing 30% or more
of the combined voting power of the then outstanding securities of Parent
ordinarily (and apart from rights arising under special circumstances) having
the right to vote in the election of directors thereof; (iii) the acquisition by
any Person (or group of Persons acting in concert) of the power to direct the
management or affairs of the Parent by obtaining proxies, entering into voting
agreements or trusts, acquiring securities or otherwise; or (iv) Parent shall
fail to directly own all of the Stock of Borrower or any Subsidiary Guarantor.
"Charges" shall mean all Federal, state, county, city, municipal, local, foreign
-------
or other governmental taxes (including taxes owed to PBGC at the time due and
payable), levies, assessments, charges, liens, and all additional charges,
interest, penalties, expenses, claims or encumbrances upon or relating to (i)
the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or
gross receipts of any Credit Party, (iv) the ownership or use of any assets by
any Credit Party, or (v) any other aspect of any Credit Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in the
-------------
Code, now owned or hereafter acquired by any Person, wherever located.
"Claim" shall mean any and all: suits, actions, or proceedings in any court or
-----
forum, at law, in equity or otherwise; any costs, fines, deficiencies, or
penalties; any asserted claims or demands by any Person; any arbitration
demands,
--63--
<PAGE>
proceedings or awards; any damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
collection, defense or appeal); any enforcement of rights and remedies; or any
criminal, civil or regulatory investigations.
"Closing Date" shall mean the Business Day on which the conditions precedent set
------------
forth in Section 2 have been satisfied or specifically waived in writing by
Lender, and the initial Loan has been made.
"Closing Fee" shall have the meaning assigned to it in Schedule D.
----------- ----------
"Code" shall mean the Uniform Commercial Code as the same may, from time to
----
time, be in effect in the State of New York; provided, that in the event that,
--------
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
the Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall mean the property, now existing or hereafter acquired,
----------
personal, tangible or intangible, and whether owned by, consigned to, or held
by, or under the care, custody or control of Borrower or any other Credit Party,
including all cash, cash equivalents, Accounts, bank and deposit accounts and
deposits, investment property, commodity contracts, Inventory, Equipment, Goods,
Chattel Paper, Documents, Instruments, Books and Records, General Intangibles
(including all Intellectual Property, Stock (including the Sano Stock
Collateral), Claims, contract rights, and choses in action), and all of
Borrower's or such Credit Party's other interests in property of every kind and
description, and the products, profits, rents of, dividends or distributions on,
accessions to, and all Proceeds (including insurance proceeds) of any of the
foregoing, regardless of whether the Collateral, or any of it, is property as to
which the Code provides for the perfection of a security interest, and all
rights and remedies applicable to such property, but excluding in all events (i)
Hazardous Materials, (ii) real property interests, and (iii) Licenses of
Intellectual Property to the extent that the Credit Party holding such License
is prohibited by the terms thereof from granting a security interest in such
License.
"Collection Account" shall mean that certain account of Lender, account number
-------------------
50-232-854 in the name of GECC-CAF Depository at Bankers Trust Company, 1
Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Maturity Date" shall mean the earliest of (i) December 30, 1999,
------------------------
(ii) the date Lender's obligation to advance funds is terminated and the
Obligations are declared to be due and payable pursuant to Section 7.2, and
(iii) the date of prepayment in full by Borrower of the Obligations in
accordance with the provisions of Section 1.2(b).
"Commitment Termination Date" shall mean the earliest of (i) December 30, 1999,
---------------------------
(ii) the date of termination of Lender's obligation to advance funds pursuant to
Section 7.2, and (iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 1.2(b).
"Common Stock" shall mean the common stock, $.01 par value, of Parent.
------------
"Concentration Account" shall have the meaning assigned to it in Schedule C.
--------------------- ----------
"Contracts" shall mean all the contracts, undertakings, or agreements (other
---------
than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
"Copyright License" shall mean rights under any written agreement now owned or
-----------------
hereafter acquired by any Person granting the right to use any Copyright or
Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter acquired by
----------
any Person: (i) all copyrights in any original work of authorship fixed in any
tangible medium of expression, now known or later developed, all registrations
and applications for registration of any such copyrights in the United States or
any other country, including registrations, recordings and applications, and
supplemental registrations, recordings, and applications in
--64--
<PAGE>
the United States Copyright Office; and (ii) all Proceeds of the foregoing,
including license royalties and proceeds of infringement suits, the right to sue
for past, present and future infringements, all rights corresponding thereto
throughout the world and all renewals and extensions thereof.
"Credit Party" shall mean Borrower, the Parent and each of its Subsidiaries, and
------------
each Guarantor who has incurred obligations under or in respect of the Agreement
or granted Lender a Lien on Collateral in support of the Obligations with or
without direct liability, and each co-Borrower or other Person, other than
Lender and Borrower, who has executed the Agreement or any other Loan Document.
"Default" shall mean any Event of Default or any event which, with the passage
-------
of time or notice or both, would, unless cured or waived, become an Event of
Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
------------
"Disbursement Accounts" shall have the meaning assigned to it in Schedule C.
--------------------- ----------
"DOL" shall mean the United States Department of Labor or any successor thereto.
---
"Documents" shall mean all "documents," as such term is defined in the Code, now
---------
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of title, whether negotiable or non-negotiable.
"Eligible Accounts" shall have the meaning assigned to it in Schedule 1.6.
----------------- ------------
"Eligible Inventory" shall have the meaning assigned to it in Schedule 1.7.
------------------ ------------
"Environmental Laws" shall mean all Federal, state and local laws, statutes,
------------------
ordinances and regulations, now or hereafter in effect, and in each case as
amended or supplemented from time to time, and any applicable judicial or
administrative interpretation thereof relating to the regulation and protection
of human health, safety, the environment and natural resources (including
ambient air, surface water, groundwater, wetlands, land surface or subsurface
strata, wildlife, aquatic species and vegetation). Environmental Laws include
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (42 U.S.C. (S)(S) 9601 et seq.) ("CERCLA"); the Hazardous Material
-- ---
Transportation Act (49 U.S.C. (S)(S) 1801 et seq.); the Federal Insecticide,
-- ---
Fungicide, and Rodenticide Act (7 U.S.C. (S)(S) 136 et seq.); the Resource
-- ---
Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.) ("RCRA"); the
-- ---
Toxic Substance Control Act (15 U.S.C. (S)(S) 2601 et seq.); the Clean Air Act
-- ---
(42 U.S.C. (S)(S) 740 et seq.); the Federal Water Pollution Control Act (33
-- ---
U.S.C. (S)(S) 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
-- ---
(S)(S) 651 et seq.) ("OSHA"); and the Safe Drinking Water Act (42 U.S.C. (S)(S)
-- ---
300(f) et seq.), and any and all regulations promulgated thereunder, and all
-- ---
analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities, obligations,
-----------------------------------
responsibilities, remedial actions, removal costs, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law
(including any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to any health or
safety condition regulated under any Environmental Law or in connection with any
other environmental matter or Release, threatened Release, or the presence of a
Hazardous Material.
"Environmental Permits" shall mean all permits, licenses, administrative orders,
---------------------
consent orders, consent decrees, governmental agency agreements or other written
documents detailing required environmental performance expected of Borrower or
any other Credit Party by any Governmental Authority.
"Equipment" shall mean all "equipment" as such term is defined in the Code, now
---------
owned or hereafter acquired by any Person, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, fixtures,
--65--
<PAGE>
motor vehicles and other tangible personal property (other than Inventory) of
every kind and description which may be now or hereafter used in such Person's
operations or which are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any
-----
successor legislation thereto), and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
---------------
which is a member of a "controlled group of corporations," a group of trades or
businesses under "common control," or an "affiliated service group," which
includes Borrower or any Credit Party, within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean: (i) any of the events described in Section 4043(c) of
-----------
ERISA with respect to a Title IV Plan or a Multiemployer Plan with respect to
which the 30-day notice requirement has not been waived by regulation; (ii) the
withdrawal of Borrower, any other Credit Party or any ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a "substantial employer," as defined in Section 4001(a)(2) of ERISA; (iii)
the complete or partial withdrawal of Borrower, any other Credit Party or any
ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a notice of
intent to terminate a Title IV Plan or the treatment of a plan amendment as a
termination under Section 4041 of ERISA; (v) the institution of proceedings to
terminate a Title IV Plan or Multiemployer Plan by PBGC; (vi) a transfer, within
the preceding five years which resulted or will result in a Title IV Plan with
Unfunded Liabilities being transferred outside of the "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA) of Borrower or any other Credit
Party; or (vii) any other event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan,
or which results in the reorganization of or insolvency of a Multiemployer Plan
under Section 4241 or 4245 of ERISA, or the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under Section
4007 of ERISA.
