U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 2000
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (no fee required)
Commission file number 0-23544
-------
HUMAN PHEROMONE SCIENCES, INC.
-----------------------------------------------
(Name of small business issuer in its charter)
California 94-3107202
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. employee
or organization) Identification No.)
4034 Clipper Court, Fremont, California 94538
- ------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (510) 226-6874
--------------
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 3,429,839 shares of Common
Stock as of May 5, 2000.
<PAGE>
HUMAN PHEROMONE SCIENCES, INC.
<TABLE>
INDEX
<CAPTION>
Page
<S> <C>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999...........................................................................3
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the
Three Months Ended March 31, 2000 and 1999..................................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 2000 and 1999...................................................................5
Notes to Consolidated Financial Statements (Unaudited)..........................................6
Item 2. Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition and Results of Operations...........7
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................................................11
SIGNATURES..................................................................................................12
</TABLE>
1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
Human Pheromone Sciences, Inc.
Consolidated Balance Sheets
March 31, December 31,
(in thousands except share data) 2000 1999
- ----------------------------------------------------------- -------- --------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 177 $ 108
Accounts receivable, net of allowances of $297
and $338 in 2000 and 1999, respectively 931 2,050
Inventories 1,975 2,304
Other current assets 31 36
-------- --------
Total current assets 3,114 4,498
Property and equipment, net 12 14
-------- --------
$ 3,126 $ 4,512
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Bank borrowings $ 200 $ 900
Accounts payable 300 573
Accrued advertising 209 313
Accrued commissions 65 286
Other accrued expenses 338 374
-------- --------
Total current liabilities 1,112 2,446
-------- --------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, issuable in series, no par value, 10,000,000
shares
authorized, 1,433,333 Series AA convertible shares issued
and outstanding at March 31, 2000 and December 31, 1999,
16,484 and 14,203 Series BB convertible shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively 3,556 3,296
Common stock, no par value, 13,333,333 shares authorized,
3,429,839 shares issued and outstanding on each date 17,667 17,667
Accumulated deficit (19,152) (18,847)
Foreign currency translation (57) (50)
-------- --------
Total shareholders' equity 2,014 2,066
-------- --------
$ 3,126 $ 4,512
======== ========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Human Pheromone Sciences, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
<CAPTION>
Three months ended March 31,
----------------------------
(in thousands except per share data) 2000 1999
- ----------------------------------------------------------- ------- -------
<S> <C> <C>
Net sales ( including license fees of $252,000 and $77,000
in 2000 and 1999, respectively.) $ 1,533 $ 2,239
Cost of goods sold 546 779
------- -------
Gross profit 987 1,460
------- -------
Operating expenses:
Research and development 80 84
Selling, general and administrative 1,188 1,663
------- -------
Total operating expenses 1,268 1,747
------- -------
Loss from operations (281) (287)
------- -------
Other expense
Interest expense (22) (22)
Other (2) 2
------- -------
Total other expense (24) (20)
------- -------
Net loss available to common shareholders (305) (307)
Other comprehensive loss - translation adjustment (7) (37)
------- -------
Comprehensive loss $ (312) $ (344)
======= =======
Net loss per common share-basic and diluted $ (0.09) $ (0.09)
======= =======
Weighted average common shares outstanding 3,430 3,430
======= =======
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
Human Pheromone Sciences, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<CAPTION>
Three months ended March 31,
----------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------- ------- -------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (305) $ (307)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 4 12
Changes in operating assets and liabilities:
Accounts receivable 1,119 358
Inventories 329 41
Other current assets 5 (79)
Accounts payable and accrued liabilities (634) (380)
------- -------
Net cash provided by (used in) operating activities 518 (355)
Cash flows from investing activities
Purchase of property and equipment (2) --
------- -------
Net cash used in investing activities (2) --
Cash flows from financing activities
Proceeds from bank borrowings 150 500
Repayment of bank borrowings (850) (374)
Proceeds from issuance of convertible preferred stock 260 300
------- -------
Net cash (used in) provided by financing activities (440) 426
Effect of exchange rate changes on cash (7) (37)
------- -------
Net increase in cash and cash equivalents 69 34
Cash and cash equivalents at beginning of period 108 77
------- -------
Cash and cash equivalents at end of period $ 177 $ 111
======= =======
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
5
<PAGE>
Human Pheromone Sciences, Inc.
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Human Pheromone Sciences, Inc. (the "Company") was incorporated in the
State of California in 1989 under the name of EROX Corporation. The Company
changed the name to Human Pheromone Sciences, Inc. in May 1998. The Company is
engaged in the research, development, manufacturing and marketing of consumer
products containing synthetic human pheromones as a component. The Company
initiated commercial operations in late 1994 with a line of fine fragrances and
toiletries
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the calendar
year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1999.
Inventories
Inventories are stated at the lower of cost (first in - first out
method) or market. The inventory at March 31, 2000 consists of finished goods
inventory valued at $518,000, work in process of $164,000, and raw materials of
$1,293,000. At December 31, 1999, these balances were $662,000, $472,000 and
$1,170,000, respectively.
Capital Stock and Stock Options
On March 26, 2000 the Company sold 2,281 shares of Series BB
convertible preferred stock for $260,000, net of issuance costs, to a current
shareholder. The cash was used to reduce bank borrowings.
Outstanding options to purchase to purchase shares of common stock were
excluded from the computation of diluted earnings per share since their effect
would be antidilutive.
During the three months ended March 31, 2000 no common stock options
were granted and no issued options were exercised.
Subsequent Event
On April 24, 2000 the Company entered into a multi-year agreement under
which it licensed its Realm(R) fragrance and toiletry brands to Niche Marketing,
Inc. in exchange for a royalty on Niche Marketing sales, with guaranteed annual
minimum payments due to the Company. The license includes all territories
excluding the Far East, which the company retains. As part of the agreement,
Niche Marketing will also purchase the Company's applicable inventory for cash
between the date of the agreement and for a period of five months thereafter.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Except for the historical
information contained in this discussion and analysis of financial condition and
results of operations, the matters discussed herein are forward looking
statements. These forward looking statements include but are not limited to the
Company's plans for sales growth and expansion into new channels of trade,
expectations of gross margin, expenses, new product introduction, and the
Company's liquidity and capital needs. These matters involve risks and
uncertainties that could cause actual results to differ materially from the
statements made. In addition to the risks and uncertainties described in "Risk
Factors", below, these risks and uncertainties may include consumer trends,
business cycles, scientific developments, changes in governmental policy and
regulation, currency fluctuations, economic trends in the United States and
inflation. These and other factors may cause actual results to differ materially
from those anticipated in forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof.
Risk Factors
The Company's future results may be affected to a greater or lesser
degree by the following factors among others:
The Company may not be able to effectively compete with larger
companies or with new products. The prestige fragrance market is extremely
competitive. Many fragrance products are better known than the Company's
products and compete for advertising and retail shelf space. Many competitors
have significantly greater resources that will allow them to develop and
introduce new competing products or increase the promotion of current products.
The product life cycle of a fragrance can be very short. Changing
fashions and fads can dramatically shift consumer preferences and demands.
Traditional fragrance companies introduce a new fragrance every year or so.
Changing fashions and new products may reduce the chance of creating long term
brand loyalty to the Company's products.
The Company's marketing strategy may not be successful. The Company may
not be able to establish and maintain the necessary sales and distribution
channels. Retail outlets and catalogs may choose not to carry the Company's
products. The Company may not have sufficient funds to successfully market its
products if the current marketing strategy is not successful. The Company may
not be able to successfully complete negotiations for licensing its pheromone
technology.
The current retail environment may cause pricing and promotional
pressures. Five companies control the majority of the sales in the U. S.
department store arena. Because of their market share, each company will have
significant power to determine the price and promotional terms which the Company
must meet in order to sell its products in the companys' department stores.
Upper end department stores face increasing competition by discount
perfumeries, drug chains and lower priced department stores for sales of
fragrances and cosmetics. To compete, upper end department stores have cut
inventories, reduced co-op advertising, and increased promotions. These tactics
may force the Company to reduce its prices or increase the cost of its
promotions.
Seasonality in sales may cause significant variation in quarterly
results. Sales in the fragrance industry are generally seasonal with sales
higher in the second half of the year because of Christmas. This seasonality
could cause a significant variation in the Company's quarterly operating
results.
The Company not be able to protect its technology or trade secrets. The
Company's patents and patent applications may not protect the Company's
technology or ensure that the Company's technology does not infringe another's
valid patent. Others may independently develop substantially equivalent
proprietary information. The Company may not be able to protect its technology,
proprietary information or trade secrets.
7
<PAGE>
The Company may not be able to recruit and retain key personnel. The
Company's success substantially depends upon recruiting and retaining key
employees and consultants with research, product development and marketing
experience. The Company may not be successful in recruiting and retaining these
key people.
The Company relies upon other companies to manufacture its products.
The Company relies upon Pherin and other companies to manufacture its
pheromones, supply components, and to blend, fill and package its fragrance
products. The Company may not be able to obtain or retain pheromones
manufacturers, fragrance suppliers, or component manufacturers on acceptable
terms. If not, the Company may not be able to obtain commercial quantities of
its products. This would adversely affect operating results.
Results of Operations
Three Months ended March 31, 2000 compared to the Three Months ended March 31,
1999
Net sales for the first quarter of 2000 were $1,533,000 representing a
decrease of 32% from sales of $2,239,000 for the prior year's quarter.
Approximately 46% of the decrease are due to the absence of sales to department
stores with whom the Company has ceased doing business. The remaining department
store and distributor sales shortfall from the prior year is attributable to a
reduction of inventories by the retailers and the delay of shipments of Father's
Day value sets in the current year. The sales of pheromones under license
agreements increased by 227% to $252,000 in the current year period.
