<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ___________________
Commission File No. 0-26568
USA DETERGENTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 11-2935430
- ------------------------------------------------------------------- ------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1735 Jersey Avenue
North Brunswick, New Jersey 08902
- -------------------------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 828-1800
Securities registered pursuant to Section 12(b) of the Act: Name of each exchange
Title of each class on which registered
--------------------------------------- -----------------------
None Not Applicable
------------------ -------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of shares outstanding of the Registrant's Common Stock, as of March
17, 1998, was 13,825,227 shares. The aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant (based upon the closing
price of such stock on the Nasdaq National Market on March 17, 1998 and the
assumption for this computation only that all directors and executive officers
are affiliates) was $117,572,424.
Documents Incorporated by Reference: Proxy Statement to be filed pursuant to
Regulation 14A of the Exchange Act on or before April 30, 1998, incorporated by
reference into Parts II and III.
<PAGE>
The Company's quarterly and annual operating results are affected by a
wide variety of other factors that could materially and adversely affect actual
results, including competition from other suppliers of laundry and household
cleaning products; changes in consumer preferences and spending habits; the
inability to successfully manage growth; seasonality; the ability to introduce
and the timing of the introduction of new products; the inability to obtain
adequate supplies or materials at acceptable prices; the inability to reduce
expenses to a level commensurate with revenues; and the inability to negotiate
acceptable credit terms with current or prospective lenders. As a result of
these and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis, which could materially
and adversely affect its business, financial condition, operating results, and
stock price. Furthermore, this document and other documents filed by the
Company with the Securities and Exchange Commission (the "SEC") contain certain
forward looking statements with respect to the business of the Company,
including prospective financing arrangements. These forward-looking statements
are subject to certain risks and uncertainties, including those mentioned
above, which may cause actual results to differ significantly from these
forward-looking statements. These forward-looking statements speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. An investment in the Company involves
various risks, including those mentioned above and those which are detailed
from time to time in the Company's SEC filings.
-2-
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
USA Detergents is a leading manufacturer and marketer of quality
nationally distributed value brand laundry and household cleaning products. The
Company currently markets its products in eight laundry and household product
categories and features eleven distinct value brands. Two of the Company's
brands, XTRA(R) and Nice'n FLUFFY(R), currently rank among the ten largest
brands in their respective product categories in terms of total retail sales in
the United States. XTRA(R) and Nice'n FLUFFY(R) represented 61% and 19%,
respectively, of the Company's net sales in 1997. The Company sells its
products to large and small retailers throughout the United States including
supermarkets, mass merchandisers, variety and dollar stores, drug stores and
small grocery stores. The Company's largest six customers are: Wal-Mart Stores,
Inc., K-Mart Corp., Walgreen Co., Super Value Inc., Eckerd Corporation and
Fleming Companies, Inc.
HOUSEHOLD PRODUCTS MARKET OVERVIEW
The Company believes the market for laundry and household cleaning
products ("Household Products") in which it competes or intends to compete
consists of the following eleven product categories: liquid laundry detergent,
powder laundry detergent, liquid fabric softener, fabric softener sheets,
household cleaners, dish detergent, personal soap products, air fresheners,
bleaches, rug and upholstery cleaners and floor cleaners.
While the leading supplier varies among different Household Products
categories, the overall market for Household Products is dominated by two
principal suppliers: Procter & Gamble Co. and Unilever N.V. The Company
believes these two premium-priced brand suppliers accounted for approximately
65%, in the aggregate, of retail sales of Household Products in 1997.
The Company views the market for Household Products as being segmented
into four types of brands: value brands, store brands, mid-priced brands and
premium-priced brands. The Company believes that consumer purchases of laundry
and household cleaning products are determined, in large part, by price, with
certain consumers willing to pay a premium for leading national brand names and
the latest packaging and technology while other consumers demand value-priced
brands incorporating certain features found in premium-priced products. The
Company believes the primary characteristics of each of these types of brands
are as follows:
-3-
<PAGE>
Value Brands. Value brands are sold to retailers and consumers at
prices significantly below most other brands of Household Products. Value
brands generally incorporate packaging features and product quality comparable
to premium-priced and mid-priced brands and typically are offered with only the
most popular product features and in only the most popular sizes. Value brands
are not advertised or promoted directly to the consumer by the value brand
supplier.
Store Brands. Store brands are marketed through various retail outlets
under retailer-affiliated (private) labels and are typically manufactured to
the specifications of individual retailers. Store brands typically are
supported by limited retailer advertising, do not incorporate state-of-the-art
packaging and are priced below mid-priced brands.
Mid-Priced Brands. Mid-priced brands generally attempt to capitalize
on their existing or historical brand equity, are supported by limited consumer
advertising and are positioned as comparable but less expensive alternatives to
premium-priced brands.
Premium-Priced Brands. Premium-priced brands focus on promoting brand
loyalty and consumer awareness of product features through significant national
advertising. Premium-priced brands are supported by extensive research and
development to design state-of-the-art packaging and product features and to
develop new products.
BUSINESS STRATEGY
The Company's objective is to be the leading supplier of value brand
Household Products. The Company's business strategy is to enable retailers to
increase sales and realize attractive profit margins on the Company's products
while providing value to consumers. There can be no assurance that the Company
will be successful in meeting its objectives or in successfully pursuing its
strategies. The key elements of the Company's business strategy are described
below:
Value to Retailers
The Company focuses on assisting the retailer to profitably optimize
its retail space in traditionally low margin Household Products categories. The
Company provides retailers with merchandising support relating to product mix,
shelf display and pricing strategies, and promotional programs which are
designed to increase sales of the Company's products. The Company's emphasis on
being a low-cost supplier allows it to sell its Household Products to retailers
at prices which enable these retailers to offer a lower price to consumers
while realizing relatively attractive margins. The Company also seeks to build
strong relationships with retailers by providing them with a high level of
customized service including direct shipments, electronic data interchange,
mixed product pallets and flexible, prompt delivery.
-4-
<PAGE>
Value to Consumers
The Company offers consumers attractively packaged, quality brand name
products at prices significantly below most other brands. This combination of
high product quality and low prices offers consumers an attractive alternative
to other brands. The Company emphasizes cost reduction and has historically
passed substantially all of its savings on to retailers and consumers.
Brand and Corporate Identification
The Company seeks to develop strong brand and corporate name
recognition among retailers and strong brand recognition and brand loyalty
among consumers. The Company believes that colorful and graphic packaging
combined with recognizable product names and the Company's commitment to
quality and low price, contribute to strong brand awareness and purchaser
confidence at the consumer level, and generate increased product sales. The
Company further believes that development of corporate and brand name
recognition of the Company and its products among retailers enables the Company
to introduce new products more effectively.
Further Market Penetration
The Company focuses its sales efforts on supermarkets, mass
merchandisers, variety and dollar stores, drug stores and small grocery stores,
particularly those whose retailing philosophy closely corresponds to the
Company's high value, low cost marketing philosophy. The Company intends to
continue increasing its market penetration by distributing its products through
additional supermarkets, as well as other retail outlets. For the quarter
ending December 31, 1997, Information Resources, Inc. Retail Review data
indicates that the Company's XTRA(R) liquid laundry detergent and Nice'n
FLUFFY(R) liquid fabric softener were sold to retailers representing 68.3% and
69.9%, respectively, of all commodity volume ("ACV") distribution within the
food, drug and mass merchants sector, up from 62.9% and 65.0%, respectively, in
the quarter ended December 31, 1996. ACV distribution for a product represents
the percentage of food, drug and mass merchant retail outlets (as measured by
aggregate retail sales) which sold that product during a specified time period
in the United States. The Company intends to use the access to retailers it has
gained through the success of its XTRA(R) and Nice'n FLUFFY(R) brands to
increase the penetration of its other products through these existing retail
outlets.
-5-
<PAGE>
Controlled Expansion of Product Line
The Company introduced 38 new products in 1996 and 65 new products in
1997, including re-formulations and alternate sizes. Net sales of products
introduced in 1997 were $16.2 million or 7% of net sales for the year ended
December 31, 1997.
PRODUCTS
The Company currently sells its products primarily in eight Household
Product categories under eleven distinct brand names. The Company's products
include the following:
PRODUCT CATEGORY PRIMARY COMPANY BRANDS
---------------- ----------------------
(HOUSEHOLD PRODUCTS)
Liquid Laundry Detergent XTRA(R)
Powder Laundry Detergent XTRA(R)
Liquid Fabric Softener Nice'n FLUFFY(R)
Fabric Softener Sheets Nice'n FLUFFY(R)
Household Cleaners Touch of Glass(R), Swiss Pine(R),
Tile Action(TM), Fabulous(TM), Plumber's Aid(TM)
Dish Detergent XTRA(R) Plus, Crystal Shine(R)
Personal Soap Products Fine Care(R)
Air Fresheners Country Air(TM)
(AUTOMOTIVE PRODUCTS)
Automotive Products Speedway(R)
The Company's laundry detergents and fabric softeners accounted for an
aggregate of approximately 83% and 80% of the Company's net sales in 1996 and
1997, respectively, with XTRA(R) liquid laundry detergent accounting for 48%
and 45% of net sales in these periods, respectively. The Company's financial
results and condition are substantially dependent on the continued success and
growth of sales of these products. A number of factors could limit sales of
these products by the Company, or the profitability of such sales, including
competitive efforts by other manufacturers of similar products, shifts in
consumer preferences or introduction and acceptance of alternative product
offerings.
-6-
<PAGE>
PRODUCT DESIGN AND DEVELOPMENT
The Company consistently seeks to enhance the value of its products by
either improving their performance and packaging or lowering their cost and has
historically passed substantially all cost savings on to the retailer. The
Company places considerable emphasis on package quality and uses premium
quality materials and appealing, colorful graphic designs with the objective of
providing its products with the same or better shelf appeal than premium and
mid-priced brands.
Most of the important product enhancements in the Household Products
industry during the past several years have been developed by the research and
development departments of the premium-priced brand companies and the chemical
companies that supply the Household Products industry. Rather than maintain a
large research and development department, the Company works closely with its
suppliers, distributors and other industry participants to identify, and in
some cases anticipate, technological and design innovations which may be
incorporated into the Company's products. Generally, the Company adopts product
and packaging features after they have gained general market acceptance and
believes that it has typically been one of the first value brand suppliers to
incorporate features comparable to the successful innovations of these larger
competitors. The Company only incorporates features which it believes are
valued by its consumer base. The Company believes that its approach to product
design and development minimizes costs associated with significant research and
development, limits the introduction of unproven innovations and features, and
reduces the need to spend heavily to advertise new product developments or to
educate consumers.
MARKETING AND DISTRIBUTION
The Company sells its products to large and small retailers throughout
the United States. The Company's various branded products historically have
been sold primarily to supermarkets, mass merchandisers, variety and dollar
stores, drug stores and small grocery stores. Significant customers of the
Company include Wal-Mart, K-Mart, Walgreens, Super Value, Eckerd Drug Company
and Fleming Corp. The following table sets forth the Company's percentage of
net sales for fiscal 1995, 1996 and 1997 by retail distribution channel:
-7-
<PAGE>
PERCENTAGE OF NET SALES
---------------------------------------
DISTRIBUTION CHANNEL 1995 1996 1997
-------------------- ---- ---- ----
Supermarkets 32.1 40.6 44.6
Mass Merchandisers 29.0 27.5 24.2
Variety and Dollar Stores 24.5 16.8 11.0
Drug Stores 8.8 9.8 11.2
Small Grocery and Other 5.6 5.3 9.0
----- ----- -----
Total 100.0 100.0 100.0
===== ===== =====
The Company's largest customer, Wal-Mart accounted for approximately
17%, 17% and 13% of net sales in 1995, 1996 and 1997 respectively. No other
customer of the Company accounted for more than 10% of the Company's net sales
during 1996 or 1997. As is customary in the Household Products industry, the
Company does not have long-term contracts with its customers. A significant
reduction of purchases by any of the Company's largest customers could have a
material adverse effect on the Company's business and results of operations.
As of December 31, 1997, the Company sold its products through its own
47 person national sales department, which included seven regional offices,
supported by a network of 114 independent brokers and sales representatives. In
1997, approximately 52% of the Company's net sales were generated by its
internal sales force with independent broker assistance, with the remaining 48%
of net sales generated without broker assistance. Each salesperson is
compensated by salary and commissions.
The Company seeks to provide retailers with high levels of sales and
merchandising support and delivery services. The Company's sales and
merchandising support and delivery services are designed to assist retailers in
increasing sales of the Company's products through development of improved
packaging, product mix, shelving and pricing strategies, and effective
promotional programs. To provide better delivery service to its customers, the
Company is flexible as to the amounts and combinations of products it will
deliver and generally strives to deliver products within one to seven business
days of receiving an order. With certain retailers, the Company uses electronic
data interchange ("EDI") systems that interface directly with the customer's
product ordering process.
Substantially all product distribution is centralized at the Company's
facilities in New Jersey, Missouri and Chicago. Products generally are
delivered to a retailer's distribution center, although the Company distributes
products representing a limited amount of net sales directly to retail outlets.
Substantially all of the Company's products are delivered by independent
trucking companies.
-8-
<PAGE>
Beginning in the latter part of the third quarter of 1996, the Company
experienced distribution difficulties and late customer deliveries primarily
attributable to the Company's continuing rapid growth in sales and the
assimilation of three new manufacturing and distribution facilities. The effect
of these factors was to increase the costs associated with plant integration,
distribution and customer returns and allowances, thus having a material
adverse effect on the results of the Company's operations for 1996 and 1997.
While the Company is working with its customers to establish and assure
efficient distribution, there can be no assurance that such efforts will be
successful or that similar or new problems with distribution will not occur in
the future.
MANUFACTURING AND SUPPLY
During 1997, the Company manufactured substantially all of its liquid
products at its facilities in North Brunswick, New Jersey and in Harrisonville,
Missouri. The manufacturing process at the Company's facilities consists of
blending liquid chemicals and fragrance, which the Company purchases from
independent suppliers, and packaging such blends to create finished products.
Blending is done according to or by modifying formulas provided by the
Company's chemical suppliers. The Company conducts quality control tests on raw
materials on a regular basis and also conducts stringent quality control tests
on its products during and after the manufacturing process. Any extended
interruption of operations at the Company's manufacturing facilities could have
a material adverse effect on the Company's business and results of operations.
For the year ended December 31, 1997, the Company purchased
approximately 63% of its liquid chemicals from three suppliers, Stepan Company,
Union Carbide and Henkel Corporation. The Company's powder detergent was
produced at a now-owned facility in Chicago. Previously, the Company had
entered into a management agreement with the prior owner of the facility
pursuant to which the Company maintained manufacturing control, and a supply
agreement pursuant to which the Company purchased all of the supplier's output.
See Note 5 to "Notes to Consolidated Financial Statements."
Substantially all of the bottles used by the Company during 1997 at
its manufacturing facilities were purchased from Owens-Illinois Plastics
Products Inc. and Owens-Illinois Closure Inc. (collectively referred to as
"Owens"). The Owens plants used in connection with the manufacture of such
bottles are located near the Company's manufacturing facilities and the
majority of each Owens plant's production is dedicated to the Company. In June
1996, the Company entered into a supply agreement expiring January 31, 2001
with Owens pursuant to which the Company has agreed to purchase substantially
all of its plastic bottle packaging requirements from Owens in return for
Owens' agreement to dedicate certain of its machinery to meet the Company's
packaging requirements and provide additional machinery if necessary. Owens
also has agreed to
-9-
<PAGE>
use its best efforts to expand its capacity to meet the Company's continued
growth in exchange for the Company's continuing commitment to purchase bottles
from Owens. Certain molds used to manufacture the Company's packaging are not
owned by the Company. The Company has also entered into various agreements
with certain affiliates of Owens, pursuant to which these entities provide the
Company with its trigger sprayers, measuring scoops and label needs and the
Company agreed to make Owens its exclusive supplier of such items.
In January 1996, the Company entered into a lease for a facility
located in Edison, New Jersey. Until recently, this facility was used for the
manufacture of its scented candle air freshener products and additional
warehouse and distribution capacity. In May 1997, the Company, as part of its
cost reduction strategy, decided to close its Edison, New Jersey facility and
move its candle manufacturing operation to the Company's North Brunswick, New
Jersey facility. The Company is attempting to sublease this facility. In
addition, in 1997 the Company purchased a new facility adjacent to its existing
North Brunswick, New Jersey facility to consolidate its East Coast warehousing
operations. See Item 2. "Properties" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Restructuring
Costs."
The Company also has certain products manufactured to the Company's
specifications by independent contractors. The Company subcontracts the
manufacture of products based on cost-effectiveness, manufacturing capacity and
a desire to avoid large capital commitments associated with manufacturing
before the Company can determine the long-term success of such products. The
Company's purchases from subcontractors are generally made pursuant to purchase
orders.
The Company's reliance on a sole supplier or limited group of
suppliers and subcontractors involves several risks, including increased risk
of inability to obtain adequate supplies, and reduced control over pricing and
timely delivery. Although the timeliness, quality and pricing of deliveries
from the Company's suppliers have been acceptable to date and the Company
believes that additional sources of supply are generally available, there can
be no assurance that supplies will be available on an acceptable basis or that
delays in obtaining new suppliers, particularly of plastic bottles, will not
have an adverse effect on the Company. The Company's inability to obtain
adequate supplies of chemicals, packaging materials, manufacturing equipment or
finished products at acceptable prices could have a material adverse effect on
the Company's business.
-10-
<PAGE>
INVENTORY PRACTICE AND ORDER BACKLOG
The Household Products industry is generally characterized by prompt
delivery of products by suppliers. The Company strives to maintain the time
between the Company's receipt of a customer's order and shipment to the
customer at one to seven business days. The Company generally maintains between
two and ten days of finished core products inventory. As a result of the short
lead time between the order and delivery of its products, the Company does not
maintain a significant backlog. The Company experienced distribution
difficulties beginning in the latter part of the third quarter of 1996 and
during 1997 attributable to the Company's continuing rapid growth in sales and
the assimilation of three new manufacturing and distribution facilities. See
"-- Marketing and Distribution."
INTELLECTUAL PROPERTY
Brand identification is an important element in marketing the
Company's products and the Company recognizes the importance of its trademarks
to the success of its business. The Company obtains trademarks for certain of
its brands and has registered or has applications pending to register certain
trademarks with the United States Patent and Trademark Office. In addition, the
Company has registered or applied for registration of certain of its trademarks
in a number of foreign countries. Due to the importance of package design,
labels, trademarks and trade dress to its business, the Company has taken, and
expects to continue to take, vigorous action to protect against infringement of
its trademarks and copyrights.
Although the Company considers certain of its packaging, labels,
trademarks and designs to be proprietary, certain of such packaging, labels,
trademarks and designs are not protected by copyright or trademark
registration. In addition, the Company from time to time has received, and may
receive in the future, communications from third parties asserting and
challenging intellectual property rights relating to the Company's products,
labels, trademarks and packaging. There can be no assurance that third parties
will not successfully assert claims against the Company with respect to
existing or future products or packaging. Should the Company be found to
infringe upon the intellectual property rights of others, the Company could be
required to cease use of certain products, trademarks, labels or packaging or
pay damages to the affected parties, either of which could have a material
adverse effect on the business and operations of the Company.
Substantial costs also may be incurred by the Company in redesigning
its labels or packaging, in selecting and clearing a new trademark or in
defending any legal action taken against it. Packaging, labels, trademarks and
designs are generally reviewed by the Company's intellectual property counsel
prior to their general adoption and usage.
-11-
<PAGE>
Manufacturers normally seek United States and foreign patent
protection for the chemical formulations that they develop and numerous third
party patents that relate to laundry and household cleaning products are on
file with the United States Patent and Trademark Office. Formulations of the
products produced by the Company are generally provided by the Company's third
party chemical suppliers who are responsible for the intellectual property, if
any, in such formulations. The Company believes it has been able to introduce
products comparable to those introduced by most of its competitors by using
manufacturing methods or materials that are not protected by patents or by
acquiring patented formulations.
COMPETITION
The Company experiences substantial competition from a number of
suppliers of laundry and household cleaning products, including larger
premium-priced, mid-priced and private label suppliers. Many of these suppliers
have substantially greater financial, technical, marketing, distribution and
other resources than the Company. In addition, there are several value brand
suppliers which compete directly with the Company. The Company believes its
products compete primarily on the basis of price and customer service and the
Company does not intend to compete on the basis of premium-priced brand product
features.
The Company estimates, based on Information Resources, Inc. Retail
Review data for the year ended December 31, 1997, that the two largest
suppliers in the laundry and household cleaning products industry held
approximately 65%, in the aggregate, of the domestic market for such products.
These two suppliers, Procter & Gamble Co. and Unilever N.V., accounted for an
aggregate of approximately 64% and 69% of 1997 domestic retail sales of liquid
laundry detergents and liquid fabric softeners, respectively. These two product
categories accounted for 45% and 19% respectively, of the Company's net sales
in 1997.
The laundry and household cleaning products industry is characterized
by substantial price competition which is effected through changes in price,
product size and promotions. The Company believes it typically is not affected
by price changes initiated by larger premium-priced or mid-priced suppliers
whose pricing is substantially higher than the Company's pricing. Some
suppliers of value brands or store brands compete directly with the Company as
low price suppliers. Competitors may attempt to gain market share by offering
products at prices at or below those typically offered by the Company. Such
competitive pricing has in certain cases necessitated and may continue to
necessitate price reductions by the Company and has and may continue to result
in lost orders. There can be no assurance that future price or product changes
by the Company's competitors will not have a material adverse effect on the
Company or that the Company will be able to react with price or product changes
of its own to maintain its current market position.
-12-
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had 592 full-time employees, of
whom 53 worked in executive, administrative or clerical capacities, 351 worked
in design and manufacturing, 141 worked in warehouse facilities and 47 worked
in sales. The Company believes that its relations with its employees are good.
The Company has never experienced any interruption of any of its operations due
to a labor disagreement with its employees. The Company also utilizes temporary
employees as necessary.
ENVIRONMENTAL REGULATION
The Company is subject to various federal, state and local
environmental laws and regulations, including those relating to wastewater
discharge, air quality and the storage, handling and disposal of a variety of
substances. Some of the chemicals used by the Company and stored at its
manufacturing facility are materials regulated by federal or state
environmental protection agencies. While the Company has not had to make
significant capital expenditures for environmental compliance, the Company
cannot predict with any certainty its future capital expenditure requirements
for environmental compliance because of continually changing compliance
standards and technology. Consequently, unforeseen expenditures required to
comply with such laws and regulations, including unforeseen environmental
liabilities, could have a material adverse effect on the Company's business.
The Company maintains $6.0 million of insurance coverage for environmental
liabilities. See Item 2. "Properties."
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and significant employees of the Company as of December 1,
1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Uri Evan 62 Chairman of the Board of Directors; Chief
Executive Officer;
Richard D. Coslow 56 Senior Vice President; Chief Financial Officer;
Treasurer
Frank Corella 54 Vice President of Sales and Marketing
Daniel Bergman 40 Vice President; Director of New York Metro Sales;
Secretary; Director
</TABLE>
-13-
<PAGE>
URI EVAN has been Chairman of the Board of the Company since 1989 and
Chief Executive Officer since 1993. Since 1993, Mr. Evan has been Vice Chairman
and Chief Executive Officer of American Value Brands Inc., a food marketing
company of which he was a co-founder. In addition, Mr. Evan has been Chairman
of Net Grocer Inc., a nationwide, low-cost interactive grocery shopping
service on the Internet. Mr. Evan is a co-founder of Net Grocer Inc. From 1991
to 1992, he served as Chairman and Chief Executive Officer of I. Rokeach & Sons
Inc., a kosher food manufacturing and marketing company. From 1988 to 1990, Mr.
Evan was Chairman and Chief Executive Officer of Newrock Development Inc., a
real estate development company. From 1969 to 1986, Mr. Evan was President and
Chief Executive Officer of Engineering Services Group, a Tel Aviv-based
international engineering, printing and publishing conglomerate of which he was
a co-founder. From 1970 to 1982, he served as Chairman of Organization and
Management Sciences Consultants Ltd., an Israeli management and computer
sciences firm of which he was a co-founder.
RICHARD D. COSLOW has been Senior Vice President and Chief Financial
Officer of the Company since April 1997. From 1984 to 1997, he was Vice
President and Controller for Toshiba America Consumer Products, Inc., an
international diversified consumer products company. From 1982 to 1984, he was
Vice President of Finance for Endless Energy, Inc. and Jocelyn Management, Inc.
From 1980 to 1982 he served as Vice President and Controller for Mego
International, Inc. From 1967 to 1980 he held various positions with Deloitte
and Touche including Senior Audit Manager. Mr. Coslow is a Certified Public
Accountant.
FRANK CORELLA has been Vice President of Sales and Marketing of the
Company since 1991. From 1990 to 1991, he was President and Principal of
Paperoni, Inc., a party supply company. From 1988 to 1990, he served as
President of US1 Auto Parts. From 1984 to 1988, Mr. Corella served as President
of American Discount Auto Parts, a division of Rite Aid. From 1962 to 1984, he
held various positions at SupeRx Drugs, a division of Kroger Foods, including
Vice President of Marketing.
DANIEL BERGMAN was a founder of the Company, has been a Vice President
of the Company since June 1995 and has been Director of New York Metro Sales,
Secretary and a director of the Company since 1988. Between 1987 and 1991, Mr.
Bergman was President of Carnegie International Inc., a retail and export
electronics company, and between 1984 and 1987, Mr. Bergman was a Vice
President of Nikora International Inc., a retail and export electronics
company.
-14-
<PAGE>
ITEM 2. PROPERTIES
The Company currently conducts a substantial portion of its operations
from a 360,000 square foot facility located in North Brunswick, New Jersey. The
Company's executive offices and its manufacturing, administration, receiving
and shipping departments are all located in that facility. The lease relating
to such facility expires in 2004, subject to two five-year extensions.
For the fiscal year ended December 31, 1997, the Company recorded
total rent expense and real estate taxes for all properties of approximately
$1.8 million.
In January 1996, the Company entered into a lease for a 175,000 square
foot facility located in Edison, New Jersey. This facility was used by the
Company for the manufacture of the Company's scented candle air freshener
products and for additional warehouse and distribution capacity. The lease
relating to such facility expires in 2001, subject to one five-year extension,
and provides for an annual rental of $568,750. In May 1997, the Company, as
part of its cost reduction strategy, decided to close its Edison, New Jersey
facility and move its candle manufacturing operation to the Company's North
Brunswick, New Jersey facility. The Company currently is attempting to sublease
this facility.
In August 1996, the Company purchased a 360,000 square foot facility
located near Kansas City, Missouri for the production of additional liquid
laundry products and distribution. The Company also leases seven additional
sales offices throughout the United States.
In addition, in 1997, the Company purchased a 650,000 square foot
facility in North Brunswick, New Jersey, adjacent to the Company's existing
facility. This facility was utilized as part of the Company's consolidation of
its entire East Coast warehousing and distribution operation. This property is
currently the subject of an Administrative Consent Order issued by the New
Jersey Department of Environmental Protection (the "NJDEP"), relating to the
remediation of certain hazardous wastes which were discharged onto the property
by the seller. The seller has undertaken substantial remediation efforts to
date to clear the property of these hazardous wastes and has posted a bond with
the NJDEP to secure the costs to continue such clean-up activities. In
addition, the seller has provided the Company with an undertaking to complete
the clean-up of the property to the standards required by the NJDEP, and a
complete indemnity against any claims or obligations to clean up the property
which may be asserted against the Company and which arise from any hazardous
wastes that existed on the property on the date the Company acquired the
property. While the Company believes it has taken adequate steps to protect its
interests, there can be no assurance that the Company will not incur costs in
connection with environmental matters concerning the property.
-15-
<PAGE>
During June 1997, the Company exercised its purchase option, by the
cancellation of a $2,250,000 promissory note, to acquire a powder plant
facility located in Chicago. This facility provides the Company with its entire
powder production requirements. As part of the transaction, the Company assumed
a land lease upon which the Company's Chicago operations are located. The
lease, which expires in 2080, provides for rent to be paid annually in the
amount of $1,000 plus a variable amount adjusted for inflation. The total rent
paid for the year ended December 31, 1997 was approximately $9,000.
ITEM 3. LEGAL PROCEEDINGS
On May 5, 1997, a securities class action lawsuit entitled Feldbaum v.
USA Detergents, Inc. et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and former officers and directors; the Feldbaum case
subsequently was transferred to the U.S. District Court for the District of New
Jersey. On May 15, 1997, a second securities class action lawsuit entitled
Einhorn v. USA Detergents, Inc. et al., No. 97-2459, was filed against the
Company and certain of its current and former officers and directors in the
U.S. District Court for the District of New Jersey. Since the Einhorn lawsuit
was filed, twelve additional securities class action lawsuits have been filed
in the U.S. District Court for the District of New Jersey against the Company
and certain of its current and former officers and directors. The class actions
purport to be brought on behalf of all persons who purchased the Company's
common stock between June 5, 1996, at the earliest, and May 8, 1997, at the
latest (the "putative class period"). The class actions generally allege that,
during the putative class period, the defendants made false or misleading
public statements and engaged in improper accounting practices, which caused
the price of the Company's common stock to be artificially inflated. The class
actions assert that the defendants' conduct violated Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated
thereunder, as well as state common law. The class actions do not specify an
amount of damages. In June and July 1997, the U.S. District Court for the
District of New Jersey entered orders consolidating all of the pending class
actions with the Einhorn case. In August 1997, the court entered an order
establishing a master docket for the consolidated class actions, In re USA
Detergents, Inc. Securities Litigation, Master File No. 97-CV-2459 (MTB), and
appointed lead plaintiffs and lead plaintiffs' co-lead counsel. The Company
intends to defend this action vigorously. An unfavorable outcome in the
litigation could have a material adverse effect on the Company's financial
condition and results of operations.
On September 12, 1997, the Company became aware of a claim by the
North Brunswick Water Company ("NBWC") covering, among other things, unpaid
water and sewer charges aggregating approximately $5,000,000. On October 20,
1997, the Company commenced an action in the Superior Court of New Jersey,
Chancery
-16-
<PAGE>
Division, Middlesex County, challenging NBWC's claim and requesting injunctive
relief to prevent NBWC from taking any steps to discontinue service pending the
resolution of the claim. Pursuant to a Consent Order dated October 21, 1997,
the Company paid $532,118 to NBWC, subject to refund, pending the resolution of
the matter. This charge is included in selling, general and administrative
expenses. Based on a preliminary assessment made by independent counsel for
the Company, of the underlying basis for NBWC's claim, management believes that
the Company's obligation, if any, to NBWC will not have a significant impact on
the Company's results of operations or financial position beyond amounts
already paid.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-17-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares of common stock (the "Common Stock") are quoted
on the Nasdaq National Market under the symbol "USAD". The Common Stock was .
initially offered to the public on August 7, 1995 at $9.67 per share (the "1995
IPO"). The following table sets forth for the periods indicated the high and
low reported last sale prices per share for the Common Stock as reported by The
Nasdaq National Market. All last sale prices for periods prior to February 9,
1996 have been divided by 1.5, the assumed effect of a stock split on January
30, 1996.
HIGH LOW
------ ------
FISCAL
1996
First Quarter $32.50 $15.75
Second Quarter 47.00 30.36
Third Quarter 41.13 27.00
Fourth Quarter 41.63 31.88
FISCAL 1997
First Quarter $45.25 $20.38
Second Quarter 24.75 10.00
Third Quarter 14.88 10.75
Fourth Quarter 12.50 7.63
FISCAL 1998
First Quarter (through March 17) $13.75 $7.75
The number of stockholders of record of the Common Stock on March 17, 1998 was
87. On March 17, 1998, the last reported sale price of the Common Stock as
reported by The Nasdaq National Market was $11.50 per share.
DIVIDEND POLICY
The Company has never paid dividends other than S Corporations distributions
and does not anticipate paying any dividends in the foreseeable future. Certain
of the Company's credit facilities contain restrictions on the Company's
ability to declare and pay dividends.
-18-
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following selected financial data are derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements for the years ended December 31, 1994, 1995, 1996 and 1997 have been
audited by Deloitte & Touche LLP. The consolidated financial statements for
the years ended December 31, 1994 and 1993 do not appear in this Annual Report.
No cash dividends, other than S corporation distributions, were paid for any
years presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $46,939 $68,663 104,878 $172,424 $227,269
Cost of goods sold 36,896 51,588 72,921 121,498 175,851
-------- ---------- ------- -------- -----------
Gross profit 10,043 17,075 31,957 50,926 51,418
Selling, general and administrative expenses 8,445 12,182 22,232 43,878 70,826
Non-recurring expenses(1) 893 -- -- -- --
Restructuring costs(3) -- -- -- -- 2,379
-------- ---------- ------- -------- -----------
Income (loss) from operations 705 4,893 9,725 7,048 (21,787)
Interest expense-net 383 543 544 868 2,742
-------- ---------- ------- -------- -----------
Earnings (loss) before provision (benefit) for
income tax 322 4,350 9,181 6,180 (24,529)
Income tax provision (benefit) 22 2,156 2,473 (3,448)
-------- ---------- ------- -------- -----------
83
Net income (loss) $ 300 $ 4,267 $ 7,025 $ 3,707 $ (21,081)
======== ========== ======= ======== ===========
Basic net income (loss) per share $ .27 $ (1.53)
======== ===========
Weighted average number of shares outstanding 13,589 13,789
======== ===========
Diluted net income (loss) per share $ .27 $ (1.53)
======== ===========
Weighted average number of shares outstanding and
dilutive options 13,840 13,789
======== ===========
PRO FORMA INCOME STATEMENT DATA(2):
Earnings before income tax as reported $ 4,350 $ 9,181
Pro forma income tax provision 1,689 3,756
------- -------
Pro forma net income $ 2,661 $ 5,425
======= =======
Pro forma basic net income per share $ .22 $ .43
======= =======
Weighted average number of shares outstanding 11,915 12,494
======= =======
Pro forma diluted net income per share $ .22 $ .43
======= =======
Weighted average number of shares outstanding and
dilutive options 11,915 12,553
====== ======
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ (30) $ 5,154 $11,132 $35,321 $7,308
Total assets 19,718 24,449 40,590 98,476 102,808
Short-term debt 4,425 3,860 7,320 5,819 2,501
Long-term debt 4,563 6,180 1,830 29,311 38,998
Stockholders' equity 1,850 5,880 20,292 36,099 15,584
</TABLE>
- ----------------------------
(1)Consists of plant relocation expense of $474,000 and loss on theft of
inventory of $419,000 in 1993.
(2)Pro forma net income represents net income less a provision for income taxes
that would have been required had the Company been taxed as a C corporation
during the entire period presented. The Company elected to be treated as a
Subchapter S corporation until August 10, 1995 (one day prior to the closing of
the Company's initial public offering (the "1995 IPO")), and, as a result, was
not subject to federal and certain state income taxes prior to that time. No
pro forma adjustments have been made for additional compensation expense paid
to the existing stockholders of the Company who are officers of the Company
associated with the termination of the Company's S corporation status in
connection with the 1995 IPO or for a reduction in interest expense relating to
the assumed pay down of borrowings under the Company's then existing working
capital line of credit with the net proceeds of the 1995 IPO, because the net
effect of such adjustments is not material. See Note 1 of "Notes to
Consolidated Financial Statements" for the years ended December 31, 1995, 1996
and 1997.
(3)Restructuring costs include the cost of moving the Company's candle
production line and inventory, the write-off of related leasehold improvements
and a provision for future lease commitment and associated lease expenses in
connection with the shut-down of the Company's Edison, New Jersey facility. All
such costs were expended in 1997 except for approximately $377,000 for a
provision for future rental and related lease expenses until the facility is
re-leased.
-20-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
income statement data expressed as a percentage of net sales. Certain column
totals set forth may not add due to rounding.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 69.5 70.5 77.4
------ ------ ------
Gross profit 30.5 29.5 22.6
Selling, general and administrative expenses 21.2 25.4 31.2
------ ------ ------
Income / (loss) from operations 9.3 4.1 (8.6)
Restructuring Expenses --- --- 1.0
Interest expense-net 0.5 0.5 1.2
------ ------ ------
Earnings / (loss) before income taxes 8.8 3.6 (10.8)
Income tax provision / (benefit) 2.1 1.4 (1.5)
------ ------ ------
Net income (loss) 6.7% 2.2% (9.3%)
====== ====== ======
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales in the year ended December 31, 1997 increased 31.8% to
$227.3 million from $172.4 million in the year ended December 31, 1996. The
increase was primarily the result of an increase in unit sales of laundry
products and scented candle air freshener products.
Gross profit increased 1.0% to $51.4 million in the year ended
December 31, 1997 from $50.9 million in the prior year. Gross profit decreased
as a percentage of net sales to 22.6% in 1997 from 29.5% in the prior year. The
decrease as a percentage of net sales was primarily attributable to an increase
in material and labor costs of 3.2% and .7% of net sales, respectively, due to
manufacturing inefficiencies caused by a high level of production line
changeovers to meet customer demands, inefficient production runs during the
start up and validation of new production lines, the write-down of raw
materials and finished goods inventory associated with discontinued products in
the
-21-
<PAGE>
second quarter, and sales of close-out products at reduced sales value. The
decrease in gross profit as a percentage of net sales was also affected by
additional costs of approximately 4.0% as a percentage of net sales relating to
increased levels of warehouse, distribution and freight-in costs associated
with the expansion of the Company's business from a local single-plant
operation to a multi-plant national manufacturer. The decrease in gross profit
as a percentage of net sales was partially offset by a 1.0% decrease in
capitalized expenses. These unanticipated increased costs, which began in the
latter part of 1996, continued to have a significant impact on the year ended
December 31, 1997. See "-- Management's Plans".
Management has implemented various cost reduction programs during
1997, the benefits from which have begun to be realized in the third and
fourth quarters of 1997 and are expected to continue to be realized in future
periods. Such programs include the shut-down of the Company's Edison candle
manufacture facility, consolidation of candle manufacturing operations in
North Brunswick, reduction in temporary labor, automation of manufacturing
facilities related to spray products, product rationalization, increased use
of high speed fillers and cartoners and improved production planning and
control.
Selling, general and administrative expenses increased 61.4% to $70.8
million in the year ended December 31, 1997 from $43.9 million for the prior
year. As a percentage of net sales, these expenses increased to 31.2% in 1997
from 25.4% in the prior year. The increase as a percentage of net sales was
primarily due to increases of 4.5% in marketing funds (co-op advertising,
promotional allowances and slotting amortization), .7% in freight to customers
and .7% in professional fees, partially offset by a decrease in the provision
for bad debts.
In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at a cost of $2.4 million. These restructuring costs include the
cost of moving the candle production line and inventory, and the write-off of
related leasehold improvements, a portion of the future lease commitment and
associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility is re-leased. The Company believes the property
will be re-leased during 1998 thereby eliminating or substantially reducing
the then remaining lease obligation. At December 31, 1997, the remaining
accrual for restructuring costs approximated $377,000.
Interest expense-net increased to $2.7 million in the year ended
December 31, 1997 from $.9 million in the prior year, primarily as a result of
higher average outstanding borrowings.
The income tax benefit for the year ended December 31, 1997
approximates 14.1% of the loss before benefit for income taxes, compared to a
provision which approximates 40.0% of the earnings before provision for income
taxes for the year ended December 31, 1996. This difference principally relates
to a net operating loss
-22-
<PAGE>
carry forward of approximately $17,000,000 for which no benefit has been
recognized.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales in the year ended December 31, 1996 increased 64.4% to
$172.4 million from $104.9 million in the year ended December 31, 1995. The
increase was primarily the result of an increase in unit sales of laundry
products and, to a lesser extent, the introduction of new products and
additional product sizes.
Gross profit increased 59.4% to $50.9 million in the year ended
December 31, 1996 from $32.0 million in the prior year. Gross profit decreased
as a percentage of net sales to 29.5% in 1996 from 30.5% in the prior year,
primarily as a result of higher costs associated with integrating the Company's
Chicago, Kansas City and Edison, New Jersey facilities, partially offset by
improvement in labor efficiencies and purchasing improvements, and an increase
as a percentage of net sales in unit sales of higher margin laundry products.
Selling, general and administrative expenses increased 97.4% to $43.9
million in the year ended December 31, 1996 from $22.2 million in the prior
year. As a percentage of net sales, selling, general and administrative
expenses increased to 25.4% in 1996 from 21.2% in the prior year. The increase
as a percentage of net sales was due primarily to a 1.6% increase in freight
costs arising out of distribution inefficiencies, an increase of 2.7% in
marketing funds, co-op advertising, promotional allowance and slotting
amortization, an increase in bad debts of .4% and a .2% increase in
commissions, partially offset by a decrease of .7% in salaries.
Income from operations decreased 27.5% to $7.0 million in the year
ended December 31, 1996 from $9.7 million in the prior year. As a percentage of
net sales, income from operations decreased to 4.1% in 1996 from 9.3% in the
prior year as a result of higher selling, general and administrative expenses.
Interest expense-net increased to $868,000 in the year ended December
31, 1996 from $544,000 in the prior year due to increased borrowings to fund
higher levels of inventories and accounts receivable resulting from increased
sales. As a percentage of sales, interest expense-net was unchanged at 0.5%.
Earnings before income taxes decreased to $6.2 million in the year
ended December 31, 1996 from $9.2 million in the prior year. As a percentage of
net sales, earnings before income taxes decreased to 3.6% in 1996 from 8.8% in
the prior year.
-23-
<PAGE>
Seasonality
The Company has experienced, and may experience in the future,
quarter-to-quarter fluctuations in its operating results. The Company's
financial performance has been somewhat weaker in the fourth quarter than in
other fiscal quarters, primarily as a result of promotion-oriented retailers
providing reduced or less desirable display space for the Company's laundry
detergent products during the holiday shopping season. The Company expects that
this trend will be somewhat mitigated as anticipated sales from supermarkets,
which are less promotion-oriented during the holiday shopping season, and the
sales of the Company's Country Air Candles, which traditionally have stronger
sales during the fourth quarter, increase as a percentage of total net sales.
The timing and introduction of new products and other factors may also cause
quarterly fluctuations in the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's working capital was $7.3 million
compared to working capital of $35.3 million at December 31, 1996.
Net cash provided by operating activities for the year ended December
31, 1997 was $12.8 million compared to net cash used in operating activities of
$16.9 million in the prior year. The increase in cash provided by operating
activities resulted primarily from operating losses of $21.1 million offset by
a decrease in inventory of $11.6 million, an increase in accounts payable and
accrued expenses of $17.9 million, a decrease in net accounts receivable of
$3.5 million, and an increase in refundable income taxes of $2.9 million and
depreciation and amortization of $4.8 million.
Net cash used in investing activities for the year ended December 31,
1997 was $21.4 million relating primarily to the acquisition of a distribution
center, a powder production facility and production equipment. The Company
anticipates that capital expenditures for 1998 will be between $4 million and
$6 million, which includes expenditures to upgrade the Company's North
Brunswick, New Jersey distribution facility, enhancements to the Company's
information systems and limited expenditures associated with the Company's
other manufacturing and distribution capabilities.
The increase provided by financing activities for the year ended
December 31, 1997 was $8.1 million which resulted primarily from a net increase
in bank debt of $6.7 million and an increase of $1.4 million in liabilities
related to a purchase agreement. See - "Oracle Purchase Obligation."
-24-
<PAGE>
PNC Bank Debt
In December 1996, the Company entered into a credit facility with PNC
Bank, National Association ("PNC") consisting of a $20,000,000 capital
expenditure facility for the purchase of capital assets and/or leasehold
improvements and a $10,000,000 traditional revolving facility (the "December
1996 PNC Facility"). Borrowings under the December 1996 PNC Facility bore
interest, at the Company's option, at LIBOR plus .50% to 1.5% (7.22% as of
December 31, 1997) or one percent below the prime rate of PNC. All amounts
outstanding under the December 1996 PNC Facility, as of December 31, 1997 were
subject to the 7.22% LIBOR-based interest rate. Unused portions of the
revolving facility were subject to a commitment fee of .25% on such unused
amounts. On December 31, 1996, the Company also obtained a 60-day $4,000,000
bridge loan (the "Bridge Loan I"), bearing interest at one percent below the
lender's prime rate (7.25%). On March 3, 1997, the Company repaid the Bridge
Loan I facility with funds generated from working capital.
On March 24, 1997, the Company obtained a commitment from PNC and a
second lender (the "March PNC Commitment") to replace the December 1996 PNC
Facility with a $55 million credit facility. In conjunction with this
commitment, PNC extended to the Company a $10 million bridge loan (the "Bridge
Loan II") to acquire a distribution center in North Brunswick bearing interest
at LIBOR + 1.5% (7.22% as of December 31, 1997) to be repaid from the
anticipated proceeds of the replacement facility. The December 1996 PNC
Facility and Bridge Loan II were secured by a substantial portion of the
Company's assets. As of December 31, 1997, approximately $40 million was
outstanding under both PNC credit facilities.
The December 1996 PNC Facility required, among other things, the
Company to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. Based on the
Company's December 31, 1996 financial condition, the Company was not in
compliance with various covenants and other material provisions contained in
the December 1996 PNC Facility including all of the required financial
covenants. In addition, based in part on the Company's performance in the first
quarter of 1997, the $55 million March PNC Commitment was withdrawn.
On June 30, 1997, the Company obtained a forbearance agreement from
PNC which provided that PNC would forbear exercising the rights and remedies
available to it under the December 1996 PNC Facility and Bridge Loan II until
July 7, 1997. Although the forbearance agreement expired, PNC continued to
cooperate with the Company during its discussions with other third party
lenders to amend and/or replace the December 1996 PNC Facility and Bridge Loan
II.
-25-
<PAGE>
On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which
waives all defaults under the December 1996 PNC Facility and Bridge Loan II.
Under the amended agreement, the Company made a principal payment of $5 million
and granted PNC a security interest in substantially all of the assets of the
Company. The balance of the principal indebtedness, approximately $35 million,
has been extended to January 4, 1999 and bears interest at rates which range
from prime plus .25% to prime plus 2%. The actual rate depends on the timing of
the repayment of the indebtedness. Of the $5 million paid to PNC, $4 million
was loaned to the Company by an entity owned by certain of the Company's
principal stockholders at a rate of 9.5% per annum, and is due in July 1999.
These stockholders also personally guaranteed the repayment of up to an
additional $5 million of the indebtedness owed to PNC. At December 31, 1997,
$1,000,000 of the PNC debt was classified as current reflecting the difference
between the amount repaid to PNC and the amount loaned to the Company by
certain of its principal stockholders.
In connection with the transaction, PNC received a warrant to purchase
between approximately 140,000 and 700,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (140,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company will recognize, in the first quarter of 1998, a
deferred charge estimated to approximate $400,000. This charge will be deferred
and amortized over the period ending January 4, 1999. The stockholders who
funded $4 million of the $5 million payment described above and guaranteed the
repayment of an additional $5 million are also expected to receive warrants or
other consideration in connection with the transaction. The cost of any
warrants or other consideration will be deferred and amortized over the term of
the loan.
The February 1998 PNC Facility requires the Company to, among other
things, maintain a ratio of current assets to current liabilities (as defined)
in excess of 1.1 commencing January 31, 1998, and prohibits the payment of
dividends and the incurrence of new debt.
For the year ended December 31, 1997, the Company has experienced
significant operating losses relating to, among other things, its geographic
expansion of its manufacturing and distribution facilities. In addition, the
Company has also experienced difficulty in meeting its liquidity needs. The
Company requires the availability of sufficient cash flow and borrowing
capacity to finance its operations, meet its debt service obligations and fund
future capital expenditure requirements. The Company's operating plan for 1998
includes continuing its cost reduction programs. Such programs include
reduction in temporary labor, production rationalization, increased use of high
speed fillers and cartoners and improved production planning and control.
Management believes that the corrective actions taken in the latter part of
1997 and the ongoing cost reduction programs currently in place, will have a
positive impact
-26-
<PAGE>
on operating results for 1998. Additionally, management is optimistic about its
ability to replace the PNC Facility with a permanent financing facility which
will more adequately support ongoing operations, debt service and capital
expenditure requirements. There can be no assurance that the Company will be
successful in these efforts.
In November 1997, the Company executed a commitment letter with GE
Capital for a credit facility totaling up to $52 million. The commitment
provided for a three year revolving credit facility of up to $45 million,
subject to availability based on eligible accounts receivable and inventory; a
three year term loan of $4 million with quarterly amortization payments; and a
three year term loan of $3 million with quarterly amortization payments. The
credit facility would be secured by substantially all the assets of the
Company. The commitment by GE Capital to extend the credit facility is subject
to various conditions including, among other things, the satisfactory
completion by GE Capital of its due diligence examination, evidence that the
Company will have excess availability (as defined) of not less than $5 million
at the time of the loan closing and the execution of definitive loan and
security documents. The commitment by GE Capital expired on March 2, 1998.
Management currently is negotiating with GE Capital to extend the commitment.
The Company must obtain the proposed GE Capital credit facility or obtain other
sources of financing in order to meet its anticipated near-term commitments.
There can be no assurance that the Company will be successful in obtaining the
GE Capital credit facility or in obtaining alternate financing.
EDA Loan
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of December 31,
1997, the Company used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (4.15% at December 31, 1997). As a result of several factors,
including those relating to the Company's historical financial performance,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the terms of the EDA Loan. There can be no
assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principal and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.
-27-
<PAGE>
Oracle Purchase Obligation
On May 29, 1997, the Company entered into an agreement with Oracle
Credit Corporation whereby the Company financed the purchase of a new
accounting system. The purchase obligation was for approximately $1.6 million,
payable in three equal annual payments to be made on July 1, 1997, 1998 and
1999 with interest at 10.1%. On August 20, 1997, the agreement was assigned to
Sanwa Business Credit Corporation. The Company is currently in default under
the agreement which requires the Company to, among other things, make timely
payments. Accordingly, the entire unpaid obligation has been classified as
current and is included in other current liabilities on the Company's December
31, 1997 balance sheet.
New Facilities
In January 1997, the Company purchased a 650,000 square foot
distribution facility in North Brunswick, New Jersey, adjacent to the Company's
existing facility for a purchase price of $7,200,000. The Company consolidated
its entire East Coast warehousing and distribution operation at this new
facility. The purchase of this distribution facility was funded by the $10
million Bridge Loan II from PNC.
During June 1997, the Company exercised its purchase option, by the
cancellation of a $2,250,000 promissory note, to acquire a powder plant
facility located in Chicago. This facility provides the Company with its entire
powder production requirements. As part of the transaction, the Company assumed
a land lease upon which the Company's Chicago operations are located. The
lease, which expires in 2080, provides for rent to be paid annually in the
amount of $1,000 plus a variable amount adjusted for inflation. The total rent
paid for the year ended December 31, 1997 was approximately $9,000.
Stock Options and Warrant
During the year ended December 31, 1997, the Company obtained proceeds
approximating $366,750 from the exercise of 53,709 stock options.
On December 26, 1997, the Company granted a warrant to purchase
350,000 shares of Common Stock to Frederick R. Adler, a director of the
Company, in consideration for the sum of $175,000 and investment banking
services to be rendered by Mr. Adler during the three year period commencing
January 1, 1998. The warrant is exercisable beginning December 2000 or, if
earlier, upon the occurrence of an "Accelerating Event" as defined in the
warrant, at an exercise price of $7.875 per share of Common Stock (the market
price of the Common Stock on the grant date). The Company valued the warrant at
approximately $375,000, the amount specified by an independent banking and
valuation firm engaged by the Company. The value of the warrant, net of
consideration to be received, will be deferred and amortized over the three
year consulting period.
-28-
<PAGE>
Restructuring Costs
In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of $2.4 million. These restructuring costs include the
cost of moving the candle production line and inventory, and the write-off of
related leasehold improvements, a provision for the future lease commitment
and associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility is re-leased. The Company believes the property
will be re-leased during 1998 thereby eliminating or substantially reducing the
remaining lease obligation. At December 31, 1997, the remaining accrual for
restructuring costs approximated $377,000.
