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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 29, 1999
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Enamelon, Inc.
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-21595 13-3669775
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(State or Other Jurisdiction (Commission File Number) (IRS Employer Ident. No.)
of Incorporation)
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7 Cedar Brook Drive, Cranbury, New Jersey 08512
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(Address of Principal Executive Offices) (Zip Code)
(609) 395-6900
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Registrant's telephone number, including area code
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Item 5. Other Events.
On July 29, 1999, the Registrant entered into a three-year, $7.5
million revolving credit facility with The CIT Group/Credit Finance, Inc. The
$7.5 million facility consists of a $1 million term loan and a $2.5 million line
of credit available for additional term loans to be used for future capital
expenditures. The Registrant can use the remaining $4 million balance of the
facility as well as the unused term-loan availability as a line of credit to
draw revolving loans under the facility. The Registrant can draw advances
against the line of credit based on eligible accounts and inventory. The initial
advance under the credit facility was approximately $2 million based on eligible
accounts and equipment. Advances on eligible inventory and future capital
expenditures are conditioned on the Registrant securing equity financing of at
least $5 million. The credit facility is secured by a lien on the Registrant's
assets.
In connection with the transaction, the Registrant issued a
Warrant to The CIT Group/Credit Finance, Inc. to purchase 75,000 shares
of the Registrant's common stock exercisable for five years at an
exercise price of $2.07 per share. The holder of the Warrant has
piggyback registration rights with respect to all shares of common stock
issuable on exercise of the Warrant.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
3.1 Warrant to Purchase 75,000 shares of the Registrant's
common stock, $0.001 par value.
10.1 Loan and Security Agreement, dated July 29, 1999,
between the Registrant and The CIT Group/Credit
Finance, Inc.
99.1 Press Release.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENAMELON, INC.
(Registrant)
Date: August 10, 1999 By: /s/Dr. Steven R. Fox
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Dr. Steven R. Fox
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Warrant to Purchase 75,000 shares of the Registrant's common stock,
$0.001 par value.
10.1 Loan and Security Agreement, dated July 29, 1999, between the
Registrant and The CIT Group/Credit Finance, Inc.
99.1 Press Release.
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Exhibit 3.1
THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER
ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION
STATEMENT, OR AN EXEMPTION
FROM REGISTRATION, UNDER
SAID ACT AND LAWS.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
ENAMELON, INC.
Expires July 29, 2004
No. W-CIT New York, New York
July 29, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, ENAMELON, INC., a Delaware corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that
THE CIT GROUP/CREDIT FINANCE, INC.
or its registered assigns is entitled to subscribe for and purchase, during the
period specified in this Warrant, 75,000 shares (subject to adjustment as
hereinafter provided) of the duly authorized, validly issued, fully paid and
non-assessable Common Stock of the Issuer, at an initial exercise price of $2.07
per share, subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. Capitalized terms used in this Warrant and not otherwise
defined herein shall have the respective meanings specified in Section 8 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant
Stock represented hereby shall commence on the date of issuance of this Warrant
and shall expire at 5:00 P.M., Eastern Time, on July 29, 2004 (such period being
the "Term").
2. Method of Exercises; Payment; Issuance of New Warrant; Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this
Warrant may be exercised in whole or in part at any time and from time to time
during the Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant,
in whole or in part, by the surrender of this Warrant (along with a duly
executed Exercise Form in the form attached hereto as Exhibit A) at the
principal office of the Issuer, and by the payment to the Issuer of an amount of
consideration therefor equal to the Warrant Price in effect on the date of such
exercise multiplied by the number of shares of Warrant Stock with respect to
which this Warrant is then being exercised, payable at such Holder's election
(i) by certified or official bank check, or (ii) by surrender to the Issuer for
cancellation of a portion of this Warrant representing that number of unissued
shares of Warrant Stock which is equal to the quotient obtained by dividing (A)
the product obtained by multiplying the Warrant Price by the number of shares of
Warrant Stock being purchased upon such exercise by (B) the difference obtained
by subtracting the Warrant Price from the Current Market Price per share of
Warrant Stock as of the date of such exercise, or (iii) by a combination of the
foregoing methods of payment selected by the Holder of this Warrant. In any case
where the consideration payable upon such exercise is being paid in whole or in
part
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pursuant to the provisions of clause (ii) of this Section 2(b), such exercise
shall be accompanied by written notice from the Holder of this Warrant
specifying the manner of payment thereof and containing a calculation showing
the number of shares of Warrant Stock with respect to which rights are being
surrendered thereunder and the net number of shares to be issued after giving
effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of
the rights represented by this Warrant in accordance with and subject to the
terms and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding seven Business Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof within such
time.
(d) Transferability of Warrant. Subject to the provisions of Section
2(e) hereof, this Warrant may be transferred on the books of the Issuer by the
Holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant at the principal office of the Issuer, properly endorsed (by the Holder
executing an Assignment Form in the form set forth in Exhibit B attached hereto)
and upon payment of any necessary transfer tax or other governmental charge
imposed upon such transfer. This Warrant is exchangeable at the principal office
of the Issuer for Warrants for the purchase of the same aggregate number of
shares of Warrant Stock, each new Warrant to represent the right to purchase
such number of shares of Warrant Stock as the Holder hereof shall designate at
the time of such exchange. All Warrants issued on transfers or exchanges shall
be dated the Closing Date and shall be identical with this Warrant except as to
the number of shares of Warrant Stock issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Warrant
Stock to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, (A) all
Warrants resulting from the division or exchange of this Warrant shall bear a
legend in substantially the following form:
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAW, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE PLEDGED,
SOLD, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SUCH ACT OR STATE SECURITIES LAW.
and (B) all certificates representing shares of Warrant Stock issued upon the
exercise in whole or in part of this Warrant or thereafter transferred shall
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY STATE SECURITIES LAW, AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT OR STATE SECURITIES LAW. IN ADDITION, ANY
TRANSFER OF THESE SHARES IS SUBJECT TO THE CONDITIONS SPECIFIED IN
WARRANT W-CIT DATED AS OF JULY 29, 1999 ORIGINALLY ISSUED BY
ENAMELON, INC. (THE "ISSUER") TO THE CIT GROUP/ CREDIT FINANCE, INC.
TO PURCHASE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF THE ISSUER.
A COPY OF THE FORM OF WARRANT W-CIT IS ON FILE WITH THE SECRETARY OF
THE ISSUER AND
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WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER OF THIS
CERTIFICATE UPON WRITTEN REQUEST TO THE SECRETARY OF THE ISSUER.
(iii) The restrictions imposed by this Section 2(e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been
transferred pursuant to an effective registration statement under the Securities
Act and applicable state securities laws, or (B) upon the Issuer's receipt of an
opinion of counsel, in form and substance reasonably satisfactory to the Issuer,
addressed to the Issuer to the effect that such securities may be transferred
without registration under the Securities Act and applicable state securities
laws. Whenever such restrictions shall cease and terminate as to any such
securities, the Holder thereof shall be entitled to receive from the Issuer (or
its transfer agent and registrar), without expense (other than applicable
transfer taxes, if any), new Warrants (or, in the case of shares of Warrant
Stock, new stock certificates) of like tenor not bearing the applicable legends
required by paragraph (ii) above relating to the Securities Act and state
securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or
at any time after each exercise of this Warrant, upon the request of the Holder
hereof or of any shares of Warrant Stock issued upon such exercise, acknowledge
in writing the extent, if any, of its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if any such
Holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Issuer to afford such rights to such Holder.
(g) Loss of Warrant. Upon receipt by the Issuer of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Issuer will execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Issuer, whether or not this
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants. (a)
The Issuer represents, warrants, covenants and agrees that all shares of Warrant
Stock which may be issued upon the exercise of this Warrant or otherwise
hereunder will, upon issuance, be duly authorized, validly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
issuance. The Issuer further covenants and agrees that during the period within
which this Warrant may be exercised, the Issuer will at all times have
authorized and reserved for the purpose of the issue upon exercise of this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
(b) If any shares of the Common Stock required to be reserved for
issuance upon exercise of this Warrant by the initial holder hereof or as
otherwise provided hereunder require registration or qualification with any
governmental authority under any federal or state law before such shares may be
so issued, the Issuer will in good faith use its best efforts as expeditiously
as possible at its expense to cause such shares to be duly registered or
qualified. If the Issuer shall list any shares of Common Stock on any securities
exchange it will, at its expense, list thereon, maintain and increase when
necessary such listing of, all shares of Warrant Stock from time to time issued
upon exercise of this Warrant or as otherwise provided hereunder, and, to the
extent permissible under the applicable securities exchange rules, all unissued
shares of Warrant Stock which are at any time issuable hereunder, so long as any
shares of Common Stock shall be so listed. The Issuer will also so list on each
securities exchange, and will maintain such listing of, any other securities
which the Holder of this Warrant shall be entitled to receive upon the exercise
of this Warrant if at the time any securities of the same class shall be listed
on such securities exchange by the Issuer.
(c) The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the Holder
hereof against impairment. Without limiting the generality of the foregoing, the
Issuer will (i) not permit the par value, if any, of its Common Stock to exceed
the then effective Warrant Price, (ii) not amend or modify any provision of the
Certificate of Incorporation or by-laws of the Issuer in any manner that would
adversely affect in any way the powers, preferences or relative
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participating, optional or other special rights of the Common Stock or which
would adversely affect the rights of the Holders of the Warrants, (iii) take all
such action as may be reasonably necessary in order that the Issuer may validly
and legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this Warrant, and (iv) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification,
Consolidation, Merger or Sale. (i) In case the Issuer after the Closing Date
shall do any of the following (each a "Triggering Event") (a) consolidate with
or merge into any other Person and the Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, or (b) permit any other
Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, any Capital Stock of the Issuer shall be changed into or exchanged for
securities of any other Person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or (d)
effect a capital reorganization or reclassification of its Capital Stock, then,
and in the case of each such Triggering Event, proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Warrant,
the Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, or is redeemed in connection
with such Triggering Event, to receive at the Warrant Price in effect at the
time immediately prior to the consummation of such Triggering Event in lieu of
the Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the securities, cash and property to which such Holder would
have been entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments (subsequent to such corporate action) as nearly
equivalent as possible to the adjustments provided for in this Section 4 or (y)
to sell this Warrant (or, at such Holder's election, a portion hereof) to the
Person continuing after or surviving such Triggering Event, or to the Issuer (if
Issuer is the continuing or surviving Person) at a sale price equal to the
amount, if any, of cash, property and/or securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (b) the obligation to deliver to such Holder such shares of securities, cash
or property as, in accordance with the foregoing provisions of this Section
4(a), such Holder shall be entitled to receive.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time
while this Warrant is outstanding, shall:
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(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the Holders of the Issuer's Capital Stock for the purpose
of receiving such dividend or other distribution (or if no such record is taken,
as at the date of such payment or other distribution), to that price determined
by multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (A) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Liquidating Dividends, etc. Make a distribution of its
property to the Holders of its Common Stock as a dividend in liquidation or
partial liquidation or by way of return of capital other than as a dividend
payable out of funds legally available for dividends under the laws of the State
of Delaware, the Holder of this Warrant shall, upon exercise (including without
limitation payment of the Warrant Price), be entitled to receive, in addition to
the number of shares of Warrant Stock receivable thereupon, and without payment
of any additional consideration therefor, a sum equal to the amount of such
property as would have been payable to such Holder had such Holder been the
Holder of record of such Warrant Stock on the record date for such distribution
or if no such record is taken, on the date of such distribution; and appropriate
provision therefor shall be made a part of any such distribution.
