SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended July 31, 1997
Commission File Number: 0-24312
AGRI-NUTRITION GROUP LIMITED
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
Riverport Executive Center II
13801 Riverport Drive
Suite 111
Maryland Heights, MO 63043
(314) 298-7330
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares of common stock outstanding at September 12, 1997 is
8,451,505 shares.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Index
- --------------------------------------------------------------------------------
Page
Financial information
Financial Statements
Consolidated Balance Sheet -
October 31, 1996 and
July 31, 1997 (Unaudited) 1
Consolidated Statement of Operations -
three and nine months ended July 31, 1996
and 1997 (Unaudited) 2
Consolidated Statement of Cash Flows -
nine months ended July 31, 1996
and 1997 (Unaudited) 3
Consolidated Statement of Shareholders' Equity -
nine months ended July 31, 1997
(Unaudited) 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Other information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Balance Sheet
Page 1
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<TABLE>
<CAPTION>
October 31, July 31,
1996 1997
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,186,877 $ 1,271,070
Accounts receivable 3,065,612 4,318,446
Inventories 5,863,548 4,972,889
Prepaid expenses and other assets 1,168,377 1,067,314
Net assets of discontinued operations 1,347,539 4,141
---------------- -----------------
13,631,953 11,633,860
Property, plant and equipment, net 4,798,813 4,922,008
Goodwill 6,372,687 6,219,792
Other assets 1,046,599 1,004,137
---------------- -----------------
$ 25,850,052 $ 23,779,797
---------------- -----------------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable $ 487,169 $ 304,769
Accounts payable 1,950,467 1,423,950
Accrued expenses 1,266,069 763,105
---------------- ----------------
3,703,705 2,491,824
Long-term debt and notes payable 7,824,012 6,919,126
Commitments and contingencies (Notes 2 and 9)
Shareholders' equity:
Common stock ($.01 par value; 20,000,000 shares
authorized; 8,430,949 and 8,451,505 shares issued
and outstanding, respectively) 84,309 84,515
Additional paid-in capital 14,817,183 14,844,228
Accumulated deficit (529,171) (480,354)
---------------- ----------------
14,372,321 14,448,389
Cost of common stock held in Treasury
(25,650 and 46,850 shares in 1996 and 1997, respectively) (49,986) (79,542)
---------------- ----------------
14,322,335 14,368,847
---------------- ----------------
Total Liabilities and Shareholders' Equity $ 25,850,052 $ 23,779,797
---------------- -----------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Operations (unaudited)
Page 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three and nine months ended July 31,
1996 1997
Three Nine Three Nine
months months months months
<S> <C> <C> <C> <C>
Net sales (including sales of $1.1
million and $3.8 million for the three and
nine months ended July 31, 1996,
respectively, and $1.1 million and $3.4
million for the three and nine months
ended July 31, 1997, respectively, to
Purina Mills) $ 7,413,280 $ 20,956,059 $ 8,093,922 $ 23,423,827
Cost of sales 5,412,880 15,626,148 5,915,757 17,329,393
-------------- -------------- -------------- --------------
Gross profit 2,000,400 5,329,911 2,178,165 6,094,434
Selling, general and administrative
expenses 1,900,255 5,465,932 1,798,534 5,410,320
-------------- -------------- -------------- --------------
Operating income (loss) 100,145 (136,021) 379,631 684,114
Interest expense (152,596) (413,101) (166,529) (490,753)
Other income (expense) (Note 10) 26,931 133,655 16,045 (138,375)
-------------- -------------- -------------- --------------
Income (loss) before income tax
benefit (provision) (25,520) (415,467) 229,147 54,986
Income tax benefit (provision) 6,178 154,946 (87,792) (20,828)
-------------- -------------- -------------- --------------
Income (loss) from continuing operations (19,342) (260,521) 141,355 34,158
Income (loss) from discontinued
operations, net of tax benefit (Note 3) 9,868 106,940 (13,238) 14,659
-------------- -------------- -------------- --------------
Net income (loss) $ (9,474) $ (153,581) $ 128,117 $ 48,817
-------------- -------------- ------------- --------------
Primary net income (loss) per common
and common equivalent share (Note 4):
Income (loss) from continuing operations -- (.03) .02 .01
Income (loss) from discontinued operations -- .01 -- --
-------------- -------------- ------------- --------------
$ -- $ (.02) $ .02 $ .01
-------------- -------------- ------------- --------------
Fully diluted net income (loss) per
common and common equivalent share (Note 4):
Income (loss) from continuing operations -- (.03) .02 .01
Income (loss) from discontinued operations -- .01 -- --
-------------- -------------- -------------- --------------
$ -- $ (.02) $ .02 $ .01
-------------- -------------- ------------- --------------
Primary common and common equivalent
shares outstanding (Note 4) 8,402,845 8,401,848 8,577,092 8,570,765
-------------- -------------- ------------- --------------
Fully diluted common and common
equivalent shares outstanding (Note 4) 8,402,845 8,401,848 8,577,092 8,570,765
-------------- -------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Cash Flows (unaudited)
Page 3
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<TABLE>
<CAPTION>
For the nine months
ended July 31,
1996 1997
<S> <C> <C>
Operating activities
Net income (loss) from continuing operations $ (260,521) $ 34,158
Adjustments to reconcile net loss income (loss) from continuing
operations to net cash used in operating activities:-
Depreciation and amortization 607,478 642,871
Income from discontinued operations, net of taxes (Note 3) 106,940 14,659
Change in net assets from discontinued operations (Note 3) (403,101) 1,343,398
Changes in operating assets and liabilities:
Increase in accounts receivable (1,016,136) (1,252,834)
(Increase) decrease in inventories (1,506,864) 890,659
Decrease in prepaid expenses and other assets 8,014 101,063
Decrease in accounts payable (178,907) (526,517)
Decrease in accrued expenses (506,378) (502,964)
--------------- ---------------
Net cash (used in) provided by operating activities (3,149,475) 744,493
--------------- ---------------
Investing activities
Purchase of property, plant and equipment (399,519) (570,709)
Purchase of Bromethalin Assets (850,771)
Sale of short-term investment securities 1,191,379
Purchase of Zema and St. JON net assets, net of cash acquired (220,474)
--------------- ---------------
Net cash used in investing activities (279,385) (570,709)
--------------- ---------------
Financing activities
(Repayment) borrowings of long-term debt and notes payable, net 3,221,982 (1,087,286)
Issuance of stock to directors 19,995 27,251
Purchase of Treasury Stock (49,986) (29,556)
Repayment of employee stock purchase loans 30,000
--------------- --------------
Net cash provided by (used in) financing activities 3,221,991 (1,089,591)
--------------- --------------
Decrease in cash and cash equivalents (206,869) (915,807)
Cash and cash equivalents, beginning of period 2,330,685 2,186,877
--------------- -------------
Cash and cash equivalents, end of period $ 2,123,816 $ 1,271,070
--------------- -------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Shareholders' Equity
Page 4
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<TABLE>
<CAPTION>
Common Stock in
Common Stock Treasury, at Cost
Number Additional Number
of Par Paid in of Accumulated
Shares Value Capital Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31,
1996 8,430,949 $ 84,309 $ 14,817,183 (25,650) $ (49,986) $ (529,171) $ 14,322,335
Issuance of stock to
directors and officers
(unaudited) 20,556 206 27,045 27,251
Treasury stock
purchased (unaudited) (21,200) (29,556) (29,556)
Net income (unaudited) 48,817 48,817
--------- ---------- ------------ ---------- ----------- -------- -----------
Balance, July 31,
1997 (unaudited) 8,451,505 $ 84,515 $ 14,844,228 (46,850) $ (79,542) $ (480,354) $ 14,368,847
========= ========== ============ ======== =========== =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 5
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1. Unaudited consolidated financial statements
The consolidated balance sheet as of July 31, 1997, the
consolidated statements of operations for the three and nine-month
periods ended July 31, 1996 and 1997, the consolidated statements of cash
flows for the nine-month periods ended July 31, 1996 and 1997 and the
consolidated statement of shareholders' equity for the nine-month period
ended July 31, 1997 have been prepared by Agri-Nutrition Group Limited
("the Company") without audit. In the opinion of management, all
adjustments (which include only normal, recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at and for the periods ended July 31, 1996 and 1997 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended July 31, 1996 and 1997,
respectively, are not necessarily indicative of the operating results for
the full year.
The consolidated financial statements have been restated to
reflect the Company's Ingredients segment as a discontinued operation in
accordance with Accounting Principles Board Opinion No.
30 ("APB 30") (see Note 3).
2. Organization
Organized in 1993, the Company manufactures and distributes animal
health and pet care products. In September 1993, through its wholly-owned
subsidiary, PM Resources, Inc. ("Resources"), the Company acquired
certain assets and assumed certain liabilities of the Health Industries
Business of the Consumer Products Division (the "Business") of Purina
Mills, Inc. ("Purina"). Resources commenced operations on September 9,
1993, the effective date of the acquisition of the Business. Resources
formulates, manufactures and distributes medicated treatments,
anthelmetics, nutritional supplements, cleaners and disinfectants, pest
control products, home, lawn and garden products, and specialty
compounds.
Effective March 31, 1995, the Company purchased substantially
all of the net assets and business of Zema Corporation ("Zema"). The
Company also purchased substantially all of the net assets and business
of St. JON Laboratories, Inc. ("St. JON") effective August 31, 1995.
Zema and St. JON formulate, package, market and distribute pet health
care, veterinary and grooming products domestically and abroad.
See Note 3 to the Company's Consolidated Financial Statements
included in the Company's annual report to shareholders for the year
ended October 31, 1996 ("1996 Annual Report") for additional information
related to the acquisitions of Zema and St. JON, including information
regarding the additional purchase price which must be paid to the former
owner of Zema if Zema achieves certain financial goals. In addition, see
Note 4 to the Company's Consolidated Financial Statements included in the
1996 Annual Report for information about the Company's acquisition of the
worldwide patents, active ingredient inventory, registrations and rights
to Bromethalin (the "Bromethalin Assets"), a highly effective and
proprietary rodenticide serving agricultural and Pest Control Operator
(PCO) markets, including information regarding additional consideration
to be paid based on shipments of Bromethalin to Purina over a five-year
period.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 6
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3. Discontinued operations
In June 1997, Purina notified the Company that they would no
longer require the Company's services to distribute ingredients to
Purina's various plants. Consequently, in July 1997, the Company
distributed all of its remaining ingredients inventories to Purina and
discontinued its operations in this area. This segment of the Company's
business has been accounted for and presented as a discontinued operation
in accordance with APB 30 for all periods reflected herein. At July 31,
1997, substantially all of the net assets relating to the Ingredients
segment have either been disposed or have been deployed into the
Company's existing operations.
Management does not anticipate that the Ingredients segment will
have any significant operations in the future. Furthermore, management
does not believe that there are any separately identifiable fixed assets
related to the Ingredients segment and proceeds, if any, related to
disposition of such net assets subsequent to the June 1997 measurement
date will not result in a material net gain or loss in future periods.
However, the ultimate financial impact of the discontinuation of the
segment could differ from management's current estimates.
The operating (unaudited) results of the discontinued operations
are summarized as follows:
<TABLE>
<CAPTION>
For the three and nine months ended July 31,
1996 1997
Three Nine Three Nine
months months months months
<S> <C> <C> <C> <C>
Net sales $ 1,311,323 $ 5,363,560 $ 942,958 $ 5,433,411
------------- ------------- ------------- -------------
Income (loss) before tax benefit
(provision) $ 16,046 $ 173,886 $ (21,526) $ 23,835
Income tax benefit (provision) (6,178) (66,946) 8,288 (9,176)
------------- ------------- ------------- -------------
Net income (loss) $ 9,868 $ 106,940 $ (13,238) $ 14,659
------------- ------------- ------------- -------------
</TABLE>
The net assets of discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
October 31, 1996 July 31, 1997
(unaudited)
<S> <C> <C>
Current assets, primarily accounts receivable
and inventories $ 1,738,000 $ 102,794
Property, plant and equipment, net 109,000
Current liabilities (499,461) (98,653)
---------------- --------------
Net assets of discontinued operations $ 1,347,539 $ 4,141
---------------- --------------
</TABLE>
4. Summary of significant accounting policies
The accounting policies followed by the Company are set forth in
Note 6 to the Consolidated Financial Statements included in the 1996
Annual Report. The financial statements included herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in such report.
Net loss per common and common equivalent share
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 7
- --------------------------------------------------------------------------------
Net loss per common and common equivalent share is calculated based
on the weighted average number of common and common equivalent shares
outstanding during the periods presented, using the treasury stock
method. The calculation does not reflect common stock equivalent shares
when their inclusion in such calculation would have been anti-dilutive.
5. Inventories
Inventories of the Company's specialty products segment consist of
the following:
October 31, July 31,
1996 1997
Raw materials $ 3,700,881 $ 3,400,452
Work-in-process 312,300 275,043
Finished goods 1,998,799 1,448,235
---------------- ----------------
6,011,980 5,123,730
Less: reserve for excess and
obsolete inventories (148,432) (150,841)
---------------- ----------------
$ 5,863,548 $ 4,972,889
---------------- ----------------
6. Financing
The Company has revolving credit facilities which aggregated
$8.125 million at July 31, 1997. In June 1997, the Company modified its
existing credit agreements increasing the aggregate lines by $650,000,
extending their maturity dates through March 31, 1999, lowering the
interest rates and commitment fees charged and revising certain of the
debt covenant calculations. The amended facilities consist of up to an
aggregate of $4.8 million in revolving credit lines, the available amount
being based upon specified percentages of qualified accounts receivable
and inventory, and a $3.35 million revolving credit line with available
amounts being reduced $125,000 per quarter. The interest rate will range
from prime minus .25% to prime plus .5%, depending on the Company's ratio
of debt to net worth, as defined in the agreements. At July 31, 1997, the
interest rate charged on borrowings outstanding under the agreements, as
amended, was 8.50% which is the bank's prime rate. At July 31, 1997,
approximately $2.5 million is available for additional borrowings under
these facilities.
At July 31, 1997, the Company and its subsidiaries were in
compliance with all covenants related to its various financing
arrangements.
In April 1997, the Company restructured its debt agreement with
the former owner of St. JON, who is the president of the Company's St.
JON subsidiary. Under the revised agreement, the Company paid $500,000 in
April 1997, in addition to the $450,000 scheduled payment, and will pay
off the remaining amounts in five annual installments of $324,563
beginning in March 1998. The interest rate on the note was not revised
and is fixed at 7.6% per annum.
7. Related Party Transactions
See Note 13 to the Company's Consolidated Financial Statements in
the 1996 Annual Report for a discussion regarding related party
transactions.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 8
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8. Employee benefit plans
During the nine months ended July 31, 1997, options to purchase
12,000 shares of the Company's common stock were granted to employees in
connection with the Company's 1996 Incentive Stock Plan. The exercise
prices of the options ranged from $1.1875 to $1.375 per share, which
approximated the fair value on the dates of grant. These options vest
ratably over three years from the date of grant and will expire ten years
from the grant date. No shares or options were issued in connection with
1995 Incentive Stock Plan or the Company's 1994 Incentive Stock Plan. See
Note 12 to the Company's financial statements in the 1996 Annual Report
for a discussion of the Company's incentive stock plans.
9. Commitments and contingencies
From time to time, the Company becomes party to various claims and
legal actions arising during the ordinary course of business. Management
believes that the Company's costs and any potential judgments resulting
from such claims and actions will be covered by the Company's product
liability insurance, except for deductible limits. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a
material effect on the Company's financial position or results of
operations. See Note 6 to the Company's Consolidated Financial Statements
in the 1996 Annual Report for a discussion of the Company's environmental
policy.
10. Acquisitions
Mardel Laboratories Letter of Intent
In July 1997, the Company entered into a letter of intent to
acquire Mardel Laboratories, Inc., a private company that is a developer,
manufacturer and marketer of high quality care products to the pet
industry. Mardel's expertise extends to fresh water and marine fish,
birds, dogs, cats, small animals and pond accessories. Mardel had sales
of approximately $7.6 million for the year ended December 31, 1996. The
transaction is subject to completion of due diligence and negotiation of
a definitive agreement. Management expects that the purchase price will
be paid with cash and common stock, the cash portion of which will be
funded by a combination of bank financing and available funds. Management
expects the transaction to be completed by September 30, 1997.
Termination of Anthony Products Letter of Intent
In March 1997, the Company terminated its letter of intent
related to its proposed acquisition of Anthony Products Company. In
conjunction with this action, the Company recorded a $202,000 pre-tax
charge in the second quarter of fiscal 1997. Such amount is included in
other income (expense) in the accompanying consolidated statement of
operations. Net income excluding the impact of this charge for the nine
month period ended July 31, 1997 would have been approximately $174,000.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 9
- --------------------------------------------------------------------------------
Overview
Organized in 1993, the Company manufactures and distributes animal health
and pet care products. In September 1993, the Company, through its PM Resources,
Inc. subsidiary ("Resources"), acquired the Health Industries Business of Purina
Mills, Inc. which formulates, manufacturers and distributes animal health
products and to a lesser extent, home, lawn and garden, and other products. In
July 1994, the Company completed its initial public offering of Common Stock
("IPO"), the net proceeds of which were approximately $12.1 million. Effective
March 31, 1995, the Company purchased substantially all of the net assets and
business of Zema Corporation ("Zema"), a formulator, manufacturer and supplier
of health care and grooming products to the pet industry. Effective August 31,
1995, the Company purchased substantially all of the net assets and business of
St. JON Laboratories, Inc. ("St. JON"), a developer, manufacturer and marketer
of oral hygiene, dermatological and gastrointestinal products for dogs and cats.
In July 1997, the Company entered into a letter of intent to acquire Mardel
Laboratories, Inc., a private company that is a developer, manufacturer and
marketer of high quality care products to the pet industry. Mardel's expertise
extends to fresh water and marine fish, birds, dogs, cats, small animals and
pond accessories. Mardel had sales of approximately $7.6 million for the
calendar year ended December 31, 1996. Management expects the transaction to be
completed by September 30, 1997.
Although the focus of the Company's business strategy historically has
been the acquisition of animal health and related companies, in August 1996,
management announced the completion of the acquisition phase of the Company's
strategy and its increased focus on internal growth, while continuing to pursue
strategic acquisitions and alliances. Also announced in August 1996 was a
management restructuring related to this increased focus on internal growth.
Management anticipates annual savings of approximately $600,000 related to this
restructuring primarily as a result of a reduction in executive salaries.
The Company has historically reported certain financial information for
two segments - ingredients and specialty products. Ingredients consist of feed
products that are purchased or blended by the Company and distributed for Purina
Mills (see Note 14 to the Company's Consolidated Financial Statements included
in the 1996 Annual Report). Specialty products consist of all other products
formulated, manufactured, and distributed by the Company to various customers,
including Purina Mills. Included in the specialty products segment are sales of
private label and branded products for which the Company manufactures goods
using registrations and/or formulas owned by the Company, and sales of products
manufactured under contract for which the Company manufactures products using
the customers' registrations and/or formulas. While the Company believes segment
data is meaningful for net sales, the Company does not believe segment data for
costs of sales and administrative costs are necessarily relevant to
understanding the Company's business. Costs of sales, other than raw materials,
and administrative costs incurred in the servicing of the two segments are joint
in nature and essentially invariable, particularly within the levels of sales
volume experienced within the reporting periods. The supporting asset base,
excluding inventories, is also joint in nature.
Given the acquisitions of businesses with branded, consumer-targeted
products in 1995 and the continued emphasis on growth of the specialty product
segment, the significance of the ingredients segment has decreased in fiscal
1996 and 1997. As discussed in prior filings, management expected this trend to
continue in the future. In June 1997, Purina notified the Company that they
would no longer require the Company's services to distribute ingredients to
Purina's various plants. Consequently, in July 1997, the Company distributed all
of its remaining ingredients inventories to Purina and discontinued its
operations in its ingredients segment. This segment is accounted for as
discontinued operations in accordance with APB 30. Accordingly, the Company has
reported the Segment as discontinued operations and the consolidated financial
statements have been reclassified to report separately the financial position
and operating results of the Segment. The Company's consolidated operating
results
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 10
- --------------------------------------------------------------------------------
for the three and nine months ended July 31, 1997 have been restated to reflect
the Company's continuing operations related to its specialty products business.
<TABLE>
<CAPTION>
(Dollars in 000's)
Three months ended July 31, Nine months ended July 31,
---------------------------------------- ----------------------------------------
1996 1997 1996 1997
------------------- ----------------- ------------------- ----------------
Dollar % of Dollar % of Dollar % of Dollar % of
amount net sales amount net sales amount net sales amount net sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... 7,413 100.0 8,094 100.0 20,956 100.0 23,424 100.0
Cost of sales................ 5,413 73.0 5,916 73.1 15,626 74.6 17,330 74.0
Gross profit................. 2,000 27.0 2,178 26.9 5,330 25.4 6,094 26.0
Selling, general and
administrative expense 1,900 25.6 1,798 22.2 5,466 26.1 5,410 23.1
Operating income (loss) from
continuing operations 100 1.4 380 4.7 (136) (.7) 684 2.9
</TABLE>
Three Months Ended July 31, 1997 Compared to Three Months Ended July 31, 1996
Total net sales increased 9% from $7.4 million in fiscal 1996 to $8.1
million for 1997, reflecting an increase in higher margin specialty product
sales, which comprise all sales from continuing operations. Sales of pet care
products grew 24% which is primarily attributable to the new products introduced
during fiscal years 1996 and 1997, and continued strong growth from the
Company's sales and distribution operation in the United Kingdom.
The Company's manufacturing and supply agreement with Purina Mills
pursuant to which Purina Mills had guaranteed the Company sufficient sales to
generate annual income, net of ingredient, direct manufacturing, and other
direct costs of approximately $2.9 million for the three-year period ended
October 31, 1996 expired as of that date. Although the Company continues to have
a supply relationship with Purina Mills, there can be no assurance what level of
sales or income will be obtained in the future. Sales to Purina Mills, excluding
Ingredients which were discontinued in July 1997, were approximately $1.1
million for both the three months ended July 31, 1997 and 1996.
Gross profit increased from $2.0 million in 1996 (27.0% of net sales) to
$2.2 million in 1997 (26.9% of net sales), primarily due to the increased sales
in 1997.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 11
- --------------------------------------------------------------------------------
Selling, general and administrative expenses were $1.9 million in 1996
compared to $1.8 million in 1997 and decreased as a percent of net sales from
25.6% in 1996 to 22.2% in 1997. The decrease in selling, general and
administrative expenses as a percent of sales is primarily related to the impact
of the corporate management restructuring announced in August 1996.
The factors discussed above resulted in operating income from continuing
operations of approximately $380,000 during the three months ended July 31,
1997, a $280,000 improvement compared to the operating income from continuing
operations of approximately $100,000 in the prior year.
Interest expense was approximately $.15 million in 1996 and $.17 million
in 1997.
The effective income tax rate on income from continuing operations of the
Company was approximately 38.5% for 1996 and 1997, respectively. The aggregate
amount of the deferred tax asset valuation allowance at July 31, 1997 was
approximately $.1 million.
Net income from continuing operations for the three months ended July 31,
1997, was $141,000 compared to a net loss from continuing operations for the
three months ended July 31, 1996 of $19,000.
Ingredients sales increased from $1.3 million in 1996 to $.9 million in
1997. Income from discontinued operations for the third quarter of 1997
decreased approximately $23,000 from $10,000 of net income in 1996 to a net loss
of $13,000 in 1997. This is primarily attributable decreased volume during the
quarter as the Company distributed its remaining Ingredients inventories.
Management does not anticipate any material gains or losses related to the
Ingredients segment.
Net income for the third quarter of 1997 was $128,000 and earnings per
common share was $0.02 compared to a net loss of $9,000 in the third quarter of
1996.
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1996
Total net sales increased from $21.0 million in fiscal 1996 to $23.4
million for 1997, reflecting a 12% increase in the Company's higher margin
specialty product. The increase in sales from the pet care businesses grew 23%
primarily reflecting the impact of new products introduced into the veterinary
channel during fiscal 1996 and 1997, and continued strong growth from the
Company's sales and distribution operation in the United Kingdom which was
acquired in July 1996.
The Company's manufacturing and supply agreement with Purina Mills
pursuant to which Purina Mills had guaranteed the Company sufficient sales to
generate annual income, net of ingredient, direct manufacturing, and other
direct costs of approximately $2.9 million for the three-year period ended
October 31, 1996 expired as of that date. Although the Company expects to have a
supply relationship with Purina Mills, there can be no assurance what level of
sales or income will be obtained in the future. Sales to Purina Mills, excluding
sales of Ingredients which were discontinued in July 1997, totaled $3.4 million
for the nine months ended July 31, 1997 compared to $3.8 million during the nine
months ended July 31, 1996.
Gross profit increased from $5.3 million in 1996 (25.4% of net sales) to
$6.1 million in 1997 (26.0% of net sales), primarily due to the increased sales
in 1997.
Selling, general and administrative expenses were approximately $5.5
million in 1996 and $5.4 million in 1997, decreasing as a percent of net sales
from 26.1% in 1996 to 23.1% in 1997. The decrease in selling, general and
administrative expenses as a percent of sales is related to the impact of
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 12
- --------------------------------------------------------------------------------
the corporate management restructuring announced in August 1996, combined with
decreases in expenses incurred at the operating companies.
The factors discussed above resulted in operating income from continuing
operations of approximately $684,000 during the nine months ended July 31, 1997,
an $820,000 improvement compared to the operating loss of approximately $136,000
in the prior year.
Interest expense was approximately $.3 million in 1996 and 1997, with an
increase that reflects increased debt balances that resulted from the Company's
investment in inventory related to new product introductions subsequent to the
first quarter of fiscal 1996 and increased sales volume in fiscal 1997.
In March, 1997, the Company terminated its letter of intent related to
its proposed acquisition of Anthony Products Company. In conjunction with this
action, the Company recorded a $202,000 pre-tax charge in the second quarter of
fiscal 1997. Such amount was included in other income (expense) in the Company's
consolidated statement of operations.
The effective income tax rate of the Company was 38% for 1996 and 1997.
The aggregate amount of the deferred tax asset valuation allowance at July 31,
1997 was approximately $.1 million.
Net income from continuing operations for the nine months ended July 31,
1997, excluding the impact of the Anthony Products charge noted above, would
have been $140,000, compared to a net loss from continuing operations for the
nine months ended July 31, 1996 of $261,000. Including the Anthony Products
charge, net income from continuing operations for the nine months ended July 31,
1997 was $34,000.
Ingredients sales were approximately $5.4 million in 1996 and 1997.
Income from discontinued operations for the third quarter of 1997 decreased
approximately $92,000 from $107,000 in 1996 to $15,000 in 1997. This is
primarily attributable to decreasing margins from the sales of Ingredients
compared to the prior year, combined with decreased volume of units shipped in
1997. In July 1997, the Company shipped its remaining Ingredients inventory and
discontinued operations in the Segment.
Net income in 1997 of $49,000 increased by approximately $200,000
compared to the net loss of $154,000 in 1996.
Liquidity and Capital Resources
The Company's existing capital requirements are primarily to fund
equipment purchases and working capital needs. The Company's cash balance of
$1.3 million at July 31, 1997 principally reflects remaining net proceeds from
the IPO which are available for further acquisition funding requirements. During
April 1995, the Company completed the acquisition of Zema, which required
utilization of approximately $3.2 million of net proceeds for the acquisition
and related expenses in 1995 and will require additional payments of $.3 million
plus interest prior to April 1998, and potentially additional payments
conditioned upon the achievement of certain operating criteria by Zema which
would be due in April 2000. In August 1995, the Company acquired the net assets
of St. JON, which required approximately $3.5 million of cash, the assumption of
certain liabilities aggregating approximately $1.5 million which were paid
within four months of closing, and an additional $2 million plus interest to be
paid in annual installments over six years commencing March 31, 1997. During
fiscal 1997, the Company utilized approximately $1.0 million of cash related to
payment of this obligation and restructured the agreement, with annual payments
of $325,000 being required over the five years commencing March 31, 1998.
Effective May 1996, the Company acquired the worldwide patents and other assets
and rights to Bromethalin, which required payments of $1 million including
related expenses
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 13
- --------------------------------------------------------------------------------
at closing, and will require additional consideration based on shipments of
Bromethalin to Purina Mills over a five-year period. The Company's cash balances
continue to be invested in high-grade, short-term interest-bearing obligations
(primarily discount and demand notes with maturities of three months or less,
and high-grade, corporate bonds and notes) pending their specific use.
Speculative use of derivatives is prohibited by the Company's investment policy.
In July 1997, the Company entered into a letter of intent to acquire
Mardel Laboratories, Inc., a private company that is a developer, manufacturer
and marketer of high quality care products to the pet industry. Mardel's
expertise extends to fresh water and marine fish, birds, dogs, cats, small
animals and pond accessories. Mardel had sales of approximately $7.6 million for
the calendar year ended December 31, 1996. The transaction is subject to
completion of due diligence and negotiation of a definitive agreement.
Management expects that the purchase price will be paid with cash and common
stock, the cash portion of which will be funded by a combination of bank
financing and available funds. Management expects the transaction to be
completed by September 30, 1997.
During the nine months ended July 31, 1997, the Company used
approximately $.6 million of cash related to continuing operations compared to a
use of cash by continuing operations approximated $2.7 million in 1996. This
reduction in cash used by continuing operations in 1997 compared to 1996 was
primarily due to emphasis placed on the operating companies to control and
reduce inventory levels, as well as certain changes to the product mix at
Resources, including the discontinuation of the Ingredients segment, which
decreased the required investment in inventory in that segment. The Company's
inventories from continuing operations decreased $.9 million during 1997
compared to an increase in 1996 of $1.5 million during the first nine months of
the prior year. The discontinuation of the ingredients segment generated cash of
$1.3 million during the nine months ended July 31, 1997, compared to a use of
cash related to this discontinued segment of $.4 million during the comparable
period in the prior year.