Environmental Regulation
The Company is subject to various federal, state and local
environmental laws and regulations, including those relating to wastewater
discharge, air quality and the storage, handling and disposal of a variety of
substances. Some of the chemicals used by the Company and stored at its
manufacturing facility are materials regulated by federal or state
environmental protection agencies. The Company maintains $6,000,000 in annual
aggregate and $3,000,000 per claim of insurance coverage with an annual
deductible of $50,000 for environmental liabilities.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 problem. As the year 2000
approaches, such systems may be unable to accurately process certain date-based
information.
The Company believes it has identified all significant applications
that will require modifications to ensure Year 2000 compliance. Internal and
external resources are being used to make the required modifications and test
for Year 2000 problems. The modification process of all significant
applications is expected to be substantially completed by September 30, 1998.
The Company plans on completing its testing process of all significant computer
applications by December 31, 1998.
In addition, the Company has communicated with others with whom it
does significant business to determine their Year 2000 compliance readiness to
deal with potential year 2000 problems in an attempt to determine the extent to
which the Company is vulnerable to any third party Year 2000 problems. There
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted (or that any failure to convert by
another Company) would not have a material adverse effect on the Company's
business or results of operations.
-29-
<PAGE>
The total known cost to the Company of these Year 2000 compliance
activities has not been and is not anticipated to be material to the Company's
financial condition or results of operations in any given year. These costs and
the date on which the Company plans to complete Year 2000 modification and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumptions. However, there can be no guarantee that these
estimates will prove to be accurate and actual results could differ
significantly.
MANAGEMENT'S PLANS
During the year ended December 31, 1997, the Company incurred a loss
of $21,081,000 attributable primarily to increased material costs relating to:
incremental freight costs incurred during the integration of the Company's
Chicago, Harrisonville and Edison facilities; manufacturing inefficiencies
caused by a high level of production line change-overs to meet increased
customer demands and short production runs during the start-up and validation
of new production line capacity; the write-down of raw materials and finished
goods inventory associated with discontinued product and sales of close-out
products; and increased levels of unabsorbed material waste variances related
to these plant integration issues. There were significant additional costs for
underabsorbed overhead and increased levels of warehousing and distribution
associated with plant assimilation. Further, the Company significantly
increased co-op advertising and other customer marketing expenses as it
increased sales to grocery wholesalers and supermarket chains. As a result of
the losses incurred through December 31, 1997, the Company has experienced
difficulty in meeting its liquidity needs. The Company requires the
availability of sufficient cash flow and borrowing capacity to finance its
operations, meet its debt service obligations and fund future capital
expenditure requirements. The Company's operating plan for 1998 contemplates
continuing its cost reduction programs. The Company must attain profitability
and/or additional sources of financing in order to meet its anticipated trade
payables and other commitments, including the payment of the $35 million of
debt postponed to January 4, 1999 under the February 1998 PNC Facility.
Management is optimistic about its ability to obtain additional sources of
financing which will more adequately support ongoing operations, debt service
and capital expenditure requirements. There can be no assurance that the
Company will be successful in obtaining additional sources of financing or that
PNC will further extend any portion of amounts owed to them should the Company
be unable to obtain alternate financing.
INFLATION
The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States have had a
significant effect on net sales or profitability.
-30-
<PAGE>
NEW FINANCIAL ACCOUNTING STANDARDS
During 1997, and in the first quarter of 1998, the Financial
Accounting Standards Board issued the following accounting standards: Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131) and Statement of Financial Accounting Standards No. 132 " Employers
Disclosures about Pension and other Postretirement Benefit Plans" (SFAS No.
132). The Company will adopt these standards in the fiscal year beginning
January 1, 1998. The Company does not expect any material effect from adoption
of these statements.
-31-
<PAGE>
ITEM 7A. QUANTATATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS
See financial statements and supplementary data required pursuant to
this Item beginning on page F-1 of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-32-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Proposal No. 1 - Election
of Directors" in the Company's Annual Meeting of Stockholders scheduled to be
held on May 14, 1998, to be filed pursuant to Regulations 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, is
incorporated herein by reference. For information concerning the executive
officers and other significant employees of the Company, see
"Business-Executive Officers of the Registrant" in Item 1 above of this Annual
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation"
in the Company's Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the heading "Security ownership of
certain beneficial owners and management" in the Company's Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the headings entitled "Executive
Compensation-Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the Company's Proxy Statement is incorporated herein
by reference.
-33-
<PAGE>
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements.
The Financial Statements and Financial Statement Schedules
are listed in the accompanying index to financial statements
beginning on page F-1 of this report.
(2) Financial Statements Schedule.
Schedule II - Valuation and Qualifying Accounts
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 Certificate of Incorporation.(1)
3.2 Amended and Restated By-Laws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and By-Laws of the Registrant defining the rights
of holders of Common Stock of the Registrant.(1)
4.2 Specimen Common Stock Certificate.(1)
4.3 Form of Registration Rights Agreements between the Registrant,
Frederick R. Adler and Blair Effron.(1)
10.1 Lease Agreement dated January 15, 1993 between Maurice M. Weill,
Trustee for GEEMAC Property, and the Registrant.(1)
10.2 Supply Agreement dated November 29, 1994 between Owens-Illinois
Plastic Products Inc., Owens-Illinois Closure Inc. and the
Registrant.(1)
10.3 Amendment No. 1 dated December 1995 to Supply Agreement, dated
November 29, 1994, between Owens-Illinois Plastic Products Inc.,
Owens-Illinois Plastic Products Inc., Owens-Illinois Closure Inc.
and the Registrant.(2) (confidentiality note)*
10.4 Amended and Restated Employment Agreement with Uri Evan dated
January 1996.(2)**
-34-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.5 Employment Agreement for each of Joseph Cohen, Frederick J.
Horowitz, Daniel Bergman, and Mark Antebi.(1)**
10.6 Forms of Employment Agreement for each of Frank Corella and
Harold J. Macsata.(1)**
10.7 Loan Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant.(1)
10.8 Reimbursement Agreement dated April 15, 1993 between Banque
Nationale de Paris, Houston Agency and the Registrant.(1)
10.9 Security Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant.(1)
10.10 Amended and Restated Loan Agreement dated February 25, 1998
between PNC Bank, N.A. and the Registrant.
10.11 1995 Stock Option Plan.(1)**
10.12 Stock Option Plan for Non-Employee Directors.(1)**
10.13 Form of Directors and Officers Indemnity Agreement.(1)
10.14 Lease Agreement dated January 26, 1996 between M&E Co. and the
Registrant.(2)
10.15 Purchase and Sale Agreement dated January 22, 1997 between The
Okonite Company, Inc. and the Registrant.(3)
10.16 Letter Agreement dated May 5, 1997 between the Registrant and
Harold J. Macsata.(4)
10.17 Letter Agreement dated April 14, 1997 between the Registrant and
Mark Antebi.(4)
10.18 Letter Agreement dated April 14, 1997 between the Registrant and
Joseph Cohen.(4)
10.19 Employment Agreement dated March 26, 1997 between the Registrant
and Richard D. Coslow.(4)**
10.20 Employment Agreement, dated July 31, 1997 between the Registrant
and Guilio Perillo.(4)**
10.21 Stock Purchase Agreement dated June 30, 1997 between the
Registrant, Big Cloud Powder Corporation and Chicago Contract
Powder Corporation.(4)
-35-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.22 Warrant dated February 25, 1998 issued by the Registrant to PNC
Bank, N.A.
10.23 Mortgage and Security Agreement dated February 25, 1998 between
the Registrant and PNC Bank, N.A.
10.24 Letter Agreement dated February 25, 1998 between the Registrant
and 101 Realty Associates, L.L.C.
10.25 Mortgage and Security Agreement dated February 25, 1998 between
the Registrant and 101 Realty Associates, L.L.C.
10.26 Warrant dated December 26, 1997 issued by the Registrant to
Frederick R. Adler.
10.27 Agreement dated December 26, 1997 between Frederick R. Adler and
the Registrant.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
- --------------------------
* Confidentiality Requested, confidential portions have been omitted and
filed separately with the Commission, as required by Rule 406(b) of the
Securities Act of 1933.
** Management contract, or compensatory plan or arrangement.
1. Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 33-93488), which exhibit is incorporated herein by
reference.
2. Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-1386), which exhibit is incorporated herein by
reference.
-36-
<PAGE>
3. Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, which exhibit is incorporated
herein by reference.
4. Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, which exhibit is incorporated
herein by reference.
-37-
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Reports F-2
Consolidated Balance Sheets at December 31, 1996 F-3
and 1997
Consolidated Statements of Operations for the years F-4
ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the F-5
years ended December 31, 1995, 1996 and 1997
Consolidated Statements of Stockholders' Equity F-6
for the years ended December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements for the F-7
years ended December 31, 1995, 1996 and 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
USA Detergents, Inc.:
We have audited the accompanying consolidated balance sheets of USA
Detergents, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, retained earnings and cash flows
for the three years ended December 31, 1997. Our audits also included the
financial statement schedule listed in the index at Item 14(a)(2). These
consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of USA Detergents, Inc. and
subsidiaries at December 31, 1996 and 1997, and the results of its operations
and its cash flows for the three years ended December 31, 1995, 1996 and 1997
in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
F-2
/s/ Deloitte & Touche LLP
New York, New York
March 4, 1998
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 2,373 $ 1,848
Accounts receivable, net of allowance for doubtful accounts
of $1,349 and $867, respectively 27,323 24,349
Inventories 28,830 17,258
Prepaid expenses and other current assets 3,053 3,740
Refundable Income taxes 4,255 7,120
Deferred taxes 534 -
---------- ----------
Total current assets 66,368 54,315
Property and equipment--net 26,783 45,672
Restricted funds 275 275
Other assets 2,800 2,546
Note receivable 2,250 -
---------- ----------
Total assets $ 98,476 $ 102,808
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,819 $ 2,501
Accounts payable 13,725 33,188
Accrued expenses 11,503 9,951
Other current liabilities - 1,367
---------- ----------
Total current liabilities 31,047 47,007
Long-term debt--net of current portion 29,311 38,998
Deferred rent payable 1,284 1,219
Deferred taxes 735 -
---------- ----------
Total liabilities 62,377 87,224
---------- ----------
Commitments and Contingencies (Notes 4, 5, 7 and 9)
Stockholders' equity:
Preferred Stock--no par value; authorized 1,000,000 shares, - -
none issued
Common stock--$.01 par value; authorized 30,000,000 shares,
issued and outstanding 13,752,570 and 13,806,279 shares, 138 138
respectively
Additional paid-in capital 27,595 28,336
Retained earnings/(deficit) 8,366 (12,715)
Note receivable--warrant - (175)
---------- ----------
Total stockholders' equity 36,099 15,584
---------- ----------
Total liabilities and stockholders' equity $98,476 $ 102,808
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales......................... $104,878 $172,424 $227,269
Cost of goods sold................ 72,921 121,498 175,851
----------- ------------ ------------
Gross profit...................... 31,957 50,926 51,418
Selling, general and administrative expenses 22,232 43,878 70,826
Restructuring Costs - - 2,379
----------- ------------ ------------
22,232 43,878 73,205
----------- ------------ ------------
Income/(loss) from operations..... 9,725 7,048 (21,787)
Interest expense - net............ 544 868 2,742
----------- ------------ ------------
Earnings/ (loss) before provision /(benefit) for
income taxes
9,181 6,180 (24,529)
Provision /(benefit) for income taxes 2,156 2,473 (3,448)
----------- ------------ ------------
Net income/ (loss) $ 7,025 $ 3,707 $ (21,081)
=========== ============ ============
Basic net income/ (loss) per share $ .27 $ (1.53)
============== ==============
Weighted average shares outstanding 13,589 13,789
============== ==============
Diluted net income (loss) per share $ .27 $ (1.53)
============== ==============
Weighted average shares outstanding and
dilutive options 13,840 13,789
============== ==============
PRO FORMA INCOME STATEMENT DATA:
Earnings before income tax provision, as reported 9,181
Pro forma income tax provision.... 3,756
Pro forma net income............. $ 5,425
===========
Pro forma basic income per
Share............................ $ .43
===========
Weighted average shares outstanding used in the
pro forma per share calculation... 12,494
===========
Pro forma diluted net income per share $ .43
===========
Weighted average number of shares outstanding and
dilutive options used in the pro forma per
share calculation 12,553
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 7,025 $ 3,707 $ (21,081)
Adjustments to reconcile net income/(loss) to net cash (used
in)/provided by operating activities:
Depreciation and amortization 1,006 2,467 4,801
Change in the provision for customer allowances and doubtful accounts 192 1,073 (482)
Increase/(decrease) in deferred rent (3) 80 (65)
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (8,806) (13,118) 3,456
(Increase)/decrease in inventories (549) (20,382) 11,572
(Increase) in prepaid expenses and other current assets (1,293) (64) (687)
(Increase)/decrease in other assets 22 (2,545) 454
(Increase) in refundable income taxes - (4,255) (2,865)
Increase in accounts payable and accrued expenses 1,509 16,456 17,911
Increase/(decrease) in taxes payable 125 (182) -
(Increase)/(decrease in deferred tax asset (630) 96 534
Increase/(decrease) in deferred tax liability 990 (255) (735)
-------------------------------------------
Net cash (used in) / provided by operating activities (412) (16,922) 12,813
activities:
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,851) (18,846) (23,690)
(Increase)/decrease in note receivable (2,250) - 2,250
-------------------------------------------
Net cash used in investing activities: (6,101) (18,846) (21,440)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder distributions (5,331) - -
Repayment of long-term debt (305) (305) (305)
Net (repayments to)/proceeds from credit facility (517) 22,322 10,674
(Decrease) in non-current liabilities (68) (37) -
Proceeds from Oracle purchase obligation - - 1,806
Repayment of Oracle purchase obligation (439)
Net proceeds from initial public offering 12,718 - -
Net proceeds from exercise of options - 364 366
Increase in/(repayment of) Bridge Loan I - 4,000 (4,000)
Net proceeds from sale of common shares - 11,736 -
-------------------------------------------
Net cash provided by financing activities: 6,497 38,080 8,102
-------------------------------------------
Net (decrease)/increase in cash (16) 2,312 (525)
Cash at beginning of period 77 61 2,373
-------------------------------------------
Cash at December 31, $ 61 $ 2,373 $ 1,848
===========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 539 $ 834 $ 2,738
===========================================
Income taxes $ 1,671 $ 7,059 $ 263
===========================================
Income tax refunds received $ 645
===========================================
Warrant issued for non-current receivable and consulting services $ 375
===========================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ------------------ PAID-IN RETAINED NOTES STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE EQUITY
------ ------ ------ ------ ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.... -- $ -- 7,943,000 $ 79 $ 2,836 $ 2,965 $ -- $5,880
Net income................... 7,025 7,025
Stockholder distributions.... (5,331) (5,331)
Net proceeds from initial 985,260 10 12,708 12,718
public offering.............
Three-for-two stock split..... 4,464,112 45 (45)
------- ----------- ---------- ---------- ---------- ------------- ---------- -------
BALANCE, December 31, 1995 13,392,372 134 15,499 4,659 20,292
Net loss..................... 3,707 3,707
Stock options exercised...... 60,198 1 363 364
Net proceeds from sale of
common stock................. 300,000 3 11,733 11,736
------- ----------- ---------- ---------- ---------- ------------- ---------- -------
BALANCE, December 31, 1996 13,752,570 138 27,595 8,366 36,099
Net loss (21,081) (21,081)
Warrant issued in connection
with consulting agreement 375 (175) 200
Stock options exercised 53,709 366 366
------- ----------- ---------- ---------- ---------- ------------- ---------- -------
BALANCE December 31, 1997 -- $ -- 13,806,279 $ 138 $ 28,336 $ (12,715) $ (175) $15,584
======= =========== ========== =========== ========== ============= ========== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
USA Detergents, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1996 and 1997
1. Principal Business Activity and Summary of Significant Accounting
Policies
USA Detergents, Inc. (the "Company") manufactures and markets
nationally distributed value brand laundry and household cleaning products.
Basis of Presentation--The accompanying Financial Statements include
the accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Inventories -- Inventories are stated at the lower of cost, determined
by using the first-in, first-out and average methods, or market. The Company
periodically reviews inventory for slow moving or obsolete items. Such items
are written down to net realizable value and have not been material for any
period presented.
Slotting fees -- The Company incurs certain costs in connection with
placing its products. These costs are known in the trade as "slotting fees."
The Company is amortizing these fees over a one year period from the date
incurred. Deferred slotting fees are included in prepaid expenses and other
current assets.
Long-Lived Assets - Financial Accounting Standards Board Statement
Number 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that they be segregated and
stated at the lower of the expected net realizable value or cost. The carrying
value of long-lived assets is periodically reviewed to determine whether
impairment exists. The review is based on comparing the carrying amount of the
asset to the undiscounted estimated cash flows over the remaining useful lives.
No impairment is indicated as of December 31, 1997. The Company has adopted
this statement and the impact has not been significant.
Depreciation and Amortization -- Depreciation of property and
equipment is provided for by using the straight-line method over the estimated
useful lives of the respective assets. Amortization of leasehold improvements
is provided for by the straight-line method over the lease term.
Trademark and Deferred Loan Costs -- Other assets include trademark
costs, which are being amortized using the straight-line method over a period
of 10 years, and loan closing costs, which are being amortized over the life of
the loan.
Income Taxes -- Prior to August 10, 1995 (one day prior to the
completion of the Company's initial public offering), the Company elected to be
treated as an S corporation ("S corporation") under the applicable sections of
the Internal Revenue Code. Accordingly, during the "S Corporation Period" there
was no provision for federal income
F-7
<PAGE>
taxes as such earnings of the Company flowed through directly to the
stockholders. The Company was however subject to state and local taxes in
certain states during the S Corporation Period.
Deferred taxes on income are provided to reflect the tax effect of
temporary differences between financial statement income and taxable income.
The principal items giving rise to deferred taxes are the use of accelerated
depreciation methods for tax purposes, straight-lining of step rentals, tax
loss carryovers and differences in the timing of the deductibility of certain
expenses between income tax and financial reporting.
Fair Value of Financial Instruments -- The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated fair
values of financial instruments have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
F-8
<PAGE>
The carrying amounts and estimated fair values of financial instruments at the
end of the respective years are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
----------------- -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash............................... $2,373 $2,373 $1,848 $1,848
Trade accounts receivable.......... 28,672 28,672 25,216 25,216
Note receivable.................... 2,250 2,250 --- ---
Liabilities:
Accounts payable, accrued
expenses
and taxes...................... 25,247 25,247 43,139 43,139
Revolving line of
credit, Bridge Loan I and Bridge
Loan II........................ 33,305 33,305 39,998 39,998
Economic Development
Authority loan................. 1,806 1,712 1,501 1,501
Oracle Purchase Obligations........
--- --- 1,367 1,367
Capitalized Lease Obligations......
19 19 --- ---
</TABLE>
The following methods and assumptions were used to estimate the fair value of
the financial instruments presented above:
Cash -- The carrying amount is a reasonable approximation of fair value.
Trade accounts receivable, note receivable, accounts payable, accrued expenses
and taxes and the Oracle purchase obligation. The fair value of these
receivables and payables are assumed to equal their carrying value because of
their short maturities.
Revolving Credit Line, Bridge Loan I and Bridge Loan II -- Fair value is
estimated by discounting the future stream of payments using the incremental
borrowing rate of the Company, which represents its primary source of recourse
financing.
Economic Development Authority Loan -- Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues for which no market
quotes are available.
F-9
<PAGE>
Use of estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition -- Revenue is recognized at the time the
merchandise is shipped.
Stock-Based Compensation -- Stock-based compensation is recognized
using the intrinsic value method. For disclosure purposes, pro forma net income
(loss) and pro forma net income (loss) per share are provided as if the fair
value method was applied.
Basic and Diluted Net Income (loss) per Share --- The Company has
adopted the provisions of Statement of Financial Accounting Standard No. 128
"Earnings per share" (the "Statement"). The Statement establishes standards for
computing and presenting net income (loss) per share and applies to entities
with publicly held common stock or potential common stock such as employee
stock options. The Statement replaces the presentation of primary net income
(loss) per share with a presentation of basic net income (loss) per share and
also requires, among other things, dual presentation of basic and diluted net
income (loss) per share for all entities with complex capital structures. Basic
net income (loss) per share excludes dilution and is computed by dividing net
income (loss) by the weighted average number of shares outstanding for each
period presented. Diluted net income (loss) per share is computed by dividing
net income (loss) by the weighted average number of shares outstanding plus the
dilutive potential common shares which will result from the exercise of stock
options or warrants. Prior periods have been restated to reflect the
requirements of the new statement.
The following reconciliation of the weighted average shares used in the
computations of basic and dilutive net income/(loss) per share: (ooo's)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding used for
basic net income/(loss) per share 12,494 13,589 13,789
Dilutive stock options and warrants 59 251 ----
------ ------ ------
Weighted average common shares outstanding used for
dilutive net income/(loss) per share 12,553 13,840 13,789
====== ====== ======
</TABLE>
For 1997, 121,054 options have been excluded from the computation of dilutive
net loss per share because the impact would be antidilutive.
Pro forma net income has been adjusted to reflect a tax provision which
reflects the actual taxes that would have been paid had the Company been a C
corporation for all of 1995.
F-10
<PAGE>
Reclassifications --- Certain reclassifications have been made to
prior year amounts to conform with the presentation for the current year.
New Financial Accounting Standards --- During 1997, and in the first
quarter of 1998, the Financial Accounting Standards Board issued the following
accounting standards: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) and Statement of Financial Accounting
Standards No. 132 " Employers Disclosures about Pension and other Post
retirement Benefit Plans" (SFAS No. 132). The Company will adopt these
standards in the fiscal year beginning January 1, 1998. The Company does not
expect any material effect from adoption of these statements.
2. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
--------------------
1996 1997
---- ----
(in thousands)
Raw material...................................... $10,532 $9,819
Finished goods.................................... 18,298 7,439
------- -------
$28,830 $17,258
======= =======
F-11
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ ESTIMATED
1996 1997 USEFUL LIFE
---- ---- -----------
(in thousands)
<S> <C> <C> <C>
Machinery and equipment........................... $20,332 $29,682 6 to 10 years
Furniture and fixtures............................ 2,608 4,368 5 to 7 years
Leasehold improvements............................ 3,381 8,092 Term of lease
Construction in progress.......................... 2,179 1,125
Land.............................................. 1,376 3,833
Building.......................................... 1,652 7,424 25 years
----- ------
31,528 54,524
Less accumulated depreciation and
amortization...................................... 4,745 8,852
--------- ---------
$26,783 $45,672
======= =======
</TABLE>
Depreciation and amortization expense amounted to $1,006, $2,467 and $4,801 for
the years ended December 31, 1995, 1996 and 1997, respectively.
F-12
<PAGE>
4. DEBT
DECEMBER 31,
------------
1996 1997
---- ----
Bridge Loan I (i) $4,000 $ ---
Bridge Loan II (i) --- 10,000
Capital Expenditure Facility (i) 20,000 20,000
Revolving credit facility (i) 9,305 9,998
New Jersey EDA loan (ii) 1,806 1,501
Capitalized lease obligations 19 ---
--------- ---------
35,130 41,499
Less amount due in one year 5,819 2,501
--------- ---------
$29,311 $38,998
========= =========
Annual maturities of bank and other long-term debt, are as follows:
1998 $ 2,501
1999 38,998
------
$41,499
=======
F-13
<PAGE>
(i) PNC Bank Debt
In December 1996, the Company entered into a credit facility with PNC
Bank, National Association ("PNC") consisting of a $20,000,000 capital
expenditure facility for the purchase of capital assets and/or leasehold
improvements and a $10,000,000 traditional revolving facility (the "December
1996 PNC Commitment"). Borrowings under the December 1996 PNC Facility bear
interest, at the Company's option, at LIBOR plus .50% to 1.5% (7.22% as of
December 31, 1997) or one percent below the prime rate of PNC. All amounts
outstanding under the December 1996 PNC Facility, as of December 31, 1997 were
subject to the 7.22% LIBOR-based interest rate. Unused portions of the
revolving facility are subject to a commitment fee of .25% on such unused
amounts. On December 31, 1996, the Company also obtained a 60-day $4,000,000
bridge loan (the "Bridge Loan I"), bearing interest at one percent below the
lender's prime rate (7.25%). On March 3, 1997, the Company repaid the Bridge
Loan I facility with funds generated from working capital.
On March 24, 1997, the Company obtained a commitment from PNC and a
second lender (the "March PNC Commitment") to replace the December 1996 PNC
Facility with a $55 million credit facility. In conjunction with this
commitment, PNC extended to the Company a $10 million bridge loan (the "Bridge
Loan II") to acquire a distribution center in North Brunswick bearing interest
at LIBOR + 1.5% (7.22 as of December 31, 1997) to be repaid from the
anticipated proceeds of the replacement facility. The December 1996 PNC
Facility and Bridge Loan II are secured by a substantial portion of the
Company's assets. As of December 31, 1997 approximately $40 million was
outstanding under both PNC Credit facilities.
The December 1996 PNC Facility requires, among other things, the
Company to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. Based on the
Company's December 31, 1996 financial condition, the Company was not in
compliance with various covenants and other material provisions contained in
the December 1996 PNC Facility including all of the required financial
covenants. In addition, based in part on the Company's performance in the first
quarter of 1997, the commitment for the $55 million March PNC Commitment was
withdrawn.
On June 30, 1997, the Company obtained a forbearance agreement from
PNC which provided that PNC would forbear exercising the rights and remedies
available to it under the December 1996 PNC Facility and Bridge Loan II until
July 7, 1997. Although the forbearance agreement expired, PNC continued to
cooperate with the Company during its discussions with other third party
lenders to amend and/or replace the December 1996 PNC Facility and Bridge Loan
II.
On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which
F-14
<PAGE>
waives all defaults under the December 1996 PNC Facility and Bridge Loan II.
Under the amended agreement, the Company made a principal payment of $5 million
and granted PNC a security interest in substantially all of the assets of the
Company. The balance of the principal indebtedness, approximately $35 million,
has been extended to January 4, 1999 and bears interest at rates which range
from prime plus .25% to prime plus 2%. The actual rate depends on the timing of
the repayment of principal. Of the $5 million paid to PNC, $4 million was
loaned to the Company by an entity owned by certain of the Company's principal
shareholders at a rate of 9.5% per annum, and is due in August 1999. These
shareholders also personally guaranteed the repayment of up to an additional $5
million of the indebtedness owned to PNC. At December 31, 1997, $1 million of
the PNC debt was classified as current reflecting the difference between the
amount the Company paid to PNC and the amount loaned to the Company by certain
of its principal stockholders.
In connection with the transaction, PNC received a warrant to purchase
between approximately 140,000 and 700,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (140,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company will recognize, in the first quarter of 1998, a
deferred charge estimated to approximate $400,000. This charge will be
amortized over the period ending January 4, 1999, The stockholders who funded
$4 million of the $5 million payment and guaranteed the repayment of an
additional $5 million may also receive warrants or other consideration in
connection with the transaction. The cost of any warrant or other consideration
will be deferred and amortized over the term of the loan.
The February 1998 PNC Facility among other things, requires the
Company to maintain a ratio of current assets to current liabilities (as
defined) in excess of 1.1 commencing January 31, 1998, and prohibits the
payment of dividends and the incurrence of new debt.
In November 1997, the Company executed a commitment letter with GE
Capital for a credit facility totaling up to $52 million. The financing
agreement would include a three year revolving credit facility of up to $45
million, subject to availability based on eligible accounts receivable and
inventory; a three year term loan of $4 million with quarterly amortization
payments; and a three year term loan of $3 million with quarterly amortization
payments. The credit facility will be secured by substantially all the assets
of the Company. The commitment by GE Capital to extend the credit facility is
subject to various conditions including, among other things, the satisfactory
completion by GE Capital of its due diligence examination, evidence that the
Company will have excess availability (as defined) of not less than $5 million
at the time of the loan closing and the execution of definitive loan and
security documents. The commitment by GE Capital expired on March 2, 1998.
Management is currently negotiating with GE Capital to extend the commitment.
The Company must obtain the proposed GE Capital credit facility or obtain
additional sources of financing in order to meet its anticipated near-term
commitments. There can be no assurance that the Company will be successful in
obtaining the GE Capital credit facility or in obtaining alternate financing.
F-15
<PAGE>
(ii)EDA Loan
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of December 31,
1997, the Company used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (4.15% at December 31, 1997). As a result of several factors,
including those relating to the Company's historical financial performance,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the terms of the EDA Loan. There can be no
assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principal and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.
(iii) Oracle Purchase Obligation
On May 29, 1997, the Company entered into an agreement with Oracle
Credit Corporation whereby the Company financed the purchase of a new
accounting system. The purchase obligation was for approximately $1.6 million,
payable in three equal annual payments to be made on July 1, 1997, 1998 and
1999 with interest at 10.1%. On August 20, 1997, the agreement was assigned to
Sanwa Business Credit Corporation. The Company is currently in default under
the agreement which requires the Company to, among other things, make timely
payments. Accordingly, the entire unpaid obligation has been classified as
current and is included in other current liabilities on the Company's December
31, 1997 balance sheet.
5. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On May 5, 1997, a securities class action lawsuit entitled Feldbaum v.
USA Detergents, Inc. et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and former officers and directors; the Feldbaum case
subsequently was transferred to the U.S. District Court for the District of New
Jersey. On May 15, 1997, a second securities class action lawsuit entitled
Einhorn v. USA Detergents, Inc. et al., No. 97-2459, was filed against the
Company and certain of its current and former officers and directors in the
U.S. District Court for the District of New Jersey. Since the Einhorn lawsuit
was filed, twelve additional securities class action lawsuits have been filed
in the U.S.
F-16
<PAGE>
District Court for the District of New Jersey against the Company and certain
of its current and former officers and directors. The class actions purport to
be brought on behalf of all persons who purchased the Company's common stock
between June 5, 1996, at the earliest, and May 8, 1997, at the latest (the
"putative class period"). The class actions generally allege that, during the
putative class period, the defendants made false or misleading public
statements and engaged in improper accounting practices, which caused the price
of the Company's common stock to be artificially inflated. The class actions
assert that the defendants' conduct violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, as
well as state common law. The class actions do not specify an amount of
damages. In June and July 1997, the U.S. District Court for the District of New
Jersey entered orders consolidating all of the pending class actions with the
Einhorn case. In August 1997, the court entered an order establishing a master
docket for the consolidated class actions, In re USA Detergents, Inc.
Securities Litigation, Master File No. 97-CV-2459 (MTB), and appointed lead
plaintiffs and lead plaintiffs' co-lead counsel. The Company intends to defend
this action vigorously. An unfavorable outcome in the litigation could have a
material adverse effect on the Company's financial condition and results of
operations.
On September 12, 1997, the Company became aware of a claim by the
North Brunswick Water Company ("NBWC") covering, among other things, unpaid
water and sewer charges aggregating approximately $5,000,000. On October 20,
1997, the Company commenced an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, challenging NBWC's claim and requesting
injunctive relief to prevent NBWC from taking any steps to discontinue service
pending the resolution of the claim. Pursuant to a Consent Order dated October
21, 1997, the Company paid $532,118 to NBWC, subject to refund, pending the
resolution of the matter. This charge is included in selling, general and
administrative expenses. Based on a preliminary assessment made by independent
counsel for the Company of the underlying basis for NBWC's claim, management
believes that the Company's obligation, if any, to NBWC will not have a
significant impact on the Company's results of operations or financial position
beyond amounts already paid.
Note Receivable
In December 1995, the Company loaned approximately $2.3 million to an
unaffiliated third party in connection with such third party's acquisition of a
powder detergent manufacturing facility. Amounts outstanding under such loan
bore interest at 10.0% per annum and were payable on demand. The loan was
secured exclusively by the stock and assets of the borrower. The Company had an
option to purchase the manufacturing facility for the amount of the loan.
In June 1997, the Company exercised its purchase option, by the
cancellation of the $2.3 million promissory note in exchange for the capital
stock of the unaffiliated third party, to acquire the powder plant facility
located in Chicago. Pursuant to the terms of a
F-17
<PAGE>
supply contract, this facility previously provided the Company with the
facility's entire powder production output on an exclusive basis.
Leases
The Company is committed under various operating leases which expire
at varying dates through the year 2004. Aggregate minimum future lease
payments, exclusive of payments for real estate taxes and operating costs, are
as follows (in thousands):
YEAR ENDING
DECEMBER 31,
------------
1998..................................... $ 3,390
1999..................................... 2,945
2000..................................... 2,218
2001..................................... 1,431
2002..................................... 1,213
Thereafter............................... 1,243
--------
$12,440
========
Rent expense charged to operations amounted to $1,043,000, $1,702,000
and $1,802,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, including real estate taxes and operating escalations.
Rent expense recognized annually differs from actual rent paid as a
result of free rent periods and escalations in base rent provided in the
leases. Accordingly, the Company has recorded deferred rent of $1,284,000 and
$1,219,000 at December 31, 1996 and 1997, respectively. This amount is being
amortized by the straight-line method over the life of the lease.
Servicing Agreement
The Company entered into an exclusive use agreement with a vendor
whereby the vendor has committed the use of certain machines for the production
of packaging materials for the Company. The monthly payment is $1,317,566,
subject to maximum annual increases of 2%, through January 31, 2001, which will
be applied against the purchase price of the packaging materials.
F-18
<PAGE>
Profit Sharing Plan
The Company has a profit sharing plan based on the amount by which the
Company's operating gross margin (the "OGM"), as defined, exceeds ten percent.
If the Company's OGM exceeds ten percent, a percentage of that excess is placed
in a bonus pool based on a predetermined formula provided that the total amount
available for distribution is only based on annual gross sales up to $200
million. Fifty-two percent of the bonus pool is allocated for distribution to
senior executives. Of the remainder of the bonus pool, no participant can
currently receive a distribution greater than 50% of his or her base salary.
Amounts not allocated for distribution under the bonus pool will not be
distributed. For the years ended December 31, 1995, 1996 and 1997,
approximately $231,000, $410,000 and $0 respectively, was distributed under the
plan.
Employment Agreements
The Company is obligated under various employment agreements expiring
in 2000. As of December 31, 1997, the minimum future annual amounts payable
under these agreements are as follows (in thousands):
DECEMBER 31, 1997
-----------------
1998 $ 720
1999 431
2000 52
---------
$ 1,203
=========
Related Party Transactions
On December 26, 1997, the Company granted a warrant to purchase
350,000 shares of Common Stock to Frederick R. Adler, a director of the
Company, in consideration for the sum of $175,000 and investment banking
services to be rendered by Mr. Adler during the three year period commencing
January 1, 1998. The warrant is exercisable beginning December 2000 or, if
earlier, upon the occurrence of an "Accelerating Event" as defined in the
warrant, at an exercise price of $7.875 per share of Common Stock (the market
price of the Common Stock on the grant date). The Company valued the warrant at
approximately $375,000, the amount specified by an independent banking and
valuation firm engaged by the Company. The value of the warrant, net of
consideration to be received, will be deferred and amortized over the
three-year consulting period.
The Company's Chief Executive Officer, Chairman of the Board, Interim
President and principal stockholder of the Company, is also a director, officer
and stockholder of American Value Brands Inc. ("AVB") and another director and
principal stockholder of the Company, is also a director and stockholder of
AVB.
Purchases made by AVB amounted to $65,206, $1,506 and $45,430 for the
years ended December 31, 1995, 1996 and 1997, respectively.
F-19
<PAGE>
The Company, during the year ended December 31, 1997, incurred rental
expenses of approximately $90,000 for the use of a portion of AVB's warehouse.
At December 31, 1996 the net amount due the Company from AVB was $18,488 and at
December 31, 1997, the net amount payable by the Company to AVB was $24,388.
Tax Examination
The Internal Revenue Service is currently examining the Company's 1995
federal income tax return. To date, management has not been notified of any
proposed adjustment. Management believes that any adjustment which results from
this examination, if any, will not have a material impact on the Company's
results of operations or financial condition.
Restructuring Costs
In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of $2.4 million. These restructuring costs include the
cost of moving the candle production line and inventory, the write-off of
related leasehold improvements, a portion of the future lease commitment
and associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility is re-leased. The Company believes the property
will be re-leased during 1998 thereby eliminating or substantially reducing
the remaining lease obligation. At December 31, 1997, the remaining accrual for
restructuring costs approximated $377,000.
Environmental Regulation
The Company is subject to various federal, state and local
environmental laws and regulations, including those relating to wastewater
discharge, air quality and the storage, handling and disposal of a variety of
substances. Some of the chemicals used by the Company and stored at its
manufacturing facility are materials regulated by federal or state
environmental protection agencies. The Company maintains $6,000,000 in annual
aggregate and $3,000,000 per claim of insurance coverage with an annual
deductible of $50,000 for environmental liabilities.
New Facilities
On January 22, 1997, the Company entered into a contract to purchase a
650,000 square foot distribution facility in North Brunswick, New Jersey,
adjacent to the Company's existing facility for a purchase price of $7,200,000.
Subsequent thereto, the Company consolidated its entire East Coast warehousing
and distribution operation at this new facility. The purchase was funded by an
increase in the Company's credit facility.
During June 1997, the Company exercised its purchase option, by the
cancellation of a $2,250,000 promissory note, to acquire a powder plant
facility located in Chicago. This facility provides the Company with its entire
powder production requirements. As
F-20
<PAGE>
part of the transaction, the Company assumed a land lease upon which the
Company's Chicago operations are located. The lease, which expires in 2080,
provides for rent to be paid annually in the amount of $1,000 plus a variable
amount adjusted for inflation. The total rent paid for the year ended December
31, 1997 was approximately $9,000.
6. INCOME TAXES
Components of income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current: (IN THOUSANDS)
Federal....................... $1,403 $2,319 $(3,524)
State and local............... 393 313 277
Deferred...................... 360 (159) (201)
----- -------- -----
$2,156 $2,473 $(3,448)
====== ====== =======
</TABLE>
Temporary differences which give rise to net deferred tax liabilities
at December 31, 1996 and 1997 are as follows:
DECEMBER 31,
1996 1997
---- ----
(IN THOUSANDS)
Deferred tax liabilities
Depreciation $(1,237) $(2,359)
-------- --------
Deferred tax assets
Straight-lining of step rental increases 502 471
Allowance for bad debts 527 335
Net operating loss carryover 15 7,032
Inventory capitalization 291
Miscellaneous (8) 38
------ -------
1,036 8,167
------ -------
Net deferred tax (liabilities) assets $(201) $5,808
======
Valuation allowance (5,808)
-------
Net deferred tax asset $
========
F-21
<PAGE>
A reconciliation of income taxes at the Federal statutory rate to amounts
provided is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision computed at statutory rate $3,122 $2,101 $(8,426)
State and local income taxes 264 206 (950)
Non taxable earnings during period prior to
conversion to C corporation st (1,522) --- ---
Recognition of deferred taxes upon conversion to
C corporation status............................. 227 --- ---
Valuation allowance --- --- 5,808
Other--net 65 166 120
------ ------ -------
$2,156 $2,473 $(3,448)
====== ====== =======
</TABLE>
At December 31, 1997 the Company had operating loss carryovers for tax
purposes approximating $17 million which expire in 2012.
7. SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company's largest customer, Wal-Mart, accounted for 17.2%, 16.8%
and 12.7% of sales, respectively, in 1995, 1996 and 1997. No other customer of
the Company accounted for more than 10.0% of the Company's net sales. As is
customary in the industry, the Company does not have long-term contracts with
its customers.
Certain chemical plastic bottles, packaging materials and
manufacturing equipment used in connection with the manufacture of the
Company's products as well as certain finished products sold by the Company are
obtained from a sole or a limited group of suppliers and subcontractors. The
Company's reliance on a sole supplier or limited groups of suppliers and
subcontractors involves several risks, including increased risk of inability to
obtain adequate supplies, and reduced control over pricing and timely delivery.
Although the timeliness, quality and pricing of deliveries from the Company's
suppliers have been acceptable to date and the Company believes that additional
sources of supply are generally available, there can be no assurance that
supplies will be available on an acceptable basis or that delays in obtaining
new suppliers, particularly of plastic bottles, will not have an adverse effect
on the Company.
F-22
<PAGE>
8. STOCKHOLDERS' EQUITY
Organization, Recapitalization and Sale of Common Stock -- The Company
was organized in New Jersey and commenced operations effective October 25,
1988. On August 2, 1995, the Company was reincorporated in Delaware. In
connection with the reincorporation, the Company became authorized to issue up
to 30,000,000 shares of Common Stock, $.01 par value per share, and up to
1,000,000 shares of Preferred Stock, no par value. As part of the
reincorporation each share of the predecessor corporation's common stock was
converted into 88,167 shares of Common Stock of the Company. All applicable
share data have been retroactively adjusted to reflect the reincorporation and
share conversion.
In August 1995, the Company completed an initial public offering of
3,622,500 shares of Common Stock, including 1,477,890 shares of Common Stock
sold by the Company (the remainder being sold by certain stockholders of the
Company) which provided net proceeds to the Company of approximately
$12,718,000.
On January 18, 1996, the Company declared a three-for-two stock split
effected in the form of a 50% stock dividend to holders of record of the
Company's Common Stock at the close of business on January 30, 1996 and paid
February 9, 1996. Shares outstanding and per share amounts have been
retroactively adjusted to reflect the three-for-two stock split.
In June 1996, the Company completed an additional public offering of 300,000
shares of Common Stock which provided net proceeds to the Company of
approximately $11,736,000.
1995 Stock Option Plan. -- Effective in August 1995, the Company
adopted the USA Detergents, Inc. 1995 Stock Option Plan (the "1995 Plan"),
pursuant to which options to acquire an aggregate of 388,935 shares of Common
Stock may be granted to key employees and consultants of the Company or any of
its subsidiaries. In July 1997, the maximum number of shares of Common Stock
authorized to be granted under the 1995 Plan was increased to 1,000,000,
subject to approval of the Company's stockholders. The 1995 Plan authorizes the
Board to issue incentive stock options ("ISO's"), as defined in Section 422A(b)
of the Internal Revenue Code (the "Code"), and stock options that do not
conform to the requirements of that Code section ("Non-ISO's"). The exercise
price of each ISO may not be less than 100% of the fair market value of the
Common Stock at the time of grant, except that in the case of a grant to an
employee who owns 10% or more of the outstanding stock of the Company or any
subsidiary ("10% Stockholder"), the exercise price shall not be less than 110%
of such fair market value. The exercise price of each Non-ISO may not be less
than the par value of the Common Stock. Generally, options will vest over a
three to five year period and may not be exercised after the tenth anniversary
(fifth anniversary in the case of an ISO granted to a 10% Shareholder) of their
grant. Options may not be transferred during the lifetime of an
F-23
<PAGE>
optionholder. No stock options may be granted under the 1995 Plan after 2005.
Non-Employee Directors' Plan. -- Effective in August 1995, the Company
adopted a Stock Option Plan for Non-Employee Directors (the "Directors' Plan"),
pursuant to which options to acquire an aggregate of 75,000 shares of Common
Stock may be granted to non-employee directors. The Directors' Plan provides
for the automatic grant to each of the Company's non-employee directors of (1)
an option to purchase 4,500 shares of Common Stock on the later of the date of
such director's initial election or appointment to the Board of Directors or
the date of adoption of the Directors' Plan, and (2) an option to purchase
4,500 shares of Common Stock on each annual anniversary of such election or
appointment, provided that such individual is on that anniversary date a
non-employee director. The options will have an exercise price of 100% of the
fair market value of the Common Stock on the date of grant, have a ten-year
term and become exercisable in four equal quarterly installments commencing on
the date which is three months after the date of the grant thereof, subject to
acceleration in the event of a change of control (as defined in the Directors'
Plan). The options may be exercised by payment in cash, check or shares of
Common Stock.
In December 1993, the Company granted an option to an executive
covering 119,145 shares of common stock exercisable in four annual installments
beginning December 31, 1995. This option is exercisable at $2.00 per share.
Through December 31, 1997, 59,572 shares have been purchased pursuant to the
exercise of this option.
Activity in the 1995 Plan and the Directors' Plan since inception is
as follows:
Weighted
NUMBER OF Average Price
OPTIONS per Share
--------- -------------
Granted in 1995................................... 154,650 $9.91
Canceled.......................................... (7,500) 9.67
--------
Options outstanding, December 31, 1995............ 147,150 9.92
Granted in 1996................................... 139,500 20.58
Canceled.......................................... (1,125) 9.67
Exercised......................................... (30,412) 10.11
--------
Options outstanding, December 31, 1996............ 255,113 15.73
Granted in 1997................................... 401,876 12.17
Canceled.......................................... (274,751) 14.70
Exercised......................................... (23,923) 12.84
--------
Options outstanding, December 31, 1997............ 358,315 12.01
========
F-24
<PAGE>
As of December 31, 1997, options outstanding and options exercisable consist of
the following:
NUMBER OF NUMBER OF
OPTIONS EXERCISE OPTIONS
GRANT DATE OUTSTANDING PRICE EXERCISABLE
- ---------- ----------- -------- -----------
Dec-93 59,573 $ 2.00 29,786
Aug-95 90,676 9.67 28,476
Aug-95 4,500 11.92 4,500
Aug-95 4,500 12.67 4,500
Jan-96 37,426 15.75 4,593
Aug-96 13,500 31.50 13,500
Oct-96 16,900 33.00 --
Mar-97 5,000 21.50 --
Aug-97 13,500 13.25 3,375
Sep-97 9,750 11.69 --
Dec-97 162,563 8.69 --
-------- -----------
417,888 88,730
======== ===========
As of December 31, 1997, there were 712,350 options available for
future grant under the Plans and 88,730 outstanding options were exercisable.
During the year ended December 31, 1997, the Company obtained proceeds
approximating $366,000 from the exercise of 53,709 stock options.
The Company applies the provisions of APB Opinion 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for the foregoing options. The excess, if
any, of the fair market value of shares on the measurement date over the
exercise price is charged to operations each year as the options become
exercisable. Had compensation cost for these options been determined using the
Black-Scholes option-pricing model described in FASB Statement 123, the Company
would have recorded aggregate compensation expense of approximately $973,000
in 1997 and $1,840,839 in 1996 which would be expensed over the option's
vesting period. The assumptions used in the option-pricing model include a
risk-free interest rate of 5.2%-6.0%, expected life of 3 years and expected
volatility of 48.85%-59.46%. Dividends are assumed to be zero. The pro forma
impact of following the provisions of FASB Statement No. 123 on the Company's
net income (loss) and net income (loss) per share would be as follows:
F-25
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) (1995 reflects pro
forma net income) - as reported $5,425 $3,707 $(21,081)
====== ====== =========
- pro forma $5,351 $3,281 $(21,914)
====== ====== =========
Basic net income (loss) per share
(1995 reflects pro forma net income
per share) - as reported $ .43 $ .27 $(1.53)
======== ======== =======
- pro forma $ .43 $ .24 $(1.59)
======== ======== =======
Diluted net income (loss) per share
(1995 reflects pro forma net income
per share) - as reported $ .43 $ .27 $(1.53)
======== ======== =======
- pro forma $ .43 $ .24 $(1.59)
======== ======== =======
</TABLE>
9. MANAGEMENT'S PLANS
During the year ended December 31, 1997, the Company incurred a loss
of $21,081,000 attributable primarily to increased material costs relating to:
incremental freight costs incurred during the integration of the Company's
Chicago, Harrisonville and Edison facilities; manufacturing inefficiencies
caused by a high level of production line change-overs to meet increased
customer demands and short production runs during the start-up and validation
of new production line capacity; the write-down of raw materials and finished
goods inventory associated with discontinued product and sales of close-out
products; and increased levels of unabsorbed material waste variances related
to these plant integration issues. There were significant additional costs for
underabsorbed overhead and increased levels of warehousing and distribution
associated with plant assimilation. Further, the Company significantly
increased co-op advertising and other customer marketing expenses as it
increased sales to grocery wholesalers and supermarket chains. As a result of
the losses incurred through December 31, 1997, the Company has experienced
difficulty in meeting its liquidity needs. The Company requires the
availability of sufficient cash flow and borrowing capacity to finance its
operations, meet its debt service obligations and fund future capital
expenditure requirements. The Company's operating plan for 1998 contemplates
continuing its cost reduction programs. The Company must attain profitability
and/or obtain additional sources of financing in order to meet its anticipated
trade payables and other commitments, including the payment of the $35 million
of debt postponed to January 4, 1999 under the February 1998 PNC Facility.
Management is optimistic about its ability to obtain additional sources
F-26
<PAGE>
of financing which will more adequately support ongoing operations, debt
service and capital expenditure requirements. There can be no assurance that
the Company will be successful in obtaining additional sources of financing or
that PNC will continue to cooperate and further extend any portion of amounts
owed to them should the Company be unable to obtain alternate financing.
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
USA DETERGENTS, INC.
Dated: March 31, 1998 By: /s/ Uri Evan
-----------------------------
Name: Uri Evan
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Uri Evan Chief Executive Officer and Chairman of March 31, 1998
- ------------------------------------ the Board of Directors, President
Uri Evan
/s/ Richard D. Coslow Chief Financial Officer (Principal March 31, 1998
- ------------------------------------ Financial Officer and Principal
Richard D. Coslow Accounting Officer)
/s/ Daniel Bergman Director March 31, 1998
- ------------------------------------
Daniel Bergman
/s/ Frederick R. Adler Director March 31, 1998
- ------------------------------------
Frederick R. Adler
/s/ Richard A. Mandell Director March 31, 1998
- ------------------------------------
Richard A. Mandell
</TABLE>
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (000'S)
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
----------- BEGINNING CHARGED ---------- END OF PERIOD
OF PERIOD TO PROFIT -------------
---------- AND LOSS (A)
---------- ---
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C>
Year ended December 31, 1995 $84 $421 $229 $276
Year ended December 31, 1996 $276 $1,421 $348 $1,349
Year ended December 31, 1997 $1,349 $475 $957 $867
</TABLE>
(A) Represents write-offs of uncollectible accounts receivable.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 Certificate of Incorporation.(1)
3.2 Amended and Restated By-Laws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and By-Laws of the Registrant defining the rights
of holders of Common Stock of the Registrant.(1)
4.2 Specimen Common Stock Certificate.(1)
4.3 Form of Registration Rights Agreements between the Registrant,
Frederick R. Adler and Blair Effron.(1)
10.1 Lease Agreement dated January 15, 1993 between Maurice M. Weill,
Trustee for GEEMAC Property, and the Registrant.(1)
10.2 Supply Agreement dated November 29, 1994 between Owens-Illinois
Plastic Products Inc., Owens-Illinois Closure Inc. and the
Registrant.(1)
10.3 Amendment No. 1 dated December 1995 to Supply Agreement, dated
November 29, 1994, between Owens-Illinois Plastic Products Inc.,
Owens-Illinois Plastic Products Inc., Owens-Illinois Closure Inc.
and the Registrant.(2) (confidentiality note)*
10.4 Amended and Restated Employment Agreement with Uri Evan dated
January 1996.(2)**
10.5 Employment Agreement for each of Joseph Cohen, Frederick J.
Horowitz, Daniel Bergman, and Mark Antebi.(1)**
10.6 Forms of Employment Agreement for each of Frank Corella and
Harold J. Macsata.(1)**
10.7 Loan Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant.(1)
10.8 Reimbursement Agreement dated April 15, 1993 between Banque
Nationale de Paris, Houston Agency and the Registrant.(1)
10.9 Security Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant.(1)
10.10 Amended and Restated Loan Agreement dated February 25, 1998
between PNC Bank, N.A. and the Registrant.