Direct sales to international customers were consistent with the prior
year. Net sales for the quarters ended March 31, 2000 and 1999 were as follows
(in thousands).
- ------------------------------------------------------------------
Markets 2000 1999
- ------------------------------------------------------------------
U.S. Retail & Distributor Markets $1,153 $2,037
License and Supply Revenues 252 77
International Markets 128 125
------ ------
Net Sales $1,533 $2,239
Gross profit for the quarter ended March 31, 2000 declined 32% to
$987,000 from $1,460,000 in the prior year due to the reduced sales volume. As a
percentage of sales profit of 64% was comparable with last year of 65%.
Research and Development expenses for the first quarters of 2000 and
1999 were $80,000 and $84,000, respectively. These costs principally reflect
payments and costs under the Company's consulting agreements in this area.
Selling, general and administrative expenses decreased $475,000 to
$1,188,000 in the first quarter of 2000 from $1,663,000 in the first quarter of
1999. Advertising, selling, and marketing expenses were $408,000 less than the
prior year as the Company continued to focus on advertising efforts in the
remaining department store accounts and eliminated spending with non-profitable
accounts. General and administrative costs were $67,000 lower in the current
year's quarter as the Company continues its efforts to reduce these expenses.
The Company incurred $22,000 in net interest expense during the first
quarter of both years. During the first quarter of 2000, the Company decreased
its net borrowing position as compared to the same period in 1999, but interest
rates were higher.
8
<PAGE>
LIQUIDITY
At March 31, 2000, the Company had outstanding borrowings of $200,000
against its $3,000,000 line of credit; and working capital was $2,002,000. At
December 31, 1999 the Company had net borrowings of $900,000 and working capital
of $2,052,000. For the first quarter of 2000, net cash generated from operating
activities was $518,000 compared to $355,000 used in operating activities for
the prior year's quarter. Accordingly, the Company had a net repayment of its
line of credit of $700,000 in the first quarter of 2000, while it had net
additional borrowings of $126,000 in the first quarter of 1999.
On March 24, 2000, the Company extended its Business Loan Agreement
with Mid-Peninsula Bank of Palo Alto, California (the "Bank") providing for a
continued line of credit. The Company may borrow up to $1,500,000 at an interest
rate equal to the Bank's prime rate plus 1.0% with borrowings secured primarily
by the Company's trade receivables and inventory. The agreement, which expires
on July 1, 2000, contains certain debt-to-equity and working capital covenants.
At March 31, 2000 the Company was in compliance with such covenants.
On April 24, 2000, the Company signed a multi-year license agreement
with Niche Marketing, Inc., an affiliate of Northern Brands, Inc., for the
Realm(R) and innerRealm(R) brand of products. Niche Marketing will purchase
applicable inventories and will pay the Company royalties, subject to annual
minimums, on the sale of current REALM products and line extensions under the
Realm brand names.
Assuming the Company's activities proceed substantially as planned, the
Company's cash proceeds from the license to Niche Marketing, license revenues
and anticipated revenues from product sales should be adequate to meet its
working capital needs over the next twelve months. Working capital requirements
will primarily be for research, product development and lower administrative
costs.
Additional working capital may be required should the Company fail to
generate new products or new license revenues. Furthermore, additional working
capital may be required should the Company experience a greater than planned
success with its products, potential products, and research funding
requirements. Funds would be needed for inventory build, accounts receivable
financing and staffing purposes. If the Company fails to achieve revenues from
its 2000 marketing efforts, or if product development proves to be more capital
intensive than planned, the Company may require additional funding.
On March 26, 2000, the Company obtained $260,000 additional equity
capital from a current shareholder by issuing shares of convertible preferred
stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal quarters of fiscal years beginning after June 15, 2000.
The Company has not entered into derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly, the Company does not expect
adoption of the new standard on January 1, 2001 to affect its financial
statements.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. SAB No. 101 summarizes certain of
the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. SAB No. 101 is effective for all
transactions beginning
9
<PAGE>
with the second quarter of 2000. The Company has not yet analyzed the impact, if
any, that SAB No. 101 will have on its financial statements.
Impact of Year 2000
The year 2000 issue is the result of computer programs being written
using two digits (rather than four) to define the applicable year. We believe
that all of our material systems are substantially year 2000 compliant. To our
knowledge, we have not experienced any significant problems as a result of year
200 issues. We will continue to monitor critical computer applications and those
of our suppliers and vendors throughout the year 2000 to ensure any latent risks
that may arise are addressed promptly.
10
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibit 10.19 Business Loan Agreement dated March 24, 2000
(b) Exhibit 10.20 License Agreement with Niche Marketing, Inc.
(c) Exhibit 27.01-Financial Data Schedule
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this Report to be signed on behalf by the
undersigned thereunto duly authorized.
HUMAN PHEROMONE SCIENCES, INC.
Registrant
Date: May 12, 2000 /s/ William P. Horgan
---------------------
William P. Horgan
Chairman and Chief Executive Officer
Date: May 12, 2000 /s/ Gregory S. Fredrick
-----------------------
Gregory S. Fredrick
Vice President Finance
<TABLE>
LOAN AGREEMENT
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
1,500,000.00 07-01-2000 0108143855 2000 016
- ------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: HUMAN PHEROMONE SCIENCES, INC. Lender: Mid-Peninsula Bank
4034 Clipper Court c/o Greater Bay Bancorp
Fremont, CA 94538 2860 W. Bayshore Road
Palo Alto, CA 94303
================================================================================
THIS LOAN AGREEMENT between HUMAN PHEROMONE SCIENCES, INC. ("Borrower") and
Mid-Peninsula Bank ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as the
"Loan' and collectively as the "Loans." Borrower understands and agrees that:
(a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at
all times shall be subject to Lender's sole judgment and discretion; and (c)
all such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of March 22, 2000, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means HUMAN PHEROMONE SCIENCES, INC. The
word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates." Borrowing Base. The words "Borrowing Base"
mean, as determined by Lender from time to time, the lesser of (a)
$1,500,000.00; or (b) 75.000% of the aggregate amount of Eligible
Accounts.
Business Day. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL." Debt. The word "Debt" means all
of Borrower's liabilities excluding Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or setoff.
(f) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(g) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such
debts become due.
(i) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(j) Accounts which have not been paid in full within Ninety (90) Days
from the invoice date. The entire balance of any Account of any single
Account debtor will be ineligible whenever the portion of the Account
which has not been paid within Ninety (90) Days from the invoice date
is in excess of 20.000% of the total amount outstanding on the
Account.
<PAGE>
03-22-2000 LOAN AGREEMENT Page 2
Loan No 0108143855 (Continued)
================================================================================
(k) That portion of the Accounts of any single Account Debtor which
exceeds 25.000% of all of Borrower's Accounts. ERISA. The word "ERISA"
means the Employee Retirement Income Security Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT." Expiration Date. The words "Expiration Date"
mean the date of termination of Lender's commitment to lend under this
Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness. lndebtedness. The word "Indebtedness"
means and includes without limitation all Loans, together with all other
obligations, debts and liabilities of Borrower to Lender, or any one or
more of them, as well as all claims by Lender against Borrower, or any one
or more of them; whether now or hereafter existing, voluntary or
involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be obligated as a guarantor, surety, or
otherwise; whether recovery upon such Indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such Indebtedness
may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means Mid-Peninsula Bank, its successors and
assigns.
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall
be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
Mandatory, Loan Repayments. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing
<PAGE>
03-22-2000 LOAN AGREEMENT Page 3
Loan No 0108143855 (Continued)
================================================================================
Base, Borrower, immediately upon written or oral notice from Lender, shall
pay to Lender an amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base. On the Expiration
Date, Borrower shall pay to Lender in full the aggregate unpaid principal
amount of all Advances then outstanding and all accrued unpaid interest,
together with all other applicable fees, costs and charges, if any, not yet
paid.
Loan Account. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts and general intangibles. Lender's
Security Interests in the Collateral shall be continuing liens and shall include
the proceeds and products of the Collateral, including without limitation the
proceeds of any insurance. With respect to the Collateral, Borrower agrees and
represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
information relating to Borrower's Accounts as Lender may request.
Supplemental schedules shall be delivered according to the following
schedule: Monthly Accounts Receivable and Accounts Payable agings within
fifteen (15) days of month end with Borrowing Base Certificate within
twenty (20) days of month end.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and
(c)Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing. Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state,
<PAGE>
03-22-2000 LOAN AGREEMENT Page 4
Loan No 0108143855 (Continued)
================================================================================
and local laws, regulations, and ordinances, including without limitation
those laws, regulations and ordinances described above. Borrower authorizes
Lender and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or liability
on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's due
diligence in investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release of a hazardous waste or substance
on the properties. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 4034 Clipper Court, Fremont, CA 94538. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
Year 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatiblity for operation to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the software include the indication of the century.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than twenty five (25) days after the end of each month,
Borrower's balance sheet and profit and loss statement for the period
ended, prepared and certified as correct to the best knowledge and belief
by Borrower's chief financial officer or other officer or person acceptable
to Lender. All financial reports required to be provided under this
Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less
than $2,000,000.00.
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.50 to 1.00.
Other Ratio. Maintain a ratio of Minimum Quick Ratio: defined as, Cash
+ Marketable Securities + Net Trade Accounts Receivable (A/R) divided
by Current Liabilities of 0.85 to 1.00. Except as provided above, all
computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrowers properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender.
<PAGE>
03-22-2000 LOAN AGREEMENT Page 5
Loan No 0108143855 (Continued)
================================================================================
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory
to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Borrower or
any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest for the Loans,
Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy, lien
or claim so long as (a) the legality of the same shall be contested in
good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or
other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets,
or (c) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under
<PAGE>
03-22-2000 LOAN AGREEMENT Page 6
Loan No 0108143855 (Continued)
================================================================================
the terms of this Agreement or any of the Related Documents or any other
agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any
Guarantor becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.