The Company has revolving credit facilities which aggregated $8.125
million at July 31, 1997. In June 1997, the Company modified to the Company's
existing credit agreements increasing the aggregate lines by $650,000, extending
their maturity dates through March 31, 1999, lowering the interest rates and
commitment fees charged and revising certain of the debt covenant calculations.
The amended facilities consist of up to an aggregate of $4.8 million in
revolving credit lines, the available amount being based upon specified
percentages of qualified accounts receivable and inventory, and a $3.35 million
revolving credit line with available amounts being reduced $125,000 per quarter.
The interest rate will range from prime minus .25% to prime plus .5%, depending
on the Company's ratio of debt to net worth, as defined in the agreements. At
July 31, 1997, the interest rate charged on borrowings outstanding under the
agreements, as amended, was 8.50% which is the bank's prime rate. Approximately
$2.5 million is available under these facilities at July 31, 1997. The Company
and its subsidiaries are in compliance with all covenants related to its various
financing arrangements. The agreements allow the Company to sweep all cash
balances against outstanding borrowings, thus reducing the Company's overall
interest expense.
In December 1995, the Company's board of directors authorized the
repurchase of up to 500,000 shares of the Company's Common Stock. The amount of
funds required will depend upon the actual number of shares repurchased and the
market price paid by the Company for those shares. The Company will utilize
available funds to implement this stock repurchase. As of July 31, 1997, 46,850
shares had been repurchased under this program at an aggregate cost of $79,542.
Management believes that the Company will generally have sufficient cash
to meet the needs of the current operations for the foreseeable future from cash
flows from current operations, available funds, and existing financing
facilities.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 14
- --------------------------------------------------------------------------------
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the nine
months ended July 31, 1997 were approximately $.3 million. Future capital
expenditures for the Company's operating subsidiaries are not expected to
significantly exceed historical amounts, which approximate current depreciation
expense.
Quarterly Effects and Seasonality
Resources' results of operations historically have been seasonal, with a
high percentage of its volume and earnings being generated in the second quarter
(February through April) and a low percentage of its volume and earnings in the
fourth quarter (August through October) of the fiscal year. However, such
seasonal patterns are highly dependent on weather, feeding economics and the
timing of customer orders. Furthermore, new business has not exhibited
historical patterns, particularly the sales of rodenticides which had tended to
be concentrated in the Company's first and fourth quarters. The results of
Zema's operations also historically have been seasonal with a high volume of its
sales and earnings being generated during the months of April through September.
St. JON's sales and earnings historically have not been seasonal.
New Accounting Standards
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), which
requires public entities to present both basic and diluted earnings per share
amounts on the face of their financial statements, replacing the former
calculations of primary and fully diluted earnings per share. The Company will
adopt FAS 128 effective with its fiscal 1998 first quarter, and anticipates
that, when adopted, FAS 128 will not have a material effect on its reported
earnings per common share.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Part II - Other Information
Page 15
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Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
10.21 Amended and Restated Revolving Credit Agreement between St.
JON Laboratories, Inc. and First Bank
10.22 Second Amended and Restated Revolving Credit Agreement
between PM Resources, Inc., Zema Corporation and First Bank
27 Financial Data Schedule
b. Reports of Form 8-K.
No reports on Form 8-K were filed during the period covered by this
Report.
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.
AGRI-NUTRITION GROUP LIMITED
/s/ Robert J. Elfanbaum
- -----------------------------------------------------
Robert J. Elfanbaum
Vice President and Chief Financial Officer
September 15, 1997
<PAGE>
Exhibit 10.21
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "Agreement") is made and entered into this 18th day of June, 1997, by and
between ST. JON LABORATORIES, INC., a California corporation ("Borrower"), and
FIRST BANK, a Missouri state banking corporation ("Bank").
WITNESSETH:
WHEREAS, Borrower presently has a revolving credit loan from
Bank in a principal amount of up to One Million Eight Hundred Thousand Dollars
($1,800,000.00) for a period of time up to and including March 31, 1998, as
extended thereafter in Bank's discretion for subsequent one year periods, and
which is subject to a Borrowing Base (as set forth herein); and
WHEREAS, Borrower has requested an extension of such revolving
credit loan facility from Bank for a period of time up to and including March
31, 1999; and
WHEREAS, Bank is willing to make said revolving credit loans
to Borrower upon, and subject to, the terms, provisions and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby mutually promise and agree as follows:
SECTION 1. TERM.
The "Term" of this Agreement shall commence on the date hereof
and shall end on March 31, 1999, unless earlier terminated upon the occurrence
of an Event of Default under this Agreement, or unless subsequently extended by
Bank, in its sole discretion and without obligation to do so, pursuant to the
terms of Section 3.8 herein.
SECTION 2. DEFINITIONS.
In addition to the terms defined elsewhere in this Agreement
or in any Exhibit or Schedule hereto, when used in this Agreement, the following
terms shall have the following meanings (such meanings shall be equally
applicable to the singular and plural forms of the terms used, as the context
requires):
Account Debtor shall mean any Person who is and/or may become
obligated to Borrower under or on account of Accounts.
Accounts shall mean all trade accounts receivable of Borrower
which have been invoiced by Borrower.
<PAGE>
Attorneys' Fees shall mean the reasonable value of the
services (and costs, charges and expenses related thereto) of the attorneys (and
all paralegals, secretaries, accountants and other staff employed by such
attorneys) employed by Bank (including, without limitation, attorneys and
paralegals who are employees of Bank) from time to time (i) in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of this Agreement and/or any of the other Transaction Documents,
(ii) to represent Bank in any litigation, contest, dispute, suit or proceeding,
or to commence, defend or intervene in any litigation, contest, dispute, suit or
proceeding, or to file any petition, complaint, answer, motion or other pleading
or to take any other action in or with respect to any litigation, contest,
dispute, suit or proceeding (whether instituted by Bank, Borrower or any other
Person and whether in bankruptcy or otherwise) in any way or respect relating to
any of the Collateral, any Third Party Collateral, this Agreement or any of the
other Transaction Documents, Borrower, any Subsidiary of Borrower or any other
Obligor, (iii) to protect, collect, lease, sell, take possession of or liquidate
any of the Collateral or any Third Party Collateral, (iv) to attempt to enforce
any security interest in or other Lien upon any of the Collateral or any Third
Party Collateral or to give any advice with respect to such enforcement and (v)
to enforce any of Bank's rights to collect any of Borrower's Obligations.
Bank's Commitment shall have the meaning ascribed thereto in
Section 3.1(a).
Borrower's Obligations shall mean any and all indebtedness
(principal, interest, fees and other amounts), liabilities and obligations of
Borrower to Bank evidenced by or arising under the Note, this Agreement, the
Security Agreement, any of the other Transaction Documents or any other
agreement, document or instrument heretofore, now or hereafter executed and
delivered by Borrower to Bank, in each case whether now existing or hereafter
arising, absolute or contingent, joint and/or several, secured or unsecured,
direct or indirect, expressed or implied in law, contractual or tortious,
liquidated or unliquidated, at law or in equity, or otherwise, and whether
created directly or acquired by Bank by assignment or otherwise, and any and all
costs of collection and/or Attorneys' Fees incurred or to be incurred in
connection therewith.
Borrowing Base shall have the meaning ascribed thereto in
Section 3.1(b).
Borrowing Base Certificate shall have the meaning ascribed
thereto in Section 3.1(c).
Borrowing Notice shall have the meaning ascribed thereto in
Section 3.2.
Business Day shall mean any day except a Saturday, Sunday or
legal holiday observed by Bank.
Capitalized Lease shall mean any lease which, in accordance
with Generally Accepted Accounting Principles consistently applied, is or should
be capitalized on the balance sheet of the lessee.
Code shall mean the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in
<PAGE>
effect from time to time. References to sections of the Code shall be construed
to also refer to any successor sections.
Collateral shall mean any Property or assets of Borrower which
now or at any time hereafter secure the payment or performance of any of
Borrower's Obligations.
Consolidated Current Assets shall mean all assets which, in
accordance with Generally Accepted Accounting Principles consistently applied,
should be classified as current assets on the consolidated balance sheet of
Guarantor and its Consolidated Subsidiaries, minus any intangible current
assets.
Consolidated Current Liabilities shall mean all liabilities
which, in accordance with Generally Accepted Accounting Principles consistently
applied, should be classified as current liabilities on the consolidated balance
sheet of Guarantor and its Consolidated Subsidiaries, including without
limitation, any current maturities of long term Indebtedness, but excluding the
balloon principal payment owed by Borrower to Bank at maturity hereunder during
the last year of the Term hereof and the balloon principal payments due under
both Facility A and Facility B at maturity from PM Resources, Inc. and Zema
Corporation during the last year of the term thereof under their Second Amended
and Restated Revolving Credit Agreement dated of even date herewith. For
purposes of this definition, $500,000.00 shall at all times be deemed to be the
current portion of principal payable under Facility B of the PM Resources, Inc.
and Zema Corporation Second Amended and Restated Revolving Credit Agreement,
whether or not such principal balance is then outstanding.
Consolidated Funded Debt shall mean the sum of all borrowed
money Indebtedness of the Guarantor and its Consolidated Subsidiaries whether
classified as long term or short term on Guarantor's consolidated financial
statements prepared in accordance with Generally Accepted Accounting Principles
consistently applied, but excluding at all times any Subordinated Debt.
Consolidated Subsidiary shall mean with respect to any Person
at any date, any Subsidiary or other entity the assets and liabilities of which
are or should be consolidated with those of such Person in its consolidated
financial statements as of such date in accordance with Generally Accepted
Accounting Principles consistently applied.
Consolidated Tangible Net Worth shall mean, at any date, the
sum of the consolidated stockholders' equities of Guarantor and its Consolidated
Subsidiaries plus all Subordinated Debt then outstanding, determined in
accordance with Generally Accepted Accounting Principles consistently applied,
less Guarantor's and such Subsidiaries' Intangible Assets as of such date. For
purposes of this definition, "Intangible Assets" shall mean the amount (to the
extent reflected in determining such stockholders' equity) of (i) all write-ups
in the book value of any asset owned by Guarantor or a Consolidated Subsidiary
of Guarantor resulting from a revaluation thereof subsequent to the date of this
Agreement and (ii) goodwill, unamortized debt discount and expense, unamortized
deferred charges, patents, trademarks, service marks, trade names, copyrights,
organizational and developmental expenses and other similar intangible items and
assets, all determined in accordance with Generally Accepted Accounting
Principles consistently applied.
<PAGE>
Debt Service Coverage Ratio shall mean the sum of Guarantor's
and its Consolidated Subsidiaries' net income, plus depreciation and
amortization, plus interest expense, all determined in accordance with Generally
Accepted Accounting Principles consistently applied for the twelve-month period
preceding the date of such calculation, divided by Guarantor's and its
Consolidated Subsidiaries' total required current maturities of long term
Indebtedness determined upon the anticipated amount of current maturities of
long term Indebtedness to be paid by Guarantor and its Consolidated Subsidiaries
for the twelve-month period following the date of any such calculation, and
including, without limitation, an amount equal to $500,000.00 which at all times
for purposes of this definition shall be deemed to be the current portion of
principal payable on PM Resources, Inc.'s and Zema Corporation's Facility B (but
excluding the balloon principal payment owed by Borrower to Bank at maturity
hereunder during the last year of the Term hereof and the balloon principal
payment due at maturity from PM Resources, Inc. and Zema Corporation during the
last year of the term thereof under their Second Amended and Restated Revolving
Credit Agreement dated of even date herewith), plus Guarantor's and its
Consolidated Subsidiaries' interest expense, determined based upon the actual
amount of interest expense incurred by Guarantor and its Consolidated
Subsidiaries during the twelve-month period preceding the date of any such
calculation, and all determined in accordance with Generally Accepted Accounting
Principles consistently applied.
Default shall mean any event or condition the occurrence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default as defined in Section 8 hereof.
Distribution in respect of any corporation shall mean:
(a) dividends or other distributions on capital
stock of the corporation; and
(b) the redemption, repurchase or other
acquisition of such stock or of warrants, rights or other options to purchase
such stock (except when solely in exchange for such stock).
Eligible Accounts shall mean all Accounts other than: (a)
Accounts which remain unpaid for more than ninety (90) days after their invoice
dates and Accounts which are not due and payable within ninety (90) days after
their invoice dates; (b) Accounts owing by a single Account Debtor, including a
currently scheduled Account, if ten percent (10%) or more of the balance owing
by said Account Debtor upon said Accounts is ineligible pursuant to clause (a)
above; (c) Accounts with respect to which the Account Debtor is a shareholder or
partner of Borrower or a Related Party of Borrower; (d) Accounts with respect to
which payment by the Account Debtor is or may be conditional; (e) Accounts with
respect to which the Account Debtor is not a resident or citizen of or otherwise
located in the continental United States of America; (f) Accounts with respect
to which the Account Debtor is the United States of America or any department,
agency or instrumentality thereof unless such Accounts are duly assigned to Bank
in accordance with all applicable governmental and regulatory rules and
regulations (including, without limitation, the Federal Assignment of Claims Act
of 1940, as amended, if applicable) so that Bank is recognized by the Account
Debtor to have all of the rights of an assignee of such Accounts; (g) Accounts
with respect to which Borrower is or may become liable to the Account Debtor for
goods sold or services rendered by such Account Debtor to
<PAGE>
Borrower; (h) Accounts with respect to which the goods giving rise thereto have
not been shipped and delivered to and accepted as satisfactory by the Account
Debtor thereof or with respect to which the services performed giving rise
thereto have not been completed and accepted as satisfactory by the Account
Debtor thereof; (i) Accounts which are not invoiced (and dated as of such date)
and sent to the Account Debtor thereof concurrently with or not later than five
(5) days after the shipment and delivery to and acceptance by said Account
Debtor of the goods giving rise thereto or the performance of the services
giving rise thereto; (j) Accounts arising from a "sale on approval" or a "sale
or return;" (k) Accounts as to which Bank, at any time or times hereafter,
determines, in good faith, that the prospects of payment or performance by the
Account Debtor is or will be impaired; (l) Accounts of an Account Debtor to the
extent, but only to the extent, that the same exceed a credit limit determined
by Bank in its discretion, at any time or times hereafter; (m) Accounts with
respect to which the Account Debtor is located in the State of New Jersey or the
State of Minnesota; provided, however, that such restriction shall not apply if
Borrower (i) has filed and has effective (A) in respect of Account Debtors
located in the State of New Jersey, a Notice of Business Activities Report with
the New Jersey Division of Taxation for the then current year or (B) in respect
of Account Debtors located in the State of Minnesota, a Minnesota Business
Activity Report with the Minnesota Department of Revenue for the then current
year, as applicable, or (ii) is otherwise exempt from such reporting
requirements under the laws of such State(s); and (n) Accounts which are not
subject to a first priority perfected security interest in favor of Bank.
Eligible Inventory shall mean all Inventory of Borrower,
valued at the lower of cost or current market value on an average cost basis,
other than (a) any Inventory which constitutes work-in-process of Borrower, (b)
any such Inventory which is obsolete, (c) Inventory which is not in good
condition or does not comply with all standards imposed by any governmental
authority having regulatory authority over such goods or their manufacture, use
or sale, or Inventory which Bank has in good faith determined, in accordance
with Bank's customary business practices, is otherwise unacceptable due to age,
type, category and/or quantity, (d) Inventory which is held on consignment or
consists of experimental products or products not yet proven commercially viable
by reason of a significant number of purchase orders, or Inventory held for
promotional purposes and as samples, or Inventory returned due to defects or
product warranty problems, (e) Inventory which is not maintained at one of the
places of business and/or locations provided in the Security Agreement, (f)
Inventory not either usable or saleable, at prices not less than the standard
cost, in the ordinary course of the Borrower's business, or (g) Inventory which
is not subject to a first priority perfected security interest in favor of Bank.
Environmental Laws shall mean the Resource Conservation and
Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act and any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Materials or
any other hazardous, toxic or dangerous waste, substance or constituent or other
substance, whether solid, liquid or gas, as now or at any time hereafter in
effect.
Environmental Lien shall have the meaning ascribed thereto in
Section 7.1(k)(vii).
<PAGE>
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
ERISA Affiliate shall mean any corporation, trade or business
that is, along with Borrower, a member of a controlled group of corporations or
a controlled group of trades or businesses, as described in Sections 414(b) and
414(c), respectively, of the Code.
Event of Default shall have the meaning ascribed thereto in
Section 8.
Facility Fee shall have the meaning ascribed thereto in
Section 3.7.
Floating Rate Margin shall mean One Fourth of One Percent
(0.25%) up to and including August 31, 1997, and thereafter, commencing on the
first day of the second month following each fiscal quarter-end or fiscal
year-end, the "Floating Rate Margin" shall (based upon the Guarantor's ratio of
consolidated Indebtedness to Consolidated Tangible Net Worth as of the end of
the immediately preceding quarter (or fiscal year) determined by reference to
the Guarantor's quarter-end (or fiscal year-end) financial statements for such
preceding fiscal quarter-end (or fiscal year-end)), (i.e., for the period
beginning September 1, 1997 by referencing the Guarantor's July 31, 1997 fiscal
quarter-end financial statements), mean the following:
(i) One Half of One Percent (0.50%), if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible
Net Worth shall be greater than or equal to 2.0 to 1.0 as determined
pursuant to Section 5.1(I) of the Guaranty by reference to the
Guarantor's most recent quarter-end (or fiscal year-end) financial
statements,
(ii) One Fourth of One Percent (0.25%), if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible
Net Worth shall be less than 2.0 to 1.0 but greater than or equal to
1.5 to 1.0 as determined pursuant to Section 5.1(I) of the Guaranty by
reference to the Guarantor's most recent quarter-end (or fiscal
year-end) financial statements,
(iii) Zero Percent (0.00%), if the Guarantor's ratio
of consolidated Indebtedness to Consolidated Tangible Net Worth shall
be less than or equal to 1.5 to 1.0 but greater than or equal to 1.0 to
1.0 as determined pursuant to Section 5.1(I) of the Guaranty by
reference to the Guarantor's most recent quarter-end (or fiscal
year-end) financial statements, and
(iv) Negative One Fourth of One Percent (-0.25%), if
the Guarantor's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 1.0 to 1.0 as determined pursuant
to Section 5.1(I) of the Guaranty by reference to the
<PAGE>
Guarantor's most recent quarter-end (or fiscal year-end) financial
statements,
The interest rate on any Loan shall be adjusted automatically on and as of the
effective date of any change in the Floating Rate Margin pursuant to this
definition.
Generally Accepted Accounting Principles shall mean such
accounting principles as, in the opinion of the "big six" accounting firm
regularly retained by Guarantor and Borrower, conform at the time to generally
accepted accounting principles consistently applied, except that with respect to
the financial statements and reports of the Borrower, such financial statements
and reports shall not be required to separately report the accrual of income
taxes on Borrower's financial statements and shall not include footnotes, and
with respect to the interim financial statements only of Guarantor, may not
include footnotes.
Guarantee by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by agreement to keep-well, to purchase assets, goods, securities or
services, or to take-or-pay or otherwise); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "guarantee" used as a verb shall have a correlative
meaning.
Guarantor shall mean Agri-Nutrition Group Limited, a Delaware
corporation, and its successors and assigns.
Guaranty shall mean that certain Unlimited Continuing Guaranty
dated the date hereof and executed by Agri-Nutrition Group Limited, a Delaware
corporation, in favor of Bank, as the same may from time to time be amended.
Hazardous Materials shall mean any hazardous substance or
pollutant or contaminant defined as such in (or for the purposes of) any
Environmental Law and shall include, without limitation, petroleum, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including, without limitation, any source,
special nuclear or byproduct material as defined in 42 U.S.C. Section 2011 et
seq., as amended or hereafter amended, and asbestos in any form or condition.
Indebtedness of any Person shall mean and include, without
duplication, any and all indebtedness, liabilities and obligations of such
Person which in accordance with Generally Accepted Accounting Principles
consistently applied are or should be classified upon a balance sheet of such
Person as liabilities of such Person, and in any event shall include all (i)
obligations of such Person for borrowed money or which have been incurred in
connection with the acquisition of Property, (ii) obligations secured by any
Lien or other charge upon any Property owned by such Person, provided that if
such Person has not assumed or become liable for the payment of such
obligations, such obligations shall still be included in Indebtedness but the
determination of the amount of Indebtedness evidenced by such obligations shall
be limited to the book value of such Property, (iii) obligations created or
arising under any conditional sale or other title retention agreement with
respect to any Property acquired by such Person, provided
<PAGE>
that if the rights and remedies of the seller, lender or lessor in the event of
default under such agreement are limited solely to repossession or sale of such
Property, such obligations shall still be included in Indebtedness but the
determination of the amount of Indebtedness evidenced by such obligations shall
be limited to the book value of such Property, (iv) all Guarantees and other
contingent indebtedness, liabilities and obligations of such Person, but only to
the extent any such contingent indebtedness, liabilities and obligations are, in
accordance with Generally Accepted Accounting Principles consistently applied,
required to be accrued as a liability on the balance sheet of such Person and
(v) all obligations of such Person as lessee under any Capitalized Lease.
For the purpose of computing the "Indebtedness" of any Person,
there shall be excluded any particular Indebtedness to the extent that, upon or
prior to the maturity thereof, there shall have been deposited with the proper
depositary in trust the necessary funds (or evidences of such Indebtedness) for
the payment, redemption or satisfaction of such Indebtedness; and thereafter
such funds and evidences of Indebtedness so deposited shall not be included in
any computation of the assets of such Person.
Intercreditor Agreement shall mean that certain Intercreditor
Agreement dated as of January 8, 1996 and executed by John J. Nelson, Inc.,
formerly known as St. JON Laboratories, Inc., a California corporation, and by
John J. Nelson in favor of Bank, subordinating any and all present and future
security interests of John J. Nelson, Inc. and John J. Nelson in Borrower's
accounts receivable and inventory to any and all present and future security
interest of Bank therein, as the same may from time to time be amended.
Inventory shall mean all inventory of Borrower valued at the
lower of cost or market.
Lien shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on common law, statute or contract,
including, without limitation, any security interest, mortgage, deed of trust,
pledge, hypothecation, judgment lien or other lien or encumbrance of any kind or
nature whatsoever, any conditional sale or trust receipt and any lease,
consignment or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property.
Loan shall mean each Loan made hereunder, as defined in
Section 3.1(a) herein, and Loans shall mean any or all of the foregoing.
Multiemployer Plan shall mean a "multi-employer plan" as
defined in Section 4001(a)(3) of ERISA which is maintained for employees of
Borrower, any ERISA Affiliate or any Subsidiary of Borrower.
Note shall mean the Revolving Credit Note of Borrower to be
executed and delivered to Bank pursuant to Section 3.2, as the same may from
time to time be amended, modified, extended or renewed.
<PAGE>
Obligor shall mean Borrower, the Guarantor and each other
Person who is or shall at any time hereafter become primarily or secondarily
liable on any of Borrower's Obligations or who grants Bank a Lien upon any of
the Property or assets of such Person as security for any of Borrower's
Obligations.
Occupational Safety and Health Laws shall mean the
Occupational Safety and Health Act of 1970, as amended, and any other Federal,
state or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct concerning
employee health and/or safety, as now or at any time hereafter in effect.
PBGC shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
Pension Plan shall mean a "pension plan," as such term is
defined in Section 3(2) of ERISA, which is established or maintained by
Borrower, any ERISA Affiliate or any Subsidiary of Borrower, other than a
Multiemployer Plan.
Person shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity or government (whether national, Federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
Pledge Agreement shall mean that certain Agreement of Pledge
(Third Party) executed by Agri-Nutrition Group Limited, a Delaware corporation,
and delivered to Bank pursuant to Section 5.2, as the same may from time to time
be amended, pursuant to which Agri-Nutrition Group Limited has pledged to Bank
all of the issued and outstanding shares of capital stock in the Borrower.
Prime Rate shall mean the interest rate announced from time to
time by Bank as its "prime rate" on commercial loans (which rate shall fluctuate
as and when said prime rate shall change).
Property shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible. Properties
shall mean the plural of Property. For purposes of this Agreement, Borrower and
each Subsidiary of Borrower shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person for security purposes.
Related Party shall mean any Person (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by or
is under common control with, Borrower or any Subsidiary of Borrower, (ii) which
beneficially owns or holds ten percent (10%) or more of the equity interest of
Borrower, (iii) ten percent (10%) or more of the equity interest of which is
beneficially owned or held by Borrower or a Subsidiary of Borrower, or (iv) who
is a director, officer or employee of Borrower or a Subsidiary of Borrower, but
the term "Related Party" shall specifically exclude Durvet/PMR, L.P., its
general partner, Durvet, Inc and St. JON VRx Products, Limited. The term
"control" shall mean the possession, directly or indirectly, of the power to
vote ten percent (10%) or more of the capital stock of any Person or
<PAGE>
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
Reportable Event shall have the meaning given to such term in
ERISA.
Security Agreement shall mean the Security Agreement executed
by Borrower and delivered to Bank pursuant to Section 6, as the same may from
time to time be amended.
Subordinated Debt shall mean all borrowed money Indebtedness
of Borrower which has been duly subordinated by the lender thereof to Borrower's
Indebtedness and obligations to Bank hereunder and under the other Transaction
Documents pursuant to a subordination agreement acceptable to Bank.
Subordination Agreement shall mean that certain Subordination
and Standby Agreement dated as of January 19, 1996 and executed by
Agri-Nutrition Group Limited in favor of Bank, subordinating any and all present
and future indebtedness and liens of Agri-Nutrition Group Limited received from
Borrower to any and all present and future indebtedness and liens of Bank
therein, as the same may from time to time be amended.
Subsidiary shall mean, with respect to any Person, any
corporation of which fifty percent (50%) or more of the issued and outstanding
capital stock entitled to vote for the election of directors (other than by
reason of default in the payment of dividends) is at the time owned directly or
indirectly by such Person.
Term shall have the meaning ascribed thereto in Section 1.
Third Party Collateral shall mean any Property or assets of
any Obligor other than Borrower which now or at any time hereafter secure the
payment or performance of any of Borrower's Obligations.
Transaction Documents shall mean this Agreement, the Note, the
Security Agreement and all other agreements, documents and instruments
heretofore, now or hereafter delivered to Bank with respect to or in connection
with or pursuant to this Agreement, any Loans made hereunder or any other of
Borrower's Obligations, and executed by or on behalf of Borrower, all as the
same may from time to time be amended, modified, extended or renewed.
SECTION 3. THE LOANS.
3.1 (a) Commitment of Bank. Subject to the terms and
conditions hereof, during the Term of this Agreement, Bank hereby agrees to make
such loans (individually, a "Loan" and collectively, the "Loans") to Borrower as
Borrower may from time to time request pursuant to Section 3.2. The maximum
aggregate principal amount which Bank, cumulatively, may be required to have
outstanding under this Agreement at any one time shall not exceed the lesser of
(i) One Million Eight Hundred Thousand Dollars ($1,800,000.00) ("Bank's
Commitment"), or (ii) the Borrowing Base (as hereinafter defined). Subject to
the terms and conditions hereof, Borrower may borrow, repay and reborrow such
sums from Bank, provided, however, that the aggregate principal amount of all
Loans outstanding hereunder at any one time shall not exceed the lesser of
Bank's Commitment or the then available Borrowing Base.
<PAGE>
(b) Borrowing Base. For purposes of computing
the amount available under Section 3.1(a), the "Borrowing Base" shall mean the
sum of:
(i) Sixty-Five Percent (65%) of the face amount
of Eligible Accounts of Borrower, plus
(ii) Forty-Five Percent (45%) of the Eligible
Inventory of Borrower.
(c) Borrowing Base Certificate. Borrower shall deliver to Bank on the
date of execution hereof (with respect to the month ended May 31, 1997) and on
the twenty-first (21st) day of each month thereafter commencing in the month of
July, 1997, a borrowing base certificate in the form of Exhibit A attached
hereto and incorporated herein by reference (a "Borrowing Base Certificate")
setting forth:
(i) the Borrowing Base and its components as of the
end of the immediately preceding month;
(ii) the aggregate principal amount of all outstanding
Loans; and
(iii) the difference, if any, between the Borrowing
Base and the aggregate principal amount of all outstanding Loans.
The Borrowing Base shown in such Borrowing Base Certificate shall be and remain
the Borrowing Base hereunder until the next Borrowing Base Certificate is
delivered to Bank, at which time the Borrowing Base shall be the amount shown in
such subsequent Borrowing Base Certificate. Each Borrowing Base Certificate
shall be certified (subject to normal year-end adjustments) as to truth and
accuracy by the President or principal financial officer of Borrower.
(d) Mandatory Repayments. If at any time the Borrowing Base as
shown on the most recent Borrowing Base Certificate should be less than the
aggregate principal amount of all outstanding Loans, Borrower shall be
automatically required (without demand or notice of any kind by Bank, all of
which are hereby expressly waived by Borrower) to immediately repay the Loans in
an amount sufficient to reduce such aggregate principal amount of outstanding
Loans to the amount of the Borrowing Base.
3.2 Procedure for Borrowing. Subject to the terms and
conditions hereof, Bank shall cause the Loans to be made to Borrower at any time
and from time to time during the Term of this Agreement upon timely prior oral
or written notice ("Borrowing Notice") from Borrower to Bank specifying:
(i) the desired amount of the Loan;
(ii) the date on which the proceeds of the Loan are
to be made available to Borrower, which shall be a Business Day;
<PAGE>
(iii) that on the date of, and after giving effect
to, such Loan, no Default or Event of Default under this Agreement has
occurred and is continuing; and
(iv) that on the date of, and after giving effect to,
such Loan, all of the representations and warranties of Borrower
contained in this Agreement are true and correct in all material
respects as if made on the date of such Loan.