"Event of Default" shall have the meaning assigned to it in Section 8.1.
----------------
"Fair Market Value" shall mean the average of the means between the high and low
-----------------
trading prices of the Common Stock as reported on the National Association of
Securities Dealers Automated Quotation System or, if the Common Stock is listed
on a stock exchange, the principal stock exchange on which the Common Stock is
listed, for the five trading days ended prior to the date of determination for
which such trading prices are available. If the Common Stock is not reported on
the National Association of Securities Dealers Automated Quotation System or
listed on any stock exchange, then the "fair market value" shall be determined
in good faith by Parent's Board of Directors.
"Federal Reserve Board" shall have the meaning assigned to it in Section 3.10.
---------------------
"Fees" shall mean the fees due to Lender as set forth in Schedule D.
---- ----------
"Financial Statements" shall mean the consolidated and consolidating income
--------------------
statement, balance sheet and statement of cash flows of Parent and its
Subsidiaries, internally prepared for each Fiscal Month, and audited for each
Fiscal Year, prepared in accordance with GAAP.
"Fiscal Month" shall mean any of the monthly accounting periods of Parent and
------------
its Subsidiaries.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of Parent
--------------
and its Subsidiaries.
"Fiscal Year" shall mean the 52 or 53 week period of Parent and its Subsidiaries
-----------
ending the Saturday nearest to September 30 of each year. Subsequent changes of
the fiscal year of Parent and its Subsidiaries shall not change the term "Fiscal
Year" unless Lender shall consent in writing to such change.
"GAAP" shall mean generally accepted accounting principles in the United States
----
of America as in effect from time to time, consistently applied.
--66--
<PAGE>
"GE Capital" shall mean General Electric Capital Corporation, a New York
----------
corporation, and its successors and assigns.
"General Intangibles" shall mean all "general intangibles," as such term is
-------------------
defined in the Code, now owned or hereafter acquired by any Person, including
all right, title and interest which such Person may now or hereafter have in or
under any Contract, Intellectual Property, interests in partnerships, joint
ventures and other business associations, permits, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials,
Books and Records, Goodwill (including the Goodwill associated with any
Intellectual Property), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss, and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key-person, and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments and rights of
indemnification.
"Goods" shall mean all "goods," as such term is defined in the Code, now owned
-----
or hereafter acquired by any Person, wherever located, including movables,
fixtures, equipment, inventory, or other tangible personal property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or confidential
--------
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" shall mean any nation or government, any state or other
----------------------
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such
-----------------------
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such Person: (i) to purchase
or repurchase any such primary obligation; (ii) to advance or supply funds (a)
for the purchase or payment of any such primary obligation or (b) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor; (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation; or (iv) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Guarantor" shall mean the Parent, NRI and ParCare, and each other Subsidiary
---------
Guarantor or other Person which executes a guaranty or a support, put or other
similar agreement in favor of Lender in connection with the transactions
contemplated by the Agreement.
"Guaranty" shall mean the provisions of Section 7 of the Agreement and any other
--------
agreement to perform all or any portion of the Obligations on behalf of Borrower
or any other Credit Party, in favor of, and in form and substance satisfactory
to, Lender, together with all amendments, modifications and supplements thereto,
and shall refer to such Guaranty as the same may be in effect at the time such
reference becomes operative.
"Hazardous Material" shall mean any substance, material or waste, the
------------------
generation, handling, storage, treatment or disposal of which is regulated by
any Governmental Authority, or forms the bases of liability now or hereafter
under, any Environmental Law in any jurisdiction in which Borrower or any other
Credit Party has owned, leased, or operated real property or disposed of
hazardous materials, including any material or substance which (i) is defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste" or other similar
term or phrase under any Environmental Laws, or (ii) constitutes petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls,
radioactive substances, volatile hydrocarbons or industrial solvents.
"Indebtedness" of any Person shall mean: (i) all indebtedness of such Person
------------
for borrowed money or for the deferred purchase price of property or services
(including reimbursement and all other obligations with respect to surety
--67--
<PAGE>
bonds, letters of credit and bankers' acceptances, whether or not matured, but
not including obligations to trade creditors incurred in the ordinary course of
business and not more than 45 days past due); (ii) all obligations evidenced by
notes, bonds, debentures or similar instruments; (iii) all indebtedness created
or arising under any conditional sale or other title retention agreements with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property); (iv) all Capital Lease Obligations;
(v) all Guaranteed Indebtedness; (vi) all Indebtedness referred to in clauses
(i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; (vii) the Obligations; and (viii) all liabilities
under Title IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in Section 1.13(a).
------------------
"Index Rate" shall mean the latest rate for 30-day dealer placed commercial
----------
paper (which for purposes hereof shall mean high grade unsecured notes sold
through dealers by major corporations in multiples of $1,000) which normally is
published in the "Money Rates" section of The Wall Street Journal (or if such
rate ceases to be so published, as quoted from such other generally available
and recognizable source as Lender may select).
"Instruments" shall mean all "instruments," as such term is defined in the Code,
-----------
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents, Copyrights and
---------------------
Trademarks.
"Inventory" shall mean all "inventory," as such term is defined in the Code, now
---------
or hereafter owned or acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property which are held by or
on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in such Person's
business or in the processing, production, packaging, promotion, delivery or
shipping of the same, including other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, and any successor thereto.
---
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
---
"Lender" shall mean GE Capital and, if at any time GE Capital shall decide to
------
assign or syndicate all or any of the Obligations, such term shall include such
assignee or such other members of the syndicate.
"License" shall mean any Copyright License, Patent License, Trademark License or
-------
other license of rights or interests now held or hereafter acquired by any
Person.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
----
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Loan Documents" shall mean the Agreement, the Revolving Credit Note, each
--------------
Pledge Agreement, the Financial Statements, each Guaranty, the Power of
Attorney, the patent and trademark assignment, and the other documents and
instruments listed in Schedule E, and all documents, instruments, certificates,
----------
and notices at any time delivered by and between Lender and any Credit Party in
connection with any of the foregoing.
"Lock Box Account" shall have the meaning assigned to it in Schedule C.
---------------- ----------
--68--
<PAGE>
"Material Adverse Effect" shall mean: (i) a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or financial or other condition of
Borrower or of Parent and its Subsidiaries taken as a whole or the industry
within which Borrower or any other Credit Party operates, (b) Borrower's or any
other Credit Party's ability to pay or perform the Obligations under the Loan
Documents to which such Credit Party is a party in accordance with the terms
thereof, (c) the Collateral or Lender's Liens on the Collateral or the priority
of any such Lien, or (d) Lender's rights and remedies under the Agreement and
the other Loan Documents; or (ii) the incurrence by Borrower or any other Credit
Party of any liability, contingent or liquidated, which has an actual or
estimated incurrence of liability, or dollar exposure or loss, greater than
$100,000 to Borrower or any other Credit Party.
"Maximum Amount" shall mean the maximum amount of credit to be provided by
--------------
Lender to or for the benefit of Borrower for aggregate Revolving Credit Advances
outstanding at any time, without regard to the Borrowing Base or reserves, which
amount, for purposes of the Agreement, is $20,000,000.
"Minimum Actionable Amount" shall mean $50,000.
-------------------------
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section
------------------
4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Net Borrowing Availability" shall mean at any time the Borrowing Availability
--------------------------
less the Revolving Credit Loan.
- ----
"Notice of Revolving Credit Advance" shall have the meaning assigned to it in
----------------------------------
Section 1.1(b).
"NRI" shall mean Nutriceutical Resources, Inc., a New York corporation.
---
"Obligations" shall mean all loans, advances, debts, expense reimbursement,
-----------
fees, liabilities, and obligations, for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or amounts are liquidated or determinable) owing by
Borrower and any other Credit Party to Lender, of any kind or nature, present or
future, whether or not evidenced by any note, agreement or other instrument,
whether arising under any of the Loan Documents or under any other agreement
between Borrower, such Credit Party and Lender, and all covenants and duties
regarding such amounts. This term includes all principal, interest (including
interest which accrues after the commencement of any case or proceeding in
bankruptcy, or for the reorganization of Borrower), Fees, Charges, expenses,
attorneys' fees and any other sum chargeable to Borrower under any of the Loan
Documents, including all principal and interest due in respect of the Revolving
Credit Advances, and all obligations and liabilities of any Guarantor under any
Guaranty.