ADDITIONAL FINANCIAL REPORTING. Borrower agrees to the following:
1. To provide Lender with audited 10-K report with unqualified opinion within
120 days of filing.
2. A/R exam is not required at this time, however, if the proposed deal with
Northern Brands, Inc. is not completed and this line of credit is not paid off
prior to maturity, we will then require an A/R exam.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment, or
levy on or of any of Borrower's deposit accounts with Lender. However,
this Event of Default shall not apply if there is a good faith dispute by
Borrower or Grantor, as the case may be, as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written
notice of the creditor or forfeiture proceeding and furnishes reserves or
a surety bond for the creditor or forfeiture proceeding satisfactory to
Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness. Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of Santa
Clara County, the State of California. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the
<PAGE>
03-22-2000 LOAN AGREEMENT Page 7
Loan No 0108143855 (Continued)
================================================================================
rights granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH 22, 2000.
BORROWER:
HUMAN PHEROMONE SCIENCES, INC.
By: WILLIAM P. HORGAN
------------------------------------------
WILLIAM P. HORGAN, Chief Exectuive Officer
LENDER:
Mid-Peninsula Bank
By: TERESA LINK
--------------------------------
Authorized Officer
================================================================================
<PAGE>
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
1,500,000.00 07-01-2000 0108143855 2000 016
- ------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: HUMAN PHEROMONE SCIENCES, INC. Lender: Mid-Peninsula Bank
4034 Clipper Court c/o Greater Bay Bancorp
Fremont, CA 94538 2860 W. Bayshore Road
Palo Alto, CA 94303
================================================================================
Principal Amount: $1,500,000.00 Date of Agreement: March 22, 2000
DESCRIPTION OF EXISTING INDEBTEDNESS. Promissory Note dated March 15, 1999 in
the original principal amount of $3,000,000.00, (the "Note").
DESCRIPTION OF COLLATERAL. Collateral as described in that Commercial Security
Agreement dated August 17, 1998.
DESCRIPTION OF CHANGE IN TERMS. The maturity date of the Note is hereby extended
from April 1, 2000 to July 1, 2000. The credit limit available under the terms
of the Note is hereby decreased from $3,000,000.00 to $1,500,000.00.
PROMISE TO PAY. HUMAN PHEROMONE SCIENCES, INC. ("Borrower") promises to pay to
Mid-Peninsula Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million Five Hundred Thousand & 00/100
Dollars ($1,500,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on July 1, 2000. In addition, Borrower will pay
regular monthly payments of accrued unpaid interest beginning April 1, 2000, and
all subsequent interest payments are due on the same day of each month after
that. The annual interest rate for this Agreement is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an independent index which is the Prime
Rate as published in the Wall Street Journal (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. The Index currently Is 8.750%. The interest rate to be applied to the
unpaid principal balance of this Agreement will be at a rate of 1.000 percentage
point over the Index, resulting in an initial rate of 9.750%. NOTICE: Under no
circumstances will the interest rate on this Agreement be more than the maximum
rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Agreement, Borrower understands that Lender is entitled
to a minimum interest charge of $250.00. Other than Borrower's obligation to pay
any minimum interest charge, Borrower may pay without penalty all or a portion
of the amount owed earlier than it is due. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments of accrued unpaid interest. Rather, they will reduce
the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the Related Documents.
(d) Any representation or statement made or furnished to Lender by Borrower or
on Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Agreement. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Agreement
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be sufficient
to cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon Borrower's failure
to pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Agreement to 6.000
percentage points over the Index. Lender may hire or pay someone else to help
collect this Agreement if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided by law. This
Agreement has been delivered to Lender and accepted by Lender In the State of
California. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Santa Clara County, the State of
California. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested either orally or in writing by Borrower or
by an authorized person. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are
<PAGE>
03-22-2000 CHANGE IN TERMS AGREEMENT Page 2
Loan No 0108143855 (Continued)
================================================================================
authorized to request advances under the line of credit until Lender receives
from Borrower at Lender's address shown above written notice of revocation of
their authority: William P. Horgan, Chief Executive Officer; and Greg Fredrick.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Agreement at any time may be evidenced by endorsements on this Agreement or by
Lender's internal records, including daily computer print-outs. Lender will have
no obligation to advance funds under this Agreement if: (a) Borrower or any
guarantor is in default under the terms of this Agreement or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Agreement; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of this
Agreement or any other loan with Lender; or (d) Borrower has applied funds
provided pursuant to this Agreement for purposes other than those authorized by
Lender.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Agreement without losing them. Borrower and any other
person who signs, guarantees or endorses this Agreement, to the extent allowed
by law, waive any applicable statute of limitations, presentment, demand for
payment, protest and notice of dishonor. Upon any change in the terms of this
Agreement, and unless otherwise expressly stated in writing, no party who signs
this Agreement, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability. All such parties agree that Lender may renew
or extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE AGREEMENT.
BORROWER:
HUMAN PHEROMOME SCIENCES, INC.
By: WILLIAM P. HORGAN
-------------------------------------------
WILLIAM P. HORGAN, Chief Executive Officer
================================================================================
LICENSE AND PURCHASE AGREEMENT
AGREEMENT made on this 24th day of April, 2000 between Human Pheromone
Sciences, Inc., with offices located at 4034 Clipper Court, Fremont, California
94538 ("Licensor") and Niche Marketing, Inc., with offices located at 109
Lafayette Drive, Syosset New York 11791 ("Licensee") with respect to certain
merchandising rights pertaining to REALM(R) and innerREALM(R) fragrances and
toiletry products as more particularly described in this Agreement ("Licensed
Products").
1. Grant of License. Licensor grants an exclusive license to Licensee
under which Licensee shall have the right to produce or have produced, promote,
advertise and sell in all classes of trade, including but not limited to, retail
sales, mass market sales, close out sales, catalog sales, internet sales, and
direct response sales REALM(R) and innerREALM(R) fragrances and toiletry
products, line extensions and new products carrying the name of REALM(R) or a
variation thereof in the Territories ("Licensed Products") provided during the
license period of this Agreement. The license to use the names REALM(R) and
innerREALM(R) shall be granted free of all liens and encumbrances during the
term of this Agreement and each extension thereto. Licensee shall also have the
right of first refusal to sell the Licensed Products in the Excluded
Territories, in return for which Licensee grants to Licensor an exclusive
license for any Licensed Products developed by Licensee for Licensor's sale in
the Excluded Territories. Licensee shall sell such products to Licensor at
Licensee's manufacturing cost plus [**] percent.
2. Territories. The Territories shall include the Middle East
(including but not limited to India, Pakistan and Nepal), North, Central and
South America (to include Hawaii and the Caribbean), the territories of the
United States, Europe, (including the former Soviet Republics), Africa, the
Philippines, Australia and New Zealand. Specifically excluded are the countries
of Asia, including Japan, China, Korea, Taiwan, Hong Kong, Singapore, Macao,
Thailand, Viet Nam, Laos, Cambodia, Sri Lanka, and Indonesia. ("Excluded
Territories")
3. License Period. This Agreement shall commence upon the date of
execution. All sales and resulting gross profit from May 1, 2000 forward of the
Licensed Products shall accrue to Licensee and all selling, marketing,
advertising and distribution expenses (not considered "transition costs")
incurred after May 1, 2000 will be borne by Licensee. Licensor and Licensee
represent that the Officer(s) executing this Agreement have the authority of its
Board of Directors to do so. The Agreement shall continue to December 31, 2004,
unless extended, or terminated in accordance with the terms and conditions of
this Agreement (the initial "License Period"). At the option of Licensee the
License Period may be extended for two additional three-year terms. Any notice
of extension from Licensee shall be received by Licensor not less than one year
prior to the expiration date of the then current License Period.
4. Exclusion. Licensee's rights under this Agreement are restricted to
the trademark class, and shall not include the right to, and Licensee warrants
and represents that it will not, use the name of REALM(R)or innerREALM(R)or a
variation thereof
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 1
<PAGE>
for the endorsement of any product or services outside the trademark class.
(except for promotional purposes of Licensed Products).
5. Payment. In consideration of this exclusive license, Licensee shall
make payments to Licensor in the amounts and at the times set forth in Exhibit 1
to this Agreement.
(a) Guaranteed Minimum Compensation: Licensee, based upon
historical sales returns levels, will pay to Licensor as
guaranteed minimum payments ("Guaranteed Minimum Payments")
the amounts in U.S. dollars set forth in Exhibit 1. Such
payments shall be payable in advance in accordance with the
schedule set forth in Exhibit 1 against the Percentage
Compensation as herein defined attributable to net sales made
by Licensee during the License Period. No portion of the
Guaranteed Minimum Payment shall be recoverable from or
refundable by Licensor unless there occurs a material breach
of this Agreement by Licensor, or otherwise provided for
herein.
Guaranteed Minimum Payments shall be made quarterly on a
pro-rata straight-line basis during each twelve-month period.
Commencing January 1, 2001, on a quarterly basis, Licensee
shall provide to Licensor detailed compilations of net sales,
together with the Guaranteed Minimum Payment within 30 days
from the end of such quarter.
(b) Percentage Compensation:
Licensee shall pay to Licensor, percentage compensation (but
in no event an amount less than the Guaranteed Minimum
Payment) based upon [**]% of all of Licensee's "net sales" of
the Licensed Products for the sales indicated on the detailed
compilations of net sales performed on a quarterly basis. Net
sales for all periods shall be defined as gross sales made to
unaffiliated third parties, less returns received from
unaffiliated third parties, products destroyed in the field
and sales taxes, if any. No other deductions shall be made,
including but not limited to, any costs incurred in the
production, distribution, sale, marketing or advertisement of
the Licensed Product or for uncollectible accounts.