A Borrowing Notice shall not be required in connection with a Loan made to cover
any overdraft in Borrower's operating account on a day-to-day basis as set forth
herein. A Borrowing Notice, if in writing, shall be in the form of the notice
attached hereto as Exhibit B. Each Borrowing Notice must be received by Bank not
later than 10:00 a.m. (St. Louis time) on the Business Day on which a Loan is to
be made. A Borrowing Notice shall not be revocable by Borrower. Subject to the
terms and conditions hereof, provided that Bank has received the Borrowing
Notice, Bank shall (unless Bank determines that any applicable condition
specified in Section 4 has not been satisfied) pay to Borrower the Loan proceeds
in immediately available funds not later than 2:00 p.m. (St. Louis time) on the
Business Day specified in said Borrowing Notice. Borrower hereby authorizes Bank
to reasonably rely on telephonic, telegraphic, telecopy, telex or written
instructions of any person identifying himself as a person authorized to request
a Loan or make a repayment hereunder, and on any signature which Bank believes
to be genuine, and Borrower shall be bound thereby in the same manner as if such
person were actually authorized or such signature were genuine. Borrower further
requests and authorizes Bank, in Bank's sole and absolute discretion, to make a
Loan to Borrower hereunder at the end of each day in which Borrower shall have
an overdraft (negative balance) in its operating account (Account No.
9800805419) with Bank after crediting all deposits received in immediately
available funds and debiting all withdrawals made and checks presented against
such account and honored by Bank as of such date, which Loan shall be in the
amount of such overdraft without any other request or authorization therefor
from Borrower and without notice to Borrower. Similarly, Borrower requests that
Bank apply any collected balances in excess of a mutually predetermined amount
remaining at the end of any day in Borrower's operating account to the repayment
of the principal balance of Borrower's Obligations outstanding as Loans under
the Note. Borrower also hereby agrees to indemnify Bank and hold Bank harmless
from and against any and all claims, demands, damages, liabilities, losses,
costs and expenses (including, without limitation, Attorneys' Fees) relating to
or arising out of or in connection with the acceptance of instructions for
making Loans or repayments hereunder. Contemporaneously with the execution of
this Agreement, Borrower shall execute and deliver to Bank a Note of Borrower
dated the date hereof and payable to the order of Bank in the original principal
amount of One Million Eight Hundred Thousand Dollars ($1,800,000.00) in the form
attached hereto as Exhibit C and incorporated herein by reference (as the same
may from time to time be amended, modified, extended or renewed, the "Note").
3.3 Interest Rates.
(a) Each Loan shall bear interest prior to maturity at a rate per annum
equal to the Prime Rate plus Floating Rate Margin, each in effect from time to
time during the period when such Loan is outstanding, with changes in the
interest rate taking effect on the date
<PAGE>
a change in the Floating Rate Margin occurs pursuant to the definition thereof
or the date a change in the Prime Rate is made effective generally by Bank.
(b) From and after the maturity of the Note, whether by reason of
acceleration or otherwise, the entire unpaid principal balance of each Loan
shall bear interest, payable upon demand, until paid at a rate per annum equal
to Three and One-Half Percent (3.50%) over and above the Prime Rate, fluctuating
as aforesaid.
(c) Interest shall be computed with respect to all Loans on an actual
day, 360-day year.
3.4 Prepayment. Borrower shall be privileged to prepay all at
any time or any portion from time to time of the unpaid principal of any Loan
prior to maturity, without penalty or premium, provided that such repayment is
made on a Business Day. All prepayments shall be applied solely to the payment
of principal.
3.5 Interest Payments. Borrower shall pay Bank all interest
which accrued on all Loans during any month on the fifteenth (15th) day of the
month following the month in which such interest accrued, commencing with the
fifteenth (15th) day of the month following the month in which any Loan is made.
Notwithstanding any provision contained herein to the contrary, all accrued and
unpaid interest shall also be paid at the maturity of the Note, whether by
reason of acceleration or otherwise, and any interest accruing after any such
maturity shall be payable upon demand. In case any installment of interest shall
become due on a day which is not a Business Day, interest shall be computed to,
and payable on, the next succeeding Business Day.
3.6 Place and Manner of Payment. Both principal and interest
on the Loans are payable to Bank in lawful currency of the United States in
Federal or other immediately available funds at Bank's banking office at 1281
Graham Road, Florissant, Missouri 63031, or at such other place as Bank shall
designate in writing to Borrower.
3.7 Facility Fee. Borrower shall pay to Bank on the fifteenth
(15th) day following the end of each January, April, July and October during the
Term of this Agreement and on the last day of the Term hereof, a facility fee
(the "Facility Fee") in an amount equal to:
(a) Five-Sixteenths of One Percent (0.3125%) per annum, if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible Net
Worth shall be greater than or equal to 2.0 to 1.0 as determined pursuant to
Section 5.1(I) of the Guaranty by reference to the Guarantor's most recent
quarter-end (or fiscal year-end) financial statements,
(b) One-Fourth of One Percent (0.25%) per annum, if the Guarantor's
ratio of consolidated Indebtedness to Consolidated Tangible Net Worth shall be
less than 2.0 to 1.0 but greater than or equal to 1.0 to 1.0 as determined
pursuant to Section 5.1(I) of the Guaranty by reference to the Guarantor's most
recent quarter-end (or fiscal year-end) financial statements, and
(c) Three-Sixteenths of One Percent (0.1875%) per annum, if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible Net
Worth shall be less
<PAGE>
than 1.0 to 1.0 as determined pursuant to Section 5.1(I) of the Guaranty by
reference to the Guarantor's most recent quarter-end (or fiscal year-end)
financial statements,
calculated on the basis of the unused Bank's Commitment during the preceding
fiscal quarter of Borrower ending as of the last day of each January, April,
July and October, which unused Bank's Commitment shall be arrived at by dividing
the aggregate of the daily unused Bank's Commitment for each day of that quarter
as of the close of each day by ninety (90) (or by the actual number of days for
any partial quarter). Payment of the Facility Fee is a condition precedent to
Bank's obligations to make any new Loans hereunder.
3.8 Maturity. All Loans not paid prior to March 31, 1999,
together with all accrued and unpaid interest thereon, shall be due and payable
on March 31, 1999 (as from time to time extended, if any, pursuant to this
Section, the "Maturity Date"); provided, however, that in the event Bank, in its
sole and absolute discretion, shall deliver to Borrower a written notice signed
by Bank on or before the date one year prior to the then current Maturity Date
(and prior to any subsequent Maturity Date thereafter if extended under this
Section 3.8) of Bank's intention to extend the term of this Agreement for an
additional year, then the Maturity Date of this Agreement shall be extended for
a period of one additional year following the then current Maturity Date.
Following any such extension of the Maturity Date by Bank, all of the
outstanding principal and all accrued and unpaid interest, fees and other
amounts due under this Agreement and the Note shall be due and payable on such
new Maturity Date, unless it is again extended by Bank, in its sole and absolute
discretion, under the foregoing sentence.
SECTION 4. PRECONDITIONS TO LOANS.
4.1 Initial Loan. Notwithstanding any provision contained
herein to the contrary, Bank shall have no obligation to make any Loan hereunder
unless Bank shall have first received:
(a) this Agreement and the Note, each executed by a duly authorized
officer of Borrower;
(b) the Amendment to Security Agreement and such other documents
as Bank may reasonably require under Section 5.1, each duly executed by an
authorized officer of Borrower;
(c) a copy of resolutions of the Board of Directors of Borrower, duly
adopted, which authorize the execution, delivery and performance of this
Agreement and the Note, the Amendment to Security Agreement and the other
Transaction Documents, certified by the Secretary of Borrower;
(d) a certificate of corporate good standing of Borrower issued by the
Secretary of State of the State of California;
(e) the Guaranty, duly executed by Agri-Nutrition Group Limited;
(f) the Consent of Agri-Nutrition Group Limited in the form attached
hereto, acknowledging the amendments contained herein and the continuing
effectiveness of the
<PAGE>
Pledge Agreement and the Subordination Agreement, duly executed by an authorized
officer of Agri-Nutrition Group Limited;
(g) a copy of Resolutions of the Board of Directors of Guarantor, duly
adopted, which authorize the execution, delivery and performance of the Guaranty
and the Subordination Agreement, certified by the Secretary of Guarantor;
(h) a Certificate of Corporate Good Standing of Guarantor, issued by
the Secretary of State of the State of Delaware;
(i) the Consent of John J. Nelson, Inc. and John J. Nelson in the form
attached hereto, acknowledging the amendments contained herein and the
continuing effectiveness of the Intercreditor Agreement, duly executed by an
authorized officer of John J. Nelson, Inc. and by John J. Nelson;
(j) the Consent of St. Jon VRx Products Limited in the form attached
hereto, acknowledging the amendments contained herein and the continuing
effectiveness of the Subordination Agreement executed by St. Jon VRx Products
Limited in favor of Bank, duly executed by an authorized officer of St. Jon VRx
Products Limited;
(k) an opinion of counsel of Dyer, Ellis & Joseph, independent counsel to
Borrower and Guarantor, in the form of Exhibit D attached hereto and
incorporated herein by reference;
(l) the initial Borrowing Base Certificate required by Section 3.1(c);
(m) the Borrowing Notice required by Section 3.2; and
(n) such other agreements, documents, instruments and certificates as
Bank may reasonably request.
4.2 Subsequent Loans. Notwithstanding any provision contained
herein to the contrary, Bank shall have no obligation to make any subsequent
Loan hereunder unless:
(a) Bank shall have received a current Borrowing Base Certificate as
required by Section 3.1(c);
(b) Bank shall have received a Borrowing Notice for such Loan as
required by Section 3.2;
(c) on the date of and immediately after such Loan, no Default or
Event of Default under this Agreement shall have occurred and be continuing;
(d) as of the date of such Loan, neither John J. Nelson, Inc. nor John
J. Nelson shall have contested or denied the validity or enforceability of the
Intercreditor Agreement or their respective further liabilities and obligations
to Bank under the Intercreditor Agreement;
<PAGE>
(e) on the date of and immediately after such Loan, no material adverse
change in the business, financial position or results of operations of Borrower,
the Guarantor or any of their respective Subsidiaries shall have occurred since
the date of this Agreement and be continuing; and
(f) all of the representations and warranties of Borrower contained in
this Agreement shall be true and correct on and as of the date of such Loan as
if made on the date of such Loan.
Each request for a Loan by Borrower hereunder shall be deemed
to be a representation and warranty by Borrower on the date of such Loan as to
the facts specified in clauses (c), (d), (e) and (f) of this Section 4.2.
SECTION 5. SECURITY
5.1 Security Agreement. In order to secure the payment when
due of Borrower's Obligations, Borrower has conveyed to Bank a security interest
in, among other things, all of Borrower's accounts receivable, inventory,
machinery, equipment, fixtures and other tangible and intangible personal
property and all proceeds and products thereof, which security interest is and
shall be a first and prior interest in all such items except for those Uniform
Commercial Code security interests described on Schedule 6.12 attached hereto.
Said security interest is evidenced by a Security Agreement dated as of January
19, 1996 and executed by Borrower in favor of Bank (as the same may from time to
time be amended, the "Security Agreement"). Borrower further covenants and
agrees to execute and deliver to Bank any and all financing statements,
continuation statements and such other documentation as may be requested by Bank
in order to create, perfect and continue said security interests. Upon demand,
Borrower shall pay all legal and filing fees and expenses incurred by Bank in
the preparation of the foregoing documents and perfection of the security
interest contemplated thereby. Bank shall have no obligation to make any Loan
hereunder unless and until Borrower has fully satisfied these requirements.
5.2 Pledge Agreement. In order to further secure the payment
when due of Borrower's Obligations, Agri-Nutrition Group Limited has pledged to
Bank and granted to Bank a first perfected security interest in all of the
issued and outstanding capital stock of the Borrower, as more fully described in
that certain Agreement of Pledge (Third Party) made by Agri-Nutrition Group
Limited in favor of Bank dated as of January 19, 1996 (as the same has been or
may be amended from time to time, the "Pledge Agreement"), which Pledge
Agreement is and shall be a first and prior interest in all such capital stock.
Borrower further covenants and agrees to cause Agri-Nutrition Group Limited to
execute and deliver to Bank any and all collateral schedules, stock powers, Reg.
U-1 affidavits and other documents as may be reasonably requested by Bank from
time to time, together with all original stock certificates evidencing any
shares of capital stock in the Borrower. Upon demand, Borrower shall pay all
legal and filing fees and other expenses incurred by Bank in connection with the
Pledge Agreement. Bank shall have no obligation to make any Loan hereunder
unless and until Borrower and Agri-Nutrition Group Limited have fully satisfied
these requirements.
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Bank that:
6.1 Corporate Existence and Power. Borrower and each
Subsidiary of Borrower: (a) is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate powers and all governmental and regulatory licenses,
authorizations, consents and approvals required to carry on its business as now
conducted; and (c) is duly qualified to do business in all jurisdictions in
which the nature of the business conducted by it makes such qualification
necessary and where failure to so qualify would have a material adverse effect
on its business, financial condition or operations.
6.2 Corporate Authorization. The execution, delivery and
performance by Borrower of this Agreement, the Note, the Amendment to Security
Agreement and the other Transaction Documents are within the corporate powers of
Borrower and have been duly authorized by all necessary corporate action.
6.3 Binding Effect. This Agreement, the Note, the Amendment to
Security Agreement and the other Transaction Documents have been duly executed
and delivered by Borrower and constitute the legal, valid and binding
obligations of Borrower enforceable in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights in general.
6.4 Financial Statements. Borrower has furnished Bank with the
following financial statements, identified by the principal financial officer of
Borrower: (1) consolidated balance sheet and statements of income, retained
earnings and cash flows of Guarantor and its Consolidated Subsidiaries as of
October 31, 1996 and for the period then ended, all certified by Guarantor's
independent certified public accountants, which financial statements have been
prepared in accordance with Generally Accepted Accounting Principles
consistently applied; and (2) unaudited consolidated balance sheet and
statements of income, retained earnings and cash flows of Borrower and its
Consolidated Subsidiaries as of April 30, 1997, certified by the principal
financial officer of Borrower as being true and correct to the best of his
knowledge and as being prepared in accordance with Borrower's normal accounting
procedures. Borrower further represents and warrants to Bank that: (1) said
balance sheets and their accompanying notes fairly present the condition of
Borrower and its Consolidated Subsidiaries as of the dates thereof; (2) there
has been no material adverse change in the condition or operation, financial or
otherwise, of Borrower, the Guarantor or any of their respective Consolidated
Subsidiaries since April 30, 1997; and (3) neither Borrower, the Guarantor nor
any of their respective Consolidated Subsidiaries has any direct or contingent
liabilities which are not disclosed on said financial statements in accordance
with Generally Accepted Accounting Principles.
6.5 Litigation. Except as disclosed on Schedule 6.5 attached
hereto, there is no action or proceeding pending or, to the knowledge of
Borrower, threatened against or affecting Borrower, the Guarantor or any
Subsidiary of Borrower or Guarantor before any court, arbitrator or any
governmental, regulatory or administrative body, agency or official which could
result in any material adverse change in the condition or operation, financial
or otherwise, of Borrower, the Guarantor or any Subsidiary of Borrower or the
Guarantor, and neither Borrower, the Guarantor nor any Subsidiary of Borrower or
the Guarantor is in default with respect to any
<PAGE>
order, writ, injunction, decision or decree of any court, arbitrator or any
governmental, regulatory or administrative body, agency or official, a default
under which could have a material adverse effect on Borrower, the Guarantor or
any Subsidiary of Borrower or the Guarantor.
6.6 Pension and Welfare Plans. Each Pension Plan complies with
all applicable statutes and governmental rules and regulations; no Reportable
Event has occurred and is continuing with respect to any Pension Plan; neither
Borrower nor any ERISA Affiliate nor any Subsidiary of Borrower has withdrawn
from any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal"
as defined in Sections 4203 or 4205 of ERISA, respectively; no steps have been
instituted by Borrower, any ERISA Affiliate or any Subsidiary of Borrower to
terminate any Pension Plan; no condition exists or event or transaction has
occurred in connection with any Pension Plan or Multiemployer Plan which could
result in the incurrence by Borrower, any ERISA Affiliate or any Subsidiary of
Borrower of any material liability, fine or penalty; and neither Borrower nor
any ERISA Affiliate nor any Subsidiary of Borrower is a "contributing sponsor"
as defined in Section 4001(a)(13) of ERISA of a "single-employer plan" as
defined in Section 4001(a)(15) of ERISA which has two or more contributing
sponsors at least two of whom are not under common control. Except as disclosed
on Schedule 6.6 attached hereto, neither Borrower nor any Subsidiary of Borrower
has any contingent liability with respect to any "employee welfare benefit
plan", as such term is defined in Section 3(a) of ERISA, which covers retired
employees and their beneficiaries.
6.7 Tax Returns and Payment. Borrower and each Subsidiary of
Borrower has filed all Federal, state and local income tax returns and all other
tax returns which are required to be filed and has paid all taxes due pursuant
to such returns or pursuant to any assessment received by Borrower or any
Subsidiary of Borrower, except for the filing of such returns, if any, in
respect of which an extension of time for filing is in effect and except for
such taxes, if any, as are being contested in good faith by appropriate
proceedings being diligently conducted and as to which adequate reserves in
accordance with Generally Accepted Accounting Principles consistently applied
have been provided. The charges, accruals and reserves on the books of Borrower
and each Subsidiary of Borrower in respect of any taxes or other governmental
charges are, in the opinion of Borrower, adequate.
6.8 Subsidiaries. Borrower's only subsidiary is St. Jon VRx
Products Limited, a corporation organized under the laws of the United Kingdom.
6.9 Compliance With Other Instruments; None Burdensome.
Neither Borrower nor any Subsidiary of Borrower is a party to any contract or
agreement or subject to any charter or other corporate restriction which
materially and adversely affects its business, Property or financial condition
and which is not disclosed on Borrower's financial statements heretofore
submitted to Bank; none of the execution and delivery by Borrower of the
Transaction Documents, the consummation of the transactions therein contemplated
or the compliance with the provisions thereof will violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Borrower, or any of the provisions of Borrower's Certificate or Articles of
Incorporation or Bylaws or any of the provisions of any indenture, agreement,
document, instrument or undertaking to which Borrower is a party or subject, or
by which it or its Property is bound, or conflict with or constitute a default
thereunder or result in the creation or imposition of any Lien pursuant to the
terms of any such indenture, agreement, document,
<PAGE>
instrument or undertaking (other than in favor of Bank pursuant to the
Transaction Documents). No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental, regulatory, administrative or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, the execution, delivery or performance of, or the legality, validity,
binding effect or enforceability of, any of the Transaction Documents.
6.10 Other Loans and Guarantees. Except as disclosed on
Schedule 6.10 attached hereto, neither Borrower nor any Subsidiary of Borrower
is a party to any loan transaction or Guarantee.
6.11 Labor Matters. Except as disclosed on Schedule 6.11
attached hereto, (a) no labor contract to which Borrower or any Subsidiary of
Borrower is subject is scheduled to expire during the Term of this Agreement and
(b) on the date of this Agreement, (i) neither Borrower nor any Subsidiary of
Borrower is a party to any labor dispute and (ii) there are no strikes or
walkouts relating to any labor contract to which Borrower or any Subsidiary of
Borrower is subject.
6.12 Title to Property. Borrower and each Subsidiary of
Borrower is the sole and absolute owner of, or has the legal right to use and
occupy, all Property it claims to own or which is necessary for Borrower or such
Subsidiary of Borrower to conduct its business. Neither Borrower nor any
Subsidiary of Borrower has signed any financing statements, security agreements
or chattel mortgages with respect to any of its Property, has granted or
permitted any Liens with respect to any of its Property or has any knowledge of
any Liens with respect to any of its Property, except as disclosed on Schedule
6.12 attached hereto.
6.13 Regulation U. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of The Board of Governors of the Federal Reserve System, as amended) and no
part of the proceeds of any Loan will be used, whether directly or indirectly,
and whether immediately, incidentally or ultimately (i) to purchase or carry
margin stock or to extend credit to others for the purpose of purchasing or
carrying margin stock, or to refund or repay indebtedness originally incurred
for such purpose or (ii) for any purpose which entails a violation of, or which
is inconsistent with, the provisions of any of the Regulations of The Board of
Governors of the Federal Reserve System, including, without limitation,
Regulations G, U, T or X thereof, as amended. If requested by Bank, Borrower
shall furnish to Bank a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in Regulation U.
6.14 Multi-Employer Pension Plan Amendments Act of 1980.
Neither Borrower nor any Subsidiary of Borrower has any pension plan or any
liability for pension contributions pursuant to any plan subject to the
Multi-Employer Pension Plan Amendments Act of 1980, as amended ("MEPPAA").
6.15 Investment Company Act of 1940; Public Utility Holding
Company Act of 1935. Borrower is not an "investment company" as that term is
defined in, and is not otherwise subject to regulation under, the Investment
Company Act of 1940, as amended.
<PAGE>
Borrower is not a "holding company" as that term is defined in, and is not
otherwise subject to regulation under, the Public Utility Holding Company Act of
1935, as amended.
6.16 Patents, Licenses, Trademarks, Etc. Borrower and each
Subsidiary of Borrower possesses all necessary patents, licenses, trademarks,
trademark rights, trade names, trade name rights and copyrights to conduct its
business without conflict with any patent, license, trademark, trade name or
copyright of any other Person.
6.17 Environmental and Safety and Health Matters. Except as
disclosed on Schedule 6.17 attached hereto: (i) the operations of Borrower and
each Subsidiary of Borrower comply in all material respects with (A) all
applicable Environmental Laws and (B) all applicable Occupational Safety and
Health Laws; (ii) none of the operations of Borrower or any Subsidiary of
Borrower are subject to any judicial, governmental, regulatory or administrative
proceeding alleging the violation of any Environmental Law or Occupational
Safety and Health Law; (iii) none of the operations of Borrower or any
Subsidiary of Borrower is the subject of any Federal or state investigation
evaluating whether any remedial action is needed to respond to (A) any spillage,
disposal or release into the environment of any Hazardous Material or any other
hazardous, toxic or dangerous waste, substance or constituent or other
substance, or (B) any unsafe or unhealthful condition at any premises of
Borrower or such Subsidiary of Borrower; (iv) neither Borrower nor any
Subsidiary of Borrower has filed any notice under any Environmental Law or
Occupational Safety and Health Law indicating or reporting (A) any past or
present spillage, disposal or release into the environment of, or treatment,
storage or disposal of, any Hazardous Material or any other hazardous, toxic or
dangerous waste, substance or constituent or other substance or (B) any unsafe
or unhealthful condition at any premises of Borrower or such Subsidiary of
Borrower; and (v) neither Borrower nor any Subsidiary of Borrower has any known
contingent liability in connection with (A) any spillage, disposal or release
into the environment of, or otherwise with respect to, any Hazardous Material or
any other hazardous, toxic or dangerous waste, substance or constituent or other
substance or (B) any unsafe or unhealthful condition at any premises of Borrower
or such Subsidiary of Borrower.
SECTION 7. COVENANTS.
7.1 Affirmative Covenants of Borrower. Borrower covenants and
agrees that, so long as Bank has any obligation to make any Loan hereunder or
any of Borrower's Obligations remain unpaid:
(a) Information. Borrower will deliver to Bank:
(i) As soon as available and in any event within
ninety (90) days after the end of each fiscal year of Borrower, the
consolidated balance sheet of Guarantor and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, retained earnings and cash flows for
such fiscal year, all with consolidating disclosures and setting forth
in each case, in comparative form, the figures for the previous fiscal
year, all such financial statements to be prepared in accordance with
Generally Accepted Accounting Principles consistently applied and
reported on by and accompanied by the unqualified opinion of
<PAGE>
independent certified public accountants of nationally recognized
standing selected by Guarantor and reasonably acceptable to Bank
together with (i) a certificate from such accountants to the effect
that, in making the examination necessary for the signing of such
annual audit report, such accountants have not become aware of any
Default or Event of Default that has occurred and is continuing, or, if
such accountants have become aware of any such event, describing it and
the steps, if any, being taken to cure it and (ii) the computations of
such accountants evidencing Borrower's compliance with the financial
covenants contained in this Agreement;
(ii) As soon as available and in any event within
forty-five (45) days after the end of each of the first three (3)
fiscal quarters of each fiscal year of Borrower, the consolidated
balance sheet of Guarantor and its Consolidated Subsidiaries as of the
end of such fiscal quarter and the related consolidated statements of
income, retained earnings and cash flows for such fiscal quarter and
for the portion of Guarantor's and Borrower's fiscal year ended at the
end of such fiscal quarter, all with consolidating disclosures and
setting forth in each case in comparative form, the figures for the
corresponding fiscal quarter and the corresponding portion of
Guarantor's and Borrower's previous fiscal year, all certified (subject
to normal year-end adjustments) as to fairness of presentation,
Generally Accepted Accounting Principles and consistency by the
principal financial officer of Guarantor and Borrower;
(iii) As soon as available and in any event within
twenty-one (21) days after the end of each month, a certificate of the
principal financial officers or controllers of Borrower and Guarantor
in the form attached hereto as Exhibit E and incorporated herein by
reference, accompanied by supporting financial work sheets where
appropriate;
(iv) As soon as available and in any event within
twenty-one (21) days after the end of each month, the consolidated
balance sheet of Borrower and its Consolidated Subsidiaries as of the
end of each such month and the related consolidated statements of
income, retained earnings and cash flows for such month and for the
portion of Borrower's fiscal year ended at the end of such month, all
with consolidating disclosures and setting forth in each case in
comparative form, the figures for the corresponding month and the
corresponding portion of Borrower's previous fiscal year, all certified
(subject to normal year-end adjustments) as to fairness of
presentation, Generally Accepted Accounting Principles and consistency
by the principal financial officer or controller of Borrower;
(v) Within twenty-one (21) days after the end of each
month, the Borrowing Base Certificate dated as of the last day
<PAGE>
of such preceding month-end, as required pursuant to Section 3.1(d)
hereof, together with an accounts receivable aging and inventory list
of Borrower if requested by Bank;
(vi) Promptly upon receipt thereof, any reports
submitted to Borrower or any Consolidated Subsidiary of Borrower (other
than reports previously delivered pursuant to Sections 7.1(a)(i) and
(ii) above) by independent accountants in connection with any annual,
interim or special audit made by them of the books of Guarantor,
Borrower or any Consolidated Subsidiary of Borrower;
(vii) Promptly upon any filing thereof, and in any
event within ten (10) days after the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and annual,
quarterly or interim reports which Guarantor shall file with the
Securities and Exchange Commission;
(viii) Promptly upon the mailing thereof to the
shareholders of Borrower generally, and in any event within ten (10)
days after such mailing, copies of all financial statements, reports,
proxy statements and other material information so mailed; and
(ix) With reasonable promptness, such further
information regarding the business, affairs and financial condition of
Borrower or any Subsidiary of Borrower as Bank may from time to time
reasonably request.
Bank is hereby authorized to deliver a copy of any financial
statement or other information made available by Borrower to any regulatory
authority having jurisdiction over Bank, pursuant to any request therefor.
(b) Payment of Indebtedness. Borrower and each Subsidiary of
Borrower will (i) pay any and all Indebtedness payable or Guaranteed by Borrower
or such Subsidiary of Borrower, as the case may be, and any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in accordance with the agreement, document or
instrument relating to such Indebtedness or Guarantee and (ii) faithfully
perform, observe and discharge all covenants, conditions and obligations which
are imposed upon Borrower or such Subsidiary of Borrower, as the case may be, by
any and all agreements, documents and instruments evidencing, securing or
otherwise relating to such Indebtedness or Guarantee.
(c) Consultations and Inspections. Borrower will permit, and will
cause each Subsidiary of Borrower to permit, Bank (and any Person appointed by
Bank to whom Borrower does not reasonably object) to discuss the affairs,
finances and accounts of Borrower and each Subsidiary of Borrower with the
officers of Borrower and each Subsidiary of Borrower, all at such reasonable
times and as often as Bank may reasonably request. Borrower will also
<PAGE>
permit, and will cause each Subsidiary of Borrower to permit, inspection of its
Properties, books and records by Bank during normal business hours or at other
reasonable times.
(d) Payment of Taxes; Corporate Existence; Maintenance of Properties;
Insurance. Borrower and each Subsidiary of Borrower will:
(i) Duly file all Federal, state and local income tax
returns and all other tax returns and reports of Borrower and each
Subsidiary of Borrower which are required to be filed and duly pay and
discharge promptly all taxes, assessments and other governmental
charges imposed upon it or any of its income, Property or assets;
provided, however, that neither Borrower nor any Subsidiary of Borrower
shall be required to pay any such tax, assessment or other governmental
charge the payment of which is being contested in good faith and by
appropriate proceedings diligently conducted and for which adequate
reserves in form and amount satisfactory to Bank have been provided,
except that Borrower and each Subsidiary of Borrower shall pay or cause
to be paid all such taxes, assessments and governmental charges
forthwith upon the commencement of proceedings to foreclose any Lien
which is attached as security therefor, unless such foreclosure is
stayed by the filing of an appropriate bond in a manner satisfactory to
Bank;
(ii) Do all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchise and
to be duly qualified to do business in all jurisdictions where the
nature of its business requires such qualification;
(iii) Maintain and keep its Properties as a whole in
good repair, working order and condition; provided, however, that
nothing in this subsection (iii) shall prevent any abandonment of any
Property which is not disadvantageous in any material respect to Bank
and which, in the good faith opinion of the management of Borrower, is
in the best interests of Borrower or such Subsidiary of Borrower, as
the case may be; and
(iv) Insure with financially sound and reputable
insurers acceptable to Bank, all Property of Borrower and each
Subsidiary of Borrower of the character usually insured by corporations
engaged in the same or similar businesses similarly situated, against
loss or damage of the kind customarily insured against by such
corporations, unless higher limits or coverage are reasonably required
in writing by Bank, and carry adequate liability insurance and other
insurance of a kind and in an amount generally carried by corporations
engaged in the same or similar businesses similarly situated, unless
higher limits or coverage are reasonably required in writing by Bank.
All such insurance may be subject to reasonable deductible amounts.
Promptly upon Bank's request
<PAGE>
therefor, Borrower shall provide Bank with evidence that Borrower
maintains, and that each Subsidiary of Borrower maintains, the
insurance required under this Section 7.1(d)(iv), and evidence of the
payment of all premiums therefor.