"ParCare" shall mean ParCare, Ltd., a New York corporation.
-------
"Parent" shall mean Pharmaceutical Resources, Inc., a New Jersey corporation.
------
"Patent License" shall mean rights under any written agreement now owned or
--------------
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
-------
hereafter acquires any interest: (i) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country; and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
----
thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for
----------------------
taxes or assessments or other governmental Charges or levies, either not yet due
and payable or to the extent that nonpayment thereof is permitted by the terms
of Section 3.11(b); (ii) pledges or deposits securing obligations under worker's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) pledges or deposits
--69--
<PAGE>
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which Borrower is a party as lessee made in the ordinary
course of business; (iv) deposits securing public or statutory obligations of
Borrower; (v) inchoate and unperfected workers', mechanics', suppliers' or
similar liens arising in the ordinary course of business; (vi) carriers',
warehousing or other similar possessory liens arising in the ordinary course of
business and securing indebtedness not yet due and payable in an outstanding
aggregate amount not in excess of $50,000 at any time; (vii) deposits securing,
or in lieu of, surety, appeal or customs bonds in proceedings to which Borrower
is a party; (viii) any attachment or judgment lien, unless the judgment it
secures shall not, within 30 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within 30 days after the expiration of any such stay; (ix) zoning restrictions,
easements, licenses, or other restrictions on the use of real property or other
minor irregularities in title (including leasehold title) thereto, so long as
the same do not materially impair the use, value, or marketability of such real
property, leases or leasehold estates; (x) Purchase Money Liens securing
Purchase Money Indebtedness (or rent) to the extent permitted under Section
5(c)(ii) of the Agreement; (xi) Liens disclosed in Disclosure Schedule (5(h)) on
--------------------------
the Closing Date and approved by Lender; (xii) Liens in favor of Lender securing
the Obligations; and (xiii) Liens on the Borrower's real property securing
Indebtedness to the extent permitted under Section 5(c)(v) of the Agreement.
"Person" shall mean any individual, sole proprietorship, partnership, limited
------
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether Federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person's successors and assigns.
"Plan" shall mean, with respect to Borrower or any other Credit Party, at any
----
time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower or any other Credit Party maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Pledge Agreement" shall mean any stock pledge or similar agreement made by
----------------
Borrower or any other Credit Party, in favor of, and in form and substance
satisfactory to, Lender, together with all amendments, modifications and
supplements thereto, and shall refer to such Pledge Agreement as the same may be
in effect at the time such reference becomes operative.
"Prepayment Fee" shall mean the fee payable for termination by Borrower pursuant
--------------
to Section 1.2(b) of Lender's obligation to make Revolving Credit Advances, all
in the amount(s) specified in Schedule D.
----------
"Proceeds" shall mean "proceeds," as such term is defined in the Code and, in
--------
any event, shall include: (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower or any other Credit Party from time to
time with respect to any Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable to Borrower or any other Credit Party from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any Collateral by any governmental body, authority,
bureau or agency (or any person acting under color of governmental authority);
(iii) any claim of Borrower or any other Credit Party against third parties (a)
for past, present or future infringement of any Intellectual Property or (b) for
past, present or future infringement or dilution of any Trademark or Trademark
License or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License; (iv) any
recoveries by Borrower or any other Credit Party against third parties with
respect to any litigation or dispute concerning any Collateral; and (v) any and
all other amounts from time to time paid or payable under or in connection with
any Collateral, upon disposition or otherwise.
"Projections" shall mean as of any date the consolidated and consolidating
-----------
balance sheet, statements of income and cash flow for Parent and its
Subsidiaries (including forecasted Capital Expenditures and Net Borrowing
Availability) (i) by month for the next Fiscal Year, and (ii) by year for the
following three Fiscal Years, in each case prepared in a manner consistent with
the Financial Statements.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for the
---------------------------
payment of all or any part of the purchase price of any fixed asset, (ii) any
Indebtedness incurred for the sole purpose of financing or refinancing all or
any part of the purchase price of any fixed asset, and (iii) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
--70--
<PAGE>
"Purchase Money Lien" shall mean any Lien upon any fixed assets which secures
-------------------
the Purchase Money Indebtedness related thereto but only if such Lien shall at
all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Lien and only if such Lien secures such Purchase Money
Indebtedness.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified under
--------------
Section 401(a) of the IRC.
"Release" shall mean, as to any Person, any release, spill, emission, leaking,
-------
pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials in the indoor or outdoor environment by such
Person, including the movement of Hazardous Materials through or in the air,
soil, surface water, ground water or property.
"Restricted Payment" shall mean: (i) the declaration or payment of any dividend
------------------
or the occurrence of any liability to make any other payment or distribution of
cash or other property or assets on or in respect of Borrower's or any other
Credit Party's Stock; (ii) any payment on account of the purchase, redemption,
defeasance or other retirement of Borrower's or any other Credit Party's Stock
or Indebtedness other than (a) that arising under the Agreement or (b) if no
Default shall have occurred and be continuing, or shall be caused thereby,
interest and principal, when due, under Indebtedness described in Disclosure
----------
Schedule (3.8) or otherwise permitted under Section 5(c)(ii) of the Agreement,
- --------------
without acceleration or modification of the amortization as in effect on the
Closing Date, or any other payment or distribution made in respect thereof,
either directly or indirectly; or (iii) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder of such Person
which is not expressly and specifically permitted in the Agreement; provided,
--------
that no payment to Lender shall constitute a Restricted Payment.
"Retiree Welfare Plan" shall refer to any Plan which is a "welfare plan," as
--------------------
defined in Section 3(1) of ERISA, providing for continuing coverage or benefits
for any participant or any beneficiary of a participant after such participant's
termination of employment, other than continuation coverage provided pursuant to
Section 4980B of the IRC and at the sole expense of the participant or the
beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
------------------------
1.1(a).
"Revolving Credit Loan" shall mean at any time the aggregate amount of Revolving
---------------------
Credit Advances then outstanding, plus the amount of earned and accrued, but
unpaid, interest thereon.
"Revolving Credit Note" shall mean the promissory note of Borrower dated the
---------------------
Closing Date, substantially in the form of Exhibit B.
---------
"Revolving Credit Rate" shall have the meaning assigned to it in Section 1.5(a).
---------------------
"Sano Stock Collateral" shall mean the shares of common stock of Sano
---------------------
Corporation owned by Parent.
"Schedule of Accounts" shall mean a schedule of all Accounts to be delivered by
--------------------
Borrower to Lender pursuant to Section 1.6.
"Schedule of Documents" shall mean the schedule, including all appendices,
---------------------
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of Schedule E.
----------
"Schedule of Inventory" shall mean the schedules of inventory to be delivered by
---------------------
Borrower to Lender pursuant to Section 1.7, including Borrower's internal
reports classifying and valuing Inventory.
"Stock" shall mean all certificated and uncertificated shares, options,
-----
warrants, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934).
--71--
<PAGE>
"Stock Option Plans" shall mean the stock option plans and agreements of Parent
------------------
listed on Disclosure Schedule (3.8).
-------------------------
"Stockholder" shall mean each holder of Stock of Borrower or any other Credit
-----------
Party.
"Subject Property" shall have the meaning assigned to it in Section 3.17(a).
----------------
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
----------
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (ii) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person has an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner.
"Subsidiary Guarantor" shall mean NRI and ParCare, and each other Subsidiary of
--------------------
Parent or Borrower which executes a guaranty or a support, put or other similar
agreement in favor of Lender in connection with the transactions contemplated by
the Agreement.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings,
-----
and all liabilities with respect thereto, excluding taxes imposed on or measured
by the net income of Lender.
"Termination Date" shall mean the date on which the Revolving Credit Loan and
----------------
any other Obligations under the Agreement are indefeasibly paid in full, in
cash, and Borrower shall have no further right to borrow any moneys or obtain
other credit extensions or financial accommodations under the Agreement.
"Title IV Plan" shall mean an "employee pension benefit plan," as defined in
-------------
Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Trademark License" shall mean rights under any written agreement now owned or
-----------------
hereafter acquired by any Person granting any right to use any Trademark or
Trademark registration.
"Trademarks" shall mean all of the following now owned or hereafter acquired by
----------
any Person: (i) all trademarks, trade names, corporate names, business names,
trade styles, service marks, logos, other source or business identifiers, prints
and labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including all registrations, recordings and applications
in the United States Patent and Trademark Office or in any similar office or
agency of the United States, any State or Territory thereof, or at common law,
or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.