At the end of the year, the royalty due to Licensor for the
entire year shall be calculated on an annual basis (the
"Earned Annual Royalty"). The royalty due Licensor at this
time shall be equal to [**] percent of the net sales for the
calendar year less the Guaranteed Minimum Payment.
The calculation of the Earned Annual Royalty for the periods
ending December 31, 2002, and December 31, 2003, only, are
each based upon the sum of $[**]. With these exceptions, if
the Earned Annual Royalty exceeds the previously paid sum of
the Guaranteed Minimum Payment
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 2
<PAGE>
for the year, such incremental amount shall be paid to the
Licensor by the Licensee within 30 days of the end of that
year. In no event shall the Earned Annual Royalty be less than
the Guaranteed Minimum Payment indicated in Exhibit 1 hereto.
The final payment of Earned Annual Royalty, at term end, to be
made by Licensee shall be offset by an amount estimated in
good faith by the Licensee, taking into account past return
history, that will be required to cover deductions to be made
by retail accounts for unsold Products in the possession of
the Licensee's customers. Estimates regarding offset amounts
are to the revised up or down based upon actual returns. A
final reconciliation of the amount of such final payment shall
be provided to the Licensor within one hundred twenty (120)
days of the due date of the final payment and any additional
royalty shall be paid by Licensee to Licensor thirty (30) days
therefrom. If actual deductions exceed Licensee's good faith
estimate, Licensor will refund the excess royalty to Licensee
within thirty (30) days of the final reconciliation.
6. Additional Payments. In consideration for granting a license for
Territories outside of the United States of America, Licensee shall pay Licensor
a sum of $[**] on the earlier of its initial shipment to any such customers of
$25,000 or more of Licensed Products (excluding the Philippines and the Middle
East) or June 30, 2000.
7. Inventory Payments. The Licensee shall purchase from Licensor all
inventory items set forth on the Addendum to Exhibit 2 currently representing
$[**] in the United States and approximately $[**] outside the United States to
be adjusted through April 30, 2000. In addition, Licensee shall advise Licensor
of any additional inventory in the United States to be purchased that is
indicated as Potential Sets on the Addendum to Exhibit 2, not later than May 1,
2000. Licensor will provide Licensee its most current inventory lists as of
March 31, 2000. For inventory items outside the United States Licensee shall
have 60 days from the closing date of this Agreement to inspect and approve of
such inventory items, and the amounts to be paid on the following schedule shall
be adjusted downward for disapproved items. Adjustments will first be deducted
from the January 2001payment, and then the immediately preceding payments, if
necessary. Otherwise, the schedule of inventory payments will be as follows:
[**]
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 3
<PAGE>
Licensor shall hold a lien on Product inventory in an amount
not to exceed the balance owed to Licensor, until the final amount of the
inventory transferred is fully paid. However, such lien will be subordinate to
any claim(s) of the Licensee's lending financial institution.
8. Accounts Receivable. The collection of accounts receivable from
trade customers for Products shipped by the Licensor prior May 1, 2000, other
than Father's Day gift sets, will be the responsibility of the Licensor and will
be for the account of the Licensor. The Licensee, however, will use its best
efforts to assist Licensor in obtaining payment for amounts that have not been
paid within normal trade terms.
9. Sales Returns. Licensor shall be responsible for the initial $[**]
of Product plus [**]% of net sales of Mothers Day gift sets (at wholesale
prices) physically returned by U.S. Department Store Customers or destroyed in
the field with the authorization of current sales management. Licensor shall be
responsible for all product returned from all other customers or destroyed in
the field with the authorization of other customers. Licensor has provided
Licensee a list of open approved return authorizations, and Licensee has
provided to Licensor a list of return authorizations to be issued through the
date of close. Any additional return authorizations shall be received by May 31,
2000. Inventory returned up to $[**] and greater than [**]% of net sales of
Mothers Day gift sets which can be refurbished for future sale will be so
refurbished by Licensor and sold to Licensee at Licensor's cost. Licensee will
pay Licensor the wholesale value of returns by U.S. Department Store Customers
physically accepted by Licensor or authorized as destroyed in the field by
Licensee above the initial $[**] plus [**]% of net sales of Mothers Day sets,
and such goods will be for the account of the Licensee, without further costs.
Licensee shall have the right to authorize return authorizations on
Licensor's behalf and to cancel Licensor's previously made return authorizations
subject to the provisions of the immediately preceding paragraph. However, such
right is conditioned upon Licensee's obligation to report any such actions
pertaining to old allowances and all new allowances authorized by Licensee on
Licensor's behalf. Allowance reports will be updated and reported to Licensor
within ten days of close, and on a thirty day basis thereafter subject to a
Licensor's right of audit pursuant to paragraph 40.
Payment due under this section will be made to Licensor by Licensee
within 30 (thirty) days of receipt of such inventory by Licensee.
10. Accounts Receivable - Northern Group and Affiliates. Reconciled
amounts outstanding for purchases made by Licensee or any of its affiliates as
of the closing date will be paid at such time by the Licensee to the Licensor.
Unreconciled amounts at the closing date will be paid within ten (10) days
thereafter provided both parties agree to a reconciled amount due. However,
payments for purchases made within thirty (30) days prior to closing shall be
payable on normal business terms. Amounts owed by Licensor to the Licensee or
any of its affiliates will be paid by Licensor in the same manner.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 4
<PAGE>
11. Pledged Assets. The Licensor's inventory located in the United
States is currently pledged as collateral under a Revolving Credit Agreement
with Mid-Peninsula Bank. Simultaneously with the signing of the License
Agreement, the bank will release its claims against such inventory in exchange
for the Licensor paying all amounts due and outstanding under such Revolving
Credit Agreement. The bank's UCC releases will be deposited with Licensor's
attorney and will be provided Licensee at closing, providing Licensee has wire
transferred immediately available U.S. funds in the amount of not less that
$200,000 to Licensor's attorney's trust account. If such funds are not available
at such time, Licensor's attorney shall hold the bank's UCC releases until such
funds are received in his trust account Licensor represents and warrants that no
other liens are held on Licensor's inventory that will be purchased by the
Licensee and no items included in the inventory are on consignment from others.
There are no liens or encumbrances against the inventory currently located in
Europe. Licensor warrants that such inventory to be purchased by Licensee is of
commercial quality.
12. Open Purchase Orders. The Licensor will provide a listing of open
purchase orders to the Licensee at the closing of the Agreement, substantially
in the form of the document previously furnished. All such open purchase orders
are for goods required for the REALM(R) and innerREALM(R) product lines and such
purchase orders were placed in order to meet the expected Product requirements
included in the annual sales budget originally presented to the Licensor by the
Licensee. Such open purchase orders, not including inventory being purchased,
will become the responsibility of the Licensee at the signing of this License
Agreement and payment for such items will be made by Licensee to Licensor at
such time. For any goods or merchandise that Licensor has physically received
for which Licensee will assume payment responsibility, an adjustment will be
made in the value of the inventory at closing to avoid the Licensee making a
double payment for such goods. All Purchase Orders issued in connection with the
Products by the Licensor from March 17, 2000 to the commencement date of this
Agreement for greater than Five Thousand Dollars ($5,000) will have been
approved in advance by an authorized representative of Licensee.
13. Product Inventory not Purchased by Licensee. If the Parties are not
able to mutually agree on a purchase price for any of the items included in the
inventory, Licensor shall have the right to sell such items to a third party.
However, the Licensor shall not have the right to sell such Product inventory
into the U.S. Retail Market, to U.S. Catalogs or directly to consumers in the
United States without the express permission of the Licensee. Further, Licensee
shall have a one week period to exercise a first right of refusal to purchase
such items from the Licensor at the price negotiated by the Licensor with the
proposed unrelated third party purchaser. The Licensee shall make payment within
thirty (30) days of receipt of such Product inventory.
14. Pheromones. The product costs included in inventory do not include
the cost of the human pheromone components. Licensor will not charge Licensee
the cost of the pheromone components contained in the inventory being purchased
by Licensee pursuant to paragraph 7. Licensor will sell the human pheromones
components to
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 5
<PAGE>
Licensee, in the same blend as currently used by Licensor to Licensee at a cost
to be agreed by the parties. Such cost initially will not be less than $[**] per
gram. Should it be necessary for the cost per gram to Licensee to fluctuate
during the License Period, Licensee agrees to pay for such additional amounts so
long as Licensor's per gram dollar profit remains the same. Licensor will not
enter into any agreement with any vendor producing human pheromone components to
artificially increase the price to Licensee. Licensee will not enter into any
agreement with any vendor that would artificially inflate the price of any
Licensed Product sold from Licensee to Licensor. Payment for pheromones will be
due 30 days from the date of shipment. For the current forecast of product needs
of the Licensee, the aggregated cost of such pheromones should approximate $[**]
for the first twelve (12) months of the License Agreement. Since the lead time
to produce pheromones is currently three (3) months, Licensee will provide a
forecast of quantities of each type of product to be produced and a purchase
order for the pheromones at least ninety (90) days prior to the commencement of
production. Licensor will attempt to keep at least a three (3) month supply of
such pheromones on hand at all times to permit timely delivery to Licensee.
Licensor agrees that the amount of pheromones shipped will be adequate to
produce the amount of Licensed Products indicated on a purchase order submitted
by Licensee in accordance with the terms of this paragraph.
Licensee, may at its option, order and purchase from Licensor up to two
years of its forecasted needs for human pheromone components. In that event
storage of such components shall, for security purposes, remain with Pherin
Pharmaceuticals, Inc.. All storage will be at Licensee's sole cost and expense.