10.11 1995 Stock Option Plan.(1)**
10.12 Stock Option Plan for Non-Employee Directors.(1)**
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.13 Form of Directors and Officers Indemnity Agreement.(1)
10.14 Lease Agreement dated January 26, 1996 between M&E Co. and the
Registrant.(2)
10.15 Purchase and Sale Agreement dated January 22, 1997 between The
Okonite Company, Inc. and the Registrant.(3)
10.16 Letter Agreement dated May 5, 1997 between the Registrant and
Harold J. Macsata.(4)
10.17 Letter Agreement dated April 14, 1997 between the Registrant and
Mark Antebi.(4)
10.18 Letter Agreement dated April 14, 1997 between the Registrant and
Joseph Cohen.(4)
10.19 Employment Agreement dated March 26, 1997 between the Registrant
and Richard D. Coslow.(4)**
10.20 Employment Agreement, dated July 31, 1997 between the Registrant
and Guilio Perillo.(4)**
10.21 Stock Purchase Agreement dated June 30, 1997 between the
Registrant, Big Cloud Powder Corporation and Chicago Contract
Powder Corporation.(4)
10.22 Warrant dated February 25, 1998 issued by the Registrant to PNC
Bank, N.A.
10.23 Mortgage and Security Agreement dated February 25, 1998 between
the Registrant and PNC Bank, N.A.
10.24 Letter Agreement dated February 25, 1998 between the Registrant
and 101 Realty Associates, L.L.C.
10.25 Mortgage and Security Agreement dated February 25, 1998 between
the Registrant and 101 Realty Associates, L.L.C.
10.26 Warrant dated December 26, 1997 issued by the registrant to
Frederick R. Adler
10.27 Agreement dated December 26, 1997 between Frederick R. Adler and
the Registrant.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K:
None.
- --------------------------
* Confidentiality Requested, confidential portions have been omitted and
filed separately with the Commission, as required by Rule 406(b) of the
Securities Act of 1933.
** Management contract, or compensatory plan or arrangement.
1. Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 33-93488), which exhibit is incorporated herein by
reference.
2. Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-1386), which exhibit is incorporated herein by
reference.
3. Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, which exhibit is incorporated
herein by reference.
4. Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, which exhibit is incorporated
herein by reference.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
USA DETERGENTS, INC.
As Amended on January 19, 1998
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle, and the name of its registered agent shall be The
Corporation Trust Company.
SECTION 1.02. Other Offices. The corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Place of Meeting. All meetings of stockholders
for the election of directors shall be held at such place, either within or
without the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
SECTION 2.02. Annual Meeting. The annual meeting of
stockholders shall be held at such date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of the
meeting.
SECTION 2.03. Voting List. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
<PAGE>
SECTION 2.04. Special Meeting. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Chairman
of the Board or by the President of the corporation or by the Board of
Directors or by written order of a majority of the directors and shall be
called by the President or the Secretary at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purposes of the proposed meeting. The Chairman of the Board or the
President of the corporation or directors so calling, or the stockholders so
requesting, any such meeting shall fix the time and any place, either within
or without the State of Delaware, as the place for holding such meeting.
SECTION 2.05. Notice of Meeting. Written notice of the annual,
and each special meeting of stockholders, stating the time, place, and purpose
or purposes thereof, shall be given to each stockholder entitled to vote
thereat, not less than 10 nor more than 60 days before the meeting.
SECTION 2.06. Quorum. The holders of a majority of the shares
of the corporation's capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
at any meeting of stockholders for the transaction of business, except as
otherwise provided by statute or by the Certificate of Incorporation.
Notwithstanding the other provisions of the Certificate of Incorporation or
these bylaws, the holders of a majority of the shares of the corporation's
capital stock entitled to vote thereat, present in person or represented by
proxy, whether or not a quorum is present, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 2.07. Voting. When a quorum is present at any meeting
of the stockholders, the vote of the holders of a majority of the shares of
the corporation's capital stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes,
of the Certificate of Incorporation or of these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Every stockholder having the right to vote shall be
entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder, bearing a date not more than three years prior
to voting, unless such instrument provides for a longer period, and filed with
the Secretary of the corporation before, or at the time of, the meeting. If
such instrument shall designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby
conferred, or if only one be present, then such powers may be exercised by
that one; or, if an even number attend and a majority do not agree on any
particular issue, each proxy so attending shall be entitled to exercise such
powers in respect of the same portion of the shares as he is of the proxies
representing such shares.
-2-
<PAGE>
SECTION 2.08. Consent of Stockholders. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action by any provision of the statutes, the
meeting and vote of stockholders may be dispensed with if all the stockholders
who would have been entitled to vote upon the action if such meeting were held
shall consent in writing to such corporate action being taken; or on the
written consent of the holders of shares of the corporation's capital stock
having not less than the minimum percentage of the vote required by statute
for the proposed corporate action, and provided that prompt notice must be
given to all stockholders of the taking of corporate action without a meeting
and by less than unanimous written consent.
SECTION 2.09. Voting of Stock of Certain Holders. Shares of
the corporation's capital stock standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent, or proxy as the
bylaws of such corporation may prescribe, or in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares standing
in the name of a deceased person may be voted by the executor or administrator
of such deceased person, either in person or by proxy. Shares standing in the
name of a guardian, conservator, or trustee may be voted by such fiduciary,
either in person or by proxy, but no such fiduciary shall be entitled to vote
shares held in such fiduciary capacity without a transfer of such shares into
the name of such fiduciary. Shares standing in the name of a receiver may be
voted by such receiver. A stockholder whose shares are pledged shall be
entitled to vote such shares, unless in the transfer by the pledgor on the
books of the corporation, he has expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent the stock
and vote thereon.
SECTION 2.10. Treasury Stock. The corporation shall not vote,
directly or indirectly, shares of its own capital stock owned by it; and such
shares shall not be counted in determining the total number of outstanding
shares of the corporation's capital stock.
SECTION 2.11. Fixing Record Date. The Board of Directors may
fix in advance a date, which shall not be more than 60 days nor less than 10
days preceding the date of any meeting of stockholders, nor more than 60 days
preceding the date for payment of any dividend or distribution, or the date
for the allotment of rights, or the date when any change, or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining a consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed, shall be
entitled to such notice of, and to vote at, any such meeting and any
adjournment thereof, or to receive payment of such dividend or distribution,
or to receive such allotment of rights, or to exercise such rights, or to give
such consent, as the case may be, notwithstanding any transfer of any stock on
the books of the corporation after any such record date fixed as aforesaid.
-3-
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. Powers. The business and affairs of the
corporation shall be managed by its Board of Directors, which may exercise all
such powers of the corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
SECTION 3.02. Number, Election and Term. The number of
directors that shall constitute the whole Board of Directors shall be not less
than one. Such number of directors shall from time to time be fixed and
determined by the directors and shall be set forth in the notice of any
meeting of stockholders held for the purpose of electing directors. The
directors shall be elected at the annual meeting of stockholders, except as
provided in Section 3.03, and each director elected shall hold office until
his successor shall be elected and shall qualify. Directors need not be
residents of Delaware or stockholders of the corporation.
SECTION 3.03. Vacancies, Additional Directors, and Removal
From Office. If any vacancy occurs in the Board of Directors caused by death,
resignation, retirement, disqualification, or removal from office of any
director, or otherwise, or if any new directorship is created by an increase
in the authorized number of directors, a majority of the directors then in
office, though less than a quorum, or a sole remaining director, may choose a
successor or fill the newly created directorship; and a director so chosen
shall hold office until the next election and until his successor shall be
duly elected and shall qualify, unless sooner displaced. Any director may be
removed either for or without cause at any special meeting of stockholders
duly called and held for such purpose.
SECTION 3.04. Regular Meeting. A regular meeting of the Board
of Directors shall be held each year, without other notice than this bylaw, at
the place of, and immediately following, the annual meeting of stockholders;
and other regular meetings of the Board of Directors shall be held each year,
at such time and place as the Board of Directors may provide, by resolution,
either within or without the State of Delaware, without other notice than such
resolution.
SECTION 3.05. Special Meeting. A special meeting of the Board
of Directors may be called by the Chairman of the Board of Directors or by the
President of the corporation and shall be called by the Secretary on the
written request of any two directors. The Chairman or President so calling, or
the directors so requesting, any such meeting shall fix the time and any
place, either within or without the State of Delaware, as the place for
holding such meeting.
SECTION 3.06. Notice of Special Meeting. Written notice of
special meetings of the Board of Directors shall be given to each director at
least 48 hours prior to the time of such meeting. Any director may waive
notice of any meeting. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any special meeting of the
-4-
<PAGE>
Board of Directors need be specified in the notice or waiver of notice of such
meeting, except that notice shall be given of any proposed amendment to the
bylaws if it is to be adopted at any special meeting or with respect to any
other matter where notice is required by statute.
SECTION 3.07. Quorum. A majority of the Board of Directors
shall constitute a quorum for the transaction of business at any meeting of
the Board of Directors, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute, by the
Certificate of Incorporation or by these bylaws. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 3.08. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof as provided in Article IV of these bylaws, may be
taken without a meeting, if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
SECTION 3.09. Compensation. Directors, as such, shall not be
entitled to any stated salary for their services unless voted by the
stockholders or the Board of Directors; but by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors or any
meeting of a committee of directors. No provision of these bylaws shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEE OF DIRECTORS
SECTION 4.01. Designation, Powers and Name. The Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate one or more committees, including, if they shall so
determine, an Executive Committee, each such committee to consist of two or
more of the directors of the corporation. The committee shall have and may
exercise such of the powers of the Board of Directors in the management of the
business and affairs of the corporation as may be provided in such resolution.
The committee may authorize the seal of the corporation to be affixed to all
papers that may require it. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. Such committee or committees shall have
such name or names and such limitations of authority as may be determined from
time to time by resolution adopted by the Board of Directors.
-5-
<PAGE>
SECTION 4.02. Minutes. Each committee of directors shall keep
regular minutes of its proceedings and report the same to the Board of
Directors when required.
SECTION 4.03. Compensation. Members of special or standing
committees may be allowed compensation for attending committee meetings, if
the Board of Directors shall so determine.
ARTICLE V
NOTICE
SECTION 5.01. Methods of Giving Notice. Whenever under the
provisions of applicable statutes, the Certificate of Incorporation or these
bylaws, notice is required to be given to any director, member of any
committee, or stockholder, such notice shall be in writing and delivered
personally or mailed to such director, member, or stockholder; provided that
in the case of a director or a member of any committee such notice may be
given orally or by telephone or facsimile. If mailed, notice to a director,
member of a committee, or stockholder shall be deemed to be given when
deposited in the United States mail first class in a sealed envelope, with
postage thereon prepaid, addressed, in the case of a stockholder, to the
stockholder at the stockholder's address as it appears on the records of the
corporation or, in the case of a director or a member of a committee, to such
person at his business address. If sent by facsimile, notice to a director or
member of a committee shall be deemed to be given when such notice is sent.
SECTION 5.02. Written Waiver. Whenever any notice is required
to be given under the provisions of an applicable statute, the Certificate of
Incorporation, or these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.01. Officers. The officers of the corporation shall
be a Chairman of the Board and a Vice Chairman of the Board (if such offices
are created by the Board), a President, one or more Vice Presidents, any one
or more of which may be designated Executive Vice President or Senior Vice
President, a Secretary and a Treasurer. The Board of Directors may appoint
such other officers and agents, including Assistant Vice Presidents, Assistant
Secretaries, and Assistant Treasurers, in each case as the Board of Directors
shall deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined by the
Board. Any two or more offices may be held by the same person. No officer
shall execute, acknowledge, verify or countersign any instrument on behalf of
the corporation in more than one capacity, if such instrument is required by
law, by these bylaws or by any act of the corporation to be executed,
acknowledged, verified, or countersigned by two or more officers. The Chairman
and Vice Chairman of the Board shall be elected from among the directors. With
the foregoing exceptions, none of the other officers need be a director, and
none of the officers need be a stockholder of the corporation.
-6-
<PAGE>
SECTION 6.02. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each officer shall hold office until his
successor shall have been chosen and shall have qualified or until his death
or the effective date of his resignation or removal, or until he shall cease
to be a director in the case of the Chairman and the Vice Chairman.
SECTION 6.03. Removal and Resignation. Any officer or agent
elected or appointed by the Board of Directors may be removed without cause by
the affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 6.04. Vacancies. Any vacancy occurring in any office
of the corporation by death, resignation, removal, or otherwise, may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 6.05. Salaries. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors or pursuant
to its direction; and no officer shall be prevented from receiving such salary
by reason of his also being a director.
SECTION 6.06. Chairman of the Board. The Chairman of the Board
(if such office is created by the Board) shall preside at all meetings of the
Board of Directors or of the stockholders of the corporation. The Chairman
shall formulate and submit to the Board of Directors or the Executive
Committee matters of general policy for the corporation and shall perform such
other duties as usually appertain to the office or as may be prescribed by the
Board of Directors or the Executive Committee.
SECTION 6.07. Vice Chairman of the Board. The Vice Chairman of
the Board (if such office is created by the Board) shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board. The Vice Chairman shall perform such
other duties as from time to time may be prescribed by the Board of Directors
or the Executive Committee or assigned by the Chairman of the Board.
SECTION 6.08. President. The President shall be the chief
executive officer of the corporation and, subject to the control of the Board
of Directors, shall in general supervise and control the business and affairs
of the corporation. In the absence of the Chairman of the Board or the Vice
Chairman of the Board (if such offices are created by the Board), the
President shall preside at all meetings of the Board of Directors and of the
stockholders. He may also preside at any such meeting attended by the Chairman
or Vice Chairman of the Board if he is so designated by the Chairman, or in
the Chairman's absence by the Vice Chairman. He shall have the power to
appoint and remove subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors. The President shall keep the
Board of Directors and the Executive Committee fully informed and shall
consult them concerning the business of the corporation. He may sign with the
Secretary or any
-7-
<PAGE>
other officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation and any deeds, bonds,
mortgages, contracts, checks, notes, drafts, or other instruments that the
Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof has been expressly delegated by these bylaws or
by the Board of Directors to some other officer or agent of the corporation,
or shall be required by law to be otherwise executed. He shall vote, or give a
proxy to any other officer of the corporation to vote, all shares of stock of
any other corporation standing in the name of the corporation and in general
he shall perform all other duties normally incident to the office of President
and such other duties as may be prescribed by the stockholders, the Board of
Directors, or the Executive Committee from time to time.
SECTION 6.09. Vice Presidents. In the absence of the
President, or in the event of his inability or refusal to act, the Executive
Vice President (or in the event there shall be no Vice President designated
Executive Vice President, any Vice President designated by the Board) shall
perform the duties and exercise the powers of the President. Any Vice
President may sign, with the Secretary or Assistant Secretary, certificates
for shares of the corporation. The Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President, the
Board of Directors or the Executive Committee.
SECTION 6.10. Secretary. The Secretary shall (a) keep the
minutes of the meetings of the stockholders, the Board of Directors and
committees of directors; (b) see that all notices are duly given in accordance
with the provisions of these bylaws and as required by law; (c) be custodian
of the corporate records and of the seal of the corporation, and see that the
seal of the corporation or a facsimile thereof is affixed to all certificates
for shares prior to the issue thereof and to all documents, the execution of
which on behalf of the corporation under its seal is duly authorized in
accordance with the provisions of these bylaws; (d) keep or cause to be kept a
register of the post office address of each stockholder which shall be
furnished by such stockholder; (e) sign with the President, or an Executive
Vice President or Vice President, certificates for shares of the corporation,
the issue of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general, perform all duties normally incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the President, the Board of Directors or the Executive Committee.
SECTION 6.11. Treasurer. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine. He shall (a) have charge and custody of and be responsible
for all funds and securities of the corporation; (b) receive and give receipts
for moneys due and payable to the corporation from any source whatsoever and
deposit all such moneys in the name of the corporation in such banks, trust
companies, or other depositories as shall be selected in accordance with the
provisions of Section 7.03 of these bylaws; (c) prepare, or cause to be
prepared, for submission at each regular meeting of the Board of Directors, at
each annual meeting of the stockholders, and at such other times as may be
required by the Board of Directors, the President or the Executive Committee,
a statement of financial condition of the corporation in such detail as may be
required; and (d) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the President, the Board of Directors or the Executive Committee.
-8-
<PAGE>
SECTION 6.12. Assistant Secretary and Treasurer. The Assistant
Secretaries and Assistant Treasurers shall, in general, perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the President, the Board of Directors, or the Executive Committee. The
Assistant Secretaries and Assistant Treasurers shall, in the absence of the
Secretary or Treasurer, respectively, perform all functions and duties which
such absent officers may delegate, but such delegation shall not relieve the
absent officer from the responsibilities and liabilities of his office. The
Assistant Secretaries may sign, with the President or a Vice President,
certificates for shares of the corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.01. Contracts. Subject to the provisions of Section
6.01, the Board of Directors may authorize any officer, officers, agent, or
agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authority may be
general or confined to specific instances.
SECTION 7.02. Checks. All checks, demands, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the corporation, shall be signed by such officer or
officers or such agent or agents of the corporation, and in such manner, as
shall be determined by the Board of Directors.
SECTION 7.03. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies, or other depositories as the Board
of Directors may select.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 8.01. Issuance. Each stockholder of this corporation
shall be entitled to a certificate or certificates showing the number of
shares of capital stock registered in his name on the books of the
corporation. The certificates shall be in such form as may be determined by
the Board of Directors, shall be issued in numerical order and shall be
entered in the books of the corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the President or
a Vice President and by the Secretary or an Assistant Secretary. If any
certificate is countersigned (1) by a transfer agent other than the
corporation or any employee of the corporation, or (2) by a registrar other
than the corporation or any employee of the corporation, any other signature
on the certificate may be a facsimile. If the corporation shall be authorized
to issue more than one class of stock or more than one series of any class,
the designations, preferences, and relative participating, optional, or other
special rights of each class of stock or series thereof and the
qualifications, limitations, or restrictions of such preferences and rights
shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class of
stock; provided that, except as otherwise provided by statute, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or
series
-9-
<PAGE>
of stock, a statement that the corporation will furnish to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences and
rights. All certificates surrendered to the corporation for transfer shall be
canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in the case of a lost, stolen, destroyed, or mutilated certificate a new
one may be issued therefor upon such terms and with such indemnity, if any, to
the corporation as the Board of Directors may prescribe. Certificates shall
not be issued representing fractional shares of stock.
SECTION 8.02. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require (1) the owner of such lost, stolen, or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require, (2) such owner to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate or
certificates alleged to have been lost, stolen, or destroyed, or (3) both.
SECTION 8.03. Transfers. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books. Transfers of shares shall be made only
on the books of the corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney and filed with the
Secretary of the corporation or the Transfer Agent.
SECTION 8.04. Registered Stockholders. The corporation shall
be entitled to treat the holder of record of any share or shares of the
corporation's capital stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
ARTICLE IX
DIVIDENDS
SECTION 9.01. Declaration. Dividends with respect to the
shares of the corporation's capital stock, subject to the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to applicable law.
Dividends may be paid in cash, in property, or in shares of capital stock,
subject to the provisions of the Certificate of Incorporation.
-10-
<PAGE>
SECTION 9.02. Reserve. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interest of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Third Party Actions. The corporation shall
indemnify any director or officer of the corporation, and may indemnify any
other person, who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 10.02. Actions by or in the Right of the Corporation.
The corporation shall indemnify any director or officer and may indemnify any
other person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue,
or matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Chancery or such other court shall
deem proper.
-11-
<PAGE>
SECTION 10.03. Mandatory Indemnification. To the extent that a
director, officer, employee, or agent of the corporation has been successful
on the merits or otherwise in defense of any action, suit, or proceeding
referred to in Sections 10.01 and 10.02, or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
SECTION 10.04. Determination of Conduct. The determination
that a director, officer, employee, or agent has met the applicable standard
of conduct set forth in Sections 10.01 and 10.02 (unless indemnification is
ordered by a court) shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit, or proceeding, or (2) if such quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
SECTION 10.05. Payment of Expenses in Advance. Expenses
incurred in defending a civil or criminal action, suit, or proceeding shall be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee, or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article X.
SECTION 10.06. Indemnity Not Exclusive. The indemnification
and advancement of expenses provided or granted hereunder shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Certificate of
Incorporation, any other bylaw, agreement, vote of stockholders, or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
SECTION 10.07. Definitions. For purposes of this Article X:
(a) "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
that, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer,
employee, or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, shall stand in the same position
under this Article X with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued;
(b) "other enterprises" shall include employee benefit plans;
(c) "fines" shall include any excise taxes assessed on a
person with respect to any employee benefit plan;
-12-
<PAGE>
(d) "serving at the request of the corporation" shall include
any service as a director, officer, employee, or agent of the
corporation that imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants or beneficiaries; and
(e) a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article X.
SECTION 10.08. Continuation of Indemnity. The indemnification
and advancement of expenses provided or granted hereunder shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Seal. The corporate seal, if one is authorized
by the Board of Directors, shall have inscribed thereon the name of the
corporation, and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
SECTION 11.02. Books. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at the offices of the corporation in North Brunswick, New Jersey, or
at such other place or places as may be designated from time to time by the
Board of Directors.
ARTICLE XII
AMENDMENT
These bylaws may be altered, amended, or repealed by a
majority of the number of directors then constituting the Board of Directors
at any regular meeting of the Board of Directors without prior notice, or at
any special meeting of the Board of Directors if notice of such alteration,
amendment, or repeal be contained in the notice of such special meeting.
-13-
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BETWEEN
PNC BANK, NATIONAL ASSOCIATION
AND
USA DETERGENTS, INC.
FEBRUARY 25, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS...................................................................................2
2. CREDIT FACILITIES.............................................................................7
2.1 Revolving Loan............................................................................7
2.2 Capital Expenditure Facility..............................................................9
2.3 Bridge Loan...............................................................................10
2.4 Additional Provisions Re: Interest, Fees and
Payments on All Loans..................................................................11
3. SECURITY INTEREST.............................................................................12
3.1 Grant of Security Interests...............................................................12
3.2 Further Assurances........................................................................13
3.3 Release of Mortgage Lien..................................................................13
4. REPRESENTATIONS AND WARRANTIES................................................................14
4.1 Organization and Qualification............................................................14
4.2 Due Authorization; No Default.............................................................14
4.3 No Governmental Consent Necessary.........................................................15
4.4 No Proceedings............................................................................15
4.5 Financial Statements......................................................................15
4.6 No Change in Financial Condition; Solvency................................................15
4.7 Compliance With Laws......................................................................15
4.8 No Other Violations.......................................................................16
4.9 Taxes and Assessments.....................................................................16
4.10 Accounts.................................................................................16
4.11 Inventory................................................................................16
4.12 Books and Records........................................................................16
4.13 Location of Collateral...................................................................16
4.14 Places of Business.......................................................................16
4.15 Other Name or Entities...................................................................16
4.16 Title and Liens..........................................................................16
4.17 ERISA....................................................................................17
4.18 O.S.H.A..................................................................................17
4.19 Environmental Matters....................................................................17
4.20 Prohibited Business Activities...........................................................18
4.21 Margin Stock.............................................................................19
4.22 Representations and Warranties True, Accurate
and Complete............................................................................19
<PAGE>
5. AFFIRMATIVE COVENANTS.........................................................................19
5.1 Maintenance of Existence and Qualifications...............................................19
5.2 Payment of Taxes and Other Obligations....................................................19
5.3 Maintenance of Properties.................................................................19
5.4 Notice of Adverse Events..................................................................19
5.5 Information and Documents to be Furnished to Lender.......................................20
5.6 Access to Records and Property............................................................22
5.7 Insurance.................................................................................22
5.8 Condition of Collateral; No Liens.........................................................23
5.9 Records...................................................................................23
5.10 Delivery of Documents....................................................................23
5.11 United States Contracts..................................................................23
5.12 Further Assurances.......................................................................23
5.13 Operating Accounts.......................................................................23
5.14 Related Entities.........................................................................23
5.15 Environmental Site Assessments...........................................................23
5.16 Additional Documents.....................................................................24
5.17 Undertaking to Prepay Bridge Note........................................................24
6. NEGATIVE COVENANTS............................................................................24
6.1 No Consolidation, Merger, Acquisition, Liquidation........................................24
6.2 Disposition of Assets or Collateral.......................................................24
6.3 Other Liens...............................................................................24
6.4 Other Liabilities.........................................................................25
6.5 Loans.....................................................................................25
6.6 Investments...............................................................................25
6.7 Guaranties; Contingent Liabilities........................................................25
6.8 Dividends and Other Distributions.........................................................25
6.9 Transactions with Affiliates..............................................................26
6.10 Sale of Inventory........................................................................26
6.11 Removal of Collateral....................................................................26
6.12 Transfer of Notes or Accounts............................................................26
6.13 Settlements..............................................................................26
6.14 Modification of Governing Documents......................................................26
6.15 Change Business..........................................................................26
6.16 Change of Location or Name...............................................................26
6.17 Change of Accounting Practices...........................................................26
6.18 Inconsistent Agreement...................................................................26
6.19 Current Ratio............................................................................27
ii
<PAGE>
7. CONDITIONS TO MAKING EXTENSIONS OF CREDIT.....................................................27
7.1 Initial Extension of Credit...............................................................27
7.2 Conditions to All Advances................................................................29
8. ADDITIONAL POWERS OF LENDER...................................................................30
8.1 Powers of Attorney........................................................................30
8.2 Irrevocability; Lender's Discretion.......................................................31
9. EVENTS OF DEFAULT.............................................................................32
9.1 Failure to Pay............................................................................32
9.2 Failure to Perform........................................................................32
9.3 Cross Default; Default on Other Debt......................................................32
9.4 False Representation or Warranty..........................................................32
9.5 Cessation of Business.....................................................................32
9.6 Change in Condition.......................................................................32
9.7 Change in Management......................................................................33
9.8 Liquidation or Dissolution................................................................33
9.9 Inability to Pay Debts....................................................................33
9.10 Bankruptcy; Insolvency...................................................................33
9.11 Judgments................................................................................33
9.12 Attachment...............................................................................33
9.13 Condemnation.............................................................................33
9.14 ERISA....................................................................................33
9.15 Guaranty.................................................................................34
10. REMEDIES......................................................................................34
10.1 Rights in General........................................................................34
10.2 Specific Rights Regarding Collateral.....................................................34
10.3 Set-Off..................................................................................36
10.4 Cumulative Remedies; No Waiver by Lender.................................................36
10.5 Waivers and Agreements Relating to Remedies..............................................36
11. ADDITIONAL WAIVERS AND CONSENTS OF BORROWER...................................................37
11.1 Waivers..................................................................................37
11.2 Consents.................................................................................37
11.3 Applications of Payments.................................................................37
11.4 Tax Refunds..............................................................................37
iii
<PAGE>
12. TERMINATION OF AGREEMENT......................................................................37
12.1 Termination Charge.......................................................................37
12.2 Rights upon Termination..................................................................38
12.3 Release..................................................................................38
13. COSTS, EXPENSES AND TAXES.....................................................................38
14. INDEMNIFICATION BY BORROWER/WAIVER OF CLAIMS..................................................39
14.1 Indemnification..........................................................................39
14.2 Waiver of Claims.........................................................................39
14.3 Claims Procedure.........................................................................40
15. MISCELLANEOUS.................................................................................40
15.1 Entire Agreement; Amendments; Lender's Consent...........................................40
15.2 Notices..................................................................................40
15.3 Gender...................................................................................41
15.4 Joint Borrowers..........................................................................41
15.5 Maintaining Accounts Payable.............................................................41
15.6 Cross Default; Cross Collateral..........................................................41
15.7 Binding Effect; Governing Law............................................................42
15.8 Further Assurances.......................................................................42
15.9 Execution in Counterparts................................................................42
15.10 Severability of Provisions..............................................................42
15.11 Table of Contents; Headings.............................................................42
15.12 Exhibits and Schedules..................................................................42
15.13 Further Acknowledgments and Agreements of
Borrower and Lender....................................................................42
15.14 General Limitation on Amount of Liability...............................................43
16. WAIVER OF JURY TRIAL, CONSENT TO JURISDICTION.................................................43
16.1 Waiver of Jury Trial.....................................................................43
16.2 Consent to Jurisdiction; Service of Process..............................................43
17. ACKNOWLEDGMENT OF WAIVERS.....................................................................44
</TABLE>
iv
<PAGE>
This is an AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement") made this 25th day of February, 1998 between PNC BANK, NATIONAL
ASSOCIATION ("Lender"), having offices at Two Tower Center Boulevard, East
Brunswick, New Jersey 08816, and USA DETERGENTS, INC., a corporation organized
under the laws of the State of Delaware ("Borrower"), having its principal
place of business at 1735 Jersey Avenue, North Brunswick, New Jersey 08902.
WITNESSETH
WHEREAS, Borrower and Lender have previously entered into a commercial
lending relationship as evidenced by a Loan Agreement dated December 17, 1996,
as same has or may have been amended or modified from time to time (the
"December 1996 Loan Agreement"), and the Security Agreement dated March 31,
1997, which includes the Bridge Loan as defined in Section 2.3(1) infra (the
"Bridge Loan Agreement"); and
WHEREAS, Borrower acknowledges that certain Events of Default have
occurred and are continuing under the December 1996 Loan Agreement, and the
Bridge Loan Agreement, and in consideration for Borrower entering into and
executing this Agreement (which shall become the operating agreement governing
the terms and conditions relating to the liabilities of Borrower to Lender),
Lender has agreed to waive all Events of Default under the December 1996 Loan
Agreement and the Bridge Loan Agreement existing on the date hereof; and
WHEREAS, Borrower has requested and Lender has agreed to restructure
certain of Borrower's obligations to Lender and extend the time for repayment
of same as hereinafter set forth; and
WHEREAS, in order to secure the payment of the obligations due to
Lender from Borrower, Lender requires a security interest in and to
substantially all assets of Borrower as hereinafter set forth; and
WHEREAS, Borrower has represented to Lender that Borrower is actively
seeking to refinance its obligations to Lender with another lender; and
WHEREAS, Lender is relying upon the representations of Borrower in
entering into this Agreement; and
WHEREAS, the parties hereto seek to memorialize the terms of their
agreements by this writing.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration,
receipt of which is hereby acknowledged, it is agreed as follows:
1. DEFINITIONS
"Account" - all items described in the UCC definition thereof and all
of the following, whether or not so described (in all cases whether now
existing or hereafter created): all
<PAGE>
obligations of any kind at any time due or owing to Borrower and all rights of
Borrower to receive payment or any other consideration (whether classified
under the UCC or the law of any other state as accounts, accounts receivable,
contract rights, chattel paper, General Intangibles, or otherwise) including
without limitation invoices, contract rights, accounts receivable, General
Intangibles, choses-in- action, notes, drafts, acceptances, instruments and all
other debts, obligations and liabilities in whatever form owing to Borrower
from any person, firm, corporation, governmental authority or other entity,
together with all security for any thereof, and all of Borrower's rights to
goods sold (whether delivered, undelivered, in transit or returns), represented
by any thereof, together with all proceeds and products of any of the
foregoing.
"Account Debtor" - as described in the UCC definition thereof,
including, whether or not so described, any Person who is or may become
obligated under or with respect to or upon an Account, General Intangible or
chattel paper.
"Affiliate" - any Person, which directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control
with, any other Person; for the purposes of this definition, "control" when
used with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" - this Amended and Restated Loan and Security Agreement,
all exhibits and schedules hereto and all extensions, renewals, amendments,
modifications, substitutions and replacements hereto and hereof.
"Banking Day" - any day other than a Saturday, Sunday or legal holiday
for banks under the laws of the State wherein the New Jersey office of the
Lender as set forth above is located.
"Borrower" - shall have the meaning ascribed to such term in the
preamble of this Agreement and shall be used throughout this Agreement as
agreed in Section 15.4 of this Agreement.
"Bridge Loan" - as defined in Section 2.3(1).
"Bridge Note" - as defined in Section 2.3(1).
"Capital Expenditure Loan" or "Capital Expenditure Loans" - as defined
in Section 2.2(1).
"Capital Expenditure Note" - as defined in Section 2.2(1).
"Collateral" - all the following, wherever located and whether now
existing or hereafter created or arising and whether now owned or hereafter
acquired by Borrower or Guarantors: (i) the Accounts; (ii) the Inventory; (iii)
the Equipment; (iv) General Intangibles; (v) the premises commonly known as (a)
1607 Anaconda Road, Harrisonville, Missouri (the "Missouri Property") and (b)
1600 U.S. Highway One North, North Brunswick, New Jersey (the "North Brunswick
Property"), both owned by the Borrower; (vi) the unlimited continuing corporate
guarantees of Chicago Management Powder Corp., Big Cloud Powder Corporation and
Chicago Contract
2
<PAGE>
Powder Corporation; (vii) the Warrant (as hereinafter defined); (viii) the
Pledge (as hereinafter defined); (ix) the Post-Closing Collateral (as
hereinafter defined); (x) all documents of title, policies or certificates of
insurance, securities, chattel paper and other documents and instruments
evidencing or pertaining to any thereof; all claims of Borrower against third
parties for loss of or damage to, or otherwise relating to, any of the
Collateral; (xi) all moneys, tax refunds, drafts, notes, items, leases, general
or special deposits, balances, sums, proceeds and credits of Borrower; (xii)
all other property of Borrower; (xiii) all rights and remedies which Borrower
might exercise with respect to any of the foregoing but for the execution of
this Agreement; and (xiv) all accessions and additions to, replacements and
substitutions for, and proceeds and products of, the items described in the
preceding clauses (i) through (xiii).
"Credit Facility" - any loans and other financial accommodations made
available to Borrower at any time pursuant to or encompassed by this Agreement.
"Default Rate" - a rate of interest two (2%) percent per annum in
excess of the then applicable rate.
"Encumbrance" - any security interest, mortgage, charge, claim,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
capitalized lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC) in, upon,
or against Borrower or any asset of Borrower, whether or not voluntarily given.
"Environmental Claim" - any claim, suit, notice, order, demand or
other communication made by any Person, including Borrower, with respect to
Borrower or any of its properties, whether owned or leased, that: (i) asserts a
violation of an Environmental Law; (ii) asserts a liability under an
Environmental Law; (iv) demands information under an Environmental Law; (v)
alleges personal injury or property damage resulting from Hazardous Substances;
or (vi) alleges that there is or may be contamination.
"Environmental Law" - any Governmental Rule concerning protection or
regulation of the discharge of substances into the environment, including but
not limited to those concerning air emissions, water discharges and treatment,
storage tanks, and the handling, generation, treatment, storage and disposal of
waste materials, chemical substances, pollutants, contaminants, toxic
substances, pathogens, radioactive materials or hazardous substances of any
kind, whether solid, liquid or gaseous, including without limitation the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.6901 et seq., the
Federal Water Pollution Control Act, 33 U.S.C. ss.1251 et seq.,; the Clean Air
Act, 42 U.S.C. ss.7401 et seq.; the Hazardous Materials Transportation Act of
1975, 49 U.S.C. ss.ss.1801-1812; the Toxic Substances Control Act, 15 U.S.C.
ss.2601 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss.136 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.300 et seq.;
and each as amended and as now or hereinafter in effect, and their state and
local counterparts or equivalents, including any regulations promulgated
thereunder.
3
<PAGE>
"Equipment" - all items described in the UCC definition thereof and
all of the following, whether or not so described (in all cases whether now
owned or hereafter acquired by Borrower and wherever located): all of
Borrower's equipment, machinery, furniture, fixtures, motor vehicles, parts,
supplies and tools, and all other tangible personal property similar to any of
the foregoing, and all repairs, modifications, alterations, replacements,
additions, controls and operating accessories therefor.
"ERISA" - as defined in Section 4.17.
"Event of Default"- as defined in Section 9.
"Existing Loans" - all of the following: (i) a Revolving Loan of up to
$10,000,000.00 and a Capital Expenditure Loan of up to $20,000,000.00, both
made in accordance with a Loan Agreement between the Borrower and Lender dated
December 17, 1996, as amended; and (ii) a Bridge Loan of $10,000,000.00 made in
accordance with a Security Agreement dated March 31, 1997.
"GAAP" - generally accepted accounting principles in effect in the
United States of America, consistently applied from reporting period to
reporting period.
"General Intangibles" - all items described in the UCC definition
thereof and all of the following whether or not so described, owned by Borrower
or in which Borrower has any right, title or interest, whether now owned or in
existence or hereafter created or acquired, and including, without limitation:
any chose in action, cause of action, business records, deposit account,
invention, design, patent, patent application, trademark, trademark application
(with the exception of an intent to use application), service mark, service
mark application (with the exception of an intent to use application), trade
name, trade name application, trade secret, good-will, copyright, copyright
application, registration, license, franchise, customer list, tax refund claim,
tax refund, computer program, claims under guaranties, security interests,
rights to indemnification or any other intangible property of any kind or
nature (other than an Account).
"Governmental Authority" - any (i) nation, state, government,
jurisdiction or jurisdictional authority (domestic, foreign or international),
any political subdivision thereof, and any governmental, quasi-governmental,
judicial, public, statutory, administrative or regulatory body, agency,
department, bureau, authority, court, commission, board, office,
instrumentality, administrative tribunal or other entity of any of the
foregoing and any official thereof and (ii) any arbitrator, arbitration
tribunal or other non-governmental entity which has jurisdiction over Borrower
as a result of (A) the consent of Borrower or (B) being vested with such
jurisdiction by any Governmental Authority.
"Governmental Rule" - any constitutional provision, law, statute,
code, act, rule, regulation, permit, license, treaty, ordinance, order, writ,
injunction, decree, judgment, guideline, award, standard, directive, decision,
determination, demand or holding of any Governmental Authority, whether in
existence on the date hereof or whether issued, enacted or adopted hereafter,
and any change therein or in the interpretation or application thereof
following the date hereof.
4
<PAGE>
"Guarantor" or "Guarantors" - Chicago Management Powder Corp., Big
Cloud Powder Corporation, Chicago Contract Powder Corporation, Mark Antebi,
Daniel Bergman, Joseph Cohen, Uri Evan and Frederick Horowitz and their
successors and assigns and any other Person who, at any time, shall agree to
guaranty and be a surety for the Obligations. (Mark Antebi, Daniel Bergman,
Joseph Cohen, Uri Evan and Frederick Horowitz are hereinafter sometimes
referred to as the "Individual Guarantors".)
"Inventory" - all items described in the UCC definition thereof and
all of the following, whether or not so described (in all cases whether now
owned or hereafter acquired by Borrower and wherever located): all goods,
merchandise or other personal property held by Borrower for sale or lease or to
be furnished under labels and other devices, names or marks affixed thereto for
purposes of selling or identifying the same or the seller or manufacturer
thereof, and all right, title and interest of Borrower therein and thereto; all
raw materials work or goods in process; and all materials and supplies of any
kind or description used or usable in connection with the manufacture,
packaging, shipping, advertisement, sale or finishing of any of the foregoing,
together with all proceeds and products of any of the foregoing.
"ISRA" - as defined in Section 4.19.
"Loans" - the Revolving Loan, the Capital Expenditure Loan and the
Bridge Loan, as the context may require, when not referred to by their full
titles.
"Maturity Date" - shall mean, in relation to the Bridge Loan (absent
the existence of an Event of Default), January 4, 1999.
"Notes" - the Amended and Restated Secured Revolving Promissory Note,
the Amended and Restated Secured Capital Expenditure Note and the Amended and
Restated Secured Bridge Note, as the context may require, when not referred to
by their full titles.
"Obligations" - all the following: (i) all principal of and interest
on the Revolving Loan, the Capital Expenditure Loan and the Bridge Loan, and
all other sums payable by Borrower or any Related Entity under the terms of
this Agreement or any of the Relevant Documents; (ii) all other indebtedness,
liabilities, obligations and agreements of every kind and nature of Borrower or
any Related Entity to or with Lender or any affiliate of Lender whether
pursuant to this Agreement, any of the Relevant Documents or otherwise, whether
in the form of refinancing, letters of credit, bankers acceptances, interest
rate agreements, hedge or currency contracts, guarantees, loans, interest,
overdrafts charges, fees, expenses or otherwise, whether direct or indirect,
whether acquired outright, conditionally or as collateral security from
another, whether absolute or contingent, joint or several, liquidated or
unliquidated, secured or unsecured, and whether arising by operation of law or
otherwise. (iii) all guarantees of any of Borrower's indebtedness to Lender;
(iv) any participation or interest of Lender or any affiliate of Lender in any
indebtedness, liabilities or agreements of Borrower, any Related Entity or any
such guarantor to or with others; (v) all out-of-pockets costs and expenses
incurred by Lender in connection with this Agreement and the Relevant Documents
at any time, including, but not limited to the expenses and reasonable fees of
Lender's counsel, whether of outside counsel or the allocated cost of Lender's
in-house counsel; (vi) in each case whether now existing or hereafter created,
5
<PAGE>
whether now or hereafter contemplated, and including without limitation any
future advances, renewals, extensions modifications or changes in form of, or
substitutions for, any of the items described in the preceding clauses (i)
through (v).
"Permitted Encumbrance" - any one or combination of the following: (i)
The liens and security interests in the Collateral granted to Lender; (ii)
Liens for taxes, assessments, governmental charges or levies on Borrower or any
of Borrower's properties, but only if such taxes, assessments, governmental
charges or levies (A) are at the time due and payable or if they can thereafter
be paid without penalty or are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which Borrower has created
adequate reserves; or (B) are not pursuant to any Environmental Law; (iii)
Pledges or deposits to secure payment of workers' compensation obligations,
unemployment insurance, deposits or indemnities to secure public or statutory
obligations or for similar purposes; (iv) Mechanics', carriers' workmen's',
repairmen's and other similar statutory liens incurred in the ordinary course
of Borrower's business, so long as the liability secured is not overdue or, if
overdue, is being contested in good faith by appropriate actions or proceedings
diligently conducted with respect to which Borrower has created adequate
reserves or has adequate insurance protection; provided, however, that at no
time may the aggregate amount of such liens exceed $100,000.00; (v)
Encumbrances existing on the date hereof and listed on Schedule 4.16; provided,
however, that the amount of the indebtedness secured by each such encumbrance
shall not exceed the indebtedness secured by such encumbrance existing on the
date hereof; and (vi) with regard to the North Brunswick Property, a second
mortgage lien (the "Second Mortgage") granted by the Borrower to 101 Realty
Associates, a New Jersey limited liability company formed by the Individual
Guarantors to secure the principal sum of $4,000,000.00, and interest thereon,
dated the same date as this Agreement.
"Post-Closing Collateral" - a mortgage on the leasehold estate located
at 6200 West 51st Street, Chicago (Clearing), Illinois (the "Chicago Property")
owned by Chicago Contract Powder Corporation ("Chicago Contract"), which Lender
recognizes requires the consent of the ground lessor, Witco Chemical
Corporation (the "Witco Consent"), and that such mortgage is not effective
until and unless the Witco Consent is obtained.
"Person" - any individual, partnership, corporation, association,
trust, business trust, joint venture, joint stock company, limited liability
company, limited liability partnership, limited partnership, unincorporated
organization or enterprise or Governmental Authority.
"Pledge" - shall mean, collectively, the Pledge of Trademark as
Security and the General Pledge of Trademark as Security delivered by Borrower
to Lender dated the date hereof and all amendments, modifications,
substitutions and replacements thereto and thereof.
"Prime Rate" - the rate of interest announced from time to time by
Lender as its "prime rate" or "prime lending rate," which rate is determined
from time to time by Lender as a means of pricing some loans to its customers
and is neither tied to any external rate of interest or index nor necessarily
reflects the lowest rate of interest actually charged by Lender to any
particular class or category of customers.
6
<PAGE>
"Related Entity" - any corporate subsidiary of Borrower and any
unincorporated association or other Person through which Borrower conducts any
part of its business.
"Relevant Documents" - any and all documents and instruments delivered
to Lender pursuant or incident to this Agreement or any of the Loans (i) by
Borrower or any Related Entity; (ii) by any pledgor or grantor of a lien,
security interest or other right, or (iii) by any Guarantor of any of the
Obligations, including without limitation the guarantees of the Obligations of
Borrower executed by the Guarantors under even date.
"Revolving Loan" or "Revolving Loans" - as defined in Section 2.1(2).
"Revolving Loan Limit" - as defined in Section 2.1(1).
"Revolving Note" - as defined in Section 2.1(1).
"Termination Date" - shall mean, in relation to the Revolving Loan and
the Capital Expenditure Loan (absent the existence of an Event of Default),
January 4, 1999.
"Time Zone" - the time zone wherein the Lender's office set forth on
the first page hereof is listed.
"UCC" - the Uniform Commercial Code as in effect from time to time in
the State wherein Lender's office as set forth on the first page hereof is
located.
"Warrant" - the Common Stock Purchase Warrant delivered by Borrower to
Lender dated the date hereof and all extensions, renewals, amendments,
modifications, substitutions and replacements thereto and thereof.
2. CREDIT FACILITIES
2.1 REVOLVING LOAN
2.1(1) WAIVER OF EXISTING DEFAULTS . Pursuant to the request of
Borrower, Lender hereby waives all Events of Default under the December 1996
Loan Agreement and the Bridge Loan Agreement existing on the date hereof.
Notwithstanding such waiver, Borrower further acknowledges that it is bound by
the terms and provisions contained in this Agreement, and that the Lender has
the right to enforce all of its rights and remedies as set forth in this
Agreement.
2.1(2) AMOUNT AND CERTAIN DEFINITIONS.
MAKING OF LOANS. Lender and Borrower have previously entered
into the December 1996 Loan Agreement pursuant to which Lender has made loans
to Borrower on a revolving loan basis. Borrower hereby agrees and acknowledges
that there is due and owing, on account of the Loans, the aggregate principal
sum of $39,997,983.16 plus accrued and unpaid interest and costs. Lender and
Borrower have agreed to restructure, amend and restate the
7
<PAGE>
December 1996 Loan Agreement as set forth herein. Provided no Event of Default
has occurred or is continuing hereunder, and subject to the terms and
conditions set forth herein, Lender shall, upon the request of Borrower, from
the date hereof through the Termination Date, make Loans to Borrower
("Revolving Loan" or the "Revolving Loans") from time to time on a revolving
loan basis in an aggregate principal amount not in excess at any time
outstanding of Borrower's Revolving Loan Limit of Ten Million ($10,000,000.00)
Dollars. The Revolving Loans shall be evidenced by the Amended and Restated
Secured Revolving Promissory Note, as the same may be renewed, amended,
extended or substituted from time to time (the "Revolving Note") substantially
in the form of Exhibit A annexed to this Agreement. The Revolving Loans shall
be payable in accordance with the terms of this Agreement.
2.1(3) INTEREST RATE. The Revolving Loans shall bear interest
at a fluctuating interest rate per annum equal to the following: (i)
one-quarter (1/4) of one percentage point above Lender's Prime Rate in effect
from time to time, from the date of this Agreement through and including May
31, 1998; (ii) three quarters (3/4) of one percentage point above Lender's
Prime Rate in effect from time to time from June 1, 1998 through and including
August 31, 1998; (iii) one (1) percentage point above Lender's Prime Rate in
the effect from time to time from September 1, 1998 through and including
September 30, 1998; (iv) one and one quarter (1 1/4) percentage points above
Lender's Prime Rate in effect from time to time from October 1, 1998 through
and including October 31, 1998; (v) one and one half (1 1/2) percentage points
above Lender's Prime Rate in effect from time to time from November 1, 1998
through and including November 30, 1998; (vi) two (2) percentage points above
Lender's Prime Rate in effect from time to time from December 1, 1998 through
and including January 4, 1999. Each change in such fluctuating interest rate to
take effect simultaneously with the corresponding change in the Prime Rate,
without notice to Borrower.
2.1(4) REPAYMENT. Interest on the Revolving Loans shall be
due at the end of each calendar month and shall be payable immediately. Any
failure or delay by Lender in presenting invoices for interest payments shall
not discharge or relieve Borrower of the obligation to make such interest
payments. The Revolving Loans plus all accrued and unpaid interest and fees
thereon, shall be payable (x) on the Termination Date, or (y) at such other
time as is provided in Section 10, Section 12 or elsewhere in this Agreement,
whichever of (x) or (y) shall first occur.
2.1(5) DETERMINATION OF BALANCE OF REVOLVING LOANS. In
determining the outstanding balance of the Revolving Loans, (i) domestic checks
received by Lender before Noon in the Time Zone of a Banking Day will be
credited on that Banking Day, and thereafter on the following Banking Day; (ii)
any other form of funds received by Lender will be credited on the Banking Day
when Lender has received notification of collection if before Noon (in the Time
Zone), and thereafter on the following Banking Day; and (iii) all credits shall
be conditioned upon final payment to Lender in cash or solvent credits of the
items giving rise to them and, if any item is not paid, the amount of any
credit given for it shall be charged to the balance of the Revolving Loans
whether or not the item is returned.
2.1(6) MONTHLY AND INTERIM STATEMENTS. Once each month Lender
shall render a statement of account to Borrower showing the current status of
principal, interest and service charges with respect to the Revolving Loans.
The statement of account rendered by Lender shall
8
<PAGE>
be considered correct, accepted by Borrower and conclusively binding upon
Borrower, unless Borrower gives Lender written notice to the contrary within
ten (10) Banking Days after the sending of the statement by Lender. If Borrower
disputes the correctness of Lender's statement, Borrower's notice shall specify
in detail the particulars of its basis for contending that Lender's statement
is incorrect.
2.1(7) ACCOUNT DEFICIENCIES. In the event Borrower's
operating accounts with Lender contain a negative balance at any time, then
Lender shall be deemed to have loaned the amount of such deficiency to
Borrower, pursuant to the terms of this Section 2.1, on Lender's Banking Day
immediately preceding the day on which such deficiency occurs. Nothing
contained herein shall be deemed or construed to: (i) obligate Lender to honor
any items presented to Lender for payment against any account of Borrower in
which a deficiency exists, whether or not it has done so in the past; or (ii)
relieve Borrower of its obligations to pay usual and customary charges of
Lender imposed generally, in addition to the interest accrued as a result of
any Revolving Loan made pursuant to this subsection.
2.2 CAPITAL EXPENDITURE FACILITY
2.2(1) AMOUNT. Pursuant to the terms and conditions of the
December 1996 Loan Agreement, Lender has previously made loans to Borrower for
capital expenditures ("Capital Expenditure Loan" or the "Capital Expenditure
Loans"). Borrower hereby agrees and acknowledges that there is due and owing
the principal sum of Twenty Million ($20,000,000.00) Dollars plus accrued and
unpaid interest under said Capital Expenditure Loans. The Capital Expenditure
Loans shall be evidenced by the Amended and Restated Secured Capital
Expenditure Note, as the same may be renewed, amended, extended or substituted
from time to time (the "Capital Expenditure Note") substantially in the form of
Exhibit B annexed to this Agreement. The Capital Expenditure Loans shall be
payable in accordance with the terms of this Agreement and the Capital
Expenditure Note and secured by the Collateral.
2.2(2) INTEREST RATE. The Capital Expenditure Loans shall
bear interest at a fluctuating interest rate per annum equal to the following:
(i) one-quarter (1/4) of one percentage point above Lender's Prime Rate in
effect from time to time, from the date of this Agreement through and including
May 31, 1998; (ii) three quarters (3/4) of one percentage point above Lender's
Prime Rate in effect from time to time from June 1, 1998 through and including
August 31, 1998; (iii) one (1) percentage point above Lender's Prime Rate in
the effect from time to time from September 1, 1998 through and including
September 30, 1998; (iv) one and one quarter (1 1/4) percentage points above
Lender's Prime Rate in effect from time to time from October 1, 1998 through
and including October 31, 1998; (v) one and one half (1 1/2) percentage points
above Lender's Prime Rate in effect from time to time from November 1, 1998
through and including November 30, 1998; (vi) two (2) percentage points above
Lender's Prime Rate in effect from time to time from December 1, 1998 through
and including January 4, 1999. Each change in such fluctuating interest rate to
take effect simultaneously with the corresponding change in the Prime Rate,
without notice to Borrower.