(d) Intentionally left blank.
(e) Intentionally left blank.
(f) Intentionally left blank.
(g) Other Provisions Applicable to Adjustments Under this Section 4.
The following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received by
the Issuer shall be deemed to be the following: to the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents shall be
issued for cash consideration, the consideration received by the Issuer
therefor, or if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the public offering price, in any such case excluding any amounts paid
or receivable for accrued interest or accrued dividends and without deduction of
any compensation, discounts, commissions, or expenses paid or incurred by the
Issuer for or in connection with the underwriting thereof or otherwise in
connection with the issue thereof, to the extent that such issuance shall be for
a consideration other than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the time of such
issuance as determined in good faith by the Board. The consideration for any
Additional Shares of Common Stock issuable pursuant to any Common Stock
Equivalents shall be the consideration received by the Issuer for issuing such
Common Stock Equivalents, plus the additional consideration payable to the
Issuer upon the exercise, conversion or exchange of such Common Stock
Equivalents. In case of the issuance at any time of any Additional Shares of
Common Stock or Common Stock Equivalents in payment or satisfaction of any
dividend upon any class of Capital Stock of the Issuer other than Common Stock,
the Issuer shall be deemed to have received for such Additional Shares of Common
Stock or Common Stock Equivalents a consideration equal to the amount of such
dividend so paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash, the Board shall notify the Holder of
this Warrant of its good faith determination of the fair market value of such
consideration prior to payment or accepting receipt thereof. If, within thirty
days after receipt of said notice, the Majority Holders shall notify the Board
in writing of their objection to such determination, a determination of the fair
market value of such consideration shall be made by an Independent Appraiser
selected by the Majority Holders with the approval of the Board (which approval
shall not be unreasonably withheld), whose fees and expenses shall be paid by
the Issuer.
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(ii) Readjustment of Warrant Price. Upon the expiration or
termination of the right to convert, exchange or exercise any Common Stock
Equivalent the issuance of which effected an adjustment in the Warrant Price, if
such Common Stock Equivalent shall not have been converted, exercised or
exchanged in its entirety, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable upon
conversion, exchange or exercise of any such Common Stock Equivalent shall no
longer be computed as set forth above, and the Warrant Price shall forthwith be
readjusted and thereafter be the price which it would have been (but reflecting
any other adjustments in the Warrant Price made pursuant to the provisions of
this Section 4 after the issuance of such Common Stock Equivalent) had the
adjustment of the Warrant Price been made in accordance with the issuance or
sale of the number of Additional Shares of Common Stock actually issued upon
conversion, exchange or issuance of such Common Stock Equivalent and thereupon
only the number of Additional Shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually received by the
Issuer (computed as in clause (i) of this subsection (g)) shall be deemed to
have been received by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common
Stock at any time outstanding shall (A) not include any shares thereof then
directly or indirectly owned or held by or for the account of the Issuer or any
of its Subsidiaries, and (B) shall be deemed to include all shares of Common
Stock then issuable upon conversion, exercise or exchange of any then
outstanding Common Stock Equivalents or any other evidences of Obligations,
shares of Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock or Other Common.
(h) Other Action Affecting Common Stock. In case after the Closing
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (g) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any of the foregoing provisions of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause the independent
accounting firm then regularly engaged by it to report on its financial
statements to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Current Market Price then
in effect.
7. Registration Rights. The Issuer's agreements with respect to this
Warrant or shares of Warrant Stock in this Section 7 shall continue in effect
regardless of the exercise and surrender of this Warrant; provided, however,
that the rights of the Holder of Warrant Stock under this Section 7 shall
terminate when such Holder can
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sell its shares of Warrant Stock publicly without registration under the
Securities Act or any state blue sky or securities laws.
(a) If the Issuer or any Holder of Securities other than the Holder
hereof or a Holder of shares of Warrant Stock proposes to register any
Securities under the Securities Act on any registration form (other than for the
registration of Securities to be offered and sold by the Issuer pursuant to (i)
an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii)
other similar plans or (iv) reclassifications of securities, mergers,
consolidations and acquisitions of assets), then, not less than thirty (30) days
prior to each such registration, the Issuer shall give to the Holder hereof and
the Holders of shares of Warrant Stock written notice of such proposal which
shall describe in detail the proposed registration and distribution and, upon
the written request of the Holder hereof or a Holder of Warrant Stock furnished
within fifteen (15) days after the date of any such notice, proceed to include
in such registration such shares of Warrant Stock ("Piggy-Back Shares") as have
been requested by any such Holder to be included in such registration. The
Issuer will in each instance use its best efforts to cause all such Piggy-Back
Shares to be registered under the Securities Act and qualified under the
securities or blue sky laws of any jurisdiction requested by a prospective
seller, all to the extent necessary to permit the sale or other disposition
thereof (in the manner stated in such request) by a prospective seller of the
Securities so registered.
If the managing underwriter, who shall be selected by the Person who
initiated such registration, advises the Issuer in writing that, in its opinion,
the inclusion of the Piggy-Back Shares with the Securities being registered by
the Issuer and other prospective sellers would materially adversely affect the
distribution of all such Securities, then (i) each prospective seller may sell
that proportion of the shares of Common Stock to be sold in the proposed
distribution which the number of shares of Common Stock proposed to be sold by
such prospective seller bears to the aggregate number of shares of Common Stock
proposed to be sold by all prospective sellers (other than the Issuer) or (ii) a
prospective seller may at its option delay its offering and sale for a period
not to exceed ninety (90) days after the effective date of such registration as
such managing underwriter shall reasonably request.
The Holder hereof and any Holder of shares of Warrant Stock who has
requested shares of Common Stock to be included in a registration pursuant to
this subsection, by acceptance hereof or thereof, agrees to (i) the selection by
the Issuer or such other Holder of Securities of the underwriter to manage such
registration and (ii) execute an underwriting agreement with such underwriter
that is (A) reasonably satisfactory to such Holder and (B) in customary form.
Nothing in this subsection shall be deemed to require the Issuer to proceed with
any registration of its Securities after giving the notice as provided herein;
provided, however, that the Issuer shall pay all expenses incurred pursuant to
such notice in accordance with subsection (d) of this Section 7.
(b) Whenever the Issuer is required by the provisions of subsection
(a) of this Section 7 to effect the registration of any shares of Warrant Stock
under the Securities Act, the Issuer will, as expeditiously as is possible, take
such steps as are necessary or appropriate (and will consult in good faith with
the relevant Holder of shares of Warrant Stock as to what steps may be included)
to prepare for a registration or qualification of its Securities, including
without limitation preparing and filing with the United States Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
and supplements thereto, furnishing to each seller sufficient copies of
prospectuses, preparing and filing registrations under the blue sky laws of
applicable jurisdictions, entering into and performing underwriting agreements,
keeping each seller advised as to the progress of the steps being taken and
otherwise taking such actions in cooperation with each seller as are customarily
taken or required in connection with the public registration and sale of
securities. The Issuer, the Holder hereof and each Holder of shares of Warrant
Stock shall cooperate with each other in supplying such information as may be
necessary for any of such parties to complete and file any information reporting
forms presently or hereafter required by the Commission or any commissioner or
other authority administering the blue sky or securities laws of any
jurisdiction where shares of Common Stock are proposed to be sold pursuant to
this Section 7.
(c) Intentionally left blank.
(d) If the Issuer is required by the provisions of this Section 7 to
use its best efforts to effect the registration or qualification under the
Securities Act or any state securities or blue sky laws of any shares of Warrant
Stock, the Issuer shall pay all professional fees (including the costs and
expenses incurred by such professionals), all expenses and all registration fees
in connection therewith, including, without limitation, the reasonable legal
fees, costs and expenses of counsel to any Holder of this Warrant or shares of
Warrant Stock.
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<PAGE>
(e) In connection with any registration or qualification of
Securities under this Section 7, the Issuer agrees to indemnify the Holder
hereof and the Holders of any shares of Warrant Stock and each underwriter
thereof, including each Person, if any, who controls such Holder or underwriter
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and the costs, fees and expenses of legal counsel) caused by any
untrue, or alleged untrue, statement of a material fact contained in any
registration statement, preliminary prospectus, prospectus or notification or
offering circular (as amended or supplemented if the Issuer shall have furnished
any amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement or omission or alleged omission based upon
information furnished in writing to the Issuer by such Holder or underwriter
expressly for use therein. The Issuer and each officer, director and controlling
Person of the Issuer shall be indemnified respectively by the Holder of this
Warrant and by the Holders of any shares of Warrant Stock for all such losses,
claims, damages, liabilities and expenses (including the costs of reasonable
investigation and the costs, fees and expenses of legal counsel) caused by any
such untrue, or alleged untrue, statement or any such omission or alleged
omission, based upon information furnished in writing to the Issuer by such
Holder expressly for use therein.
The indemnifying party shall be entitled to participate in and, to
the extent it may wish, jointly with any other indemnifying party, to assume the
defense of such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel that
representation of such indemnified party and the indemnifying party by the same
counsel would be inappropriate under applicable standards of professional
conduct (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party). No indemnifying
party shall be liable for any settlement entered into without its consent, which
consent shall not be withheld unreasonably.