Payment for stockpiled human pheromone components shall be within thirty days of
written notification from Licensor to Licensee of completion of their
production. Licensee understands and acknowledges that all stockpiled human
pheromone components will be stored without blending. The final blending
proportions and technical information associated therewith constitute
proprietary information and remain the sole property of Licensor. Licensee
represents and warrants to Licensor that it will not attempt to analyze or
reverse engineer human pheromone components nor any blends sold to Licensee for
use in the Licensed Products. Licensor represents that all amounts shipped to
Licensee will be usable for the period as a forecast by Licensee.
If the Licensor is unable to provide pheromones to Licensee on a timely
basis, providing a timely purchase order is received from Licensee, Licensee
shall have the right to purchase the pheromones directly from the Licensor's
vendor. In such event, Licensor shall fully cooperate with Licensee in locating
third party supplier(s) and permit such third party supplier(s) to complete
Licensor's supply requirement of Pheromones. In such event, Licensor agrees to
disclose to the third party supplier(s), pursuant to a confidentiality
agreement, all of the technical information necessary to enable the third party
supplier(s) to complete such supply.
15. Transition Period. The Parties agree that there will be a
transition period required for the Licensee to arrange to take physical
possession of the inventory, establish customer service, order processing
operations, EDI coordination with the department
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 6
<PAGE>
stores and other functions at their facilities. Each Party shall bear its own
employee, facility and operating costs through April 30, 2000. Thereafter, the
Licensee will assume all costs, and expenses (including benefits) for those
employees of the Licensor in these areas which Licensee requests remain until
May 31, 2000 or such earlier date as anticipated in Exhibit 4, and make any
payments due to Licensor within 7 days of billing of such costs by the Licensor.
Licensor shall provide no transition assistance beyond May 31, 2000 unless the
appropriate employees agree to remain after May 31, 2000 and their total costs
are fully paid by Licensee on a weekly basis during such extended time. Licensor
may not charge Licensee for rent to its new executive offices. The charges,
costs and other associated expense items assumed by Licensee commencing May 1,
2000 shall be determined in accordance with the approved schedule attached to
this Agreement as Exhibit 4. Both Parties shall make every effort to minimize
the length of time of the transition period. Licensee shall provide to Licensor
a written letter of procedures regarding separation of receivables, chargebacks
and any announcement it wants to send to customers regarding payment
instructions in accordance with paragraph 39.
16. Purchase of Products by Licensor After the Close. Product
requirements of the Licensor for its personal needs (local donations, personal
gifts, etc.) or for sale into the Excluded Territories shall be communicated
[**] days in advance of need and accompanied by a purchase order. Licensee shall
sell such products to Licensor at Licensee's direct cost plus a markup of [**]
percent. Product to be sold by Licensor into the Excluded Territories will
either be manufactured by the Licensor or its designee outside the United States
and its territories or if purchased by Licensor from Licensee for subsequent
sale will bear different secondary packaging (outside carton).
17. Risk of Loss. Licensor will bear all risk of loss, damage or
destruction of the Product inventory prior to the commencement date of this
Agreement. Licensee will bear the risk of loss after the commencement date of
this Agreement. Licensor represents and warrants that none of the Licensed
Product is in its possession except for approximately $20,000.
18. Licensor Good Will and Protection. Licensee acknowledges that:
(a) The name, packaging, fragrances, toiletry products,
including trademarks, logos, and trade packaging and colors
associated with the products are unique and original and
Licensor is the owner thereof;
(b) As a result of the development, marketing and sale of the
products subject to this Agreement, Licensor has established a
substantial and valuable goodwill therein;
(c) The appearance, and character of the Licensed Products
have acquired a secondary meaning as trademarks uniquely
associated with the merchandise and product lines authorized
by Licensor, and as such have established identities separate
and distinct from any and all product prototypes upon which
they may have been based.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 7
<PAGE>
(d) All rights in any additional advertising, packaging,
merchandising, or other changes in the Licensed Products which
may be created by or for Licensee shall, as between Licensor
and Licensee, be and will remain the exclusive property of
Licensor unless otherwise provided for in this Agreement.
(e) Any copyrights, trademarks, or patents previously obtained
by Licensor in connection with the Licensed Products are good
and valid. Licensor represents and warrants to Licensee that
copyrights, patents trademarks or trademark applications
listed on Exhibit 3 are valid, existing and to the best of
their knowledge, not now being infringed upon.
(f) Unless otherwise provided in this Agreement, as and
between Licensor and Licensee, Licensor shall be deemed to be
the owner of all materials created for the Licensed Products,
including but not limited to artwork. Licensee agrees that
such materials created and furnished by Licensee or it's
employees shall be considered "works made for hire" as that
phrase is used in ss. 101 and ss.201 of the U.S. Copyright
Revision Act 1976. Licensee shall have the rights to items it
creates such as molds, tools, and dies subject to the
condition that Licensee will agree to sell these items to
Licensor upon termination of this Agreement at the lower of
the unamortized cost of the item, or other amount to be agreed
by the parties. If any such materials or elements shall not be
deemed "works made for hire", Licensee hereby assigns and
transfers to Licensor or its designee, all rights, including
copyright, title and interest in and to all such materials and
elements.
(g) Licensee shall not, during the License Period, or any time
thereafter, dispute or contest, nor cause or assist or aid
others in disputing or contesting Licensor's exclusive right
and title to the intellectual property of or pertaining to the
Licensed Products, or any other rights of Licensor in and to
the subject matter of this Agreement, or breach the
confidentiality of the terms of this Agreement. Licensee will
fully cooperate with and assist Licensor should Licensor
choose to take steps to prevent or prosecute any infringement
of the rights of Licensor copyrights, trademark or patents as
may exist upon the commencement date of this Agreement; the
costs of which will be borne by Licensor, including attorneys
fees. Licensee will notify Licensor in writing of any known
manufacture, sale, distribution or advertisement which it
believes may constitute an infringement upon Licensor's
rights. Licensee shall not commence an action or proceeding
against any person or enter into a settlement relating to
Licensor's copyrights, trademarks or patents, without
Licensor's prior written consent. Licensee shall not have any
rights against Licensor for damages or otherwise for failure
to pursue, or
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 8
<PAGE>
settle, any action or proceeding relating to alleged
infringements or violations of Licensor's rights herein nor
shall any such act or failure to act by Licensor affect the
validity or enforceability of this Agreement.
Should Licensor fail or refuse to enforce or defend any claims
against Licensor's copyrights, trademarks, patents or other
threatened infringement, then, in that event, Licensee shall
have the right to enforce or defend against any such claims at
its own cost and expense. Licensor will cooperate with
Licensee in the exercise of its rights hereunder at no cost or
expense to Licensor. Licensee shall have no authority to enter
into any settlement agreement or otherwise directly or
indirectly modify the rights of Licensor regarding its
copyrights, trademarks, or patents under this paragraph
without the express written consent of Licensor, which consent
shall not be unreasonably withheld.
19. Trademarks and Trade Names.
(a) Subject to the terms and conditions of this Agreement,
Licensor hereby further grants Licensee the exclusive right
and license to use the trademarks and copyrights depicted on
the attached Exhibit 3 solely in connection with the Licensed
Products and packaging, in the Territories identified in
paragraph 2, during the License Period.
(b) All rights in said trademarks other than those
specifically granted herein are reserved to Licensor for its
own use and benefit. Licensee agrees that it will not acquire
any rights in said trademarks as a result of Licensee's use,
and further agrees that all use of Licensor's trademarks by
Licensee shall inure to the benefit of Licensor.
(c) Licensee will at no time use or authorize the use of any
trademark, tradename, copyright or other designation identical
with or confusingly or colorably similar to Licensor's
trademarks or tradenames other than for Licensed Products.
(d) Upon the expiration or earlier termination of the License
Period of this Agreement, all rights to use Licensor's
trademarks, tradenames, and copyrights shall automatically
revert to Licensor and Licensee shall immediately discontinue
all use of said trademarks, tradenames, and copyrights, except
as may be allowed on a limited basis under paragraph 26.
(e) The license granted herein is personal and may not be
sublicensed, assigned, transferred, pledged, mortgaged or
otherwise encumbered by Licensee in whole or in part except as
approved by Licensor in advance in writing, which approval
shall not be unreasonably withheld. Notwithstanding the above,
and consistent with paragraphs 31 and 32,
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 9
<PAGE>
Licensee may assign this license to a successor, subsidiary or
affiliate in which Licensee or the Northern Group, Inc. owns
50 percent or more of the stock, assets, membership, or
similar interest; or a parent of Licensee which owns 50
percent or more of the stock, assets, membership or similar
interest in Licensee or in the Northern Group Inc. Licensee
and Guarantor will continue to be fully responsible under the
terms of this Agreement and, such successor, subsidiary,
affiliate or parent shall sign this Agreement.
(f) Licensor will continue to bear the cost of registration
and maintenance of current trademark registrations for
REALM(R) and innerREALM(R) and bottle registrations, and the
copyrights for the secondary packaging. Should Licensor fail
to maintain current registrations and copyrights, Licensee may
proceed to do so. Costs associated with Licensee's maintenance
of Licensor's current registrations may be deducted from
Minimum Guaranteed Payments due to Licensor, based upon
initial royalties due on sales of products in the applicable
country(s). The responsibility and cost for any additional
trademark filings, patents or registration over that which is
currently being maintained will be borne by the Licensee.
20. Copyright and Trademark Notices.
(a) Licensee shall place or cause to be printed on all
Licensed Products and packaging where appropriate, the
complete copyright notice in the following form: "(C)" or
"Copyright" (including the applicable date), "all rights
reserved", or in such other name or form as Licensor shall
advise Licensee in writing. Licensor has provided a schedule
of trademarks, trademark applications, and a schedule of
copyrights attached to this Agreement as Exhibit 3.