(e) Accountant. Borrower shall give Bank prompt notice of any change
of Borrower's independent certified public accountants and a statement of the
reasons for such change. Borrower shall at all times utilize independent
certified public accountants of nationally recognized standing reasonably
acceptable to Bank.
(f) ERISA Compliance. If Borrower or any Subsidiary of Borrower
shall have any Pension Plan, Borrower and such Subsidiary or Subsidiaries of
Borrower shall comply with all requirements of ERISA relating to such plan.
Without limiting the generality of the foregoing, neither Borrower nor any
Subsidiary of Borrower shall:
(i) permit any Pension Plan maintained by it to
engage in any nonexempt "prohibited transaction," as such term is
defined in Section 4975 of the Code;
(ii) permit any Pension Plan maintained by it to
incur any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA, 29 U.S.C. ss. 1082, whether or not waived;
(iii) terminate any such Pension Plan in a manner
which could result in the imposition of a Lien on any Property of
Borrower or any Subsidiary of Borrower pursuant to Section 4068 of
ERISA, 29 U.S.C. ss.1368; or
(iv) take any action which would constitute a
complete or partial withdrawal from a Multiemployer Plan within the
meaning of Sections 4203 and 4205 of Title IV of ERISA.
Notwithstanding any provision contained in this Section 7.1(f)
to the contrary, an act by Borrower or any Subsidiary of Borrower shall not be
deemed to constitute a violation of subparagraphs (i) through (iv) hereof unless
Bank determines in good faith that said action, individually or cumulatively
with other acts of Borrower and the Subsidiaries of Borrower, does have or is
likely to cause a significant adverse financial effect upon Borrower or any
Subsidiary of Borrower.
Borrower shall have the affirmative obligation hereunder to
report to Bank any of those acts identified in subparagraphs (i) through (iv)
hereof, regardless of whether said act does or is likely to cause a significant
adverse financial effect upon Borrower or any Subsidiary of Borrower, and
failure by Borrower to report such act promptly upon Borrower's becoming aware
of the existence thereof shall constitute an Event of Default hereunder.
(g) Maintenance of Books and Records. Borrower and each Subsidiary
of Borrower will maintain its books and records in accordance with Generally
Accepted
<PAGE>
Accounting Principles consistently applied and in which true, correct and
complete entries will be made of all of its dealings and transactions.
(h) Further Assurances. Borrower will execute any and all further
agreements, documents and instruments, and take any and all further actions
which may be required under applicable law, or which Bank may from time to time
reasonably request, in order to effectuate the transactions contemplated by this
Agreement, the Note, the Security Agreement and the other Transaction Documents.
(i) Financial Covenants. Borrower will:
(i) Maintain a ratio of Indebtedness (determined on a
consolidated basis for Guarantor and all of its Consolidated
Subsidiaries and in accordance with Generally Accepted Accounting
Principles consistently applied, but excluding Subordinated Debt) to
Consolidated Tangible Net Worth of not more than 2.50 to 1.0 at all
times during the Term hereof;
(ii) Maintain a ratio of Consolidated Current Assets
to Consolidated Current Liabilities, determined on a consolidated basis
for Guarantor and all of its Consolidated Subsidiaries in accordance
with Generally Accepted Accounting Principles consistently applied, of
at least 2.0 to 1.0 at all times during the Term hereof;
(iii) Maintain at all times a Consolidated Tangible
Net Worth of at least the sum of $6,500,000.00, plus Seventy-Five
Percent (75%) of the after-tax net income (with no deductions for
losses) shown on Guarantor's consolidated financial statements) for
each fiscal year, with the initial such increase commencing with the
fiscal year ending October 31, 1997, such required increases to be
cumulative for each fiscal year, plus any cash amounts invested in the
Guarantor, Borrower or any other Subsidiaries of Guarantor at any time
after the date of this Agreement;
(iv) Maintain at all times a ratio of Consolidated
Funded Debt to Consolidated Tangible Net Worth (determined on a
consolidated basis for Guarantor and all of its Consolidated
Subsidiaries and in accordance with Generally Accepted Accounting
Principles consistently applied) of not more than 1.50 to 1.0 at all
times during the Term hereof;
(v) Maintain a Debt Service Coverage Ratio as of the
end of each fiscal quarter ending on or before October 30, 1997 of at
least 0.85 to 1.0; maintain a Debt Service Coverage Ratio for the
fiscal quarter ending October 31, 1997 and for fiscal quarters ending
thereafter up to and including April 29, 1998 of at least 1.05 to 1.0;
and maintain a Debt Service Coverage Ratio for the fiscal
<PAGE>
quarter ending April 30, 1998 and for fiscal quarters ending thereafter
during the Term hereof of at least 1.3 to 1.0;
(vi) Deliver a certificate of the principal financial
officer of Borrower containing the financial ratio calculations
required in clauses (i) through (v) above simultaneously with the
financial statements referred to in Sections 7.1(a)(i) and (ii).
(j) Compliance with Law. Borrower will, and will cause each
Subsidiary of Borrower to, comply with any and all laws, ordinances and
governmental and regulatory rules and regulations to which it is subject and
obtain any and all licenses, permits, franchises and other governmental and
regulatory authorizations necessary to the ownership of its Properties or to the
conduct of its business, which violation or failure to obtain might materially
adversely affect the condition or operation, financial or otherwise, of Borrower
or any Subsidiary of Borrower.
(k) Notices. Borrower will notify Bank in writing of any of the
following immediately upon learning of the occurrence thereof, describing the
same and, if applicable, the steps being taken by the Person(s) affected with
respect thereto:
(i) Default. The occurrence of any Default or Event
of Default under this Agreement or any default or event of default by
Borrower, any other Obligor or any Subsidiary of Borrower under any
note, indenture, loan agreement, mortgage, deed of trust, security
agreement, lease or other similar agreement, document or instrument to
which Borrower, any other Obligor or any Subsidiary of Borrower, as the
case may be, is a party or by which it is bound or to which it is
subject;
(ii) Litigation. The institution of any litigation,
arbitration proceeding or governmental or regulatory proceeding
affecting Borrower, any other Obligor, any Subsidiary of Borrower, any
Collateral or any Third Party Collateral, whether or not considered to
be covered by insurance, provided that, if such proceeding seeks money
damages, the damages sought are in excess of $50,000.00;
(iii) Judgment. The entry of any judgment or decree
against Borrower, any other Obligor or any Subsidiary of Borrower
in an amount of $50,000.00 or more;
(iv) Pension Plans. The occurrence of a Reportable
Event with respect to any Pension Plan; the filing of a notice of
intent to terminate a Pension Plan by Borrower, any ERISA Affiliate or
any Subsidiary of Borrower; the institution of proceedings to terminate
a Pension Plan by the PBGC or any other Person; the withdrawal in a
"complete withdrawal" or a "partial withdrawal" as defined in Sections
4203 and 4205, respectively, of ERISA by Borrower, any
<PAGE>
ERISA Affiliate or any Subsidiary of Borrower from any Multiemployer
Plan; or the incurrence of any material increase in the contingent
liability of Borrower or any Subsidiary of Borrower with respect to any
"employee welfare benefit plan" as defined in Section 3(1) of ERISA
which covers retired employees and their beneficiaries;
(v) Change of Name. Any change in the name of
Borrower, any other Obligor or any Subsidiary of Borrower at least
fifteen (15) days prior to the effective date thereof;
(vi) Change in Place(s) of Business. Any proposed
opening, closing or other change of any place of business of Borrower
or any Subsidiary of Borrower;
(vii) Environmental Matters. Receipt of any notice
that the operations of Borrower, any other Obligor or any Subsidiary of
Borrower are not in full compliance with any of the requirements of any
applicable Environmental Law or Occupational Safety and Health Law;
receipt of notice that Borrower, any other Obligor or any Subsidiary of
Borrower is subject to any Federal, state or local investigation
evaluating whether any remedial action is needed to respond to the
release of any Hazardous Materials or any other hazardous or toxic
waste, substance or constituent or other substance into the
environment; or receipt of notice that any of the Properties or assets
of Borrower, any other Obligor or any Subsidiary of Borrower are
subject to an "Environmental Lien." For purposes of this Section
7.1(k)(vii), "Environmental Lien" shall mean a Lien in favor of any
governmental or regulatory agency, entity, authority or official for
(1) any liability under Environmental Laws or (2) damages arising from
or costs incurred by any such governmental or regulatory agency,
entity, authority or official in response to a release of any Hazardous
Materials or any other hazardous or toxic waste, substance or
constituent or other substance into the environment;
(viii) Material Adverse Change. The occurrence of
any material adverse change in the business, operations or condition,
financial or otherwise, of Borrower, any other Obligor or any
Subsidiary of Borrower;
(ix) Change in Management or Line(s) of Business. Any
material change in the senior management of Borrower or any Subsidiary
of Borrower or any material change in Borrower's or any Subsidiary of
Borrower's line(s) of business; and
(x) Other Notices. Any notices required to be
provided pursuant to other provisions of this Agreement and notice of
the occurrence of such other events as Bank may from time to time
reasonably specify.
<PAGE>
(l) Borrower's Bank Accounts. Borrower will, and will cause each
Subsidiary of Borrower (other than St. JON VRx Products, Limited) to, maintain
its primary checking, lockbox and operating accounts with Bank and to use Bank's
lockbox services for purposes of facilitating the collection of Borrower's or
any such Subsidiary's accounts receivable from its customers.
7.2 Negative Covenants of Borrower. Borrower covenants and
agrees that, so long as Bank has any obligation to make any Loan hereunder or
any of Borrower's Obligations remain unpaid, unless the prior written consent of
Bank is obtained:
(a) Limitation on Indebtedness. Neither Borrower nor any Subsidiary
of Borrower will incur or be obligated on any Indebtedness, either directly or
indirectly, by way of Guarantee, suretyship or otherwise, other than:
(i) Indebtedness evidenced by the Note;
(ii) Unsecured trade accounts payable incurred in the
ordinary course of business;
(iii) Indebtedness listed on Schedule 6.10 attached
hereto;
(iv) Indebtedness for Capitalized Leases permitted
under Section 7.2(i) in an amount not to exceed $100,000.00 in the
aggregate (for Borrower and all Subsidiaries of Borrower) at any one
time outstanding; and
(v) Indebtedness not otherwise permitted by this
Section 7.2(a) in an amount not to exceed $25,000.00 in the aggregate
at any one time outstanding for Borrower and all Subsidiaries of
Borrower.
(b) Limitations on Liens. Borrower will not create, incur, assume or
suffer to exist, and will not cause or permit any Subsidiary of Borrower to
create, incur, assume or suffer to exist, any Lien on any of its Property,
assets or revenues other than:
(i) Liens presently in existence which are described
on Schedule 6.12 attached hereto;
(ii) Pledges or deposits in connection with or to
secure workmen's compensation, unemployment insurance, pension or other
employee benefits;
(iii) Any Lien renewing, extending or refunding any
Lien permitted hereunder, provided that the principal amount of
Indebtedness secured by such Lien is not increased and such Lien is not
extended to cover any other Property or assets of Borrower or any
Subsidiary of Borrower; and
<PAGE>
(iv) Subject to Section 7.1(d)(i), Liens for taxes,
assessments or governmental charges or levies on the income, Property
or assets of Borrower or any Subsidiary of Borrower if the same are
being contested in good faith and by appropriate proceedings diligently
conducted and for which adequate reserves in form and amount
satisfactory to Bank are provided.
(c) Sale of Property. Neither Borrower nor any Subsidiary of
Borrower will sell, lease, transfer or otherwise dispose of any Property or
assets of Borrower or such Subsidiary of Borrower, as the case may be, except in
the ordinary course of business; provided, however, that the foregoing shall not
preclude Borrower or any Subsidiary of Borrower from selling, leasing,
transferring or otherwise disposing of less than substantially all of its
Property or assets so long as the purchase price for said Property or assets
shall be equal to or greater than the depreciated book value of said Property or
assets.
(d) Mergers and Consolidations. Neither Borrower nor any Subsidiary
of Borrower will merge or consolidate with any other Person or sell, transfer or
convey all or a substantial part of its Property or assets to any Person, except
that Subsidiaries of Borrower may merge with each other or into Borrower, and
except that Borrower or any Subsidiary of Borrower may merge with or consolidate
with any other Person provided that Borrower or such Subsidiary shall be the
surviving entity and no Default or Event of Default shall exist hereunder either
prior to or immediately following any such merger or consolidation, and provided
further that Borrower shall have given Bank prompt written notice, but in no
event less that twenty (20) days' prior written notice, of any such merger or
consolidation and Borrower or such Subsidiary shall execute UCC-1 financing
statements or other documents reasonably deemed necessary by Bank to perfect and
continue Bank's security interests in the Collateral acquired through any such
merger or consolidation.
(e) Acquisitions. Neither Borrower nor Guarantor nor any Subsidiary
of Borrower or Guarantor will acquire all or substantially all of the stock or
assets of any Person, except that Borrower, Guarantor or any such Subsidiary may
acquire all or substantially all of the stock or assets of any other Person upon
thirty (30) days' prior written notice to Bank provided that no Default or Event
of Default then exists hereunder, and provided further that all of the accounts
receivable, Inventory, equipment, general intangibles and other assets of such
acquired Person shall be pledged as collateral to Bank for Borrower's
obligations hereunder in a manner satisfactory to Bank. Borrower agrees to
execute and to cause any such Subsidiary or other acquired Person to execute
such security agreements, pledge agreements, collateral assignments, UCC-1
financing statements and other agreements which Bank may reasonably request in
order to grant and perfect such security interests.
(f) Fiscal Year. Neither Borrower nor any Subsidiary of Borrower will
change its fiscal year.
(g) Stock Redemptions and Distributions. Borrower will not make or
declare or incur any liability to make any Distribution in respect of the
capital stock of Borrower.
<PAGE>
(h) Transactions with Related Parties. Neither Borrower nor any
Subsidiary of Borrower will, directly or indirectly, engage in any material
transaction, in the ordinary course of business or otherwise, with any Related
Party unless such transaction is upon fair market terms, is not disadvantageous
in any material respect to Bank and has been approved by a majority of the
disinterested directors of Borrower or such Subsidiary of Borrower, as the case
may be (or, if none of such directors are disinterested, by a majority of the
directors), as being in the best interests of Borrower or such Subsidiary of
Borrower, as the case may be. In addition, neither Borrower nor any Subsidiary
of Borrower shall (i) transfer any Property or assets to any Related Party for
other than its fair market value or (ii) purchase or sign any agreement to
purchase any stock or other securities of any Related Party (whether debt,
equity or otherwise), underwrite or Guarantee the same, or otherwise become
obligated with respect thereto. Nothing in this Section 7.2(h) shall prohibit
Borrower or St. JON VRx Products, Limited from granting non-assignable,
non-exclusive licenses of its patents and trademarks at less than market value
to Borrower, St. JON VRx Products, Limited, PM Resources, Inc., Zema Corporation
or Guarantor.
(i) Loans and Investments. Neither Borrower nor any Subsidiary of
Borrower will make any loans or advances or extensions of credit to (other than
extensions of credit in the ordinary course of business), purchase any stocks,
bonds, notes, debentures or other securities of, make any expenditures on behalf
of, or in any manner assume liability (direct, contingent or otherwise) for the
Indebtedness of any Person, including, but not limited to the Guarantor, except
that Borrower and the Subsidiaries of Borrower may:
(i) Permit to remain outstanding those loans to
employees of Borrower as disclosed on Schedule 6.10 attached hereto;
(ii) Acquire and own stock, obligations or securities
received in settlement of debts (created in the ordinary course of
business) owing to Borrower or any Subsidiary of Borrower;
(iii) Own, purchase or acquire (A) prime commercial
paper and certificates of deposit in United States commercial banks
(having capital resources in excess of $20,000,000.00), in each case
due within one (1) year from the date of purchase and payable in the
United States in United States dollars, (B) obligations of the United
States government or any agency thereof, (C) obligations guaranteed
directly by the United States government or (D) repurchase agreements
of United States commercial banks (having capital resources in excess
of $20,000,000.00) for terms of less than one (1) year;
(iv) Make or permit to remain outstanding travel and
other like advances to officers and employees of Borrower or any
Subsidiary of Borrower in the ordinary course of business; and
(v) Make loans from time to time to or advances on
behalf of Guarantor or any other Related Party, provided, however, that
after the occurrence of a Default or Event of Default, Borrower
<PAGE>
shall not make any further loan, advance or other transfer of funds to
or on behalf of Guarantor or any other Related Party.
(j) Dissolution or Liquidation. Borrower shall not seek or permit the
dissolution or liquidation of Borrower in whole or in part.
(k) Change in Nature of Business. Neither Borrower nor any
Subsidiary of Borrower will make any material change in the nature of its
business.
(l) Pension Plans. Neither Borrower nor any Subsidiary of Borrower
shall (a) permit any condition to exist in connection with any Pension Plan
which might constitute grounds for the PBGC to institute proceedings to have
such Pension Plan terminated or a trustee appointed to administer such Pension
Plan or (b) engage in, or permit to exist or occur, any other condition, event
or transaction with respect to any Pension Plan which could result in the
incurrence by Borrower or any Subsidiary of Borrower of any material liability,
fine or penalty. Neither Borrower nor any Subsidiary of Borrower shall become
obligated to contribute to any Pension Plan or Multiemployer Plan other than any
such plan or plans in existence on the date hereof.
(m) Change in Ownership. At all times during the Term hereof,
ownership of all of Borrower's voting stock shall be maintained by Guarantor,
and Guarantor shall maintain voting control of all of the outstanding voting
stock of Borrower at all times during the Term hereof.
7.3 Use of Proceeds. Borrower agrees that (i) the proceeds of
the Loans will be used solely to refinance existing indebtedness of Borrower and
for Borrower's general corporate and working capital purposes; (ii) none of such
proceeds will be used in violation of any applicable law or regulation; and
(iii) Borrower will not engage principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying "margin stock" within the meaning of Regulation U of The Board of
Governors of the Federal Reserve System, as amended.
SECTION 8. EVENTS OF DEFAULT.
If any of the following (each of the following herein
sometimes called an "Event of Default") shall occur and be continuing:
8.1 Borrower shall fail to pay any of Borrower's Obligations
as and when the same shall become due and payable, whether by reason of demand,
acceleration or otherwise;
8.2 Any representation or warranty of Borrower made in this
Agreement, in any other Transaction Document to which Borrower is a party or in
any certificate, agreement, instrument or statement furnished or made or
delivered pursuant hereto or thereto or in connection herewith or therewith,
shall prove to have been untrue or incorrect in any material respect when made
or effected;
<PAGE>
8.3 Borrower shall fail to perform or observe any term,
covenant or provision contained in Section 7.1(a)(i), (ii), (vi), (vii), (viii)
or (ix), Section 7.1(i), Section 7.2 or Section 7.3;
8.4 Borrower shall fail to timely deliver the Borrowing Base
Certificate required by Sections 3.1(d) and 7.1(a)(v) or the financial
statements or compliance certificate required by Section 7.1(a)(iii) or (iv),
unless prior to the date required for delivery of such financial statements,
compliance certificate or Borrowing Base Certificate, Borrower shall notify the
Bank that it anticipates a delay in the delivery of such information, in which
case such default shall not constitute an Event of Default hereunder unless such
financial statements, compliance certificate or Borrowing Base Certificate is
not delivered within 10 days following such notice of delay;
8.5 Borrower shall fail to perform or observe any other term,
covenant or provision contained in this Agreement and any such failure shall
remain unremedied for fifteen (15) days after written notice thereof shall have
been given to Borrower by Bank;
8.6 This Agreement or any of the other Transaction Documents
shall at any time for any reason cease to be in full force and effect or shall
be declared to be null and void by a court of competent jurisdiction, or if the
validity or enforceability thereof shall be contested or denied by Borrower, or
if the transactions completed hereunder or thereunder shall be contested by
Borrower or if Borrower shall deny that it has any or further liability or
obligation hereunder or thereunder;
8.7 Borrower, any Subsidiary of Borrower or any other Obligor
shall (i) voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code or any other Federal, state or
foreign bankruptcy, insolvency, receivership, liquidation or similar law, (ii)
consent to the institution of, or fail to contravene in a timely and appropriate
manner, any such proceeding or the filing of any such petition, (iii) apply for
or consent to the appointment of a receiver, trustee, custodian, sequestrator or
similar official of itself, himself or herself or of a substantial part of its,
his or her Property or assets, (iv) file an answer admitting the material
allegations of a petition filed against itself, himself or herself in any such
proceeding, (v) make a general assignment for the benefit of creditors, (vi)
become unable, admit in writing its, his or her inability or fail generally to
pay its, his or her debts as they become due or (vii) take any corporate or
other action for the purpose of effecting any of the foregoing;
8.8 An involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of Borrower, any Subsidiary of Borrower or any other
Obligor, or of a substantial part of the Property or assets of Borrower, any
Subsidiary of Borrower or any other Obligor, under Title 11 of the United States
Code or any other Federal, state or foreign bankruptcy, insolvency,
receivership, liquidation or similar law, (ii) the appointment of a receiver,
trustee, custodian, sequestrator or similar official of Borrower, any Subsidiary
of Borrower or any other Obligor or of a substantial part of the Property or
assets of Borrower, any Subsidiary of Borrower or any other Obligor or (iii) the
winding-up or liquidation of Borrower, any Subsidiary of Borrower or any other
Obligor; and such proceeding or petition shall continue undismissed for thirty
(30) consecutive
<PAGE>
days or an order or decree approving or ordering any of the foregoing shall
continue unstayed and in effect for thirty (30) consecutive days;
8.9 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of the Security Agreement;
8.10 Any "Default" or "Event of Default" (as defined therein)
shall occur under or within the meaning of the Pledge Agreement, or if the
Pledge Agreement shall at any time for any reason cease to be in full force and
effect or shall be declared to be null and void by a court of competent
jurisdiction, or if the validity or enforceability thereof shall be contested or
denied by Guarantor, or if Guarantor shall deny that it has any further
liability or obligation thereunder, or if Guarantor shall fail to comply with or
observe any of the terms, provisions or conditions contained in said Pledge
Agreement;
8.11 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of the Guaranty, or if the Guaranty shall at any
time for any reason cease to be in full force and effect or shall be declared to
be null and void by a court of competent jurisdiction, or if the validity or
enforceability thereof shall be contested or denied by Guarantor, or if
Guarantor shall deny that it has any further liability or obligation thereunder
or if Guarantor shall fail to comply with or observe any of the terms,
provisions or conditions contained in said Guaranty;
8.12 The Intercreditor Agreement shall at any time for any
reason cease to be in full force and effect or shall be declared to be null and
void by a court of competent jurisdiction, or if John J. Nelson, Inc. or John J.
Nelson shall fail to comply with or observe any of the terms, provisions or
conditions contained in said Intercreditor Agreement and such noncompliance by
John J. Nelson, Inc. and/or John J. Nelson shall not be remedied within twenty
(20) days after notice thereof from Bank to Borrower hereunder or such
noncompliance shall not have been waived by Bank in writing during such twenty
(20) day period upon Borrower's delivery of additional collateral or other
assurances reasonably acceptable to Bank;
8.13 Borrower, any Subsidiary of Borrower or any other Obligor
shall be declared by Bank to be in default on, or pursuant to the terms of, (1)
any other present or future obligation to Bank, including, without limitation,
any other loan, line of credit, revolving credit, guaranty or letter of credit
reimbursement obligation, or (2) any other present or future agreement
purporting to convey to Bank a Lien upon any Property or assets of Borrower,
such Subsidiary of Borrower or such other Obligor, as the case may be;
8.14 PM Resources, Inc. and/or Zema Corporation shall be
declared by Bank to be in default on, or pursuant to the terms of any of its
present or future obligations to Bank, including, without limitation, any other
loan, line of credit, revolving credit, guaranty or letter of credit
reimbursement obligation, or (2) any other present or future agreement
purporting to convey to Bank a Lien upon any Property or assets of either PM
Resources, Inc. or Zema Corporation;
8.15 Borrower, any Subsidiary of Borrower or any other Obligor
shall fail (and such failure shall not have been cured or waived) to perform or
observe any term, provision or condition of, or any other default or event of
default shall occur under, any agreement,
<PAGE>
document or instrument evidencing, securing or otherwise relating to any
outstanding Indebtedness of Borrower, such Subsidiary of Borrower or such other
Obligor, as the case may be, for borrowed money (other than Borrower's
Obligations) in a principal amount in excess of One Hundred Thousand Dollars
($100,000.00), if the effect of such failure or default is to cause or permit
such Indebtedness to be declared to be due and payable or otherwise accelerated,
or to be required to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof;
8.16 Borrower, any Subsidiary of Borrower or any other Obligor
shall have a judgment entered against it, him or her in an amount of $50,000.00
or more by a court having jurisdiction in the premises and such judgment shall
not be appealed in good faith or satisfied by Borrower, such Subsidiary of
Borrower or such other Obligor, as the case may be, within thirty (30) days
after the entry of such judgment;
8.17 The occurrence of a Reportable Event with respect to any
Pension Plan; the filing of a notice of intent to terminate a Pension Plan by
Borrower, any ERISA Affiliate or any Subsidiary of Borrower; the institution of
proceedings to terminate a Pension Plan by the PBGC or any other Person; the
withdrawal in a "complete withdrawal" or a "partial withdrawal" as defined in
Sections 4203 and 4205, respectively, of ERISA by Borrower, any ERISA Affiliate
or any Subsidiary of Borrower from any Multiemployer Plan; or the incurrence of
any material increase in the contingent liability of Borrower or any Subsidiary
of Borrower with respect to any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA which covers retired employees and their beneficiaries; or
8.18 The institution by Borrower, any ERISA Affiliate or any
Subsidiary of Borrower of steps to terminate any Pension Plan if, in order to
effectuate such termination, Borrower, such ERISA Affiliate or such Subsidiary
of Borrower, as the case may be, would be required to make a contribution to
such Pension Plan, or would incur a liability or obligation to such Pension
Plan, in excess of Fifty Thousand Dollars ($50,000.00) or the institution by the
PBGC of steps to terminate any Pension Plan;
THEN, and in each such event (other than an event described in
Sections 8.7 or 8.8), Bank may declare that its obligation to make Loans under
this Agreement has terminated, whereupon such obligation of Bank shall be
immediately and forthwith terminated, and Bank may further declare the entire
outstanding principal balance of and all accrued and unpaid interest on the Note
and all of the other Borrower's Obligations to be forthwith due and payable,
whereupon all of the unpaid principal balance of and all accrued and unpaid
interest on the Note and all such other Borrower's Obligations shall become and
be immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by Borrower, and
Bank may exercise any and all other rights and remedies which it may have under
any of the other Transaction Documents or under applicable law; provided,
however, that upon the occurrence of any event described in Sections 8.7 or 8.8,
Bank's obligation to make Loans under this Agreement shall automatically
terminate and the entire outstanding principal balance of and all accrued and
unpaid interest on the Note and all of the other Borrower's Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower, and Bank may exercise any and all other rights and remedies which
it may have under any of the other Transaction Documents or under applicable
law.
<PAGE>
SECTION 9. GENERAL.
9.1 No Waiver. No failure or delay by Bank in exercising any
right, remedy, power or privilege hereunder or under any other Transaction
Document shall operate as a waiver thereof; nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The remedies provided herein and
in the other Transaction Documents are cumulative and not exclusive of any
remedies provided by law. Nothing herein contained shall in any way affect the
right of Bank to exercise any statutory or common law right of banker's lien or
setoff.
9.2 Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, Bank is hereby authorized at any time and
from time to time, without notice to Borrower (any such notice being expressly
waived by Borrower) and to the fullest extent permitted by law, to setoff and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held by Bank and any and all other indebtedness at any time
owing by Bank to or for the credit or account of Borrower against any and all of
Borrower's Obligations irrespective of whether or not Bank shall have made any
demand hereunder or under any of the other Transaction Documents and although
such obligations may be contingent or unmatured. Bank agrees to promptly notify
Borrower after any such setoff and application made by Bank, provided, however,
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of Bank under this Section 9.2 are in
addition to any other rights and remedies (including, without limitation, other
rights of setoff) which Bank may have. Nothing contained in this Agreement or
any other Transaction Document shall impair the right of Bank to exercise any
right of setoff or counterclaim it may have against Borrower and to apply the
amount subject to such exercise to the payment of indebtedness of Borrower
unrelated to this Agreement or the other Transaction Documents.
9.3 Cost and Expenses. Borrower agrees, whether or not any
Loan is made hereunder, to pay Bank upon demand (i) all reasonable out-of-pocket
costs and expenses and all Attorneys' Fees of Bank in connection with the
preparation, documentation, negotiation, execution and administration of this
Agreement, the Note and the other Transaction Documents, (ii) all recording,
filing, title insurance, surveying and appraisal fees incurred in connection
with this Agreement and the other Transaction Documents, (iii) all reasonable
out-of-pocket costs and expenses and all Attorneys' Fees of Bank in connection
with the preparation of any waiver or consent hereunder or any amendment hereof
or any Event of Default or alleged Event of Default hereunder, (iv) if an Event
of Default occurs, all reasonable out-of-pocket costs and expenses and all
Attorneys' Fees incurred by Bank in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom and (v) all
other Attorneys' Fees incurred by Bank relating to or arising out of or in
connection with this Agreement or any of the other Transaction Documents.
Borrower further agrees to pay or reimburse Bank for any stamp or other taxes
which may be payable with respect to the execution, delivery, recording and/or
filing of this Agreement, the Note, the Security Agreement or any of the other
Transaction Documents. All of the obligations of Borrower under this Section 9.3
shall survive the satisfaction and payment of Borrower's Obligations and the
termination of this Agreement.