2.2(3) REPAYMENT. Interest on the Capital Expenditure Loans
shall be due at the end of each calendar month and shall be payable
immediately. Any failure or delay by Lender in
9
<PAGE>
presenting invoices for interest payments shall not discharge or relieve
Borrower of the obligation to make such interest payments. The Capital
Expenditure Loans plus all accrued and unpaid interest and fees thereon shall
be payable (x) on the Termination Date, or (y) at such other time as is
provided in Section 10, Section 12 or elsewhere in this Agreement, whichever of
(x) or (y) shall first occur.
2.3 BRIDGE LOAN
2.3(1) AMOUNT. Lender and Borrower have previously entered
into the Bridge Loan Agreement pursuant to which Lender has made a loan to
Borrower ("Bridge Loan"). Borrower hereby agrees and acknowledges that there is
due and outstanding on the Bridge Loan the principal sum of $10,000,000.00 plus
accrued and unpaid interest and costs. The Bridge Loan shall be evidenced by
the Amended and Restated Secured Bridge Loan Note, as the same may be renewed,
amended, extended or substituted from time to time ("Bridge Note")
substantially in the form of Exhibit C annexed to this Agreement. The Bridge
Loan shall be paid in accordance with the terms of the Bridge Note but shall be
secured by the Collateral and to the extent not inconsistent with the Bridge
Note, governed by the terms of this Agreement.
2.3(2) INTEREST RATE. The Bridge Loan shall bear interest at
a fluctuating interest rate per annum equal to the following: (i) one-quarter
(1/4) of one percentage point above Lender's Prime Rate in effect from time to
time, from the date of this Agreement through and including May 31, 1998; (ii)
three quarters (3/4) of one percentage point above Lender's Prime Rate in
effect from time to time from June 1, 1998 through and including August 31,
1998; (iii) one (1) percentage point above Lender's Prime Rate in the effect
from time to time from September 1, 1998 through and including September 30,
1998; (iv) one and one quarter (1 1/4) percentage points above Lender's Prime
Rate in effect from time to time from October 1, 1998 through and including
October 31, 1998; (v) one and one half (1 1/2) percentage points above Lender's
Prime Rate in effect from time to time from November 1, 1998 through and
including November 30, 1998; (vi) two ( 2) percentage points above Lender's
Prime Rate in effect from time to time from December 1, 1998 through and
including January 4, 1999. Each change in such fluctuating interest rate to
take effect simultaneously with the corresponding change in the Prime Rate,
without notice to Borrower.
2.3(3) REPAYMENT. Interest on the Bridge Loan shall be due at
the end of each calendar month. Any failure or delay by Lender in presenting
invoices for interest payments shall not discharge or relieve Borrower of the
obligation to make such interest payments. The entire outstanding principal
balance of the Bridge Loan, plus all accrued and unpaid interest and fees
thereon, shall be due and payable in full on the Maturity Date. IT IS
UNDERSTOOD AND AGREED THAT LENDER SHALL BE UNDER NO OBLIGATION TO EXTEND THE
MATURITY DATE.
2.3(4) RECEIPT OF PAYMENT. Lender acknowledges that it is in
receipt of the sum of $5,000,000.00, which sum was delivered by the Borrower to
the Lender upon the signing of this Agreement and the Relevant Documents, and
which sum was applied to the outstanding principal sum due and owing under the
Bridge Note.
10
<PAGE>
2.4 ADDITIONAL PROVISIONS RE: INTEREST, FEES AND PAYMENTS ON ALL
LOANS
2.4(1) INTEREST CALCULATION; LAWFUL RATE. Interest on the
Revolving Loan, Capital Expenditure Loan and the Bridge Loan shall be
calculated on a daily basis upon the unpaid principal balance, with each day
representing 1/360th of a year. If the interest rate calculated in accordance
with any provision of this Agreement for any of the Loans would at any time
exceed the maximum permitted by any law then applicable to such Loans, then for
such period as such rate would exceed the maximum permitted by such law (and no
longer), the rate of interest payable on the Loans shall be reduced to the
maximum permitted by such law.
2.4(2) CHARGING PRINCIPAL AND INTEREST PAYMENTS. Lender may,
at its discretion, charge the amount of any payment of principal or interest on
any of the Loans to any checking or loan account of Borrower, deduct such
amount from any future Loan to Borrower or other funds received by Lender
against payment of such amount. Borrower hereby consents to all such charges.
2.4(3) DEFAULT RATE. Upon the occurrence and during the
continuance of any Event of Default hereunder, the Loans shall, at the option
of Lender, bear interest at the Default Rate.
2.4(4) NON-BANKING DAYS. If any payment pursuant to this
Agreement or any of the Relevant Documents shall be stated to be due on a day
other than a Banking Day, such payment may be made on the next succeeding
Banking Day and such extension of time shall be included in computation of the
interest or other payment due.
2.4(5) REIMBURSEMENT OF INCREASED COST TO LENDER. If any law,
regulation or guideline, or change in any law, regulation or guideline or in
the interpretation thereof, or any order or ruling by any Governmental
Authority, or compliance by the Bank with any Governmental Rule of any such
Governmental Authority, shall impose, modify, or deem applicable to Lender any
reserve, capital, special deposit or other requirement or condition in respect
of this Agreement or any of the Loans, which results in an increased cost or
reduced benefit to Lender in maintaining any of the Loans (as determined by
reasonable allocation of the aggregate of such increased costs or reduced
benefits to Lender resulting from such event), then Borrower shall pay to
Lender from time to time, upon demand, additional amounts sufficient to
compensate Lender for such increased costs or reduced benefits. Interest shall
be due and payable on each such amount if not paid within ten (10) days after
the date of such demand until payment in full thereof at the Default Rate. A
certificate setting forth in reasonable detail such increased cost incurred or
reduced benefit realized by Lender as a result of any such event shall be
conclusive as to the amount thereof, absent manifest error.
2.4(6) FEES. Borrower shall pay to Lender a restructure fee
of $50,000.00 upon the execution of this Agreement, which fee shall be deemed
fully earned and non-refundable. The Borrower acknowledges the obligation to
pay all costs, expenses and taxes of Lender referred to in Section 13 herein
("Lender's Costs"). The restructure fee shall be applied to all Lender's Costs
provided however, in the event Lender's Costs are in excess of $50,000.00, the
Borrower shall be
11
<PAGE>
responsible for such excess. In the event Lender's Costs are less than
$50,000.00, the remainder shall be retained by Lender as the restructure fee.
2.4(7) EXISTING LOANS. Borrower hereby acknowledges that:
A. the Existing Loans are due from the Borrower to
Lender without any defense, offset or counterclaim whatsoever;
B. the Existing Loans shall henceforth be governed and
paid pursuant to this Agreement; and
C. all Existing Loans shall be secured by the
Collateral set forth herein.
3. SECURITY INTEREST
3.1 GRANT OF SECURITY INTERESTS. As security for the due and punctual
payment and performance of all of the Obligations, whether pursuant to this
Agreement or otherwise, Borrower hereby pledges, transfers and assigns to
Lender, and grants to Lender security interests in, (a) all of the Collateral
wherever located and whether now existing or hereafter created and whether now
owned or hereafter acquired by Borrower, and (b) all accessions and additions
thereto, replacements and substitutions therefor, and proceeds including,
without limitation, all insurance proceeds and products thereof. The security
interests granted hereby, and all remedies and other rights stated or referred
to in this Agreement or any of the Relevant Documents, shall continue in full
force and effect until full and final payment and performance of the Loans and
all other Obligations under this Agreement and the Relevant Documents.
3.2 FURTHER ASSURANCES. Borrower shall execute and deliver such
financing statements and other documents (in form and substance satisfactory to
Lender) and take such other actions as Lender may reasonably request from time
to time in order to create, perfect or continue the security interests and
other liens provided for by this Agreement under the UCC or other applicable
state or federal law.
3.3 RELEASE OF MORTGAGE LIEN. Provided no scheduled payment default
under Section 9.1 hereof shall have occurred, Lender shall discharge its
mortgage lien on the North Brunswick Property upon receipt by Lender of the
principal sum of Five Million ($5,000,000.00) Dollars and accrued interest
thereon in immediately available funds (which sum is in addition to the payment
received and referred to in Section 2.3(4) above). Provided no Event of Default
shall have occurred, and provided no event which with the passage of time or
giving of notice or both would constitute an Event of Default, the Lender shall
discharge its mortgage lien (i) on the Missouri Property upon its sale to a
bona fide purchaser under an arms length transaction and receipt by Lender of
the sum of Four Million One Hundred Thousand ($4,100,000.00) Dollars in
immediately available funds; and (ii) on the Chicago Property upon its sale to
a bona fide purchaser under an arms length transaction and receipt by Lender of
the net proceeds (as hereinafter defined) derived from such sale in immediately
available funds; the term "net
12
<PAGE>
proceeds" shall mean the sale price minus brokerage commissions, customary
closing adjustments (i.e., taxes, utilities and the like), and reasonable legal
fees and costs related to the sale of the Chicago Property. If a scheduled
payment default under Section 9.1 hereof shall have occurred, the Lender shall
discharge the mortgage on the North Brunswick Property upon Lender's receipt of
(x) the principal amount outstanding under the Bridge Note, plus accrued
interest thereon and all reasonable costs and expenses in connection therewith
(collectively, the "Guaranteed Sum"), plus (y) all proceeds from the
refinancing or sale of the North Brunswick Property to a bona fide purchaser
under an arms length transaction ( or if to the Individual Guarantors, or their
nominee, for an amount and under no less favorable terms than could have been
obtained in an arms length transaction) in excess of the Guaranteed Sum and the
amount required to discharge the Second Mortgage (up to the amount of the third
mortgage lien on the North Brunswick Property held by the Lender), and the
Lender shall retain all of its rights and remedies as set forth in the
mortgages on the Missouri Property and the Chicago Property and shall not
discharge said mortgages until all of the Obligations are paid in full.
Provided no scheduled payment default under Section 9.1 hereof shall
have occurred, any monies received by Lender by virtue of the sale or
refinancing (as the case may be) of the North Brunswick Property shall be
applied to the repayment of the Bridge Loan in full (inclusive of principal,
interest, reasonable legal fees, costs and expenses, if applicable). Provided
no Event of Default shall have occurred and is continuing, any monies received
by Lender by virtue of the sale or refinancing (as the case may be) of the
Missouri Property and/or the Chicago Property shall be applied to the repayment
of the Loans (inclusive of interest, reasonable legal fees, costs and expenses,
if applicable), in the following manner: (i) monies derived from the Missouri
Property shall be applied first to the principal and interest, due as of the
date of payment, on the Capital Expenditure Loan; up to the sum of Four Million
($4,000,000.00) Dollars, with the balance, if any, to the principal of the
Revolving Loan; and (ii) monies derived from the Chicago Property, if any,
shall be applied in such order and to such Loan or Loans as Lender in its sole
discretion shall determine. Anything herein to the contrary notwithstanding,
with respect to any proceeds derived from the Missouri Property which are
applied to the Revolving Loan, the Borrower shall have the right to reborrow
same pursuant to the terms and conditions of this Agreement.
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender, knowing and intending that
Lender will rely thereon in making the Loans contemplated hereby, that the
following statements are true and accurate.
4.1 ORGANIZATION AND QUALIFICATION
4.1(1) Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction stated at the
beginning of this Agreement.
4.1(2) Borrower has the power and authority, and all
necessary licenses or other authorizations, to own its properties and to carry
on its business as now conducted, and is duly
13
<PAGE>
qualified and in good standing in each jurisdiction wherein the nature of the
property owned or used or of the business conducted requires such
qualification, except where the failure to satisfy such requirements would not
have a material adverse effect on the Borrower's operations, financial
condition, or ability to perform under the terms of this Agreement.
4.2 DUE AUTHORIZATION; NO DEFAULT
4.2(1) The execution, delivery and performance by Borrower of
this Agreement, the Notes and the Relevant Documents are within Borrower's
powers, have been duly authorized by all necessary action on the part of
Borrower, and do not and will not (a) violate Borrower's Certificate of
Incorporation or By-Laws, or any Governmental Rule of any Governmental
Authority, (b) constitute a breach of, or default under, any agreement,
undertaking or instrument [upon receipt of appropriate consents from the New
Jersey Economic Development Authority ("NJEDA") and the Banque Nationale De
Paris, Houston agency ("BNP") relative to a Loan Agreement between Borrower and
NJEDA, Trust Indenture by and among the NJEDA and The National Bank, or the
Reimbursement Agreement between Borrower and BNP and related documents, all
dated as of April 15, 1993 (separately, the "NJEDA Consent" and the "BNP
Consent")] to which Borrower is a party or by which it may be affected, or (c)
result in the imposition of any lien, Encumbrance or restriction on any assets
of Borrower.
4.2(2) Borrower has delivered to Lender true and complete
copies of Borrower's resolutions necessary to authorize the transactions
contemplated by this Agreement, and of Borrower's Certificate of Incorporation
and By-Laws, all as in effect on the date hereof and certified by a duly
authorized officer of Borrower.
4.2(3) This Agreement and the Relevant Documents upon their
execution and delivery, and the Notes upon their issuance, will be legal, valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms.
4.3 NO GOVERNMENTAL CONSENT NECESSARY. Except for the NJEDA Consent,
no authorization, approval or other action by, and no notice to or filing with,
any Governmental Authority is required for the due execution, delivery and
performance by Borrower of this Agreement, any of the Notes or any of the
Relevant Documents.
4.4 NO PROCEEDINGS. Except as forth in Schedule 4.4 to this Agreement,
there are no pending or threatened claims, actions, proceedings or
investigations before any Governmental Authority that may, singly or in the
aggregate, have a material adverse effect on (a) the validity or enforceability
of this Agreement, any of the Notes or any of the Relevant Documents, or the
ability of Borrower to perform any of its Obligations, or (b) the financial
condition or the properties or operations of Borrower.
4.5 FINANCIAL STATEMENTS.
4.5(1) Subject to any limitation stated therein, all balance
sheets, income statements and other financial data which have been (as amended,
or hereafter to be amended by
14
<PAGE>
the filing of a 10KA or a 10QA with the Securities and Exchange Commission) or
shall hereafter be furnished to Lender do and will truly and fairly present the
financial condition of Borrower as at the respective dates thereof and the
results of its operations for the periods ended on such dates, in accordance
with GAAP. All other information, reports and other papers and data furnished
to Lender are, or will be at the time the same are so furnished, true, accurate
and complete in all material respects.
4.5(2) Except as shown on the most recent financial
statements set forth on Schedule 4.5 to this Agreement, Borrower has no
liabilities as of the date hereof which would have an adverse effect on the
Collateral or on the financial condition, operations or other properties of
Borrower.
4.6 NO CHANGE IN FINANCIAL CONDITION; SOLVENCY.
4.6(1) There has been no material change in Borrower's
financial condition since the date of its last financial statements set forth
on Schedule 4.5 to this Agreement.
4.6(2) Borrower's assets, at a fair valuation, exceed
Borrower's liabilities (including, without limitation, contingent liabilities),
Borrower has the capacity to pay its debts, and Borrower has capital and assets
sufficient to carry on its business.
4.7 COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.7,
Borrower is in compliance in all material respects with all Governmental Rules
applicable to its ownership or use of properties or the conduct of its
business; Borrower has not received any notice of violation of any of the
foregoing; and Borrower is not in violation of any judgment, order or decree of
any Governmental Rule.
4.8 NO OTHER VIOLATIONS. Borrower is not in violation of any term of
its Certificate or Articles of Incorporation or Bylaws.
4.9 TAXES AND ASSESSMENTS. Except as set forth on Schedule 4.9,
Borrower has filed all federal, state and local tax returns and other reports
it is required to file to the date hereof (or has obtained valid, written
extensions as to any not so filed), has paid all taxes, assessments, and other
governmental charges due and payable to the date hereof, and has made adequate
provision for the payment of such taxes, assessments and charges accrued but
not yet payable. Borrower has no knowledge of any deficiency or additional
assessment in a materially important amount in connection with any taxes,
assessments or other governmental charges not provided for or disclosed in the
financial statements set forth on Schedule 4.5 to this Agreement.
4.10 ACCOUNTS. The list of Accounts, dated December 31, 1997, made
available to Lender, is complete as of such date, and contains an accurate
aging thereof.
4.11 INVENTORY. Borrower's Inventory, as reflected by its most recent
balance sheet noted on Schedule 4.5, consists of items of a quality and
quantity usable or salable in the ordinary course of its business; values of
obsolete items, items below standard quality and items in the
15
<PAGE>
process of repair have been written down to realizable market value, or
adequate reserves have been provided therefor; and values carried on said
balance sheet are set at the lower of cost or market, in accordance with GAAP.
4.12 BOOKS AND RECORDS. Borrower maintains its books and records
relative to its Accounts and its Inventory at the address listed in Schedule
4.12 to this Agreement.
4.13 LOCATION OF COLLATERAL. None of the Inventory, Equipment or other
tangible property constituting part of the Collateral is or will be located in
or on any premises other than those identified in Schedule 4.12 to this
Agreement. Schedule 4.12 contains an accurate record of all landlords of
premises leased by Borrower and of all mortgagees of premises owned by
Borrower.
4.14 PLACE OF BUSINESS. The principal place of business and chief
executive office of Borrower is located at 1735 Jersey Avenue, North Brunswick,
New Jersey 08902. Schedule 4.14 to this Agreement lists all of the other
offices or locations in or from which Borrower conducts any of its business or
operations.
4.15 OTHER NAME OR ENTITIES. Except as disclosed on Schedule 4.15 to
this Agreement, none of Borrower's business is conducted through any corporate
subsidiary, unincorporated association or other entity and Borrower has not,
within the seven years preceding the date of this Agreement, (a) changed its
name, (b) used any name other than the name stated at the beginning of this
Agreement, or (c) merged or consolidated with, or acquired the assets of, any
other corporation or business.
4.16 TITLE AND LIENS. Borrower has good and marketable title to all of
the Collateral as sole owner thereof, free and clear of any Encumbrance, except
the liens created by this Agreement and identified on Schedule 4.16 to this
Agreement and Permitted Encumbrances. None of the Collateral is subject to any
prohibition against encumbering, pledging, hypothecating, or assigning the same
or requires notice or consent in connection therewith.
4.17 ERISA. Borrower is in compliance in all material respects with
the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the related provisions of the Internal Revenue Code, and
with all regulations and published interpretations issued thereunder by the
United States Treasury Department, the United States Department of Labor and
the Pension Benefit Guaranty Corporation ("PBGC"). Neither a reportable event
as defined in Section 4043 of ERISA, nor a prohibited transaction as defined in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code, has occurred
and is continuing with respect to any employee benefit plan subject to ERISA
established or maintained, or to which contributions have been or may be made,
by Borrower or by any trade or business (whether or not incorporated) which
together with Borrower would be treated as a single employer under Section 4001
of ERISA (any such trade or business being referred to hereinafter as an "ERISA
Affiliate," and any such employee benefit plan being referred to hereinafter as
a "Plan"). No notice of intention to terminate a Plan has been filed nor has
any Plan been terminated; the PBGC has not instituted proceedings to terminate,
or to appoint a trustee to administer, any Plan, nor do
16
<PAGE>
circumstances exist that constitute grounds for any such proceedings; and
neither Borrower nor any ERISA Affiliate has completely or partially withdrawn
from any multi-employer Plan described in Section 4001(a)(3) of ERISA. Borrower
and each ERISA Affiliate has met the minimum funding standards under ERISA with
respect to each of its Plans; no Plan of Borrower or of any ERISA Affiliate has
an accumulated funding deficiency or waived funding deficiency within the
meaning of ERISA; and no material liability to the PBGC under ERISA has been
incurred by Borrower or any ERISA Affiliate.
4.18 O.S.H.A. Borrower has duly complied with, and its facilities,
business, leaseholds, equipment and other property are in compliance in all
material respects with, the provisions of the federal Occupational Safety and
Health Act and all rules and regulations thereunder and all similar state and
local Governmental Rules; and there are no outstanding citations, notices or
orders of non-compliance issued to Borrower or relating to its facilities,
business, leaseholds, equipment or other property under any such Governmental
Rules.
4.19 ENVIRONMENTAL MATTERS.
Except as disclosed in Schedule 4.19 to this Agreement: (a) no
property owned or used by Borrower and located in the State of New Jersey is an
"industrial establishment" within the meaning of the New Jersey Industrial Site
Recovery Act ("ISRA") or is or has been used for the generation, manufacture,
refining, transportation, treatment, storage handling or disposal of any
"hazardous substances" or "hazardous wastes" within the meaning of ISRA; (b)
the following are all of the Standard Industrial Classification Codes
applicable to the properties and operations of Borrower: 2841; (c) Borrower is
in compliance with all applicable Environmental Laws; (d) there has been no
contamination or release of hazardous substances, at, upon, under or within any
property owned or, to the best of Borrower's knowledge, at, upon, or within any
property leased by Borrower, and there has been no contamination (as defined in
any applicable Environmental Law) or release of hazardous substances (as
defined in any applicable Environmental Law) on any other property that has
migrated or threatens to migrate to any property owned by Borrower or, to the
best of Borrower's knowledge, to any property leased by Borrower; (e) there are
not now and never have been above-ground or underground storage tanks at any
property owned by Borrower or, to the best of Borrower's knowledge, at any
property leased by Borrower; (f) there are no transformers, capacitors, or
other items of Equipment containing polychlorinated biphenyls at levels in
excess of 49 parts per million, violative of applicable Environmental Law, at
any property owned by Borrower or, to the best of Borrower's knowledge, at any
property leased by Borrower; (g) other than materials used or produced, held,
transported and disposed of in accordance with Environmental Laws, Borrower has
not used its operations for, and properties owned or leased by Borrower are not
now and have never been used by Borrower (or, to the best knowledge of Borrower
after due inquiry, by any predecessor in possession or other Person) for
treatment, generation, storage, recycling, or disposal of hazardous substances;
(h) no hazardous substances are present at any property owned by Borrower or,
to the best of Borrower's knowledge, at any property leased by Borrower, nor
will any hazardous substances be present upon any such property or utilized in
the operation thereof by Borrower except which are transported, used, stored,
disposed of and otherwise handled in accordance with all Environmental Laws, in
proper storage containers; (i) all permits and authorizations required
17
<PAGE>
under Environmental Laws for all operations of Borrower have been duly issued
and are in full force and effect, including but not limited to those for air
emissions, water discharges and treatment, storage tanks and the generation,
treatment, storage and disposal of hazardous substances; (j) there are no
pending or threatened Environmental Claims against Borrower or any property
owned or leased by Borrower; and Borrower has not created or caused any
condition or occurrence with respect to any property owned or leased by
Borrower that could reasonably be anticipated (x) to form the basis of an
Environmental Claim against Borrower or its properties or (y) to cause any
property owned or leased by Borrower to be subject to any restrictions on its
ownership, occupancy or transferability under any Environmental Law; (k) no
notice relating to hazardous substances is contained in any deed relating to
any property owned by Borrower or, to the best of Borrower's knowledge, in any
deed relating to any property leased by Borrower and there are no facts or
conditions on any such property that would require that such a notice be placed
in the deed to any such property; (l) no portion of any property owned by
Borrower or, to the best of Borrower's knowledge, any property leased by
Borrower, contains asbestos-containing material that is or threatens to become
friable; and (m) the representations and warranties set forth in this Section
4.19 shall survive repayment of the Obligations and the termination of this
Agreement and the Relevant Documents.
4.20 PROHIBITED BUSINESS ACTIVITIES. Borrower is not (a) engaged
principally or as one of its important activities in the business of extending
credit for the purpose, immediately, incidentally, or ultimately, of purchasing
or carrying "margin stock" (within the meaning of Regulation U); (b) an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended from time to time, or a company
under the "control" of an "investment company", as those terms are defined in
such Act, and shall not become such an "investment company" or under such
"control"; or (c) a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or an "affiliate" of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended from time to time.
4.21 MARGIN STOCK. No part of the proceeds of any Loan will be used,
directly or indirectly, to purchase or carry any margin stock, to extend credit
to others for the purpose of purchasing or carrying any margin stock, or for
any purpose that violates any provision of Regulations G, T, U or X issued by
the Board of Governors of the Federal Reserve System.
4.22 REPRESENTATIONS AND WARRANTIES TRUE, ACCURATE AND COMPLETE. None
of the representations, warranties or statements to Lender contained in this
Agreement, in any of the Relevant Documents or in any other writing delivered
to Lender in connection with the Collateral, this Agreement or any of the
transactions contemplated thereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make such representation, warranty or statement not misleading in
light of the circumstances under which it is made. All of such representations,
warranties and statements shall survive as of the date indicated therein until
full and final payment and performance of the Loans and all other Obligations
under this Agreement and the Relevant Documents.
18
<PAGE>
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents, Borrower shall, unless Lender shall otherwise consent in
writing:
5.1 MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Maintain and preserve
in full force and effect its existence and good standing and all other rights,
powers, franchises, licenses and qualifications necessary or desirable for its
ownership or use of properties material to, or the conduct of, its business.
5.2 PAYMENT OF TAXES AND OTHER OBLIGATIONS. Pay (a) before they become
delinquent, all taxes, assessments and governmental charges imposed upon it or
any of its property or required to be collected by it, and (b) in the ordinary
course of business, all other indebtedness and liabilities of any kind now or
hereafter owing by it, except, in either case, where the same is being
contested in good faith and the obligee has not instituted any action to
enforce collection.
5.3 MAINTENANCE OF PROPERTIES. Maintain its properties in good working
order and condition, normal wear and tear excepted.
5.4 NOTICE OF ADVERSE EVENTS. Promptly notify Lender in writing of the
occurrence or existence of any of the following: (a) any Event of Default as
defined in this Agreement or any event which, with the giving of notice, lapse
of time or other condition, would become such an Event of Default; (b) any
matter or event which has resulted in, or may result in, a material adverse
change in the financial condition or any property or operations of Borrower;
(c) any material claim, action, proceeding or investigation filed or instituted
against Borrower, or any adverse determination in any material pending action,
proceeding or investigation affecting it; (d) any loss from casualty or theft
in excess of $250,000.00, whether or not insured, affecting property of
Borrower; (e) whether or not otherwise reportable under this Section 5.4, any
complaint, citation, order or other notice of a violation of a claim involving
any of the following, if the liability or penalty therefor may exceed $100,000
singly or in the aggregate: any applicable Governmental Rules relating to air
emissions, water discharge, noise emissions, solid or liquid disposal,
hazardous waste or substances, or other environmental health or safety matters
(the notice to Lender to include, along with other relevant information, the
name of the complainant or claimant and the nature and potential amount of the
claim); (f) any event or condition described in Section 9.15 of this Agreement
relating to ERISA; or (g) if any of the representations and warranties
contained in this Agreement, or in any of the Relevant Documents or any other
writing delivered to Lender by Borrower in connection with this Agreement or
any of the transactions contemplated thereby, ceases to be true, correct and
complete in any material respect.
5.5 INFORMATION AND DOCUMENTS TO BE FURNISHED TO LENDER. Furnish to
Lender in form and substance satisfactory to it:
19
<PAGE>
5.5(1) ANNUAL FINANCIAL STATEMENTS. As soon as available but
in no event later than ninety (90) days after the end of each fiscal year of
Borrower, a consolidated and consolidating balance sheet of Borrower as of the
end of such year and consolidated and consolidating statements of income, cash
flows and changes in stockholders' equity for such year (all in reasonable
detail and with all notes and supporting schedules), audited by an independent
certified public accountants selected by Borrower and reasonably satisfactory
to Lender, as presenting the financial condition of Borrower as of the dates
and for the periods indicated and as having been prepared in accordance with
GAAP, except as may be otherwise disclosed in such financial statements or the
notes thereto.
5.5(2) QUARTERLY FINANCIAL STATEMENTS. As soon as available
but in no event later than forty-five (45) days after the end of each of the
first, second and third quarters of each fiscal year of Borrower, a
consolidated and consolidating balance sheet of Borrower as of the end of such
quarter and consolidated and consolidating statements of income, cash flows and
changes in stockholders' equity for such quarter and for the period commencing
at the end of the previous fiscal year and ending with the end of such quarter
(all in reasonable detail and with all notes and supporting schedules),
certified by the chief financial officer of Borrower as presenting fairly the
consolidated financial condition of Borrower as of the dates and for the
periods indicated and as having been prepared in accordance with GAAP, except
as may be otherwise disclosed in such financial statements or the notes
thereto.
5.5(3) COMPLIANCE CERTIFICATE. Simultaneously with the
delivery of each annual and quarterly financial statement referred to in
Sections 5.5(1) and 5.5(2), a completed certificate in form and substance
acceptable to Lender ("Compliance Certificate"), executed by an authorized
officer of Borrower, and containing such additional information as Lender may
request from time to time, (a) certifying that the financial statements being
delivered with such Compliance Certificate are true, complete and correct in
all material respects, (b) setting forth in reasonable detail the calculations
required to establish whether Borrower was in compliance with all financial
covenants for the fiscal period in question, (c) stating (i) whether any Event
of Default has occurred or is continuing since the date of the previously
delivered Compliance Certificate and the details of same, (ii) without limiting
the requirements of (i), stating specifically whether any event has occurred
since the date of the previously delivered Compliance Certificate which, with
the giving of notice or the lapse of time, would constitute an Event of
Default; and (iii) such other information as Lender may from time to time
reasonably require to be included in the Compliance Certificate.
5.5(4) ACCOUNTANT'S CERTIFICATE/RELIANCE LETTER.
Simultaneously with the delivery of the annual financial statements referred to
in Section 5.5(1), a certificate of the certified public accountant preparing
such statements stating (a) whether or not his/her examination has disclosed
the occurrence or continuance of a Default or an Event of Default and, if so a
description of such occurrence; and (b) his/her acknowledgment of Lender's
reliance upon such financial statements in providing financial accommodations
to Borrower which certificate shall also include an affirmative acknowledgment
by Borrower that Borrower has knowledge of the submission of such financial
statements to Lender and of Lender's reliance thereon.
20
<PAGE>
5.5(5) DAILY REPORTS. Daily reports, in form and substance
satisfactory to Lender, of all sales and receipts for the previous business
day, and, if requested, copies of all invoices evidencing such sales.
5.5(6) ACCOUNTS, INVENTORY AND ACCOUNTS PAYABLE REPORTS.
Within twenty (20) days of the end of each month, beginning with the end of
month of February 1998, and from time to time as Lender may require:
certificates and assignment schedules describing the Accounts and Inventory in
detail and total, aging reports of Accounts, accounts payable aging reports,
and collateral and loan reconciliation reports, all as of the end of such month
and in such form as Lender may reasonably require.
5.5(7) ERISA DOCUMENTS. As soon as filed or distributed, all
ERISA reports, notices, returns and other documents filed as required by or in
compliance with ERISA, whether to the Internal Revenue Service, the Department
of Labor, the Pension Benefit Guaranty Corporation or any other appropriate
agency.
5.5(8) VIOLATIONS. Immediately, a copy of any complaint,
citation, order or other notice of a violation or claim required to be reported
pursuant to Subsection 5.4 of this Agreement.
5.5(9) OTHER DOCUMENTS. Promptly upon demand:
(A) A certificate executed by an officer of Borrower
satisfactory to Lender stating that there then exists no Event of Default
hereunder and no event which, with the giving of notice or lapse of time or
other condition, would constitute an Event of Default;
(B) Photocopies of documents evidencing right to
payment (and if an Event of Default occurs, all original documents evidencing
right to payment, including but not limited to invoices, original orders, and
shipping and delivery receipts); and
(C) Such other documents or information as Lender
may reasonably request, including financial projections and cash flow analysis.
5.6 ACCESS TO RECORDS AND PROPERTY. At any time and from time to time,
upon request by Lender, give any representative of Lender access, during normal
business hours, to inspect any of Borrower's properties and to examine, copy
and make extracts from any and all books, records, and documents in the
possession of Borrower or any independent contractor relating to Borrower's
affairs or the Collateral (including without limitation returns for federal
income tax and other taxes).
5.7 INSURANCE.
5.7(1) LIABILITY AND PROPERTY INSURANCE. Maintain at
Borrower's expense (with such insurers, in such amounts and with such
deductibles (not greater than $10,000.00) as is reasonably satisfactory to
Lender, public liability and third party property damage insurance and
21
<PAGE>
insurance on the Collateral (including without limitation, insurance against
fire, explosion, boiler damage, theft, burglary, pilferage, loss in transit and
all other hazards and risks ordinarily insured against by other owners or users
of such properties in similar businesses), which insurance shall be evidenced
by policies (i) in form and substance reasonably satisfactory to Lender, (ii)
designating Lender and its assigns as additional co-insureds and loss payees as
their interests may appear from time to time, (iii) containing a "breach of
warranty clause" whereby the insurer agrees that (1) a breach of the insuring
conditions or any act or neglect of Borrower or any other named insured, (2)
the foreclosure or other proceedings or notice of sale or enforcement of any
lien or security relating to the property of the Borrower, (3) the occupation
of the premises wherein such property is located for purposes more hazardous
than are permitted by the policy of insurance, or (4) any errors, omissions, or
improper or incorrect reporting by the named insured, shall not invalidate the
insurance as to Lender and its assigns, and (iv) requiring at least thirty (30)
days' prior written notice to Lender and its assigns before cancellation or any
material change shall be effective.
5.7(2) COPIES OF POLICIES. Upon demand, deliver to Lender a
photocopy of each policy (and if an Event of Default has occurred, the original
of each policy) evidencing insurance required by this Section 5.7, together
with evidence of payment of all premiums therefor.
5.7(3) NOTICE AND PROOF OF LOSS. In the event of loss or
damage, forthwith notify Lender and file proofs of loss satisfactory to Lender
with the appropriate insurer, but without limiting the rights of Lender
pursuant to Subsection 8.1(11).
5.7(4) PROCEEDS. Forthwith upon receipt, endorse and deliver
insurance proceeds (for any loss or property damage) to Lender, but without
limiting the rights of Lender pursuant to Subsection 8.1(11).
In no event shall Lender be required either to (i)
ascertain the existence of or examine any insurance policy, or (ii) advise
Borrower in the event such insurance coverage shall not comply with the
requirements of this Agreement.
5.8 CONDITION OF COLLATERAL; NO LIENS. Maintain the Collateral in good
condition and repair at all times (normal wear and tear excepted), preserve the
Collateral from loss, damage, or destruction of any nature whatsoever, and keep
the Collateral free and clear of any Encumbrance, except Permitted Encumbrances
including any identified on Schedule 4.16 to this Agreement .
5.9 RECORDS. Maintain complete and accurate books and records of all
its operations and properties, including records of the Collateral and the
status of each of the Accounts.
5.10 DELIVERY OF DOCUMENTS. If any proceeds of Accounts shall include,
or any of the Accounts shall be evidenced by, notes, trade acceptances or
instruments or documents, or if any Inventory is covered by documents of title
or chattel paper, whether or not negotiable, immediately deliver them to Lender
appropriately endorsed. Borrower waives protest regardless
22
<PAGE>
of the form of the endorsement. If Borrower fails to endorse any instrument or
document, Lender is authorized to endorse it on Borrower's behalf.
5.11 UNITED STATES CONTRACTS. If any of the Accounts arises out of a
contract with the United States or any of its departments, agencies or
instrumentalities, immediately notify Lender and execute any necessary
instruments in order that all money due or to become due under such contract
shall be assigned to Lender and proper notice of the assignment given under the
Federal Assignment of Claims Act.
5.12 FURTHER ASSURANCES. From time to time, execute and deliver such
further documents and take such further actions as Lender may reasonably
request in order to carry out the purposes of this Agreement, the Relevant
Documents and any other instruments, documents and agreements which shall be
executed concurrently herewith or thereafter with regard to the transactions
contemplated by this Agreement.
5.13 OPERATING ACCOUNTS. Borrower shall maintain its operating
accounts with Lender continuously until the Obligations are finally and fully
paid and performed.
5.14 RELATED ENTITIES. Cause each Related Entity to comply with the
covenants stated in this Section 5, to the extent relevant to such entity, as
if stated with reference to such entity.
5.15 ENVIRONMENTAL SITE ASSESSMENTS. In the event the Loans have not
been paid by June 25, 1998, then in that event, at the request of Lender,
Borrower shall deliver to Lender Phase I environmental site assessments for all
real property owned or leased by Borrower, in form and substance satisfactory
to Lender, and such additional reports that may be requested following the
completion of any remediation or further investigation recommended by such site
assessment, in a manner satisfactory to Lender.
5.16 ADDITIONAL DOCUMENTS. The Borrower, through its agents and
representatives, shall use its best efforts to obtain and deliver, or cause to
be delivered, to Lender the following documents within thirty (30) days from
the date of this Agreement, in form and substance satisfactory to Lender: (a)
the NJEDA Consent and the BNP Consent; (b) Subordination Agreement executed by
Owens-Illinois; (c) Ground Lessor Estoppel Letter and Agreement executed by
Witco Chemical Corporation ("Witco") regarding the Chicago Property (the "Witco
Estoppel Letter"); and (d) an Estoppel and Consent Agreement executed by The
Okonite Company, Inc.; it being understood and agreed that the failure to so
obtain any or all of the foregoing items, notwithstanding Borrower's best
efforts, shall not be or give rise to a Default or Event of Default hereunder.
In addition, the Borrower shall deliver to Lender the mortgage loan title
insurance policies for the North Brunswick Property (unless Lender has released
its mortgage lien on the North Brunswick Property pursuant to Section 3.3
above); the Missouri Property; and the Chicago Property (if the Witco Estoppel
Letter is delivered as provided above with respect to the Chicago Property) on
or before June 25, 1998. Anything herein to the contrary notwithstanding, the
Borrower's best efforts shall not require it to make any payment or concession
to Witco in order to obtain the Witco Estoppel Letter.
23
<PAGE>
5.17 UNDERTAKING TO PREPAY BRIDGE NOTE. The Borrower, through its
agents and representatives, shall use its best efforts to pay in full the
Bridge Note on or before June 25, 1998; it being understood and agreed that the
failure to prepay the Bridge Note as aforesaid shall not be or give rise to a
Default or Event of Default hereunder.
6. NEGATIVE COVENANTS
Borrower covenants and agrees that, until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents, Borrower shall not, unless Lender shall otherwise consent
in writing:
6.1 NO CONSOLIDATION, MERGER, ACQUISITION, LIQUIDATION. Enter into any
merger, consolidation, reorganization or recapitalization; take any steps in
contemplation of dissolution or liquidation; conduct any part of Borrower's
business through any corporate subsidiary, unincorporated association or other
entity not disclosed on Schedule 4.15 to this Agreement; or acquire the stock
or assets of any person, firm, joint venture, partnership, corporation or other
entity, whether by merger, consolidation, purchase of stock or otherwise.
6.2 DISPOSITION OF ASSETS OR COLLATERAL. Except for the sale-leaseback
transactions which are contemplated by Section 3.3, sell, lease, or otherwise
transfer or dispose of any or all of the Collateral or other assets of
Borrower, other than the sale of Inventory in the ordinary course of business
and the retirement of other assets in the normal course of operations.
6.3 OTHER LIENS. Except for the sale-leaseback transactions which are
contemplated by Section 3.3, incur, create or permit to exist, in an aggregate
amount at any time exceeding $100,000.00 in excess of Permitted Encumbrances,
any Encumbrance, conditional sale or other title retention agreement, financing
lease having substantially the same effect as any of the foregoing, or other
preferential arrangement of any type, in each case upon or with respect to any
assets of Borrower, whether now owned or hereafter acquired, except Permitted
Encumbrances.
6.4 OTHER LIABILITIES. Except as provided in Section 6.3, incur,
create, assume or permit to exist any indebtedness or liability on account of
either borrowed money or the deferred purchase price of property or services,
except (a) the Obligations, (b) indebtedness subordinated to payment of the
Obligations on terms approved by Lender in writing, or (c) those liabilities
existing on the date of this Agreement and shown by the financial statements
referred to in Schedule 4.5 to this Agreement.
6.5 LOANS. Make loans to any person or entity, other than loans or
advances to employees of Borrower, not exceeding $10,000.00 per employee and
$50,000.00 in the aggregate.
6.6 INVESTMENTS. Borrower shall not at any time purchase, acquire or
own any stock, bonds, notes, or securities of, or any partnership interest
(whether general or limited) in, or any other interest in, or make any capital
contribution to, any other Person, or become a joint venture
24
<PAGE>
partner in any joint venture, or agree, become or remain liable to do any of
the foregoing, except for: (a) debt securities having a maturity of not more
than one year issued or guaranteed by the United States government or by an
agency or instrumentality thereof; (b) certificates of deposit, bankers
acceptances and time deposits, which in each case mature within one year from
the date of purchase thereof and which are issued by a Lender acceptable to
Lender; (c) commercial paper maturing in 270 days or less from the date of
issuance which, at the time of acquisition by Borrower either (i) is accorded
the highest rating by Standard and Poor's Rating Group or Moody's Investors
Service, Inc. or (ii) is issued by Lender; (d) capital stock of one or more of
its wholly-owned subsidiaries; and (e) direct obligations of the United States
of America or any agency or instrumentality of the United States of America,
the payment or guarantee of which constitutes a full faith and credit
obligation of the United States of America, in each case maturing in 12 months
or less from the date of acquisition.
6.7 GUARANTIES; CONTINGENT LIABILITIES. Except as set forth in Section
6.4, (a) assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person or entity (except a
subsidiary of Borrower), except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, or (b) agree to maintain the working capital or net worth of any
person or entity or to make investments in any person or entity (except for
short-term investment of excess cash as permitted by Section 6.6 above).
6.8 DIVIDENDS AND OTHER DISTRIBUTIONS. Declare or pay any cash
dividend or make any distribution on, or redeem, retire or otherwise acquire
directly or indirectly, any share of its stock, or make any distribution of
assets to its stockholders without the prior written consent of Lender.
6.9 TRANSACTIONS WITH AFFILIATES. Enter into any transaction with a
person or entity directly or indirectly controlling, controlled by or under the
direct or indirect common control of Borrower, on a basis less favorable in a
material respect to Borrower than if such transactions were not with such a
person or entity.
6.10 SALE OF INVENTORY. Sell any of the Inventory on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval or consignment basis, or any
other basis subject to a repurchase obligation or return right (other than for
a customary right of return for damaged or defective goods).
6.11 REMOVAL OF COLLATERAL. Remove, or cause or permit to be removed,
any of the Collateral or other assets from the premises identified on Schedule
4.12 to this Agreement, except for sales of Inventory or the retirement of
other assets, all in the ordinary course of business.
6.12 TRANSFER OF NOTES OR ACCOUNTS. Sell, assign, transfer, discount
or otherwise dispose of any Accounts or any promissory note or other instrument
payable to it with or without recourse, except for collection without recourse
in the ordinary course of business.
25
<PAGE>
6.13 SETTLEMENTS. Compromise, settle or adjust any claim in a material
amount relating to any of the Collateral, other than settlements previously
disclosed in writing to Lender and the consolidated class action lawsuit
described in Schedule 4.4 hereof. Notwithstanding anything contained herein to
the contrary, provided no Event of Default has occurred or is continuing,
Borrower shall be permitted to offer and accept trade discounts on Accounts in
the ordinary course of its business.
6.14 MODIFICATION OF GOVERNING DOCUMENTS. Change, alter or modify, or
permit any change, alteration or modification of, its Certificate of
Incorporation or Bylaws (or partnership agreement) or other governing
documents.
6.15 CHANGE BUSINESS. Cause or permit a material change in the nature
of its business as conducted on the date of this Agreement.
6.16 CHANGE OF LOCATION OR NAME. Change any of the following: (a) the
location stated in Section 4.12 of this Agreement for the maintenance of the
books and records relative to the Accounts and Inventory, (b) the location of
the principal place of business or chief executive office of Borrower as stated
in Section 4.14 of this Agreement, or (c) the name under which Borrower
conducts any of its business or operations.
6.17 CHANGE OF ACCOUNTING PRACTICES. Change its present accounting
principles or practices in any material respect, except as may be required or
permitted by changes in or pursuant to GAAP.
6.18 INCONSISTENT AGREEMENT. Enter into any agreement containing any
provision that would be violated by the performance of the Obligations or
Borrower's obligations under any of the Relevant Documents or under any
document delivered or to be delivered by it in connection therewith.
6.19 CURRENT RATIO. Cause, suffer or permit the ratio of Current
Assets to Current Liabilities (excluding the Loans, one-half of the principal
sum due to the New Jersey Economic Development Authority, and fifty (50%)
percent of the trade debt owed to Owens-Illinois, not to exceed $4,500,000.00,
but all determined in accordance with GAAP) to be or become less than 1.1 to
1.0 at any time as measured at the end of each month beginning January 31,
1998.
7. CONDITIONS TO MAKING EXTENSIONS OF CREDIT
7.1 INITIAL EXTENSION OF CREDIT. The obligation of Lender to make the
Loans hereunder is subject to the satisfaction of each of the following
conditions precedent:
7.1(1) RESTRUCTURED AND RESTATED LOAN AND SECURITY AGREEMENT.
Receipt by Lender of a fully-executed copy of this Agreement.
26
<PAGE>
7.1(2) SCHEDULES. Receipt by Lender of all schedules to this
Agreement prepared by Borrower and Lender's determination that any exceptions
shown on such schedules are satisfactory.
7.1(3) NOTES. Receipt by Lender of the fully-executed
Revolving Note, Capital Expenditure Note and Bridge Note.
7.1(4) FINANCING STATEMENTS. Receipt by Lender and filing in
the applicable recording office of all required UCC financing statements or
amendments reasonably requested by it in connection with the Loans, each signed
by the applicable party.
7.1(5) LANDLORD'S WAIVERS. Receipt by Lender and filing in
the applicable recording office of landlord's waivers for each real property
location occupied by Borrower, executed by the owner and/or lessor of such
location.
7.1(6) MORTGAGES. Receipt by Lender and filing in the
applicable recording office of a mortgage for each real property location which
is to secure the Obligations, each executed by the fee owner thereof and in
recordable form.
7.1(7) REAL ESTATE APPRAISALS. Receipt by Lender of real
estate appraisals for all real property locations which are subject to a
mortgage to Lender, in form and substance satisfactory to Lender.
7.1(8) TITLE INSURANCE COMMITMENTS. Receipt by Lender of
title insurance commitments, with mortgagee endorsements, in all respects
satisfactory to Lender, for all of the real property locations subject to a
mortgage.
7.1(9) SURVEYS. Receipt by Lender of existing surveys,
containing flood plain certificates and in all other respects satisfactory to
Lender, for all of the real property locations subject to a mortgage, certified
to Lender and the title insurer.
7.1(10) GUARANTY AGREEMENT. Receipt by Lender of a guaranty
agreement executed by the Guarantor in form and substance acceptable to Lender
and its counsel and any Relevant Document to be delivered in connection
therewith.
7.1(11) INSURANCE. Receipt by Lender of (a) copies of
Borrower's insurance policies, containing long-form lender loss payable and
mortgagee endorsements satisfactory to Lender and which in all other respects
comply with the requirements hereof and any insurance requirements set forth in
the Relevant Documents, (b) satisfactory evidence of flood insurance and (c)
current insurance certificates for all such policies.
7.1(12) ENVIRONMENTAL INDEMNITY AGREEMENT. Receipt by Lender
of an Environmental Indemnity Agreement in form and substance satisfactory to
Lender and its counsel, indemnifying Lender against Environmental Claims and
violation by Borrower of Environmental Laws.
27
<PAGE>
7.1(13) SEARCHES. Receipt by Lender of lien, judgment, and
standing searches satisfactory to Lender.
7.1(14) WARRANT. Receipt by Lender of the Warrant.
7.1(15) COMPLETION OF DUE DILIGENCE. Receipt by Lender of all
information requested from Borrower in connection with Lender's due diligence
review of Borrower and all other parties, and completion of such review by
Lender, with results satisfactory to Lender.
7.1(16) GOVERNING DOCUMENTS. Receipt by Lender of the
following documents for Borrower and any Person comprising Borrower and the
Guarantor and any Person comprising the Guarantor;
(A) a copy of its articles and/or certificate of
incorporation, certified as true and correct by an authorized officer of such
person;
(B) good standing certificates issued by the
Secretaries of State of the state where such Person is incorporated and each
state where such Person is required to be qualified to do business, each dated
not more than 90 days prior to the date hereof;
(C) resolutions of its board of directors
authorizing the execution of this Agreement and the Relevant Documents and
their performance pursuant thereto, certified by the secretary of such Person
as being true, correct, complete and in effect as of the date hereof and in
form and substance satisfactory to Lender;
(D) a copy of its by-laws and all amendments
thereto, certified by an authorized officer of such Person as being true,
correct, complete and in effect;
(E) an incumbency certificate for such Person,
showing the names of the officers, their respective titles and containing their
true signatures; and
(F) such other documents, instruments, records,
opinions, assurances and papers relating to Borrower and any Person comprising
Borrower and the Guarantor and any Person comprising the Guarantor, all as
Lender or its counsel may reasonably require, all in form and substance
satisfactory to Lender and its counsel.
7.1(17) OPINION OF COUNSEL. Receipt by Lender of an opinion
of counsel to Borrower and the Guarantor, addressed to Lender and in all
respects satisfactory to Lender and its counsel.
7.1(18) NO DEFAULT CERTIFICATE. Receipt by Lender of a
certificate, dated as of the date hereof and executed by an authorized officer
of Borrower, stating that, as of such date, there is no Event of Default and to
such further effect as Lender or its counsel may reasonably require.
28
<PAGE>
7.1(19) FEES. Receipt by Lender of all fees and expenses
which are payable to Lender, its counsel, or to third-party providers of
services related to the Existing Loans or the closing of this Agreement.
7.1(20) GUARANTEE AGREEMENT. Receipt by Lender of a Guarantee
Agreement from the Individual Guarantors in form and substance satisfactory to
Lender and its counsel, providing, among other things, for the Individual
Guarantors to pay to Lender the principal sum of $5,000,000.00, and all accrued
interest thereon, on or before June 25, 1998, if the Borrower has not paid or
caused to be paid said sum on or before the aforesaid date, which sum shall be
applied to the repayment of the Bridge Note, provided no scheduled payment
default under Section 9.1 hereof has occurred.
7.1(21) MISCELLANEOUS. Receipt by Lender of such other
documents, instruments, records, opinions, assurances and papers as Lender or
its counsel may reasonably require, all in form and substance reasonably
satisfactory to Lender and its counsel.
7.2 CONDITIONS TO ALL ADVANCES.
7.2(1) Lender's obligations to advance any Revolving Loan is
subject to the condition that, as of the date of such advance or issuance, no
Event of Default or event which, for the lapse of time or giving of notice or
both would constitute an Event of Default, shall have occurred and be
continuing.
7.2(2) Borrower's acceptance of each Revolving Loan under
this Agreement shall constitute a confirmation of the matters set forth in
Sections 4.1 through 4.22 above as of the date of such Loans. If requested by
Lender, Borrower shall further confirm such matters by delivery of a
certificate dated the day of the Revolving Loan and signed by a duly authorized
officer of Borrower satisfactory to Lender.
8. ADDITIONAL POWERS OF LENDER
8.1 POWERS OF ATTORNEY. Borrower hereby constitutes and appoints
Lender (and any employee or agent of Lender, with full power of substitution)
its true and lawful attorney and agent in fact to take any or all of the
actions described below in Lender's or Borrower's name and at Borrower's
expense.
8.1(1) CHARGES AGAINST CREDIT BALANCES. Lender, without
demand, may charge and withdraw from any credit balance that Borrower may then
have with Lender, or with any affiliate of Lender, any amount that shall become
due from Borrower to Lender under this Agreement or any of the Relevant
Documents.
8.1(2) EVIDENCE OF LIENS. Lender may execute such financing
statements and other documents and take such other actions as Lender deems
reasonably necessary or proper in order to create, perfect or continue the
security interests and other liens provided for by this
29
<PAGE>
Agreement or any of the Relevant Documents, and Lender may file the same (or a
photocopy of this Agreement or of any financing statement signed by Borrower)
in any appropriate governmental office.