(b) Licensee shall also place or cause to be imprinted on all
Licensed Products and packaging, where appropriate, the
appropriate trademark notice, either "TM", or " (R)" as
Licensor shall determine.
(c ) Licensee agrees that it shall use no markings, legends or
notices on or in connection with the Licensed Products and
packaging without first obtaining Licensor's prior written
approval which approval shall not be unreasonably withheld.
Such approval shall be deemed granted unless Licensee is
notified in writing within three business days of Licensor's
receipt of packaging containing such markings, legends or
notices from Licensee accompanied by a request for approval.
(d) Licensee, at its expense, will submit to Licensor, or its
designee, copies of all artwork and at least two (2)
production samples of the Licensed Products, Trade Packaging
and any and all material bearing
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 10
<PAGE>
copyright and trademarks which it develops, and intends to
use, in order to be assured that these provisions are being
fulfilled. Licensee may not materially alter the primary and
secondary packaging of the Licensed Products (including
colors) without the express written consent of Licensor, which
consent shall not be unreasonably withheld. Such approval
shall be deemed granted unless Licensee is notified in writing
within three business days of Licensor's receipt of such
artwork or other material from Licensee accompanied by a
request for approval.
(e) Licensor has no obligation to obtain registration on new
materials developed by Licensee under (d) above. However,
Licensee will provide such other materials and documentation
as Licensor may request should it choose to effectuate such
registration. Copyright and trademarks on all such material,
and any new versions, translations and rearrangements of such
material under this paragraph 20 shall be owned by Licensor.
(f) Should Licensor elect not to register new trademarks or
copyrights, Licensee may proceed to do so. In such event
Licensor will fully cooperate, and will share one half of
associated legal costs of such registration with Licensee,
which will offset or be reduced by royalties generated
therefrom, until Licensor's obligation is fully satisfied.
(g) If, as a result of its exploitation of the Licensed
Products, Licensee acquires any trade rights, equities, titles
or other rights therein, Licensee shall immediately assign and
transfer same to Licensor upon the expiration or earlier
termination of this Agreement, without consideration, other
than the consideration of this Agreement.
(h) Under no circumstances during the term of this Agreement
may Licensee offer any other products for sale that claim to
contain a synthesized human pheromone or actual human
pheromones unless the product is licensed by Licensor. Under
no circumstances during the term of this Agreement may
Licensee offer any products for sale that claim to contain
animal pheromones; however, Licensee may offer for sale during
the term of this Agreement a product that contains animal
pheromones provided that the word "pheromone" does not appear
on any materials, including packaging, unless the inclusion of
the word "pheromone" is mandated by U.S. or other governmental
regulations in the market(s) in which the product containing
the animal pheromones is offered for sale. Any breach of this
paragraph shall be deemed to be a material breach of this
Agreement by the Licensee.
21. Advertising. Licensee shall not offer for sale, advertise or
publicize any Licensed Products via television, radio, newspapers, magazines, in
store promotional vehicles or catalogs or any other media, including electronic
media without Licensor's prior written approval in each instance, which approval
shall not be unreasonably
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 11
<PAGE>
withheld. Such approval shall be deemed granted unless Licensee is notified to
the contrary within three business days of notification to Licensor. In no event
may Licensee under any circumstances make any direct or indirect pharmaceutical
or therapeutic claims for Licensed Products (including, without limitation, any
claim of affect on bodily functions or any claim of any biochemical or
physiological change), which would require regulatory approval by the United
States Food and Drug Administration, or equivalent agency outside the United
States, if it were marketed in the United States. Licensee shall not be liable
for advertisements made by third parties without Licensees authorization or
approval so long as Licensee has taken the necessary steps to advise the third
party in conjunction with any related transaction that such claims may not be
made. Should the third party initiate or continue unauthorized advertisements,
having been placed on notice by Licensee, Licensee shall terminate any
relationship with the third party pertaining to Licensed Products.
22. Licensee Obligations.
(a) Licensee shall have the right to produce or have produced,
promote, advertise and sell the Licensed Products in an
ethical manner and in accordance with the provisions and
intent of this Agreement, and shall not engage in unfair or
anti-competitive business practices. The Licensed Products
shall be produced, distributed and sold in accordance with all
applicable international, national, federal, state and a local
laws, treaties and governmental orders and regulations.
(b) Licensee shall not encumber or cause to be encumbered in
any manner, the Licensed Products, except for the lien as
noted in the last sentence of paragraph 7 above. Licensee
shall not cause or permit any expenses to be charged to
Licensor without Licensor's prior written approval in each
instance.
(c) Licensee shall exercise its best effort to produce or have
produced sufficient quantities of the Licensed Products to
meet the market demand of the Licensor in the Excluded
Territories for the Licensed Products and shall diligently and
continuously distribute and offer for sale the Licensed
Products to fulfill all orders.
(d) Licensee shall have the right to use all tools, dies,
molds, graphics, promotional materials, packaging, patterns,
displays, and the mechanicals to all chromes, maps, brochures,
kits, sales literature etc. during the term of the Agreement
just as Licensor has. Licensor has been advised by the
manufacturers of its bottles and caps that the tools, dies and
molds are in good condition as of the commencement date of
this Agreement. Licensee will have the right to purchase
Licensor's rights in these items from Licensor if Licensor
files for bankruptcy or otherwise is unable to perform under
the terms of this Agreement.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 12
<PAGE>
23. Termination.
(a) Licensee Bankruptcy. If Licensee files a petition in
bankruptcy, or is deemed insolvent, or a petition in
bankruptcy is filed against Licensee, or Licensee makes an
assignment for the benefit of its creditors, or an arrangement
pursuant to any bankruptcy law, or Licensee discontinues its
business, or a receiver is appointed for Licensee or its
business, this Agreement and the license granted by its terms
shall, without notice, terminate automatically upon the
occurrence of any such event. In the event that the Agreement
so terminates, Licensee or its receivers, representatives,
trustees, agents, administrators, successors and/or assigns
may be extended limited rights by Licensor to produce, have
produced, distribute, sell, exploit, deal with any of the
Licensed Products or any packaging associated with Licensed
Products as provided in paragraph 25.
(b) Licensee's Material Breach of the Agreement. If Licensee
or any sublicensee shall materially breach any of the terms of
this Agreement, Licensor shall have the right to terminate
this Agreement and the license granted herein subject to the
terms and conditions set forth below. A material breach shall
include:
i) The failure to pay any monetary amount upon the
expiration of the cure period under the terms of this
Agreement.
ii) The making of, either directly or indirectly, any
pharmaceutical or therapeutic claim pertaining to Licensed
Products as more particularly described in paragraph 21.
iii) Any attempt to analyze or reverse engineer the
human pheromone components provided by Licensor, or
participate in or benefit by such activities.
iv) The infringement whether direct or indirect of
any of Licensor's trademark, copyright, or patents
registrations.
v) The sale, marketing, or shipment of Licensed
Products to Excluded Territories except as otherwise modified
in accordance with paragraph 1.
vi) The significant violation of any international,
national, federal, state, or local laws, treaties,
governmental orders or regulations.
vii) Any attempt to assign, transfer, sublicense,
sell, give up possession or control of the rights under this
Agreement except as provided in this Agreement.
viii) A failure by Licensee or any successor or
assign to obtain written confirmation for the benefit of
Licensor and Licensee or any successor or assign, from any
financial institution to which it intends to grant a lien on
inventory of Licensed Products or components thereto, that the
institution will recognize and be bound by Licensor's right to
repurchase products, components and inventory pursuant to
paragraphs 25, or 26 of this Agreement.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 13
<PAGE>
ix) An election by any financial institution of
Licensee holding a lien on the inventory or components of
Licensed Products, or other judgement creditor claiming
attachment or similar rights thereto, to take possession of
the inventory or components of Licensed Products, or any part
thereof for the purposes of liquidation or sale.
x) The offer of any other products for sale that
claim to contain a synthesized human pheromone, actual human
pheromones or animal pheromones, unless the product is
licensed by Licensor, or as otherwise prohibited by paragraph
20 (h).
xi) Except for those matters contained in (ii)
through (x) above, any breach or default of any other terms
and conditions of this Agreement which remains uncured or
which Licensee has failed to remedy within thirty (30) days of
receipt of Licensor's notice. If the default or breach is one
which cannot be reasonably cured within thirty (30) days
receipt of Licensor's notice, then the failure to commence
such cure within said period and complete the cure within
sixty (60) days of such notice.
xii) If a default or breach under paragraph (xi)
cannot be reasonably cured by Licensee, then the repeated
default or breach by Licensee after receipt of written notice
from Licensor to Licensee to cease and desist any future or
threatened conduct of a same or similar nature.
(c) Intentionally omitted.
(d) Licensor's Material Breach of the Agreement. If Licensor
shall materially breach any of the terms and conditions of
this Agreement, Licensee shall have the right to terminate
this Agreement subject to the terms and conditions below. A
material breach shall include:
i) The breach or falsity of a representation or
warranty given to Licensee hereunder;
ii) Licensor's sale, marketing or shipment of
Licensed Products into any of the Territories;
iii) Licensor's grant to others of a license to the
Licensed Products in the Territories;
iv) Licensor's assignment of this Agreement in
violation of the terms hereof.
v) Except for those matters contained in (i) through
(iv) above, any breach or default of any other terms and
conditions of this Agreement which remains uncured or which
Licensee has failed to remedy within thirty (30) days of
receipt of Licensor's notice. If the default or breach is one
which cannot be reasonably cured within thirty (30) days
receipt of Licensor's notice, then the failure to commence
such cure within said period and complete the cure within
sixty (60) days of such notice.
vi) If a default or breach under paragraph (v) cannot
be reasonably cured by Licensor, then the repeated default or
breach by Licensor after
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 14
<PAGE>
receipt of written notice from Licensee to Licensor to cease
and desist any future or threatened conduct of a same or
similar nature.