"Transaction Summary" shall mean the Transaction Summary set forth in the
-------------------
Recitals to the Agreement.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if
--------------------------
any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for such Title IV
Plan determined on the basis of a shutdown of the employees thereunder and using
the actuarial assumptions in effect for funding purposes under such Title IV
Plan, and (ii) for a period of five (5) years following a transaction which
could be covered by Section 4069 of ERISA, the liabilities (whether or not
accrued) that could be avoided by Borrower, any other Credit Party or any ERISA
Affiliate as a result of such transaction.
--72--
<PAGE>
"Unused Line Fee" shall have the meaning assigned to it in Schedule D.
--------------- ----------
"Warrants" shall mean warrants outstanding on the Closing Date issued by Parent
--------
to purchase shares of the Common Stock as set forth on Disclosure Schedule
-------------------
(3.8).
"Withdrawal Liability" shall mean, at any time, the aggregate amount of the
--------------------
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
Any accounting term used in the Agreement or the other Loan Documents shall
have, unless otherwise specifically provided therein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial
--------
covenants and calculations in the Loan Documents shall be made in accordance
with GAAP as in effect on the Closing Date unless Borrower and Lender shall
otherwise specifically agree in writing. That certain items or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. All other undefined terms contained in the
Agreement or the other Loan Documents shall, unless the context indicates
otherwise, have the meanings provided for by the Code. The words "herein,"
"hereof" and "hereunder" or other words of similar import refer to the Agreement
as a whole, including the exhibits and schedules thereto, as the same may from
time to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; (e)
all references in the Agreement or in the Schedules to the Agreement to
sections, schedules, disclosure schedules, exhibits, and attachments shall refer
to the corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to the Agreement; and (f) all references to any instruments or
agreements, including references to any of the Loan Documents, shall include any
and all modifications or amendments thereto and any and all extensions or
renewals thereof.
--73--
<PAGE>
Schedule B
SCHEDULE OF DISCLOSURE DOCUMENTS
(To be completed prior to closing.)
--74--
<PAGE>
Schedule C
CASH MANAGEMENT
Borrower agrees to establish, and to maintain, until the Termination Date, the
cash management system described below:
1. The Credit Parties: (i) shall not (and shall not permit any of their
respective Subsidiaries to) open or maintain any deposit, checking, operating or
other bank account, or similar money handling account, with any bank or other
financial institution except for those accounts identified in Disclosure
----------
Schedule (3.19) (to include a payroll account not to exceed an amount equal to
- ---------------
one regular payroll at any time) and Attachment I hereto; and (ii) shall not
------------
close or permit to be closed any of the accounts listed in Attachment I hereto,
------------
in each case without Lender's prior written consent, and then only after the
Credit Parties have implemented agreements with such bank or financial
institution and Lender acceptable to Lender. So long as any Revolving Credit
Advance is outstanding, no more than $350,000 in the aggregate may at any time
be maintained in the accounts of the Credit Parties identified on Disclosure
----------
Schedule (3.19) for a period of more than two (2) consecutive Business Days.
- ---------------
Upon maturity of Parent's certificates of deposit (nos. 91002006 and 178488003)
at First Fidelity Bank, the proceeds thereof shall be deposited into the
Concentration Account.
2. Commencing on the Closing Date and until the Termination Date, the Credit
Parties shall deposit or, if directed by Lender, cause to be deposited directly,
in either case on the date of receipt thereof, all cash, checks, notes, drafts
or other similar items relating to or constituting proceeds of or payments made
in respect of any and all Collateral and all other receipts into lock boxes or
lock box accounts in such Credit Party's or Lender's name (collectively, the
"Lock Box Accounts") at the banks set forth in Attachment I hereto. On or
------------
before the Closing Date, Borrower shall have established a concentration account
in Borrower's name (the "Concentration Account") at the bank set forth in
Attachment I hereto, under an agreement in form and substance acceptable to
- ------------
Lender.
3. On or before the Closing Date, each bank at which the Lock Box Accounts are
held shall have entered into tri-party lock box agreements (the "Lock Box
Account Agreements") with Lender and the applicable Credit Party, in form and
substance acceptable to Lender. Each such Lock Box Account Agreement shall
provide, among other things, that (a) such bank executing such agreement has no
rights of setoff or recoupment or any other claim against such Lock Box Account,
other than for payment of its service fees and other charges directly related to
the administration of such account, and (b) such bank agrees to sweep on a daily
basis all amounts in the Lock Box Account to the Concentration Account.
4. On or before the Closing Date, the bank at which the Concentration Account
is held shall have entered into a tri-party blocked account agreement (the
"Concentration Account Agreement") with Lender and Borrower, in form and
substance acceptable to Lender. Such Concentration Account Agreement shall
provide, among other things, that (a) such bank executing such agreement has no
rights of setoff or recoupment or any other claim against such Concentration
Account, other than for payment of its service fees and other charges directly
related to the administration of such account, and (b) such bank agrees to sweep
on a daily basis all amounts received in the Concentration Account to the
Collection Account.
5. On the Closing Date, (a) the lock box and blocked account arrangements shall
immediately become operative at the banks at which the Lock Box Accounts and the
Concentration Account are maintained, and (b) amounts outstanding under the
Revolving Credit Loan (for purposes of the Borrowing Availability) shall be
reduced through daily sweeps, by wire transfer, of the Lock Box Accounts into
the Concentration Account, and of the Concentration Account into the Collection
Account. Borrower acknowledges that it shall have no right to gain access to
any of the moneys in the Lock Box Accounts or the Concentration Account until
after the Termination Date.
6. Borrower may maintain, in its name, accounts (the "Disbursement Accounts")
at a bank or banks acceptable to Lender into which Lender shall, from time to
time, deposit proceeds of Revolving Credit Advances made pursuant to Section 1.1
for use solely in accordance with the provisions of Section 1.3. All of the
Disbursement Accounts as of the Closing Date are listed in Attachment I hereto.
------------
On or before the Closing Date, the banks at which the Disbursement Accounts are
maintained shall have entered into the pledged account agreements with Lender.
7. All amounts deposited in the Collection Account shall be deemed received by
Lender in accordance with the
--75--
<PAGE>
terms of Section 1.10 and shall be applied (and allocated) by Lender in
accordance with the terms of Section 1.11.
8. Upon the request of Lender, the Credit Parties shall forward to Lender, on a
daily basis, evidence of the deposit of all items of payment received by the
Credit Parties into the Lock Box Accounts and copies of all such checks and
other items, together with a statement showing the application of those items
relating to payments on Accounts to outstanding Accounts and a collection report
with regard thereto in form and substance satisfactory to Lender. Upon request
of Lender each of the Credit Parties shall comply with the provisions of this
Schedule C applicable to Borrower on the same terms and to the same extent,
- ----------
mutatis mutandis, as Borrower.
- ------- --------
--76--
<PAGE>
ATTACHMENT I to SCHEDULE C
LIST OF LOCK BOX ACCOUNTS, CONCENTRATION ACCOUNT AND DISBURSEMENT ACCOUNTS
a. Borrower
--------
i. Concentration Account/Lockbox Account.
-------------------------------------
Fleet Bank
CT FDKA02A
One Landmark Square
Stamford, CT 06901
Attn: John V. Raleigh
Tel: (203) 964-4856
Fax: (203) 964-4850
Account No. 936-981-1242
ii. Disbursement Accounts.
---------------------
Fleet Bank
One Landmark Square
Stamford, CT 06901
Account No. 936-516-5227
Controlled Disbursement Account (ZBA)
[Note: in Maine]
Fleet National Bank
One Landmark Square
Stamford, CT 06901
Account No. 936-886-2240
Payroll
3. Other
-----
The Bank of New York
37 Lake Road
Congers, NY 10920
Account No. 687-344927
(balance shall not exceed $15,000 at any time)
b. Quad Pharmaceuticals, Inc.
--------------------------
National City Bank
______________________________
______________________________
______________________________
Account No. 6139616
--77--
<PAGE>
Schedule D
FEES
1. Closing Fees: A closing fee of $100,000 is payable by Borrower to Lender on
------------
the Closing Date against which would be credited the commitment letter delivery
fee of $50,000 and any portion of the underwriting deposit of $30,000 previously
paid by Borrower to Lender remaining after deduction of any transaction expenses
incurred by Lender through the Closing Date. Lender shall provide to Borrower
on the Closing Date a statement setting forth a calculation of the foregoing.