If the indemnification provided for in this subsection is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Issuer, on the one hand, and the sellers of such Common Stock, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The Issuer and the Holder hereof agree that it would not be
just and equitable if contribution pursuant to this subsection were determined
by any method of allocation which did not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
subsection, in no event shall the amount contributed by any seller of Common
Stock exceed the net proceeds received by such seller from the sale of Common
Stock to which such contribution claim relates. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
Each Holder of this Warrant and each Holder of shares of Warrant
Stock, by acceptance hereof or thereof, as the case may be, agrees to the
indemnification and contribution provisions of this subsection (e).
(f) The Issuer covenants that it will file reports required to be
filed by it with the Commission, and that it will take such further action as
the Holder hereof or a Holder of shares of Warrant Stock may reasonably request,
all to the extent required from time to time to enable such Holder to sell all
or any portion of this Warrant or shares of Warrant Stock without registration
under the Securities Act pursuant to Rule 144 ("Rule 144") (or any similar rule
then in effect) promulgated by the Commission under the Securities Act. Upon the
request of the Holder hereof or a Holder of shares of Warrant Stock, the Issuer
will deliver to such Holder a notice stating whether it has complied with such
requirements.
8. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
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<PAGE>
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Closing Date, and all shares of
Other Common, if any, issued by the Issuer after the Closing Date,
except the Warrant Stock.
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" means any day except a Saturday, a Sunday or a
legal holiday in New York City.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company interests
in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Certificate of Incorporation" means the certificate of
incorporation or articles of incorporation, as the case may be, of the
Issuer as in effect on the Closing Date, and as hereafter from time to
time amended, modified, supplemented or restated in accordance with its
terms and pursuant to applicable law.
"Closing Date" means July 29, 1999.
"Common Stock" means the Common Stock, $.001 par value, of the
Issuer and any other Capital Stock into which such stock may hereafter
be changed.
"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Security or any
stock appreciation right or other right to receive any payment based
upon the value of the Common Stock.
"Convertible Securities" means evidences of Obligations,
shares of Capital Stock or other Securities which are or may be at any
time convertible into or exchangeable for Additional Shares of Common
Stock. The term "Convertible Security" means one of the Convertible
Securities.
"Current Market Price" as in effect on any day means the
average of the daily market prices of the Common Stock for the period
of 20 consecutive trading days ending three trading days preceding such
date. The market price for each such day shall be the last sale price
on such day as reported on the New York Stock Exchange Consolidated
Tape, or, if the Common Stock is not listed on the New York Stock
Exchange, Inc. or reported on such Consolidated Tape, then the last
sale price on such day on the principal domestic stock exchange on
which such Common Stock is then listed or admitted to trading, or, if
no sale takes place on such day on such exchange, the average of the
closing bid and asked prices on such day as officially quoted on such
exchange, or, if the Common Stock is not then listed or admitted to
trading on any domestic stock exchange but is quoted in the National
Market System ("NMS/NASDAQ") of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), then the Current
Market Price for each such trading day shall be the last sale price on
such day as quoted by NMS/NASDAQ, or, if no sale takes place on such
day or if the Common Stock is neither listed or admitted to trading on
any domestic stock exchange nor quoted on such NMS/NASDAQ, then the
Current Market Price for each such trading day shall be the average of
the reported closing bid and asked price quotations on such day in the
over-the-counter market, as reported by NASDAQ, or, if not so reported,
as furnished by the National Quotation Bureau, Inc., or if such firm at
the time is not engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business as selected
by the Issuer, or if there is no such firm, as furnished by any member
of the National Association of Securities Dealers, Inc. selected by the
Issuer with the written approval of the Majority Holders. If at any
time the Common Stock is not listed on any domestic exchange or quoted
in the domestic over-the-counter market, the Current Market Price shall
be deemed to be the fair market value per share of Common Stock as
determined in good faith by the Board and agreed to by the Majority
Holders. The determination of fair market value by the Board shall be
based upon the fair market value of the Issuer determined on a going
concern basis as between a willing buyer and a willing seller and
taking into account all relevant factors determinative of value. In
determining the fair market value of any shares of Common Stock, no
consideration shall be given
9
<PAGE>
to any restrictions on transfer of the Common Stock imposed by
agreement or by federal or state securities laws, or to the existence
or absence of, or any limitations on, voting rights.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute at the time in effect.
"Holders" mean the Persons who shall from time to time own any
Warrant, shares of Warrant Stock, shares of Capital Stock or other
Securities, as the case may be. The term "Holder" means one of the
Holders.
"Independent Appraiser" means a nationally recognized
investment banking firm or other nationally recognized firm that is
regularly engaged in the business of appraising the Capital Stock or
assets of corporations or other entities as going concerns, and which
is not affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means Enamelon, Inc. and its successors.
"Loan Agreement" means the Loan and Security Agreement dated
as of July 29, 1999, by and between Issuer and The CIT Group/Credit
Finance, Inc., as such agreement may from time to time be amended,
modified or supplemented in accordance with its terms.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable
under the Warrants at the time outstanding.
"Obligations" has the meaning provided in the Loan Agreement.
"Other Common" means any Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this
Warrant (other than Common Stock) and which shall have the right to
participate in the distribution of earnings and assets of the Issuer
without limitation as to amount.
"Person" means an individual, a corporation, a partnership, a
trust, an unincorporated organization or a government organization or
an agency or political subdivision thereof.
"Securities" means any debt or equity securities of the
Issuer, whether now or hereafter authorized, any instrument convertible
into or exchangeable for Securities or a Security, and any option,
warrant or other right to purchase or acquire any Security. "Security"
means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by
the Issuer and one or more of its Subsidiaries.
"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of a majority
of the members of the board of directors (or other governing body) of
such corporation, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Loan Agreement, including, without limitation, this Warrant, and any
other warrants of like tenor issued in substitution or exchange for any
thereof pursuant to the provisions of Section 2(c), 2(d) or 2(g) hereof
or of any of such other Warrants.
"Warrant Price" means the price per share of Common Stock
specified in the first paragraph of this Warrant and such other prices
as shall result from the adjustments specified in Section 4 hereof.
10
<PAGE>
"Warrant Share Number" means at any time the aggregate number
of shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments
to such number made or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of
any Warrant or Warrants.
9. Information. As long as this Warrant is outstanding, the Issuer
shall deliver to the Holder hereof and to each holder of shares of Warrant Stock
the documents and other information required under the Loan Agreement within the
applicable time period specified therein and regardless of whether or not the
Loan Agreement is then in effect.
10. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 10 without the consent of the Holder of this Warrant.
11. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, without giving effect to New
York's principles of conflicts of laws.
12. Notices. All notices and other communications provided for
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), and if to the Holder of this Warrant or of Warrant Stock
issued pursuant hereto, addressed to such Holder at its last known address or
telecopy number appearing on the books of the Issuer maintained for such
purposes, and if to the Issuer, addressed to:
The CIT Group/Credit Finance, Inc.
1211 Avenue of the Americas, 21st Floor
New York, NY 10036
Attention: Legal Department
Telecopy No.: (212) 790-9198
or to such other address or addresses or telecopy number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. All such communications shall be deemed to have been given or
made when so delivered by hand or sent by telecopy, or three business days after
being so mailed.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise. No course of dealing or any
delay or failure to exercise any right, power or remedy hereunder on the part of
the Holder hereof shall operate as a waiver of or otherwise prejudice such
Holder's rights, powers or remedies.
14. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein) the
Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any
such Holder.
15. Modification and Severability. If, in any action before any court
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
11
<PAGE>
16. Integration. This Warrant replaces all prior agreements, supersedes
all prior negotiations and constitutes the entire agreement of the parties with
respect to the transactions contemplated herein. References to the Loan
Agreement herein shall, to the extent that the obligations thereunder have been
repaid and such Loan Agreement has terminated, mean the Loan Agreement as in
effect immediately prior to its termination.
17. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
18. Expense of Opinion of Counsel. If an opinion of counsel is required
in connection with a pledge, sale, assignment or transfer of this Warrant or any
shares of Warrant Stock, such opinion of Counsel shall be at the sole expense of
the Issuer.
ENAMELON, INC.
By: /s/ Steven R. Fox
-----------------------------------------
Name: Steven R. Fox, Chief Executive Officer
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<PAGE>
Exhibit A
ENAMELON, INC.
EXERCISE FORM
The undersigned, ________________________________________, pursuant to the
provisions of the within Warrant, hereby elects to purchase___________ shares of
Common Stock of Enamelon, Inc. covered by the within Warrant.
Dated: _____________________ Signature:________________________________
Address:_________________________
_________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-______ canceled this _____ day of _______, ____. ________
shares of Common Stock issued therefor in the name of ______. Warrant No.
W-______ issued for ____ shares of Common Stock in the name of
___________________.
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<PAGE>
Exhibit B
ENAMELON, INC.
ASSIGNMENT FORM
ASSIGNMENT
FOR VALUE RECEIVED, _______________ hereby sells, assigns and transfers
unto _______________ the within Warrant and all rights evidenced thereby and
does irrevocably constitute and appoint _______________ attorney, to transfer
the said Warrant on the books of the within named corporation.
Dated: ______________________ Signature:________________________________
Address:_________________________
_________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ______________________ the right to purchase
___________ shares of Warrant Stock evidenced by the within Warrant together
with all rights therein, and does irrevocably constitute and appoint
__________________________ attorney, to transfer that part of the said Warrant
on the books of the within named corporation.
Dated: ______________________ Signature:________________________________
Address:_________________________
_________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-______ assigned or partially assigned this _____ day of
_______, ____. Warrant No. W-______ issued for ____ shares of Common Stock in
the name of ___________________ and Warrant No. W-______ issued for ____ shares
of Common Stock in the name of ___________________ .
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<PAGE>
Exhibit 10.1
ENAMELON, INC.
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower.
SECTION 1. DEFINITIONS
1.1 The "Borrower" is identified in Section 10.6(c) and its
successors and assigns. If more than one Borrower is specified in Section
10.6(c), all references to Borrower shall mean each of them, jointly and
severally, individually and collectively, and the successors and assigns of
each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its
agents, designees, representatives, successors and assigns.
1.3 "Private Placement" means the offer and sale of Borrower's
equity and/or debt securities to institutional and/or accredited investors
pursuant to Section 4(2) of the Securities Act of 1933, as amended, from which
Borrower receives gross proceeds of at least $5,000,000.00.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and
conditions contained herein, make revolving loans to Borrower ("Revolving
Loans") in amounts requested by Borrower from time to time, but not in excess of
the Net Availability existing immediately prior to the making of the requested
loan and provided the requested loan would not cause the outstanding Obligations
to exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a).