9.4 Environmental Indemnity. Borrower hereby agrees to
indemnify Bank and hold Bank harmless from and against any and all losses,
liabilities, damages, injuries, costs, expenses and claims of any and every kind
whatsoever (including, without limitation, court costs
<PAGE>
and Attorneys' Fees) which at any time or from time to time may be paid,
incurred or suffered by, or asserted against, Bank for, with respect to or as a
direct or indirect result of the violation by Borrower or any Subsidiary of
Borrower of any Environmental Laws; or with respect to, or as a direct or
indirect result of the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission or release from, properties utilized by Borrower
and/or any Subsidiary of Borrower in the conduct of their respective businesses
into or upon any land, the atmosphere or any watercourse, body of water or
wetland, of any Hazardous Materials or any other hazardous or toxic waste,
substance or constituent or other substance (including, without limitation, any
losses, liabilities, damages, injuries, costs, expenses or claims asserted or
arising under the Environmental Laws); and the provisions of and undertakings
and indemnification set out in this Section 9.4 shall survive the satisfaction
and payment of Borrower's Obligations and the termination of this Agreement.
9.5 General Indemnity. In addition to the payment of expenses
pursuant to Section 9.3, whether or not the transactions contemplated hereby
shall be consummated, Borrower hereby agrees to indemnify, pay and hold Bank and
any holder(s) of the Note, and the officers, directors, employees, agents and
affiliates of Bank and such holder(s) (collectively, the "Indemnitees") harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitees shall be designated a party thereto), that may
be imposed on, incurred by or asserted against the Indemnitees, in any manner
relating to or arising out of this Agreement, any of the other Transaction
Documents or any other agreement, document or instrument executed and delivered
by Borrower or any other Obligor in connection herewith or therewith, the
statements contained in any commitment letters delivered by Bank, Bank's
agreement to make the Loans hereunder or the use or intended use of the proceeds
of any Loan hereunder (collectively, the "indemnified liabilities"); provided
that Borrower shall have no obligation to an Indemnitee hereunder with respect
to indemnified liabilities arising from the gross negligence or willful
misconduct of that Indemnitee as determined by a court of competent
jurisdiction. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them. The provisions of the undertakings and
indemnification set out in this Section 9.5 shall survive satisfaction and
payment of Borrower's Obligations and the termination of this Agreement.
9.6 Authority to Act. Bank shall be entitled to act on any
notices and instructions (telephonic or written) reasonably believed by Bank to
have been delivered by any person authorized to act on behalf of Borrower
pursuant hereto, regardless of whether such notice or instruction was in fact
delivered by a person authorized to act on behalf of Borrower, and Borrower
hereby agrees to indemnify Bank and hold Bank harmless from and against any and
all losses and expenses, if any, ensuing from any such action.
9.7 Notices. Any notice, request, demand, consent,
confirmation or other communication hereunder shall be in writing and delivered
in person or sent by telegram, telex, telecopy or registered or certified mail,
return receipt requested and postage prepaid, if to
<PAGE>
Borrower at 1656 West 240th Street, Harbor City, California 90710, Attention:
John J. Nelson, with a copy to Guarantor at Riverport Executive Center II, 13801
Riverport Drive, Suite 111, Maryland Heights, Missouri 63043, Attention: Robert
J. Elfanbaum, or if to Bank at 135 North Meramec, St. Louis, Missouri 63105,
Attention: Brenda Laux, or at such other address as either party may designate
as its address for communications hereunder by notice so given. Such notices
shall be deemed effective on the day on which delivered or sent if delivered in
person or sent by telegram, telex or telecopy, or on the third (3rd) Business
Day after the day on which mailed, if sent by registered or certified mail.
9.8 CONSENT TO JURISDICTION; JURY TRIAL WAIVER. BORROWER
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY MISSOURI
STATE COURT OR ANY UNITED STATES OF AMERICA COURT SITTING IN THE
EASTERN DISTRICT OF MISSOURI, AS BANK MAY ELECT, IN ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT. BORROWER HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT TO SUCH SUIT, ACTION OR PROCEEDING MAY BE
HELD AND DETERMINED IN ANY OF SUCH COURTS. BORROWER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND
BORROWER FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. BORROWER HEREBY EXPRESSLY WAIVES ALL
RIGHTS OF ANY OTHER JURISDICTION WHICH BORROWER MAY NOW OR
HEREAFTER HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT DOMICILES.
BORROWER AUTHORIZES THE SERVICE OF PROCESS UPON BORROWER BY
REGISTERED MAIL SENT TO BORROWER AT ITS ADDRESS SET FORTH IN SECTION
9.7. BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
LITIGATION BROUGHT IN ACCORDANCE WITH THIS SECTION.
9.9 Bank's Books and Records. Bank's books and records showing
the account between Borrower and Bank shall be admissible in evidence in any
action or proceeding and shall constitute prima facie proof thereof.
9.10 Governing Law; Amendments. This Agreement, the Note, the
Security Agreement and all of the other Transaction Documents shall be governed
by and construed in accordance with the internal laws of the State of Missouri,
and this Agreement and the other Transaction Documents may not be changed, nor
may any term, condition or Event of Default be waived, modified, or discharged
orally but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
9.11 References; Headings for Convenience. Unless otherwise
specified herein, all references herein to Section numbers refer to Section
numbers of this Agreement, all references herein to Exhibits A, B, C, D and E
refer to annexed Exhibits A, B, C, D and E which are hereby incorporated herein
by reference and all references herein to Schedules 6.5, 6.6, 6.10, 6.11, 6.12
and 6.17 refer to annexed Schedules 6.5, 6.6, 6.10, 6.11, 6.12 and 6.17 which
are hereby incorporated herein by reference. The Section headings are furnished
for the
<PAGE>
convenience of the parties and are not to be considered in the construction or
interpretation of this Agreement.
9.12 Subsidiary Reference. Any reference herein to a
Subsidiary or Consolidated Subsidiary of Borrower, and any financial definition,
ratio, restriction or other provision of this Agreement which is stated to be
applicable to Borrower and its Subsidiaries or Consolidated Subsidiaries or
which is to be determined on a "consolidated" or "consolidating" basis, shall
apply only to the extent Borrower has any Subsidiaries or Consolidated
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with Borrower for financial reporting purposes.
9.13 Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of Borrower and its successors and Bank and its
successors and assigns. Borrower may not assign or delegate any of its rights or
obligations under this Agreement.
9.14 NO ORAL AGREEMENTS; ENTIRE AGREEMENT. ORAL
AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES
TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT
BORROWER AND BANK FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS REACHED BY BORROWER AND BANK COVERING SUCH MATTERS
ARE CONTAINED IN THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS, WHICH AGREEMENT AND OTHER TRANSACTION DOCUMENTS
ARE A COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS
BETWEEN BORROWER AND BANK, EXCEPT AS BORROWER AND BANK
MAY LATER AGREE IN WRITING TO MODIFY THEM. THIS AGREEMENT
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE
PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE SUBJECT MATTER
HEREOF.
9.15 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
9.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.17 Resurrection of Borrower's Obligations. To the extent
that Bank receives any payment on account of any of Borrower's Obligations, and
any such payment(s) or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside, subordinated and/or required to be
repaid to a trustee, receiver or any other Person under any bankruptcy act,
state or Federal law, common law or equitable cause, then, to the extent of such
payment(s) received, Borrower's Obligations or part thereof intended to be
satisfied and any and all Liens upon or pertaining to any Property or assets of
Borrower and theretofore created and/or existing in favor of Bank as security
for the payment of such Borrower's Obligations shall be
<PAGE>
revived and continue in full force and effect, as if such payment(s) had not
been received by Bank and applied on account of Borrower's Obligations.
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Revolving Credit Agreement this 18th day of June, 1997.
ST. JON LABORATORIES, INC.
By:
Robert J. Elfanbaum, Secretary
FIRST BANK
By:
Brenda J. Laux, Senior Vice President
Exhibit 10.22
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Agreement") is made and entered into this 18th day of June,
1997, by and between PM RESOURCES, INC., a Missouri corporation ("PM Resources")
and ZEMA CORPORATION, a Delaware corporation ("Zema," and collectively with PM
Resources referred to herein as the "Borrowers"), and FIRST BANK, a Missouri
state banking corporation ("Bank").
WITNESSETH:
WHEREAS, Borrowers presently have a joint and several
revolving credit loan from Bank in a present aggregate maximum principal amount
of up to Five Million Seven Hundred Thousand Dollars ($5,700,000.00), for a
period of time up to and including March 31, 1998, as extended thereafter in
Bank's discretion for subsequent one year periods, One Million Six Hundred
Thousand Dollars ($1,600,000.00) of which is subject to a Borrowing Base and the
remaining Four Million One Hundred Thousand Dollars ($4,100,000.00) of which is
a reducing revolving credit line from Bank; and
WHEREAS, Borrowers have requested an increase and extension of
such joint and several revolving credit loan facility from Bank in an aggregate
principal amount of up to Six Million Three Hundred Fifty Thousand Dollars
($6,350,000.00) for a period of time up to and including March 31, 1999, Three
Million Dollars ($3,000,000.00) of which shall be subject to a Borrowing Base
(as set forth herein) ("Facility A"), and the remaining Three Million Three
Hundred Fifty Thousand Dollars ($3,350,000.00) of which shall be a reducing
revolving credit line from Bank ("Facility B"); and
WHEREAS, Bank is willing to make said revolving credit loans
to Borrowers upon, and subject to, the terms, provisions and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby mutually promise and agree as follows:
SECTION 1. TERM.
The "Term" of this Agreement shall commence on the date hereof
and shall end on March 31, 1999, unless earlier terminated upon the occurrence
of an Event of Default under this Agreement, or unless subsequently extended by
Bank, in its sole discretion and without obligation to do so, pursuant to the
terms of Section 3.9 herein.
SECTION 2. DEFINITIONS.
In addition to the terms defined elsewhere in this Agreement
or in any Exhibit or Schedule hereto, when used in this Agreement, the following
terms shall have the following
<PAGE>
meanings (such meanings shall be equally applicable to the singular and plural
forms of the terms used, as the context requires):
Account Debtor shall mean any Person who is and/or may become
obligated to either of the Borrowers under or on account of Accounts.
Accounts shall mean all trade accounts receivable of either of
the Borrowers which have been invoiced by such Borrower.
Amendment shall mean that certain Amendment to Deed of Trust
and Security Agreement dated as of the date hereof executed by PM Resources and
delivered to Bank pursuant to Section 4.1(c), as the same may be from time to
time amended.
Attorneys' Fees shall mean the reasonable value of the
services (and costs, charges and expenses related thereto) of the attorneys (and
all paralegals, secretaries, accountants and other staff employed by such
attorneys) employed by Bank (including, without limitation, attorneys and
paralegals who are employees of Bank) from time to time (i) in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of this Agreement and/or any of the other Transaction Documents,
(ii) to represent Bank in any litigation, contest, dispute, suit or proceeding,
or to commence, defend or intervene in any litigation, contest, dispute, suit or
proceeding, or to file any petition, complaint, answer, motion or other pleading
or to take any other action in or with respect to any litigation, contest,
dispute, suit or proceeding (whether instituted by Bank, either of the Borrowers
or any other Person and whether in bankruptcy or otherwise) in any way or
respect relating to any of the Collateral, any Third Party Collateral, this
Agreement or any of the other Transaction Documents, either of the Borrowers,
any Subsidiary of either of the Borrowers or any other Obligor, (iii) to
protect, collect, lease, sell, take possession of or liquidate any of the
Collateral or any Third Party Collateral, (iv) to attempt to enforce any
security interest in or other Lien upon any of the Collateral or any Third Party
Collateral or to give any advice with respect to such enforcement and (v) to
enforce any of Bank's rights to collect any of Borrowers' Obligations.
Bank's Commitment shall mean the sum of Bank's Facility A
Commitment plus Bank's Facility B Commitment.
Bank's Facility A Commitment shall have the meaning ascribed
thereto in Section 3.1(a).
Bank's Facility B Commitment shall have the meaning ascribed
thereto in Section 3.1(b).
Borrowers' Obligations shall mean any and all indebtedness
(principal, interest, fees and other amounts), liabilities and obligations of
either of the Borrowers to Bank evidenced by or arising under the Note, this
Agreement, the Security Agreements, any of the other Transaction Documents or
any other agreement, document or instrument heretofore, now or hereafter
executed and delivered by either of the Borrowers to Bank, in each case whether
now existing or hereafter arising, absolute or contingent, joint and/or several,
secured or unsecured, direct or indirect, expressed or implied in law,
contractual or tortious, liquidated or unliquidated, at law or in equity, or
otherwise, and whether created directly or acquired by Bank by
<PAGE>
assignment or otherwise, and any and all costs of collection and/or Attorneys'
Fees incurred or to be incurred in connection therewith.
Borrowing Base shall have the meaning ascribed thereto in
Section 3.1(c).
Borrowing Base Certificate shall have the meaning ascribed
thereto in Section 3.1(d).
Borrowing Notice shall have the meaning ascribed thereto in
Section 3.2.
Business Day shall mean any day except a Saturday, Sunday or
legal holiday observed by Bank.
Capitalized Lease shall mean any lease which, in accordance
with Generally Accepted Accounting Principles consistently applied, is or should
be capitalized on the balance sheet of the lessee.
Code shall mean the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed to also refer to any successor sections.
Collateral shall mean any Property or assets of either of the
Borrowers which now or at any time hereafter secure the payment or performance
of any of Borrowers' Obligations.
Consolidated Current Assets shall mean all assets which, in
accordance with Generally Accepted Accounting Principles consistently applied,
should be classified as current assets on the consolidated balance sheet of
Guarantor and its Consolidated Subsidiaries, minus any intangible current
assets.
Consolidated Current Liabilities shall mean all liabilities
which, in accordance with Generally Accepted Accounting Principles consistently
applied, should be classified as current liabilities on the consolidated balance
sheet of Guarantor and its Consolidated Subsidiaries, including without
limitation, any current maturities of long term Indebtedness, but excluding the
balloon principal payment owed by Borrowers to Bank at maturity under Facility A
during the last year of the Term hereof, the balloon principal payment owed by
Borrowers to Bank at maturity under Facility B during the last year of the Term
hereof and the balloon principal payment owed by St. JON Laboratories, Inc. to
Bank at maturity during the last year of the term thereof under its Amended and
Restated Revolving Credit Agreement dated of even date herewith. For the purpose
of this definition, $500,000.00 shall be deemed to be the current portion of
principal payable under Facility B at all times, whether or not such principal
balance is then outstanding.
Consolidated Funded Debt shall mean the sum of all borrowed
money Indebtedness of the Guarantor and its Consolidated Subsidiaries whether
classified as long term or short term on Guarantor's consolidated financial
statements prepared in accordance with Generally Accepted Accounting Principles
consistently applied but excluding at all times any Subordinated Debt.
<PAGE>
Consolidated Subsidiary shall mean with respect to any Person
at any date, any Subsidiary or other entity the assets and liabilities of which
are or should be consolidated with those of such Person in its consolidated
financial statements as of such date in accordance with Generally Accepted
Accounting Principles consistently applied.
Consolidated Tangible Net Worth shall mean, at any date, the
sum of the consolidated stockholders' equities of Guarantor and its Consolidated
Subsidiaries plus all Subordinated Debt then outstanding, determined in
accordance with Generally Accepted Accounting Principles consistently applied,
less Guarantor's and such Subsidiaries' Intangible Assets as of such date. For
purposes of this definition, "Intangible Assets" shall mean the amount (to the
extent reflected in determining such stockholders' equity) of (i) all write-ups
in the book value of any asset owned by Guarantor or a Consolidated Subsidiary
of Guarantor resulting from a revaluation thereof subsequent to the date of this
Agreement and (ii) goodwill, unamortized debt discount and expense, unamortized
deferred charges, patents, trademarks, service marks, trade names, copyrights,
organizational and developmental expenses and other similar intangible items and
assets, all determined in accordance with Generally Accepted Accounting
Principles consistently applied.
Debt Service Coverage Ratio shall mean the sum of Guarantor's
and its Consolidated Subsidiaries net income, plus depreciation and
amortization, plus interest expense, all determined in accordance with Generally
Accepted Accounting Principles consistently applied for the twelve-month period
preceding the date of such calculation, divided by Guarantor's and its
Consolidated Subsidiaries' total required current maturities of long term
Indebtedness, determined upon the anticipated amount of such current maturities
of long term indebtedness to be paid by Guarantor and its Consolidated
Subsidiaries for the twelve-month period following the date of any such
calculation, and including, without limitation, an amount equal to $500,000.00,
which at all times for purposes of this definition shall be deemed to be the
current portion of principal payable on Facility B (but excluding the balloon
principal payment owed by Borrowers to Bank at maturity under Facility B during
the last year of the Term hereof, any principal amount outstanding under
Facility A and the balloon principal payment owed by St. JON Laboratories, Inc.
to Bank at maturity during the last year of the term thereof under its Amended
and Restated Revolving Credit Agreement dated of even date herewith), plus
Guarantor's and its Consolidated Subsidiaries' interest expense, determined
based upon the actual amount of interest expense incurred by Guarantor and its
Consolidated Subsidiaries during the twelve-month period preceding the date of
any such calculation, and all determined in accordance with Generally Accepted
Accounting Principles consistently applied.
Deed of Trust shall mean that certain Deed of Trust and
Security Agreement dated September 9, 1993 made by PM Resources in favor of
Katherine D. Knocke as trustee for Bank pursuant to Section 6, as amended by a
First Amendment to Deed of Trust and Security Agreement dated as of December 21,
1994, by a Second Amendment to Deed of Trust and Security Agreement dated as of
July 14, 1995 and by the Amendment, and as the same may from time to time be
further amended.
Default shall mean any event or condition the occurrence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default as defined in Section 8 hereof.
<PAGE>
Distribution in respect of any corporation shall mean:
(a) dividends or other distributions on capital stock of the corporation;
and
(b) the redemption, repurchase or other acquisition of such stock or of
warrants, rights or other options to purchase such stock (except when solely in
exchange for such stock).
Eligible Accounts shall mean all Accounts other than: (a)
Accounts which remain unpaid for more than ninety (90) days after their invoice
dates and Accounts which are not due and payable within ninety (90) days after
their invoice dates; (b) Accounts owing by a single Account Debtor, including a
currently scheduled Account, if ten percent (10%) or more of the balance owing
by said Account Debtor upon said Accounts is ineligible pursuant to clause (a)
above; (c) Accounts with respect to which the Account Debtor is a shareholder or
partner of either of the Borrowers or a Related Party of either of the
Borrowers; (d) Accounts with respect to which payment by the Account Debtor is
or may be conditional; (e) Accounts with respect to which the Account Debtor is
not a resident or citizen of or otherwise located in the continental United
States of America; (f) Accounts with respect to which the Account Debtor is the
United States of America or any department, agency or instrumentality thereof
unless such Accounts are duly assigned to Bank in accordance with all applicable
governmental and regulatory rules and regulations (including, without
limitation, the Federal Assignment of Claims Act of 1940, as amended, if
applicable) so that Bank is recognized by the Account Debtor to have all of the
rights of an assignee of such Accounts; (g) Accounts with respect to which
either of the Borrowers is or may become liable to the Account Debtor for goods
sold or services rendered by such Account Debtor to either such Borrower; (h)
Accounts with respect to which the goods giving rise thereto have not been
shipped and delivered to and accepted as satisfactory by the Account Debtor
thereof or with respect to which the services performed giving rise thereto have
not been completed and accepted as satisfactory by the Account Debtor thereof;
(i) Accounts which are not invoiced (and dated as of such date) and sent to the
Account Debtor thereof concurrently with or not later than five (5) days after
the shipment and delivery to and acceptance by said Account Debtor of the goods
giving rise thereto or the performance of the services giving rise thereto; (j)
Accounts arising from a "sale on approval" or a "sale or return;" (k) Accounts
as to which Bank, at any time or times hereafter, determines, in good faith,
that the prospects of payment or performance by the Account Debtor is or will be
impaired; (l) Accounts of an Account Debtor to the extent, but only to the
extent, that the same exceed a credit limit determined by Bank in its
discretion, at any time or times hereafter; (m) Accounts with respect to which
the Account Debtor is located in the State of New Jersey or the State of
Minnesota; provided, however, that such restriction shall not apply if such
Borrower (i) has filed and has effective (A) in respect of Account Debtors
located in the State of New Jersey, a Notice of Business Activities Report with
the New Jersey Division of Taxation for the then current year or (B) in respect
of Account Debtors located in the State of Minnesota, a Minnesota Business
Activity Report with the Minnesota Department of Revenue for the then current
year, as applicable, or (ii) is otherwise exempt from such reporting
requirements under the laws of such State(s); and (n) Accounts which are not
subject to a first priority perfected security interest in favor of Bank.
<PAGE>
Eligible Chow Inventory shall mean all Inventory of PM
Resources, valued at the lower of cost or current market value on an average
cost basis, which consists of prepackaged chow ingredient with respect to which
no further processing is necessary for the sale thereof, other than (a) any such
Inventory which is obsolete, (b) Inventory which is not in good condition or
does not comply with all standards imposed by any governmental authority having
regulatory authority over such goods or their manufacture, use or sale, or
Inventory which Bank has in good faith determined, in accordance with Bank's
customary business practices, is otherwise unacceptable due to age, type,
category and/or quantity, (c) Inventory which is held on consignment or consists
of experimental products or products not yet proven commercially viable by
reason of a significant number of purchase orders, or Inventory held for
promotional purposes and as samples, or Inventory returned due to defects or
product warranty problems, (d) Inventory which is not maintained at one of the
places of business and/or locations provided in the Security Agreement executed
by PM Resources, (e) Inventory not either usable or saleable, at prices not less
than the standard cost, in the ordinary course of PM Resources' business, or (f)
Inventory which is not subject to a first priority perfected security interest
in favor of Bank.
Eligible Non-Chow Inventory shall mean all Inventory of PM
Resources, valued at the lower of cost or current market value on an average
cost basis, which consists of unprocessed raw materials, other than (a)
Inventory which is Eligible Chow Inventory, (b) Inventory which is obsolete, (c)
Inventory which is not in good condition or does not comply with all standards
imposed by any governmental authority having regulatory authority over such
goods or their manufacture, use or sale, or Inventory which Bank has in good
faith determined, in accordance with Bank's customary business practices, is
otherwise unacceptable due to age, type, category and/or quantity, (d) Inventory
which is held on consignment or consists of experimental products or products
not yet proven commercially viable by reason of a significant number of purchase
orders, or Inventory held for promotional purposes and as samples, or Inventory
returned due to defects or product warranty problems, (e) Inventory which is not
maintained at one of the places of business and/or locations provided in the
Security Agreement executed by PM Resources, (f) Inventory not either usable or
saleable, at prices not less than the standard cost, in the ordinary course of
PM Resources' business, or (g) Inventory which is not subject to a first
priority perfected security interest in favor of Bank.
Eligible Zema Inventory shall mean all Inventory of Zema,
valued at the lower of cost or current market value on an average cost basis,
which consists of unprocessed raw materials, packaging materials and finished
goods with respect to which no further processing is necessary for the sale
thereof, other than (a) any such Inventory which is obsolete, (b) Inventory
which is not in good condition or does not comply with all standards imposed by
any governmental authority having regulatory authority over such goods or their
manufacture, use or sale, or Inventory which Bank has in good faith determined,
in accordance with Bank's customary business practices, is otherwise
unacceptable due to age, type, category and/or quantity, (c) Inventory which is
held on consignment or consists of experimental products or products not yet
proven commercially viable by reason of a significant number of purchase orders,
or Inventory held for promotional purposes and as samples, or Inventory returned
due to defects or product warranty problems, (d) Inventory which is not
maintained at one of the places of business and/or locations provided in the
Security Agreement executed by Zema, (e) Inventory not either useable or
saleable, at prices not less than the standard cost, in the ordinary
<PAGE>
course of Zema's business, or (f) Inventory which is not subject to a first
priority perfected security interest in favor of Bank.
Environmental Laws shall mean the Resource Conservation and
Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act and any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Materials or
any other hazardous, toxic or dangerous waste, substance or constituent or other
substance, whether solid, liquid or gas, as now or at any time hereafter in
effect.
Environmental Lien shall have the meaning ascribed thereto in
Section 7.1(k)(vii).
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
ERISA Affiliate shall mean any corporation, trade or business
that is, along with either of the Borrowers, a member of a controlled group of
corporations or a controlled group of trades or businesses, as described in
Sections 414(b) and 414(c), respectively, of the Code.
Event of Default shall have the meaning ascribed thereto in
Section 8.
Facility A shall have the meaning ascribed thereto in the
recitals to this Agreement.
Facility A Loan shall have the meaning ascribed thereto in
Section 3.1(a).
Facility B shall have the meaning ascribed thereto in the
recitals to this Agreement.
Facility B Loan shall have the meaning ascribed thereto in
Section 3.1(b).
Facility Fee shall have the meaning ascribed thereto in
Section 3.8.
Floating Rate Margin shall mean One Fourth of One Percent
(0.25%) up to and including August 31, 1997, and thereafter, commencing on the
first day of the second month following each fiscal quarter-end or fiscal
year-end, the "Floating Rate Margin" shall (based upon the Guarantor's ratio of
consolidated Indebtedness to Consolidated Tangible Net Worth as of the end of
the immediately preceding quarter (or fiscal year) determined by reference to
the Guarantor's quarter-end (or fiscal year-end) financial statements for such
preceding fiscal quarter-end (or fiscal year-end)), (i.e., for the period
beginning September 1, 1997 by referencing the Guarantor's July 31, 1997 fiscal
quarter-end financial statements), mean the following:
(i) One-Half of One Percent (0.50%), if the
Guarantor's ratio of consolidated Indebtedness to Consolidated
<PAGE>
Tangible Net Worth shall be greater than or equal to 2.0 to 1.0 as
determined pursuant to Section 5.1(I) of the Guaranty by reference to
the Guarantor's most recent quarter-end (or fiscal year-end) financial
statements,
(ii) One-Fourth of One Percent (0.25%), if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible
Net Worth shall be less than 2.0 to 1.0 but greater than or equal to
1.5 to 1.0 as determined pursuant to Section 5.1(I) of the Guaranty by
reference to the Guarantor's most recent quarter-end (or fiscal
year-end) financial statements,
(iii) Zero Percent (0.00%), if the Guarantor's ratio
of consolidated Indebtedness to Consolidated Tangible Net Worth shall
be less than 1.5 to 1.0 but greater than or equal to 1.0 to 1.0 as
determined pursuant to Section 5.1(I) of the Guaranty by reference to
the Guarantor's most recent quarter-end (or fiscal year-end) financial
statements, and
(iv) Negative One-Fourth of One Percent (-0.25%), if
the Guarantor's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 1.0 to 1.0 as determined pursuant
to Section 5.1(I) of the Guaranty by reference to the Guarantor's most
recent quarter-end (or fiscal year-end) financial statements,
The interest rate on any Prime Loan shall be adjusted automatically on and as of
the effective date of any change in the Floating Rate Margin pursuant to this
definition.
Generally Accepted Accounting Principles shall mean such
accounting principles as, in the opinion of the "big six" accounting firm
regularly retained by Guarantor and Borrowers, conform at the time to generally
accepted accounting principles consistently applied, except that with respect to
the financial statements and reports of each of the Borrowers, such financial
statements and reports shall not be required to separately report the accrual of
income taxes on each such Borrower's financial statements and shall not include
footnotes, and with respect to the interim financial statements only of
Guarantor, may not include footnotes.
Guarantee by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by agreement to keep-well, to purchase assets, goods, securities or
services, or to take-or-pay or otherwise); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "guarantee" used as a verb shall have a correlative
meaning.
Guarantor shall mean Agri-Nutrition Group Limited, a Delaware
corporation, and its successors and assigns.
<PAGE>
Guaranty shall mean that certain Unlimited Continuing Guaranty
dated the date hereof and executed by Agri-Nutrition Group Limited, a Delaware
corporation, in favor of Bank, as the same may from time to time be amended.
Hazardous Materials shall mean any hazardous substance or
pollutant or contaminant defined as such in (or for the purposes of) any
Environmental Law and shall include, without limitation, petroleum, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including, without limitation, any source,
special nuclear or byproduct material as defined in 42 U.S.C. Section 2011 et
seq., as amended or hereafter amended, and asbestos in any form or condition.
Indebtedness of any Person shall mean and include, without
duplication, any and all indebtedness, liabilities and obligations of such
Person which in accordance with Generally Accepted Accounting Principles
consistently applied are or should be classified upon a balance sheet of such
Person as liabilities of such Person, and in any event shall include all (i)
obligations of such Person for borrowed money or which have been incurred in
connection with the acquisition of Property, (ii) obligations secured by any
Lien or other charge upon any Property owned by such Person, provided that if
such Person has not assumed or become liable for the payment of such
obligations, such obligations shall still be included in Indebtedness but the
determination of the amount of Indebtedness evidenced by such obligations shall
be limited to the book value of such Property, (iii) obligations created or
arising under any conditional sale or other title retention agreement with
respect to any Property acquired by such Person, provided that if the rights and
remedies of the seller, lender or lessor in the event of default under such
agreement are limited solely to repossession or sale of such Property, such
obligations shall still be included in Indebtedness but the determination of the
amount of Indebtedness evidenced by such obligations shall be limited to the
book value of such Property, (iv) all Guarantees and other contingent
indebtedness, liabilities and obligations of such Person, but only to the extent
any such contingent indebtedness, liabilities and obligations are, in accordance
with Generally Accepted Accounting Principles consistently applied, required to
be accrued as a liability on the balance sheet of such Person and (v) all
obligations of such Person as lessee under any Capitalized Lease.
For the purpose of computing the "Indebtedness" of any Person,
there shall be excluded any particular Indebtedness to the extent that, upon or
prior to the maturity thereof, there shall have been deposited with the proper
depositary in trust the necessary funds (or evidences of such Indebtedness) for
the payment, redemption or satisfaction of such Indebtedness; and thereafter
such funds and evidences of Indebtedness so deposited shall not be included in
any computation of the assets of such Person.
Interest Period shall mean with respect to each Treasury Rate
Loan:
(i) Initially, the period commencing on the date of
such Treasury Rate Loan and ending 1 or 2 years thereafter as Borrowers
may elect in the applicable Borrowing Notice; and
(ii) Thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such Treasury
<PAGE>
Rate Loan and ending 1 or 2 years thereafter as Borrowers may elect
pursuant to Section 3.2(iv);
provided that:
(iii) Subject to clause (iv) below, if any Interest
Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the immediately succeeding Business Day;
(iv) No Interest Period with respect to any Treasury
Rate Loan shall extend beyond the last day of the Term hereof.