8.1(3) PRESERVATION OF COLLATERAL. Lender, acting in good
faith, may take any and all actions that it deems necessary or proper to
preserve its interest in the Collateral, including without limitation the
payment of debts of Borrower that might impair the Collateral or Lender's
security interest therein, the purchase of insurance on Collateral, the repair
or safeguarding of Collateral, or the payment of taxes, assessments or other
liens thereon. All sums so expended by Lender shall be added to the
Obligations, shall be secured by the Collateral, and shall be payable on demand
with interest at the Default Rate from the respective dates such sums are
expended.
8.1(4) LENDER'S RIGHT TO CURE. In the event Borrower fails to
perform any of its Obligations, then Lender may perform the same but shall not
be obligated to do so. All sums so expended by Lender shall be added to the
Obligations, shall be secured by the Collateral, and shall be payable on demand
with interest at the Default Rate from the respective dates such sums are
expended.
8.1(5) VERIFICATION OF ACCOUNTS. Lender may make test
verifications of any and all Accounts in any manner and through any medium
Lender considers advisable, and Borrower shall render any necessary assistance.
8.1(6) COLLECTIONS; MODIFICATION OF TERMS. Upon the
occurrence and during the continuance of any Event of Default, Lender may
demand, sue for, collect and give receipts for any money, instruments or
property payable or receivable on account of or in exchange for any of the
Collateral, or make any compromises it deems necessary or proper, including
without limitation extending the time of payment, permitting payment in
installments, or otherwise modifying the terms or rights relating to any of the
Collateral, all of which may be effected without notice to or consent by
Borrower and without otherwise discharging or affecting the Obligations, the
Collateral or the security interest granted under this Agreement or any of the
Relevant Documents.
8.1(7) NOTIFICATION OF ACCOUNT DEBTORS. Upon the occurrence
of an Event of Default, Borrower, at the request of Lender, shall notify the
Account Debtors of Lender's security interest in its Accounts. Upon the
occurrence of any Event of Default, Lender may notify the Account Debtors on
any of the Accounts to make payment directly to Lender, and Lender may endorse
all items of payment received by it that are payable to Borrower; until such
time as Lender elects to exercise such right of notification, Borrower is
authorized to collect and enforce the Accounts.
8.1(8) NOTIFICATION AS TO INVENTORY. Upon the occurrence of
an Event of Default, Lender may notify the bailee of any Inventory of Lender's
security interest therein.
30
<PAGE>
8.1(9) ENFORCEMENTS. Upon the occurrence of an Event of
Default, Lender may endorse Borrower's name on checks, notes, acceptances,
drafts, invoices, bills of lading and any other documents or instruments
requiring Borrower's endorsement.
8.1(10) MAILS. Upon the occurrence of any Event of Default,
Lender may notify the postal authorities to deliver all mail, parcels, and
other material addressed to Borrower to Lender at such address as Lender may
direct, and Lender may open and deal with same as it deems necessary or proper.
8.1(11) INSURANCE. Lender may file proofs of loss and claim
with respect to any of the Collateral with the appropriate insurer, and may
endorse in its own and Borrower's name any checks of drafts constituting
insurance proceeds.
8.2 IRREVOCABILITY; LENDER'S DISCRETION. Borrower covenants and agrees
that any action described in Section 8.1 may be taken at Lender's sole and
absolute discretion, acting in good faith, at any time and from time to time,
and (unless stated specifically to the contrary in Section 8.1 with respect to
any power) whether prior or subsequent to an Event of Default, and Borrower
hereby ratifies and confirms at actions so taken. Borrower further covenants
and agrees that the power of attorney granted by Section 8.1 are coupled with
an interest and shall be irrevocable until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents; that said powers are granted solely for the protection of
Lender's interest and Lender shall have no duty to exercise any thereof; that
the decision whether to exercise any of such powers, and the manner of
exercise, shall be solely within Lender's discretion; and that neither Lender
nor any of its directors, officers, employees or agents shall be liable for any
act of omission or commission, or for any mistake or error of judgment, in
connection with any such powers.
9. EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an Event of
Default:
9.1 FAILURE TO PAY. Borrower fails to pay when due any principal of or
interest on any Revolving Loan, Capital Expenditure Loan or Bridge Loan or any
other sum owing to Lender, including without limitation any of the Obligations
arising under this Agreement or any of the Relevant Documents or under any
other agreement with Lender;
9.2 FAILURE TO PERFORM. Borrower fails to perform or observe any
covenant (including, without limitation, Section 5.16 subject to the
qualifications contained therein), term or condition of this Agreement or any
of the Relevant Documents, and such default is not cured within three (3)
business days following written notification of such violation;
9.3 CROSS DEFAULT; DEFAULT ON OTHER DEBT. (a) Any other default on any
of the Obligations or under any of the Relevant Documents occurs, after
applicable notice and cure periods, if any, or (b) default occurs under any
indebtedness or other obligation of Borrower, or
31
<PAGE>
of any Guarantor of any of the Obligations, to any third party which in the
aggregate exceeds One Hundred Thousand ($100,000.00) Dollars, entitling such
third party to declare such indebtedness or other obligation due prior to its
date of maturity, provided, however, with respect to defaults that exist as of
the date of this Agreement, or hereafter occur, in the payment of NJEDA
indebtedness; the Borrower's trade debt; or any indebtedness of Borrower to
Owens-Illinois, such defaults shall not constitute an Event of Default
hereunder unless and until NJEDA or such trade creditor and/or Owens- Illinois
takes affirmative action to enforce its rights with respect to such
indebtedness and/or trade debt. With respect to any default currently existing
under Borrower's obligations to Sanwa Business Credit Corporation ("Sanwa")
relating to the sale to Borrower of the Oracle Software System, such default
shall not constitute an Event of Default hereunder unless and until Sanwa takes
(or threatens to take) any action that in the sole opinion of Lender may have a
material adverse effect on Borrower's ability to operate its business in the
ordinary course;
9.4 FALSE REPRESENTATION OR WARRANTY. Any representation, warranty or
statement contained in this Agreement, in any of the Relevant Documents or in
any other writing delivered to Lender in connection with the Collateral, this
Agreement or any of the transactions contemplated thereby, proves to have been
incorrect in any material respect when made;
9.5 CESSATION OF BUSINESS. Borrower ceases to do business as a going
concern;
9.6 CHANGE IN CONDITION. There occurs any material and adverse change
in the condition or affairs, financial or otherwise, of Borrower or of any
endorser, guarantor or surety for any of the Obligations, which in the
reasonable opinion of Lender impairs Lender's security or increases its risks;
9.7 CHANGE IN MANAGEMENT. At any time Uri Evan ceases to be Chief
Executive Officer or otherwise actively involved in the daily management of
Borrower.
9.8 LIQUIDATION OR DISSOLUTION. Borrower takes any action to authorize
its liquidation or dissolution;
9.9 INABILITY TO PAY DEBTS. Borrower (a) becomes unable or fails to
pay its debts generally as they become due, (b) admits in writing its inability
to pay its debts, or (c) proposes or makes a composition agreement with
creditors, a general assignment for the benefit of creditors, or a bulk sale;
9.10 BANKRUPTCY; INSOLVENCY. Any proceeding is instituted by or
against Borrower (a) seeking to adjudicate it bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or (b) seeking appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property, or Borrower takes
any action to authorize or consent to any action described in this Section 9.10
and not stayed or dismissed within sixty (60) days.
32
<PAGE>
9.11 JUDGMENTS. One or more judgments or orders for the payment of
money exceeding $100,000.00 in the aggregate are rendered against Borrower, and
any such judgment(s) or order(s) continues unsatisfied and not effectively
stayed for a period of thirty (30) consecutive days;
9.12 ATTACHMENT. Any substantial part of the assets of Borrower
becomes subject to attachment, execution, levy or like process which shall not
have been effectively stayed;
9.13 CONDEMNATION. Any governmental agency, or other entity with power
to do so, commences proceedings to condemn, seizes or expropriates assets of
Borrower (unless Borrower obtains an injunction against such actions within
thirty (30) days from the date of their commencement) necessary for the conduct
of Borrower's business as conducted on the date of this Agreement, without
material change, or Borrower abandons such assets or suspends operation thereof
for a period of thirty (30) consecutive days;
9.14 ERISA. With respect to any Plan (as defined in Section 4.17 of
this Agreement), there occurs or exists any of the events or conditions
described in the following clauses (a) through (h) and such event or condition,
together with all like events or conditions, could in the opinion of Lender
subject Borrower to any tax, penalty or other liability that might, singly or
in the aggregate, have a material adverse effect on the financial condition or
the properties or operations of Borrower: (a) a reportable event as defined in
Section 4043 of ERISA, (b) a prohibited transaction as defined in Section 406
of ERISA or Section 4975 of the Internal Revenue Code, (c) termination of the
Plan or filing of notice of intention to terminate, (d) institution of the
Pension Benefit Guaranty Corporation of proceedings to terminate, or to appoint
a trustee to administer, the Plan, or circumstances that constitute grounds for
any such proceedings, (e) complete or partial withdrawal from a multi-employer
Plan, or the reorganization, insolvency or termination of a multi-employer
Plan, (f) an accumulated funding deficiency within the meaning of ERISA, (g)
violation of the reporting, disclosure or fiduciary responsibility requirements
of ERISA or the Internal Revenue Code, or (h) any act or condition which could
result in direct, indirect or contingent liability to any Plan or the Pension
Benefit Guaranty Corporation; or
9.15 GUARANTY. Any guaranty of any of the Obligations ceases to be
effective or any Guarantor denies liability thereunder, it being the
understanding of the parties hereto that any default under the terms and
conditions of the guarantee agreement executed and delivered to the Lender by
the Individual Guarantors shall not constitute an Event of Default hereunder.
10. REMEDIES
10.1 RIGHTS IN GENERAL. Automatically upon the occurrence of an Event
of Default described in Section 9.10, and at the option of Lender upon the
occurrence of any other Event of Default, (a) all provisions for additional
Loans under this Agreement shall terminate, (b) the principal and accrued
interest of the Revolving Loans, Capital Expenditure Loans and the Bridge Loan,
all other amounts payable under this Agreement and all other Obligations shall
become and
33
<PAGE>
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 (c) Lender shall be entitled to exercise forthwith (to the extent
and in such order as Lender may elect, in its sole and absolute discretion) any
or all rights and remedies provided for in this Agreement, the Revolving Note,
the Capital Expenditure Note, the Bridge Note or any Relevant Documents, all
rights and remedies of a secured party under the UCC, and all other rights and
remedies that may otherwise be available to Lender by agreement or at law or in
equity.
10.2 SPECIFIC RIGHTS REGARDING COLLATERAL. In addition to the rights
as stated generally in Section 10.1, Borrower agrees that, upon the occurrence
of an Event of Default, Lender shall be entitled to the rights and remedies,
and Borrower shall have the obligations, set forth below:
10.2(1) Lender may enter upon the premises where any of the
Collateral is located and take possession thereof and, at Lender's option,
remove or sell in place any or all thereof.
10.2(2) Upon notice from Lender, Borrower shall promptly at
its expense assemble any or all of the Collateral and make it available at a
reasonably convenient place designated by Lender.
10.2(3) Lender may, with or without judicial process, sell,
lease or otherwise dispose of any or all of the Collateral at public or private
sale or proceedings, by one or more contracts, in one or more parcels, at the
same or different times and places, with or without having the Collateral at
the place of sale or other disposition, to such persons or entities, for cash
or credit or for future delivery and upon such other terms, as Lender may in
its discretion deem best in each instance. The purchaser of any of the
Collateral at any such sale shall hold the same free of any equity of
redemption or other right or claim of Borrower, all of which - together with
all rights of stay, exemption or appraisal under any statute or other law now
or hereafter in effect - Borrower hereby unconditionally waives to the fullest
extent permitted by law. If any of the Collateral is sold on credit or for
future delivery, Lender shall not be liable for the failure of the purchaser to
pay for same and, in the event of such failure, Lender may resell such
Collateral.
10.2(4) Borrower hereby further agrees that notice of the
time and place of any public sale, or of the time after which any private sale
or other intended disposition or action relating to any of the Collateral is to
be made or taken, shall be deemed commercially reasonable notice thereof, and
shall satisfy the requirements of any applicable statute or other law, if such
notice (a) is delivered not less than three (3) business days prior to the date
of the sale, disposition or other action to which the notice relates, or (b) is
mailed (by ordinary first class mail, postage prepaid) not less than ten (10)
days prior thereto. Lender shall not be obligated to make any sale or other
disposition or take other action pursuant to such notice and may, without other
notice or publication, adjourn or postpone any public or private sale or other
disposition or action by announcement at the time and place previously fixed
therefor, and such sale, disposition or action may be held or accomplished at
any times or places to which the same may be so adjourned or postponed.
34
<PAGE>
10.2(5) Lender may purchase any or all of the Collateral at
any public sale and may purchase at private sale any of the Collateral that is
of the type customarily sold in a recognized market or the subject of widely
distributed price quotations or as may be further permitted by law. Lender may
make payment of the purchase price of any Collateral by credit against the then
outstanding amount of the Obligations.
10.2(6) Lender may at its discretion retain any or all of the
Collateral and apply the same in satisfaction of part or all of the
Obligations.
10.2(7) Any cash proceeds of sale, lease or other disposition
of Collateral shall be applied as follows:
First: To the expenses of collecting, enforcing,
safeguarding, holding and disposing of Collateral, and to
other expenses of Lender in connection with the enforcement
of this Agreement, any of the Notes, any of the Relevant
Documents, or any other agreement relating to any of the
Obligations (including without limitation court costs and the
fees and expenses of attorneys, accountants and appraisers),
together with interest at the Default Rate from the
respective dates such sums are expended;
Second: Any surplus then remaining to the payment of interest
and principal of the Loans and other sums payable as part of
the Obligations, in such order as Lender elects; and
Third: Any surplus then remaining to Borrower or whoever may
be lawfully entitled thereto.
10.3 SET-OFF. Borrower further agrees that:
10.3(1) Upon the occurrence of an Event of Default, Lender is
hereby authorized at any time and from time to time, without notice to Borrower
(any such notice being expressly waived by Borrower), to set off and apply (or
cause any affiliate of Lender to set off and apply) any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owning by Lender or such affiliate to or for the
credit or the account of Borrower, against any or all of the Obligations of
Borrower now or hereafter existing under this Agreement, any of the Notes or
otherwise, irrespective of whether or not Lender shall have made any demand and
although such Obligations may be unmatured.
10.3(2) If any other lender has participated with Lender with
respect to any of the Loans, Borrower hereby authorizes such participating
lender, upon the occurrence of any Event of Default, immediately and without
notice or other action, at request of Lender, to set off against any of
Borrower's Obligations to Lender any deposits held or money owed by such
participating lender in any capacity to Borrower, whether or not due, and to
remit the money set off to Lender.
35
<PAGE>
10.3(3) Any such set-off shall be deemed to have occurred
upon the occurrence of such Event of Default, notwithstanding that the book
entries relating to same may be made at a later date.
10.3(4) The rights stated in this Section 10.3 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off or lien) that Lender or any participating lender may have.
10.4 CUMULATIVE REMEDIES; NO WAIVER BY LENDER. No remedy referred to
in this Agreement is intended to be exclusive, but each shall be cumulative and
in addition to any other remedy referred to in this Agreement or otherwise
available to Lender by agreement or at law or in equity, and Lender may
exercise its remedies concurrently, independently, or successively. No express
or implied waiver by Lender of any default or Event of Default shall in any way
be, or be construed to be, a waiver of any future or subsequent default or
Event of Default. The failure or delay of Lender in exercising any rights
granted it hereunder upon any occurrence of any of the contingencies set forth
herein shall not constitute a waiver of any such right upon the continuation or
recurrence of any such contingency or similar contingencies, and any single or
partial exercise of any particular right by Lender shall not exhaust the same
or constitute a waiver of any other right.
10.5 WAIVERS AND AGREEMENTS RELATING TO REMEDIES. In connection with
any action or proceeding arising out of or relating in any way to this
Agreement, any of the Notes, any of the Loans, any of the Relevant Documents,
any other agreement relating to any of the Obligations, any of the Collateral,
or any act or omission relating to any of the foregoing:
10.5(1) Borrower agrees that all of the Collateral
constitutes equal security for all of the Obligations, and agrees that Lender
shall be entitled to sell, retain or otherwise deal with any or all of the
Collateral, in any order or simultaneously as Lender shall determine in its
sole and absolute discretion, free of any requirement for the marshaling of
assets or other restriction upon Lender in dealing with the Collateral; and
10.5(2) Borrower agrees that Lender may proceed directly
against Borrower for collection of any or all of the Obligations without first
selling, retaining or otherwise dealing with any of the Collateral.
11. ADDITIONAL WAIVERS AND CONSENTS OF BORROWER
11.1 WAIVERS. Borrower waives demand, presentment, notice of dishonor
or protest of any instruments either of Borrower or others which may be
included in the Collateral.
11.2 CONSENTS. Borrower consents to (a) any extension, postponement of
time of payment or other indulgence, (b) any substitution, exchange or release
of Collateral, (c) any addition to, or release of, any party or person
primarily or secondarily liable, and (d) after the
36
<PAGE>
occurrence of an Event of Default, any acceptance of partial payments on
any Accounts or instruments and the settlement, compromising or adjustment
thereof.
11.3 APPLICATIONS OF PAYMENTS. Subject to the provisions of Section
3.3, Borrower consents and agrees that, whether or not an Event of Default
shall have occurred, Lender shall be entitled to apply the proceeds of any
payment on account of the Loans made to Lender by or on behalf of Borrower,
including, without limitation, any and all proceeds arising from any of the
Collateral securing the obligations of Borrower to Lender, in the manner and
against the Obligation or Obligations as determined in the sole and absolute
discretion of Lender.
11.4 TAX REFUNDS. Anything herein to the contrary notwithstanding,
provided no Event of Default shall have occurred and is continuing, then upon
receipt of any tax refund or refunds, Borrower shall pay over to Lender fifty
(50%) percent of the amount of each such refund and Lender shall apply said
sums to the Loans then outstanding in the manner Lender, in its sole and
absolute discretion, shall elect.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION CHARGE. On the Termination Date or if this Agreement
is terminated at any time and for any reason, Borrower shall pay to Lender:
(i) The principal and interest due on the Loans; plus
(ii) All other Obligations under this Agreement and the
Relevant Documents; plus
(iii) The sum of Two Hundred Fifty Thousand Dollars
($250,000.00).
12.2 RIGHTS UPON TERMINATION. Notwithstanding the termination of this
Loan Agreement as herein provided, Lender's security interest, rights and
remedies herein set forth shall remain in full force and effect until all
Borrower's Obligations are paid in full.
12.3 RELEASE. IN CONSIDERATION OF LENDER'S ENTERING INTO THIS
AGREEMENT, BORROWER AND GUARANTORS HEREBY RELEASE THE LENDER, ITS SUCCESSORS
AND ASSIGNS, ATTORNEYS, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES, FROM ANY AND
ALL CLAIMS THEY OR ANY OF THEM HAVE, HAD OR MAY CLAIM TO HAVE, AT ANY TIME,
AGAINST THE LENDER RELATING TO, ARISING OUT OF OR RESULTING FROM THE DECEMBER
1996 LOAN AGREEMENT, BRIDGE LOAN AGREEMENT, ANY DOCUMENTS AND/OR INSTRUMENTS
RELATING THERETO OR SECURING THE OBLIGATIONS, THIS AGREEMENT AND ANY AMENDMENTS
HERETO OR THERETO, AT ANY TIME FROM THE BEGINNING OF TIME THROUGH THE DATE
HEREOF. LENDER SHALL NOT BE LIABLE OR RESPONSIBLE TO BORROWER OR GUARANTORS FOR
ANY ACTS OR OMISSIONS NOR FOR ANY ERROR OF JUDGMENT OR MISTAKE OF LAW OR FACT
EXCEPT FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
37
<PAGE>
13. COSTS, EXPENSES AND TAXES
Borrower agrees to pay on demand: (a) all costs and expenses in
connection with the preparation, execution, delivery and administration of this
Agreement, the Notes, the Relevant Documents, and the other documents to be
delivered in connection with this Agreement or any amendments to any of the
foregoing (including, without limitation, the fees and out-of-pocket expenses
of the attorneys for Lender, whether outside counsel or the allocated costs of
Lender's internal counsel and the cost of appraisals and reappraisals of
Collateral); (b) all losses, costs and expenses incurred by Lender in
connection with the enforcement of this Agreement, any of the Notes, any of the
Relevant Documents, or any other agreement relating to any of the Obligations,
or in the preservation of any rights of Lender under any thereof, or in
connection with legal advice relating to the rights or responsibilities of
Lender under any thereof (including with limitation court costs and the fees
and expenses of attorneys, accountants and appraisers), and any expenditure
made by Lender in accordance with this Agreement; and (c) any and all stamp and
other taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, any of the Notes, or any of the
Relevant Documents, and all liabilities to which Lender may become subject as
the result of delay in paying or omission to pay such taxes. With respect to
any amount advanced by Lender and required to be reimbursed by Borrower
pursuant to the foregoing provisions of this Section 13, Borrower shall also
pay Lender interest on such amount at the Default Rate. Borrower's obligations
under this Section 13 shall survive termination of the other provisions of this
Agreement.
14. INDEMNIFICATION BY BORROWER/WAIVER OF CLAIMS
14.1 INDEMNIFICATION. Borrower hereby covenants and agrees to
indemnify, defend and hold harmless Lender and its officers, directors,
employees and agents from and against any and all claims, damages, liabilities,
costs and expenses (including without limitation, the reasonable fees and
out-of-pocket expenses of counsel) which may be incurred by or asserted against
Lender or any such other individual or entity in connection with: (a) any
investigation, action or proceeding arising out of or in any way relating to
this Agreement, any of the Notes, any of the Loans, any of the Relevant
Documents, any other agreement relating to any of the Obligations, any of the
Collateral, or any act or omission relating to any of the foregoing; (b) any
taxes (other than income taxes applicable to the Lender), liabilities, claims
or damages relating to the Collateral or Lender's liens thereon; (c) the
correctness, validity or genuineness of any instruments or documents that may
be released or endorsed to Borrower by Lender (which shall automatically be
deemed to be without recourse to Lender in any event), or the existence,
character, quantity, quality, condition, value or delivery of any goods
purporting to be represented by any such documents; or (d) any broker's
commission, finder's fee or similar charge or fee in connection with the Loans
and the transactions contemplated in this Agreement. It being further
understood and agreed that, excluded from the indemnification set forth above,
are any claims attributable to the gross negligence or willful misconduct of
the Lender and such indemnified person.
38
<PAGE>
To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section 14.1 may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all matters referred to under this Section. It is
further understood and agreed that, to the extent a claim indemnified by the
Borrower set forth hereunder is in fact paid by the Borrower and/or an insurer
under a policy of insurance maintained by the Borrower, the Borrower and/or
such insurer, as the case may be, shall be subrogated to the extent of such
payment to the rights and remedies of the indemnified person on whose behalf
such claim was paid with respect to the transaction or event giving rise to
such claim; provided further that such right of subrogation shall not extend to
any insurance policy maintained by or on behalf of the Lender or any
indemnified person.
14.2 WAIVER OF CLAIMS. To the extent permitted by applicable law, no
claim may be made by Borrower or any other person against Lender or any of its
affiliates, directors, officers, employees, agents, attorneys or consultants
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract, tort or any other theory of liability arising out
of or related to the transactions contemplated by this Agreement or any act,
omission or event occurring in connection therewith; and Borrower hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor. Neither Lender nor any of its affiliates, directors, officers, employees
or agents shall be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement or the transactions
contemplated hereby, except for its or their own gross negligence or willful
misconduct.
14.3 CLAIMS PROCEDURE. The Lender and such indemnified person shall
promptly notify the Borrower of any claim as to which indemnification is
sought, provided that the failure to provide such notice shall not release the
Borrower from any of its obligations to indemnify hereunder, so long as such
failure does not in any way prejudice the rights of the Borrower with respect
to the availability or extent of coverage of insurance or otherwise result in
any material adverse consequence to the Borrower. Subject to the rights of
insurers under policies of insurance maintained by the Borrower, the Borrower
shall have the right to investigate, and a right in its sole discretion to
defend or compromise any claim for which indemnification is sought under this
Section 14, and the Lender or such indemnified person shall cooperate with all
reasonable requests of the Borrower in connection therewith. Nothing contained
in this Section 14 shall be deemed to require the Lender or such indemnified
person to contest any claim or to assume responsibility for or control of any
judicial proceeding with respect thereto.
15. MISCELLANEOUS
15.1 ENTIRE AGREEMENT; AMENDMENTS; LENDER'S CONSENT. This Agreement
(including the Exhibits and Schedules thereto), the Revolving Note, the Capital
Expenditure Note, the Bridge Note and the Relevant Documents supersede, with
respect to their subject matter, all prior and contemporaneous agreements,
understandings, inducements or conditions between the respective parties,
whether express or implied, oral or written. No amendment or waiver of any
39
<PAGE>
provision of this Agreement, any of the Notes or any of the Relevant Documents,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
15.2 NOTICES. All notices and other communications relating to this
Agreement or any of the Notes (or to any of the Relevant Documents, unless
otherwise specified therein) shall be in writing, and addressed as follows and
sent by hand delivery, registered or certified mail, recognized overnight
courier service or telecopier with confirmation of delivery:
If to Lender: PNC Bank, National Association
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Thomas J. McCool,
Senior Vice President
If to Borrower: USA Detergents, Inc.
1735 Jersey Avenue
North Brunswick, New Jersey 08902
Attention: Richard Coslow, Chief
Financial Officer
With a copy to:
Sheldon Nussbaum, Esq.
Fulbright & Jaworski, LLP
666 Fifth Avenue
New York, New York 10013
(The failure to transmit a copy of the notice to the
foregoing shall not constitute defective notice to the Borrower.)
or to such other address as the respective party or its successors or
assigns may subsequently designate by proper notice. All notices shall be
deemed effective (i) upon receipt of same (whether by personal delivery or
transmittal by facsimile/telecopier with confirmation thereof); or (ii) two (2)
Banking Days after deposit with an overnight courier; or (iii) three (3)
Banking Days if sent by registered or certified mail, postage prepaid,
whichever is earlier.
15.3 GENDER. Throughout this Agreement, the masculine shall include
the feminine and vice versa and the singular shall include the plural and vice
versa, unless the context of this Agreement indicates otherwise.
15.4 JOINT BORROWERS. If more than one party executes this Agreement
as Borrower, then for the purpose of this Agreement the term Borrower shall be
read to mean each such party and each party shall be jointly and severally
liable as Borrower for the Obligations as defined herein without regard to
which party receives the proceeds of any of the Loans. Each such party hereby
acknowledges that it expects to derive economic advantage from each of the
Loans.
40
<PAGE>
15.5 MAINTAINING ACCOUNTS PAYABLE. Borrower acknowledges that its
outstanding accounts payable (exclusive of accrued expenses) has averaged (on a
monthly basis) approximately $30,000,000 over the past year. Borrower agrees
that it will not alter its business practices concerning the payment of its
accounts payable as conducted during the period of November 1, 1996 to November
1, 1997, and in this regard, further covenants and agrees that, at all times
there shall remain owing to Lender any Obligations hereunder, it will maintain
its accounts payable (exclusive of (i) borrowed money and indebtedness for the
payment of machinery and equipment, and (ii) accrued expenses ) at a level of
not less than Seven Million Five Hundred Thousand ($7,500,000) Dollars.
15.6 CROSS DEFAULT; CROSS COLLATERAL. Borrower hereby agrees that (a)
all other agreements between Borrower and Lender or any of Lender's affiliates
are hereby amended so that a default (after applicable notice and cure periods,
if any,) under this Agreement is a default under all other agreements and a
default (after applicable notice and cure periods, if any,) under any one of
the other agreements is a default under this Agreement, and (b) the Collateral
under this Agreement secures the Obligations now or hereafter outstanding under
all other agreements between Borrower and Lender or any of Lender's affiliates
and the collateral pledged under any other agreement with Lender or any of its
affiliates secures the Obligations under this Agreement.
15.7 BINDING EFFECT; GOVERNING LAW. This Agreement shall be binding
upon and inure to the benefit of Borrower and Lender and their respective
successors and assigns, except that Borrower shall not have the right to assign
its rights hereunder or any interest herein without the prior written consent
of Lender. This Agreement, the Notes, the Relevant Documents and the other
documents delivered in connection with this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Jersey.
15.8 FURTHER ASSURANCES. The Borrower shall execute and deliver from
time to time hereafter, such additional instruments, certificates and
documents, and shall take all actions, as the Lender shall reasonably request
for the purpose of implementing or effectuating the provisions of this
Agreement, the Notes, or any other Relevant Documents, and upon the exercise by
the Lender of any power, right, privilege or remedy pursuant to this Agreement,
or any other Relevant Documents, which require any consent, approval,
registration, qualification or authorization of any governmental authority,
execute and deliver all applications, certifications, instruments and other
documents and papers that the Lender that may be so required to obtain.
15.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement.
15.10 SEVERABILITY OF PROVISIONS. Any provision of this Agreement, any
of the Notes or any of the Relevant Documents that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, such Notes or such
Relevant Documents or affecting the validity or enforceability of such
provision in any other jurisdiction.
41
<PAGE>
15.11 TABLE OF CONTENTS; HEADINGS. The table of contents and headings
preceding the text of this Agreement are inserted solely for convenience of
reference and shall not constitute a part of this Agreement nor affect its
meaning, construction or effect.
15.12 EXHIBITS AND SCHEDULES. All of the Exhibits and Schedules to
this Agreement are hereby incorporated by reference herein and made a part
hereof.
15.13 FURTHER ACKNOWLEDGMENTS AND AGREEMENTS OF BORROWER AND LENDER.
(A) Borrower and Lender acknowledge and agree that they (i)
have independently reviewed and approved each and every provision of this
Agreement, including the Exhibits and Schedules attached hereto and any and all
other documents and items as they or their counsel have deemed appropriate, and
(ii) have entered into this Agreement and have executed the closing documents
voluntarily, without duress or coercion, and have done all of the above with
the advice of their legal counsel or have knowingly and voluntarily elected to
proceed without advice of legal counsel.
(B) Borrower and Lender agree that this Agreement is an
amendment and restatement, in its entirety, of the terms and conditions of the
December 1996 Loan Agreement and the Bridge Loan Agreement.
15.14 GENERAL LIMITATION ON AMOUNT OF LIABILITY. Notwithstanding any
other provisions of this Agreement, the obligations of Borrower hereunder shall
be limited to a maximum aggregate amount equal to the largest amount that would
not render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Bankruptcy Code or any applicable provisions of comparable state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving
effect to all other liabilities of Borrower, contingent or otherwise, that are
relevant under the Fraudulent Transfer Laws (specifically excluding, however,
any liabilities of Borrower in respect of intercompany indebtedness to the
Affiliates of the Borrower to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by Borrower hereunder) and
after giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
contribution, reimbursement, indemnity or similar rights of Borrower pursuant
to (i) applicable law or (ii) any agreement providing for an equitable
allocation among Borrower and other Affiliates of the Borrower of obligations
arising under any security provided by such parties.
16. WAIVER OF JURY TRIAL, CONSENT TO JURISDICTION.
16.1 WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE AND AGREE
THAT ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR
INSTITUTED BY BORROWER OR LENDER ON OR WITH RESPECT TO ANY LOANS, LETTERS OF
42
<PAGE>
CREDIT, THE OBLIGATIONS OR THE RELEVANT DOCUMENTS OR THE DEALINGS OF THE
PARTIES WITH RESPECT HERETO OR THERETO SHALL BE TRIED ONLY BY COURT AND NOT BY
A JURY AND EACH PARTY HEREBY WAIVES THE RIGHT TO TRIAL BY JURY. BORROWER AND
LENDER AGREE THAT THIS SECTION IS A MATERIAL AND SPECIFIC ASPECT OF THIS
AGREEMENT AND LENDER WOULD NOT CONTINUE TO EXTEND CREDIT IF THE WAIVER SET
FORTH IN THIS SECTION WAS NOT A PART OF THIS AGREEMENT.
16.2 CONSENT TO JURISDICTION; SERVICE OF PROCESS.
16.2(1) Borrower and Lender consent to the jurisdiction of
any court of the State wherein the office of Lender set forth in the first page
hereof is located and of any federal court located in such State and waive any
right to object to such court as an inconvenient forum.
16.2(2) Borrower waives personal service of any summons,
complaint or other process in connection with any such action or proceeding and
agrees that service thereof may be made as Lender may elect, by certified mail
directed to Borrower at the location provided in Section 15.2 for notices to
Borrower or, in the alternative, in any other form or manner permitted by law.
17. ACKNOWLEDGMENT OF WAIVERS. THIS AGREEMENT PROVIDES FOR THE WAIVER OF RIGHTS
AND REMEDIES. BORROWER ACKNOWLEDGES THAT IT IS REPRESENTED BY COUNSEL (OR HAS
HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL) AND THAT SUCH COUNSEL HAS REVIEWED
AND EXPLAINED THE MEANING OF THESE WAIVERS TO BORROWER.
IN WITNESS WHEREOF, the undersigned have set their hands and seals or
caused these presents to be executed by their proper corporate officers and
sealed with their seal the day and year first above written.
USA DETERGENTS, INC., Borrower
By: /s/ Uri Evan
________________________________
Name: Uri Evan
_______________________________
Title: Chairman of the Board and
Chief Executive Officer
______________________________
43
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
Lender
By: /s/ Kevin D. Drew
--------------------------------
Kevin D. Drew, Vice President
44
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE OFFERED, SOLD, PLEDGED, TRANSFERRED, ASSIGNED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (A) SUCH REGISTRATION OR (B) IF ANY
SUCH OFFER, SALE, PLEDGE, TRANSFER, ASSIGNMENT OR OTHER DISPOSITION IS MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS, IN EITHER SUCH CASE, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN
SECTIONS 5 AND 11 OF THIS WARRANT.
EFFECTIVE AT 5:00 P.M. ON FEBRUARY 25, 1998
VOID AFTER 5:00 P.M. ON FEBRUARY 26, 2003
USA DETERGENTS, INC.
COMMON STOCK PURCHASE WARRANT
USA DETERGENTS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, PNC BANK, NATIONAL ASSOCIATION (the
"Bank"), or its registered assigns (the Bank and such registered assigns at the
time being the registered holder hereof being hereinafter referred to as
"Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company at any time or from time to time commencing at 5:00 p.m. (New York
City time), February 25, 1998, and continuing to and expiring at 5:00 p.m. (New
York City time) February 26, 2003, up to 4.99% of the number of shares of
Common Stock issued and outstanding on the date hereof (the exact percentage
and number of which shall be determined in accordance with the following
Subsections (i) - (iv), inclusive, as may be adjusted pursuant to Section 1.1,
the "Warrant Number") at a price per share of Common Stock that is equal to
ninety percent (90%) of the Market Price per share of the Common Stock at the
date hereof (the "Warrant Price," and the shares of the Common Stock that
become deliverable to Holder upon the exercise of this Warrant (and which are
not subject to cancellation or relinquishment as provided below) are
hereinafter referred to as the "Warrant Shares").
(i) Unless reduced as provided in Subsections (ii) through (iv),
inclusive, below, the Warrant Number shall be the number of shares
constituting 4.99% of the number of shares of Common Stock issued and
outstanding at the date hereof.
<PAGE>
(ii) If, and only if, on or prior to February 15, 1998 (the "First
Calculation Date"), a portion of the PNC Debt has been indefeasibly repaid
such that the outstanding principal amount of the PNC Debt is less than
$20,000,000, the Warrant Number shall automatically and without the need
for further action by the parties hereto be reduced to the number of
shares constituting 3.00% of the number of shares of Common Stock issued
and outstanding at the date hereof.
(iii) If, and only if, on or prior to May 15, 1998 (the "Second
Calculation Date"), a portion of the PNC Debt has been indefeasibly repaid
such that the outstanding principal amount of the PNC Debt is less than
$10,000,000, the Warrant Number shall automatically and without the need
for further action by the parties hereto be reduced to the number of
shares constituting 1.50% of the number of shares of Common Stock issued
and outstanding at the date hereof.
(iv) Anything in this Warrant to the contrary notwithstanding, if but
only if, on or prior June 1, 1998 (the "Third Calculation Date"), the PNC
Debt is indefeasibly repaid in full, the Warrant Number shall
automatically and without the need for further action by the parties
hereto be reduced to the number of shares constituting 1.00% of the number
of shares of Common Stock issued and outstanding on the date the PNC Debt
is indefeasibly paid in full (the "Repayment Date").
If the PNC Debt is indefeasibly paid in full on or prior to the Third
Calculation Date, Holder shall relinquish or cancel, without consideration
being paid by the Company to Holder, all of the Common Stock that was acquired
by Holder pursuant to a prior exercise of Holder's rights under this Warrant
and all of the Warrant Shares still exercisable hereunder, if any, expressly
excluding the number of shares which, together with the Warrant Shares still
exercisable hereunder, if any, constitute, in the aggregate, 1.00% of the
number of shares of Common Stock issued and outstanding at the Repayment Date.
Such relinquishment or cancellation of the Common Stock or Warrant Shares, if
applicable, shall be made pursuant to a written instrument that is reasonably
satisfactory in form and substance to Holder and the Company and an endorsement
or assignment, without recourse to or representation or warranty by Holder
(except for the representations and warranties that the Holder is the owner and
holder of the applicable Common Stock or Warrant Shares, free and clear of all
liens, claims, charges, mortgages, security interests and other encumbrances),
of all stock certificates theretofore delivered by the Company or its transfer
agent to Holder that are in excess of 1.00% of the number of shares of the
Common Stock issued and outstanding at the Repayment Date.
Certain capitalized terms used in this Warrant, if not otherwise defined,
shall have the meanings set forth in Section 15 or elsewhere in this Warrant.
Section 1. EXERCISE OF WARRANT.
1.1 Exercise.
2
<PAGE>
(a) This Warrant may be exercised by Holder, in whole or in part, at any
time and from time to time after the First Calculation Date by surrender (in
person or by notice as provided in Article 12 hereof) of this Warrant at the
principal offices of the Company located at 1735 Jersey Avenue, North
Brunswick, New Jersey 08902, together with:
(i) (A) the form of subscription following the signature page of this
Warrant executed by Holder, and (B) payment, by certified or official bank
check payable to the order of the Company or by wire transfer to the
Company's account, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then being exercised by
the Warrant Price then in effect; provided, however, if the Bank or any
Person affiliated with the Bank is the Holder at the time of any exercise
under this Section 1.1(a)(i), in lieu of paying by certified or official
bank check or wire transfer as provided in Section 1.1(a)(i)(B), the Bank
may at its option execute and deliver to the Company a certificate of
reduction (the "Certificate of Reduction") in the form following the
signature page of this Warrant, which Certificate of Reduction shall
reduce the amount of the PNC Debt by the amount obtained by multiplying
the number of shares of Common Stock for which this Warrant is then being
exercised by the Warrant Price then in effect, and in each instance where
the Bank so executes and delivers a Certificate of Reduction and the
Holder hereof exercises its right to effect payment pursuant to the
Certificate of Reduction in lieu of paying by certified or official bank
check or wire transfer as provided in Section 1.1(a)(i)(B) the same shall
be as legal, valid, binding and enforceable against the Company as if the
Company had received the certified or official bank check or wire transfer
referred to in Section 1.1(a)(i)(B); or
(ii) the form of cashless exercise election (a "Cashless Exercise")
following the signature page of this Warrant executed by Holder. Such
presentation and surrender constituting a Cashless Exercise shall be
deemed a waiver of Holder's obligation to pay all ----------------- or any
portion of the Warrant Price in the manner contemplated by Subsection
1.1(a)(i) hereof or otherwise. In the event of a Cashless Exercise, Holder
shall exchange this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares being exercised by
a fraction, the numerator of which shall be the difference between the
Market Price and the Warrant Price per share of Common Stock, and the
denominator of which shall be the Market Price per share of Common Stock.
(b) If this Warrant is not exercised in full, the Company, at its sole
cost expense, shall forthwith issue and deliver to or upon the order of Holder,
a new Warrant of like tenor in the name of Holder or as Holder may request,
calling in the aggregate on the face thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment therein) to (i) the number
of such shares called for on the face of this Warrant minus (ii) the number of
such shares for which this Warrant shall have been exercised without giving
effect to any adjustment in number as a result of changes in the Warrant Price
called for above.
3
<PAGE>
(c) If the Warrant Price is adjusted pursuant to Section 8 of
this Warrant, the number of Warrants to which Holder is entitled shall be
adjusted by multiplying the number of Warrants to which Holder is entitled
immediately prior to such adjustment by a fraction, the numerator of which is
the Warrant Price prior to such adjustment and the denominator of which is the
Warrant Price after such adjustment.
1.2 Delivery of Stock Certificates. Subject to the terms and conditions of
this Warrant, as soon as commercially reasonable and practicable after the
exercise of this Warrant by Holder, in full or in part, the Company will issue
or will cause its transfer agent to issue, as applicable, in the name of and
deliver to Holder, or to any assignee, nominee or designee as Holder may
direct, one or more certificates evidencing the Warrant Shares to which Holder
shall be entitled on such exercise, together with any other stock or other
securities and property (including cash, where applicable, or the new Warrant
upon a partial exercise as described in Section 1.1(b) above) to which Holder
is entitled upon such exercise.
1.3 Fractional Shares. This Warrant may not be exercised as to fractional
shares of Common Stock. In the event that the exercise of this Warrant, in full
or in part, would result in the issuance of any fractional share of Common
Stock, then in such event Holder shall be entitled to cash equal to the Market
Price of such fractional share.
1.4 Payment of Taxes. The Company shall pay all documentary stamp taxes,
if any, attributable to the issuance of Warrants and issuance of shares of
Common Stock or other securities upon the exercise of warrants; provided,
however, that subject to Sections 5 and 11 of this Warrant, the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issue of any certificates for the Warrant Shares in a name
other than that of the registered holder of a Warrant surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or
deliver such certificates unless and until the Persons requesting the issuance
thereof have paid to the Company the amount of such tax or shall have
established to the reasonable satisfaction of the Company that such tax has
been paid or that adequate provision for the payment of such tax has been made.
Section 2. CERTAIN OBLIGATIONS OF THE COMPANY.
2.1 Reservation of Stock. The Company will reserve and keep available out
of its authorized and unissued Common Stock or out of shares of its treasury
stock, solely for the purpose of issue upon exercise of the purchase rights
evidenced by this Warrant, a number of shares of Common Stock equal to the
number of shares of Common Stock issuable hereunder. Without limiting the
obligations of the Company that are set forth in the foregoing sentence, the
Company will from time to time, in accordance with applicable laws, take such
action as is necessary or desirable to increase the authorized amount of its
Common Stock if at any time the number of shares of Common Stock authorized but
remaining unissued and unreserved for other purposes shall be insufficient to
permit the full exercise of this Warrant.
4
<PAGE>
2.2 No Valuation or Impairment. The Company will not, by amendment or
restatement of its certificate of incorporation, including, without limitation,
amendment of the par value of its Common Stock, or through reorganization,
consolidation, merger, dissolution, issuance of capital stock or sale of
treasury stock (otherwise than upon exercise of this Warrant) or sale of
assets, by effecting any subdivision of or stock split or stock dividend with
respect to its Common Stock, or by any other voluntary act or deed, avoid or
seek to avoid the material observance or performance of any of the covenants,
stipulations or conditions in this Warrant to be observed or performed by the
Company. Nothing herein should be inferred to restrict the Company from
completing any of such transactions if Holder of this Warrant is provided with
and not deprived of the material benefits that are intended to be provided to
Holder by this Warrant upon terms and conditions and pursuant to procedures not
more onerous than those contained in this Warrant.
2.3 Maintenance of Office. The Company will maintain an office where
presentations and demands to or upon the Company in respect of this Warrant may
be made. The Company will give not less than 10 days' prior written notice in
writing to Holder, in the manner contemplated by Section 12 of this Warrant, of
each change in the location of such office.
Section 3. REORGANIZATION, ETC.
If any reorganization or reclassification of the capital stock of the
Company, or consolidation or merger of the Company with another corporation
which after the transaction will be required to file reports with the
Securities and Exchange Commission (the "SEC") pursuant to Section 13 or 15 of
the Exchange Act (a "Public Corporation"), or sale of all or substantially all
of the Company's assets to another Public Corporation shall be effected, then,
as a condition of such reorganization, reclassification, consolidation, merger
or sale, lawful and adequate provision shall be made whereby Holder shall
thereafter have the right to purchase and receive, upon the terms and
conditions and pursuant to the procedures herein specified and in lieu of the
shares of Common Stock immediately theretofore purchasable and receivable upon
exercise of this Warrant, such securities or property as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore purchasable and receivable upon exercise of this Warrant had such
reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect to
the rights and interests of Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Warrant Price
and of the number of shares purchasable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any
securities or property thereafter deliverable upon the exercise hereof. The
Company shall not effect any such reorganization, reclassification,
consolidation, merger or sale unless, prior to or contemporaneously with the
consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and delivered to Holder,
which written instrument shall be in form and substance reasonably satisfactory
to Holder, the obligation to deliver to Holder such securities or property as,
in accordance with the foregoing provisions, Holder may be entitled to purchase
or receive upon Holder's proper exercise of the terms and provisions of this
Warrant.
5
<PAGE>
Section 4. NOTICES OF RECORD DATE.
In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or any consolidation or
merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
then, and in each event, the Company will give to Holder a written notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation, or winding-up is to take place, and the time, if any is to be
fixed, as of which the holders of record of Common Stock for securities or
other property deliverable on such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable on such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given prior to the date specified in such
notice on which any such action is to be taken, and in no event later than the
earlier of (i) 10 business days prior to the date on which such action is taken
and (ii) the time when notice of such event is given to holders of record of
the Company's issued and outstanding capital stock.
Section 5. REGISTRATION RIGHTS.
5.1 Warrant Holder Exercise; Payment of Costs and Expenses.
(a) If Holder exercises this Warrant pursuant to Section 1.1(a) hereof, in
whole or in part (provided that on the date of any such partial exercise that
is not a Cashless Exercise the Market Price of the Common Shares being acquired
by Holder pursuant to such partial exercise that is not a Cashless Exercise is
not less than $100,000 and in the event of a Cashless Exercise, in whole or in
part, the Market Price of the Common Shares being acquired by Holder pursuant
to such Cashless Exercise is not less than $100,000) (any such whole or partial
exercise being hereinafter referred to as a "Warrant Holder Exercise"), the
Company shall,
6
<PAGE>
without any notice or demand, use its reasonable good faith
efforts to effectuate a registration on Form S-3 of the Registrable Securities
of Warrant Holder that are issuable upon such Warrant Holder Exercise (any
registration that is required to be made pursuant to this Section 5.1a is
hereinafter referred to as an "Warrant Holder Exercise Registration"), all in
accordance with Section 5.3(a)(ii) hereof.
(b) Notwithstanding Section 5.1(a), if, within 10 Business Days after any
Warrant Holder Exercise, the Company shall furnish to Holder an affidavit
signed by an executive officer of the Company (including, among others, the
president, the chief executive officer, a vice president in charge of a
principal business unit and any other officer of the Company who performs a
policymaking function) stating that, in the good faith business judgment of the
board of directors of the Company, it would be seriously detrimental to the
Company and its shareholders for a Registration Statement to be filed and it
is, therefore, essential to defer the filing of such Registration Statement,
the Company shall have the right to defer taking action with respect to such
filing for a period of not more than 90 days from the date of such Warrant
Holder Exercise (the " Qualified Company Extension Right"); provided, however,
the Company may not use the Qualified Company Extension Right more than once in
any 12 month period (which 12 month period shall commence on the date of the
applicable Warrant Holder Exercise and terminate at midnight on the day
preceding the first anniversary of such Warrant Holder Exercise).
(c) All costs and expenses of each Warrant Holder Exercise Registration,
including, among other costs and expenses, underwriting discounts and
commissions, all registration, filing and qualification fees, printers and
accounting fees, fees and disbursements of counsel for Company, the reasonable
fees and disbursements of one law firm for Holder and all other usual and
customary costs and expenses generally associated with registration of
securities shall be borne by the Company, except underwriting discounts and
commissions attributable solely to Holder in connection with the Registrable
Securities of Warrant Holder.
7
<PAGE>
5.2 Company Initiated Registration; Payment of Costs and Expenses of
Registration.
(a) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than Holder) any of
its Common Stock, Additional Shares of Common Stock or other securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration relating either to the sale of
securities to participants in a Company stock option, stock purchase or similar
plan or to an SEC Rule 145 transaction, or a registration on any form which
does not include substantially the same information as would be required to be
included in a Registration Statement covering the sale of the Registrable
Securities of Warrant Holder), the Company shall, at such time, give Holder not
less than 20 days prior written notice of such registration (the "Company
Registration Notice"). Unless Holder sends the Company a written notice to the
effect it does not want all of the Registrable Securities of Warrant Holder to
be registered in such registration, which written request shall be made within
15 days after Holder's receipt of the Company Registration Notice, the Company
shall, subject to the provisions of Section 5.5, include in such contemplated
registration all of the Registrable Securities of Warrant Holder (any
registration that is contemplated to be made pursuant to this Section 5.2(a) is
hereinafter referred to as a "Company Initiated Registration"). Holder may, at
its option, send to the Company within 15 days after Holder's receipt of the
Company Registration Notice a notice to the effect that Holder wants some
portion or none of the Registrable Securities of Warrant Holder included in
such Company Initiated Registration (such a notice being a "Holder Response
Notice"); provided, however, in the absence of Holder giving to the Company a
Holder Response Notice, the Company shall include all of the Registrable
Securities of Warrant Holder in such Company Initiated Registration.
(b) Any Company Initiated Registration that is approved by the board of
directors of the Company may be withdrawn with the approval of such withdrawal
by the board of directors of the Company. The Company shall give Holder written
notice promptly after the approval of or withdrawal of approval of a Company
Initiated Registration by the board of directors of the Company.
(c) All costs and expenses of each Company Initiated Registration and
Warrant Holder Exercise Registration, including, among other costs and
expenses, underwriting discounts and commissions, all registration, filing and
qualification fees, printers and accounting fees, fees and disbursements of
counsel for Company, the reasonable fees and disbursements of one law firm for
Holder and all other usual and customary costs and expenses generally
associated with registration of securities shall be borne by the Company,
except underwriting discounts and commissions attributable solely to Holder in
connection with the Registrable Securities of Warrant Holder.
5.3 Obligations of the Company. To effect the registration of
the Registrable Securities of Warrant Holder contemplated hereby, the Company
shall, as expeditiously as reasonably possible after the initiation of each
Company Initiated Registration or at such one or more times it is required to
effectuate a Warrant Holder Exercise Registration:
8
<PAGE>
(a) (i) If a Company Initiated Registration, prepare and file with
the SEC a Registration Statement and use its best efforts to cause such
Registration Statement to become effective, and keep such Registration
Statement effective for up to 120 days or until the distribution
contemplated in the Registration Statement has been completed; provided,
however, that (A) such 120-day period shall be extended for a period of
time equal to the period Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common
Stock, Additional Shares of Common Stock or other securities of the
Company; and (B) in the case of any registration of Registrable Securities
of Warrant Holder on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the Registration Statement effective until all such
Registrable Securities of Warrant Holder are sold, but in no event greater
than 180 days, provided that Rule 405, or any successor rule under the
Securities Act, permits an offering on a continuous or delayed basis, and
provided, further, that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment permit, in
lieu of filing a post-effective amendment which (1) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (2)
reflects facts or events representing a material or fundamental change in
the information set forth in the Registration Statement, the incorporation
by reference of information required to be included in (1) and (2) above
to in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the Registration Statement.