(b) The "Gross Availability" is at any time (i) the product of the
outstanding amount of Eligible Accounts, multiplied by the Eligible Accounts
Percentage set forth in Section 10.1(b) (subject to the sublimits on
availability relating to certain Eligible Accounts, as more fully set forth in
Section 10.1(d)), plus: (ii) following consummation by Borrower of the Private
Placement, and its receipt of the gross proceeds therefrom (so long as and to
the extent that at such time and after giving effect thereto, Borrower is not
and would not otherwise be in default of any of its obligations under this
Agreement) the product(s) obtained by multiplying the applicable Eligible
Inventory Percentage(s), if any, set forth in Section 10.1(b) by the values
(based on the lower of cost or market) of Eligible Inventory, but the amount so
added shall not exceed any sublimits set forth in Section 10.1(c), minus: any
Reserves.
(c) The "Net Availability" shall be calculated at any time as an
amount equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding principal
balance of the Term Loan, if any.
(d) "Eligible Accounts" are accounts created by Borrower in the
ordinary course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its sole judgment and consistent
with its usual and customary business practices, on fifteen (15) days' prior
written notice to Borrower. Lender shall, in general, deem and continue to deem
accounts to be Eligible Accounts if: (i) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (ii) the amounts of
the accounts reported to Lender are absolutely owing to Borrower and payment is
not conditional or contingent (such as consignments, guaranteed sales or rights
of return or other similar terms); (iii) the account debtor's chief executive
office or principal place of business is located in the United States; (iv) such
accounts do not arise from progress billings, retainages or bill and hold sales;
(v) there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto and there are no other facts existing or
threatened which would impair or delay the collectibility of all or any portion
thereof; (vi) the goods giving rise thereto were not at the time of the sale
subject to any liens except those permitted in this Agreement; (vii) such
<PAGE>
accounts are not accounts with respect to which the account debtor or any
officer or employee thereof is an officer, employee or agent of or is affiliated
with Borrower, directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise; (viii) there has been compliance
with the Assignment of Claims Act or similar State or local law, if applicable,
if the account debtor is the United States or any domestic governmental unit;
(ix) Borrower has delivered to Lender such documents as Lender may have
requested pursuant to Section 5.9 hereof in connection with such accounts and
Lender shall have received verifications of such accounts, satisfactory to it,
if sent to the account debtors or any other obligors or any bailees pursuant to
Section 5.5 hereof; (x) there are no facts existing or threatened which might
result in any adverse change in the account debtor's financial condition; (xi)
accounts owed by an account debtor and its affiliates do not represent more than
twenty five percent (25%) of all otherwise Eligible Accounts (the amount
exceeding twenty five percent (25%) shall be ineligible); (xii) not more than
fifty percent (50%) of the accounts of an account debtor or its affiliates owed
to Borrower are unpaid more than the number of days after the invoice date set
forth in Section 10.1(d); (xiii) such accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the amount of any customer credit
limits as established from time to time on notice to Borrower ( the amount
exceeding the credit limit shall be ineligible; and (xiv) such accounts are owed
by account debtors deemed credit-worthy at all times by Lender.
(e) "Eligible Inventory" is inventory 100% owned by Borrower
which is and remains acceptable to Lender, for lending purposes, is located at
one of the addresses set forth in Section 10.6(e), and meets all of the general
criteria for Eligible Inventory set forth below, which criteria may be revised
from time to time by Lender, in its sole judgment and consistent with its usual
and customary business practices, on fifteen (15) days' prior written notice to
Borrower. Lender shall, in general, deem and continue to deem inventory to be
Eligible Inventory if: (i) such inventory has been purchased and received by
Borrower, and is held by Borrower free and clear of all liens and claims
whatever except Permitted Liens (defined below), except that inventory which is
in-transit to Borrower and which would otherwise qualify as Eligible Inventory
will so qualify provided that (A) it is backed by a letter of credit issued
through Lender or paid for in full in advance by Borrower, (B) Lender is
satisfied that title has passed to Borrower, and (C) Borrower has prepaid all
applicable duty and freight charges; (ii) such inventory is in merchantable
condition, not obsolete or slow-moving, not defective, and is usable for the
purposes for which it has been purchased, held and processed; (iii) Borrower
continues to hold the inventory for sale in the ordinary course of business,
with the reasonable expectation that it will be sold; (iv) such inventory is
located or warehoused in a location where Borrower has obtained a landlord's,
mortgagee's or bailee's waiver, as the case may be, in form and substance
satisfactory to, and in favor of, Lender; and (v) such inventory is either (A)
finished goods consisting of dual chamber tubes filled with toothpaste which
have passed Borrower's final quality approval process and are packaged and ready
for shipment, (B) raw materials consisting of (1) dual chamber tubes (without
dividers) and dividers prior to insertion into the dual chamber tubes, and (2)
materials consisting of the chemicals and other ingredients that are necessary
to formulate the toothpaste, such as glycerine, silicon dioxide, charabot
flavor, calcium, etc, prior to mixing (collectively, the "Raw Materials"), or
(C) work-in-process consisting of (1) dual chamber tubes (with dividers), (2)
chemicals and other ingredients in a combined state during the mixing process,
and (3) dual chamber tubes filled with toothpaste which have not yet passed
Borrower's final quality approval process (collectively, "Work-in-Process").
(f) Lender shall have a continuing right to reduce the Gross
Availability by implementing reserves ("Reserves"), and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's sole
judgment and consistent with its usual and customary business practices, such
Reserves are necessary to protect Lender against any state of facts which does,
or would, with notice or passage of time or both, constitute an Event of Default
or have an adverse effect on any Collateral.
(g) If a voluntary or involuntary petition under the United
States Bankruptcy Code or any similar statute is filed against the Borrower,
then Lender need not make loans.
(h) Revolving Loans will not at any time exceed the Gross
Availability unless Lender has consented.
2.2 Term Loan. Lender shall make term loans to Borrower on the
terms and conditions set forth in Section 10.2. (each, a "Term Loan" and,
collectively, the "Term Loans").
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2.3 Accommodations. Lender may, in its sole discretion, issue or
cause to be issued, from time to time at Borrower's request and on terms and
conditions and for purposes satisfactory to Lender, credit accommodations
consisting of letters of credit, bankers' acceptances, merchandise purchase
guaranties or other guaranties or indemnities for Borrower's account
("Accommodations"). Borrower shall execute and perform additional agreements
relating to the Accommodations in form and substance acceptable to Lender and
the issuer of any Accommodations, all of which shall supplement the rights and
remedies granted herein. Any payments made by Lender or any affiliate of Lender
in connection with the Accommodations shall constitute additional Revolving
Loans to Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest on the Revolving Loans and Term Loans shall be payable
by Borrower on the first day of each month, calculated upon the closing daily
balances in the loan account of Borrower for each day during the immediately
preceding month, at the per annum rate set forth as the Interest Rate in Section
10.4(a). The Interest Rate shall increase or decrease by an amount equal to each
increase or decrease, respectively, in the Prime Rate (as defined below),
effective as of the date of each such change. On and after any Event of Default
or termination or non-renewal hereof, interest on all unpaid Obligations shall
accrue at a rate equal to two percent (2%) per annum in excess of the Interest
Rate otherwise payable until such time as all Obligations are indefeasibly paid
in full (notwithstanding entry of any judgment against Borrower or the exercise
of any other right or remedy by Lender), and all such interest shall be payable
on demand. The interest paid by Borrower shall in no Contract Year (as defined
below) be less than the Interest Rate multiplied by the Minimum Borrowing set
forth in Section 10.1(e). A "Contract Year" shall consist of a twelve-month
period commencing on August 1st and ending on July 31st. In no event shall
charges constituting interest exceed the rate permitted under any applicable law
or regulation, and if any provision of this Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to conform
thereto. Sums due pursuant to this paragraph shall be charged against Borrower's
loan account as of the last day of each Contract Year.
(b) The "Prime Rate" is the rate of interest publicly announced by
The Chase Manhattan Bank in New York, New York, or its successors and assigns,
from time to time as its prime rate.
3.2 Fees. Borrower shall pay to Lender:
(a) Closing Fee. A Closing Fee (fully earned at closing) payable in
installments as set forth in Section 10.4(c).
(b) Facility Fee. A Facility Fee (fully earned at closing and at the
beginning of any renewal Term) payable in installments during the initial Term
and any renewal Term as set forth in Section 10.4(d).
(c) Collateral Handling Fee. Monthly, on the first day of each
month, in advance, a Collateral Handling Fee for each month (or part thereof)
during the initial and each renewal Term in the amount set forth in Section
10.4(e).
(d) Unused Line Fee. Monthly, on the first day of each month, in
arrears, an Unused Line Fee for each month during the initial and each renewal
Term at the rate per annum set forth in Section 10.4(f), calculated upon the
amount, if any, by which the Maximum Credit exceeds the greater of the Minimum
Borrowing or the average outstanding daily principal balance during the
preceding month of all Revolving Loans, Accommodations and any Term Loan.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and
performance in full of all Obligations, Borrower hereby grants to Lender a
continuing security interest in and lien upon, and a right of setoff
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against, and Borrower hereby assigns and pledges to Lender, all of the
Collateral, including any Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Term
Loans, Accommodations and all other indebtedness, liabilities and obligations of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees (including attorneys'
fees incurred by Lender both before and after obtaining and in collecting upon
any judgment) and expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, whether arising under this Agreement or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal Term or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended and whether arising directly
or howsoever acquired by Lender including from any other entity outright,
conditionally or as collateral security, by assignment, merger with any other
entity, participations or interests of Lender in the obligations of Borrower to
others, assumption, operation of law, subrogation or otherwise and shall also
include all amounts chargeable to Borrower under this Agreement or in connection
with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of
Borrower:
(a) All now owned and hereafter acquired right, title and interest
of Borrower in, to and in respect of all: accounts, interests in goods
represented by accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; chattel paper;
investment property; general intangibles (including, but not limited to, tax and
duty claims and refunds, registered and unregistered patents, trademarks,
service marks, copyrights, trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, choses in action and other claims, and existing
and future leasehold interests in equipment, real estate and fixtures)
(collectively, the "General Intangibles"); documents; instruments; letters of
credit, bankers' acceptances or guaranties; cash moneys, deposits, securities,
bank accounts, deposit accounts, credits and other property now or hereafter
held in any capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrower or at any other depository or
other institution; agreements or property securing or relating to any of the
items referred to above;
(b) All now owned and hereafter acquired right, title and interest
of Borrower in, to and in respect of goods, including, but not limited to:
(i) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description,
including all raw materials, work-in-process, finished goods, and
materials to be used or consumed in Borrower's business; and all
names or marks affixed to or to be affixed thereto for purposes of
selling same by the seller, manufacturer, lessor or licensor thereof
and all inventory which may be returned to Borrower by its customers
or repossessed by Borrower and all of Borrower's right, title and
interest in and to the foregoing (including all of Borrower's rights
as a seller of goods);
(ii) All equipment and fixtures, wherever located, whether now
owned or hereafter acquired, including, without limitation, all
machinery, equipment, motor vehicles, furniture and fixtures, and
any and all additions, substitutions, replacements (including spare
parts), and accessions thereof and thereto (including, but not
limited to Borrower's rights to acquire any of the foregoing,
whether by exercise of a purchase option or otherwise);
(iii) All consumer goods, farm products, crops, timber, minerals
or the like (including oil and gas), wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or
description;
(c) All now owned and hereafter acquired right, title and interests
of Borrower in, to and in respect of any real or other personal property in or
upon which Borrower has or may hereafter have a security interest, lien or right
of setoff;
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(d) All present and future books and records relating to any of the
above including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party; and
(e) All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing.