2. Unused Line Fee: For each day after the Closing Date, and through but
---------------
including the Termination Date, an amount equal to the Maximum Amount less the
outstanding amount of the Revolving Credit Loan (exclusive of accrued, but
unpaid, interest), for such day, multiplied by the Unused Line Fee Percentage
for such period, the product of which is then divided by 360. The Unused Line
Fee for each month (except for the month in which the Termination Date occurs)
is payable on the first Business Day of the immediately following month,
beginning on the first Business Day of the month following the month in which
the Closing Date occurs; the final monthly installment of the Unused Line Fee is
payable on the Termination Date. Notwithstanding the foregoing, any unpaid
Unused Line Fee is immediately due and payable on the Commitment Maturity Date.
The "Unused Line Fee Percentage" shall be, with respect to any period, the
percentage set forth below opposite the applicable average unused daily balance
of the Revolving Credit Loan for such period (the Maximum Amount less the
outstanding amount of the Revolving Credit Loan):
Average Unused
Daily Balance Percentage
- ---------------- --------------
Less than $10,000,000 0.375%
Greater than or equal to 0.25%
$10,000,000 and less than
$20,000,000
Equal to $20,000,000 0.125%
3. Collateral Monitoring Fee: $30,000 for each per annum or part of a per
-------------------------
annum, payable in advance on the Closing Date and on the first Business Day
of each month following the Closing Date and prior to the Commitment
Maturity Date.
4. Prepayment Fee: An amount equal to the Maximum Amount multiplied by:
--------------
1.0% if Lender's obligation to make or incur Revolving Credit Advances is
terminated by Borrower on or after the Closing Date and on or before the first
anniversary of the Closing Date, payable on the Commitment Maturity Date;
0.75% if Lender's obligation to make or incur Revolving Credit Advances is
terminated by Borrower after the first anniversary of the Closing Date and on or
before the second anniversary of the Closing Date, payable on the Commitment
Maturity Date; or
0.50% if Lender's obligation to make or incur Revolving Credit Advances is
terminated by Borrower after the second anniversary of the Closing Date and on
or before the third anniversary of the Closing Date, payable on the Commitment
Maturity Date.
Borrower acknowledges and agrees that (a) it would be difficult or impractical
to calculate Lender's actual damages from Borrower's early termination of
Lender's Revolving Credit Loan obligations pursuant to Section 1.2(b) of the
Agreement, (b) the Prepayment Fees provided above are intended to be fair and
reasonable approximations of such damages, and (c) the Prepayment Fees are not
intended to be penalties.
5. Audit Fees: Borrower will reimburse Lender at the rate of $500 per person
----------
per day ("Audit Fees"), plus out of pocket expenses, for the audit reviews,
field examinations and collateral examinations conducted by Lender's own
personnel. Lender agrees that Borrower's obligation for Audit Fees shall not
exceed $15,000 in any calendar year or be payable with respect to more than two
field examinations in any calendar year; provided, that no limit on Audit Fees
--------
will be imposed on Lender for those audits or examinations conducted at a time
when a Default has occurred and is continuing.
--78--
<PAGE>
6. Expenses: Borrower will pay to Lender on demand all costs incurred in
--------
connection with: (a) the preparation, negotiation, execution, delivery,
performance and enforcement of the Loan Documents; (b) collection (including the
fees and expenses of all special counsel, advisors, consultants (including
environmental and management consultants) and auditors retained in connection
therewith), including deficiency collections; (c) the forwarding to Borrower or
any other Person on behalf of Borrower by Lender of the proceeds of any Loan
(including by wire transfer); (d) any amendment, extension, modification or
waiver of, or consent with respect to any Loan Document or advice in connection
with the administration of the Revolving Credit Advances or the rights
thereunder; (e) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by or between any combination of Lender, Borrower or any
other Person or Persons), and an appeal or review thereof, in any way relating
to the Collateral, any Loan Document, or any action taken or any other
agreements to be executed or delivered in connection therewith, whether as a
party, witness or otherwise; and (f) any effort (i) to monitor the Revolving
Credit Advances, (ii) to evaluate, observe or assess Borrower or any other
Credit Party or the affairs of such Person, and (iii) to verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the
Collateral, including with respect to all of the foregoing: the fees, costs and
expenses of attorneys, accountants, environmental advisors, appraisers,
investment bankers, management and other consultants, and paralegals; court
costs and expenses; photocopying and duplicating expenses; court reporter fees,
costs and expenses; long distance telephone charges; air express charges;
telegram charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal or
other advisory services.
--79--
<PAGE>
Schedule E
SCHEDULE OF DOCUMENTS
The obligation of Lender to make the initial Revolving Credit Advances is
subject to satisfaction of the condition precedent that Lender shall have
received the following, each, unless otherwise specified below or the context
otherwise requires, dated the Closing Date, in form and substance satisfactory
to Lender and its counsel, unless the context otherwise requires or as otherwise
specified below:
I. PRINCIPAL LOAN DOCUMENTS.
------------------------
(a) Agreement. The Agreement duly executed by Borrower and the other
---------
Credit Parties signatory thereto.
(b) Revolving Credit Note. An original Revolving Credit Note duly executed
---------------------
by a responsible officer of Borrower to the order of Lender.
(c) Borrowing Base Certificate. An original Borrowing Base Certificate
--------------------------
duly executed by a responsible officer of Borrower.
(d) Notice of Revolving Credit Advance. An original Notice of Revolving
----------------------------------
Credit Advance duly executed by a responsible officer of Borrower.
(e) Pledge Agreements. Pledge Agreements duly executed by each of Parent
-----------------
and Borrower pledging all of the Stock of their respective Subsidiaries (and, in
the case of Parent, the Sano Stock Collateral to Lender.
II. COLLATERAL DOCUMENTS.
--------------------
(a) Acknowledgement Copies of Financing Statements. Acknowledgement copies
----------------------------------------------
of proper Financing Statements duly filed under the Code, or chattel mortgages
duly filed under other applicable law, of all jurisdictions as may be necessary
or, in the opinion of Lender, desirable to perfect Lender's Lien created on the
Collateral.
(b) Other Evidence of Filing and Perfection. Certified copies of Requests
---------------------------------------
for Information (Form UCC-11), or other evidence satisfactory to Lender, listing
all effective financing statements or chattel mortgages which name Borrower
(under its present name, any previous name or any trade or doing business name)
or its Subsidiaries or Parent as debtor and which are filed in the jurisdictions
referred to in paragraph (a) above, together with copies of such other financing
statements (none of which shall cover the Collateral).
(c) Stock Certificates. Certificates or other evidences of ownership
------------------
representing all instruments constituting part of the Collateral (including
without limitation the certificates for the Stock of the Subsidiaries of Parent
and Borrower and the Sano Stock Collateral) and appropriate undated stock powers
(or the equivalent thereof) executed in blank.
(d) Intellectual Property Documents. Agreements relating to the granting
-------------------------------
to Lender of a security interest in Intellectual Property of Borrower and its
Subsidiaries and Parent to the extent applicable in a form suitable for filing
with the appropriate Federal or State filing office.
(e) Other Recordings and Filings. Evidence of the completion of all other
----------------------------
recordings and filings (including UCC-3 termination statements and other Lien
release documentation) as may be necessary or, in the opinion of and at the
request of Lender, desirable to perfect Lender's Lien on the Collateral.
(f) Powers of Attorney. The Powers of Attorney duly executed by Borrower,
------------------
the Parent, NRI and ParCare.
(g) Form FR G-3. Borrower shall have executed and delivered to Lender a
-----------
properly completed Form FR G-3 (OMB No. 7100-0018) of the Federal Reserve Board.
--80--
<PAGE>
III. THIRD PARTY AGREEMENTS.
----------------------
(a) Landlord and Mortgagee Consents. Unless otherwise agreed to in writing
-------------------------------
by Lender, (i) duly executed landlord and bailee waivers and consents from the
landlords of all of Borrower's leased locations where Collateral is held, and
(ii) mortgagee waivers and consents from each Person holding a mortgage lien on
any real property owned by Borrower where Collateral is held, in each case, in
form and substance satisfactory to Lender.
(b) Cash Management System. Duly executed Lock Box Account Agreements, and
----------------------
the Concentration Account Agreement as contemplated by Schedule C.
----------
IV. DOCUMENTS DELIVERED BY BORROWER AND GUARANTORS.
----------------------------------------------
(a) Secretarial Certificate. A Secretarial Certificate in the form of
-----------------------
Exhibit D to the Agreement duly completed and executed by the Secretary or
- ---------
Assistant Secretary of Borrower, the Parent, NRI and ParCare, together with all
attachments thereto.