(ii) If a Warrant Holder Exercise Registration, prepare and file with
the SEC a Registration Statement on Form S-3 within 120 days of each
Warrant Holder Exercise Registration, use its reasonable good faith
efforts to cause such Registration Statement on Form S-3 to become
effective within 180 days of each Warrant Holder Exercise Registration
(the "Warrant Holder Exercise Initial Effective Date"), and keep such
Registration Statement effective for the lesser of (A) 180 days and (B)
until the distribution contemplated by the Registration Statement on Form
S-3 is completed but in no event beyond the date upon which the shares
included therein cease to be Registrable Securities of Warrant Holder as
provided in Section 15.11 of this Warrant, provided, however, that (1) the
period referred to above shall be extended for a period of time equal to
the period Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock, Additional
Shares of Common Stock or other securities of the Company; and (2) in the
case of any registration of Registrable Securities of Warrant Holder on
Form S-3 which are intended to be offered on a continuous or delayed
basis, the period referred to above shall be extended, if necessary, to
keep the Registration Statement effective until all such Registrable
Securities of Warrant Holder are sold, but in no event greater than 180
days, provided that Rule 405, or any successor rule under the Securities
Act, permits an offering on a continuous or delayed basis, provided,
further, that applicable rules under the Securities Act governing the
obligation to file a post-
9
<PAGE>
effective amendment permit, in lieu of filing a post-effective amendment
which (i) includes any prospectus required by Section 10(a)(3) of the
Securities Act or (ii) reflects facts or events representing a material or
fundamental change in the information set forth in the Registration
Statement, the incorporation by reference of information required to be
included in (i) and (ii) above to in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the Registration Statement; and
provided, further, that, notwithstanding the foregoing, if the Company
shall furnish to Holder an affidavit signed by an executive officer of the
Company (including, among others, the president, the chief executive
officer, a vice president in charge of a principal business unit and any
other officer of the Company who performs a policymaking function) stating
that, in the good faith business judgment of the board of directors of the
Company, it would be seriously detrimental to the Company and its
shareholders for the Warrant Holder Registration to be filed and the
Registration Statement relating thereto to be declared effective on the
Warrant Holder Initial Effective Date or for shares to be sold under the
Warrant Holder Registration and it is, therefore, essential to defer the
filing and intended declaration of effectiveness thereof or the sale of
shares thereunder, the Company shall have the right to defer taking action
with respect to such filing or the Warrant Holder Registration for a
period of not more than 90 days from the date of such Warrant Holder
Initial Effective Date (the "Qualified Warrant Exercise Extension Right");
provided, however, the Company may not use the Qualified Warrant Exercise
Extension Right more than once in any 12 month period (which 12 month
period shall commence on the date of the applicable Warrant Holder Initial
Effective Date and terminate at midnight on the day preceding the first
anniversary of such Warrant Holder Initial Effective Date).
(b) Prepare and file with the SEC such amendments and supplements to each
such Registration Statement and the prospectus used in connection with each
such Registration Statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by each such Registration Statement.
(c) Concurrently with production thereof, furnish to Holder copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such additional copies and other
documents, instruments, records and papers as Holder may reasonably request in
order to facilitate the disposition of all Registrable Securities of Warrant
Holder.
(d) Use its good faith and commercially reasonable efforts to register and
qualify the securities covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by Holder, provided, however, that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business,
subject itself to taxation, or, except as required under the Securities Act,
file a general consent to service of process in any such jurisdictions.
10
<PAGE>
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the one or more underwriters of such offering. If Holder
participates in such underwriting Holder shall also enter into and perform its
obligations under such an agreement.
(f) Notify Holder in writing at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening
of any act, omission, event or circumstance as a result of which the prospectus
included in each such Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing.
(g) Furnish to Holder, on each date any Registrable Securities of Warrant
Holder are delivered to the underwriters for sale in connection with a
registration pursuant to this Section 5, if such securities are being sold
through one or more underwriters, or, if such securities are not being sold
through one or more underwriters, on the date that the Registration Statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
Holder, and (ii) a letter, dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and to
Holder.
(h) Cause all Registrable Securities of Warrant Holder registered pursuant
to Section 5.1 or Section 5.2 to be listed on each securities exchange or
automated quotation system on which similar securities issued by the Company
are then listed.
(i) Subject to the provisions of this Warrant, including, without
limitation, Subsections 5.3(a), (d) and (e) such further acts or steps which
are (i) reasonably requested by Holder so as to effectuate the registration of
the Registrable Securities of Warrant Holder or (ii) required to carry out the
intention and facilitate the consummation of the transactions contemplated by
this Section 5.
5.4 Furnish Information. Holder shall furnish to the Company such
information regarding itself, the Registrable Securities of Warrant Holder held
by it, and the method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities of Warrant Holder.
5.5 Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 5.2 to include any of the Registrable Securities of
Warrant Holder in such underwriting unless Holder accepts the terms of the
underwriting as agreed upon between or among the Company and the one or more
underwriters selected by it (or by other persons entitled to select the one or
more underwriters), and then only in such quantity as will not, in the opinion
of such
11
<PAGE>
one or more underwriters, be reasonably likely to jeopardize the
success of the offering by the Company. If the total amount of securities,
including the Registrable Securities of Warrant Holder, requested by
shareholders to be included in such offering exceeds the amount of securities
to be sold other than by the Company that the underwriters reasonably believe
to be compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of securities, including
Registrable Securities of Warrant Holder, which the underwriters determine are
not reasonably likely to jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling shareholders other
than the Company according to the total amount of securities entitled to be
included therein owned by each selling shareholder other than the Company or in
such proportions as shall mutually be agreed to by or among such selling
shareholders other than the Company).
5.6 Delay of Registration. Holder shall not have any right to obtain or
seek an injunction restraining or otherwise delaying any registration
contemplated by this Article 5 as the result of any controversy that might
arise with respect to the interpretation or implementation of this Article 5.
5.7 Indemnification. In the event any Registrable Securities of Warrant
Holder are included in a Registration Statement:
(a) To the extent permitted by law, the Company will
indemnify, pay, protect, advance monies and hold harmless Holder, any
"underwriter" (as defined in the Securities Act) for such Holder and each
person, if any, who "controls" (is "controlled" by or under "common control"
with) Holder or such underwriter within the meaning of the Securities Act or
the Exchange Act from against any losses, claims, damages or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law (each such item referred to in clauses (i), (ii) and (iii) being referred
to as a "Violation "); and the Company will pay as incurred to Holder,
underwriter or controlling person, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Subsection 5.7(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld, conditioned or delayed), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by Holder or any such underwriter
or controlling person and
12
<PAGE>
provided, further, that the Company will not be liable to any underwriter, or
Holder, or any directors, officers, employees or agents of such underwriter or
Holder or any person controlling such underwriter or Holder or who "controls"
(is " controlled" by or under "common control" with) such underwriter or Holder
with respect to any loss, claim, liability, expense, charge or damage arising
our based on an untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact in any preliminary prospectus which
is corrected in any prospectus (or the prospectus, as supplemented or amended)
if the person asserting such loss, claim, liability, charge or damage purchased
Common Stock from such underwriter or Holder but was not sent or given a copy
of the prospectus (or the prospectus, as supplemented or amended) at or prior
to the written confirmation of the sale of such Common Stock to such Person.
(b) To the extent permitted by law, Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the Registration Statement, each person, if any, who controls (or is
controlled by or under common control with) the Company within the meaning of
the Securities Act, any underwriter, and any controlling person of any such
underwriter against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by Holder expressly for use in connection with
such registration; and Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this Subsection 5.7(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Subsection 5.7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of Holder (which consent
shall not be unreasonably conditioned, withheld or delayed); and provided,
further, that in no event shall any indemnity under this Subsection 5.7(b)
exceed the net proceeds from the offering of Registrable Securities of Warrant
Holder that are actually received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 5.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this
Section 5.7, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain one law firm of its
choice, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under
13
<PAGE>
this Section 5.7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 5.7.
(d) obligations of the Company to Holder under this Subsection 5.7
shall survive the completion of any offering of Registrable Securities of
Warrant Holder in a Registration Statement under this Section 5, and otherwise.
5.9 Reports Under Exchange Act. With a view to making available to Holder
the benefits of Rule 144 promulgated under the Securities Act and any other
rule or regulation of the SEC that may at any time permit Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the date
hereof;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to Holder, so long as Holder owns any right, title and
interest in, to or under this Warrant, forthwith upon request (i) a
written statement by the Company that it has then complied with the
reporting requirements of SEC Rule 144, the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may
be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing Holder of any rule
or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
5.10 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities of Warrant Holder pursuant to this Section 5
may be assigned, conveyed, designated, nominated, transferred and otherwise set
over by Holder to any one or more transferees, nominees, designees or assignees
who are selected by Holder, in its sole discretion. Holder will give the
Company written notice if it makes any assignment, conveyance, designation,
nomination or transfer contemplated by this Subsection 5.10.
5.11 "Market Stand-Off" Agreement. So long as the Registrable Securities
of Warrant Holder that are held by Holder are included within a Registration
Statement that is being filed with the SEC, Holder agrees that it shall not,
during such period or duration as may be specified by the Company and any
underwriter of Company (to the extent requested by the Company and such
underwriter), sell or otherwise transfer or dispose of (other than to donees
14
<PAGE>
who agree to be similarly bound) any Common Stock that is acquired by Holder
pursuant to an exercise of this Warrant; provided, however, that:
(a) such agreement shall be applicable only to a
Registration Statement of the Company which covers Common Stock (or other
securities) to be sold on behalf of the Company to the public in an
underwritten offering;
(b) all officers and directors of the Company and all
other persons owning securities included in such Registration Statement
enter into similar and not less restrictive agreements; and
(c) such market stand-off time shall not exceed 180 days.
Notwithstanding the foregoing, the obligations described in this Section
5.11 shall not apply to a registration relating solely to employee benefit
plans on Form S-8 or Form S-1 or a similar form which may be promulgated by the
SEC in the future, or a registration relating solely to an SEC Rule 145
transaction on Form S-15 or S-14 or a similar form which may be promulgated by
the SEC in the future.
Section 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Holder of this Warrant that
as of the date of this Warrant:
6.1 Organization and Capitalization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock $0.01 par value. As of October
31, 1997, there were 13,795,029 shares of Common Stock issued and outstanding,
and no shares of the Company's capital stock are held in its treasury. The
Company has authorized the issuance of 1,000,000 shares of Preferred Stock,
$0.01 par value. As of the date hereof, no shares of Preferred Stock are issued
and outstanding. There are no preemptive rights in effect with respect to the
issuance of any shares of the Common Stock. All the outstanding shares of the
Company's capital stock have been validly issued without violation of any
preemptive or similar rights and are fully paid and non-assessable. To the best
knowledge of the Company, the issued and outstanding shares of Common Stock has
not, in any material respect, changed between October 31, 1997, and the date
hereof.
6.2 Authority. The Company has full corporate power and authority to
execute and deliver this Warrant and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof have been duly
authorized by all necessary corporate action on its part. This Warrant has
been duly executed on behalf of the Company and constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with its terms.
15
<PAGE>
6.3 No Legal Bar. Neither the execution, delivery or performance of this
Warrant will (a) conflict with or result in a violation of the certificate of
incorporation or by-laws of the Company, (b) conflict with or result in a
violation of any law, statute, regulation, order or decree applicable to the
Company or any affiliate of the Company, (c) require any consent or
authorization or filing with, or other act by or in respect of, any
governmental authority, or (d) result in a breach of, constitute a default
under or constitute an event creating rights of acceleration, termination or
cancellation under any mortgage, lease, contract, franchise, instrument or
other agreement to which the Company is a party or by which it is bound, other
than applicable restrictions contained in any of such documents relating to
indebtedness of the Company.
Section 7. VARIOUS COVENANTS OF THE COMPANY.
7.1 No Impairment or Amendment. The Company shall not by any action
including, without limitation, amending its certificate of incorporation, any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate to protect the
rights of the holder hereof against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any shares
of Common Stock issuable upon the exercise of this Warrant above the amount
payable therefor upon such exercise; (b) take all such action as may be
necessary or appropriate in order that the Company may validly issue fully paid
and non-assessable shares of Common Stock upon the exercise of this Warrant;
(c) obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant if and at such times such
authorizations, exemptions or consents from such public regulatory bodies are
required to be obtained, provided, however, the foregoing shall not be
construed to enlarge or expand upon the registration rights granted to Holder
pursuant to Section 5 of this Warrant; (d) not undertake any reverse stock
split, combination, reorganization or other reclassification of the capital
stock which would have the effect of making this Warrant exercisable for a
number of shares of Common Stock that would be less than four and ninety-nine
hundredths of a percent (4.99%) of the outstanding shares of Common Stock as of
the date of this Warrant; and (e) upon the request of Holder, at any time
during the period this Warrant is outstanding, acknowledge in writing, in form
satisfactory to Holder, the continued validity of this Warrant and the
Company's obligations hereunder.
7.2 Listing on Securities Exchange. If the Company shall list any shares
of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all Warrant
Stock so long as any shares of Common Stock shall be so listed. The Company
will also so list on each securities exchange, and will maintain such listing
of, any other securities which the holder of this Warrant shall be entitled to
receive upon the exercise thereof if at the time any securities of the same
class shall be listed on such securities exchange by the Company.
16
<PAGE>
7.3 Availability of Information. The Company will cooperate with Holder of
Warrant Stock in supplying such information as may be necessary for Holder to
complete and file any information reporting forms presently or hereafter
required by the Securities and Exchange Commission as a condition to the
availability of an exemption from the Securities Act for the sale of this
Warrant or such Warrant Stock.
Section 8. ADJUSTMENT OF WARRANT PRICE
8.1. Issuance of Additional Shares of Common Stock. If the Company at any
time or from time to time after the date hereof shall issue or sell Additional
Shares of Common Stock (including the Additional Shares of Common Stock that
would be deemed to be issued pursuant to Section 8.2 or 8.3 of this Warrant)
without consideration or for consideration per share less than the Market Price
in effect immediately prior to the date of such issue or sale, then, and in
each such case, subject to Section 8.6 of this Warrant, the Warrant Price shall
be reduced, concurrently with such issue or sale, to a price determined by
multiplying such Warrant Price by a fraction, (a) the numerator of which shall
be (i) the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus (ii) the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of
Additional Shares of Common Stock so issue or sold would purchase at such
Market Price, and (b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale.
8.2. Adjustment for Stock Dividends. If the Company shall pay any dividend
or make any other distribution on the class of capital stock of the Company in
shares of Common Stock, the Warrant Price in effect at the close of business on
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such Warrant
Price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator of which shall be the sum of such number of
shares and the total number of shares of Common Stock constituting such
dividend or other distribution, such reduction to become effective immediately
prior to the opening of business on the day following the date fixed for such
determination. For purposes of this Section 8.2, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company.
8.3. Adjustments for Issuance of Rights or Warrants. If the Company shall
issue rights or warrants generally to holders of its Common Stock or any other
class of capital stock convertible into Common Stock, entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the Market Price per share of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights or warrants, the
Warrant Price in effect at the close of business on the date fixed for such
determination shall be reduced by multiplying such Warrant Price by a fraction,
the numerator of which shall be (a) the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination,
plus (b) the number of shares of Common Stock that the aggregate of the
offering price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at the Market Price, and the
denominator of which shall be the number
17
<PAGE>
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately prior to the opening of business on
the date following the date fixed for such determination. For the purpose of
this Section 8.3, the issuance of rights or warrants to subscribe for or
purchase securities convertible into Common Stock shall be deemed to be the
issuance of rights or warrants to purchase the number of shares of Common Stock
into which such securities are convertible at an aggregate offering price equal
to the aggregate of the offering price of such securities plus the minimum
aggregate amount (if any) payable upon conversion of such securities into
Common Stock. For purposes of this Section 8.2 , the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company.
8.4. Adjustment for Stock Subdivisions and Combinations. If the
outstanding shares of Common Stock are subdivided into a greater number of
shares of Common Stock, the Warrant Price in effect at the close of business on
the day upon which such subdivision becomes effective shall be proportionately
reduced and, conversely, if the outstanding shares of Common Stock are combined
into a smaller number of shares of Common Stock, the Warrant Price in effect at
the opening of business on the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as
the case may be, to become effective immediately prior to the opening of
business on the day following the day upon which such subdivision or
combination becomes effective.
8.5 Computation of Adjusted Warrant Price. Whenever the Warrant Price is
adjusted as provided in this Section 8, (a) the Company shall compute the
adjusted Warrant Price to the nearest one-hundredth of one cent in accordance
with this Section 8 and shall prepare a certificate, signed by the Chief
Financial Officer or Treasurer of the Company, setting forth the adjusted
Warrant Price and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed at the
office of the Company that is maintained in accordance with Section 3.3 of this
Warrant, and (b) a written notice stating that the Warrant Price had been
adjusted and setting forth the adjusted Warrant Price shall, as soon as
practicable, be given to Holder; provided, however, the failure of the Company
to file the notice contemplated by Section 8.5(a) or give the notice
contemplated by Section 8.5(b) shall not deprive Holder of any benefit accruing
to it on account of the transactions contemplated thereby.
8.6. Minimum Adjustment; Limitation. No adjustment in the Warrant Price
shall be required under this Section 8 unless such adjustment would require an
increase or decrease of at least one percent (1%) in such price; provided,
however, any adjustments that by reason of this Section 8.6 are not required to
be made shall be carried forward and taken into account and given effect in
connection with any subsequent adjustment. All calculations made under this
Section 8 shall be made to the nearest one-hundredth of one cent or to the
nearest one-hundredth of a share of Common Stock, as the case may be.
Notwithstanding the foregoing provisions of this Section 8, in no event shall
the Warrant Price be reduced below the minimum amount for which the Common
Stock may lawfully be issued pursuant to applicable law; provided, however,
upon the occurrence of any event that would, but for the foregoing, give rise
to an adjustment of the Warrant Price pursuant to this Section 8, solely for
the purposes of determining the number of Warrants pursuant to Section 1 above,
the Warrant Price shall be taken
18
<PAGE>
into consideration and given effect as if adjusted to the full extent provided
for in this Section 8, without regard to the limitation set forth herein.
Section 9. REPLACEMENT OF WARRANTS.
Upon (a) surrender of this Warrant in mutilated form or receipt of
evidence satisfactory to the Company of the loss, theft or destruction of this
Warrant and (b) in the case of any loss, theft or destruction of this Warrant,
receipt of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company, then, in the absence of actual notice to the Company
that this Warrant has been acquired by a bona fide purchaser, the Company, at
its expense, shall execute and deliver, in lieu of this Warrant, a new Warrant
identical in form to this Warrant.
Section 10. REMEDIES.
The Company stipulates that the remedies at law of Holder in the event of
any breach or threatened breach by the Company of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or
by injunctive relief or a declaratory judgment against a breach of any of the
terms hereof or otherwise.
Section 11. TRANSFER.
This Warrant and the shares of Common Stock issuable hereunder shall not
be sold, transferred, pledged, or hypothecated (other than to an affiliate of
the Bank, as defined in Rule 405 under the Securities Act) unless the proposed
disposition is (a) the subject of a currently effective Registration Statement
under the Securities Act or (b) the Company has received an opinion of counsel,
in form and substance reasonably satisfactory to the Company, to the effect
that such registration is not required in connection with such disposition. In
the case of such a sale, transfer, pledge or hypothecation (except by the
aforesaid affiliate of the Bank), or in the event of the exercise hereof if the
Warrant Stock so acquired is not registered under the Securities Act, the
Company may require a written statement that this Warrant or Warrant Stock, as
the case may be, are being acquired for investment and not with a view to the
distribution thereof, and any certificate representing Warrant Stock issued
pursuant to such exercise shall bear a legend in substantially the form set
forth on the face hereof. Subject to the first two sentence of this Section,
this Warrant and all rights hereunder are transferable, in whole or in part,
but to no more than three transferees in the aggregate (including the
transferor if it retains a part of this Warrant), at the office or agency of
the Company by the registered holder thereof in person or by a duly authorized
attorney, upon surrender of this Warrant together with an assignment hereof
properly endorsed. Until transfer hereof on the registration books of the
Company, the Company may treat the existing registered holder hereof as the
owner hereof for all purposes. Any transferee of this Warrant and any rights
hereunder, by acceptance thereof, agrees to assume all of the obligations of
Holder and to be bound by all of the terms and provisions of this Warrant. Any
such transferee may transfer all of this Warrant to any other transferee,
subject to the terms and conditions of this Warrant.
19
<PAGE>
Section 12. NOTICES.
Where this Warrant provides for notice of any event, such notice shall be
given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally or (ii) sent by certified or registered mail, postage
prepaid, return receipt requested, and shall be deemed given when so delivered
personally or so mailed. Notices shall be addressed, if to Holder, to the
address of Holder to PNC Recovery Corp., 249 Fifth Avenue, Pittsburgh,
Pennsylvania 5222-2707, Attention: Mr. Thomas J. McCool, Senior Vice President
(with a copy concurrently to Pitney, Hardin, Kipp & Szuch, 200 Campus Drive,
Florham Park, New Jersey 07932-0950, Attention: Peter A. Forgosh, Esq.) or, if
to the Company, to 1735 Jersey Avenue, North Brunswick, New Jersey 08902,
Attention: Treasurer (with a copy concurrently to Fulbright & Jaworski, L.L.P.,
666 Fifth Avenue, New York, New York 10103-3198, Attention: Sheldon G.
Nussbaum, Esq.), or to such other address as a party shall have given notice of
as aforesaid.
Section 13. SURVIVAL.
The provisions of Section 5 shall survive the termination or expiration of
this Warrant if the Warrant has become exercisable prior to its termination and
shall continue to be effective with respect to any Warrant Stock issued. The
provisions of Section 2 shall survive the termination of this Warrant upon
exercise in full, but shall terminate in any event on the Expiration Date.
Section 14. MISCELLANEOUS.
14.1 This Warrant shall be binding upon the Company and Holder and their
respective legal representatives, successors and assigns.
14.2 If any provision of this Warrant shall be invalid, illegal, or
unenforceable, in whole or in part, the provision shall be enforced to the
extent, if any, that it may legally be enforced and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
14.3 This Warrant and any term hereof may be changed, waived, discharged
or terminated only by a statement in writing signed by Holder and the Company.
14.4 The headings and section names in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant shall take effect as an instrument under seal.
14.5 Except as otherwise contemplated in the immediately succeeding
sentence with respect to direct and actual damages, in the event that a claim
or adjudication is made that Holder has acted unreasonably or unreasonably
delayed acting in any case where by law or under this Warrant, it has an
obligation to act reasonably or without unreasonable delay, Holder shall not be
liable for any monetary damages, and the Company's remedies shall be limited to
injunctive
20
<PAGE>
relief or declaratory judgment. To the fullest extent permitted or
not prohibited by law, neither Holder nor any party related to Holder
(including any of its present or future officers, directors, shareholders or
other Person or Holder's affiliates and subsidiaries) shall assert, and the
Company hereby waives, any claim it may have against Holder and such aforesaid
Persons on any theory of liability for special, indirect, consequential and
punitive damages (as opposed to direct and actual damages) in connection with,
or as a result of, this Warrant and the transactions contemplated hereby.
14.6 The failure of Holder to insist upon strict performance of any term
hereof shall not be deemed to be a waiver of any term of this Warrant. The
Company shall not be relieved of any of its obligations hereunder by reason of
(a) the failure of Holder to comply with any request of the Company that is not
expressly set forth in this Warrant, (b) the release, regardless of
consideration, of the whole or any part of any one or more of the PNC Loan
Documents or of any Person liable for the PNC Debt or any portion thereof, or
(c) any agreement or stipulation by Holder extending the time of payment or
otherwise modifying or supplementing this Warrant or any one or more of the
other Loan Documents. The Bank may resort for the payment of the PNC Debt to
any security held by the Bank in such order and manner as the Bank, in its sole
discretion, may elect, regardless of whether or not it or any subsequent Holder
exercises any rights under this Warrant. The Bank may take action to recover
the PNC Debt, or any portion thereof, or to enforce any covenant thereof
without prejudice to the rights of the Bank or any subsequent Holder under this
Warrant. The rights and remedies of the Bank under the PNC Loan Documents shall
be separate, distinct and cumulative and none shall be given effect to the
exclusion of the others. No act of the Bank shall be construed as an election
to proceed under any one provision herein to the exclusion of any other
provision. The Bank shall not be limited exclusively to the rights and remedies
stated in the PNC Loan Documents but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
14.7 Unless the context clearly indicates a contrary intent or unless
otherwise specifically provided herein, words used in this Warrant may be used
interchangeably in singular or plural form. Whenever the context may require,
the singular includes the plural, the plural includes the singular and the use
of any gender includes all genders.
14.8 WITH RESPECT TO ANY ACTION, SUIT OR PROCEEDING RELATING TO THIS
WARRANT, THE COMPANY IRREVOCABLY (A) SUBMITS TO THE JURISDICTION OF THE COURTS
OF THE STATE OF NEW JERSEY; AND (B) WAIVES ANY OBJECTION WHICH THE COMPANY MAY
HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING
BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH
RESPECT TO SUCH PROCEEDING, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE
COMPANY. NOTHING IN THIS WARRANT SHALL PRECLUDE HOLDER FROM BRINGING AN ACTION,
SUIT OR PROCEEDING IN ANY OTHER JURISDICTION NOR WILL THE BRINGING OF ANY
ACTION, SUIT OR
21
<PAGE>
PROCEEDING IN ANY ONE OR MORE OTHER JURISDICTIONS PRECLUDE THE BRINGING OF AN
ACTION, SUIT OR PROCEEDING IN ANY OTHER JURISDICTION. THE COMPANY FURTHER
AGREES AND CONSENTS THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY ACTION, SUIT
OR PROCEEDING IN ANY SUCH COURT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
POSTAGE PREPAID, RETURN RECEIPT REQUESTED, DIRECTED TO THE COMPANY AT THE
ADDRESS SET FORTH IN SUBSECTION 1.1(A), AND SERVICE SO MADE SHALL BE COMPLETE
FIVE (5) DAYS AFTER BEING SO MAILED.
14.9 THIS WARRANT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL
SUBSTANTIVE LAWS OF THE STATE OF NEW JERSEY (WITHOUT GIVING EFFECT TO THE SUCH
JURISDICTION'S PRINCIPLES OF CONFLICTS OF LAWS). TO EXPEDITE THE RESOLUTION OF
ANY DISPUTES WHICH MAY ARISE UNDER THIS WARRANT AND IN LIGHT OF THE COMPLEXITY
OF THE TRANSACTIONS CONTEMPLATED HEREBY, THE COMPANY HEREBY EXPRESSLY AND
UNCONDITIONALLY WAIVES THE RIGHT TO INJUNCTIVE RELIEF, SET-OFF, HAVING ANY
ACTION, SUIT OR PROCEEDING BROUGHT BY HOLDER CONSOLIDATED WITH ANY OTHER
SEPARATE ACTION, SUIT OR PROCEEDING (BUT THE FOREGOING SHALL NOT BE CONSTRUED
AS INTENDING TO PROHIBIT THE COMPANY FROM BRINGING ANY SUCH ACTION, SUIT OR
PROCEEDING), OR COUNTERCLAIM (SAVE ANY MANDATORY OR COMPULSORY COUNTERCLAIMS
UNDER APPLICABLE LAW), AS WELL AS THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT TO WHICH IT MAY BE A
PARTY OR A MATERIAL WITNESS, AND THE COMPANY ACKNOWLEDGES THAT THIS WAIVER OF
TRIAL BY JURY HAS BEEN SPECIFICALLY NEGOTIATED FOR AS A PART OF THIS WARRANT.
14.10 Anything in this Warrant or the other PNC Loan Documents to the
contrary notwithstanding, the Company expressly acknowledges that the
relationship between the Bank and the Company, is solely that of a debtor and
creditor and nothing shall be deemed or construed as creating any partnership,
joint venture, joint tenancy, tenancy in common, or similar relationship
between the Bank and the Company. The Company represents and warrants to the
Bank that it shall not make any assertion inconsistent with the acknowledgment
contained in the immediately preceding sentence in the event of any action,
suit, or proceeding, either at law or in equity, relating to this Warrant or
the other PNC Loan Documents, and that this sentence may be pleaded, and shall
be construed and deemed to be, a complete bar to and estoppel against any
assertion by the Company that is inconsistent with the immediately preceding
sentence.
14.11 The forms of Assignment, Subscription, Certificate of Reduction, and
form for the Cashless Exercise attached to this Warrant together with this
Warrant may, in addition to the procedures provided in Articles 1 and 12 of
this Warrant, be delivered by facsimile to the Company at any facsimile number
of the Company that is known to Holder and delivery of the
22
<PAGE>
Assignment, Subscription, Certificate of Reduction, this Warrant and form for
the Cashless Exercise by facsimile shall be tantamount to delivery as otherwise
provided for herein; provided, however, the foregoing shall not be deemed to
modify the notice provisions of Article 12 with respect to other notices that
may be given pursuant to this Warrant; and, provided, further, that prior to
issuance of the Warrant Shares or any subsequently issued Warrant the Company
may require Holder to deliver to it the original signature copies of the
Assignment, Subscription, Certificate of Reduction, this Warrant and form for
the Cashless Exercise, as applicable.
14.12 Time is of the essence as to all dates set forth in this Warrant,
including, among others, the First Calculation Date, the Second Calculation
Date and the Third Calculation Date.
Section 15. DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
15.1 The term "Additional Shares of Common Stock" shall mean all shares of
Common Stock, including shares of treasury stock, issued or sold by the Company
after the date hereof, other than shares of Common Stock issued pursuant to the
exercise of Warrants, existing warrants to purchase Common Stock, stock options
granted to employees, directors, officers or consultants of the Company or any
of its subsidiaries, or warrants granted in the ordinary course of business or
warrants (or other convertible securities) or Common Stock granted, issued or
sold to persons, joint venturers, participating entities or other companies or
institutions with which the Company has a business relationship, or Common
Stock issued to the Company's former or present shareholders in connection with
the settlement of the sole class action proceeding pending against the Company
on the date of the execution and delivery of this Warrant..
15.2 The term "Common Stock" shall mean the duly authorized, validly
issued, fully-paid and non-assessable common stock of the Company, $0.01 par
value per share, all of which issued and outstanding shares of Common Stock are
free of preemptive rights.
15.3 The term "Exchange Act" means the Securities Exchange Act of 1933, or
any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission (or of any other Federal agency then administering the
Securities Act) hereunder, all as the same shall be in effect at the time.
15.4 The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
that is subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
15.5 The term "indefeasibly paid in full" shall mean, with respect to the
PNC Debt, that the Bank shall have received lawful funds of the United States
of America which at the time of payment is legal tender for the payment of
public and private debts and there is no law,
23
<PAGE>
rule, regulation or other matter of like import then being imposed on the Bank
that would require the Bank to disgorge, repay or return to the Company or any
other Person, including any trustee or receiver of the Company, any payment
that has previously been received by the Bank.
15.6 The term "Market Price" shall mean the closing price for the day in
question. The closing price for such day shall be (a) the last reported sales
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, on the National Association of Securities Dealers
Automated Quotation National Market or Small Cap Market System, (b) if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on such National Market or Small Cap Market System, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm reasonably selected from
time to time by the Company for that purpose, or (c) if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
such National Market and the average price cannot be determined as contemplated
by clause (b), the fair market value as reasonably determined in good faith by
the Company's board of directors or in any manner reasonably prescribed by the
Company's board of directors. In the event that the Market Price is determined
by the method set forth in subsection "(c)" of the immediately foregoing
sentence and Holder objects to the result of such determination, then, at the
direction of Holder, the Company shall forthwith upon receipt of such notice
engage a consulting firm or investment banking firm jointly selected by Holder
and the Company to prepare an independent appraisal of the fair market value of
an outstanding share of Common Stock, which appraised fair market value shall
be the "Market Price" hereunder, the costs of which shall be borne in equal
proportion by the Company and Holder unless it is determined by the order or
judgment of a court of competent jurisdiction not subject to further appeal
that the Market Price was determined in a manner that is inconsistent with the
Company's requirements under the foregoing clause "c," in which event the costs
of which shall be borne solely by the Company. For the purposes of this Section
15.5, the term " Business Day" shall mean any day other than a Saturday,
Sunday, public holiday or its equivalent generally on which (a) commercial
banks in the State of New Jersey and (b) stock exchanges in the United States
of America in which the Common Stock is traded are open and authorized to do
business (or not required to be closed).
15.7 The term "PNC Debt" shall mean those certain obligations of the
Company (including any commitments to lend by PNC Bank) to pay to PNC Bank,
National Association the sum of up to Forty Million ($40,000,000.00) Dollars as
evidenced by the Amended and Restated Secured Revolving Promissory Note in the
amount of $10,000,000.00, the Amended and Restated Secured Capital Expenditure
Note in the amount of $20,000,000.00 and the Amended and Restated Secured
Bridge Note in the amount of $10,000,000.00, all dated of even date and
executed contemporaneously herewith by the Company, as the same may be amended,
substituted, renewed or extended from time to time.
24
<PAGE>
15.8 The term "PNC Loan Documents" shall mean all documents, instruments,
records and papers evidencing, securing, guaranteeing, indemnifying,
documenting or otherwise relating to the PNC Debt.
15.9 The term "Person" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization or any
government, governmental department or agency or political subdivision thereof.
15.10 The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act and the subsequent declaration or ordering
of the effectiveness of such Registration Statement.
15.11 The term "Registrable Securities of Warrant Holder" means the
Warrant Shares that may be or are acquired pursuant to any one or more
exercises of this Warrant including (a) the Common Stock issued or issuable
upon exercise of this Warrant, and (b) any other shares of Common Stock issued
in respect of such shares by way of a stock dividend, or stock split, or in
connection with a combination of shares, recapitalization, merger or
consolidation or reorganization, provided, however, that shares of Common Stock
shall only be treated as Registrable Stock if and so long as they (i) may not
be sold in a sale transaction in the public market pursuant to the provisions
of Rule 144, as amended, or any successor thereto, promulgated by the
Securities and Exchange Commission, (ii) have not been sold to or through a
broker or dealer or underwriter in a public distribution, or a public
securities transaction, or (iii) have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities
Act under Section 4(1) thereof so that all transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale and the seller and purchaser of such Common Stock
receive an opinion of counsel for the Company, which shall be in form and
content reasonably satisfactory to the seller and buyer and their respective
counsel, to the effect that such Common Stock in the hands of the purchaser is
freely transferable without restriction or registration under the Securities
Act in any public or private transaction.
15.12 The term "Registration Statement" means a Registration Statement
filed by the Company with the Securities and Exchange Commission for a public
offering and sale of securities of the Company (other than a Registration
Statement on Form S-8, Form S-4, or successor forms, any Registration Statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation, any other form of Registration Statement not
available for registering the Registrable Stock or any Registration Statement
relating solely to employee Stock Option, stock purchase, benefit or similar
plans).
15.13 The term "Securities Act" means the Securities Act of 1933, or any
successor Federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Securities Act) hereunder, all as the same shall be in effect at the time.
25
<PAGE>
15.14 The term "Warrant Stock" shall mean any equity security issued upon
exercise of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary or Assistant Secretary on February 25, 1998.
USA DETERGENTS, INC.,
A Delaware Corporation
By: /s/ Uri Evan
-------------------------------------
Name: Uri Evan
-------------------------------------
Title: Chairman of the Board and
Chief Executive Officer
-------------------------------------
(CORPORATE SEAL)
26
<PAGE>
[Execution Copy]
FORM
OF
SUBSCRIPTION
(To be signed only on exercise of Common Stock Purchase Warrant)
TO: USA DETERGENTS, INC.
The undersigned, the holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder, ___________________ shares of Common Stock of USA
Detergents, Inc. (the "Company") and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to, _______________________, whose address is
_______________________________________________________________________.
........................................
(Signature must conform in all respects
to name of Holder as specified on the face
of the Warrant)
.........................................
(Address)
- -----------
* Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common
Stock Purchase Warrant is being exercised without making any adjustment
for any other stock or other securities or property or cash that, pursuant
to the adjustment provisions of the Common Stock Purchase Warrant, may be
deliverable on exercise.
27
<PAGE>
FORM
OF
ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
TO: USA DETERGENTS, INC.
For value received, the undersigned hereby sells, assigns and
transfers unto _____________________________ of ___________________________ the
right represented by the within Common Stock Purchase Warrant to purchase
___________ shares of Common Stock of USA Detergents, Inc. (the "Company") to
which the within Common Stock Purchase Warrant relates, and appoints
_______________________, Attorney, to transfer such right on the books of USA
Detergents, Inc. with full power of substitution in the premises.
-------------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the face
of the Warrant)
-------------------------------------------
(Address)
Signed in the presence of:
- -------------------------------
<PAGE>
[Execution Copy]
FORM
OF
CERTIFICATE OF REDUCTION
(To be signed only on exercise of Common Stock Purchase Warrant)
TO: USA DETERGENTS, INC.
The capitalized terms used in this Certificate of Reduction, if not
otherwise defined, shall have the meanings ascribed to them in that certain
Common Stock Purchase Warrant (the "Warrant"), dated January ___, 1998, from
USA DETERGENTS, INC. (the "Company"), to PNC BANK, NATIONAL ASSOCIATION (the
"Bank").
Reference is made to Section 1.1(a) of the Warrant, wherein
the Warrant Price for the shares of Common Stock that are deliverable by the
Company to Holder may be paid by virtue of this Certificate of Reduction in
lieu of a certified or official bank check or wire transfer.
The Bank hereby certifies to the Company that the PNC Debt is
hereby reduced by $ __________, which is the amount that is required to be paid
for the Warrant Price for the number of shares of Common Stock for which the
Warrant is now being exercised by Holder and which amount equals or exceeds the
presently outstanding amount of the PNC Debt.
IN WITNESS WHEREOF, this Certificate of Reduction has been
executed and delivered by the Bank on __________ ___, _______.
PNC BANK, NATIONAL ASSOCIATION
By: ________________________________
Name:
Title:
29
<PAGE>
[Execution Copy]
FORM
FOR
CASHLESS EXERCISE ELECTION
(To be signed only on exercise of Common Stock Purchase Warrant)
TO: USA DETERGENTS, INC.
The capitalized terms used in this Cashless Exercise Election, if not
otherwise defined, shall have the meanings ascribed to them in that certain
Common Stock Purchase Warrant (the "Warrant"), dated January ___, 1998, from
USA DETERGENTS, INC. (the "Company"), to PNC BANK, NATIONAL ASSOCIATION (the
"Bank").
Reference is made to Section 1.1(a)(ii) of the Warrant, wherein Holder is
entitled to effectuate a Cashless Election.
If the Holder of the Warrant is other than the Bank, the undersigned
represents and warrants to the Company that is the true and lawful owner and
holder of the Warrant.
Pursuant to Section 1.1(a)(ii) of the Warrant, Holder hereby elects to
enter into a Cashless Election and is exchanging the Warrant delivered herewith
to the Company for that number of shares of Common Stock to which the Holder is
entitled pursuant to Section 1.1(a)(ii). Holder hereby waives any obligation to
pay all or any portion of the Warrant Price.
IN WITNESS WHEREOF, this Cashless Exercise Election has been executed and
delivered by the Holder on __________ ___, _______.
-----------------------------
30
<PAGE>
MORTGAGE
THIS MORTGAGE, made the 25th day of February, 1998 by USA DETERGENTS,
INC., a corporation organized and existing under the laws of the State of
Delaware, and duly authorized to do business in the State of New Jersey,
located at 1735 Jersey Avenue, North Brunswick, New Jersey 08902 ("Mortgagor"),
and PNC BANK, NATIONAL ASSOCIATION, having an office at Two Tower Center
Boulevard, East Brunswick, New Jersey 08816 ("Mortgagee").
W I T N E S S E T H:
Mortgagor, intending to be legally bound and for the purpose of
securing strict, absolute and unconditional payment and performance under
certain Notes of even date herewith [as defined in an Amended and Restated Loan
and Security Agreement (hereafter the "Loan Agreement") executed
contemporaneously herewith], together with any amendments thereto, extensions
or renewals thereof, or any substitutions or replacements therefore, with
interest thereon, in the aggregate principal amount of Thirty-Five Million Nine
Hundred Ninety-Seven Thousand Nine Hundred Eighty-Three Dollars and Sixteen
Cents ($35,997,983.16) executed and delivered by Mortgagor to Mortgagee and
payment and performance of any and all liabilities, debts and obligations of
Mortgagor related thereto whether under any and all agreements now or hereafter
entered into between Mortgagor and Mortgagee or otherwise, without limitations,
and to secure performance of the covenants contained in this Mortgage does
hereby give, grant, bargain, sell, release, transfer, alien, enfeoff, convey
and confirm to Mortgagee, the lands, premises and property situate in the
Township of North Brunswick, County of Middlesex and State of New Jersey,
commonly known as 1600 U.S. Highway One North, North Brunswick, New Jersey,
Block 143, Lot 18.3 on the Tax Map of the Township of North Brunswick, and more
particularly described in Schedule "A" annexed hereto and made a part hereof.
The loans from Mortgagee to Mortgagor which is evidenced by the Notes is
hereinafter referred to as the "Loans". The documents evidencing and/or
securing the Loans are hereinafter collectively referred to as the "Relevant
Documents." Notwithstanding anything contained herein to the contrary, this
Mortgage shall constitute a first mortgage lien on the Subject Premises (as
hereinafter defined) securing the principal sum of $5,000,000.00, interest
thereon and costs and expenses related thereto and a third mortgage lien on the
Subject Premises securing the principal sum of $30,997,983.16, interest thereon
and costs and expenses relating thereto, which third mortgage lien shall be
subject and subordinate to that certain second mortgage (the "Second Mortgage")
securing the principal sum of $4,000,000.00 and interest thereon granted to 101
Realty Associates, L.L.C., a New Jersey limited liability company ("101
Realty").
TOGETHER with all and singular the present and future buildings and
improvements thereon and the appurtenances thereto.
AND TOGETHER with the buildings, streets, alleys, easements, passage
ways, water, watercourses, rights, liberties, privileges, improvements, mineral
rights, hereditaments and appurtenances whatsoever thereunto belonging or in
any way appertaining, and the reversions and remainders.
AND ALSO TOGETHER with any and all fixtures, machinery, equipment and
other articles of real, personal or mixed property at any time attached to or
situate or installed in or upon the above described real estate or the
buildings and improvements now or hereafter erected
-1-
<PAGE>
thereon, whether or not such real, personal or mixed property is or shall be
affixed to the same, including, without limitations to things similar or
dissimilar;
All furniture, furnishings, floor coverings, household appliances,
office equipment, and articles of interior decoration;
All machinery, equipment, lifts, cranes, hoists, platforms;
All cleaning, ventilating, refrigerating, vending, incinerating, waste
disposal, conveyor, communications, alarm, fire prevention and fire
extinguishing systems, apparatus and equipment;
All passenger and freight elevators, escalators and machinery and
equipment pertaining thereto;
All pipes, conduits, pumps, boilers, tanks, motors, engines, furnaces,
and compressors;
All heating, lighting, water, power, plumbing, gas-burning,
air-conditioning and electrical fixtures, machinery and equipment of
whatsoever kind and nature;
All computers, disc drives, tape drives, modems, data lines, memory
blanks, processors, and all hardware and software relating thereto;
All additions thereto and accessions thereon; and
All replacements thereof and substitutions therefor as well as the
proceeds thereof, including, without limitation, proceeds of insurance
and condemnation awards;
all of which are hereby declared and shall be deemed to be real estate
fixtures, accessory to the freehold and a part of the reality. It being the
intention of the parties, without limiting the generality of the foregoing,
that the aforesaid indebtedness shall be secured, inter alia, upon the
buildings and improvements erected on said real estate, fully furnished and
equipped and that all articles of real, personal or mixed property, furniture
and furnishings, machinery and equipment, necessary or useful for any purpose
to which such buildings and improvements are now or hereafter put, which may at
any time hereafter be in, on or about the premises, not limited to those
enumerated herein (but excluding all consumable stores and all furniture,
furnishings, appliances, trade fixtures, fixtures, and other personal property
owned by tenants and installed for the purpose of their tenancies with right of
removal at or before the expiration of the terms of their leases) as well as
the proceeds thereof, shall be deemed to be a part of the security for said
indebtedness and subject to the lien of this Mortgage. This Mortgage shall also
constitute a security agreement under the Uniform Commercial Code, and
Mortgagor grants and Mortgagee shall have and may enforce a security interest,
to secure payment of all sums due or to become due to the Mortgagee, in any or
all said fixtures, machinery, inventory, furniture, equipment, furnishings and
other articles of real, personal or mixed property in addition to (but not in
limitation of) the lien upon the same, as part of the reality, imposed by the
foregoing provisions hereof, such security interest to attach at the earliest
moment permitted by law and also to include and attach to all accounts,
accounts receivable, contract rights, chattel paper, documents, instruments,
goods and general intangibles of Mortgagor obtained in connection with or
relating to the operation, construction and maintenance of the premises, or
used or useable in connection therewith, including, without limitation, all
plans, blueprints, surveys, operating manuals, diagrams, drawings, records,
books, computer programs, computer tapes, discs, computer printouts, as well as
any and all items of property in the foregoing classifications which are
-2-
<PAGE>
hereafter acquired and in all cash and non-cash proceeds thereof (including
insurance proceeds) and proceeds of proceeds.
AND ALSO TOGETHER, with all of the rents, issue, profits and proceeds
of the premises, including without limitation all of the rents, issue, profits
and proceeds of all of the foregoing. (All of the property, whether real,
personal or mixed in which Mortgagor is granting a lien and/or security
interest is referred to herein as the "Subject Premises").
TO HAVE AND TO HOLD the said hereditaments and Subject Premises
granted above, or intended to be so granted, with the appurtenances, unto the
Mortgagee to and for the only proper use and behoof of the Mortgagee, forever.
AND the Mortgagor does hereby covenant with Mortgagee that Mortgagor
is lawfully seized of an indefeasible estate in fee simple in the Subject
Premises; that Mortgagor is the sole legal and beneficial owner thereof and
does not hold as straw party for or nominee of any other person, firm or
corporation; that Mortgagor has good right and lawful authority to sell or
mortgage the same; and that Mortgagor's title to the Subject Premises is free
and clear of all liens and encumbrances and shall defend same against all
willful claims whatsoever.
This Mortgage secures repayment of moneys due under the Notes
and the other Relevant Documents. The Notes is also secured by any and all
guaranty agreements heretofore or hereafter executed and delivered which assure
payment and performance as therein specified of the obligations of the
Mortgagor therein specified and such other monies as may be due from Mortgagor
to Mortgagee now or hereafter as further set out below (collectively, the
"Guaranty Agreement"). Each party to a Guaranty Agreement is hereinafter
referred to as a "Guarantor". The original stated amount of the obligations
secured hereby including the Notes is the total of the sums aforementioned
including sums due or to become due in the future from Mortgagor to Mortgagee
in connection with any of the foregoing, provided, however the dollar amount
set forth herein is solely for the purposes of this Mortgage and shall not be
construed as limiting or modifying the Guaranty Agreement in any way. This
Mortgage contemplates future advances to Mortgagor and shall secure repayment
of all monies due from Mortgagor to Mortgagee now or in the future whether due
under this Mortgage, the Notes, the Loan Agreement (as defined herein), or any
of the other Relevant Documents. In addition to the principal under the Notes,
this Mortgage shall secure payment of interest under the Notes on the unpaid
principal balance thereof (including interest at the Taxable Rate as set out in
the Notes if this Mortgage secures repayment of the Loans the interest on which
is exempt from federal taxation) from the date of the Notes until paid.
TAX IDENTIFICATION NUMBER. The tax identification number of
the Mortgagor is 11-2935460.
FUTURE ADVANCES. THIS MORTGAGE SECURES FUTURE ADVANCES. This
Mortgage shall also cover and be security for any other future advances that
may be made in connection with the Loans (whether with or without obligation to
do so) by Mortgagee to Mortgagor at any time or times hereafter whether or not
any reference is made to this Mortgage at the time that such advances are made,
including without limitation, any advances made by Mortgagee for the protection
or preservation of the Subject Premises, or Mortgagee's lien position thereon,
including any such advances made subsequent to the entry of foreclosure
judgment. This Mortgage shall secure repayment of all monies due from Mortgagor
to Mortgagee in connection with the Loans now or in the future even if such
amounts exceed the aforementioned contemplated maximum amount secured hereby.
Without limiting the generality of any other provision(s) hereof, this Mortgage
shall also secure repayment of the unpaid balance
-3-
<PAGE>
of advances made, with respect to the Subject Premises, for the payment of
taxes, assessments, maintenance charges, insurance premiums or costs incurred
for the protection of the Subject Premises or the lien of this Mortgage,
expenses incurred by the Mortgagee by reason of default by the Mortgagor under
this Mortgage or advances made under the Loan Agreement. The amount of all such
Loans or advances shall be added to the principal indebtedness but shall bear
interest and shall be repaid at the rate or rates specified in the Notes or
other evidence(s) of indebtedness made in connection with such Loans or
advances.
DEFAULT RATE. Upon the occurrence of an Event of Default (as
defined herein), Mortgagee, at its sole option, may increase the interest rate
due on all sums secured hereby to a rate of interest which is two percent (2%)
above the interest rate specified in the Notes (the "Default Rate").
PROVIDED ALWAYS that, if Mortgagor shall pay to Mortgagee all
sums due or to become due under the Notes, this Mortgage, the Loan Agreement,
or any of the other Relevant Documents, and shall fully perform, comply with,
and abide by each and every stipulation, agreement, condition, and covenant of
this Mortgage, the Notes, the Loan Agreement, and the other Relevant Documents
and shall pay all taxes, charges and assessments that may accrue on or be
levied or assessed against the Subject Premises, and all costs and expenses
that Mortgagee may be put to in collecting the indebtedness secured hereby,
protecting the security hereof, and/or enforcing the covenants and promises of
Mortgagor by foreclosure of this Mortgage or otherwise, including without
limitation, attorneys' fees; that then and from thence forth, this Mortgage and
the estate hereby granted shall cease and be null and void.
1. PAYMENT AND PERFORMANCE.
A. Payments shall be made at such office of Mortgagee as the
Mortgagee shall direct in writing from time to time.
B. Mortgagor shall perform and comply with all of the
agreements, conditions, covenants, provisions and stipulations contained
herein, in the Notes, in the Loan Agreement, and in the other Relevant
Documents. Such performance shall be at Mortgagor's sole cost.
C. A default by the Mortgagor under the Loan Agreement shall
likewise be a default by the Mortgagor hereunder and under the Notes. The Loan
Agreement, this Mortgage and the Notes are intended to supplement each other
and, to the extent of any conflict among them, the provisions of the Loan
Agreement shall prevail unless the giving of such priority to the provisions of
the Loan Agreement would result in any lien against the Subject Premises
becoming prior to the lien of this Mortgage as to all or any part of the
indebtedness secured hereby theretofore or thereafter advanced by the
Mortgagee.
D. Except as provided in paragraph 1C. hereof, if there is a
conflict between the terms of this Mortgage and the Notes, the terms of this
Mortgage shall prevail.
2. TAXES AND INSURANCE ESCROWS.
A. At the option of Mortgagee, whether or not an Event of
Default (as defined herein) has occurred hereunder Mortgagor shall pay to
Mortgagee, on the first day of each month, a sum determined by dividing the
amount of all real estate taxes, water and sewer rents, assessments, ground
rents, levies, liabilities, obligations and encumbrances (all as estimated
-4-
<PAGE>
by Mortgagee) of any and every nature assessed, imposed or charged on or
against the Subject Premises or the owners or possessors thereof or which may,
if not paid, be or become liens against the Subject Premises superior to the
lien of this Mortgage (less all sums already paid on account thereof) by the
number of months thereafter remaining before the first day of the last full
calendar month prior to the month in which the last date on which such taxes
and other charges may be paid without penalty or interest falls. Such sums
shall be held by Mortgagee without interest to pay the said taxes and other
charges as they become due and payable; provided however, that in the event of
any Event of Default hereunder, Mortgagee may apply any and all sums held on
account of the principal, interest or other sum payable hereunder in such
priority as Mortgagee may determine.