4.4 Additional Security. As additional security for the timely
payment and performance in full of the Obligations, contemporaneously with the
execution and delivery by Borrower of this Agreement:
(a) Borrower shall and execute and deliver to Lender a Trademark and
Patent Security Agreement in form and substance satisfactory to Lender (the
"Trademark and Patent Security Agreement"); and
(b) Each of Steven Fox, Kim Hardingham and Edwin Diaz shall execute
and deliver to Lender a Liquidation Assistance Agreement in form and substance
satisfactory to Lender.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower will, at its expense as Lender requests,
direct that all remittances and all other proceeds of accounts and other
Collateral be sent to a lock box designated by Lender, and deposited into a bank
account selected by Lender under arrangements with the bank providing that all
funds deposited in the bank account are to be transferred solely to Lender.
Borrower shall bear all risk of loss of any funds deposited into such account.
In connection therewith, Borrower shall execute such lock box and bank account
agreements as Lender shall specify. Any collections or other proceeds received
by Borrower shall be held in trust for Lender and immediately remitted to Lender
in kind. Notwithstanding anything contained herein to the contrary, Borrower
shall not be required to (a) remit the proceeds of the Private Placement or the
sale of its New Jersey net operating losses (the "New Jersey NOL's") to the
above-referenced lock box, or (b) hold such proceeds in trust for Lender and
remit such proceeds to Lender in kind.
5.2 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due, as principal to any
loan account of Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts payable by Borrower to
Lender based on a per annum rate shall be calculated on the basis of actual days
elapsed over a 360-day year.
5.3 Payments. All Obligations shall be payable at Lender's office
set forth in Section 10.6(a) or at Lender's bank designated in Section 10.6(b)
or at such other bank or place as Lender may expressly designate from time to
time for purposes of this Section. Lender shall apply all proceeds of accounts
or other Collateral received by Lender and all other payments in respect of the
Obligations to the Revolving Loans or to any other Obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross Availability and Net Availability and for the calculation of the Minimum
Borrowing, remittances and other payments will be treated as credited to the
loan account of Borrower maintained by Lender and Collateral balances to which
they relate, upon the date of Lender's receipt of advice from Lender's bank that
such remittances or other payments have been credited to Lender's account or in
the case of remittances or other payments received directly in kind by Lender,
upon the date of Lender's deposit thereof at Lender's bank, subject to final
payment and collection. In computing interest charges, the loan account of
Borrower will be credited with remittances and other payments for the number of
days set forth in Section 10.4(b) after the day Lender has received advice of
receipt of remittances in Lender's account at Lender's Bank. For purposes of
this Agreement, "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which Lender or banks located in states where Lender has its
offices, are authorized to close.
5.4 Loan Account Statements. Lender shall render to Borrower monthly
a loan account statement. Each statement shall be considered correct and binding
upon Borrower as an account stated, except to the
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extent that Lender receives, within sixty (60) days after the mailing of such
statement, written notice from Borrower of any specific exceptions by Borrower
to that statement.
5.5 Direct Collections. Lender may, at any time, (a) notify any
account debtor that the accounts and other Collateral which includes a monetary
obligation have been assigned to Lender by Borrower and that payment thereof is
to be made to the order of and directly to Lender, (b) send, or cause to be sent
by its designee, requests (which may identify the sender by a pseudonym) for
verification by telephone, in writing or otherwise of accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, (c) demand, collect or enforce payment of any accounts or
such other Collateral, but without any duty to do so, and Lender shall not be
liable for any failure to collect or enforce payment thereof, (d) take or bring,
in the name of Lender or Borrower, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of or other
realization upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to receive and
open mail addressed to Borrower, and (f) after an Event of Default, extend the
time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations. At
Lender's request, all invoices and statements sent to any account debtor, other
obligor or bailee, shall state that the accounts and such other Collateral have
been assigned to Lender and are payable directly and only to Lender.
5.6 Attorney-in-Fact. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact and authorizes Lender at Borrower's sole expense, to
exercise at any time in Lender's discretion all or any of the powers necessary
for Lender to obtain information about the Collateral or to enforce Lender's
rights in the Collateral. Lender shall use its good faith efforts to provide
Borrower with contemporaneous notice of Lender's exercise of any of such powers;
provided, however, that Lender's failure to provide such contemporaneous notice
or any notice, shall not (a) in any way interfere with, impede or impair
Lender's exercise of such powers, or (b) be deemed a breach by Lender of its
obligations to Borrower and Borrower shall have no right or remedy as a result
thereof.
5.7 Liability. Borrower hereby releases and exculpates Lender, its
officers and employees, from any liability arising from any acts under this
Agreement or in furtherance thereof, except for gross negligence or willful
misconduct. Lender will not have any liability to Borrower for lost profits or
other special, exemplary, punitive, or consequential damages.
5.8 Administration of Accounts. After written notice by Lender to
Borrower or without notice after an Event of Default, Borrower shall not, (a)
amend, modify, settle or compromise any of the accounts or any other Collateral
which includes a monetary obligation, (b) release in whole or in part any
account debtor or other person liable for the payment of any of the accounts or
any such other Collateral, or (c) grant any credits, discounts, allowances,
deductions, return authorizations or the like with respect to any of the
accounts or any such other Collateral.
5.9 Documents. Borrower shall deliver to Lender, as Lender may
request, all documents, schedules, invoices, proofs of delivery, purchase
orders, statements, contracts and all other information evidencing or relating
to the Collateral, in form and substance satisfactory to Lender and duly
executed by Borrower. Without limiting the provisions of Section 5.5, Borrower's
granting of credits, discounts, allowances, deductions, return authorizations or
the like will be promptly reported to Lender in writing. In no event shall any
schedule or confirmatory assignment (or the absence thereof or omission of any
of the accounts or other Collateral therefrom) limit or in any way be construed
as a waiver, limitation or modification of the security interests or rights of
Lender or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return at Borrower's expense.
5.10 Access. Lender shall have access, prior to an Event of Default
during reasonable business hours and upon one (1) day's prior notice, and on or
after an Event of Default at any time, to all of the premises where Collateral
is located for the purposes of inspecting or copying the Collateral, and all
Borrower's books and records. Lender may, at no charge, use such of Borrower's
personnel, equipment, including computer
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equipment, programs, printed output and computer readable media, supplies and
premises for the collection of accounts and realization on other Collateral as
Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably
authorizes all accountants and third parties to disclose and deliver to Lender
at Borrower's expense all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
5.11 Environmental Audits. From time to time, but not more
frequently than semi-annually (provided Borrower is not in default) as requested
by Lender, at the sole expense of Borrower, Borrower shall provide Lender
complete access to all of Borrower's facilities for the purpose of conducting an
environmental audit of such facilities as Lender may deem necessary.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). Borrower shall, at its expense, on or
before Wednesday of each week, deliver to Lender true and complete weekly
inventory reports relating to the prior week, in form and content satisfactory
to Lender. Borrower shall, at its expense, (a) on or before the twentieth (20th)
day of each month, deliver to Lender true and complete (i) monthly agings of its
accounts receivable and accounts payable, (ii) monthly inventory reports, and
(iii) monthly internally prepared interim financial statements, and (b) within
forty five (45) days after the end of each fiscal quarter, Borrower shall
deliver to Lender a true and complete signed copy of its Form 10-Q as filed with
the Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "34 Act"), all in such form, and together
with such other information with respect to the business of Borrower or any
guarantor, as Lender may request, which shall present fairly, in all material
respects, the financial position of Borrower as of the end of each such period
and the results of its operations and cash flows during such period, all in
accordance with GAAP, and certified by the treasurer or chief financial officer
of Borrower. Annually as soon as available, but not later than ninety (90) days
after the end of each fiscal year of Borrower, Borrower shall deliver to Lender
(a) a true and complete signed copy of its Form 10-K as filed with the SEC
pursuant to the 34 Act, and (b) audited financial statements of Borrower
prepared by and accompanied by the unqualified report and opinion thereon of an
independent certified public accountant acceptable to Lender, together with a
certificate signed by such accountant to the effect that such accountant does
not then know of any Event of Default specified in Section 7 hereof or the
occurrence or continuance of any event which, with the giving of notice or the
passage of time or both, would constitute such an Event of Default or if such
accountant shall have obtained knowledge of any such Event of Default or other
event, specifying the nature thereof. Lender hereby acknowledges that, from the
date hereof until such time as it notifies Borrower otherwise, BDO Siedman is
acceptable to Lender as the independent certified public accountant that will
audit Borrower's financial statements.
6.2 Trade Names. Borrower may from time to time render invoices
under its trade names set forth in Section 10.6(g), and Borrower represents
that: (a) each trade name does not refer to another corporation or other legal
entity, (b) all accounts and proceeds thereof (including any returned
merchandise) invoiced under any such trade names are owned exclusively by
Borrower, and (c) Lender may receive, endorse and deposit to any loan account of
Borrower maintained by Lender all checks or other remittances made payable to
any trade name of Borrower representing payment with respect to such sales or
services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.