(b) Environmental Audit. Copies of all existing environmental reviews and
-------------------
audits and other information pertaining to actual or potential environmental
claims relating to the Collateral as Lender may require.
(c) Financial Statements and Projections. Copies of the Financial
------------------------------------
Statements (including unaudited Financial Statements for the Fiscal Year ended
September 30, 1996) and Projections, which Projections shall include a capital
expenditures budget for Borrower in form and substance satisfactory to Lender.
(d) Accountant's Letter. Arthur Anderson LLP shall have delivered a letter
-------------------
to Lender, in form and substance satisfactory to Lender, which states that
immediately following closing of the financing under the Loan Documents on the
Closing Date and prepayment of the Credit Parties obligations to Fleet Bank and
Fleet Credit Corporation, Arthur Anderson LLP shall deliver to Lender its
unqualified opinion in respect of the audited balance sheet of the Company as of
September 30, 1996 and the related audited statements of operations and cash
flows for the fiscal year ended September 30, 1996.
(e) Insurance Policies. Copies of insurance policies described in Section
------------------
3.18 together with evidence showing loss payable or additional insured clauses
or endorsements in favor of Lender.
(f) Certain Agreements. Copies of (i) any existing real property leases
------------------
and equipment leases to which Borrower or any of its Subsidiaries or Parent is a
party and (ii) any other document or instrument evidencing or relating to
existing Indebtedness of Borrower or any of its Subsidiaries or Parent, together
with all certificates, opinions, instruments, security documents and other
documents relating thereto, all of which shall be satisfactory in form and
substance to Lender, certified by an authorized officer of Borrower as true,
correct and complete copies thereof.
V. LEGAL OPINION.
-------------
(a) Legal Opinion. An opinion of Hertzog, Calamari & Gleason, counsel to
-------------
Borrower, the Parent and the Subsidiary Guarantors, in form and substance
satisfactory to Lender.
--81--
<PAGE>
Schedule F
FINANCIAL COVENANTS
1. Minimum EBIT. Parent and its Subsidiaries on a consolidated basis shall
------------
maintain, for the following periods, EBIT of not less than: (i) $(4,500,000) for
the two Fiscal Quarter period ending on or about March 31, 1997 and (ii)
$(4,700,000) for the three Fiscal Quarter period ending on or about June 30,
1997. Parent and its Subsidiaries on a consolidated basis shall maintain for
each four Fiscal Quarter period, commencing with the four Fiscal Quarter period
ending on or about September 30, 1997, EBIT for such period of not less than the
amount for such period set forth below:
Four Fiscal Quarter Period Ending
- ---------------------------------
on or about: Minimum EBIT
- ----------- -------------
September 30, 1997 $(5,200,000)
December 31, 1997 (4,200,000)
March 31, 1998 (2,200,000)
June 30, 1998 (1,000,000)
September 30, 1998 0
December 31, 1998 400,000
March 31, 1999 600,000
June 30, 1999 900,000
September 30, 1999 and thereafter 1,500,000
2. Minimum Tangible Net Worth. Parent and its Subsidiaries on a
--------------------------
consolidated basis shall maintain, as at the end of each Fiscal Quarter,
Tangible Net Worth of not less than the amount for such period set forth below:
Fiscal Quarter Ending
---------------------
on or about: Minimum Tangible Net Worth
----------- --------------------------
March 31, 1997 $50,000,000
June 30, 1997 $50,000,000
September 30, 1997 $50,000,000
December 31, 1997 $50,000,000
March 31, 1998 $50,000,000
June 30, 1998 $50,000,000
September 30, 1998 $50,000,000
December 31, 1998 $50,000,000
March 31, 1999 $50,000,000
June 30, 1999 $50,000,000
September 30, 1999 $50,000,000
December 31, 1999 and thereafter $50,000,000
3. Capital Expenditures. Parent and its Subsidiaries on a consolidated
--------------------
basis shall not make aggregate Capital Expenditures in any Fiscal Year in excess
of (i)$5,000,000 for the Fiscal Year ending on or about September 30, 1997 and
(ii)$7,000,000 for the Fiscal Year ending on or about September 30, 1998 and
each Fiscal Year thereafter.
For purposes of this covenant in Schedule F the following terms shall have the
----------
meanings set forth below:
"EBIT" shall mean, for any period, the Net Income (Loss) of Parent and its
----
Subsidiaries on a consolidated basis for such period, plus interest expense, tax
----
expense and extraordinary losses and minus extraordinary gains, in each case, of
-----
Parent and its Subsidiaries on a consolidated basis for such period determined
in accordance with GAAP to the extent included in the determination of such Net
Income (Loss).
"Net Income (Loss)" shall mean with respect to any Person and for any
-----------------
period, the aggregate net income (or loss)
--82--
<PAGE>
after taxes of such Person for such period, determined in accordance with GAAP.
"Tangible Net Worth" shall mean, with respect to any Person at any date,
------------------
all amounts which, in accordance with GAAP, would be included under
stockholders' equity on a consolidated balance sheet of such Person at such date
less the aggregate of all intangibles in conformity with GAAP (including
- ----
Intellectual Property, goodwill, organization expenses, treasury stock, all
deferred financing and unamortized debt discount expenses, and all current and
non-current deferred tax benefits).
--83--
<PAGE>
Schedule 1.1
LENDER'S AND BORROWERS REPRESENTATIVES
FOR NOTICES, ADDRESSES
Lender's Representative:
Name: Timothy B. Perusek
Title: Assistant Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
Address: 201 High Ridge Road
Stamford, CT 06927
Telephone: 203-316-7578
Facsimile: 203-316-7823
Borrower's Representative:
Name: Dennis J. O'Connor
Title: Chief Financial Officer
PAR PHARMACEUTICAL, INC.
Address: One Ram Ridge Road
Spring Valley, NY 10977
Telephone: 914-425-7100
Facsimile: 914-425-5097
--84--
<PAGE>
Schedule 1.6
ELIGIBLE ACCOUNTS
The Accounts constituting Eligible Accounts shall not include any Account:
(a) that does not arise from the sale of goods or the performance of services
by Borrower in the ordinary course of Borrower's business;
(b) upon which (i) Borrower's right to receive payment is not absolute or is
contingent upon the fulfillment of any condition whatsoever or (ii) Borrower is
not able to bring suit or otherwise enforce its remedies against the Account
Debtor through judicial process;
(c) (i) against which any defense, counterclaim or setoff, whether well-
founded or otherwise, is asserted against such Account or (ii) which is a
"contra" Account.
(d) that is not a true and correct statement of a bona fide indebtedness
incurred in the amount of the Account for merchandise sold or services performed
and accepted by the Account Debtor obligated upon such Account;
(e) with respect to which an invoice, acceptable to Lender in form and
substance, has not been sent;
(f) that is not owned by Borrower or is subject to any right, claim, or
interest of another Person, other than the Lien in favor of Lender;
(g) that arises from a sale to or performance of services for an employee,
Affiliate, Subsidiary or Stockholder of Borrower, or an entity which has common
officers or directors with Borrower;
(h) that is the obligation of an Account Debtor that is the Federal government
or a political subdivision thereof, unless Lender has agreed to the contrary in
writing and Borrower has complied with the Federal Assignment of Claims Act of
1940 with respect to such obligation;
(i) that is the obligation of an Account Debtor located in a foreign country
unless such Account is supported by a letter of credit acceptable to Lender;
(j) that is the obligation of an Account Debtor to whom Borrower is or may
become liable for goods sold or services rendered by the Account Debtor to
Borrower, to the extent of Borrower's liability to such Account Debtor;
(k) that arises with respect to goods which are delivered on a cash-on-
delivery basis or placed on consignment, guaranteed sale or other terms by
reason of which the payment by the Account Debtor may be conditional;
(l) that is an obligation for which the total unpaid Accounts of the Account
Debtor exceed 15% of the net amount of all Accounts, to the extent of such
excess;
(m) that is in default; provided, that an Account shall be deemed in default
--------
upon the occurrence of any of the following:
(1) the Account is not paid within 60 days from its due date or 150 days
from its invoice date;
(2) the Account Debtor obligated on such Account suspends business, makes a
general assignment for the benefit of creditors, or fails to pay its debts
generally as they come due; or
(3) a petition is filed by or against any Account Debtor obligated upon
such Account under any bankruptcy law or any other national, state or
provincial receivership, insolvency relief or other law or laws for the
relief of debtors;
--85--
<PAGE>
(n) that is the obligation of an Account Debtor that is in default (as defined
in subparagraph (m) above) on 50% or more of the Accounts upon which such
Account Debtor is obligated;
(o) that arises from any bill-and-hold or other sale of goods which remain in
Borrower's possession or under Borrower's control;
(p) as to which Lender's interest therein is not a first priority perfected
security interest;
(q) to the extent that such Account exceeds any credit limit established by
Lender in Lender's sole discretion;
(r) as to which any of Borrower's representations or warranties pertaining to
Accounts are untrue;
(s) that represents interest payments or service charges owing to Borrower; or
(t) that is not otherwise acceptable in the sole discretion of Lender,
provided, that (i) Lender shall have the right to create and adjust eligibility
- --------
standards and related reserves from time to time in its reasonable credit
judgment and (ii) Lender shall establish a reserve against the amount of
Eligible Accounts otherwise used in the Borrowing Base calculation for each
percentage point that the dilution of Borrower's Accounts (calculated as the
average dilution over the most recent three months) exceeds 7%.