B. At the option of Mortgagee, whether or not an Event of
Default exists hereunder, Mortgagor shall also pay to Mortgagee on the first
day of each month a sum determined by dividing the amount of premiums on all
insurance required from time to time under the terms hereof (less all sums
already paid on account thereof) by the number of months remaining before the
first day of the month prior to the month in which such insurance premiums will
be due. Such sums shall be held by Mortgagee without interest to pay the said
insurance premiums as they become due and payable; provided, however, that if
there exists an Event of Default hereunder, Mortgagee may apply any and all
sums so held on account of the principal, interest, or other sums payable
hereunder in such priority as Mortgagee may determine.
C. The options granted Mortgagee in Paragraph 2A and 2B
hereof may be exercised at any time and from time to time by written notice to
Mortgagor at its last known address in the manner provided herein for notices.
D. Mortgagor grants Mortgagee a lien on and security interest
in any and all monies held by Mortgagee pursuant to Paragraphs 2A and 2B
hereof.
3. PAYMENT OF TAXES AND INSURANCES. During those periods that
Mortgagee does not exercise the options granted in subparagraphs 2A and 2B
hereof, or either of them, Mortgagor shall, without demand or notice:
A. Pay the items referred to in subparagraphs 2A and 2B
hereof with respect to which Mortgagee has not exercised or is not then
exercising its said option when and as they become due and payable, and
B. Furnish Mortgagee with proof of such payment acceptable to
Mortgagee on or before the date they or any of them have become due and
payable. Such proof to include, without limitation, copies of all tax returns,
bills, receipts, notices, and assessments.
C. If Mortgagor fails to comply with the provisions of
subparagraphs 3A and 3B hereof, in addition to all other remedies and rights of
Mortgagee hereunder and at law, Mortgagee may, at its sole option and without
being under any obligation to do so, advance sums from time to time in payment
thereof. All monies so advanced and all monies expended by Mortgagee to obtain
proof of payment of items referred to in subparagraphs 2A and 2B hereof, or the
lack thereof and to facilitate promptly payment thereof shall immediately be
due and payable by Mortgagor to Mortgagee and, if not repaid by Mortgagor, be
added to and be deemed a part of the principal and the amount so added shall
thereafter be fully secured by the lien of this Mortgage and shall bear
interest at the Default Rate.
-5-
<PAGE>
4. INSURANCE/CASUALTY.
A. Mortgagor shall keep all buildings and improvements, now
or hereafter erected on the Subject Premises, including all contents, equipment
and inventory which are subject to the lien of this Mortgage or to the security
interest granted herein, continuously insured against such loss or damage as
Mortgagee may require in its sole discretion which policies shall contain
mortgagee endorsement, loss payee and additional insured clauses satisfactory
to Mortgagee. Without limiting the foregoing, Mortgagor shall maintain
insurance policies, underwritten by property and casualty carriers with a
"A/VII" or better rating according to the most recent A. M. Best Property &
Casualty Insurance Guide, as follows unless Mortgagee specifically waives an
insurance provision hereof in writing and such waiver refers specifically by
number and type of insurance to the waived subparagraph below:
(1) Blanket "All-Risks" property insurance
against physical loss or damage to the
Subject Premises at Replacement Cost (no
co- insurance) that includes coverage for
improvements and betterments, Mortgagor's
contents, equipment and inventory, in an
amount not less than the greater of the
original amount of the Notes. The
deductible from any insured property loss
shall not be more than $10,000;
(2) Business interruption, extra expenses, loss
of rents and/or loss of rental value
insurance in amounts equal to a minimum of
six (6) months valuation as determined by
Mortgagee;
(3) If the Subject Premises are in a flood
plain or flood prone area in accordance
with the Federal Flood Disaster Protection
Act of 1973 (Public Law 93-234), as
amended, flood insurance in such amounts as
required under the act;
(4) Comprehensive general liability insurance
for the Subject Premises, including
adjoining streets, sidewalks, passageways
and parking lots, on an occurrence policy
form (not claims made) for the coverages of
Premises/Operations, Bodily Injury and
Property Damage, Products and Completed
Operations, Contractual Liability,
Personal/Advertising Injury with combined
single limits per occurrence not less than
$1,000,000 and Fire Damage Legal Liability
of not less than $100,000. Such liability
insurance policy shall name Mortgagee as an
additional insured;
(5) Umbrella excess liability, following the
form of comprehensive general liability and
other related coverages required hereunder,
with minimum per occurrence and annual
aggregate limits of $5,000,000, if
applicable;
(6) Statutory limits for worker's compensation
insurance and minimum $500,000 for
employer's liability insurance for all
employees of Mortgagor engaged on or with
respect to the Subject Premises. If
Mortgagor engages independent contractors,
then Mortgagor shall be solely responsible
for verifying and maintaining any
appropriate insurance as required by law or
contract for the independent contractors;
-6-
<PAGE>
(7) During the course of any construction or
repair or improvement on the Subject
Premises, builder's risk completed value
insurance against "all risks" of physical
loss, including collapse, testing, transit
and equipment/supplies/materials coverages
during construction of such improvements,
in an amount not less than the greater of
the original amount of the Notes, less the
cost of land, as applicable. The policy
deductibles shall not exceed $10,000. If
applicable, such policy shall contain the
"permission to occupy upon completion of
work or occupancy" endorsement;
(8) Builder's risk liability in an amount
satisfactory to Mortgagee;
(9) If appropriate for the Subject Premises,
Boiler and machinery insurance covering
without limitation pressure and
refrigeration objects, mechanical objects,
electrical objects, turbine objects and
production machines, containing joint loss
agreement and Business Interruption/Extra
Expense or Loss of Rents endorsements, in
an amount not less than fifty percent (50%)
of the original amount of the Notes.
(10) Such other insurance, and in such amounts,
as may be required from time to time by
Mortgagee in its sole discretion against
the same or other hazards and liabilities.
B. All insurance policies required of Mortgagor shall protect
and be payable to Mortgagee as its interest may appear. Mortgagee shall have
the right to collect, receive and receipt for any and all monies that may
become payable and collectible upon such policy or policies in the name of the
Mortgagor.
C. All policies of insurance required by the terms of
Paragraphs 4A and 4B shall contain an endorsement or agreement by the insurer
that any loss shall be payable in accordance with the terms of such policy
notwithstanding any act or negligence of Mortgagor which might otherwise result
in forfeiture of such insurance and the further agreement of the insurer waving
all rights of set off, counterclaim, or deductions against Mortgagor.
D. All policies of insurance required by the terms of
Paragraphs 4A through 4C shall contain a standard mortgagee clause in favor of
Mortgagee, not subject to contribution, and/or a loss payee clause, in form
satisfactory to Mortgagee in its sole discretion.
E. Upon Mortgagee's request, Mortgagor shall furnish
Mortgagee with a signed duplicate policy with respect to all insurance
coverages specified in Paragraphs 4A through 4D. Mortgagor shall also furnish
Mortgagee with a signed certificate of insurance for each policy setting forth
the coverage, limits and sub-limits, deductibles, the name of the carrier,
policy number and policy period dates. Within thirty (30) days of the
expiration of such policy, Mortgagor shall furnish Mortgagee with evidence
satisfactory to Mortgagee of the payment of the renewal premiums and the
issuance of a new policy continuing insurance in force as required by
Mortgagee.
F. All insurance policies required in Paragraphs 4A through
4E, including policies for any amounts in excess of the required minimum limits
and policies not specifically required by Mortgagee, shall be in form
satisfactory to Mortgagee, shall be maintained in full
-7-
<PAGE>
force and effect, and are hereby assigned to Mortgagee, with premiums prepaid,
as collateral security for payment of the indebtedness secured hereby, and
shall contain a provision that such policies will not be cancelled or amended
for reduction in limits or scope, without at least thirty (30) days prior and
separate written notice to Mortgagee. For purposes of this Paragraph 4F a
written notice to the named insured shall not constitute notice to Mortgagee.
If for any reason whatsoever any insurance shall be unsatisfactory to
Mortgagee, Mortgagor shall place new insurance on the Subject Premises,
satisfactory to Mortgagee in its sole discretion.
G. All insurance specified in Paragraphs 4A through 4F shall
be obtained and maintained at Mortgagor's sole cost. If Mortgagor fails to
provide, maintain, keep in force or deliver and furnish to Mortgagee the
insurance required by this Mortgage, Mortgagee may procure such insurance or
similar insurance covering Mortgagee's interest, and Mortgagor will pay all
premiums thereon promptly upon demand by Mortgagee, and until such payment is
made by Mortgagor, the amount of all such premiums, together with interest
thereon at the Default Rate, shall be secured by this Mortgage.
H. In the event of loss, Mortgagor will give immediate notice
thereof to Mortgagee, and Mortgagee may make proof of loss if not made promptly
by Mortgagor and may negotiate settlement of any claims on behalf of Mortgagor.
Each insurance company concerned is hereby authorized and directed to make
payment under such insurance, including return of unearned premiums, directly
to Mortgagee instead of to Mortgagor and Mortgagee jointly, and Mortgagor
irrevocably appoints Mortgagee as Mortgagor's attorney-in-fact to endorse any
draft therefor and to sign any and all proofs of claim, any release and all
other documents relating thereto. Mortgagee shall have the right to retain and
apply the proceeds of any such insurance at its sole option, to reduction of
the indebtedness secured hereby or to restoration or repair of the damaged
property. If Mortgagee elects, in its sole discretion, to permit Mortgagor to
use the proceeds of insurance for either or both repair of and restoration of
the Subject Premises, the funds and such other funds as Mortgagee shall
require, from time to time, shall be deposited with Mortgagee and advanced for
the payment of such repairing, or restoring, of the Subject Premises upon
fulfillment, to the sole satisfaction of mortgagee, of the following
conditions:
(1) Mortgagee shall have first approved the
final plans and specifications for the
repair or restoration of the damaged
property, the contract for such repair or
restoration, and the contractor who will
perform such repair or restoration;
(2) Mortgagor shall have executed and delivered
to Mortgagee an assignment of the
aforementioned contract, which assignment
shall be satisfactory, in form and
substance to Mortgagee in Mortgagee's sole
discretion;
(3) Such contractor shall have delivered to
Mortgagee, prior to the commencement of any
work or labor at the Subject Premises or
the delivery of any materials or supplies
to the Subject Premises such documentation
as Mortgagee shall specify to evidence that
the Contractor has not filed any liens or
notice of unpaid balance and right to file
lien or other form of notice related
thereto under the New Jersey Construction
Lien Law and/or any other applicable
mechanics' lien law including, without
limitation a filed waiver of lien from such
parties as Mortgagee may designate if
permitted by law;
-8-
<PAGE>
(4) Mortgagee shall be satisfied, in its sole
discretion, that the insurance proceeds and
such other funds required to be deposited
by Mortgagor with Mortgagee are sufficient
to repair or restore the damaged property
in accordance with the aforementioned final
plans and specifications and that the
restoration can be completed within a time
period acceptable to Mortgagee;
(5) Prior to any disbursement, Mortgagor shall
have satisfied Mortgagee, in Mortgagee's
sole discretion, that the contractor is
entitled to such disbursement for completed
work done in accordance with the
aforementioned plans and specifications and
such work was performed in a workmanlike
manner under the terms of the Mortgagor's
contract with the contractor (or that
Mortgagor has paid such contractor for
completed work done in accordance with the
plans and specifications and in a
workmanlike manner under the terms of the
Mortgagor's contract with the contractor
and is entitled to reimbursement therefor)
and that all persons, firms or corporations
furnishing labor or materials for such work
have been paid, or that arrangements
satisfactory to Mortgagee, in its sole
discretion, have been made for their
payment;
(6) There is no Event of Default existing under
this Mortgage; and
(7) No tenant shall have exercised a right to
terminate its lease on account of the
casualty or shall have had its lease
terminated as a result of the casualty, and
that Mortgagor has provided Mortgagee with
an estoppel certificate from each tenant
confirming that such tenant will not
terminate its lease on account of the
casualty.
Mortgagor shall pay Mortgagee's costs and a fee of 3% of the
amounts of any proceeds disbursed to Mortgagor, which fee Mortgagee may deduct
from the insurance proceeds or such other funds deposited with Mortgagee by
Mortgagor. Any excess proceeds of insurance remaining after the completion of
such restoration or reconstruction shall be used to repay any principal sums
due under the Notes.
Notwithstanding anything contained herein to the contrary,
Mortgagor may require Mortgagee to enter into a separate written agreement
which shall include the aforementioned requirements and such other provisions
as shall be required by Mortgagee in its sole discretion, before Mortgagee
disburses any insurance proceeds for repair or restoration.
I. In the event of any default hereunder resulting in the
divestiture of Mortgagor's title to the Subject Premises, or to any contents,
equipment and inventory subject to this Mortgage, all insurance policies
outlined in Paragraphs 4A through 4H shall automatically and without notice, be
and become sole property of the Mortgagee as of the date of such default and
the Mortgagee shall not be required to grant to Mortgagor any credit against
the indebtedness secured hereby on account of prepaid premiums, if any.
Mortgagee is hereby irrevocably authorized to make, execute, acknowledge and
deliver any documents of transfer for Mortgagor in Mortgagor's name with the
same force and effect as though same had been made by Mortgagor and for that
purpose, Mortgagor hereby irrevocably appoints Mortgagee its attorney-in-fact.
5. MAINTENANCE OF SUBJECT PREMISES. Mortgagor shall keep the Subject
Premises and the buildings and improvements now or hereafter erected and
installed thereon, as well as the
-9-
<PAGE>
contents thereof subject to the lien hereof or to financing statements filed in
connection with the Loans secured hereby or necessary for the maintenance or
operation of such buildings and improvements, in good condition and repair and
shall not remove, demolish or materially alter or in any way decrease the value
of the said buildings, improvements, or the Subject Premises or the contents
thereof, or commit or suffer waste with respect thereto. Mortgagor shall comply
with all laws, rules, regulations and ordinances of any lawful authority which
may now or hereafter be applicable to the Subject Premises. Mortgagor shall not
take or permit any action with respect to the Subject Premises, buildings or
improvements or the contents thereof which will in any manner impair the
security of this Mortgage.
6. EVENTS OF DEFAULT. Each of the following shall constitute an event
of default ("Event of Default") hereunder:
A. Failure of Mortgagor to pay any sum whether for principal,
interest, fees, costs or otherwise when and as due under the Notes, the Loan
Agreement, this Mortgage or any of the other Relevant Documents, or under any
other agreement with the Mortgagee;
B. Mortgagor's or any Guarantor's failure to perform or
observe any covenant, term or condition under the Loan Agreement or any of the
Relevant Documents, and such default is not cured within three (3) business
days following written notification of such violation.
C. Any other default on any of the Obligations (as
hereinafter defined) or under any of the Relevant Documents occurs, or any
default occurs under any indebtedness or other obligation of Mortgagor, or of
any Guarantor of any of the Obligations, to any third party which in the
aggregate exceeds One Hundred Thousand Dollars, entitling such third party to
declare such indebtedness or other obligation due prior to its date of
maturity;
D. False Representation or Warranty. Any representation,
warranty or statement contained in this Agreement, in any of the Relevant
Documents or in any other writing delivered to Lender in connection with the
Collateral (as defined in the Loan Agreement) or under this Mortgage, or any of
the transactions contemplated thereby, proves to have been incorrect in any
material respect when made;
E. Mortgagor ceases to do business as a going concern;
F. There occurs any material and adverse change in the
condition or affairs, financial or otherwise, of Mortgagor or of any endorser,
guarantor or surety for any of the Obligations (as hereinafter defined), which
in the reasonable opinion of Lender impairs Lender's security or increases its
risks;
G. At any time Uri Evan ceases to be Chief Executive Officer
or otherwise actively involved in the daily management of Mortgagor.
H. Mortgagor takes any action to authorize its liquidation or
dissolution;
I. Mortgagor (i) becomes unable or fails to pay its debts
generally as they become due, (ii) admits in writing its inability to pay its
debts, or (iii) proposes or makes a composition agreement with creditors, a
general assignment for the benefit of creditors, or a bulk sale;
-10-
<PAGE>
J. Any proceeding is instituted by or against Mortgagor (i)
seeking to adjudicate it bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
(ii) seeking appointment of a receiver, trustee, or other similar official for
it or for any substantial part of its property, or Mortgagor takes any action
to authorize or consent to any action described in this paragraph and not
stayed or dismissed within sixty (60) days.
K. One or more judgments or orders for the payment of money
exceeding $100,000.00 in the aggregate are rendered against Mortgagor, and any
such judgment(s) or order(s) continues unsatisfied and not effectively stayed
for a period of thirty (30) consecutive days;
L. Any substantial part of the assets of Mortgagor becomes
subject to attachment, execution, levy or like process which shall not have
been effectively stayed;
M. Any governmental agency, or other entity with power to do
so, commences proceedings to condemn, seizes or expropriates assets of
Mortgagor (unless Mortgagor obtains an injunction against such actions within
thirty (30) days from the date of their commencement) necessary for the conduct
of Mortgagor's business as conducted on the date of this Mortgage, without
material change, or Mortgagor abandons such assets or suspends operation
thereof for a period of thirty (30) consecutive days;
N. With respect to any Plan (as defined in Section 4.17 of
the Loan Agreement), there occurs or exists any of the events or conditions
described in the following clauses (i) through (viii) and such event or
condition, together with all like events or conditions, could in the opinion of
Lender subject Mortgagor to any tax, penalty or other liability that might,
singly or in the aggregate, have a material adverse effect on the financial
condition or the properties or operations of Mortgagor: (i) a reportable event
as defined in Section 4043 of ERISA, (ii) a prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of the Internal Revenue Code, (iii)
termination of the Plan or filing of notice of intention to terminate, (iv)
institution of the Pension Benefit Guaranty Corporation of proceedings to
terminate, or to appoint a trustee to administer, the Plan, or circumstances
that constitute grounds for any such proceedings, (v) complete or partial
withdrawal from a multi-employer Plan, or the reorganization, insolvency or
termination of a multi-employer Plan, (vi) an accumulated funding deficiency
within the meaning of ERISA, (vii) violation of the reporting, disclosure or
fiduciary responsibility requirements of ERISA or the Internal Revenue Code, or
(viii) any act or condition which could result in direct, indirect or
contingent liability to any Plan or the Pension Benefit Guaranty Corporation;
or
O. Any guaranty of any of the Obligations ceases to be
effective or any Guarantor denies liability thereunder.
P. The rendering by any court of last resort of a decision
that any undertaking by Mortgagor as herein provided to pay any tax,
assessment, levy, liability, obligation, or encumbrance is legally inoperative
or cannot be enforced, or the passage of any law changing in any way or respect
the laws now in force for the taxation of mortgages or debts secured thereby
for any purpose or the manner of election of any such tax, so as to affect this
Mortgage or the debt secured hereby, unless Mortgagor pays such tax in
accordance with the provisions of Paragraph 17 hereof;
7. INSPECTION AND APPRAISALS.
-11-
<PAGE>
A. Mortgagee and its representatives shall have and hereby
are granted the right and option to enter upon and inspect the Subject Premises
and all books, records and workpapers of Mortgagor at any reasonable time and
from time to time at such frequency as Mortgagee deems prudent. Mortgagee may
select an architect, engineer and/or other qualified party to inspect the
Subject Premises. All costs associated with such inspection shall be the
responsibility of Mortgagor. Mortgagor shall fully cooperate in allowing, from
time to time such examinations, tests, inspections and reviews of the Subject
Premises (collectively, "Examinations and Tests") that Mortgagee, in its sole
and absolute discretion, shall determine to be advisable in order to evaluate
any potential environmental problems. Mortgagee expressly reserves the right to
conduct Examinations and Tests, including but not limited to, a geohydrologic
survey of soil and subsurface conditions, and such other inspections, and
reviews of the Subject Premises as Mortgagee in its sole and absolute
discretion may determine to be desirable. Examinations and Tests shall be for
Mortgagee's protection only and shall not constitute any assumption of
responsibility for the condition, construction, maintenance or operation of the
Subject Premises, nor approval by Mortgagee of any information given to
Mortgagee, nor relieve Mortgagor of any of its obligations. Mortgagee shall
have no obligation to notify Mortgagor of the results of any Examinations and
Tests, and Mortgagee's failure to notify Mortgagor of any default after
Examinations and Tests shall not constitute a waiver of any default then
existing.
B. Mortgagee may, from time to time, in its sole discretion,
but no more frequently than one per year, order an updated appraisal of the
Subject Premises to confirm the value of its remaining collateral, which
appraisal shall be in form and substance satisfactory to Mortgagee, in its
reasonable discretion, and shall be prepared by an appraiser selected by
Mortgagee, in its reasonable discretion. Such appraisal shall be prepared at
the sole cost of Mortgagor. Together with its notification to Mortgagor of its
request for such an appraisal, Mortgagee shall advise Mortgagor of the cost of
such appraisal and Mortgagor shall deposit with Mortgagee the cost of the
appraisal as fixed by the appraiser selected by Mortgagee within fifteen (15)
days after Mortgagee has advised Mortgagor of such cost. If Mortgagor does not
deposit the cost of such appraisal with Mortgagee within said fifteen (15) day
period, Mortgagee may, at its sole discretion, add the cost of such appraisal
to the principal balance of the Notes without liability and shall be released
by Mortgagor of any and all claims relating thereto.
8. REQUIRED FINANCIAL INFORMATION.
A. Mortgagor shall furnish and cause each Guarantor and each
Related Entity (as defined in the Loan Agreement) to furnish to Mortgagee,
financial statements in accordance with the requirements of the Loan Agreement.
B. All information, reports and other papers and data
furnished to Mortgagee are or will be, at the time the same are so furnished,
accurate and correct in all material respects and complete insofar as
completeness may be necessary to give Mortgagee a true and accurate knowledge
of the subject matter. There are no material liabilities of any kind of
Mortgagor as of the date of the most recent financial statements provided to
Mortgagee which are not reflected therein.
9. CONDEMNATION.
A. Any and all rewards heretofore or hereafter made by any
governmental or quasi-governmental authority relating to the Subject Premises
including, without limitation, any award or awards for a taking of title to,
possession of, or any interest in the Subject Premises or any part thereof, or
for any change of grade or streets or interference with access affecting the
-12-
<PAGE>
Subject Premises and all awards receivable for any other damage sustained by
Mortgagor or the Subject Premises or any part thereof are hereby irrevocably
assigned, absolutely and unconditionally, to Mortgagee.
B. Mortgagee, at its option, is hereby irrevocably
authorized, directed and empowered to collect and receive the proceeds of all
such awards from the authorities making the same and to give proper receipts
and acquittances therefor and to apply the same, in such priority as Mortgagee
shall determine, to the amount owing on account of the debt secured hereby
(notwithstanding the fact that the amount owing on account of the debt secured
hereby may not be, then due and payable) and/or any other sums due, by
Mortgagor to Mortgagee hereunder. Mortgagor shall, upon demand by Mortgagee,
make, execute, acknowledge and deliver any and all assignments and other
instruments and take such action as may be necessary to assign such awards to
Mortgagee free, clear, and discharged of any and all encumbrances of any kind
and nature whatsoever. In the event Mortgagor shall fail to make, execute,
acknowledge or deliver any and all assignments or other instruments as
aforesaid, Mortgagee may do so in the name of Mortgagor with the same full
force and effect as though such documents were, in fact, made, executed,
acknowledged and delivered by Mortgagor and, for that purpose, Mortgagee is
hereby irrevocably appointed Mortgagor's attorney- in-fact. In the event
Mortgagee deems it appropriate, Mortgagee may, at Mortgagor's sole cost, appeal
the amount of any such award. The cost of such appeal shall be payable upon
demand, shall be secured by the lien hereof; and shall bear interest at the
highest rate set out in the Notes until payment in full of the amounts due to
Mortgagee has been made.
C. If prior to the receipt of such proceeds by Mortgagee, the
Subject Premises shall have been sold on foreclosure of this Mortgage,
Mortgagee shall have the right to receive the proceeds to the extent of: (1)
any deficiency found to be due to Mortgagee in connection with the foreclosure
sale, with interest at the Default Rate thereon, and (2) attorneys' fees,
costs, and disbursements incurred by Mortgagee in connection with collection of
the proceeds and proceedings to establish the deficiency.
10. REMEDIES.
A. Upon the occurrence of any Event of Default by Mortgagor
hereunder or under the Notes or the Relevant Documents, Mortgagee may forthwith
and without notice or demand exercise all rights and remedies provided in this
Mortgage and/or which may be available to Mortgagee by law or in equity and all
such rights and remedies shall be cumulative and concurrent and may be pursued
singularly, successively or together, at Mortgagee's sole option, and may be
exercised as often as occasion therefor shall occur. Upon the existence of an
Event of Default as aforesaid, Mortgagee may, inter alia, notwithstanding
anything to the contrary contained herein:
(1) Declare the entire principal amount secured
hereby immediately due and payable; and/or
(2) Take possession of the Subject Premises,
buildings, and improvements and the
contents thereof and all other security for
payments to Mortgagee hereunder without the
necessity of foreclosing or other legal
action and may change locks if necessary to
gain entry or secure the Subject Premises,
without the same being a trespass; and
-13-
<PAGE>
(a) hold, manage, operate and
lease the same to
Mortgagor or any other
person, firm or
corporation on such terms
and for such periods of
time as Mortgagee may deem
proper, and the provisions
of any lease made by
Mortgagee pursuant hereto
shall be valid and binding
upon Mortgagor
notwithstanding the fact
that Mortgagee's right of
possession may terminate
or this Mortgage may be
satisfied of record prior
to the expiration of the
term of such lease.
(b) have all remedies under
Part 5 of Article 9 of The
Uniform Commercial Code of
the state in which the
Subject Premises are
situated and, in
connection therewith,
Mortgagor agrees that not
less than (3) days' notice
of sale is commercially
reasonable notice:
(c) make such alterations,
additions, improvements,
renovations, repairs, and
replacements thereto as
Mortgagee may deem proper,
including remodeling to
make the same more readily
rentable, useable, and/or
available in whole or in
part for commercial,
residential, and/or
industrial purposes,
(d) demolish all or any part
of the buildings and
improvements now or
hereafter erected or
situate upon the Subject
Premises which, in the
sole judgment of
Mortgagee, may be in
unsafe conditions and
dangerous to life or
property; and/or
(e) collect the rents, issues,
and profits (hereinafter
collectively referred to
as "rents") arising from
the Subject Premises and
the buildings and
improvements thereon, past
due and thereafter
becoming due, and apply
the same, in such order of
priority as Mortgagee may
determine, to the payment
of all charges and
commissions incidental to
the collection thereof and
the management and
maintenance of the Subject
Premises, the buildings
and improvements thereon,
and the contents thereof
and to the payment of all
sums required to be paid
by the Mortgagor
hereunder, as more fully
described in Paragraph 14
hereof.
(3) File forthwith a complaint in
mortgage foreclosure or any other
foreclosure proceeding upon this
Mortgage and proceed thereon to
judgment and execution for the
recovery of the whole of the
principal debt, or any unpaid
balance thereof and all interest
due thereon and other sums due
hereunder, together with reasonable
attorneys' fees for collection,
besides costs of suit, and all
expenses of paying taxes, water
rents, assessments, and charges,
and effecting
-14-
<PAGE>
insurance, repairs, and compliance
with the terms of the Mortgage,
with interest thereon, without
further stay, any law, usage
or custom to the contrary
notwithstanding.
(4) Bring an appropriate action at any
time and from time to time to
recover any sums required to be
paid by Mortgagor under the terms
of this Mortgage, as they become
due, without regard to whether or
not the principal indebtedness or
any other sums secured by this
Mortgage shall be due, and without
prejudice to the right of Mortgagee
thereafter to bring an action of
mortgage foreclosure, or any other
action, for any Event of Default
committed or suffered by Mortgagor
existing at the time earlier action
was commenced.
(5) Institute and maintain at any time
and from time to time any suits and
proceedings as Mortgagee may deem
advisable;
(a) to prevent any impairment
of the security of the
Subject Premises by any
acts which may be unlawful
or any violation of this
Mortgage,
(b) to preserve or protect its
interest in the Subject
Premises, and
(c) to restrain the
enforcement of or
compliance with any
legislation or other
governmental enactment,
rule or order that may be
unconstitutional or
otherwise invalid, if the
enforcement of or
compliance with such
enactment, rule or order
might impair the security
hereunder or be
prejudicial to Mortgagee's
interest.
(6) At its option, advance and pay any
sum of money that, in the judgment
of Mortgagee, may be necessary to
perfect the title of the Subject
Premises in Mortgagor; or to
preserve the security intended to
be given by this Mortgage and by
the assignment of leases given by
Mortgagor to Mortgagee; or to
satisfy any tax, imposition or
charge levied upon the debt for
which this Mortgage is given as
security.
(7) Institute and to prosecute to final
determination or settlement an
appeal of any real estate tax
assessment or other lien or
assessment on the Subject Premises,
or take any other appropriate
proceedings in the name of
Mortgagee or Mortgagor in
connection therewith. Mortgagee is
hereby appointed as
attorney-in-fact for Mortgagor, for
such purposes, which appointment is
irrevocable (said appointment being
coupled with an interest). If such
an appeal or other proceeding is
taken, the expenses thereof,
including counsel fees, shall be
payable by Mortgagor to Mortgagee
upon demand and such sums shall
-15-
<PAGE>
be secured by this Mortgage.
Mortgagee shall have the right to
take such action regardless of
whether Mortgagor has instituted
its own action(s). In the event
both Mortgagor and Mortgagee have
instituted actions, the Mortgagee
shall have the sole right to
determine which action shall
proceed; and if Mortgagee elects to
proceed with its action, Mortgagor
shall withdraw and terminate any
procedures Mortgagor has commenced.
Mortgagee shall have no liability
related to any such actions,
including liability for any
increase of taxes that may result
therefrom, and Mortgagor waives any
claims, actions or other rights
that it may have against Mortgagee
in such connection.
B. All delinquent payments hereunder and all monies advanced
by Mortgagee as a result of the occurrence of an Event of Default hereunder or
for any other purpose authorized in this Mortgage, in the Notes, in the Loan
Agreement, or in any of the other Relevant Documents shall be repaid to
Mortgagee with interest at the Default Rate from the date advanced by
Mortgagee, until such time as said sums are paid, including, without
limitation, the period following entry of any judgment, shall without demand be
repaid by Mortgagor to Mortgagee, and, if not repaid immediately, shall bear
interest at the rate aforesaid, and the sum due shall be secured by the lien
hereof.
C. Mortgagee, without regard to the value or occupancy of the
security or the solvency of Mortgagor, shall be entitled as a matter of right,
if it so elects, to the appointment of a receiver to enter upon and take
possession of the Subject Premises and to collect all rents, revenues, issues,
income, products, and profits thereof and apply the same as the court may
direct. The receiver shall have all rights and powers permitted under the laws
of the state where the Subject Premises are located and such other powers as
the court making such appointment shall confer. The expenses, including,
without limitation, receiver's fees, attorneys' fees, court costs, and agent's
compensation, incurred pursuant to the powers herein contained shall be secured
by the lien of this Mortgage. The right of a receiver to enter and take
possession of and to manage and operate the Subject Premises, and to collect
the rents, issues and profits thereof shall be cumulative to any other rights
or remedy hereunder or afforded by law, and may be exercised concurrently
therewith or independently thereof. Notwithstanding the appointment of any
receiver or other custodian, Mortgagee shall be entitled as pledgee to the
possession and control of any cash, deposits, or instruments at the time held
by, or payable or deliverable under the terms of this Mortgage to Mortgagee.
D. In the event Mortgagee shall refer the Notes, the Loan
Agreement, this Mortgage, or any of the other Relevant Documents to counsel
because of or in connection with any default thereunder or hereunder or because
any action or proceeding is instituted by or against Mortgagee or others, or
threatened affecting the Subject Premises or the title thereto or Mortgagee's
interest hereunder in the Notes, in the Loan Agreement, or in any of the other
Relevant Documents whether or not Mortgagee is or becomes a party thereto or
for any other reason whatsoever, Mortgagor shall reimburse Mortgagee for all
attorneys' fees and costs incurred in connection therewith, whether or not suit
is in fact commenced and whether or not an Event of Default exists or is
declared hereunder, under the Notes, under the Loan Agreement, or under any of
the other Relevant Documents. Such reimbursement shall be due and payable
immediately upon demand and the amount thereof shall be secured by the lien
hereof and shall bear interest at the Default Rate until paid.
E. Any real estate sold pursuant to any writ of execution
issued on a judgment obtained by virtue of the Notes, this Mortgage, the Loan
Agreement, any of the other Relevant
-16-
<PAGE>
Documents, or pursuant to any other judicial proceedings under this Mortgage,
the Notes, the Loan Agreement, or any of the other Relevant Documents, may be
sold in one parcel as an entirety, or in such parcels, and in such manner or
order as Mortgagee, in its sole discretion, may elect. Upon any such
foreclosure sale, Mortgagee may bid for and purchase the Subject Premises and,
upon compliance with the terms of sale, may hold, retain, possess and dispose
of such Subject Premises in its own absolute right without further
accountability. Mortgagee is hereby irrevocably authorized, at its option, to
conduct any such sale subject to the rights of any tenants of the Subject
Premises, and the failure to make any such tenants parties defendant to any
such foreclosure proceedings and to their rights will not be, nor be asserted
by Mortgagor to be, a defense to any proceedings instituted by Mortgagee to
collect the sums secured hereby. All remedies provided Mortgagee under this
Mortgage or otherwise shall survive the consummation of any foreclosure sale.
F. Any failure by Mortgagee to insist upon strict performance
by Mortgagor of the Notes, this Mortgage, the Loan Agreement, or any of the
other Relevant Documents, shall not be deemed to be a waiver thereof, and
Mortgagee shall have the right thereafter to insist upon strict performance by
Mortgagor. Any waiver by Mortgagee of any breach by Mortgagor of any term,
covenant, agreement, or condition contained herein shall not be valid unless in
writing signed by an officer of Mortgagee, and such waiver shall not affect the
right of Mortgagee thereafter to exercise all rights or remedies set forth
herein or available at law or in equity on account of a subsequent Event of
Default hereunder.
G. The grant of an extension or extensions of time by the
Mortgagee with respect to the performance of any provision of this Mortgage,
the Notes, the Loan Agreement, or any of the other Relevant Documents on the
part of the Mortgagor to be performed, or taking of any additional security, or
the release of any security, or the waiver of the Mortgagee or failure by the
Mortgagee to enforce any provision of this Mortgage, the Notes, the Loan
Agreement or any of the other Relevant Documents, or to declare a default with
respect thereto, shall not operate as a waiver of any subsequent default or
defaults or affect the right of the Mortgagee thereafter to exercise all rights
or remedies stipulated herein and therein on account of such default or any
subsequent default or defaults.
11. MORTGAGOR'S WAIVERS. Mortgagor hereby irrevocably waives and
forever releases:
A. All errors, defects, and imperfections in any proceeding
instituted by Mortgagee under the Notes, this Mortgage, the Loan Agreement, or
any of the other Relevant Documents;
B. All benefit that might accrue to Mortgagor by virtue of
any present or future law exempting the Subject Premises, or any part of the
proceeds arising from any sale thereof, from attachment, levy, or sale on
execution, or providing for any stay of execution, exemption from civil
process, or extension of time for payment; and
C. Unless specifically required herein, all notices of
Mortgagor's default or of Mortgagee's election to exercise, or Mortgagee's
actual exercise of any option under the Notes, this Mortgage, the Loan
Agreement, or any of the other Relevant Documents, or any other documents,
instruments, agreements, guarantees, or other writings executed or delivered in
connection herewith or in connection with the Obligations (as hereinafter
defined) secured hereby.
12. NO TRANSFER OR LIENS.
-17-
<PAGE>
A. If all or any part of the Subject Premises or any interest
therein, or any interest in a corporation or partnership or other entity owning
any interest in the Subject Premises, or in any Guarantor, is sold, transferred
or changed ("Prohibited Change") without Mortgagee's written consent, Mortgagee
may at Mortgagee's option, declare all sums secured by this Mortgage to be
immediately due and payable. Such Prohibited Change shall include, without
limitation:
(1) changes in the equitable title or
beneficial ownership of the Subject
Premises, whether or not recorded,
including without limitation, entering into
an installment sale agreement with respect
to the Subject Premises.
(2) voluntary or involuntary transfers of any
freehold interest in the Subject Premises,
whether by operation of law or otherwise.
(3) transfer of a beneficial interest in the
Subject Premises for which a straw party is
acting as nominal title holder or agent.
(4) transfer by an installment purchaser
purchasing the Subject Premises from an
industrial development authority of such
installment purchaser's interest in the
Subject Premises.
(5) transfer of any of the existing stock or
issuance of new stock or the transfer or
issuance of any other interest in a
corporation, or transfer of any partnership
interest in a partnership, or transfer of
any member or manager interest in any
limited liability company, or the transfer
of any interest in any other entity which
is Mortgagor or a Guarantor.
(6) transfer of any stock or of any other
interest in a corporation, partnership,
limited liability company or other entity
which holds such leasehold interest in the
Subject Premises, or
(7) transfer or termination of a leasehold
interest in the Subject Premises which
leasehold interest is held by an entity in
which Mortgagor has any interest directly
or indirectly, beneficially or legally.
Such Prohibited Change shall not include a transfer or change by devise,
descent, or operation of law upon the death of a joint tenant, partner or
shareholder unless the death is of Mortgagor or of a principal of Mortgagor or
an individual Guarantor or a principal of an entity which is the Mortgagor or a
Guarantor in which event such death shall constitute an Event of Default unless
Mortgagee is provided with a substitute Mortgagor or Guarantor or alternative
collateral satisfactory to Mortgagee in its sole discretion within ninety (90)
days after such death. The Mortgagor shall immediately give notice of any such
Prohibited Change to the Mortgagee by registered or certified mail. As used in
this Paragraph 12 the term "transfer" shall be deemed to mean and refer to any
transfer, encumbrance, sale, pledge, assignment or conveyance of the interest
or item in question.
B. Mortgagor shall not create or cause to permit to exist any
lien on, or security interest in the Subject Premises or any portion thereof,
whether junior or senior to the lien of this Mortgage, except that Mortgagor
shall be permitted to grant the Second Mortgage in
-18-
<PAGE>
favor of 101 Realty to secure the maximum principal sum of $4,000,000.00 and
accrued interest thereon. Any violation of the foregoing limitation, except as
otherwise provided in this Paragraph, at the option of Mortgagee, shall be
deemed an Event of Default hereunder. If any mechanic's, materialman's or
construction lien or notice of unpaid balance and right to file lien or other
claim of mechanic's, materialman's or construction lien shall be filed against
the Subject Premises or any portion thereof or any interest therein by reason
of work, labor, services, or materials supplied or claimed to have been
supplied, and if such mechanic's, materialman's or construction lien or claim
of mechanic's, materialman's or construction lien or notice is not fully and
finally released against the Subject Premises within fifteen (15) days after
such lien, notice or claim of lien shall have been filed, then Mortgagee, at
its option, may (a) pay and discharge the lien or other item so filed, in which
case any sum which Mortgagee shall have so advanced in connection therewith
shall be due immediately from Mortgagor to Mortgagee, shall be secured hereby,
and shall bear interest at the Default Rate from the date of payment by
Mortgagee until the date of repayment, and Mortgagee shall be subrogated to any
rights, equities and liens so discharged; and/or (b) treat such occurrence as
an Event of Default hereunder.
13. ACTIONS AGAINST MORTGAGEE. If the Mortgagee shall become a party
to any proceedings, whatsoever, including condemnation proceedings instituted
by any party authorized by law to file same, by reason of its status as
Mortgagee herein, whether to protect its security or otherwise, all expenses
incurred by it in connection therewith, including attorney's fees, shall be
added to and become a part of the principal indebtedness secured hereby and
shall be immediately due and payable. All sums so advanced by the Mortgagee
shall bear interest at the Default Rate and shall be secured by the lien
hereof.
14. ASSIGNMENT OF RENTS, ISSUES AND PROFITS.
A. Mortgagor does hereby irrevocably assign and set over unto
Mortgagee all right, title and interest of Mortgagor in any and all leases,
licenses or other grants of right to use the Subject Premises or any portion
thereof, now existing or hereafter entered into and all rents, issues and
profits of and from the Subject Premises as additional security for the
indebtedness and other items hereby secured, for the purpose of keeping said
Subject Premises, buildings and improvements and/or the contents thereof in
proper order and repair, and for the purpose of protecting the security of
Mortgagee, and Mortgagee is hereby given a prior and continuing lien thereon.
Mortgagor does hereby irrevocably appoint Mortgagee and/or its attorney or
agent to collect said rents, without suit, and apply the same, less all
expenses of collection, to the said indebtedness, to management, maintenance
and repair of the Subject Premises and the contents thereof, and to protecting
the security of Mortgagee in such manner as Mortgagee may elect; provided,
however, that until there occurs an Event of Default under the terms of this
Mortgage, Mortgagor may continue to collect and enjoy the current rents without
accountability to Mortgagee. During any period that Mortgagee collects rents
pursuant to this paragraph, Mortgagee shall be entitled to retain ten percent
(10%) of such rents in payment for the services of the Mortgagee in relation to
the Subject Premises, which sum Mortgagor agrees is a fair and reasonable
charge. The taking of possession and collection of rents by Mortgagee as
aforesaid shall not be construed to be an affirmation of or acceptance of any
attornment with respect to any lease of the Subject Premises or any part
thereof. Mortgagee or any other purchaser at any foreclosure sale may (if
otherwise entitled to do so) exercise the right to terminate any such lease as
though such taking of possession and collection of rents had not occurred.
Mortgagee shall be liable to account only for such rents, issues, and profits
as are actually received by Mortgagee.
B. In connection with the foregoing, Mortgagor hereby
irrevocably authorizes Mortgagee to endorse Mortgagor's name on checks, bank
drafts, and other instruments received in payment of the rents. Mortgagee may
notify the United States Postal Service to deliver to Mortgagee all mail
addressed to Mortgagor and Mortgagee may take possession of and open any
-19-
<PAGE>
mail addressed to Mortgagor whether on the Subject Premises or elsewhere, in
order to effect collection of rents and to remove, collect and apply all
payments therein contained. This Mortgage shall be sufficient to authorize the
United States Postal Service, its agents, servants and employees, subagents,
subcontractors and independent contractors of and for the delivery of
Mortgagor's mail to Mortgagee. This assignment of rents and these powers of
attorney are coupled with an interest; shall be in addition to all other
remedies herein and by law provided for upon an Event of Default; and may be
put into effect independently of or concurrently with any or all of said
remedies. No liability shall attach to Mortgagee for failure, refusal or
inability to collect any rents herein assigned, for the manner of collection
thereof or for the failure on the part of Mortgagee to perform any of
Mortgagor's obligations as landlord under any existing or future lease. This
assignment, lien and power of attorney shall apply to all rents heretofore or
hereafter accruing from present and future leases and renewals thereof of all
or any part of the Subject Premises or the buildings and improvements thereon.
15. LEASES.
A. Any default by Mortgagor or any successor in interest of
Mortgagor under the terms of any lease of all or any part of the Subject
Premises or the buildings and improvements thereon shall constitute an Event of
Default hereunder, under the Notes, the Loan Agreement, or any of the other
Relevant Documents, entitling Mortgagee to exercise all the rights granted to
it herein, therein and by law.
B. Mortgagor shall send to Mortgagee, immediately upon
receipt thereof by Mortgagor, in writing in the manner provided herein for
notices, a true copy of any notice received by it from any tenant which alleges
a default by Mortgagor, as landlord, under any such lease and shall send to
Mortgagee, in writing, in the manner provided herein for notices, copies of all
notices of default sent to tenants of the Subject Premises.
C. Mortgagor or any successor in interest of Mortgagor shall
include provisions in all leases of the Subject Premises or any part thereof or
any interest therein or the buildings and improvements thereon or any part
thereof or any interest therein requiring lessees under any such leases to send
to Mortgagee a true copy of any notice sent to Mortgagor alleging a default
under any such lease. Such notice shall be sent in the manner provided herein
for notices. Mortgagor shall include provisions in all such leases granting
Mortgagee a period of sixty (60) days from the receipt of such notice in which
to cure any such default before such lessee may terminate its lease.
D. Mortgagor shall not accept any prepayment of any rent
payments under any leases of the Subject Premises or the buildings and
improvements thereon more than fifteen (15) days in advance of the due date of
such payment except with the prior written approval of Mortgagee.
E. In the event of Mortgagor's breach of any covenant in any
lease to which the Subject Premises or the buildings and improvements thereon
or any part thereof may, from time to time, be subject or of Mortgagor's breach
of any covenant in any assignment of any such lease and irrespective of whether
Mortgagee accelerates the maturity of the indebtedness secured hereby in
accordance herewith and in addition to, and without limitation on, any other
rights granted to Mortgagee hereunder, Mortgagee may at its option, without
notice, take such action as it deems necessary or appropriate to correct any
such default, including exercise of the right hereby granted to enter upon and
take possession of the Subject Premises and the buildings and improvements
thereon or any part thereof. Any and all costs, charges, fees or expenses,
including, without limitation, attorney's fees, incurred by Mortgagee in
connection with the taking
-20-
<PAGE>
of such corrective action pursuant to the powers herein contained shall be
secured hereby and shall bear interest at the Default Rate until paid.
F. Mortgagor shall furnish to Mortgagee an executed original
of each lease, amendment, extension, or renewal within (5) days after the date
of execution thereof. All leases, now or hereafter executed, shall be and
remain subject and subordinate to this Mortgage, Mortgagee shall have the
right, at its sole option, to pre-approve all leases and any amendment,
extension or renewal thereof, the form of such leases and credit of tenants
under such leases, and no lease shall be effective unless Mortgagee approves
such lease in advance or waives in writing, its rights to approve such lease.
16. SECURITY INTEREST.
A. Mortgagor shall not replace or supplement any furniture,
furnishings, machinery or equipment now or hereafter installed or located on
the Subject Premises with any other furniture, furnishings, machinery, or
equipment which is subject to a security interest of any type without the prior
written consent of Mortgagee. Any default by Mortgagor under this provision
shall be a material breach of Mortgagor's covenants under this Mortgage, the
Notes, the Loan Agreement, and the other Relevant Documents, and the other
documents, agreements, instruments or other writings entered into in connection
herewith or in connection with the obligation secured hereby and shall, at the
option of Mortgagee, constitute an Event of Default hereunder and thereunder
entitling Mortgagee to all rights and remedies provided herein, therein, or by
law in the event of an Event of Default under any of the terms and provisions
hereof or of the Notes, of the Loan Agreement, or of the other Relevant
Documents. Any security interest of a third person in any such furniture,
furnishings, machinery, or equipment shall be subordinate to the lien of this
Mortgage, any law or decision to the contrary notwithstanding.
B. From time to time, upon demand made by Mortgagee,
Mortgagor shall, with fifteen (15) days following the date of any such demand,
execute and deliver to Mortgagee a security agreement and financing and
continuation statements, in form and substance satisfactory to Mortgagee,
covering all of Mortgagor's right, title and interest in and to all furniture,
furnishings, fixtures, and equipment then attached to, installed or located in
or used in connection with the operation of any portion or all of the Subject
Premises, the replacements and proceeds thereof. The cost of preparing and
filing such financing and continuation statements and preparing such security
agreements shall be paid by Mortgagor to Mortgagee upon demand, shall bear
interest at the Default Rate until paid, and shall be secured by the lien
hereof. Mortgagor hereby irrevocably consents to the making and filing of any
and all continuation statements deemed necessary by Mortgagee. If Mortgagor
shall fail for any reason to execute and deliver financing statements
hereunder, Mortgagee may execute, deliver and file such financing statements
and Mortgagor appoints Mortgagee as its attorney-in-fact for the purpose of
executing, delivering and filing such financing statements. This power of
attorney is coupled with an interest and is irrevocable. A carbon,
photographic, or other reproduction of this Mortgage, or any financing
statement relating hereto, shall be sufficient as a financing statement and may
be filed in any public office as a financing statement.
-21-
<PAGE>
17. FUTURE TAXES.
A. In the event of the passage after the date of this
Mortgage of any law deducting from the value of the Subject Premises for the
purposes of taxation any lien thereon or changing in any way the laws now in
force for the taxation of mortgages or debts secured by mortgages for state or
local purposes or the manner of the collection of any such taxes so as to
affect this Mortgage, or if, at any time, the United States Government, or any
other governmental subdivision, shall require state or federal documentary
stamps hereon, or on the Notes, on the Loan Agreement, or on any of the other
Relevant Documents (or if any of them shall be subject to any similar levy),
the entire principal indebtedness and all other sums required to be paid by
Mortgagor hereunder shall become due and payable at the option of Mortgagee
thirty (30) days after the mailing of notice of such election to Mortgagor;
provided, however, that exercise of that option shall be ineffective and this
Mortgage, the Notes, the Loan Agreement, and other Relevant Documents shall be
and remain in effect if Mortgagor lawfully may pay for such stamps or such tax
including interest and penalties thereon to or for Mortgagee and does in fact
pay, when due, for all such stamps or such tax, as the case may be.
B. No owner of the Subject Premises or holder of any lien
subordinate to the lien of this Mortgage shall be entitled to any credit with
respect to principal or interest of the debt hereby secured by reason of the
payment of any tax on said Subject Premises, the obligation secured hereby, or
the interest payable thereon.
C. In the event any Federal, state or local law, ordinance or
regulation shall require the withholding by Mortgagor of any portion of the
interest payable hereunder on account of any tax claims of any such
governmental unit, Mortgagor shall be responsible for the payment of same but
shall, nevertheless, make the payments to the Mortgagee in the full amount
required hereunder without any deduction from the principal or interest
payments for or on account of any such tax or interest and Mortgagee shall, and
is hereby authorized to, upon receipt of such payments, set aside the required
portion thereof in a special account for the payment of such withholding taxes
and shall, when the same becomes due, pay the same over to the appropriate
taxing authority. Mortgagor shall deliver to Mortgagee, at least thirty (30)
days before each such payment shall become due, completed and executed tax
returns to be filed with such payments.
18. DECLARATION OF NO SET-OFF. At any time and from time to time,
Mortgagor shall certify to such persons as Mortgagee may designate, by writing
duly acknowledged, the amount of principal and interest then owing on this
Mortgage and what, if any, offsets and defenses exist against the mortgage debt
within three (3) days after written request to do so served upon it by mail,
and shall cause all tenants of the Subject Premises to execute estoppel
certificates declaring that they have no rights of set off and no defenses to
their respective leases.