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6.4 Books and Records. Borrower's books and records concerning
accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.6(d). Borrower's only other places of business
and the only other locations of Collateral, if any, are and shall be the
addresses set forth in Sections 10.6(e) and (f) hereof, except Borrower may
change such locations or open a new place of business after thirty (30) days'
prior written notice to Lender. Borrower shall execute and deliver or cause to
be executed and delivered to Lender such financing statements, amendments,
financing documents and security and other agreements as Lender may reasonably
require.
6.5 Title. Borrower has and at all times will continue to have good
and marketable title to all of the Collateral, free and clear of all liens,
security interests, claims or encumbrances of any kind except in favor of Lender
and except, if any, those set forth on Schedule A hereto ("Permitted Liens").
6.6 Disposition of Assets. Borrower shall not, directly or
indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose of
any part of the Collateral or any material portion of its other assets, other
than (i) sales of inventory to buyers in the ordinary course of business, (ii)
the sale of the New Jersey NOL's, (iii) sales or leases of furniture, machinery
and/or equipment having an aggregate value in any calendar year of not more than
$50,000.00; provided, however, that such furniture, machinery and/or equipment
is not listed in the KosterGroup, Inc. Auction Sale Appraisal dated June 18,
1999 (or any subsequent or replacement appraisal) and Lender is not otherwise
lending against such furniture, machinery and equipment, and (iv) the sale or
transfer of all or a portion of the General Intangibles to Newco (as defined
below), so long as and to the extent that (X) Borrower is not and would not as a
result of such sale or transfer be in default of any of its obligations under
this Agreement, (Y) Borrower owns all of the issued and outstanding capital
stock of Newco, and (Z) the sale of such General Intangibles to Newco is not
consummated unless and until (1) Lender has filed UCC-1 Financing Statements
against Newco in all jurisdictions where Lender deems necessary or appropriate,
Lender has recorded the appropriate assignment for security documents with the
United States Patent and Trademark Office, and Lender has otherwise obtained a
valid first priority perfected security interest in and lien upon such General
Intangibles, and (2) Newco has executed such other documents and instruments in
favor of Lender as Lender deems necessary or appropriate including, without
limitation, a guaranty, suretyship and security agreement and a trademark and
patent security agreement, in each case in form and substance satisfactory to
Lender in its sole discretion, or (b) consolidate with or merge with or into any
other entity, or permit any other entity to consolidate with or merge with or
into Borrower, or (c) form or acquire any interest in any firm, corporation or
other entity, provided, however, that Borrower may, upon at least thirty (30)
days prior written notice to Lender, form a new corporation ("Newco"), so long
as and to the extent that Borrower will not transfer any assets to or permit the
assumption of liabilities by Newco during the term of this Agreement and until
all of the Obligations have been fully paid, satisfied and discharged, except
upon compliance with all of the terms and conditions set forth in Section
6.6(a); (d) change its corporate name or trade name or otherwise conduct
business under any assumed or fictitious name, other than as set forth in
Section 10.6(g).
6.7 Insurance. Borrower shall at all times maintain, with
financially sound and reputable insurers, adequate insurance (including, without
limitation, at the option of Lender, earthquake and flood insurance) with
respect to the Collateral and other assets. All such insurance policies shall be
in such form, substance, amounts and coverage as may be satisfactory to Lender
and shall provide for thirty (30) days' prior written notice to Lender of
cancellation or reduction of coverage. Lender may obtain, at Borrower's expense,
any such insurance should Borrower fail to do so and adjust or settle any claim
or other matter under or arising pursuant to such insurance or amend or cancel
such insurance. Borrower shall provide evidence of such insurance and a lender's
loss payable endorsement satisfactory to Lender. Borrower shall deliver to
Lender, in kind, all instruments representing proceeds of insurance received by
Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations in any
order or manner as Lender determines.
6.8 Compliance With Laws. Borrower is and at all times will continue
to be in compliance with the requirements of all material laws, rules,
regulations and orders of any governmental authority relating to its business
(including laws, rules, regulations and orders relating to income, withholding,
excise, property and social security taxes, minimum wages, employee retirement
and welfare benefits, employee health and safety, or environmental matters) and
all material agreements or other instruments binding on Borrower or its
property. Borrower shall pay and discharge all taxes, assessments and
governmental charges against Borrower or any
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Collateral when due unless the same are being contested in good faith. Lender
may establish Reserves for the amount contested and penalties which may accrue
thereon.
6.9 Accounts. With respect to each account deemed an Eligible
Account, except as reported in writing to Lender, Borrower has no knowledge that
any of the criteria for eligibility are not or are no longer satisfied and the
eligibility criteria will continue to be satisfied. All statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
6.10 Equipment. With respect to Borrower's equipment, Borrower shall
keep the equipment in good order and repair and in running and marketable
condition, ordinary wear and tear excepted.
6.11 Financial Covenants. Borrower shall at all times maintain
working capital and net worth (each as determined in accordance with generally
accepted accounting principles, in effect on the date hereof, consistently
applied) in the amounts set forth in Section 10.5(a) and (b), respectively, and
Borrower shall not, directly or indirectly, expend or commit to expend, for
fixed or capital assets (including capital lease obligations) an amount in
excess of the capital expenditure limit set forth in Section 10.5(c) in any
fiscal year of Borrower.
6.12 Affiliated Transactions. Borrower will not, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity except (i) as otherwise specifically permitted
by Section 6.6 hereof, (ii) Borrower may advance money to employees to cover
travel and other bona fide business expenses incurred by such employees in the
ordinary course of Borrower's business not to exceed an aggregate amount
outstanding at any point in time of $15,000.00, (iii) investments by Borrower of
the proceeds from the Private Placement or the sale of the New Jersey NOL's in
short-term interest-bearing U.S. government securities, short term certificates
of deposit, time deposits and money market accounts and high quality money
market instruments, or (b) declare, pay or make any dividend, redemption or
other distribution on account of any shares of any class of stock of Borrower
now or hereafter outstanding, provided that Borrower may declare and issue
non-cash dividends in the form of additional shares of preferred stock as
required by the rights and preferences of Borrower's Series B Convertible
Preferred Stock (the "Series B Preferred Stock") outstanding on the date hereof;
and, provided further, that Borrower may redeem shares of its outstanding Series
B Preferred Stock so long as and to the extent that (i) at the time of and after
giving effect to any such redemption, Borrower is not and would not otherwise be
in default of any of its obligations under this Agreement, and (ii) funds used
to effect such redemption are not derived from the proceeds of any Revolving
Loans, Term Loans or other financial accommodations provided by Lender; or (c)
make any payment of the principal amount of or interest on any indebtedness
owing to any officer, director, shareholder, or affiliate of Borrower; or (d)
make any loans or advances to any officer, director, employee, shareholder or
affiliate of Borrower; or (e) enter into any sale, lease or other transaction
with any officer, director, employee, shareholder or affiliate of Borrower on
terms that are less favorable to Borrower than those which might be obtained at
the time from persons who are not an officer, director, employee, shareholder or
affiliate of Borrower provided, however that in respect of Subsections (d) and
(e) above, Borrower shall be permitted to (i) make advances to employees
pursuant to Section 6.12(a), and (ii) complete the sale of the General
Intangibles to Newco pursuant to Section 6.6(a).
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all
reasonable costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defenses asserted by Lender or
claims or defenses against Lender asserted by Borrower, any guarantor or any
third party directly or indirectly arising out of or related to the relationship
between Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey
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and search fees; (c) all fees as then in effect relating to the wire transfer of
loan proceeds and other funds and fees then in effect for returned checks and
credit reports; (d) all expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic field examinations of
the Collateral and Borrower's operations including, without limitation, field
examiner, travel, food and lodging, plus a per diem charge at the rate set forth
in Section 10.4(g) for Lender's examiners in the field and office; and (e) the
costs, fees and disbursements of in-house and outside counsel to Lender,
including but not limited to such costs, fees and disbursements incurred as a
result of a workout, restructuring, reorganization, liquidation, insolvency
proceeding or litigation between the parties hereto, any third party and in any
appeals arising therefrom.
6.14 Further Assurances. At the request of Lender, at any time and
from time to time, at Borrower's sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security interests or liens,
landlords or bailees, and do or cause to be done such further acts as Lender, in
its discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Borrower hereby authorizes Lender to file financing statements or
amendments against Borrower in favor of Lender with respect to the Collateral,
without Borrower's signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any financing
statements signed by Borrower.
6.15 Environmental Condition. None of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
statute, regulations, ordinances, laws or orders pertaining to environmental
matters (collectively, "Environmental Laws") as a hazardous waste or hazardous
substance disposal site, or a candidate for closure pursuant to any
Environmental Laws. No lien arising under or in connection with any
Environmental Laws has attached to any revenues or to any real or personal
property owned by Borrower. Borrower has not received a summons, citation,
notice, or directive or other communication from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action
or omission by Borrower resulting in the releasing, or otherwise exposing of
hazardous waste or hazardous substances into the environment. Borrower is and
will continue to be in compliance (in all material respects) with all
Environmental Laws and other legal requirements pertaining to the production,
storage, handling, treatment, release, transportation or disposal of any
hazardous waste or hazardous substance.
6.16 Year 2000 Compliance. Borrower has taken, and shall continue to
take, all action necessary to assure that its computer-based systems and
software are, and shall after December 31, 1999 be, able to effectively and
accurately process data including dates and date sensitive functions (the "Year
2000 Problem"). Borrower has also investigated the Year 2000 readiness of its
key suppliers and vendors and has developed contingency plans where necessary.
Borrower represents and warrants that the Year 2000 Problem will not have a
material adverse effect on Borrower's business condition (financial or
otherwise), operations, properties, prospects or ability to repay any of the
Obligations. Upon request, Borrower shall provide assurances acceptable to
Lender that Borrower's computer systems and software are or will be Year 2000
compliant on a timely basis. Borrower shall immediately advise Lender in writing
of any material changes in Borrower's Year 2000 plan, timetable or budget.
6.17 Organization and Qualification. Borrower is a business
corporation, duly organized, validly existing and in good standing under the
laws of the State set forth in Section 10.6(h) hereto and will (i) do or cause
to be done all things necessary to keep in full force and effect its existence
and its qualification to do business and good standing in such State and any
other jurisdiction(s) in which such qualification is necessary for the proper
conduct of its business or wherein it owns or leases any property, a schedule of
which is attached hereto as Schedule D, and conduct and operate its business in
substantially the manner in which same is presently conducted and operated; (ii)
at all times maintain, preserve and protect all material patents, franchises,
trademarks, trade names, copyrights and other general intangibles; and (iii)
comply with all material agreements to which it is subject.