--86--
<PAGE>
Schedule 1.7
ELIGIBLE INVENTORY
Inventory constituting Eligible Inventory shall not include Inventory that:
(a) is not owned by Borrower free and clear of all Liens and rights of others,
except first priority Liens in favor of Lender;
(b) is not located on premises owned or operated by Borrower and referenced in
Disclosure Schedule (3.2), or is located at Two Ram Ridge Road, Chestnut Ridge,
- -------------------------
New York;
(c) is not located on premises where the aggregate amount of all Inventory
(valued at cost) located thereon is greater than $100,000;
(d) is located on premises with respect to which Lender has not received a
landlord or mortgagee letter acceptable in form and substance to Lender;
(e) is in transit;
(f) is covered by a negotiable document of title, unless such document and
evidence of acceptable insurance covering such Inventory has been delivered to
Lender;
(g) in Lender's reasonable credit judgment, is obsolete, unsalable, shopworn,
damaged, not usable for the production of finished goods, unfit for further
processing, is of substandard quality or is not of good and merchantable
quality, free from any defects;
(h) does not consist of raw materials or finished goods;
(i) consists of
(1) discontinued items,
(2) slow-moving or excess items held in inventory, or
(3) used items held for resale;
(j) does not meet all standards imposed by any Governmental Authority,
including with respect to its production, acquisition or importation (as the
case may be);
(k) is placed by Borrower on consignment or held by Borrower on consignment
from another Person;
(l) is held for rental or lease by or on behalf of Borrower;
(m) is produced in violation of the Fair Labor Standards Act and subject to
the "hot goods" provisions contained in 29 U.S.C. (S) 215 or any successor
statute or section;
(n) in any way fails to meet or violates any warranty, representation or
covenant contained in this Agreement or any other Loan Document;
(o) is subject to any licensing, patent, royalty, trademark, trade name or
copyright agreement with any third parties;
(p) requires the consent of any Person for the completion of manufacture, sale
or other disposition of such Inventory by Lender following an Event of Default
and such completion, manufacture or sale constitutes a breach or default under
any contract or agreement to which Borrower is a party or to which such
Inventory is or may become subject; or
(q) is not otherwise acceptable in the sole discretion of Lender,
--87--
<PAGE>
provided, that Lender shall have the right to create and adjust eligibility
- --------
standards and related reserves from time to time in its reasonable credit
judgment.
--88--
<PAGE>
Exhibit B
FORM OF REVOLVING CREDIT NOTE
$20,000,000 New York, New York
December , 1996
For value received, the receipt and sufficiency of which are hereby
acknowledged, PAR PHARMACEUTICAL, INC., a New Jersey corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), the sum of $20,000,000 (the "Maximum Amount")
or such greater or lesser amount as shall be advanced by Lender from time to
time, together with interest on the unpaid balance of such amount from the date
of the initial Revolving Credit Advance. This Note is the Revolving Credit Note
issued under the Loan and Security Agreement between Borrower and Lender of even
date herewith (said agreement, as the same may be amended, restated or
supplemented from time to time, being herein called the "Agreement") to which a
reference is made for a statement of all of the terms and conditions of the Loan
evidenced hereby. Capitalized terms not defined in this Note shall have the
respective meanings assigned to them in the Agreement. This Note is secured by
the Agreement, the other Loan Documents and the Collateral, and is entitled to
the benefit of the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States Dollars
at the time and in the manner specified in the Agreement. The outstanding
principal and interest under this Note shall be immediately due and payable on
the Commitment Maturity Date. Payments received by Lender shall be applied
against principal and interest as provided for in the Agreement. Borrower
acknowledges that (a) Lender is authorized under the Agreement to charge to the
Revolving Credit Loan unpaid Obligations of Borrower to Lender, (b) the
principal amount of the Revolving Credit Loan will be increased by such amounts,
and (c) the principal, as so increased, will bear interest as provided for
herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents or
this Note; (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to
allowing Lender to exercise any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in Schedule D
----------
to the Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
PAR PHARMACEUTICAL, INC.
("Borrower")
By:__________________________
Name: Dennis J. O'Connor
Title: Chief Financial Officer
--89--
<PAGE>
Exhibit D
SECRETARIAL CERTIFICATE
The undersigned hereby certifies that he or she is the duly elected and acting
Secretary or Assistant Secretary of ________, a ____________ corporation
("Credit Party"), and as such is the custodian of Credit Party's Books and
Records and is authorized to execute and deliver this Certificate in connection
with the Revolving Credit Advances being made to Par Pharmaceutical, Inc. by
General Electric Capital Corporation, as Lender under the Loan and Security
Agreement ("Agreement") dated as of December 15, 1996. Capitalized terms not
defined in this Certificate shall have the meanings ascribed to them in the
Agreement. In order to induce General Electric Capital Corporation to execute
the Agreement and make the Revolving Credit Advances, the undersigned certifies
(in his or her secretarial capacity, and on behalf of Credit Party) as follows:
1. Attached as Attachment 1 hereto is a full, complete, and correct copy of
------------
Credit Party's articles or certificate of incorporation or other creating
instrument ("Charter") as filed and recorded with the Secretary of State of
________, which Charter has not been rescinded or amended and remains in full
force and effect in its entirety.
2. Attached as Attachment 2 is a copy of a written confirmation from the
------------
Secretary of State of ________, dated __________1996, confirming that the
Charter of Credit Party in the form of Attachment 1 remains on file and that
------------
Credit Party is a corporation in good standing in the State of ________.
3. Attached as Attachment 3 is a copy of the By-Laws of Credit Party, and as of
------------
the Closing Date the By-Laws are in full force and effect and have not been
amended or rescinded.
4. Attached as Attachment 4 are copies of good standing certificates dated not
------------
more than 30 days prior to the Closing Date for each state or jurisdiction in
which Credit Party does business confirming that Credit Party is qualified to
engage in business in such jurisdiction and such qualification is in good
standing.
5. Attached as Attachment 5 are copies of the Resolutions of the Board of
------------
Directors of Credit Party duly adopted by Credit Party's Board of Directors in a
meeting duly called upon proper notice, or by written consent in conformity with
the corporate and other laws of the State of ________ and with Credit Party's
Charter and By-Laws, which Resolutions authorize (a) Credit Party to execute and
deliver the Loan Documents [and to borrow the funds intended to be borrowed
thereunder]/1/, and (b) the officers of Credit Party to execute and deliver the
Loan Documents. There is no provision of Credit Party's Charter or By-Laws
limiting or contravening the Resolutions attached as Attachment 5, which
------------
Resolutions are fully in conformity with Credit Party's Charter and By-Laws and
the proper proceedings of its Board of Directors.
6. The undersigned officers and employees of Credit Party have been elected to
the positions set opposite their respective names below, are qualified to act in
such capacities and to execute and deliver the Loan Documents on behalf of
Credit Party, and the signature set opposite each name is the authentic
signature of such officer or employee:
NAME OFFICE SIGNATURE
[The individual identified by Borrower as Borrower's Representative in Schedule
--------
1.1 is _______________, whose signature appears above.]/1/
- ---
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
_________ day of _____________, 1996.
__________________________________
[Assistant] Secretary of [___________________]
The Undersigned, the Chief Executive Officer of Credit Party, hereby certifies
that ________________________is the [Assistant] Secretary of Credit Party and is
authorized to execute and deliver this Certificate.