24. Intentionally Omitted
25. Effect of Termination or Expiration.
(a) Upon expiration or earlier termination of this Agreement,
all rights granted to Licensee shall revert to Licensor, and
except as provided in this Agreement Licensee shall not use or
refer to the name REALM(R), innerREALM(R) or a variation
thereof nor use any likeness of its packaging or bottling in
the production, sale or distribution of products of Licensee,
which in the opinion of the President of the Fragrance
Foundation or his/her designee is similar to that which is
licensed hereunder.
(b) Upon expiration or earlier termination of this Agreement,
Licensee will return to Licensor all rights previously
transferred to Licensee herein to all molds, dies, toolings
and other materials which reproduce the trade packaging and
bottles for the Licensed Products. If Licensee has developed
any molds, dies, toolings and other similar materials which
reproduce the trade packaging and bottles for Licensed
Products Licensee will sell its rights regarding such items to
Licensor, or at Licensor's election, Licensee will destroy
such items and provide such satisfactory evidence of their
destruction to Licensor. If Licensor elects to purchase such
items, the price shall be the lower of Licensee's unamortized
cost of the item, or other amount to be agreed by the parties.
Notwithstanding the terms of this paragraph, it is not
intended to affect the rights of Licensee under paragraph 26
to build out or round up inventory upon expiration or earlier
termination of this Agreement. Notwithstanding, if Licensor
elects not to purchase molds, dies and tooling which reproduce
the trade packaging and bottles for the Licensed Products
under the terms contained in this paragraph, Licensee may use
such molds, dies and tooling for products that in no way can
be construed to cause any confusion on the part of the
consumer with the Licensed Products. If Licensor and Licensee
are unable to agree on whether confusion may be caused, the
opinion of the President of the Fragrance Foundation or such
other independent and knowledgeable third party will prevail.
(c) Licensee's failure to cease the production, distribution,
sale or advertisement for sale of the Licensed Products upon
expiration or earlier termination of this Agreement except as
provided in this Agreement will result in an immediate and
irreparable damage to Licensor. Licensee acknowledges that no
adequate remedy at law exists for such failure and Licensee
agrees that Licensor shall be entitled to an injunction or
other equitable relief to prevent such breach of this
Agreement by Licensee.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 15
<PAGE>
(d) If this Agreement is terminated in accordance herewith,
all percentage compensation, and guaranteed minimum payments
due Licensor through the date of termination hereunder shall
be immediately due and payable to Licensor within ten (10)
days of the effective date of termination.
(e) Notwithstanding the event of termination, Licensor's
rights arising out of this Agreement to compel the enforcement
of the continuing obligations of confidentiality between the
parties contained in this Agreement shall nevertheless
continue in full force and effect. In addition, each party
will retain the right to sue for damages caused by the other
party's default.
(f) Upon the event of termination, neither Licensee nor its
receiver, financial institutions, representatives, trustees,
agents, administrators, successors and/or assigns have any
right to sell, exploit or in anyway deal with any Licensed
Products or packaging hereunder unless or until the time
within which Licensor has to exercise a right of first refusal
to repurchase Licensed Products produced and possessed by
Licensee or on its behalf, pursuant to paragraph 26 has
expired.
26. Disposition on Expiration or Early Termination. Upon expiration or
earlier termination of this Agreement, Licensee shall have the right, for a
period of not more than [**] days after expiration or termination to dispose of
all unsold Licensed Products produced by it, or in its possession; provided that
Licensee pays to Licensor all Percentage Compensation accrued and thereafter
received for the sale of such products. Licensee will account for and report on
such sales consistent with the reporting requirements of this Agreement. In
addition, Licensor will extend to Licensee during this disposition period the
limited right to "build out" or "round off" its inventory and use bottles and
caps to maximize the production of merchantable Licensed Products for resale. It
is specifically understood that Licensee, in such instance, shall not sell or
dispose of any Licensed Product in job lots at reduced prices other than as is
customary in the ordinary course of business without first offering such
Licensed Products to Licensor or its designee, to be repurchased at wholesale
prices. In such event Licensor shall have [**] days from receipt of such offer
to repurchase such Licensed Products.
In the event that Licensee files for bankruptcy, is deemed insolvent,
breaches this Agreement in accordance with paragraph 25 above or otherwise
breaches any other financial agreement with a lending institution which holds a
security interest in inventory, or other Licensed Products, resulting in the
secured party's election to retake the collateral; Licensor shall retain a right
of first refusal to repurchase all inventory of Licensed Products from Licensee
at wholesale prices. In such event Licensor shall have one-hundred twenty (120)
days from receipt of such offer to repurchase such Licensed Products. In the
event of bankruptcy, Licensor shall have one-hundred twenty days from the date
the lending institution's relief from stay order allowing them to foreclose
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 16
<PAGE>
becomes final, to elect to repurchase and perform, or Licensor's right of first
refusal will be lost.
27. Force Majeure. Licensee shall be released of its obligations under
this Agreement in the event that governmental regulations, act of God, war,
riot, fire, strike or other labor dispute, epidemic or other causes beyond the
control of Licensee, render performance by the Licensee impossible. In such
event all percentage compensation, if any, in excess of the Minimum Guaranteed
Payment shall become immediately due and payable and no portion of the minimum
guaranteed payment shall be re-payable or be returnable to Licensee. If such
event shall continue for a period in excess of three (3) months, Licensor shall
have the right to terminate this Agreement by giving Licensee thirty (30) days
prior written notice.
28. Insurance. Licensee shall obtain and maintain its sole cost and
expense throughout the license period and any disposal period, standard product
liability insurance, the form of which must be acceptable to Licensor. Such
insurance shall name Licensor as an additional named insured. The policy shall
provide protection against any and all claims, demands and causes of action
arising out of any defects or failure to perform, alleged or otherwise, relating
to the Licensed Products or any material used in connection therewith. The
amount of coverage shall be a minimum of [**] Dollars combined single limit for
each single occurrence for bodily injury and property damage. Licensee shall
provide a certified copy of said policy providing such coverage within fifteen
(15) days after the commencement date of this Agreement. Licensor shall receive
twenty (20) days written notice from the insurer in the event of any
modification, cancellation or termination of the policy.
29. Indemnity. Licensee will at all times indemnify, defend and hold
harmless Licensor from and against any and all claims, damages, litigation,
judgments, costs and expenses, including reasonable attorneys fees and costs,
caused by or arising out of any alleged defects in the Licensed Products which
Licensee produces or has produced for it, (except to the extent such claims,
damages, litigation, judgments, costs and expenses, reasonable attorneys fees
and costs, were caused by or arise out of any alleged defects in components
obtained from Licensor or it's designees); the unauthorized use of any patent,
process, method or device or out of the infringement of any copyrights, trade
name, trade mark, patent; or libel, including invasion of the right to privacy,
publicity or other property rights of any party, or the breach by Licensee of
any of the provisions of this Agreement in connection with the performance by
Licensee of its obligations under the Agreement. Licensor may at its election,
defend any action, by its counsel at its own expense. Licensee will cause its
counsel to cooperate fully with Licensor and their counsel in the defense of
such action. Licensee shall not admit any liability or compromise any proceeding
without first obtaining Licensor's consent in writing.
Licensor will at all times indemnify, defend and hold harmless Licensee
from and against any and all claims, damages, litigation, judgments, costs and
expenses, including
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 17
<PAGE>
reasonable attorneys fees and costs, caused by or arising out of any alleged
defects in the products Licensee purchases from Licensor under this Agreement.
30. No Joint Venture. Licensee shall not use the name of Licensor in
any manner whatsoever, nor incur any obligation in Licensor's name. Nothing
herein contained shall be construed to constitute the parties as partners or
joint venturers, nor shall any similar relationship be deemed to exist between
them.
31. No Assignment. The license granted by this Agreement is not
assignable by any act of Licensee or by operation of law. Any attempt by
Licensee to grant a sublicense, to assign, or give up possession or control of
this license or any of its rights shall constitute a material breach. Licensor
may not assign this Agreement to any third party without the prior written
consent of Licensee, and any attempt by Licensor to assign the Agreement without
Licensee's consent will constitute a material breach. Notwithstanding, Licensee
and/or Licensor may assign this Agreement to any acquirer of more than 50
percent of the outstanding stock or assets of the Licensee or Licensor as
appropriate, or to a subsidiary or affiliate meeting such criteria without the
prior written approval of the other party, and such assignor shall remain
primarily responsible for the performance of the terms of this agreement. Any
other attempted assignment shall be void without the express written consent of
the other party, which consent shall not be unreasonably withheld. In addition,
it is expressly understood that any assignment made under this paragraph shall
not relieve either party or the Guarantor of its obligations under this
Agreement.
For the purposes of this Agreement the term "Licensee" shall
include Niche Marketing Inc., Northern Group, Inc. as well as any successor,
affiliate, parent, or approved assignee including but not limited to any
acquirer of more than 50 percent of the outstanding stock or assets of the said
Licensee.
32. Guaranty. As a direct inducement to enter into this Agreement under
the terms and conditions set forth herein, including Licensor's consent to
accept Niche Marketing, Inc. as the Licensee, and further assignments to
subsidiaries or affiliates under paragraph 31 above, Northern Group, Inc. hereby
personally guarantees each and every act, payment, covenant, representation,
warranty and required performance as called for by a Licensee or any successor
hereunder throughout the term of this Agreement, and any extensions provided
hereto.