Inventory shall mean all inventory of each of the Borrowers
valued at the lower of cost or market.
Lien shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on common law, statute or contract,
including, without limitation, any security interest, mortgage, deed of trust,
pledge, hypothecation, judgment lien or other lien or encumbrance of any kind or
nature whatsoever, any conditional sale or trust receipt and any lease,
consignment or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property.
Loan shall mean each Facility A Loan and Facility B Loan, and
Loans shall mean any or all of the foregoing, whether made as a Prime Loan or a
Treasury Rate Loan.
Multiemployer Plan shall mean a "multi-employer plan" as
defined in Section 4001(a)(3) of ERISA which is maintained for employees of
either of the Borrowers, any ERISA Affiliate or any Subsidiary of either of the
Borrowers.
Note shall mean the Revolving Credit Note of Borrowers to be
executed and delivered to Bank pursuant to Section 3.2, as the same may from
time to time be amended, modified, extended or renewed.
Obligor shall mean each of the Borrowers, the Guarantor and
each other Person who is or shall at any time hereafter become primarily or
secondarily liable on any of Borrowers' Obligations or who grants Bank a Lien
upon any of the Property or assets of such Person as security for any of
Borrowers' Obligations.
Occupational Safety and Health Laws shall mean the
Occupational Safety and Health Act of 1970, as amended, and any other Federal,
state or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct concerning
employee health and/or safety, as now or at any time hereafter in effect.
PBGC shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
<PAGE>
Pension Plan shall mean a "pension plan," as such term is
defined in Section 3(2) of ERISA, which is established or maintained by either
of the Borrowers, any ERISA Affiliate or any Subsidiary of either of the
Borrowers, other than a Multiemployer Plan.
Person shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity or government (whether national, Federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
Pledge Agreement shall mean that certain Agreement of Pledge
(Third Party) executed by Agri-Nutrition Group Limited, a Delaware corporation,
and delivered to Bank pursuant to Section 5.3, as the same may from time to time
be amended, pursuant to which Agri-Nutrition Group Limited has pledged to Bank
all of the issued and outstanding shares of capital stock in each of the
Borrowers.
Prime Loan shall mean any Loan bearing interest at the Prime
Rate plus Floating Rate Margin in effect on any day.
Prime Rate shall mean the interest rate announced from time to
time by Bank as its "prime rate" on commercial loans (which rate shall fluctuate
as and when said prime rate shall change).
Property shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible. Properties
shall mean the plural of Property. For purposes of this Agreement, each of the
Borrowers and each Subsidiary of either of the Borrowers shall be deemed to be
the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person
for security purposes.
Related Party shall mean any Person (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by or
is under common control with, either of the Borrowers or any Subsidiary of
either of the Borrowers, (ii) which beneficially owns or holds ten percent (10%)
or more of the equity interest of either of the Borrowers, (iii) ten percent
(10%) or more of the equity interest of which is beneficially owned or held by
either of the Borrowers or a Subsidiary of either of the Borrowers, or (iv) who
is a director, officer or employee of either of the Borrowers or a Subsidiary of
either of the Borrowers, but the term "Related Party" shall specifically exclude
Durvet/PMR, L.P. and its general partner, Durvet, Inc. The term "control" shall
mean the possession, directly or indirectly, of the power to vote ten percent
(10%) or more of the capital stock of any Person or the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Reportable Event shall have the meaning given to such term in
ERISA.
Security Agreements shall mean the Security Agreement executed
by PM Resources and the Security Agreement executed by Zema, each delivered to
Bank pursuant to Section 5.1, as the same may from time to time be amended, and
Security Agreement shall mean either of them.
<PAGE>
Subordinated Debt shall mean all borrowed money Indebtedness
of either of the Borrowers which has been duly subordinated by the lender
thereof to Borrowers' Indebtedness and obligations to Bank hereunder and under
the other Transaction Documents pursuant to a subordination agreement acceptable
to Bank.
Subordination Agreement shall mean that certain Subordination
and Standby Agreement dated as of July 14, 1995 and executed by Agri-Nutrition
Group Limited, a Delaware corporation, in favor of Bank, subordinating any and
all present and future indebtedness of either of the Borrowers to Agri-Nutrition
Group Limited to any and all present and future indebtedness of Borrowers to
Bank, as the same may from time to time be amended.
Subsidiary shall mean, with respect to any Person, any
corporation of which fifty percent (50%) or more of the issued and outstanding
capital stock entitled to vote for the election of directors (other than by
reason of default in the payment of dividends) is at the time owned directly or
indirectly by such Person.
Term shall have the meaning ascribed thereto in Section 1.
Third Party Collateral shall mean any Property or assets of
any Obligor other than a Borrower which now or at any time hereafter secure the
payment or performance of any of Borrowers' Obligations.
Transaction Documents shall mean this Agreement, the Note, the
Security Agreements, the Deed of Trust, the Pledge Agreement and all other
agreements, documents and instruments heretofore, now or hereafter delivered to
Bank with respect to or in connection with or pursuant to this Agreement, any
Loans made hereunder or any other of Borrowers' Obligations, and executed by or
on behalf of either of the Borrowers, all as the same may from time to time be
amended, modified, extended or renewed.
Treasury Margin shall mean Two and One-Fourth Percent (2.25%)
up to and including August 31, 1997, and thereafter, commencing on the first day
of the second month following each fiscal quarter-end or fiscal year-end, the
"Treasury Margin" shall, based upon the Guarantor's ratio of consolidated
Indebtedness to Consolidated Tangible Net Worth as of the end of the immediately
preceding quarter (or fiscal year) determined by reference to the Guarantor's
quarter-end (or fiscal year-end) financial statements for such preceding fiscal
quarter-end or fiscal year-end, (i.e., for the period beginning September 1,
1997 by referencing the Guarantor's July 31, 1997 fiscal quarter-end financial
statements), mean the following:
(i) Two and Three-Fourths Percent (2.75%) if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible
Net Worth shall be greater than or equal to 2.0 to 1.0 as determined
pursuant to Section 5.1(I) of the Guaranty by reference to the
Guarantor's most recent quarter-end (or fiscal year-end) financial
statements,
(ii) Two and One-Half Percent (2.50%), if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible
Net Worth shall be less than 2.0 to 1.0 but greater than or
<PAGE>
equal to 1.5 to 1.0 as determined pursuant to Section 5.1(I) of the
Guaranty by reference to the Guarantor's most recent quarter-end (or
fiscal year-end) financial statements,
(iii) Two and One-Fourth Percent (2.25%), if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible
Net Worth shall be less than 1.5 to 1.0 but greater than or equal to
1.0 to 1.0 as determined pursuant to Section 5.1(I) of the Guaranty by
reference to the Guarantor's most recent quarter-end (or fiscal
year-end) financial statements, and
(iv) Two Percent (2.00%), if the Guarantor's ratio of
consolidated Indebtedness to Consolidated Tangible Net Worth shall be
less than 1.0 to 1.0 as determined pursuant to Section 5.1(I) of the
Guaranty by reference to the Guarantor's most recent quarter-end (or
fiscal year-end) financial statements,
The Treasury Margin shall be determined for each Treasury Rate Loan for its
Interest Period as of the date two (2) Business Days after the receipt by Bank
of the Borrowing Notice required by Section 3.2. All changes in the Treasury
Margin shall be effective from the date of determination pursuant to this
definition for any new Treasury Rate Loan or new Interest Period commencing on
or after such date and shall not be retroactively applied.
Treasury Rate shall mean the interest rate per annum equal to
the Treasury Yield for an Interest Period selected by Borrowers in the
applicable Borrowing Notice, plus the Treasury Margin applicable from time to
time during such Interest Period.
Treasury Rate Loan shall mean a Facility B Loan in an original
principal amount of not less than $500,000.00 which bears interest at the
applicable Treasury Rate for an Interest Period applicable to such Facility B
Loan as selected by Borrowers in a Borrowing Notice.
Treasury Yield shall mean the prevailing U.S. Treasury Note
yield-to-maturity for actively traded U.S. Treasury Notes having maturities most
closely equal to the Interest Period selected by Borrowers in the applicable
Borrowing Notice for a Treasury Rate Loan, determined by Bank, in its sole
discretion, by reference to the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available prior to such date of
determination (or if such Release is unavailable, by any other publicly
available source of similar market data selected by Bank in its sole
discretion). The Treasury Yield shall be computed to the fifth decimal place
(one one-thousandth of a percentage point) and then rounded to the fourth
decimal place (one one-hundredth of a percentage point).
SECTION 3. THE LOANS.
3.1 Commitment of Bank.
(a) Facility A. Subject to the terms and conditions hereof, during the
Term of this Agreement, Bank hereby agrees to make such loans (individually, a
"Facility A Loan" and collectively, the "Facility A Loans") to Borrowers,
jointly and severally, as either
<PAGE>
of the Borrowers may from time to time request pursuant to Section 3.2. The
maximum aggregate principal amount which Bank, cumulatively, may be required to
have outstanding under this Facility A at any one time shall not exceed the
lesser of (i) Three Million Dollars ($3,000,000.00), or (ii) the Borrowing Base
(as hereinafter defined). This commitment of Bank is herein sometimes referred
to as the "Bank's Facility A Commitment." Subject to the terms and conditions
hereof, Borrowers may jointly and severally borrow, repay and reborrow such sums
from Bank, provided, however, that the aggregate principal amount of all
Facility A Loans outstanding hereunder at any one time shall not exceed Bank's
Facility A Commitment.
(b) Facility B. Subject to the terms and conditions hereof, during the
Term of this Agreement, Bank hereby agrees to make such loans (individually, a
"Facility B Loan" and collectively, the "Facility B Loans") to Borrowers,
jointly and severally, as either of the Borrowers may from time to time request
pursuant to Section 3.2. The aggregate principal amount of Facility B Loans
which Bank, cumulatively, shall be required to have outstanding hereunder at any
one time shall not exceed Three Million Three Hundred Fifty Thousand Dollars
($3,350,000.00) from the date hereof until August 31, 1997, which amount shall
thereafter be reduced by One Hundred Twenty-Five Thousand Dollars ($125,000.00)
on each February 28, May 31, August 31 and November 30, with the first such
reduction on August 31, 1997. This commitment of Bank is herein sometimes
referred to as the "Bank's Facility B Commitment." Subject to the terms and
conditions hereof, Borrowers may jointly and severally borrow, repay and
reborrow such sums from Bank, provided, however, that the aggregate principal
amount of all Facility B Loans outstanding under Bank's Facility B Commitment at
any one time shall not exceed Bank's Facility B Commitment then available
hereunder. Bank and Borrowers agree that all Loans outstanding under this
Agreement shall first be made under Facility B up to the Bank's Facility B
Commitment, and then shall be made under Facility A, and all principal payments
shall be applied, first to the outstanding principal under Facility A until paid
in full, and then to the outstanding principal under Facility B.
(c) Borrowing Base. For purposes of computing the amount of the
Bank's Facility A Commitment, the "Borrowing Base" shall mean the sum of:
(i) Seventy-Five Percent (75%) of the face amount
of Eligible Accounts of each of the Borrowers, plus
(ii) Fifty Percent (50%) of the Eligible Non-Chow
Inventory of PM Resources, plus
(iii) Sixty Percent (60%) of the Eligible Chow Inventory of PM
Resources, plus
(iv) Thirty-Five Percent (35%) of the Eligible Zema
Inventory
(d) Borrowing Base Certificate. Borrowers shall deliver to Bank on
the date of execution hereof (with respect to the month ended May 31, 1997) and
on the twenty-first (21st) day of each month thereafter, commencing in the month
of July, 1997, a borrowing base certificate in the form of Exhibit A attached
hereto and incorporated herein by reference (a "Borrowing Base Certificate")
setting forth:
<PAGE>
(i) the Borrowing Base and its components as of the
end of the immediately preceding month;
(ii) the aggregate principal amount of all outstanding
Facility A Loans;
(iii) the difference, if any, between the Borrowing
Base and the aggregate principal amount of all outstanding Facility A
Loans; and
(iv) the maximum available principal amount and the
aggregate principal amount of all outstanding Facility B Loans.
The Borrowing Base shown in such Borrowing Base Certificate shall be and remain
the Borrowing Base hereunder until the next Borrowing Base Certificate is
delivered to Bank, at which time the Borrowing Base shall be the amount shown in
such subsequent Borrowing Base Certificate. Each Borrowing Base Certificate
shall be certified (subject to normal year-end adjustments) as to truth and
accuracy by the President, principal financial officer or controller of each of
the Borrowers.
(e) Mandatory Repayments - Facility A. If at any time the Borrowing
Base as shown on the most recent Borrowing Base Certificate should be less than
the aggregate principal amount of all outstanding Facility A Loans, Borrowers
shall be automatically required (without demand or notice of any kind by Bank,
all of which are hereby expressly waived by Borrowers) jointly and severally to
immediately repay the Facility A Loans in an amount sufficient to reduce such
aggregate principal amount of outstanding Facility A Loans to the amount of the
Borrowing Base.
(f) Mandatory Repayments - Facility B. Commencing with the first
such principal reduction on August 31, 1997, on each February 28, May 31, August
31 and November 30 during the Term of this Agreement, Borrowers shall jointly
and severally pay to Bank in immediately available funds an amount equal to the
difference between Bank's Facility B Commitment (as reduced on such date
pursuant to the terms of Section 3.1(b) above) and the aggregate principal
amount of all Facility B Loans then outstanding. In the event any such mandatory
repayment shall be due on a day which is not a Business Day, then such payment
shall be due on the immediately preceding Business Day. Such mandatory payments
shall be applied first to the outstanding Facility B Loans which are Prime
Loans, and second to Facility B Loans which are Treasury Rate Loans, provided,
however, that any such repayment of Treasury Rate Loans made on any date other
than the last day of the applicable Interest Period for such Treasury Rate Loan
shall be subject to payment jointly and severally by Borrowers of the amounts
due under Section 3.7 below.
3.2 Procedure for Borrowing. Subject to the terms and
conditions hereof, Bank shall cause the Loans to be made to Borrowers, and shall
convert outstanding Prime Loans under Facility B to Treasury Rate Loans or vice
versa, at any time and from time to time during the Term of this Agreement upon
timely prior oral or written notice ("Borrowing Notice") from either of the
Borrowers to Bank specifying:
<PAGE>
(i) the desired amount of the Facility A Loan or
Facility B Loan, which in the case of a Treasury Rate Loan under
Facility B shall be in a principal amount of at least Five Hundred
Thousand Dollars ($500,000.00);
(ii) whether such Loan shall be a new Loan under
Facility A or Facility B, or a conversion of all or a portion of any
presently outstanding Facility B Loan from the Prime Rate to the
Treasury Rate, or vice versa;
(iii) if a new Loan under Facility B, whether such
Loan is to be a Prime Loan or a Treasury Rate Loan;
(iv) in the case of a Treasury Rate Loan, the
duration of the Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period;
(v) the date on which the proceeds of any new Loan
are to be made available to either of the Borrowers or the date on
which the new interest rate is to take effect for any outstanding
Facility B Loan being converted by Borrowers, which shall be a Business
Day;
(vi) that on the date of, and after giving effect to,
such Loan, no Default or Event of Default under this Agreement has
occurred and is continuing; and
(vii) that on the date of, and after giving effect
to, such Loan, all of the representations and warranties of Borrowers
contained in this Agreement are true and correct in all material
respects as if made on the date of such Loan.
A Borrowing Notice shall not be required in connection with a Prime Loan made to
cover any overdraft in PM Resources' operating account on a day-to-day basis as
set forth herein. A Borrowing Notice, if in writing, shall be in the form of the
notice attached hereto as Exhibit B. Each Borrowing Notice must be received by
Bank not later than 10:00 a.m. (St. Louis time) on the Business Day on which a
Prime Loan is to be established, or not later than 10:00 a.m. (St. Louis time)
on the third (3rd) Business Day prior to the Business Day on which a Treasury
Rate Loan is to be established. A Borrowing Notice shall not be revocable by
Borrowers. Subject to the terms and conditions hereof, provided that Bank has
received the Borrowing Notice, Bank shall (unless Bank determines that any
applicable condition specified in Section 4 has not been satisfied) pay to
Borrowers, or either of them, the Loan proceeds of any new Loan in immediately
available funds not later than 2:00 p.m. (St. Louis time) on the Business Day
specified in said Borrowing Notice. In the event Borrowers shall fail to provide
a new Borrowing Notice with respect to any Treasury Rate Loan on or before the
third (3rd) Business Day prior to the end of any Interest Period pertaining
thereto, then Borrowers shall have deemed to elect to convert such Treasury Rate
Loan on the last day of its Interest Period then expiring to a Prime Loan. Each
of the Borrowers hereby authorizes Bank to reasonably rely on
<PAGE>
telephonic, telegraphic, telecopy, telex or written instructions of any person
identifying himself as a person authorized to request a Loan or make a repayment
hereunder, and on any signature which Bank believes to be genuine, and Borrowers
shall be bound thereby in the same manner as if such person were actually
authorized or such signature were genuine. Borrowers further request and
authorize Bank, in Bank's sole and absolute discretion, to make a Prime Loan to
Borrowers hereunder at the end of each day in which Borrowers shall have an
overdraft (negative ledger balance) in PM Resources' operating account (Account
No. 9800802535) with Bank after crediting all deposits received in immediately
available funds and debiting all withdrawals made and checks presented against
such account and honored by Bank as of such date, which Prime Loan shall be in
the amount of such overdraft without any other request or authorization therefor
from Borrowers and without notice to Borrowers. Similarly, Borrowers request
that Bank apply any collected balances in excess of a mutually predetermined
amount remaining at the end of any day in PM Resources' operating account to the
repayment of the principal balance of Borrowers' Obligations outstanding as
Prime Loans under the Note. Borrowers also hereby agree jointly and severally to
indemnify Bank and hold Bank harmless from and against any and all claims,
demands, damages, liabilities, losses, costs and expenses (including, without
limitation, Attorneys' Fees) relating to or arising out of or in connection with
the acceptance of instructions for making Loans or repayments hereunder.
Contemporaneously with the execution of this Agreement, Borrowers shall execute
and deliver to Bank a Note of Borrowers dated the date hereof and payable
jointly and severally to the order of Bank in the original principal amount of
Six Million Three Hundred Fifty Thousand Dollars ($6,350,000.00) in the form
attached hereto as Exhibit C and incorporated herein by reference (as the same
may from time to time be amended, modified, extended or renewed, the "Note").
3.3 Interest Rates.
(a) Each Facility A Loan shall bear interest prior to maturity at a rate
per annum equal to the Prime Rate plus Floating Rate Margin, each in effect from
time to time during the period when such Loan is outstanding, with changes in
the interest rate taking effect on the date a change in the Floating Rate Margin
occurs pursuant to the definition thereof or the date a change in the Prime Rate
is made effective generally by Bank.
(b) Each Facility B Loan shall bear interest prior to
maturity at a rate per annum equal to such of the following as either of the
Borrowers shall select in the applicable Borrowing Notice to Bank:
(i) the Prime Rate plus Floating Rate Margin, each in
effect from time to time during the period when such Facility B Loan is
outstanding, with changes in the interest rate taking effect on the
date a change in the Floating Rate Margin occurs pursuant to the
definition thereof or the date a change in the Prime Rate is made
effective generally by Bank; or
(ii) the Treasury Rate applicable for an Interest
Period selected by either such Borrower for such Facility B Loan in the
Borrowing Notice applicable for such Facility B Loan.
<PAGE>
(c) From and after the maturity of the Note, whether by reason of
acceleration or otherwise, the entire unpaid principal balance of each Loan
shall bear interest, payable upon demand, until paid at a rate per annum equal
to Three and One-Half Percent (3.50%) over and above the Prime Rate, fluctuating
as aforesaid.
(d) Interest shall be computed with respect to all Loans on an actual
day, 360-day year.
3.4 Prepayment. Borrowers shall be privileged to prepay all at
any time or any portion from time to time of the unpaid principal of any Prime
Loan prior to maturity, without penalty or premium, provided that such repayment
is made on a Business Day. Borrowers shall be privileged to repay, without
penalty or premium, the principal of any Treasury Rate Loan, in whole or in
part, on the last day of the Interest Period applicable thereto, provided that
such repayment is made on a Business Day. Borrowers shall not make any optional
prepayment of the principal of any Treasury Rate Loan before the last day of its
applicable Interest Period, and any payments of principal of any Treasury Rate
Loan on any date other than the last day of the applicable Interest Period shall
be subject to payment of the amounts required under Section 3.7 below. All
prepayments shall be applied solely to the payment of principal.
3.5 Interest Payments. Borrowers shall jointly and severally
pay Bank all interest which accrued on all Prime Loans during any month on the
fifteenth (15th) day of the month following the month in which such interest
accrued, commencing with the fifteenth (15th) day of the month following the
month in which any Prime Loan is made. Borrowers shall jointly and severally pay
Bank with respect to each Treasury Rate Loan (a) on the fifteenth (15th) day of
the month following the month in which such interest accrued during the Interest
Period applicable to each such Treasury Rate Loan, all interest which accrued on
such Treasury Rate Loan during such month or portion thereof, and (b) on the
last day of each such Interest Period applicable to a Treasury Rate Loan, all
then accrued and unpaid interest on such Treasury Rate Loan. Notwithstanding any
provision contained herein to the contrary, all accrued and unpaid interest
shall also be paid at the maturity of each of the Note, whether by reason of
acceleration or otherwise, and any interest accruing after any such maturity
shall be payable upon demand. In case any installment of interest shall become
due on a day which is not a Business Day, interest shall be computed to, and
payable on, the next succeeding Business Day.
3.6 Place and Manner of Payment. Both principal and interest
on the Loans are payable to Bank in lawful currency of the United States in
Federal or other immediately available funds at Bank's banking office at 1281
Graham Road, Florissant, Missouri 63031, or at such other place as Bank shall
designate in writing to Borrowers.
3.7 Funding Losses. Notwithstanding any provision contained
herein to the contrary, if either of the Borrowers makes any payment of
principal with respect to any Treasury Rate Loan (pursuant to this Section 3,
Section 8 or otherwise) on any day other than the last day of an Interest Period
applicable thereto, or if either of the Borrowers fails to borrow or pay any
Treasury Rate Loan after notice has been given by Borrowers in accordance with
Section 3.1(f), 3.2 or 3.5, Borrowers shall jointly and severally reimburse Bank
on demand for any resulting losses and expenses incurred by Bank, including,
without limitation, any losses incurred in obtaining, liquidating or employing
deposits from third parties, and including loss of margin for
<PAGE>
the period after any such payment is made. A certificate of Bank demanding
compensation under this paragraph and setting forth the amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest error.
3.8 Facility Fee. Borrowers shall jointly and severally pay to
Bank on the fifteenth (15th) day following the end of each January, April, July
and October during the Term of this Agreement and on the last day of the Term
hereof, a facility fee (the "Facility Fee") in an amount equal to:
(a) Five-Sixteenths of One Percent (0.3125%) per annum, if the
Guarantor's ratio of consolidated Indebtedness to Consolidated Tangible Net
Worth shall be greater than or equal to 2.0 to 1.0 as determined pursuant to
Section 5.1(I) of the Guaranty by reference to the Guarantor's most recent
quarter-end (or fiscal year-end) financial statements,
(b) One-Fourth of One Percent (0.25%) per annum, if the Guarantor's
ratio of consolidated Indebtedness to Consolidated Tangible Net Worth shall be
less than 2.0 to 1.0 but greater than or equal to 1.0 to 1.0 as determined
pursuant to Section 5.1(I) of the Guaranty by reference to the Guarantor's most
recent quarter-end (or fiscal year-end) financial statements, and
(c) Three-Sixteenths of One Percent (0.1875%) per annum, if the Guarantor's
ratio of consolidated Indebtedness to Consolidated Tangible Net Worth shall be
less than 1.0 to 1.0 as determined pursuant to Section 5.1(I) of the Guaranty by
reference to the Guarantor's most recent quarter-end (or fiscal year-end)
financial statements, calculated on the basis of the unused Bank's Commitment
during the preceding fiscal quarter of Borrowers ending as of the last day of
each January, April, July and October, which unused Bank's Commitment shall be
arrived at by dividing the aggregate of the daily unused Bank's Commitment for
each day of that quarter as of the close of each day by ninety (90) (or by the
actual number of days for any partial quarter). Payment of the Facility Fee is a
condition precedent to Bank's obligations to make any new Loans hereunder.
3.9 Maturity. All Loans not paid prior to March 31, 1999,
together with all accrued and unpaid interest thereon, shall be due and payable
on March 31, 1999 (as from time to time extended, if any, pursuant to this
Section, the "Maturity Date"); provided, however, that in the event Bank, in its
sole and absolute discretion, shall deliver to Borrowers a written notice signed
by Bank on or before the date one year prior to the then current Maturity Date
(and prior to any subsequent Maturity Date thereafter if extended under this
Section 3.9) of Bank's intention to extend the term of this Agreement for an
additional year, then the Maturity Date of this Agreement shall be extended for
a period of one additional year following the then current Maturity Date.
Following any such extension of the Maturity Date by Bank, all of the
outstanding principal and all accrued and unpaid interest, fees and other
amounts due under this Agreement and the Note shall be due and payable on such
new Maturity Date, unless it is again extended by Bank, in its sole and absolute
discretion, under the foregoing sentence.
3.10 Renewal Fee. In consideration of Bank's agreement to
extend credit hereunder, Borrowers shall jointly and severally pay to Bank on
the date hereof a renewal fee in the amount of Three Thousand Five Hundred
Dollars ($3,500.00).
<PAGE>
SECTION 4. PRECONDITIONS TO LOANS.
4.1 Initial Loan. Notwithstanding any provision contained
herein to the contrary, Bank shall have no obligation to make any Loan hereunder
unless Bank shall have first received:
(a) this Agreement and the Note, each executed by a duly authorized
officer of each of the Borrowers;
(b) the Amendments to the Security Agreements and such other
documents as Bank may reasonably require under Section 5.1, each duly executed
by an authorized officer of each of the Borrowers;
(c) the Amendment to the Deed of Trust, duly executed by the
authorized officer of PM Resources;
(d) a copy of resolutions of the Board of Directors of each of the
Borrowers, duly adopted, which authorize the execution, delivery and performance
of this Agreement and the Note, the Amendments to the Security Agreements, the
Amendment to the Deed of Trust and the other Transaction Documents, certified by
the Secretary of each such Borrower;
(e) a certificate of corporate good standing of PM Resources issued by
the Secretary of State of the State of Missouri;
(f) certificates of corporate good standing of Zema issued by the
Secretary of State of the State of Delaware and by the Secretary of State of the
State of North Carolina;
(g) the Consent of Agri-Nutrition Group Limited in the form attached
hereto, acknowledging the amendments contained herein and the continuing
effectiveness of the Pledge Agreement and the Subordination Agreement, duly
executed by Agri-Nutrition Group Limited;
(h) the Guaranty duly executed by Agri-Nutrition Group Limited;
(i) a copy of Resolutions of the Board of Directors of Guarantor, duly
adopted, which authorize the execution, delivery and performance of the
Guaranty, certified by the Secretary of Guarantor;
(j) a Certificate of Corporate Good Standing of Guarantor, issued by
the Secretary of State of the State of Delaware;
(k) an opinion of counsel of Dyer, Ellis & Joseph, independent counsel
to Borrowers and Guarantor, in the form of Exhibit D attached hereto and
incorporated herein by reference;
(l) the initial Borrowing Base Certificate required by Section 3.1(d);
<PAGE>
(m) the Borrowing Notice required by Section 3.2; and
(n) such other agreements, documents, instruments and certificates as
Bank may reasonably request.
4.2 Subsequent Loans. Notwithstanding any provision contained
herein to the contrary, Bank shall have no obligation to make any subsequent
Loan hereunder or to convert any Prime Loan to a Treasury Rate Loan unless:
(a) Bank shall have received a current Borrowing Base Certificate as
required by Section 3.1(d);
(b) Bank shall have received a Borrowing Notice for such Loan as
required by Section 3.2;
(c) on the date of and immediately after such Loan, no Default or
Event of Default under this Agreement shall have occurred and be continuing;
(d) on the date of and immediately after such Loan, no material adverse
change in the business, financial position or results of operations of either of
the Borrowers, the Guarantor or any of their respective Subsidiaries shall have
occurred since the date of this Agreement and be continuing; and
(e) all of the representations and warranties of each of the Borrowers
contained in this Agreement shall be true and correct on and as of the date of
such Loan as if made on the date of such Loan.
Each request for a Loan by either of the Borrowers hereunder
shall be deemed to be a representation and warranty by each of the Borrowers on
the date of such Loan as to the facts specified in clauses (c), (d) and (e) of
this Section 4.2.
SECTION 5. SECURITY
5.1 Security Agreements. In order to secure the payment when
due of Borrowers' Obligations, each of the Borrowers has conveyed to Bank a
security interest in, among other things, all of such Borrower's accounts
receivable, inventory, machinery, equipment, fixtures and other tangible and
intangible personal property and all proceeds and products thereof, which
security interest is and shall be a first and prior interest in all such items
except for those Uniform Commercial Code security interests described on
Schedule 6.12 attached hereto. Said security interests are evidenced by a
Security Agreement dated as of July 14, 1995 and executed by PM Resources in
favor of Bank and by a Security Agreement dated July 14, 1995 and executed by
Zema in favor of Bank (as the same may from time to time be amended, the
"Security Agreements"). Each of the Borrowers further covenants and agrees to
execute and deliver to Bank any and all financing statements, continuation
statements and such other documentation as may be requested by Bank in order to
create, perfect and continue said security interests. Upon demand, Borrowers
shall jointly and severally pay all legal and filing fees and expenses incurred
by Bank in the preparation of the foregoing documents and perfection
<PAGE>
of the security interest contemplated thereby. Bank shall have no obligation to
make any Loan hereunder unless and until Borrowers have fully satisfied these
requirements.