__________________________________
Date:______________________________
--90--
<PAGE>
Exhibit E
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by ______________________
("Company") to General Electric Capital Corporation (hereinafter referred to as
"Attorney"), as Lender, under a Loan and Security Agreement (the "Agreement")
dated as of December 15, 1996 among Par Pharmaceutical, Inc. and the other
Credit Parties (as defined in the Agreement) party thereto and Lender, and other
documents (the "Loan Documents"). No person to whom this Power of Attorney is
presented, as authority for Attorney to take any action or actions contemplated
hereby, shall inquire into or seek confirmation from Company as to the authority
of Attorney to take any action described below, or as to the existence of or
fulfillment of any condition to this Power of Attorney, which is intended to
grant to Attorney unconditionally the authority to take and perform the actions
contemplated herein, and Company irrevocably waives any right to commence any
suit or action, in law or equity, against any person or entity which acts in
reliance upon or acknowledges the authority granted under this Power of
Attorney. The power of attorney granted hereby is coupled with an interest, and
may not be revoked or canceled by Company without Attorney's written consent
upon payment in full of all Obligations due to Attorney under the Loan
Documents.
Company hereby irrevocably constitutes and appoints Attorney (and all officers,
employees or agents designated by Attorney), with full power of substitution, as
Company's true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Company and in the name of Company or in its
own name, from time to time in Attorney's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
the Loan Documents and, without limiting the generality of the foregoing,
Company hereby grants to Attorney the power and right, on behalf of Company,
without notice to or assent by Company, and at any time, to do the following:
(a) open mail for Company, and ask, demand, collect, give acquittances and
receipts for, take possession of, endorse and receive payment of, any checks,
drafts, notes, acceptances, or other instruments for the payment of moneys due,
and sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with any property of Company; (b)
effect any repairs to any asset of Company, or continue or obtain any insurance
and pay all or any part of the premiums therefor and costs thereof, and make,
settle and adjust all claims under such policies of insurance, and make all
determinations and decisions with respect to such policies; (c) pay or discharge
any taxes, liens, security interests, or other encumbrances levied or placed on
or threatened against Company or its property; (d) defend any suit, action or
proceeding brought against Company if Company does not defend such suit, action
or proceeding or if Attorney believes that Company is not pursuing such defense
in a manner that will maximize the recovery to Attorney, and settle, compromise
or adjust any suit, action, or proceeding described above and, in connection
therewith, give such discharges or releases as Attorney may deem appropriate;
(e) file or prosecute any claim, litigation, suit or proceeding in any court of
competent jurisdiction or before any arbitrator, or take any other action
otherwise deemed appropriate by Attorney for the purpose of collecting any and
all such moneys due to Company whenever payable and to enforce any other right
in respect of Company's property; (f) sell, transfer, pledge, make any agreement
with respect to, or otherwise deal with any property of Company, and execute,
in connection with such sale or action, any endorsements, assignments or other
instruments of conveyance or transfer in connection therewith; (g) cause the
certified public accountants then engaged by Company to prepare and deliver to
Attorney at any time and from time to time, promptly upon Attorney's request,
the following reports: (1) a reconciliation of all accounts; (2) an aging of
all accounts; (3) trial balances; (4) test verifications of such accounts as
Attorney may request, and (5) the results of each physical verification of
inventory, all as though Attorney were the absolute owner of the property of
---
Company for all purposes; and (h) license or, to the extent permitted by an
applicable license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any patent or trademark
throughout the world on such terms and conditions and in such manner as Attorney
shall, in its discretion, determine; and to do, at Attorney's option and
Company's expense, at any time or from time to time, all acts and other things
that Attorney reasonably deems necessary to perfect, preserve, or realize upon
Company's property or assets and Attorney's Liens thereon, all as fully and
effectively as Company might do. Company hereby ratifies, to the extent
permitted by law, all that said attorneys shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney is executed by Company, and Company
has caused its seal to be affixed pursuant to the authority of its board of
directors this __________ day of______________, 1996.
__________________________
--------------------------
________________________________
- --------------------------------
ATTEST:_________________________
By:_____________________________________ (SEAL)
Title:___________________________________
--91--
<PAGE>
Notarization in appropriate form for the state of execution is required.
--92--
<PAGE>
EXHIBIT F
GE CAPITAL COMMERCIAL FINANCE ACCOUNTS RECEIVABLE RECONCILIATION
Previously Faxed: Yes No (Circle One)
Company Name: Par Pharmaceutical, Inc. Date: / /
A: Activity for the period dated / /
B: Notice of Revolving Credit Advances for the
period numbered # to #
------------- -----------
ACCOUNTS RECEIVABLE RECONCILIATION:
- ----------------------------------
1. Ending Accounts Receivable Balance (Line 5 of the $
last Notice of Revolving Credit Advance of the period): ---------------
2. Correcting entries or items in-transit, explain and
indicate which Notice of Revolving Credit Advance
the correction of in-transit item will be posted on
(see instructions):
Description $ Amount (Additions) Advance #
- ----------------------------------------------------------------
Description $ Amount (Subtractions) Advance #
- ----------------------------------------------------------------
TOTAL increase (decrease) to Accounts Receivable balance
from subsequent activity
3. Adjusted period end accounts receivable balance $-------------
(Line 1 plus/minus Line 2):
4. End of period accounts receivable balance per
Accounts Receivable aging (attach aging): $-------------
5. Variance between Line 3 and Line 4: $-------------
Explain:
-------------------------------------
---------------------------------------------
---------------------------------------------
6. End of period accounts receivable balance per general ledger $-------------
7. Variance between line 4 and line 6: $-------------
Explain:
-------------------------------------
---------------------------------------------
---------------------------------------------
8. End of period accounts receivable balance per
financial statements $-------------
9. Variance between line 6 and line 8: $-------------
Explain:
-------------------------------------
---------------------------------------------
---------------------------------------------
The undersigned certifies that all of the foregoing information
regarding the Accounts of Par Pharmaceutical, Inc. is true and correct on
the date hereof.
--93--
<PAGE>
By:____________________________________
Title:_________________________________
--94--
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
DECEMBER 28, DECEMBER
30,
1996 1995
------------- ------------
<S> <C> <C>
NET (LOSS) $(2,979,000) $ (198,000)
========= =======
Primary:
Weighted average number of common
common shares outstanding 18,664,200 18,174,787
Shares issuable upon exercise of dilutive stock
options and warrants - net of shares assumed to
be repurchased (at the average market price for
the period) from exercise proceeds 2,351 273,626
----------- -----------
Shares used for computation 18,666,551 18,448,413
=========== ===========
NET (LOSS) PER SHARE OF COMMON STOCK $(.16) $(.01)
=== ===
Assuming full dilution:
Weighted average number of common shares
outstanding 18,664,200 18,174,787
Shares issuable upon exercise of dilutive stock
options and warrants - net of shares assumed to be
repurchased (at the higher of period-end market
price or the average market price for the period)
from exercise proceeds 1,873 273,626
----- -------
Shares used for computation 18,666,073 18,448,413
=========== ===========
NET (LOSS) PER SHARE OF COMMON STOCK $(.16) $(.01)
=== =====
</TABLE>
95
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
State or Other Jurisdiction
Name of Incorporation/Organization
---- -----------------------------
Pharmaceutical Resources, Inc.
- --------------------------------
Par Pharmaceutical, Inc. New Jersey
PRX Distributors, Ltd. Delaware
ParCare, Ltd. New York
PRI-Research, Inc. Delaware
Quad Pharmaceuticals, Inc. Indiana
Par Pharma Group, Ltd. Delaware
Par Pharmaceutical, Inc.
- ------------------------
Nutriceutical Resources, Inc. New York
96
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS
ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERRENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-28-1996
<CASH> 0
<SECURITIES> 123
<RECEIVABLES> 11,309
<ALLOWANCES> (3,474)
<INVENTORY> 18,263
<CURRENT-ASSETS> 27,341
<PP&E> 46,863
<DEPRECIATION> (21,294)
<TOTAL-ASSETS> 78,472
<CURRENT-LIABILITIES> 10,512
<BONDS> 1,308
187
0
<COMMON> 0
<OTHER-SE> 65,746
<TOTAL-LIABILITY-AND-EQUITY> 78,472
<SALES> 12,470
<TOTAL-REVENUES> 12,579
<CGS> 11,238
<TOTAL-COSTS> 3,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (2,569)
<INCOME-TAX> 410
<INCOME-CONTINUING> (2,979)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,979)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