33. Waiver; Modification. No waiver or modification of any of the terms
of this Agreement shall be valid unless in writing. No waiver by either party of
any breach or default of this Agreement shall be deemed a waiver by that party
of any other breach or defaults.
34. Entire Agreement. This Agreement including Exhibits represents the
entire understanding between Licensor and Licensee; it represents the
culmination of negotiations over an extended period of time and is intended to
be the final written fully
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 18
<PAGE>
integrated agreement between the parties. It shall not be modified or amended
unless in writing signed by all parties.
35. Governing Law. This Agreement shall be governed by and construed in
accordance with a laws of the state of California as an agreement made and
performed in that state. In the event any legal action or other proceeding is
commenced to enforce any provision of this Agreement or as a result of the
breach, default or misrepresentation in connection with any provision of this
Agreement, the successful or prevailing party shall be entitled, in addition to
any other relief to which the party may be entitled, recover reasonable
attorneys fees and costs of litigation incurred in such action or proceeding.
36. Notices. Notices by either party to the other shall be given by
fax, if possible, and by registered or certified mail, return receipt requested,
with proof of delivery, all charges prepaid, or by a recognized domestic or
international overnight mail provider (Federal Express etc.). All statements and
notices shall be sent to the respective addresses of Licensor and Licensee as
follows:
To Licensor:
Human Pheromone Sciences, Inc.
Attn.: Chief Executive Officer
4034 Clipper Court
Fremont, California 94538
With Copy To:
William B. Clayton, Jr. Esq. Julian N. Stern, Esq.
Clayton & McEvoy P.C. and Heller, Ehrman, White & McAuliffe
333 W. Santa Clara St. #950 525 University Ave. # 1100
San Jose, California 95113 Palo Alto, California 94301
To Licensee:
Niche Marketing, Inc./ Northern Group, Inc.
Attn: Mark Crames, CEO
Charles Famoso CFO
109 Lafayette Drive
Syosset, New York 11791
With Copy to:
Matthew S. Quinn Esq.
Zetlin & De Chiara LLP
801 Second Avenue
New York, NY 10017
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 19
<PAGE>
37. Arbitration. Should a dispute arise between Licensor and Licensee
or Guarantor pertaining to the performance of any party or the interpretation of
any term of this Agreement that dispute shall be subject to binding arbitration.
The arbitration shall be conducted in Santa Clara County, California under the
Commercial Rules of the American Arbitration Association. Nothing in this
Agreement shall prevent any party from seeking extraordinary relief to compel or
prevent actions, activities or conduct of the other party in breach of this
Agreement. Judgment upon any award of the arbitrator may be entered in a court
of competent jurisdiction.
38. Closing Date. The signing of the Agreement shall occur no later
than April 24, 2000, unless extended by the written mutual consent of the
Parties. All sales and resulting gross profit from May 1, 2000 forward of
Licensed Products in the United States accrue to the Licensee and all selling,
marketing, advertising and distribution expenses (not considered transition
costs) after May 1, 2000 will be borne by the Licensee.
39. Confidentiality. The Parties agree to hold in confidence all terms
and conditions of this Agreement, except that the Parties may disclose
documents, materials or information to parties who are required to know that
information for the proper performance of their duties in effectuating the
license of the Products. However, the disclosing Party must notify and require
all parties to whom the information is disclosed that the information must be
kept confidential in accordance with the terms of this Paragraph and secure a
written non-disclosure agreement to that effect. Licensee specifically agrees
that any employees or persons reimbursed by the Licensor will not be made aware
of this Agreement without the express written consent of the Licensor. Neither
Party shall issue any press release or general announcement concerning the terms
or fact of this Agreement without first obtaining the consent of the other
Party, except as may be required by law.
Licensee acknowledges and understands that Licensor is a
publicly traded Corporation, and as such, is subject to certain restrictions
regarding the timing and content of any public announcement pertaining to this
Agreement. Therefore no announcement by Licensee will be allowed in any form or
content unless first approved by Licensor. Upon the execution of this Agreement,
the parties agree to work diligently on a joint announcement acceptable to
Licensor to be sent to all current customers and suppliers notifying them of the
License Agreement and any procedures they need to follow to effect the
transition.
40. Audit Rights. Licensee shall keep accurate and complete books and
records covering all transactions relating to the subject matter of this
Agreement in accordance with generally accepted accounting principles. Not more
than one time per year, to be completed within 120 days of the close of the
license year Licensor or its representative shall have the right to audit the
sales and returns data during normal business hours at Licensee's normal place
of business at Licensor's cost. However, if such audit indicates that there has
been a shortfall of more than five (5) percent in
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 20
<PAGE>
Licensee's payments of royalties due to Licensor, the cost of such audit will be
borne by Licensee.
41. Severability. If any provision of this Agreement is declared by a
court of competent jurisdiction to be invalid, illegal, or unenforceable, such
provision shall be severed from this Agreement and the other provisions shall
remain in full force and Effect.
42. Payment of Taxes. Licensee shall pay all sales, use, value added,
or other taxes, federal, state or otherwise, which are levied or imposed by
reason of the transaction contemplated by this Agreement, except taxes arising
from income of Licensor with respect to this Agreement.
43. Survival of Provisions. Notwithstanding the expiration or
termination of this Agreement it is agreed that those rights and obligations
which by their nature are intended to survive such expiration or early
termination shall survive, including, but not limited to acknowledgement of
ownership/title, indemnification, and confidentiality.
44. Contract Expenses. Each Party shall bear all of its expenses,
including attorney fees, in connection with the negotiation of the documentation
of this License Agreement.
45. Terms of Payment. Each Party shall deliver all amounts due to the
other Party by certified or cashier's check, wire transfer, or as otherwise
agreed by the parties.
46. Turnover of Materials.
(a) At the Closing, or sooner, the Licensor will provide
Licensee with an exploded Bill of Materials and thereafter will assist
the Licensee in the transfer of all vendor master files, purchasing
information and outstanding purchase orders, including assisting
Licensee in the assignment or transfer of pending purchase orders with
the bottle and cap companies. Licensor will also take appropriate steps
so that Licensee may have the same rights as Licensor to the tooling
and molds to the extent of Licensee's rights prior to this transaction.
Licensee will have such ownership rights for so long as this Agreement
is in existence. Licensee will have the right of the use of the tooling
and molds even if the Licensor is in Bankruptcy, if Licensor consents
to this Agreement remaining in existence. Upon termination of this
Agreement, for any reason by either Party, all such ownership rights
will immediately and automatically revert back to the Licensor.
(b) Prior to closing, Licensee acknowledges that Licensor has
provided all vendor master files, purchasing information, outstanding
purchase orders, an updated list of suppliers, a schedule of prices,
graphics, patterns, brochures, sales kits including sales literature to
Licensees authorized representative on site at Licensor's facility.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 21
<PAGE>
(c) Upon execution of this Agreement, the parties will work
together for the expedient transfer of Licensor's existing Website
(www.realmfragrances.com), the domain name, and 888 number to Licensee.
The current reasonable estimate for transition of the Website is
approximately 15 days. Licensee shall be entitled to all sales from the
Territories received through the Website or 888 number from May 1,
2000.
(d) Upon termination of this Agreement, for any reason by
either Party, all such ownership and property rights to the items
identified in paragraph a, b, and c above will immediately and
automatically revert back to the Licensor.
"Licensor" "Licensee"
HUMAN PHEROMONE SCIENCES, INC. NICHE MARKETING, INC.
By /s/ William P. Horgan By /s/ Marc Crames
--------------------- ---------------
William P. Horgan, CEO Its Chief Executive Officer
The undersigned, as Guarantor, has read the terms and conditions of the
within License and Purchase Agreement executed by and between Niche Marketing,
Inc. as Licensee and Human Pheromone Sciences Inc. as Licensor, agrees to be
bound by its terms and to Guarantee the performance of Licensee as that term is
defined in the Agreement.
"Guarantor"
NORTHERN GROUP, INC.
By /s/ Mark Crames
---------------
Its Chief Executive Officer
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 22
<PAGE>
Exhibit 1
Minimum Annual Royalties Due and Payment Schedule
[**]
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 23
<PAGE>
Exhibit 2
Schedule of Inventory
List of various Inventory Items within and outside the United States.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 24
<PAGE>
Exhibit 3
Trademarks, Trademark Applications, Copyrights
List of the Company's Trademarks, Trademark Applications and Copyrights with the
registration dates, numbers and country names.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 25
<PAGE>
Exhibit 4
Schedule of Costs Associated with Transition Period
Schedule of personnel and non-personnel expenses associated with the transition
period.
- --------------------------------------------------------------------------------
THE SYMBOL '[**]' IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMMITTED AND FILED SEPARATELY WITH THE COMMISSION. 26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule Contains Summary Financial Information Extracted From Balance
Sheets and Statements of Income
</LEGEND>
<CIK> 0000878616
<NAME> Human Pheromone Sciences, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 177,000
<SECURITIES> 0
<RECEIVABLES> 1,228,000
<ALLOWANCES> (297,000)
<INVENTORY> 1,975,000
<CURRENT-ASSETS> 3,114,000
<PP&E> 802,000
<DEPRECIATION> (790,000)
<TOTAL-ASSETS> 3,126,000
<CURRENT-LIABILITIES> 1,112,000
<BONDS> 0
0
3,556,000
<COMMON> 17,667,000
<OTHER-SE> (19,209,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,126,000
<SALES> 1,533,000
<TOTAL-REVENUES> 1,533,000
<CGS> 546,000
<TOTAL-COSTS> 546,000
<OTHER-EXPENSES> 1,268,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,000
<INCOME-PRETAX> (305,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (305,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305,000)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