5.2 Deed of Trust. In order to further secure the payment when
due of Borrowers' Obligations, PM Resources has conveyed to Bank a security
interest in all of PM Resource's real property, fixtures and improvements as
more fully described in that certain Deed of Trust and Security Agreement made
by PM Resources to Katherine D. Knocke as trustee for Bank dated as of September
9, 1993 (as the same has been or may be amended from time to time, the "Deed of
Trust"), which Deed of Trust shall be a first and prior interest in such real
property and improvements. PM Resources further covenants and agrees to execute
and deliver to Bank any and all amendments and other documentation as may be
requested by Bank from time to time in order to create, perfect and continue
said Deed of Trust as collateral security for all of Borrowers' Obligations.
Upon demand, Borrowers shall jointly and severally pay all legal and filing fees
and expenses, appraisal costs and title insurance premiums incurred by Bank in
connection with the Deed of Trust. Bank shall have no obligation to make any
Loan hereunder unless and until Borrowers have fully satisfied these
requirements.
5.3 Pledge Agreement. In order to further secure the payment
when due of Borrowers' Obligations, Agri-Nutrition Group Limited has pledged to
Bank and granted to Bank a first perfected security interest in all of the
issued and outstanding capital stock of each of the Borrowers, as more fully
described in that certain Agreement of Pledge (Third Party) made by
Agri-Nutrition Group Limited in favor of Bank dated as of July 14, 1995 (as the
has been or may be amended from time to time, the "Pledge Agreement"), which
Pledge Agreement shall be a first and prior interest in all such capital stock.
Borrowers further covenant and agree to cause Agri-Nutrition Group Limited to
execute and deliver to Bank any and all collateral schedules, stock powers, Reg.
U-1 affidavits and other documents as may be reasonably requested by Bank from
time to time, together with all original stock certificates evidencing any
shares of capital stock in either of the Borrowers. Upon demand, Borrowers shall
jointly and severally pay all legal and filing fees and other expenses incurred
by Bank in connection with the Pledge Agreement. Bank shall have no obligation
to make any Loan hereunder unless and until Borrowers and Agri-Nutrition Group
Limited have fully satisfied these requirements.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Borrowers represent and warrant to Bank that:
6.1 Corporate Existence and Power. Each of the Borrowers and
each Subsidiary of each of the Borrowers: (a) is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation; (b) has all requisite corporate powers and all governmental and
regulatory licenses, authorizations, consents and approvals required to carry on
its business as now conducted; and (c) is duly qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure to so qualify would have a material
adverse effect on its business, financial condition or operations.
6.2 Corporate Authorization. The execution, delivery and
performance by Borrowers of this Agreement, the Note, the Amendment and the
other Transaction Documents
<PAGE>
are within the corporate powers of each of the Borrowers and have been duly
authorized by all necessary corporate action.
6.3 Binding Effect. This Agreement, the Note, the Security
Agreements, the Deed of Trust, the Amendment and the other Transaction Documents
have been duly executed and delivered by each of the Borrowers executing the
same and constitute the legal, valid and binding obligations of each such
Borrower enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights in general.
6.4 Financial Statements. Borrowers have furnished Bank with
the following financial statements, identified by the principal financial
officers of each of the Borrowers: (1) consolidated balance sheet and statements
of income, retained earnings and cash flows of Guarantor and its Consolidated
Subsidiaries as of October 31, 1996 and for the period then ended, all certified
by Guarantor's independent certified public accountants, which financial
statements have been prepared in accordance with Generally Accepted Accounting
Principles consistently applied; (2) unaudited consolidated balance sheet and
statements of income, retained earnings and cash flows of each of the Borrowers
and their respective Consolidated Subsidiaries as of April 30, 1997, certified
by the principal financial officers of each of the Borrowers as being true and
correct to the best of his knowledge and as being prepared in accordance with
Borrowers' normal accounting procedures. Borrowers further represent and warrant
to Bank that: (1) said balance sheets and their accompanying notes fairly
present the condition of Borrowers and their respective Consolidated
Subsidiaries as of the dates thereof; (2) there has been no material adverse
change in the condition or operation, financial or otherwise, of either of the
Borrowers, the Guarantor or any of their respective Consolidated Subsidiaries
since April 30, 1997; and (3) neither Borrower nor any of their respective
Consolidated Subsidiaries has any direct or contingent liabilities which are not
disclosed on said financial statements in accordance with Generally Accepted
Accounting Principles.
6.5 Litigation. Except as disclosed on Schedule 6.5 attached
hereto, there is no action or proceeding pending or, to the knowledge of
Borrowers, threatened against or affecting either of the Borrowers, the
Guarantor or any Subsidiary of either of the Borrowers or the Guarantor before
any court, arbitrator or any governmental, regulatory or administrative body,
agency or official which could result in any material adverse change in the
condition or operation, financial or otherwise, of either such Borrower, the
Guarantor or any Subsidiary of either of the Borrowers or the Guarantor, and
neither Borrower nor the Guarantor nor any Subsidiary of either Borrower or the
Guarantor is in default with respect to any order, writ, injunction, decision or
decree of any court, arbitrator or any governmental, regulatory or
administrative body, agency or official, a default under which could have a
material adverse effect on either of the Borrowers, the Guarantor or any
Subsidiary of either of the Borrowers or the Guarantor.
6.6 Pension and Welfare Plans. Each Pension Plan complies with
all applicable statutes and governmental rules and regulations; no Reportable
Event has occurred and is continuing with respect to any Pension Plan; neither
Borrower nor any ERISA Affiliate nor any Subsidiary of either of the Borrowers
has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a
"partial withdrawal" as defined in Sections 4203 or 4205 of ERISA, respectively;
no steps have been instituted by either of the Borrowers, any ERISA
<PAGE>
Affiliate or any Subsidiary of either of the Borrowers to terminate any Pension
Plan; no condition exists or event or transaction has occurred in connection
with any Pension Plan or Multiemployer Plan which could result in the incurrence
by either of the Borrowers, any ERISA Affiliate or any Subsidiary of either of
the Borrowers of any material liability, fine or penalty; and neither Borrower
nor any ERISA Affiliate nor any Subsidiary of either of the Borrowers is a
"contributing sponsor" as defined in Section 4001(a)(13) of ERISA of a
"single-employer plan" as defined in Section 4001(a)(15) of ERISA which has two
or more contributing sponsors at least two of whom are not under common control.
Except as disclosed on Schedule 6.6 attached hereto, neither Borrower nor any
Subsidiary of either of the Borrowers has any contingent liability with respect
to any "employee welfare benefit plan", as such term is defined in Section 3(a)
of ERISA, which covers retired employees and their beneficiaries.
6.7 Tax Returns and Payment. Each of the Borrowers and each
Subsidiary of each of the Borrowers has filed all Federal, state and local
income tax returns and all other tax returns which are required to be filed and
has paid all taxes due pursuant to such returns or pursuant to any assessment
received by either of the Borrowers or any Subsidiary of either of the
Borrowers, except for the filing of such returns, if any, in respect of which an
extension of time for filing is in effect and except for such taxes, if any, as
are being contested in good faith by appropriate proceedings being diligently
conducted and as to which adequate reserves in accordance with Generally
Accepted Accounting Principles consistently applied have been provided. The
charges, accruals and reserves on the books of each of the Borrowers and each
Subsidiary of either of the Borrowers in respect of any taxes or other
governmental charges are, in the opinion of Borrowers, adequate.
6.8 Subsidiaries. Neither of the Borrowers has any
Subsidiaries as of the date hereof.
6.9 Compliance With Other Instruments; None Burdensome.
Neither Borrower nor any Subsidiary of either Borrower is a party to any
contract or agreement or subject to any charter or other corporate restriction
which materially and adversely affects its business, Property or financial
condition and which is not disclosed on such Borrower's financial statements
heretofore submitted to Bank; none of the execution and delivery by Borrowers of
the Transaction Documents, the consummation of the transactions therein
contemplated or the compliance with the provisions thereof will violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
either of the Borrowers, or any of the provisions of either Borrower's
Certificate or Articles of Incorporation or Bylaws or any of the provisions of
any indenture, agreement, document, instrument or undertaking to which either of
the Borrowers is a party or subject, or by which it or its Property is bound, or
conflict with or constitute a default thereunder or result in the creation or
imposition of any Lien pursuant to the terms of any such indenture, agreement,
document, instrument or undertaking (other than in favor of Bank pursuant to the
Transaction Documents). No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental, regulatory, administrative or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, the execution, delivery or performance of, or the legality, validity,
binding effect or enforceability of, any of the Transaction Documents.
<PAGE>
6.10 Other Loans and Guarantees. Except as disclosed on
Schedule 6.10 attached hereto, neither Borrower nor any Subsidiary of either
Borrower is a party to any loan transaction or Guarantee.
6.11 Labor Matters. Except as disclosed on Schedule 6.11
attached hereto, (a) no labor contract to which either of the Borrowers or any
Subsidiary of either of the Borrowers is subject is scheduled to expire during
the Term of this Agreement and (b) on the date of this Agreement, (i) neither
Borrower nor any Subsidiary of either Borrower is a party to any labor dispute
and (ii) there are no strikes or walkouts relating to any labor contract to
which either of the Borrowers or any Subsidiary of either of the Borrowers is
subject.
6.12 Title to Property. Each of the Borrowers and each
Subsidiary of either of the Borrowers is the sole and absolute owner of, or has
the legal right to use and occupy, all Property it claims to own or which is
necessary for such Borrower or such Subsidiary of either Borrower to conduct its
business. Neither Borrower nor any Subsidiary of either Borrower has signed any
financing statements, security agreements or chattel mortgages with respect to
any of its Property, has granted or permitted any Liens with respect to any of
its Property or has any knowledge of any Liens with respect to any of its
Property, except as disclosed on Schedule 6.12 attached hereto.
6.13 Regulation U. Neither of the Borrowers is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of The Board of Governors of the Federal Reserve System,
as amended) and no part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately (i)
to purchase or carry margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock, or to refund or repay indebtedness
originally incurred for such purpose or (ii) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of any of the
Regulations of The Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, U, T or X thereof, as amended. If requested
by Bank, Borrowers shall furnish to Bank a statement or statements in conformity
with the requirements of Federal Reserve Form U-1 referred to in Regulation U.
6.14 Multi-Employer Pension Plan Amendments Act of 1980.
Neither of the Borrowers nor any Subsidiary of either of the Borrowers has any
pension plan or any liability for pension contributions pursuant to any plan
subject to the Multi-Employer Pension Plan Amendments Act of 1980, as amended
("MEPPAA").
6.15 Investment Company Act of 1940; Public Utility Holding
Company Act of 1935. Neither Borrower is an "investment company" as that term is
defined in, or is otherwise subject to regulation under, the Investment Company
Act of 1940, as amended. Neither Borrower is a "holding company" as that term is
defined in, or is otherwise subject to regulation under, the Public Utility
Holding Company Act of 1935, as amended.
6.16 Patents, Licenses, Trademarks, Etc. Each Borrower and
each Subsidiary of either of the Borrowers possesses all necessary patents,
licenses, trademarks, trademark rights, trade names, trade name rights and
copyrights to conduct its business without conflict with any patent, license,
trademark, trade name or copyright of any other Person.
<PAGE>
6.17 Environmental and Safety and Health Matters. Except as
disclosed on Schedule 6.17 attached hereto: (i) the operations of each of the
Borrowers and each Subsidiary of either of the Borrowers comply with (A) all
applicable Environmental Laws and (B) all applicable Occupational Safety and
Health Laws; (ii) none of the operations of either of the Borrowers or any
Subsidiary of either of the Borrowers are subject to any judicial, governmental,
regulatory or administrative proceeding alleging the violation of any
Environmental Law or Occupational Safety and Health Law; (iii) none of the
operations of either of the Borrowers or any Subsidiary of either of the
Borrowers is the subject of any Federal or state investigation evaluating
whether any remedial action is needed to respond to (A) any spillage, disposal
or release into the environment of any Hazardous Material or any other
hazardous, toxic or dangerous waste, substance or constituent or other
substance, or (B) any unsafe or unhealthful condition at any premises of either
of the Borrowers or such Subsidiary of either of the Borrowers; (iv) neither
Borrower nor any Subsidiary of either Borrower has filed any notice under any
Environmental Law or Occupational Safety and Health Law indicating or reporting
(A) any past or present spillage, disposal or release into the environment of,
or treatment, storage or disposal of, any Hazardous Material or any other
hazardous, toxic or dangerous waste, substance or constituent or other substance
or (B) any unsafe or unhealthful condition at any premises of either such
Borrower or such Subsidiary of either such Borrower; and (v) neither Borrower
nor any Subsidiary of either Borrower has any known contingent liability in
connection with (A) any spillage, disposal or release into the environment of,
or otherwise with respect to, any Hazardous Material or any other hazardous,
toxic or dangerous waste, substance or constituent or other substance or (B) any
unsafe or unhealthful condition at any premises of either such Borrower or such
Subsidiary of either such Borrower.
SECTION 7. COVENANTS.
7.1 Affirmative Covenants of Borrowers. Borrowers covenant and
agree that, so long as Bank has any obligation to make any Loan hereunder or any
of Borrowers' Obligations remain unpaid:
(a) Information. Borrowers will deliver to Bank:
(i) As soon as available and in any event within
ninety (90) days after the end of each fiscal year of Borrowers, the
consolidated balance sheet of Guarantor and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, retained earnings and cash flows for
such fiscal year, all with consolidating disclosures and setting forth
in each case, in comparative form, the figures for the previous fiscal
year, all such financial statements to be prepared in accordance with
Generally Accepted Accounting Principles consistently applied and
reported on by and accompanied by the unqualified opinion of
independent certified public accountants of nationally recognized
standing selected by Guarantor and reasonably acceptable to Bank
together with (i) a certificate from such accountants to the effect
that, in making the examination necessary for the signing of such
annual audit report, such accountants have not become aware of any
Default or Event of Default that has occurred and is continuing, or, if
such
<PAGE>
accountants have become aware of any such event, describing it and the
steps, if any, being taken to cure it and (ii) the computations of such
accountants evidencing Borrowers' compliance with the financial
covenants contained in this Agreement;
(ii) As soon as available and in any event within
forty-five (45) days after the end of each of the first three (3)
fiscal quarters of each fiscal year of Borrowers, the consolidated
balance sheet of Guarantor and its Consolidated Subsidiaries as of the
end of such fiscal quarter and the related consolidated statements of
income, retained earnings and cash flows for such fiscal quarter and
for the portion of Guarantor's and Borrowers' fiscal year ended at the
end of such fiscal quarter, all with consolidating disclosures and
setting forth in each case in comparative form, the figures for the
corresponding fiscal quarter and the corresponding portion of
Guarantor's and Borrowers' previous fiscal year, all certified (subject
to normal year-end adjustments) as to fairness of presentation,
Generally Accepted Accounting Principles and consistency by the
principal financial officers of Guarantor and Borrowers;
(iii) As soon as available and in any event within
twenty-one (21) days after the end of each month, a certificate of the
principal financial officers or controllers of Borrowers and Guarantor
in the form attached hereto as Exhibit E and incorporated herein by
reference, accompanied by supporting financial work sheets where
appropriate;
(iv) As soon as available and in any event within
twenty-one (21) days after the end of each month, the consolidated
balance sheets of each of the Borrowers and its respective Consolidated
Subsidiaries as of the end of each such month and the related
consolidated statements of income, retained earnings and cash flows for
such month and for the portion of each such Borrower's fiscal year
ended at the end of such month, all with consolidating disclosures and
setting forth in each case in comparative form, the figures for the
corresponding month and the corresponding portion of each such
Borrower's previous fiscal year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, Generally
Accepted Accounting Principles and consistency by the principal
financial officer or controller of each such Borrower;
(v) Within twenty-one (21) days after the end of each
month, the Borrowing Base Certificate dated as of the last day of such
preceding month-end, as required pursuant to Section 3.1(d) hereof,
together with an accounts receivable aging and inventory list of each
of the Borrowers if requested by Bank;
<PAGE>
(vi) Promptly upon receipt thereof, any reports
submitted to either of the Borrowers or any Consolidated Subsidiary of
either of the Borrowers (other than reports previously delivered
pursuant to Sections 7.1(a)(i) and (ii) above) by independent
accountants in connection with any annual, interim or special audit
made by them of the books of Guarantor, either of the Borrowers or any
Consolidated Subsidiary of either of the Borrowers;
(vii) Promptly upon any filing thereof, and in any
event within ten (10) days after the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and annual,
quarterly or interim reports which Guarantor shall file with the
Securities and Exchange Commission;
(viii) Promptly upon the mailing thereof to the
shareholders of either of the Borrowers generally, and in any event
within ten (10) days after such mailing, copies of all financial
statements, reports, proxy statements and other material information so
mailed; and
(ix) With reasonable promptness, such further
information regarding the business, affairs and financial condition of
either of the Borrowers or any Subsidiary of either of the Borrowers as
Bank may from time to time reasonably request.
Bank is hereby authorized to deliver a copy of any financial
statement or other information made available by either of the Borrowers to any
regulatory authority having jurisdiction over Bank, pursuant to any request
therefor.
(b) Payment of Indebtedness. Each of the Borrowers and each
Subsidiary of either of the Borrowers will (i) pay any and all Indebtedness
payable or guaranteed by such Borrower or such Subsidiary of such Borrower, as
the case may be, and any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) in
accordance with the agreement, document or instrument relating to such
Indebtedness or Guarantee and (ii) faithfully perform, observe and discharge all
covenants, conditions and obligations which are imposed upon such Borrower or
such Subsidiary of such Borrower, as the case may be, by any and all agreements,
documents and instruments evidencing, securing or otherwise relating to such
Indebtedness or Guarantee.
(c) Consultations and Inspections. Each of the Borrowers will permit,
and will cause each Subsidiary of either such Borrower to permit, Bank (and any
Person appointed by Bank to whom Borrowers do not reasonably object) to discuss
the affairs, finances and accounts of Borrowers and each Subsidiary of either of
the Borrowers with the officers of each such Borrower and each Subsidiary of
either Borrower, all at such reasonable times and as often as Bank may
reasonably request. Each of the Borrowers will also permit, and will cause each
Subsidiary of either such Borrower to permit, inspection of its Properties,
books and records by Bank during normal business hours or at other reasonable
times.
<PAGE>
(d) Payment of Taxes; Corporate Existence; Maintenance of Properties;
Insurance. Each of the Borrowers and each Subsidiary of either of the Borrowers
will:
(i) Duly file all Federal, state and local income tax
returns and all other tax returns and reports of such Borrower and each
Subsidiary of either such Borrower which are required to be filed and
duly pay and discharge promptly all taxes, assessments and other
governmental charges imposed upon it or any of its income, Property or
assets; provided, however, that neither Borrower nor any Subsidiary of
either Borrower shall be required to pay any such tax, assessment or
other governmental charge the payment of which is being contested in
good faith and by appropriate proceedings diligently conducted and for
which adequate reserves in form and amount satisfactory to Bank have
been provided, except that Borrowers and each Subsidiary of either of
the Borrowers shall pay or cause to be paid all such taxes, assessments
and governmental charges forthwith upon the commencement of proceedings
to foreclose any Lien which is attached as security therefor, unless
such foreclosure is stayed by the filing of an appropriate bond in a
manner satisfactory to Bank;
(ii) Do all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchise and
to be duly qualified to do business in all jurisdictions where the
nature of its business requires such qualification;
(iii) Maintain and keep its Properties as a whole in
good repair, working order and condition; provided, however, that
nothing in this subsection (iii) shall prevent any abandonment of any
Property which is not disadvantageous in any material respect to Bank
and which, in the good faith opinion of the management of either
Borrower, is in the best interests of such Borrower or such Subsidiary
of either such Borrower, as the case may be; and
(iv) Insure with financially sound and reputable
insurers acceptable to Bank, all Property of Borrowers and each
Subsidiary of either of the Borrowers of the character usually insured
by corporations engaged in the same or similar businesses similarly
situated, against loss or damage of the kind customarily insured
against by such corporations, unless higher limits or coverage are
reasonably required in writing by Bank, and carry adequate liability
insurance and other insurance of a kind and in an amount generally
carried by corporations engaged in the same or similar businesses
similarly situated, unless higher limits or coverage are reasonably
required in writing by Bank. All such insurance may be subject to
reasonable deductible amounts. Promptly upon Bank's request therefor,
each of the Borrowers shall provide Bank with evidence that each such
Borrower maintains, and that each Subsidiary of either such
<PAGE>
Borrower maintains, the insurance required under this Section
7.1(d)(iv), and evidence of the payment of all premiums therefor.
(e) Accountant. Borrowers shall give Bank prompt notice of any
change of Borrowers' independent certified public accountants and a statement of
the reasons for such change. Borrowers shall at all times utilize independent
certified public accountants of nationally recognized standing reasonably
acceptable to Bank.
(f) ERISA Compliance. If either of the Borrowers or any Subsidiary
of either of the Borrowers shall have any Pension Plan, such Borrower and/or
such Subsidiary or Subsidiaries of either of the Borrowers shall comply with all
requirements of ERISA relating to such plan. Without limiting the generality of
the foregoing, neither Borrower nor any Subsidiary of either of the Borrowers
shall:
(i) permit any Pension Plan maintained by it to
engage in any nonexempt "prohibited transaction," as such term is
defined in Section 4975 of the Code;
(ii) permit any Pension Plan maintained by it to
incur any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA, 29 U.S.C. ss. 1082, whether or not waived;
(iii) terminate any such Pension Plan in a manner
which could result in the imposition of a Lien on any Property of
either of the Borrowers or any Subsidiary of either of the Borrowers
pursuant to Section 4068 of ERISA, 29 U.S.C. ss.1368; or
(iv) take any action which would constitute a
complete or partial withdrawal from a Multiemployer Plan within the
meaning of Sections 4203 and 4205 of Title IV of ERISA.
Notwithstanding any provision contained in this Section 7.1(f)
to the contrary, an act by either of the Borrowers or any Subsidiary of either
of the Borrowers shall not be deemed to constitute a violation of subparagraphs
(i) through (iv) hereof unless Bank determines in good faith that said action,
individually or cumulatively with other acts of either of the Borrowers and the
Subsidiaries of either of the Borrowers, does have or is likely to cause a
significant adverse financial effect upon either of the Borrowers or any
Subsidiary of either of the Borrowers.
Borrowers shall have the affirmative obligation hereunder to
report to Bank any of those acts identified in subparagraphs (i) through (iv)
hereof, regardless of whether said act does or is likely to cause a significant
adverse financial effect upon either of the Borrowers or any Subsidiary of
either of the Borrowers, and failure by Borrowers to report such act promptly
upon either such Borrower's becoming aware of the existence thereof shall
constitute an Event of Default hereunder.
(g) Maintenance of Books and Records. Each of the Borrowers and
each Subsidiary of either of the Borrowers will maintain its books and records
in accordance
<PAGE>
with Generally Accepted Accounting Principles consistently applied and in which
true, correct and complete entries will be made of all of its dealings and
transactions.
(h) Further Assurances. Each of the Borrowers will execute any and
all further agreements, documents and instruments, and take any and all further
actions which may be required under applicable law, or which Bank may from time
to time reasonably request, in order to effectuate the transactions contemplated
by this Agreement, the Note, the Security Agreements, the Deed of Trust and the
other Transaction Documents.
(i) Financial Covenants. Borrowers will:
(i) Maintain a ratio of Indebtedness (determined on a
consolidated basis for Guarantor and all of its Consolidated
Subsidiaries and in accordance with Generally Accepted Accounting
Principles consistently applied, but excluding Subordinated Debt) to
Consolidated Tangible Net Worth of not more than 2.50 to 1.0 at all
times during the Term hereof;
(ii) Maintain a ratio of Consolidated Current Assets
to Consolidated Current Liabilities, determined on a consolidated basis
for Guarantor and all of its Consolidated Subsidiaries in accordance
with Generally Accepted Accounting Principles consistently applied, of
at least 2.0 to 1.0 at all times during the Term hereof;
(iii) Maintain at all times a Consolidated Tangible
Net Worth of at least the sum of $6,500,000.00, plus Seventy-Five
Percent (75%) of the after-tax net income (with no deductions for
losses) shown on Guarantor's consolidated financial statements) for
each fiscal year, with the initial such increase commencing with the
fiscal year ending October 31, 1997, such required increases to be
cumulative for each fiscal year, plus any cash amounts invested in the
Guarantor, either of the Borrowers or any other Subsidiaries of
Guarantor at any time after the date of this Agreement;
(iv) Maintain at all times a ratio of Consolidated
Funded Debt to Consolidated Tangible Net Worth (determined on a
consolidated basis for Guarantor and all of its Consolidated
Subsidiaries and in accordance with Generally Accepted Accounting
Principles consistently applied) of not more than 1.50 to 1.0 at all
times during the Term hereof;
(v) Maintain a Debt Service Coverage Ratio as of the
end of each fiscal quarter ending on or before October 30, 1997 of at
least 0.85 to 1.0; maintain a Debt Service Coverage Ratio for the
fiscal quarter ending October 31, 1997 and for fiscal quarters ending
thereafter up to and including April 29, 1998 of at least 1.05 to 1.0;
and maintain a Debt Service Coverage Ratio for the fiscal
<PAGE>
quarter ending April 30, 1998 and for fiscal quarters ending thereafter
during the Term hereof of at least 1.3 to 1.0;
(vi) Deliver a certificate of the principal financial
officers of each of the Borrowers containing the financial ratio
calculations required in clauses (i) through (v) above simultaneously
with the financial statements referred to in Sections 7.1(a)(i) and
(ii).
(j) Compliance with Law. Each of the Borrowers will, and will cause
each Subsidiary of either of the Borrowers to, comply with any and all laws,
ordinances and governmental and regulatory rules and regulations to which it is
subject and obtain any and all licenses, permits, franchises and other
governmental and regulatory authorizations necessary to the ownership of its
Properties or to the conduct of its business, which violation or failure to
obtain might materially adversely affect the condition or operation, financial
or otherwise, of either of the Borrowers or any Subsidiary of either of the
Borrowers.
(k) Notices. Each of the Borrowers will notify Bank in writing of any
of the following immediately upon learning of the occurrence thereof, describing
the same and, if applicable, the steps being taken by the Person(s) affected
with respect thereto:
(i) Default. The occurrence of any Default or Event
of Default under this Agreement or any default or event of default by
either of the Borrowers, any other Obligor or any Subsidiary of either
of the Borrowers under any note, indenture, loan agreement, mortgage,
deed of trust, security agreement, lease or other similar agreement,
document or instrument to which either of the Borrowers, any other
Obligor or any Subsidiary of either of the Borrowers, as the case may
be, is a party or by which it is bound or to which it is subject;
(ii) Litigation. The institution of any litigation,
arbitration proceeding or governmental or regulatory proceeding
affecting either of the Borrowers, any other Obligor, any Subsidiary of
either of the Borrowers, any Collateral or any Third Party Collateral,
whether or not considered to be covered by insurance, provided that, if
such proceeding seeks money damages, the damages sought are in excess
of $50,000.00;
(iii) Judgment. The entry of any judgment or decree
against either of the Borrowers, any other Obligor or any Subsidiary of
either of the Borrowers in an amount of $50,000.00 or more;
(iv) Pension Plans. The occurrence of a Reportable
Event with respect to any Pension Plan; the filing of a notice of
intent to terminate a Pension Plan by either of the Borrowers, any
ERISA Affiliate or any Subsidiary of either of the Borrowers; the
institution of proceedings to terminate a Pension Plan by the PBGC or
any other Person; the withdrawal in a "complete withdrawal" or a
"partial
<PAGE>
withdrawal" as defined in Sections 4203 and 4205, respectively, of
ERISA by either of the Borrowers, any ERISA Affiliate or any Subsidiary
of either of the Borrowers from any Multiemployer Plan; or the
incurrence of any material increase in the contingent liability of
either of the Borrowers or any Subsidiary of either of the Borrowers
with respect to any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA which covers retired employees and their
beneficiaries;
(v) Change of Name. Any change in the name of either
of the Borrowers, any other Obligor or any Subsidiary of either of the
Borrowers at least fifteen (15) days prior to the effective date
thereof;
(vi) Change in Place(s) of Business. Any proposed
opening, closing or other change of any place of business of either of
the Borrowers or any Subsidiary of either of the Borrowers;
(vii) Environmental Matters. Receipt of any notice
that the operations of either of the Borrowers, any other Obligor or
any Subsidiary of either of the Borrowers are not in full compliance
with any of the requirements of any applicable Environmental Law or
Occupational Safety and Health Law; receipt of notice that either of
the Borrowers, any other Obligor or any Subsidiary of either of the
Borrowers is subject to any Federal, state or local investigation
evaluating whether any remedial action is needed to respond to the
release of any Hazardous Materials or any other hazardous or toxic
waste, substance or constituent or other substance into the
environment; or receipt of notice that any of the Properties or assets
of either of the Borrowers, any other Obligor or any Subsidiary of
either of the Borrowers are subject to an "Environmental Lien." For
purposes of this Section 7.1(k)(vii), "Environmental Lien" shall mean a
Lien in favor of any governmental or regulatory agency, entity,
authority or official for (1) any liability under Environmental Laws or
(2) damages arising from or costs incurred by any such governmental or
regulatory agency, entity, authority or official in response to a
release of any Hazardous Materials or any other hazardous or toxic
waste, substance or constituent or other substance into the
environment;
(viii) Material Adverse Change. The occurrence of
any material adverse change in the business, operations or condition,
financial or otherwise, of either of the Borrowers, any other Obligor
or any Subsidiary of either of the Borrowers;
(ix) Change in Management or Line(s) of Business. Any
material change in the senior management of either of the Borrowers or
any Subsidiary of either of the Borrowers or any change
<PAGE>
in either Borrower's or any Subsidiary of either of the Borrowers'
line(s) of business; and
(x) Other Notices. Any notices required to be
provided pursuant to other provisions of this Agreement and notice of
the occurrence of such other events as Bank may from time to time
reasonably specify.