6.18 Indemnification.
(a) Borrower hereby indemnifies and agrees to protect, defend and
hold harmless Lender and Lender's directors, officers, employees, agents,
attorneys and shareholders from and against any and all losses,
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damages, expenses or liabilities of any kind or nature and from any suits,
claims, or demands, including all reasonable counsel fees incurred in
investigating, evaluating or defending such suits, claims or demands suffered by
any of them and caused by, relating to, arising out of, resulting from, or in
any way connected with this Agreement, or any other collateral document, and any
transaction contemplated herein or therein (other than actions arising out of
the gross negligence or willful misconduct of Lender), including but not limited
to, suits, claims or demands based upon any act or failure to act by Lender in
connection with this Agreement or any other collateral document, and any
transaction contemplated herein or therein. If Borrower shall have knowledge of
any claim or liability hereby indemnified against, it shall give prompt written
notice thereof to Lender. This covenant shall survive payment of the
Obligations.
(b) Lender shall give Borrower prompt notice of all suits, actions
or proceedings instituted against Lender with respect to which Borrower has
indemnified Lender, and Borrower shall have the right to participate in any such
suit, action or proceeding. Lender shall also have the right, at the sole
expense of Borrower, to participate in, or at Lender's election, assume the
defense or prosecution of such suit, action, or proceeding, and in the latter
event the Borrower may employ counsel and participate therein. Lender shall have
the right to adjust, settle, or compromise any claim, suit, or judgment after
notice to Borrower, unless Borrower desires to litigate such claim, defend such
suit, or appeal such judgment and simultaneously therewith deposit with Lender
additional collateral security sufficient to pay any judgment rendered, with
interest, costs, and expenses; and the right of Lender to indemnification under
this Agreement shall extend to any money paid by Lender in settlement or
compromise of any such claims, suits, and judgments in good faith, after notice
to Borrower.
(c) If any suit, action, or proceeding is brought by Lender against
Borrower for breach of this covenant of indemnity, separate suits may be brought
as causes of action accrue, without prejudice or bar to the bringing of
subsequent suits on any other cause of action, whether theretofore or thereafter
accruing.
6.19 Authority and Subsidiaries. Borrower has the lawful power to
own its properties and to engage in the businesses it conducts; and has no
subsidiaries or joint venture partners other than as set forth on Schedule B
hereto.
6.20 Litigation. Except as described on Schedule C attached hereto,
Borrower is not a party to or, to its best knowledge, threatened with, any
litigation, suit, action, investigation (whether civil or criminal), proceedings
or controversy before any Court, administrative agency or other governmental
authority and Borrower is not in violation of or in default with respect to any
judgment, order, writ, injunction, decree or rule of any court, administrative
agency or governmental instrumentality or in any material respect under any
regulation of any administrative agency or governmental instrumentality.
6.21 Patents and Trademarks. Except as set forth in Schedules A and
B of the Trademark and Patent Security Agreement, Borrower holds no United
States or foreign patents and has no United States or foreign patent
applications pending and has no federally registered trademarks or trade names
and, other than as disclosed in Section 10.6(g) below, operates under no
fictitious names.
6.22 Certain Locations. Borrower has ceased utilization of the
services of ESNJ Lakewood and ESNJ Raritan Valley Workshop. As of the date
hereof, Borrower maintains inventory (and no other Collateral) in an amount less
than $80,000 at the ESNJ Lakewood facility located at 150 North Oberlin Avenue,
Lakewood, New Jersey 08701, which inventory will be removed from such location
within thirty (30) days after the date of this Agreement. Borrower's leased
facility located at 1 Kimberly Drive, East Brunswick, New Jersey 08816 is vacant
and no Collateral is or will during the Term, be stored or located there.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following "Events of Default":
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(a) Borrower fails to pay when due any of the Obligations or fails
to perform any of the terms of this Agreement or any other existing or future
financing, security or other agreement between Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or otherwise, or to any affiliate of Lender, shall prove
inaccurate or misleading;
(c) Any guarantor revokes, terminates or fails to perform any of the
terms of any guaranty, endorsement or other agreement of such party in favor of
Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of the amount
set forth in Section 10.6(i) or any injunction or attachment is obtained against
Borrower or any guarantor which remains unstayed or undischarged for a period of
thirty (30) days or is enforced;
(e) Borrower or any guarantor dies or ceases to exist or the usual
business of Borrower or any guarantor ceases or is suspended;
(f) Any change in the (i) chief executive officer or chief operating
officer of Borrower other than a change of such officer(s) made within ninety
(90) days of the departure of such then-existing officer(s) and which is
otherwise reasonably acceptable to Lender, or (ii) controlling ownership of
Borrower;
(g) Borrower or any guarantor becomes insolvent, makes an assignment
for the benefit of creditors, makes or sends notice of a bulk transfer or calls
a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the bankruptcy
laws of the United States now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower or any
guarantor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any guarantor pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such guarantor which
Lender believes may have a material adverse effect on the Collateral or
Borrower's business;
(j) Any default or event of default occurs on the part of Borrower
under any material agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its property is bound.
(k) Lender in good faith believes that either (i) the prospect of
payment or performance of the Obligations is impaired or (ii) the Collateral is
not sufficient to secure fully the Obligations; or
(l) Any material change occurs in the nature or conduct of
Borrower's business.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code and other applicable law, all of which rights and remedies may
be exercised without notice to Borrower, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of Lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender may (a) accelerate
the payment of all Obligations and demand immediate payment thereof to Lender,
(b) with or without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the
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Collateral, (c) require Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (d) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (e) sell, lease, transfer, assign, deliver
or otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, by public or private sales at any
exchange, broker's board, any office of Lender or elsewhere) at such prices or
terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower. If any of the Collateral is
sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Lender. If notice of disposition of Collateral is required
by law, ten (10) days' prior notice by Lender to Borrower designating the time
and place of any public sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower waives the posting of any bond
which might otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral (other than accounts) actually received by Lender from any sale,
lease, foreclosure or other disposition of the Collateral to payment of any of
the Obligations, in whole or in part and in such order as Lender may elect,
whether or not then due. Borrower shall remain liable to Lender for the payment
of any deficiency together with interest at the highest rate provided for herein
and all costs and expenses of collection or enforcement, including reasonable
attorneys' fees and legal expenses (including attorneys' fees and legal expenses
incurred both before and after obtaining and in collecting upon any judgment).
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at
its option, cure any default by Borrower under any agreement with a third party
or pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER,
OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto, except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents
to the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.6(a) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set
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forth in Section 10.6(d) or other address thereof of which Lender has received
notice as provided herein, service to be deemed complete five (5) days after
mailing, or as permitted under the rules of said Courts. Any such action or
proceeding commenced by Borrower against Lender will be litigated only in a
Federal Court located in the district, or a State Court in the State and County,
in which the office of Lender designated in Section 10.6(a) is located and
Borrower waives any objections based on forum non conveniens or venue in
connection therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
rights or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. A waiver by Lender of any right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy which Lender would otherwise have on any future occasion, whether similar
in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution
and delivery by Borrower and Lender and shall continue in full force and effect
for a term set forth in Section 10.7 from the date hereof and shall be deemed
automatically renewed, based upon all of the terms and conditions of this
Agreement, for successive terms of equal duration thereafter unless terminated
as of the end of the initial or any renewal term (each a "Term") by either party
giving the other written notice at least sixty (60) days' prior to the end of
the then-current Term.
9.2 Early Termination. Borrower may also terminate this Agreement by
giving Lender at least thirty (30) days' prior written notice and payment in
full of all of the Obligations as provided herein, including an early
termination fee (the "Early Termination Fee"), unpaid Facility Fee and any other
fees. Thirty (30) days after receipt by Lender of such notice, Lender shall not
be obligated to make any further loans, advances or other accommodations to or
for the benefit of Borrower. Lender shall also have the right to terminate this
Agreement at any time upon or after the occurrence of an Event of Default. If
Lender terminates this Agreement upon or after the occurrence of an Event of
Default, or if Borrower shall terminate this Agreement as permitted herein
effective prior to the end of the then-current Term, Borrower shall pay to
Lender on the effective date of termination, in full, all Obligations including
the Early Termination Fee, unpaid Facility Fee and any other fees. In view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, the Early Termination Fee shall be the percentage of the Maximum Credit
set forth in Section 10.4(h).
9.3 Termination Indemnity Deposit. Upon termination of this
Agreement by Borrower, as permitted herein, in addition to payment of all
Obligations which are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees, in connection with any
open Accommodations or remittance items or other payments provisionally credited
to the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement
contains the entire agreement of the parties as to the subject matter hereof,
all prior commitments, proposals and negotiations concerning the subject matter
hereof being merged herein. Neither this Agreement nor any provision hereof
shall be
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amended, modified or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the successors and
assigns of Borrower.
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.
9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State in which the office of Lender set forth
in Section 10.6(a) below is located (the "Applicable State") (without regard to
the Applicable State's conflicts of laws principles).
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit:
$7,500,000.00
(b) Gross Availability Formulas:
Eligible Accounts Percentage:
Eighty percent (80%) provided that the Dilution
Percentage (defined below) does not exceed eight
percent (8%). The Dilution Percentage is the sum
of Borrower's credits, allowances, discounts,
write-offs, contra-accounts, offsets and
deductions which reduce the value of accounts
receivable, divided by gross sales. The Dilution
Percentage shall be calculated on a rolling three
(3) month average. If the Dilution Percentage
exceeds eight percent (8%) then the Eligible
Accounts Percentage shall be reduced by one (1)
percentage point for each percentage point (or
fraction thereof) that the Dilution Percentage
exceeds eight percent (8%).
Eligible Inventory Percentages:
Raw Materials: Forty percent (40%)
Work-In-Process: Twenty five percent (25%)
Finished Goods: Sixty percent (60%)
(c) Inventory Sublimit(s):
$2,500,000.00; provided, however, that advances
against Eligible Inventory of Raw Materials shall
not at any time during the Term exceed $500,000.00
in the aggregate; provided, further, that advances
against Eligible Inventory of Work-In-Process
shall not at any time during the Term exceed
$400,000.00 in the aggregate.
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(d) Maximum days after Invoice Date for Eligible
Accounts:
Sixty (60) days after due date, not to exceed
ninety (90) days after invoice date.
(e) Minimum Borrowing:
$2,000,000.00, calculated annually for each
Contract Year, based upon the average daily
outstandings.