(l) Borrowers' Bank Accounts. Each Borrower will, and will cause
each Subsidiary of either of the Borrowers to, maintain its primary checking,
lockbox and operating accounts with Bank and to use Bank's lockbox services for
purposes of facilitating the collection of each Borrower's or any such
Subsidiary's accounts receivable from its customers.
7.2 Negative Covenants of Borrowers. Borrowers covenant and
agree that, so long as Bank has any obligation to make any Loan hereunder or any
of Borrowers' Obligations remain unpaid, unless the prior written consent of
Bank is obtained:
(a) Limitation on Indebtedness. Neither Borrower nor any Subsidiary
of either of the Borrowers will incur or be obligated on any Indebtedness,
either directly or indirectly, by way of Guarantee, suretyship or otherwise,
other than:
(i) Indebtedness evidenced by the Note;
(ii) Unsecured trade accounts payable incurred in the
ordinary course of business;
(iii) Indebtedness listed on Schedule 6.10 attached
hereto;
(iv) Indebtedness for Capitalized Leases permitted
under Section 7.2(i) in an amount not to exceed $100,000.00 in the
aggregate (for Borrowers and all Subsidiaries of either of the
Borrowers) at any one time outstanding; and
(v) Indebtedness not otherwise permitted by this
Section 7.2(a) in an amount not to exceed $25,000.00 in the aggregate
at any one time outstanding for Borrowers and all Subsidiaries of
either of the Borrowers.
(b) Limitations on Liens. Neither Borrower will create, incur, assume
or suffer to exist, or will cause or permit any Subsidiary of either such
Borrower to create, incur, assume or suffer to exist, any Lien on any of its
Property, assets or revenues other than:
(i) Liens presently in existence which are described
on Schedule 6.12 attached hereto;
<PAGE>
(ii) Pledges or deposits in connection with or to
secure workmen's compensation, unemployment insurance, pension or other
employee benefits;
(iii) Any Lien renewing, extending or refunding any
Lien permitted hereunder, provided that the principal amount of
Indebtedness secured by such Lien is not increased and such Lien is not
extended to cover any other Property or assets of either such Borrower
or any Subsidiary of either such Borrower; and
(iv) Subject to Section 7.1(d)(i), Liens for taxes,
assessments or governmental charges or levies on the income, Property
or assets of either of the Borrowers or any Subsidiary of either of the
Borrowers if the same are being contested in good faith and by
appropriate proceedings diligently conducted and for which adequate
reserves in form and amount satisfactory to Bank are provided.
(c) Sale of Property. Neither Borrower nor any Subsidiary of either
of the Borrowers will sell, lease, transfer or otherwise dispose of any Property
or assets of either such Borrower or such Subsidiary of either of the Borrowers,
as the case may be, except in the ordinary course of business; provided,
however, that the foregoing shall not preclude either of the Borrowers or any
Subsidiary of either of the Borrowers from selling, leasing, transferring or
otherwise disposing of less than substantially all of its Property or assets so
long as the purchase price for said Property or assets shall be equal to or
greater than the depreciated book value of said Property or assets.
(d) Mergers and Consolidations. Neither Borrower nor any Subsidiary
of either of the Borrowers will merge or consolidate with any other Person or
sell, transfer or convey all or a substantial part of its Property or assets to
any Person, except that Subsidiaries of either of the Borrowers may merge with
each other or into either of the Borrowers, and except that either of the
Borrowers or any Subsidiary of either of the Borrowers may merge with or
consolidate with any other Person provided that such Borrower or such Subsidiary
shall be the surviving entity and no Default or Event of Default shall exist
hereunder either prior to or immediately following any such merger or
consolidation, and provided further that Borrowers shall have given Bank prompt
written notice, but in no event less than twenty (20) days' prior written
notice, of any such merger or consolidation and such Borrower or such Subsidiary
shall execute UCC-1 financing statements or other documents reasonably deemed
necessary by Bank to perfect and continue Bank's security interests in the
Collateral acquired through any such merger or consolidation.
(e) Acquisitions. Neither of the Borrowers nor Guarantor nor any
Subsidiary of either of the Borrowers or Guarantor will acquire all or
substantially all of the stock or assets of any Person, except that any
Borrower, Guarantor or any such Subsidiary may acquire all or substantially all
of the stock or assets of any other Person upon thirty (30) days' prior written
notice to Bank provided that no Default or Event of Default then exists
hereunder, and provided further that all of the accounts receivable, Inventory,
equipment, general intangibles and other assets of such acquired Person shall be
pledged as collateral to Bank for
<PAGE>
Borrowers' Obligations hereunder in a manner satisfactory to Bank. Borrowers
agree to execute and to cause any such Subsidiary or other acquired Person to
execute such security agreements, pledge agreements, collateral assignments,
UCC-1 financing statements and other agreements which Bank may reasonably
request in order to grant and perfect such security interests.
(f) Fiscal Year. Neither Borrower nor any Subsidiary of either
Borrower will change its fiscal year.
(g) Stock Redemptions and Distributions. Neither of the Borrowers
will make or declare or incur any liability to make any Distribution in respect
of the capital stock of such Borrower.
(h) Transactions with Related Parties. Neither Borrower nor any
Subsidiary of either of the Borrowers will, directly or indirectly, engage in
any material transaction, in the ordinary course of business or otherwise, with
any Related Party unless such transaction is upon fair market terms, is not
disadvantageous in any material respect to Bank and has been approved by a
majority of the disinterested directors of such Borrower or such Subsidiary of
either of the Borrowers, as the case may be (or, if none of such directors are
disinterested, by a majority of the directors), as being in the best interests
of such Borrower or such Subsidiary of either such Borrower, as the case may be.
In addition, neither Borrower nor any Subsidiary of either Borrower shall (i)
transfer any Property or assets to any Related Party for other than its fair
market value or (ii) purchase or sign any agreement to purchase any stock or
other securities of any Related Party (whether debt, equity or otherwise),
underwrite or Guarantee the same, or otherwise become obligated with respect
thereto. Nothing in this Section 7.2(h) shall prohibit either Borrower from
granting nonassignable, nonexclusive licenses of its patents and trademarks at
less than market value to St. JON Laboratories, Inc., St. JON VRx Products Ltd.,
Guarantor or the other Borrower hereunder.
(i) Loans and Investments. Neither Borrower nor any Subsidiary of
either Borrower will make any loans or advances or extensions of credit to
(other than extensions of credit in the ordinary course of business), purchase
any stocks, bonds, notes, debentures or other securities of, make any
expenditures on behalf of, or in any manner assume liability (direct, contingent
or otherwise) for the Indebtedness of any Person, including, but not limited to
the Guarantor, except that Borrowers and the Subsidiaries of either of the
Borrowers may:
(i) Permit to remain outstanding those loans to
employees of PM Resources as disclosed on Schedule 6.10 attached
hereto;
(ii) Acquire and own stock, obligations or securities
received in settlement of debts (created in the ordinary course of
business) owing to either such Borrower or any Subsidiary of either
such Borrower;
(iii) Own, purchase or acquire (A) prime commercial
paper and certificates of deposit in United States commercial banks
(having capital resources in excess of $20,000,000.00), in each case
due within one (1) year from the date of purchase and payable in the
<PAGE>
United States in United States dollars, (B) obligations of the United
States government or any agency thereof, (C) obligations guaranteed
directly by the United States government or (D) repurchase agreements
of United States commercial banks (having capital resources in excess
of $20,000,000.00) for terms of less than one (1) year;
(iv) Make or permit to remain outstanding travel and
other like advances to officers and employees of either such Borrower
or any Subsidiary of either such Borrower in the ordinary course of
business; and
(v) Make loans from time to time to or advances on
behalf of Guarantor.
(j) Dissolution or Liquidation. Borrowers shall not seek or permit the
dissolution or liquidation of either of the Borrowers in whole or in part.
(k) Change in Nature of Business. Neither Borrower nor any
Subsidiary of either of the Borrowers will make any material change in the
nature of its business.
(l) Pension Plans. Neither Borrower nor any Subsidiary of either of
the Borrowers shall (a) permit any condition to exist in connection with any
Pension Plan which might constitute grounds for the PBGC to institute
proceedings to have such Pension Plan terminated or a trustee appointed to
administer such Pension Plan or (b) engage in, or permit to exist or occur, any
other condition, event or transaction with respect to any Pension Plan which
could result in the incurrence by either of the Borrowers or any Subsidiary of
either of the Borrowers of any material liability, fine or penalty. Neither
Borrower nor any Subsidiary of either of the Borrowers shall become obligated to
contribute to any Pension Plan or Multiemployer Plan other than any such plan or
plans in existence on the date hereof.
(m) Change in Ownership. At all times during the Term hereof,
ownership of all of each of the Borrowers' voting stock shall be maintained by
Guarantor, and Guarantor shall maintain voting control of all of the outstanding
voting stock of each of the Borrowers at all times during the Term hereof.
7.3 Use of Proceeds. Borrowers agree that (i) the proceeds of
the Facility A Loans will be used solely for Borrowers' working capital
requirements; ; (ii) the proceeds of the Facility B Loan will be used solely to
refinance existing indebtedness of Borrowers, including, but not limited to,
repaying certain existing indebtedness of Borrowers to Guarantor, to make an
additional loan advance to Guarantor as permitted under Section 7.2(i)(v) and
for Borrowers' general corporate purposes; (iii) none of such proceeds will be
used in violation of any applicable law or regulation; and (iv) neither Borrower
will engage principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying "margin stock"
within the meaning of Regulation U of The Board of Governors of the Federal
Reserve System, as amended.
<PAGE>
SECTION 8. EVENTS OF DEFAULT.
If any of the following (each of the following herein
sometimes called an "Event of Default") shall occur and be continuing:
8.1 Either of the Borrowers shall fail to pay any of
Borrowers' Obligations as and when the same shall become due and payable,
whether by reason of demand, acceleration or otherwise;
8.2 Any representation or warranty of either of the Borrowers
made in this Agreement, in any other Transaction Document to which such Borrower
is a party or in any certificate, agreement, instrument or statement furnished
or made or delivered pursuant hereto or thereto or in connection herewith or
therewith, shall prove to have been untrue or incorrect in any material respect
when made or effected;
8.3 Either of the Borrowers shall fail to perform or observe
any term, covenant or provision contained in Section 7.1(a)(i), (ii), (vi),
(vii), (viii) or (ix), Section 7.1(i), Section 7.2 or Section 7.3;
8.4 Borrowers shall fail to timely deliver the Borrowing Base
Certificate required by Sections 3.1(d) and 7.1(a)(v) or the financial
statements or compliance certificate required by Section 7.1(a)(iii) or (iv),
unless prior to the date required for delivery of such financial statements,
compliance certificate or Borrowing Base Certificate, Borrowers shall notify the
Bank that they anticipate a delay in the delivery of such information, in which
case such default shall not constitute an Event of Default hereunder unless such
financial statement, compliance certificate or Borrowing Base Certificate is not
delivered within 10 days following such notice of delay;
8.5 Either of the Borrowers shall fail to perform or observe
any other term, covenant or provision contained in this Agreement and any such
failure shall remain unremedied for fifteen (15) days after written notice
thereof shall have been given to Borrowers by Bank;
8.6 This Agreement or any of the other Transaction Documents
shall at any time for any reason cease to be in full force and effect or shall
be declared to be null and void by a court of competent jurisdiction, or if the
validity or enforceability thereof shall be contested or denied by either of the
Borrowers, or if the transactions completed hereunder or thereunder shall be
contested by either of the Borrowers or if either of the Borrowers shall deny
that it has any or further liability or obligation hereunder or thereunder;
8.7 Either of the Borrowers, any Subsidiary of either of the
Borrowers or any other Obligor shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States Code or any
other Federal, state or foreign bankruptcy, insolvency, receivership,
liquidation or similar law, (ii) consent to the institution of, or fail to
contravene in a timely and appropriate manner, any such proceeding or the filing
of any such petition, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official of itself,
himself or herself or of a substantial part of its, his or her Property or
assets, (iv) file an answer admitting the material allegations of a petition
filed against itself, himself or herself in any such proceeding, (v) make a
general assignment for the
<PAGE>
benefit of creditors, (vi) become unable, admit in writing its, his or her
inability or fail generally to pay its, his or her debts as they become due or
(vii) take any corporate or other action for the purpose of effecting any of the
foregoing;
8.8 An involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of either of the Borrowers, any Subsidiary of either of
the Borrowers or any other Obligor, or of a substantial part of the Property or
assets of either of the Borrowers, any Subsidiary of either of the Borrowers or
any other Obligor, under Title 11 of the United States Code or any other
Federal, state or foreign bankruptcy, insolvency, receivership, liquidation or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official of either of the Borrowers, any Subsidiary of
either of the Borrowers or any other Obligor or of a substantial part of the
Property or assets of either of the Borrowers, any Subsidiary of either of the
Borrowers or any other Obligor or (iii) the winding-up or liquidation of either
of the Borrowers, any Subsidiary of either of the Borrowers or any other
Obligor; and such proceeding or petition shall continue undismissed for thirty
(30) consecutive days or an order or decree approving or ordering any of the
foregoing shall continue unstayed and in effect for thirty (30) consecutive
days;
8.9 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of either of the Security Agreements;
8.10 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of the Deed of Trust;
8.11 Any "Default" or "Event of Default" (as defined therein)
shall occur under or within the meaning of the Pledge Agreement, or if the
Pledge Agreement shall at any time for any reason cease to be in full force and
effect or shall be declared to be null and void by a court of competent
jurisdiction, or if the validity or enforceability thereof shall be contested or
denied by Guarantor, or if Guarantor shall deny that it has any further
liability or obligation thereunder, or if Guarantor shall fail to comply with or
observe any of the terms, provisions or conditions contained in said Pledge
Agreement;
8.12 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of the Guaranty, or if the Guaranty shall at any
time for any reason cease to be in full force and effect or shall be declared to
be null and void by a court of competent jurisdiction, or if the validity or
enforceability thereof shall be contested or denied by Guarantor, or if
Guarantor shall deny that it has any further liability or obligation thereunder
or if Guarantor shall fail to comply with or observe any of the terms,
provisions or conditions contained in said Guaranty;
8.13 The Subordination Agreement shall at any time for any
reason cease to be in full force and effect or shall be declared to be null and
void by a court of competent jurisdiction, or if the validity or enforceability
thereof shall be contested or denied by Guarantor, or if Guarantor shall deny
that it has any further liability or obligation thereunder or if Guarantor shall
fail to comply with or observe any of the terms, provisions or conditions
contained in said Subordination Agreement;
<PAGE>
8.14 Either of the Borrowers, any Subsidiary of either of the
Borrowers or any other Obligor shall be declared by Bank to be in default on, or
pursuant to the terms of, (1) any other present or future obligation to Bank,
including, without limitation, any other loan, line of credit, revolving credit,
guaranty or letter of credit reimbursement obligation, or (2) any other present
or future agreement purporting to convey to Bank a Lien upon any Property or
assets of either of the Borrowers, such Subsidiary of either of the Borrowers or
such other Obligor, as the case may be;
8.15 St. JON Laboratories, Inc. shall be declared by Bank to
be in default on, or pursuant to the terms of any of its present or future
obligations to Bank, including, without limitation, any other loan, line of
credit, revolving credit, guaranty or letter of credit reimbursement obligation,
or (2) any other present or future agreement purporting to convey to Bank a Lien
upon any Property or assets of St. JON Laboratories, Inc.;
8.16 Either of the Borrowers, any Subsidiary of either of the
Borrowers or any other Obligor shall fail (and such failure shall not have been
cured or waived) to perform or observe any term, provision or condition of, or
any other default or event of default shall occur under, any agreement, document
or instrument evidencing, securing or otherwise relating to any outstanding
Indebtedness of either of the Borrowers, such Subsidiary of either of the
Borrowers or such other Obligor, as the case may be, for borrowed money (other
than Borrowers' Obligations) in a principal amount in excess of Five Hundred
Thousand Dollars ($500,000.00), if the effect of such failure or default is to
cause or permit such Indebtedness to be declared to be due and payable or
otherwise accelerated, or to be required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof;
8.17 Either of the Borrowers, any Subsidiary of either of the
Borrowers or any other Obligor shall have a judgment entered against it, him or
her in an amount of $50,000.00 or more by a court having jurisdiction in the
premises and such judgment shall not be appealed in good faith or satisfied by
such Borrower, such Subsidiary of either of the Borrowers or such other Obligor,
as the case may be, within thirty (30) days after the entry of such judgment;
8.18 The occurrence of a Reportable Event with respect to any
Pension Plan; the filing of a notice of intent to terminate a Pension Plan by
either of the Borrowers, any ERISA Affiliate or any Subsidiary of either of the
Borrowers; the institution of proceedings to terminate a Pension Plan by the
PBGC or any other Person; the withdrawal in a "complete withdrawal" or a
"partial withdrawal" as defined in Sections 4203 and 4205, respectively, of
ERISA by either of the Borrowers, any ERISA Affiliate or any Subsidiary of
either of the Borrowers from any Multiemployer Plan; or the incurrence of any
material increase in the contingent liability of either of the Borrowers or any
Subsidiary of either of the Borrowers with respect to any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA which covers retired employees
and their beneficiaries; or
8.19 The institution by either of the Borrowers, any ERISA
Affiliate or any Subsidiary of either of the Borrowers of steps to terminate any
Pension Plan if, in order to effectuate such termination, either such Borrower,
such ERISA Affiliate or such Subsidiary of either of the Borrowers, as the case
may be, would be required to make a contribution to such Pension Plan, or would
incur a liability or obligation to such Pension Plan, in excess of Fifty
<PAGE>
Thousand Dollars ($50,000.00) or the institution by the PBGC of steps to
terminate any Pension Plan;
THEN, and in each such event (other than an event described in
Sections 8.7 or 8.8), Bank may declare that its obligation to make Loans under
this Agreement has terminated, whereupon such obligation of Bank shall be
immediately and forthwith terminated, and Bank may further declare the entire
outstanding principal balance of and all accrued and unpaid interest on the Note
and all of the other Borrowers' Obligations to be forthwith due and payable,
whereupon all of the unpaid principal balance of and all accrued and unpaid
interest on the Note and all such other Borrowers' Obligations shall become and
be immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by each of the
Borrowers, and Bank may exercise any and all other rights and remedies which it
may have under any of the other Transaction Documents or under applicable law;
provided, however, that upon the occurrence of any event described in Sections
8.7 or 8.8, Bank's obligation to make Loans under this Agreement shall
automatically terminate and the entire outstanding principal balance of and all
accrued and unpaid interest on the Note and all of the other Borrowers'
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each of the Borrowers, and Bank may exercise any and
all other rights and remedies which it may have under any of the other
Transaction Documents or under applicable law.
SECTION 9. GENERAL.
9.1 No Waiver. No failure or delay by Bank in exercising any
right, remedy, power or privilege hereunder or under any other Transaction
Document shall operate as a waiver thereof; nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The remedies provided herein and
in the other Transaction Documents are cumulative and not exclusive of any
remedies provided by law. Nothing herein contained shall in any way affect the
right of Bank to exercise any statutory or common law right of banker's lien or
setoff.
9.2 Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, Bank is hereby authorized at any time and
from time to time, without notice to Borrowers (any such notice being expressly
waived by each of the Borrowers) and to the fullest extent permitted by law, to
setoff and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by Bank and any and all other
indebtedness at any time owing by Bank to or for the credit or account of either
of the Borrowers against any and all of Borrowers' Obligations irrespective of
whether or not Bank shall have made any demand hereunder or under any of the
other Transaction Documents and although such obligations may be contingent or
unmatured. Bank agrees to promptly notify Borrowers after any such setoff and
application made by Bank, provided, however, that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of Bank under this Section 9.2 are in addition to any other rights and remedies
(including, without limitation, other rights of setoff) which Bank may have.
Nothing contained in this Agreement or any other Transaction Document shall
impair the right of Bank to exercise any right of setoff or counterclaim it may
have against either of the Borrowers and to apply the amount subject to such
<PAGE>
exercise to the payment of indebtedness of either of the Borrowers unrelated to
this Agreement or the other Transaction Documents.
9.3 Cost and Expenses. Borrowers jointly and severally agree,
whether or not any Loan is made hereunder, to pay Bank upon demand (i) all
out-of-pocket costs and expenses and all Attorneys' Fees of Bank in connection
with the preparation, documentation, negotiation, execution and administration
of this Agreement, the Note and the other Transaction Documents, (ii) all
recording, filing, title insurance, surveying and appraisal fees incurred in
connection with this Agreement and the other Transaction Documents, (iii) all
out-of-pocket costs and expenses and all Attorneys' Fees of Bank in connection
with the preparation of any waiver or consent hereunder or any amendment hereof
or any Event of Default or alleged Event of Default hereunder, (iv) if an Event
of Default occurs, all out-of-pocket costs and expenses and all Attorneys' Fees
incurred by Bank in connection with such Event of Default and collection and
other enforcement proceedings resulting therefrom and (v) all other Attorneys'
Fees incurred by Bank relating to or arising out of or in connection with this
Agreement or any of the other Transaction Documents. Borrowers further jointly
and severally agree to pay or reimburse Bank for any stamp or other taxes which
may be payable with respect to the execution, delivery, recording and/or filing
of this Agreement, the Note, the Security Agreements, the Deed of Trust or any
of the other Transaction Documents. All of the obligations of Borrowers under
this Section 9.3 shall survive the satisfaction and payment of Borrowers'
Obligations and the termination of this Agreement.
9.4 Environmental Indemnity. Borrowers hereby jointly and
severally agree to indemnify Bank and hold Bank harmless from and against any
and all losses, liabilities, damages, injuries, costs, expenses and claims of
any and every kind whatsoever (including, without limitation, court costs and
Attorneys' Fees) which at any time or from time to time may be paid, incurred or
suffered by, or asserted against, Bank for, with respect to or as a direct or
indirect result of the violation by either of the Borrowers or any Subsidiary of
either of the Borrowers of any Environmental Laws; or with respect to, or as a
direct or indirect result of the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission or release from, properties utilized by
either of the Borrowers and/or any Subsidiary of either of the Borrowers in the
conduct of their respective businesses into or upon any land, the atmosphere or
any watercourse, body of water or wetland, of any Hazardous Materials or any
other hazardous or toxic waste, substance or constituent or other substance
(including, without limitation, any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under the Environmental Laws); and
the provisions of and undertakings and indemnification set out in this Section
9.4 shall survive the satisfaction and payment of Borrowers' Obligations and the
termination of this Agreement.
9.5 General Indemnity. In addition to the payment of expenses
pursuant to Section 9.3, whether or not the transactions contemplated hereby
shall be consummated, Borrowers hereby jointly and severally agree to indemnify,
pay and hold Bank and any holder(s) of the Note, and the officers, directors,
employees, agents and affiliates of Bank and such holder(s) (collectively, the
"Indemnitees") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitees
<PAGE>
shall be designated a party thereto), that may be imposed on, incurred by or
asserted against the Indemnitees, in any manner relating to or arising out of
this Agreement, any of the other Transaction Documents or any other agreement,
document or instrument executed and delivered by either of the Borrowers or any
other Obligor in connection herewith or therewith, the statements contained in
any commitment letters delivered by Bank, Bank's agreement to make the Loans
hereunder or the use or intended use of the proceeds of any Loan hereunder
(collectively, the "indemnified liabilities"); provided that Borrowers shall
have no obligation to an Indemnitee hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of that
Indemnitee as determined by a court of competent jurisdiction. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, each Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or any
of them. The provisions of the undertakings and indemnification set out in this
Section 9.5 shall survive satisfaction and payment of Borrowers' Obligations and
the termination of this Agreement.
9.6 Authority to Act. Bank shall be entitled to act on any
notices and instructions (telephonic or written) reasonably believed by Bank to
have been delivered by any person authorized to act on behalf of either of the
Borrowers pursuant hereto, regardless of whether such notice or instruction was
in fact delivered by a person authorized to act on behalf of either such
Borrower, and Borrowers hereby jointly and severally agree to indemnify Bank and
hold Bank harmless from and against any and all losses and expenses, if any,
ensuing from any such action.
9.7 Notices. Any notice, request, demand, consent,
confirmation or other communication hereunder shall be in writing and delivered
in person or sent by telegram, telex, telecopy or registered or certified mail,
return receipt requested and postage prepaid, if to Borrowers in care of PM
Resources at Riverport Executive Center II, 13801 Riverport Drive, Suite 111,
Maryland Heights, Missouri 63043, Attention: Robert J. Elfanbaum, or if to Bank
at 135 North Meramec, St. Louis, Missouri 63105, Attention: Brenda Laux, or at
such other address as either party may designate as its address for
communications hereunder by notice so given. Such notices shall be deemed
effective on the day on which delivered or sent if delivered in person or sent
by telegram, telex or telecopy, or on the third (3rd) Business Day after the day
on which mailed, if sent by registered or certified mail.
9.8 CONSENT TO JURISDICTION; JURY TRIAL WAIVER. EACH OF
THE BORROWERS IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF ANY MISSOURI STATE COURT OR ANY UNITED STATES OF AMERICA COURT
SITTING IN THE EASTERN DISTRICT OF MISSOURI, AS BANK MAY ELECT, IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT. EACH OF THE
BORROWERS HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT TO
SUCH SUIT, ACTION OR PROCEEDING MAY BE HELD AND DETERMINED IN ANY
OF SUCH COURTS. EACH OF THE BORROWERS IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH
BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND EACH
<PAGE>
OF THE BORROWERS FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE BORROWERS HEREBY EXPRESSLY WAIVES ALL RIGHTS OF ANY OTHER
JURISDICTION WHICH SUCH BORROWER MAY NOW OR HEREAFTER HAVE BY REASON OF ITS
PRESENT OR SUBSEQUENT DOMICILES. EACH OF THE BORROWERS AUTHORIZES THE SERVICE OF
PROCESS UPON SUCH BORROWER BY REGISTERED MAIL SENT TO BORROWERS AT THEIR ADDRESS
SET FORTH IN SECTION 9.7. EACH OF THE BORROWERS HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY LITIGATION BROUGHT IN ACCORDANCE WITH THIS SECTION.
9.9 Bank's Books and Records. Bank's books and records showing
the account between Borrowers and Bank shall be admissible in evidence in any
action or proceeding and shall constitute prima facie proof thereof.
9.10 Governing Law; Amendments. This Agreement, the Note, the
Security Agreements and all of the other Transaction Documents shall be governed
by and construed in accordance with the internal laws of the State of Missouri,
and this Agreement and the other Transaction Documents may not be changed, nor
may any term, condition or Event of Default be waived, modified, or discharged
orally but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
9.11 References; Headings for Convenience. Unless otherwise
specified herein, all references herein to Section numbers refer to Section
numbers of this Agreement, all references herein to Exhibits A, B, C, D and E
refer to annexed Exhibits A, B, C, D and E which are hereby incorporated herein
by reference and all references herein to Schedules 6.5, 6.6, 6.10, 6.11, 6.12
and 6.17 refer to annexed Schedules 6.5, 6.6, 6.10, 6.11, 6.12 and 6.17 which
are hereby incorporated herein by reference. The Section headings are furnished
for the convenience of the parties and are not to be considered in the
construction or interpretation of this Agreement.
9.12 Subsidiary Reference. Any reference herein to a
Subsidiary or Consolidated Subsidiary of either of the Borrowers, and any
financial definition, ratio, restriction or other provision of this Agreement
which is stated to be applicable to either of the Borrowers and its Subsidiaries
or Consolidated Subsidiaries or which is to be determined on a "consolidated" or
"consolidating" basis, shall apply only to the extent either such Borrower has
any Subsidiaries or Consolidated Subsidiaries and, where applicable, to the
extent any such Subsidiaries are consolidated with such Borrower for financial
reporting purposes.
9.13 Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of each of the Borrowers and its successors and Bank
and its successors and assigns. Neither of the Borrowers may assign or delegate
any of its rights or obligations under this Agreement.
9.14 NO ORAL AGREEMENTS; ENTIRE AGREEMENT. ORAL
AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES
TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT
<PAGE>
BORROWERS AND BANK FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS
REACHED BY BORROWERS AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, WHICH AGREEMENT AND OTHER
TRANSACTION DOCUMENTS ARE A COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS
BETWEEN BORROWERS AND BANK, EXCEPT AS BORROWERS AND BANK MAY LATER AGREE IN
WRITING TO MODIFY THEM. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND
UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF.
9.15 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
9.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.17 Resurrection of Borrowers' Obligations. To the extent
that Bank receives any payment on account of any of Borrowers' Obligations, and
any such payment(s) or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside, subordinated and/or required to be
repaid to a trustee, receiver or any other Person under any bankruptcy act,
state or Federal law, common law or equitable cause, then, to the extent of such
payment(s) received, Borrowers' Obligations or part thereof intended to be
satisfied and any and all Liens upon or pertaining to any Property or assets of
either of the Borrowers and theretofore created and/or existing in favor of Bank
as security for the payment of such Borrowers' Obligations shall be revived and
continue in full force and effect, as if such payment(s) had not been received
by Bank and applied on account of Borrowers' Obligations.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Revolving Credit Agreement this 18th day of June, 1997
PM RESOURCES, INC.
By:
Robert J. Elfanbaum, Vice President
ZEMA CORPORATION
By:
Robert J. Elfanbaum, Secretary
FIRST BANK
By:
Brenda J. Laux, Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAY-1-1997
<PERIOD-END> JUL-31-1997
<CASH> 1271070
<SECURITIES> 0
<RECEIVABLES> 4318446
<ALLOWANCES> 0
<INVENTORY> 4972889
<CURRENT-ASSETS> 11633860
<PP&E> 4922008
<DEPRECIATION> 0
<TOTAL-ASSETS> 23779797
<CURRENT-LIABILITIES> 2491824
<BONDS> 0
0
0
<COMMON> 84515
<OTHER-SE> 14844228
<TOTAL-LIABILITY-AND-EQUITY> 23779797
<SALES> 23423827
<TOTAL-REVENUES> 23423827
<CGS> 17329393
<TOTAL-COSTS> 17329393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 490753
<INCOME-PRETAX> 54986
<INCOME-TAX> (20828)
<INCOME-CONTINUING> 34158
<DISCONTINUED> 14659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14659
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