10.2 Term Loans:
Initial Term Loan
(a) Amount: $1,000,000.00
(b) Monthly Amortization: $16,667.00 commencing
September 1, 1999.
(c) Maturity Date: July 31, 2004, subject
to acceleration and
payment in full
pursuant to Section
7.1 hereof.
Additional Term Loans
Following consummation by Borrower of the
Private Placement, and its receipt of the net
proceeds therefrom (so long as and to the
extent that at such time and after giving
effect thereto, Borrower is not and would not
otherwise be in default of any of its
obligations under this Agreement), Lender
agrees to make additional Term Loans to
Borrower in an aggregate amount not to exceed
the lesser of (i) $2,500,000.00 and (ii)
eighty percent (80%) of the invoice cost of
new machinery and equipment, exclusive of all
other costs, expenses, taxes and other
charges incurred in connection therewith
including, without limitation, costs for
shipping, assembly and maintenance.
Additional Term Loans shall be (i) made upon
receipt by Lender of evidence that (a) title
to the newly-purchased machinery and
equipment has passed to Borrower, and (b)
such newly-purchased machinery and equipment
is located at one of the addresses set forth
in Section 10.6(e), (ii) made in increments
of not less than $200,000.00, and (iii)
amortized over sixty (60) months.
10.3 Accommodations: N/A
10.4 Interest, Fees & Charges:
(a) Interest Rate:
Prime Rate plus one and one half percent
(1.5%) per annum; provided, however, that if
Borrower has not consummated the Private
Placement within 120 days of Closing, Lender
shall have the right to increase the Interest
Rate to Prime Rate plus two percent (2.0%)
per annum beginning on the 121st day after
Closing and continuing until Borrower has
consummated the Private Placement.
(b) Clearance: Three (3) Business Days
(c) Closing Fee:
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$32,500.00, payable in twelve (12) equal,
consecutive monthly installments of $2,708.33
on the first day of each month, commencing on
August 1, 1999.
(d)(1) Facility Fee for Initial Term:
$65,000.00, payable in twenty four (24)
equal, consecutive monthly installments of
$2,708.33, commencing on the first
anniversary of Closing.
(2) Facility Fee for Renewal Term:
Renewal Date: One half of one percent
(.50%) of the Maximum
Credit
First Anniversary: One half of one percent
(.50%) of the Maximum
Credit
Second Anniversary: One half of one percent
(.50%) of the Maximum
Credit
(e) Collateral Handling Fee: $750.00
(f) Unused Line Fee: None
(g) Field Examination per diem charge per
examiner: $750.00
(h) Early Termination Fee:
First year: Three percent (3%) of
the Maximum Credit
Second year: Two percent (2%) of
the Maximum Credit
Third year
and thereafter: One percent (1%) of
the Maximum Credit
10.5 Financial Covenants: None
10.6 (a) Lender's Office:
1211 Avenue of the Americas, 21st Floor
New York, New York 10036
(b) Lender's Bank:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
(c) Borrower: Enamelon, Inc.
(d) Borrower's Chief Executive Office:
7 Cedar Brook Drive
Cranbury, New Jersey 08512
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(e) Locations of Eligible Inventory Collateral:
1700 Oak Street
Lakewood, New Jersey 08701 (Raw Materials
Inventory only)
10 Cliffside Drive
Cedar Grove, New Jersey 07009
17 Veronica Avenue
Somerset, New Jersey 08873
140 Belmont Drive
Somerset, New Jersey 08873
(f) Borrower's Other Offices and Locations of
Collateral:
20 Ashton Avenue
Swedesboro, New Jersey 08085
150 North Oberlin Avenue
Lakewood, New Jersey 08701 (collateral to
be removed on or before August 28, 1999)
(g) Borrower's Trade Names for Invoicing: None
(h) Borrower's State of Incorporation: Delaware
(i) Judgment Amount: $25,000.00
10.7 Term: Three (3) years
IN WITNESS WHEREOF, and intending to be legally bound,
Borrower and Lender have duly executed this Agreement this ___ day of July,
1999.
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/ James Tregillies
-----------------------------
Title: Assistant Vice President
ENAMELON, INC.
By: /s/ Steven R. Fox
-------------------------------------
Steven R. Fox, Chief Executive Officer
- 18 -
<PAGE>
SCHEDULE A
Permitted Liens
1. Liens created under this Loan and Security Agreement and
related documents in favor of the Lender.
2. Liens upon equipment and machinery granted in connection
with the acquisition of such equipment and machinery by Borrower after the date
hereof (including, without limitation, pursuant to leases and installment sale
contracts), provided that:
(i) each such lien attaches only to the equipment and
machinery acquired with the debt secured thereby; and
(ii) the principal amount of the indebtedness secured by
any item of equipment or machinery shall not exceed 100% of the cost thereof
(excluding labor);
3. Security interests granted by Lender after Closing against
the General Intangibles, so long as and to the extent that prior thereto such
party executes and delivers to Lender an intercreditor agreement in form and
substance satisfactory to Lender, which provides, among other things, that such
party shall (i) subordinate its security interest in the General Intangibles to
the security interests of Lender therein, and (ii) refrain from taking any
action against the General Intangibles, the Collateral or Borrower until all of
the Obligations are indefeasibly paid in full.
4. Liens for taxes (excluding any lien imposed pursuant to any
of the provisions of ERISA) not yet due (or if there is a payment period, such
payment period has not expired) or being Properly Contested (as hereinafter
defined);
5. Statutory liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, and other like persons for
labor, materials, or supplies incurred in the ordinary course of Borrower's
business, but only if the payment thereof is not at the time required or such
claims are being Properly Contested;
6. Statutory liens with respect to deposits made in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws, but only if the
payment thereof is not at the time required or such claims are being Properly
Contested; and
7. Attachment, judgment and other similar non-tax liens
(excluding liens securing environmental claims of governmental entities) arising
in connection with court proceedings, but only if and for so long as (i) the
execution or other enforcement of such liens is and continues to be effectively
stayed and bonded on appeal in a manner satisfactory to Lender for the full
amount thereof, (ii) the validity and amount of the claims secured thereby are
being Properly Contested, (iii) such liens do not, in the aggregate, materially
detract from the value of the property of Borrower or materially impair the use
thereof in the operation of Borrower's business, and (iv) such liens are at all
times junior in priority to the liens in favor of Lender.
For purposes of this Schedule A, the term "Properly Contested"
shall mean in the case of any indebtedness (including, but not limited to, any
taxes or other governmental charges) of Borrower that is not paid as and when
due or payable by reason of Borrower's bona fide dispute concerning its
liability to pay same or concerning the amount thereof, provided that (i) such
indebtedness is being properly contested in good faith by appropriate
proceedings promptly instituted and diligently conducted; (ii) Borrower has
established appropriate reserves as shall be required in conformity with GAAP;
(iii) the non-payment of such indebtedness during the pendency of such
proceedings will not have a material adverse effect on, and will not result in a
forfeiture of any material assets of, Borrower; (iv) no lien is imposed upon any
of Borrower's assets with respect to such
- 19 -
<PAGE>
indebtedness unless the lien is at all times junior and subordinate to the liens
in favor of Lender (other than a lien (including without limitation a lien for
taxes), the priority of which has priority as a matter of applicable state or
federal law); and (v) if such contest is abandoned, settled or determined
adversely to Borrower, Borrower forthwith pays such indebtedness and all
penalties and interest in connection therewith.
----------------------------------
SCHEDULE B
Subsidiaries and Joint Venture Partners
None
-------------------------------------
SCHEDULE C
Litigation and Violations
Alfieri Partnership #102, as landlord, has given notice to Borrower that it is
in default in the timely payment of rent for the month of June 1999 for the
premises located at 1 Kimberly Road, East Brunswick, New Jersey 08816, that the
total amount of rent, late charges and interest due is $4,432.30, and that the
matter has been referred to legal counsel for further action.
--------------------------------------
SCHEDULE D
Jurisdictions where Borrower is required to be qualified
New Jersey
Exhibit 99.1
<PAGE>
AT THE COMPANY:
Edwin Diaz
Vice President-Finance &
Chief Financial Officer
609-395-6900
FOR IMMEDIATE RELEASE:
Enamelon Obtains $7.5 Million Credit Facility From The CIT Group/Credit Finance
Cranbury, NJ - July 30, 1999 - Enamelon, Inc. (Nasdaq NM: ENML), which is using
its proprietary "remineralization" technology to develop over-the-counter oral
products to help stop cavities before they begin, today announced that it has
obtained a three-year, $7.5 million credit facility from The CIT Group/Credit
Finance.
The $7.5 million facility consists of a $4 million revolving line of credit, a
$1 million term loan and a $2.5 million line to be used for future capital
expenditures. The Company can draw advances against the line of credit based on
eligible accounts and inventory. The initial advance under the credit facility
will be approximately $2 million based on eligible accounts and equipment.
Advances on eligible inventory and future capital expenditures are conditioned
on the Company securing equity financing of at least $5 million. The credit
facility is secured by the Company's assets.
The CIT Group/Credit Finance, a business unit of The CIT Group (NYSE: CIT),
provides revolving and term loans secured by accounts receivable, inventories
and fixed assets to small and medium-sized businesses. The CIT Group, Inc. is
one of the nation's largest commercial and consumer lending organizations.
Enamelon, Inc. is focused on developing and marketing over-the-counter oral
products based on proprietary formulations and technologies. The Company's
remineralization technologies are designed to provide the active ingredient
fluoride in a formulation containing soluble calcium and phosphate to advance
the fight against tooth decay. The Company's offices are located in Cranbury,
New Jersey.
- --------------------------------------------------------------------------------
This release contains forward-looking information and therefore it necessarily
involves risks and uncertainties. Factors that could cause actual events to
differ materially from these forward-looking statements include, but are not
limited to, the following: acceptance of the Company's products by consumers;
the inherent limitations of market research and accuracy of syndicated data
purchased by the Company; declines in the Company's sales from current levels;
the success of the Company's revised marketing program; the Company's ability to
produce additional financing, as necessary to maintain its operations until it
becomes profitable; and changes in government regulations as they apply to the
Company's products These and other risks are described in the Company's filings
with the Securities and Exchange Commission, including the Company's Form S-1
and Form S-3 registration statements, Annual Report on Form 10-KSB for the year
ended December 31,1998, and 1999 Quarterly Reports on Form 10-Q.
NOTE: Further information on Enamelon is available through our website on the
World Wide Web at http://www.enamelon.com