19. ENVIRONMENTAL REPRESENTATIONS, COVENANTS, AND INDEMNIFICATION.
A. Mortgagor hereby represents, warrants and covenants to
Mortgagee that, except as disclosed in the Loan Agreement (including, without
limitation, Schedule 4.19) and the Administrative Consent Order (the "ACO")
entered into between the New Jersey Department of Environmental Protection and
The Okonite Company ("Okonite") dated August 3, 1990 (under which Okonite is
responsible to remediate the Subject Premises): (i) the following are all of
the Standard Industrial Classification Codes applicable to the properties and
operations of Mortgagor: 2841; (ii) Mortgagor is in compliance with all
applicable Environmental Laws (as hereinafter defined); (iii) there has been no
contamination or release of hazardous substances, at, upon, under or within the
Subject Premises or, to the best of Mortgagor's knowledge, at, upon, or within
any other property owned, operated or leased by Mortgagor in New Jersey, and
there has been no
-22-
<PAGE>
contamination (as defined in any applicable Environmental Law) or release of
hazardous substances (as defined in any applicable Environmental Law) on any
other property that has migrated or threatens to migrate to the Subject
Premises or, to the best of Mortgagor's knowledge, to any other property owned,
operated or leased by Mortgagor in New Jersey; (iv) there are not now and never
have been above-ground or underground storage tanks at the Subject Premises or,
to the best of Mortgagor's knowledge, at any other property owned, operated or
leased by Mortgagor in New Jersey; (v) there are no transformers, capacitors,
or other items of Equipment containing polychlorinated biphenyls at levels in
excess of 49 parts per million, violative of applicable Environmental Law, at
the Subject Premises or, to the best of Mortgagor's knowledge, at any other
property owned, operated or leased by Mortgagor in New Jersey; (vi) other than
materials used or produced, held, transported and disposed of in accordance
with Environmental Laws, Mortgagor's operations at the Subject Premises, or at
any other properties owned, operated or leased by Mortgagor in New Jersey have
never been used by Mortgagor (or, to the best knowledge of Mortgagor after due
inquiry, by any predecessor in possession or other Person as defined in the
Loan Agreement) for treatment, generation, storage, recycling, or disposal of
hazardous substances; (vii) no hazardous substances are present at the Subject
Premises or, to the best of Mortgagor's knowledge, at any other property owned,
operated or leased by Mortgagor in New Jersey, nor will any hazardous
substances be present upon any such property or utilized in the operation
thereof by Mortgagor except which are transported, used, stored, disposed of
and otherwise handled in accordance with all Environmental Laws, in proper
storage containers; (viii) all permits and authorizations required under
Environmental Laws for all operations of Mortgagor at the Subject Premises or
at any other properties owned, operated or leased by Mortgagor in New Jersey
have been duly issued and are in full force and effect, including but not
limited to those for air emissions, water discharges and treatment, storage
tanks and the generation, treatment, storage and disposal of hazardous
substances; (ix) there are no pending or threatened Environmental Claims (as
defined in the Loan Agreement) against Mortgagor or any property owned,
operated or leased by Mortgagor in New Jersey; and Mortgagor has not created or
caused any condition or occurrence with respect to any property owned, operated
or leased by Mortgagor in New Jersey that could reasonably be anticipated (x)
to form the basis of an Environmental Claim against Mortgagor or its properties
or (y) to cause the Subject Premises or any other property owned, operated or
leased by Mortgagor in New Jersey to be subject to any restrictions on its
ownership, occupancy or transferability under any Environmental Law; (x) no
notice relating to hazardous substances is contained in any deed relating to
Subject Premises and there are no facts or conditions on any such property that
would require that such a notice be placed in the deed to any such property;
and (xi) no portion of the Subject Premises or, to the best of Mortgagor's
knowledge, any other property owned, operated or leased by Mortgagor in New
Jersey, contains asbestos-containing material that is or threatens to become
friable.
B. Subject to Okonite's primary responsibility to remediate
the Subject Premises pursuant to the ACO, for all Hazardous Substances (as
defined herein) at any time located on any of the Mortgagor's Real Property
(defined as the Subject Premises together with any real property owned, leased,
or operated by Mortgagor), Mortgagor shall take or cause to be taken, at
Mortgagor's sole expense, all such actions as may be necessary to comply with
all Environmental Requirements (as defined herein) including, without
limitation, any actions necessary to restore the Subject Premises to its
preexisting condition following the release of a Hazardous Substance. If
Mortgagor shall fail to take all such actions, Mortgagee may make advances or
payments towards performance or satisfaction of the same (but shall be under no
obligation so to do) and all sums so advanced or paid, including all sums
advanced or paid by Mortgagee in connection with any judicial or administrative
investigation or proceedings relating thereto (including, but without
limitation, reasonable attorneys' fees, fines or other penalty payments), shall
be immediately repayable by Mortgagor and all sums so advanced or paid shall
become a part of the Obligations (as hereinafter defined) secured by this
Mortgage. Any failure of
-23-
<PAGE>
Mortgagor to comply with all Environmental Requirements shall constitute and be
an Event of Default hereunder.
C. Mortgagor hereby agrees that Mortgagor shall at all times
hereafter at Mortgagor's sole cost and expense absolutely and unconditionally
indemnify and hold Mortgagee, its parents, subsidiaries, successors, endorsees,
and assigns, and any officer, director, shareholder, employee or agent of
Mortgagee, harmless from and against all Damages (as defined herein); any
failure of any of Mortgagor's Real Property to comply in all respects with the
Environmental Requirements; or a breach by Mortgagor of any representation or
covenant contained herein.
D. Mortgagor shall promptly after acquiring knowledge thereof
give notice and a full description to Mortgagee in writing of (i) any
governmental or regulatory actions instituted or threatened in writing under
any Environmental Requirements affecting the Subject Premises or any
indemnification hereunder including, without limitation, any notice of
inspection, abatement or non-compliance, (ii) all claims made or threatened in
writing by any third party against Mortgagor or the Subject Premises relating
to any Hazardous Substance or a violation of any Environmental Requirements,
and (iii) Mortgagor's discovery of any occurrence or condition on the Subject
Premises or any real property adjoining or in the vicinity of the Subject
Premises which could subject the Subject Premises to a claim under
Environmental Requirements or to any restrictions on ownership, occupancy,
transferability or use of the Subject Premises under any Environmental
Requirements. Mortgagor shall deliver to Mortgagee any documentation or records
regarding the above as Mortgagee may request.
E. The representations, covenants, and indemnification
contained in this Paragraph 19 shall survive the occurrence of any event
whatsoever including, but not limited to, the payment of the Obligations (as
hereinafter defined) secured by this Mortgage.
F. For purposes of this Paragraph 19:
(1) "Damages" shall mean all liabilities,
obligations, claims, demands, suits,
controversies, actions, causes of action,
orders, writs, and judgments including,
without limitation, costs, expenses,
attorneys' fees, consultants' fees,
environmental cleanup costs, natural
resources damage, fines, penalties,
consequential damages, injury, death or
other damages to person(s), personal or
real property, and business enterprises,
now or in the future, as determined by
Mortgagee in its sole discretion, arising
out of or relating to any environmental
condition related to the Subject Premises
including, but not limited to:
(a) any actual or threatened release of
any Hazardous Substance (as defined
herein);
(b) any violation of any federal, state
or local environmental law that is
caused, suffered, allowed or
permitted by Mortgagor; or
(c) any other condition that may cause
Mortgagee to sustain any damages,
regardless of whether such
environmental condition resulted
from any act or omission of
Mortgagor, Mortgagee, one or more
third parties or some combination
thereof including, but without
limitation, any negligence of
-24-
<PAGE>
Mortgagee whether heretofore, now
or hereafter existing or occurring.
(2) "Environmental Claim(s)" shall mean any
claim, suit, notice, order, demand or other
communication made by any Person to
Mortgagor or any of its properties, whether
owned or leased, that: (i) asserts a
violation of an Environmental Law; (ii)
asserts a liability under an Environmental
Law; (iv) demands information under an
Environmental Law; (v) alleges personal
injury or property damage resulting from
Hazardous Substances; or (vi) alleges that
there is or may be contamination.
(3) "Environmental Law(s)" shall mean any
Governmental Rule (as defined in the Loan
Agreement) concerning protection or
regulation of the discharge of substances
into the environment, including but not
limited to those concerning air emissions,
water discharges and treatment, storage
tanks, and the handling, generation,
treatment, storage and disposal of waste
materials, chemical substances, pollutants,
contaminants, toxic substances, pathogens,
radioactive materials or hazardous
substances of any kind, whether solid,
liquid or gaseous, including without
limitation the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. ss.6901 et
seq., the Federal Water Pollution Control
Act, 33 U.S.C. ss.1251 et seq.,; the Clean
Air Act, 42 U.S.C. ss.7401 et seq.; the
Hazardous Materials Transportation Act of
1975, 49 U.S.C. ss.ss.1801-1812; the Toxic
Substances Control Act, 15 U.S.C. ss.2601
et seq.; the Federal Insecticide, Fungicide
and Rodenticide Act, 7 U.S.C. ss.136 et
seq.; the Safe Drinking Water Act, 42
U.S.C. ss.300 et seq.; and each as amended
and as now or hereinafter in effect, and
their state and local counterparts or
equivalents, including any regulations
promulgated thereunder.
(4) "Environmental Requirements" shall mean any
and all applicable federal, state or local
environmental laws, statutes, ordinances,
regulations or standards, or administrative
or court orders or decrees, or private
agreements now or hereafter in effect
including without limitation the New Jersey
Industrial Site Recovery Act and the New
Jersey Spill Compensation and Control Act
as any or all of them may be amended,
supplemented or modified subsequent to the
date hereof.
(5) "Governmental Authority" shall mean any:
(a) nation, state, government,
jurisdiction or jurisdictional
authority (domestic, foreign or
international), any political
subdivision thereof, and any
governmental, quasi-governmental,
judicial, public, statutory,
administrative or regulatory body,
agency, department, bureau,
authority,
-25-
<PAGE>
court, commission, board, office,
instrumentality, administrative
tribunal or other entity of any of
the foregoing and any official
thereof; and
(b) any arbitrator, arbitration
tribunal or other non-governmental
entity which has jurisdiction over
the Mortgagor.
(6) "Hazardous Substance(s)" shall mean and
include any material or substance that
contains:
(a) any "hazardous substance",
"pollutant" or "contaminant" as
defined in any applicable federal
statute, law, rule or regulation
now or hereafter in effect
including without limitation,
Sections 101(14) and (33) of the
Comprehensive Environmental
Response, Compensation and
Liability Act (42 U.S.C. Section
9601(14) and (33)) or 40 C.F.R.
Part 302 or any amendment thereto
or any replacement thereof or in
any statute or regulation relating
in any way to the environment,
whether similar or dissimilar, now
or hereafter in effect;
(b) any hazardous substance or
hazardous waste as those terms are
now or hereafter defined in any
applicable state or local law, rule
or regulation or in any statute or
regulation relating in any way to
the environment, whether similar or
dissimilar, now or hereafter in
effect;
(c) any substance subject to the
Emergency Planning and Community
Right-to-Know Act of 1986, 42
U.S.C. Section 1001 et seq., or the
regulations promulgated thereunder
or in any amendment thereto or in
any replacement thereof or in any
similar federal or state statute or
regulation now or hereafter in
effect;
(d) any substance containing petroleum,
as that term is defined in Section
9001(8) of the Resource
Conservation and Recovery Act, as
amended (42 U.S.C. Section 6991(8))
or 40 C.F.R. Section 280.1 or in
any amendment thereto or any
replacement thereof or in any
similar federal or state statute or
regulation now or hereafter in
effect; or
(e) any other substance for which any
federal, state or local
governmental entity now or
hereafter requires special handling
in its use, transportation,
accumulation, collection, storage,
treatment or disposal.
(7) "Person" shall mean any individual,
partnership, corporation, association,
trust, business trust, joint venture, joint
stock company, limited liability company,
limited liability partnership, limited
partnership, unincorporated organization or
enterprise or Governmental Authority.
-26-
<PAGE>
G. The provisions of that certain Environmental Indemnity
Agreement covering the Subject Premises (hereafter, the "Environmental
Agreement"), dated the date hereof and executed and delivered by Mortgagor
contemporaneously herewith, are incorporated herein by reference and, to the
extent that any provisions of the Environmental Agreement impose or reference
any obligations, liabilities, covenants, or grants any rights or remedies, as
the case may be, that are different, inconsistent or conflict with the
provisions of this Mortgage, the provisions that offer the Mortgagee the
greatest protections, rights or remedies and/or impose the greatest obligations
or liabilities upon the Mortgagor shall be deemed operative and controlling.
20. INDEMNIFICATION. Mortgagor hereby irrevocably agrees to indemnify
and save harmless Mortgagee from and against any and all loss or damage of
whatsoever kind and from any suits, claims or demands, including without
limitation, Mortgagee's legal fees and expenses, on account of any matter or
thing arising out of this Mortgage or in connection herewith. This provision
shall survive any foreclosure or cancellation of this Mortgage.
21. INVALIDITY OF PROVISION.
A. If any promise or covenant of this Mortgage or the Notes,
the Loan Agreement, or any of the other Relevant Documents is void or
ineffective under the law, this Mortgage, the Notes, the Loan Agreement, and
the other Relevant Documents shall remain in force and effect as if such
promise or covenant had not been entered into or, at Mortgagee's option, the
entire principal indebtedness and all other sums required to be paid by
Mortgagor hereunder shall become immediately due and payable.
B. Notwithstanding any provision contained in this Mortgage,
in the Notes, in the Loan Agreement, or in any of the other Relevant Documents,
the total liability for payment of interest, or payment in the nature of
interest, shall not exceed the limits now imposed by applicable usury laws,
including the applicable choice of law rules, in the event of the acceleration
of the Obligations (as hereinafter defined) hereby secured, the total charges
for interest and in the nature of interest shall not exceed the maximum amount
allowed by law, and any excess portion of such charges that may have been
prepaid shall be refunded to the maker thereof. Such refund may be made by
application of the amount involved against the sums then due hereunder, but
such crediting shall not cure or waive the Event of Default occasioning
acceleration. Mortgagor agrees that in determining whether or not any interest
payable under this Mortgage exceeds the highest rate permitted by law, any
non-principal payment, including without limitation late charges, shall be
deemed to the extent permitted by law to be an expense, fee, premium or
penalty, rather than interest.
22. REQUIRED NOTICES. In addition to any notice requirements contained
elsewhere in this Mortgage, in the Notes, in the Loan Agreement, or in any of
the other Relevant Documents, or in any document, agreement, instrument or
other writing entered into in connection herewith or in connection with the
obligations secured hereby Mortgagor shall notify Mortgagee promptly of the
occurrence of any of the following:
A. A fire or other casualty causing damage to the Subject
Premises;
B. Receipt of notice of condemnation of the Subject Premises;
C. Receipt of notice from any government or quasi-
governmental authority relating to the development, structure, use, or
occupancy of the Subject Premises;
-27-
<PAGE>
D. Substantial change in the occupancy of the Subject
Premises; or
E. Commencement of any litigation affecting the Subject
Premises.
23. SECURITY FOR OBLIGATIONS. Notwithstanding anything to the contrary
contained herein and even if the Notes referred to in this Mortgage be paid,
this Mortgage is and shall continue to be collateral security for, and secure
the payment, performance and observation of, any and all indebtedness,
obligations and liabilities (hereinafter called "Obligations") of any kind, of
Mortgagor to Mortgagee related to the Loans, whether now existing or hereafter
arising, direct or indirect (including participation or interest of Mortgagee
in Obligations of Mortgagor to others), acquired outright, conditionally, or as
collateral security from another, absolute or contingent, joint or several,
secured or unsecured, due or not, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, and all loan
agreements, security agreements, documents instruments and writings evidencing
any of the foregoing Obligations or under which any of the foregoing
Obligations may have been issued, created, assumed or guaranteed or for which
Mortgagor is surety or guarantor. Mortgagor waives any and all notice of the
creation, or accrual of any of the said Obligations, or of any renewals or
extensions thereof from time to time, or of the reliance by Mortgagee upon this
Mortgage. The Obligations, and each of them, shall be deemed to have been
created, contracted or incurred in reliance upon this Mortgage and all dealings
between Mortgagor and Mortgagee to have been consummated in reliance upon this
Mortgage.
24. JOINT AND SEVERAL LIABILITY. If Mortgagor is more than one party,
all parties executing this Mortgage shall be jointly and severally liable.
25. GOVERNING LAW. The enforcement of this Mortgage, as it pertains to
foreclosure, sale or other rights respecting the realization of the security
referred to herein, shall be governed according to the laws of the state where
the Subject Premises are located, but in all other respects, this Mortgage
shall be construed in accordance with the laws of the State of New Jersey
relating to contracts executed therein and to be performed therein if
different.
26. FORFEITURE. Mortgagor hereby further expressly represents and
warrants to Mortgagee that there has not been committed by Mortgagor or, to the
best of Mortgagor's knowledge by any other person involved with the Mortgaged
Property, any act or omission affording the Federal government or any state or
local government the right of forfeiture as against the Mortgaged Property or
any part thereof or any monies paid in performance of its obligations under the
Notes or under any of the other Relevant Documents, and Mortgagor hereby
covenants and agrees not to commit, permit or suffer to exist any act or
omission affording such right of forfeiture. In furtherance thereof, Mortgagor
hereby indemnifies Mortgagee and agrees to defend and hold Mortgagee harmless
from and against any loss, damage or injury by reason of the breach of the
covenants and agreements or the warranties and representations set forth in the
preceding sentence. Without limiting the generality of the foregoing, the
filing of formal charges or the commencement of proceedings against Mortgagor,
Mortgagee or all or any part of the Mortgaged Property under any Federal or
state law for which forfeiture of the Mortgaged Property or any part thereof or
of any monies paid in performance of Mortgagor's obligations under the Notes or
other Relevant Documents is a potential result shall, at the election of
Mortgagee, constitute an Event of Default hereunder without notice or
opportunity to cure.
27. JURISDICTION. Mortgagor consents to the exclusive jurisdiction of
the state and federal courts of the State of New Jersey except for any action
of foreclosure or an action to otherwise realize on the security hereof which
actions shall be brought in such courts as have jurisdiction over the Subject
Premises. Mortgagor consents to service of process by certified
-28-
<PAGE>
mail, return receipt requested. Nothing herein contained shall in any way
prevent or preclude Mortgagee from bringing any one or more actions against
Mortgagor in any jurisdiction in the United States or elsewhere.
28. SERVICE OF PROCESS. Mortgagor irrevocably agrees to service of
process by certified mail, return receipt requested, to its address set forth
herein or such other address as Mortgagor may direct by notice to Mortgagee.
29. WAIVER OF JURY TRIAL. MORTGAGOR AND MORTGAGEE EACH IRREVOCABLY
WAIVES JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL DISPUTES INVOLVING
MORTGAGOR OR MORTGAGEE OR MORTGAGOR'S OR MORTGAGEE'S PARENT, AFFILIATES OR
RELATED ENTITIES OR ANY OFFICER, DIRECTOR, SHAREHOLDER, MEMBER, ATTORNEY OR
PARTNER OF ANY OF THEM, WHETHER HEREUNDER OR UNDER ANY OTHER AGREEMENTS, NOTES,
PAPERS, INSTRUMENTS OR DOCUMENTS HERETOFORE OR HEREAFTER EXECUTED OR ANY OTHER
CONTRACT WHETHER SIMILAR OR DISSIMILAR. THIS WAIVER SHALL BE DEEMED A COVENANT
ENFORCEABLE INDEPENDENTLY OF ALL OTHER PROVISIONS OF THIS MORTGAGE.
30. NOTICES. All notices and other communications relating to this
Mortgage shall be in writing, and addressed as follows and sent by hand
delivery, registered or certified mail, recognized overnight courier service or
telecopier with confirmation of delivery:
If to Lender: PNC Bank, National Association
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Thomas J. McCool,
Senior Vice President
If to Borrower: USA Detergents, Inc.
1735 Jersey Avenue
North Brunswick, New Jersey 08902
Attention: Richard Coslow, Chief
Financial Officer
With a copy to:
Sheldon Nussbaum, Esq.
Fulbright & Jaworski, LLP
666 Fifth Avenue
New York, New York 10013
(The failure to transmit a copy of the notice to the
foregoing shall not constitute defective notice to the Borrower.)
or to such other address as the respective party or its successors or
assigns may subsequently designate by proper notice. All notices shall be
deemed effective (i) upon receipt of same (whether by personal delivery or
transmittal by facsimile/telecopier with confirmation thereof); or (ii) two (2)
business days after deposit with an overnight courier; or (iii) three (3)
business days if sent by registered or certified mail, postage prepaid,
whichever is earlier.
-29-
<PAGE>
31. INTERPRETATION. Any act or agreement to be done or performed by
the Mortgagor hereunder shall be construed as a covenant running with the land
and shall be binding upon the heirs and assigns of Mortgagor as fully as if
they had been parties signatory hereto as "Mortgagor". Any reference to
"premises" or "Subject Premises" herein shall mean and include the real
property described in Exhibit "A" hereto, all buildings and improvements now
and hereafter erected or situate thereon, and the contents thereof which are
subject to the lien hereof or to financing statements filed in connection with
the Loans secured hereby or are necessary for the maintenance or operation of
such buildings and improvements. Any reference in this Mortgage to the right of
Mortgagee to recover attorney's fees shall permit Mortgagee to recover fees for
both inside and outside counsel. The descriptive headings used herein are for
convenience only and are not a part of this Mortgage and do not in any manner
limit or amplify the terms and provisions hereof. Time shall be of the essence
of this Mortgage. This Mortgage shall inure to the benefit of and be binding
upon Mortgagee, its successors and assigns, and Mortgagor, and Mortgagor's
heirs, executors, personal representatives, successors, and assigns. References
to this Mortgage shall mean this instrument and any and all renewals,
modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders and replacements of this instrument.
32. MORTGAGOR'S REPRESENTATIONS. Mortgagor warrants and represents
that it possesses a good and marketable title to an indefeasible fee simple
estate in the Subject Premises; that Mortgagor has full power and lawful
authority to subject the Subject Premises to the lien of this Mortgage in the
manner and form herein provided; that it shall be lawful for Mortgagee at all
times to enter upon, hold, occupy and enjoy the Subject Premises and every part
thereof; that the Subject Premises is free from all liens and encumbrances
subject only to those title exceptions listed in the mortgagee title insurance
policy approved by and issued to Mortgagee, insuring the priority of the lien
of this Mortgage; that all information, reports, papers and data given to
Mortgagee with respect to the Subject Premises or Mortgagor are accurate in all
material respects; that no notice of taking by eminent domain or condemnation
of any part of the Subject Premises has been received, and Mortgagor has no
knowledge that any of such is contemplated; that the Subject Premises and the
present use and occupancy thereof are in compliance with all applicable laws,
rules, ordinances, statutes and regulations; and that no part of the Subject
Premises is located in an area designated by any federal, state or local
governmental entity as having a special flood hazard.
33. ACTIONS OF MORTGAGEE. Mortgagee may, at any time and from time to
time, without notice to, and without the consent of, any other person or entity
(except for Mortgagor in the case of a modification of the terms of the Notes,
this Mortgage, the Loan Agreement, or any of the other Relevant Documents): (a)
extend the time of payment of the indebtedness secured hereby, (b) agree to
modify the terms of the Notes, this Mortgage, the Loan Agreement, or any of the
other Relevant Documents, including increasing payments of interest and
principal, (c) release any person liable for payment of any indebtedness
secured hereby or for performance of any obligation, (d) release all or any
part of the security held for the indebtedness secured hereby or (e) exercise
or refrain from exercising or waive any right Mortgagee may have. Mortgagee
shall have such rights and may exercise them without affecting the lien or
priority of this Mortgage upon the Subject Premises or any part thereof, and
without affecting the liability of any Guarantor, notwithstanding the fact that
Sureties, junior mortgages, judgments or other claims or encumbrances may be
impaired, prejudiced or otherwise adversely affected thereby.
34. NO WAIVER IMPLIED. Any failure by Mortgagee to insist upon strict
performance by Mortgagor of any of the terms and provisions of this Mortgage or
the Notes shall not be deemed to be a waiver of any of the terms or provisions
of the Mortgage or Notes, and Mortgagee shall have the right thereafter to
insist upon strict performance by Mortgagor of any
-30-
<PAGE>
and all of them. Neither Mortgagor nor any other person now or hereafter
obligated for payment of all or any part of the sums now or hereafter secured
by this Mortgage shall be relieved of such obligation by reason of the failure
of Mortgagee to comply with any request of Mortgagor or of any other person so
obligated to take action to foreclose on this Mortgage or otherwise enforce any
provisions of the Mortgage or the Notes, or by reason of the release,
regardless of consideration, of all or any part of the security held for the
indebtedness secured by this Mortgage, or by reason of any agreement or
stipulation between any subsequent owner of the Subject Premises and Mortgagee
extending the time of payment or modifying the terms of the Mortgage or Notes
without first having obtained the consent of Mortgagor or such other person;
and in the latter event Mortgagor and all such other persons shall continue to
be liable to make payments according to the terms of any such extension or
modification agreement, unless expressly released and discharged in writing by
Mortgagee.
35. LETTERS OF CREDIT. This Mortgage shall secure the applicant's and
account party's obligations under any application, reimbursement agreement or
other document (collectively the "LC Documents") executed in connection with
any letter of credit (hereinafter an "LC"), irrespective of the applicant or
account party thereunder, now or hereafter issued by Mortgagee at Mortgagor's,
or a Guarantor's or their affiliate's request and relating in any way to the
Subject Premises. In the event of a draw under any LC such draw shall
constitute an Event of Default. The obligations under the LC Documents shall be
a direct repayment obligation of the Mortgagor notwithstanding any non-recourse
language contained in the Notes or this Mortgage if any. However the foregoing
language shall in no way obligate Mortgagee to issue any LC.
36. NON-MERGER. Mortgagor intends and agrees that this Mortgage shall
NOT merge into any foreclosure or other judgment entered or recovered by
Mortgagee against the Mortgagor under the Notes, the Loan Agreement, or any of
the other Relevant Documents, or under or pursuant to any other Notes, document
or instrument. Notwithstanding the recovery or entry of any such judgment
against Mortgagor, all of the terms, provisions, covenants, undertakings and
agreements of the Mortgagor whether under this Mortgage or under the Notes, the
Loan Agreement, or any of the other Relevant Documents, or any other Notes,
instrument, document or undertaking of the Mortgagor, whether relating thereto
or not, shall remain in full force and effect and shall be enforceable strictly
in accordance with their terms as fully as though no such judgment had been
entered or recovered against the Mortgagor.
37. CROSS-COLLATERALIZATION. All of the collateral for the Notes, the
Loan Agreement, or any of the other Relevant Documents, shall serve as
collateral for any and all other Loans from Mortgagee to Mortgagor and/or to
any Guarantor or any affiliate of any of them now existing or which are
hereinafter entered into and Mortgagor agrees that the collateral for any other
such Loans shall serve as collateral for the Notes, Loan Agreement and the
other Relevant Documents.
38. RELEASE. Notwithstanding any inconsistent language in the Loan
Agreement or any of the other Relevant Documents, provided no default occurs:
(i) in the payment of the interest due monthly under the Notes and such default
continues for more than five (5) days after Mortgagee gives Mortgagor written
notice of such default or (ii) in the payment of the principal of the Notes due
on January 4, 1999, then, this Mortgage shall be discharged upon receipt by
Mortgagee of the principal amount outstanding under the Bridge Note (as defined
in the Loan Agreement), plus interest thereon and all reasonable costs and
expenses in connection therewith (collectively, the "Release Amount") in good
funds by certified or bank check made payable to Mortgagee or by wire transfer
to an account provided by Mortgagee's letter of direction. In furtherance
thereof, upon receipt of the Release Amount by the Mortgagee, the Mortgagee
shall execute and deliver to Mortgagor such documentation as Mortgagor shall
reasonably request in order to evidence and/or memorialize the release of the
Subject Premises from the lien of this Mortgage.
-31-
<PAGE>
If a default occurs (i) in the payment of interest due monthly under
the Notes and such default continues for more than five (5) days after
Mortgagee gives Mortgagor written notice of such default or (ii) in the payment
of the principal of the Notes due on January 4, 1999, this Mortgage shall be
discharged upon receipt by Mortgagee of: (i) the Release Amount, plus (ii) all
proceeds from the refinancing or sale of the Subject Premises (as described
under Section 3.3 of the Loan Agreement) in excess of the Release Amount and
the amount required to discharge the Second Mortgage (up to the amount of
Mortgagee's third mortgage lien on the Subject Premises) in good funds by
certified or bank check made payable to Mortgagee or by wire transfer to an
account provided by Mortgagee's letter of direction. Upon receipt of the
foregoing sums by the Mortgagee, the Mortgagee shall execute and deliver to
Mortgagor such documentation as Mortgagor shall reasonably request in order to
evidence and/or memorialize the release of the Subject Premises from the lien
of this Mortgage.
39. NEW GUARANTEE. Notwithstanding anything to the contrary contained
in this Mortgage, the Loan Agreement and/or any other agreement between the
Mortgagor and Mortgagee, if (i) any one or more of the guarantors under the
Guarantee Agreement (the "New Guarantee"), dated the date hereof, executed
jointly and severally by Mark Antebi, Daniel Bergman, Joseph Cohen, Uri Evan
and Frederick Horowitz (collectively, the "Individual Guarantors"), shall fail
to perform or observe any covenant, term or condition under the New Guarantee,
(ii) any other default shall occur under the New Guarantee, (iii) any one or
more of the Individual Guarantors denies liability under the New Guarantee
and/or (iv) the New Guarantee ceases to be effective for any reason whatsoever,
then none of the foregoing, either collectively or individually, shall
constitute any Event of Default under this Mortgage, any Event of Default under
the Loan Agreement or any default or Event of Default under any other agreement
between the Mortgagor and the Mortgagee.
IN WITNESS WHEREOF, Mortgagor intending this to take effect as in
instrument under seal has caused these presents to be executed the day and year
first above written.
USA DETERGENTS, INC.,
A Delaware Corporation
By: /s/ Uri Evan (Seal)
______________________________________
Name: Uri Evan
Title: Chairman of the Board and
Chief Executive Officer
-32-
<PAGE>
February 25, 1998
USA Detergents, Inc.
1735 Jersey Avenue
North Brunswick, New Jersey 08902
RE: SECOND NOTE AND MORTGAGE
Ladies and Gentlemen:
101 Realty Associates, L.L.C., a New Jersey limited liability company
(the "Lender"), is pleased to advise that, subject to the terms and conditions
listed below, it shall make a loan (the "Loan") to USA Detergents, Inc., a
Delaware corporation (the "Company"), in the principal amount of $4,000,000,
which Loan shall be secured in accordance with and subject to the terms hereof.
Capitalized terms used herein are defined in Subsection H of this letter
agreement (this "Agreement"), unless indicated herein.
A. SECOND NOTE; SECOND MORTGAGE AND SECURITY
AGREEMENT; HAZARDOUS SUBSTANCES INDEMNITY AGREEMENT
1. Subject to the terms and conditions hereof, the Lender hereby
agrees to make the Loan to the Company. The Loan shall mature on the Maturity
Date and shall bear interest for the period from the Borrowing Date thereof to
the date of payment in full thereof at the applicable interest rate per annum
determined and payable as specified herein.
2. The obligation of the Company to pay the principal of and interest
on the Loan shall be evidenced by a Second Note duly executed and delivered by
the Company substantially in the form of Exhibit A attached hereto (the "Second
Note"). The Second Note shall (A) be payable to the order of the Lender, (B) be
in a stated principal amount equal to $4,000,000, (C) mature on the Maturity
Date and (D) be entitled to the benefits of this Agreement.
3. The Loan shall bear interest on the unpaid principal amount thereof
from the date such Loan is extended to the Company until such principal amount
is paid in full at a rate per annum equal to nine and one-half percent (9.5%),
before and after judgment, payable in accordance with the terms of the Second
Note.
<PAGE>
It is the intention of the parties hereto to conform strictly to all
applicable usury laws that are applicable to any party or to any of the
transactions contemplated hereby or by any of the Related Documents.
Accordingly, notwithstanding anything to the contrary in this Agreement or any
of the Related Documents, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by any party hereunder or
under the Related Documents or otherwise in connection with the transactions
contemplated hereby or thereby shall under no circumstances exceed the maximum
amount of interest that could lawfully be charged by such party under
applicable law (the "Maximum Rate"), (ii) in the event that the maturity of any
indebtedness evidenced by or payable pursuant hereto or to the Related
Documents is accelerated for any reason, or in the event of any required or
permitted payment or prepayment of all or any part of such indebtedness, then
such consideration that constitutes interest as to any such indebtedness under
applicable law may never include more than the maximum amount allowed by such
applicable law, and (iii) if under any circumstances the aggregate amounts paid
on any instruments prior to or incident to the final payment thereof include
any amounts which by applicable law would be deemed interest in excess of the
maximum amount allowed by such applicable law, interest theretofore paid shall
be credited by the recipient on the principal of the affected indebtedness (or
to the extent that the principal of such indebtedness shall have been or would
thereby be paid in full, refunded by such recipient to the party entitled
thereto).
4. The Loan shall be secured by a second mortgage lien on certain real
property located at 1600 Route One North, North Brunswick, New Jersey (the
"Property") pursuant to the terms of a Second Mortgage and Security Agreement
substantially in the form of Exhibit B attached hereto (the " Second
Mortgage").
5. At the closing of the Loan, the Lender and the Company shall enter
into a Hazardous Substances Indemnity Agreement substantially in the form of
Exhibit C attached hereto (the "Hazardous Substances Indemnity Agreement"),
pursuant to which, among other things, the Company shall indemnify the Lender
with respect to hazardous wastes on, in, under or affecting the Property.
6. As soon as practicable following the Closing Date, the independent
directors of the Company shall engage a qualified independent investment
banking firm to evaluate the appropriate "equity kicker", which shall be in the
form of warrants to purchase shares of Common Stock, to be issued to the Lender
as additional consideration for the Loan and the Lender's guarantee with
respect to the holder of a $5 million first mortgage lien on the Property. Such
evaluation shall be based upon comparable transactions between unrelated third
parties. The independent directors of the Company agree to evaluate and
seriously consider the reasonable recommendations of such independent
investment banking firm. The foregoing notwithstanding, the parties agree that
any warrants to be issued to the Lender shall contain, among other things,
standard anti-dilution protections, including protections against equity
issuances by the Company at below the exercise price of the warrants and shall
grant the Lender customary demand and piggyback registration rights with
respect to the shares of Common Stock underlying the warrants.
-2-
<PAGE>
B. CONDITIONS PRECEDENT
The making of the Loan shall be subject to the satisfaction of the
following conditions precedent:
(1) The Lender shall have received on or before the date hereof each
of the following documents and instruments, each dated such date, in form and
substance reasonably satisfactory to the Lender and its counsel:
(a) a certificate of the Secretary of the Company dated the
date hereof, certifying that (A) attached thereto are true and
complete copies of the resolutions of the Board of Directors of the
Company or committee thereof authorizing the execution, delivery and
performance by the Company of this Agreement, the borrowings hereunder
by the Company and the execution, delivery and performance by the
Company of the Second Note, the Second Mortgage and the Hazardous
Substances Indemnity Agreement and such other Related Documents to
which it is a party and (B) said resolutions are all the resolutions
adopted by the Board of Directors of the Company or such committee in
connection with the transactions contemplated thereby and are in full
force and effect without modification as of such date;
(b) (A) a copy of the Certificate of Incorporation of the
Company certified as of a recent date, but not more than 10 days prior
to the date hereof, by the Secretary of the Company; (B) a certificate
of the Secretary of State of the State of Delaware as to the due
organization, existence and good standing of the Company as of a
recent date; and (C) a certificate of the Secretary or Assistant
Secretary of the Company dated the date of the Second Note, certifying
(x) that attached thereto is a true and complete copy of its By-laws
as in effect on the date of such certification, and (y) as to the
incumbency and signatures of each of its officers executing this
Agreement, the Secured Note, the Second Mortgage, the Hazardous
Substances Indemnity Agreement and such of the other Related Documents
to which it is a party;
(c) this Agreement, the Second Note, the Second Mortgage, the
Hazardous Substances Indemnity Agreement and each of the other Related
Documents duly executed by all the parties thereto (other than the
Lender);
(d) an opinion of Fulbright & Jaworski L.L.P., counsel to the
Company, substantially in the form of Exhibit D hereto;
(e) subject to the carve outs in paragraph C(3) below, such
consents, approvals or acknowledgments with respect to such of the
transactions hereunder as may be necessary or as the Lender or its
counsel may reasonably deem appropriate;
(f) such other and further documents as the Lender and its
counsel may have reasonably requested and all legal matters incident
to this Agreement and the transactions contemplated hereby, shall be
reasonably satisfactory to the Lender and its counsel.
-3-
<PAGE>
(2) As of the date hereof, the following statements shall be true and
correct and the Lender shall have received a certificate of the Company signed
on its behalf by a duly authorized officer of the Company, dated such date,
stating that: (i) the representations and warranties contained in this
Agreement and in the Related Documents are true and correct in all material
respects on and as of such date before and after giving effect to the borrowing
hereunder and to the application of the proceeds therefrom, as though made on
or as of such date; and (ii) before and after giving effect to the borrowing
hereunder, no Event of Default or Default shall have occurred or would result
in such Event of Default.
(3) Pryor, Cashman, Sherman & Flynn, special counsel to the Lender,
shall have received payment of its reasonable fees and expenses incurred in
connection with this Agreement, the Related Documents and the transactions
contemplated hereby and thereby.
C. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Company hereby
represents and warrants to the Lender that:
1. The Company (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and (b) has the
power and authority and the legal right, to own its property and to conduct the
business in which it is currently engaged.
2. The Company has the power and authority and the legal right, to
make, deliver and perform this Agreement and the Related Documents, and any and
all other documents related to this Agreement to which it is a party and to
borrow hereunder and has taken all necessary action to authorize the Loan on
the terms and conditions of this Agreement and the Second Note and to authorize
the execution, delivery and performance of the Related Documents to which it is
a party. Other than the consent of the New Jersey Economic Development
Authority, Banque Nationale de Paris, Sanwa Business Credit Corp. and PNC Bank,
no consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement and the Related
Documents to which the Company is a party. This Agreement has been, and each of
the Related Documents to which it is a party will be, duly executed and
delivered by the Company. This Agreement constitutes, and each of the Related
Documents to which it is a party when executed and delivered will constitute, a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
3. Other than with respect to the New Jersey Economic Development
Authority, Banque Nationale de Paris, Sanwa Business Credit Corp. and PNC Bank,
the execution, delivery and performance of this Agreement or any of the Related
Documents to which the Company is a
-4-
<PAGE>
party, the borrowings hereunder and the use of the proceeds thereof will not
conflict with or violate any Requirement of Law or Contractual Obligation of
the Company and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation.
4. The Company is not engaged in the business of extending credit for
the purpose of purchasing or carrying "margin stock" or "margin securities"
(within the meaning of Regulation U), none of the obligations or liabilities of
the Company are secured, directly or indirectly, by "margin stock" or "margin
securities", and no part of the proceeds of any extension of credit hereunder
will be used for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" of "margin securities", or in a
manner which would breach or contravene any of Regulations G, T, U, or X.
5. Except as set forth on Schedule 4.15 to the Amended and Restated
Loan Agreement, dated the date hereof, between PNC Bank, National Association,
and the Company, the Company has no subsidiaries.
D. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Loan is outstanding or
any other amount is owing to the Lender hereunder or under any of the Related
Documents, the Company shall:
1. Furnish to the Lender:
(a) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter of the Company, consolidated statements of
income and cash flow of the Company for such quarter and for the period from
the current fiscal year to the end of such quarter and consolidated and
consolidating balance sheets of the Company as at the end of such quarter, all
in reasonable detail and certified by the chief financial officer of the
Company as being a true and correct reflection in all material respects of the
financial condition and results of operation of the Company on a consolidated
and consolidating basis, subject to changes resulting from year-end adjustments
and except as otherwise noted therein; and
(b) as soon as practicable and in any event within 90 days
after the end of each fiscal year of the Company, audited consolidated
statements of income and cash flow of the Company for such year, and audited
consolidated balance sheets of the Company as at the end of such year, and
setting forth, in each case, in comparative form, corresponding figures from
the preceding fiscal year, all in reasonable detail, and reported upon by an
independent accounting firm of nationally recognized standing whose
certification shall be without qualification as to the scope of the audit or as
to GAAP, and, as to the consolidating statements, certified by the chief
financial officer of the Company;
All such financial statements shall be complete and correct in all
material respects and shall be prepared in reasonable detail and in accordance
with GAAP applied consistently throughout
-5-
<PAGE>
the periods reflected therein and with prior periods (except as approved by
such accountants or officer, as the case may be, and disclosed therein).
2. Furnish to the Lender:
(a) promptly upon receipt thereof, a copy of each other
report (including, without limitation, each management and/or controller
letter) submitted to the Company by independent accountants in connection with
any annual, interim, or special audit of the books of the Company made by such
accountants;
(b) immediately upon any material revision to any of the
financial statements referred to in paragraph 1(b) above, such financial
statements, as revised; and
(c) with reasonable promptness, such other information and
data with respect to the Company as from time to time may be reasonably
requested by the Lender.
3. Promptly give notice to the Lender of:
(a) the occurrence of any Default or Event of Default with
respect to the Company;
(b) any litigation or proceeding which may exist at any time
between the Company and any Governmental Authority; and
(c) any litigation or proceeding affecting the Company in
which the amount reasonably determined to be at risk is $100,000 or more and
not covered by insurance or in which injunctive or similar relief is sought.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
4. Make any and all payments under this Agreement, the Second Note and
the other Related Documents free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of the Lender, taxes imposed on or in respect of its income (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings,
penalties and liabilities being hereinafter referred to as "Taxes"). If the
Company shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder to the Lender, upon receipt of a certificate from the
Lender (i) the sum payable shall be increased as may be necessary so that,
after making all required deductions (including deductions applicable to
additional sums payable under this paragraph), the Lender receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Company shall make such deductions, and (iii) the Company shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
-6-
<PAGE>
5. Not apply, directly or indirectly, any part of the proceeds of the
Loan for the purpose, whether immediate, incidental or ultimate, of purchasing
or carrying any "margin security" as defined in Regulation U or for the purpose
of reducing or retiring any Indebtedness which was originally incurred for any
such purpose, or in violations of Regulation G, T, U or X.
In addition to the foregoing affirmative covenants, the Company agrees
to use its reasonable best efforts to (i) obtain, as soon as practicable
following the Closing Date, a firm commitment from a qualified lender to loan a
minimum of $9.0 million to the Company, secured by a first mortgage lien on the
Property, (ii) close such mortgage loan as soon as reasonably practicable
following the receipt of such a firm commitment and (iii) use the proceeds of
such loan to repay all outstanding mortgage indebtedness (including the Loan)
on the Property. If the Company, despite using its reasonable best efforts, is
unable to obtain such a firm commitment within 60 days of the Closing Date, the
Company will, upon the election of the Lender, engage an investment
banker/broker to find a buyer of the Property, the purchase price of which
shall be no less than $9.0 million and the proceeds of which shall be used to
repay all outstanding mortgage indebtedness (including the Loan) on the
Property.
E. NEGATIVE COVENANTS
The Company shall not pay any cash dividends on any shares of any
class of securities of the Company existing on the date hereof until all
principal and interest has been paid in full on the Second Note.
F. EVENTS OF DEFAULT
If an Event of Default shall occur under the Second Mortgage or if
there shall be a material breach of any representation, warranty, covenant or
agreement contained herein, which has not been cured within 10 days of receipt
of notice from Lender of such material breach, then and in any such event, the
Lender may, declare the entire unpaid balance of principal and unpaid interest
on the Second Note to be immediately due and payable, whereupon the maturity of
the then unpaid balance on the Second Note shall be accelerated and the
principal and all interest accrued thereon shall forthwith become due and
payable without presentment, demand, protest or notice of any kind, except as
set forth herein, all of which are hereby expressly waived, anything contained
herein or in the Second Note to the contrary notwithstanding, and the Lender
may exercise and shall have any and all remedies accorded the Lender by law.
G. MISCELLANEOUS
1. In any action or other legal proceeding relating to this Agreement
or the Related Documents, the Company (i) consents to the personal jurisdiction
of any State or Federal court located in the State of New York, (ii) waives
objection to the laying of venue, (iii) consents to service of process by
registered or certified mail directed to the Company at the last address shown
in the Lender's records relating to this Agreement and the Related Documents,
with such service of process to be deemed completed five days after mailing,
(iv) waives any right to trial by
-7-
<PAGE>
jury with respect to this Agreement or the Related Documents or to assert any
counterclaim or setoff or recoupment or any defenses based upon a statute of
limitations or upon a claim of laches, (v) waives its right to attack any final
judgment that is obtained as a direct or indirect result of any such action,
and (vi) consents to each such final judgment being sued upon in any court
having jurisdiction. In any proceeding, a copy of this Agreement and the
Related Documents kept in the Lender's course of business shall be admitted
into evidence as an original.
2. Any demand upon or notice to the Company, permitted or required
hereunder shall be sufficient if deposited in the mails, postage prepaid,
addressed to the Company at the address of the Company appearing at the
beginning of this Agreement or at such other address as the Company may
designate in writing received by the Lender as the address to which such
demands, notices or other communications addressed to the Company shall be
mailed or forwarded, and shall be effective five Business Days following such
deposit. Any notice to the Lender shall be mailed certified or registered mail,
return receipt requested, to the Lender at the address as the Lender may
designate, and shall be effective when received by the Lender.
3. All representations and warranties made by any party in this
Agreement shall survive for a period of two (2) years following the date
hereof.
4. This Agreement and all Related Documents shall be binding upon the
successor and assigns of the parties hereto and thereto.
5. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and construed and interpreted in accordance
with, the substantive law of the State of New York, without regard to its
choice of law provisions.
H. DEFINED TERMS
"Borrowing Date": the Business Day on which the Lender makes the Loan
the Borrower.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial Lender in New York City are authorized or required by law to
close.
"Closing Date": the date on which the conditions precedent set forth
above shall be satisfied.
"Common Stock": common stock of the Company, $.01 par value per share.
"Company": as defined herein.
"Default": any of the events as set forth in Subsection F hereof,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
-8-
<PAGE>
"Event of Default": any of the events as set forth in Subsection F
hereof, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time, as consistently applied.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
"Hazardous Substances Indemnity Agreement": the Hazardous Substances
Indemnity Agreement, dated as of the Closing Date, executed in favor of the
Lender by the Company, substantially in the form attached hereto as Exhibit C.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property
or services (other than current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices), (b) any
other indebtedness of such Person which is evidenced by a note, bond, debenture
or similar debt instrument, (c) all obligations of such Person under financing
leases, (d) all obligations of such Person in respect of acceptances (as
defined in Section 3-410 of the UCC) issued or created for the account of such
Person and (e) all liabilities secured by any Lien on any property owned by
such Person even though such Person has not assumed or otherwise become liable
for the payment thereof.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing).
"Loan": as defined herein.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) of the
Company or (b) the validity or enforceability of this Agreement or any of the
Related Documents or the rights or remedies of the Lender hereunder or
thereunder.
"Maturity Date": August 25, 1999.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Property": As defined herein.
-9-
<PAGE>
"Regulation G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation T": Regulation T of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation X": Regulation X of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Related Documents": the Second Note, the Second Mortgage, the
Hazardous Substances Indemnity Agreement and all other documents entered into
in connection therewith.
"Requirements of Law": as to any Person, the certificate of
incorporation, by-laws, partnership agreement, or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
"Responsible Officer": the president, treasurer, secretary or any vice
president of the Company, or, with respect to financial matters, the chief
financial officer or treasurer of the Company.
"Second Mortgage": the Second Mortgage and Security Agreement, dated
as of the Closing Date, executed in favor of the Lender by the Company,
securing the Loan, substantially in the form attached hereto as Exhibit B.
"Second Note": the Second Note, dated as of the Closing Date, executed
in favor of the Lender by the Company, evidencing the Loan, substantially in
the form attached hereto as Exhibit A.
Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the Second Note or any
certificate or other document made or delivered pursuant hereto.
-10-
<PAGE>
As used herein and in the Second Note, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Company not defined above and accounting terms partly defined above, to the
extent not defined, shall have the respective meanings given to them under
GAAP.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
101 REALTY ASSOCIATES, L.L.C.
By: /s/Frederick Horowitz
---------------------------------
Name: Frederick Horowitz
Title: Managing Member
Acknowledged and agreed to by:
USA DETERGENTS, INC.
By: /s/Richard Coslow
--------------------------------
Name: Richard Coslow
Title: Chief Financial Officer
-11-
<PAGE>
This document was
prepared by:
Sheldon Nussbaum, Esq.
MORTGAGE AND SECURITY AGREEMENT
USA DETERGENTS, INC.,
MORTGAGOR
IN FAVOR OF
101 REALTY ASSOCIATES, L.L.C.
MORTGAGEE
DATED: AS OF FEBRUARY 25, 1998
THIS INSTRUMENT AFFECTS REAL AND PERSONAL PROPERTY SITUATED IN THE STATE OF NEW
JERSEY, COUNTY OF MIDDLESEX, TOWNSHIP OF NORTH BRUNSWICK, BLOCK 143, LOT 18.3.
KNOWN BY THE STREET ADDRESS OF 1600 ROUTE 1 NORTH.
THIS INSTRUMENT IS TO BE FILED AND INDEXED IN THE REAL ESTATE RECORDS AND IS
ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS UNDER THE NAMES OF
MORTGAGOR, AS "DEBTOR", AND MORTGAGEE, AS "SECURED PARTY".
Record and Return to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Sheldon Nussbaum, Esq.
<PAGE>
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is
made as of the 25th day of February, 1998, by USA Detergents, Inc., a Delaware
corporation ("Mortgagor"), whose address is 1735 Jersey Avenue, North
Brunswick, New Jersey 08902, in favor of 101 REALTY ASSOCIATES, L.L.C. a New
Jersey limited liability corporation ("Mortgagee"), whose address is 333
Seventh Avenue, 11th Floor, New York, New York 10001.
W I T N E S S E T H:
THAT FOR AND IN CONSIDERATION OF THE SUM OF TEN AND NO/100
DOLLARS ($10.00), AND OTHER VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY
OF WHICH IS HEREBY ACKNOWLEDGED. MORTGAGOR HEREBY IRREVOCABLY MORTGAGES,
GRANTS, BARGAINS, SELLS, CONVEYS, TRANSFERS, PLEDGES, SETS OVER AND ASSIGNS,
AND GRANTS A SECURITY INTEREST, TO MORTGAGEE, ITS SUCCESSORS AND ASSIGNS, in
all of Mortgagor's estate, right, title and interest in, to and under any and
all of the following described property, whether now owned or hereafter
acquired (collectively, the "Property"):
A. All that certain real property situated at 1600 Route One
North, County of Middlesex, Township of North Brunswick, State of New Jersey,
more particularly described on Exhibit A attached hereto and incorporated
herein by this reference (the "Real Estate"), together with all of the
easements, rights, privileges, franchises, tenements, hereditaments and
appurtenances now or hereafter thereunto belonging or in any way appertaining
and all of the estate, right, title, interest, claim and demand whatsoever of
Mortgagor therein or thereto, either at law or in equity, in possession or in
expectancy, now or hereafter acquired;
B. All structures, buildings and improvements of every kind
and description now or at any time hereafter located or placed on the Real
Estate (the "Improvements");
C. All easements, rights-of-way, strips and gores of land,
vaults, streets, ways, alleys, passages, sewer rights, air rights and other
development rights now or hereafter located on the Real Estate or under or
above the same or any part or parcel thereof, and all estates, rights, titles,
interests, tenements, hereditaments and appurtenances, reversions and
remainders whatsoever, in any way belonging, relating or appertaining to the
Real Estate and/or Improvements or any part thereof, or which hereafter shall
in any way belong, relate or be appurtenant thereto, whether now owned or
hereafter acquired by Mortgagor;
D. All water, ditches, wells, reservoirs and drains and all
water, ditch, well, reservoir and drainage rights which are appurtenant to,
located on, under or above or used in connection with the Real Estate or the
Improvements, or any part thereof, whether now existing or hereafter created or
acquired;
<PAGE>
E. All minerals, crops, timber, trees, shrubs, flowers and
landscaping features now or hereafter located on, under or above the Real
Estate;
F. All cash funds, deposit accounts and other rights and
evidence of rights to cash, now or hereafter created or held by Mortgagee
pursuant to this Mortgage or any other of the Loan Documents (as hereinafter
defined);
G. All leases (including, without limitation, oil, gas and
mineral leases), licenses, concessions and occupancy agreements of all or any
part of the Real Estate or the Improvements now or hereafter entered into
(each, a "Lease" and collectively, the "Leases") and all rents, royalties,
issues, profits, revenue, income and other benefits (collectively, the "Rents
and Profits") of the Real Estate or the Improvements, now or hereafter arising
from the use or enjoyment of all or any portion thereof or from any present or
future Lease or other agreement pertaining thereto or arising from any of the
Contracts (as hereinafter defined) or any of the General Intangibles (as
hereinafter defined) and all cash or securities deposited to secure performance
by the tenants, lessees or licensees, as applicable (each, a "Tenant" and
collectively, the "Tenants"), of their obligations under any such Leases,
whether said cash or securities are to be held until the expiration of the
terms of said Leases or applied to one or more of the installments of rent
coming due prior to the expiration of said terms, subject to, however, the
provisions contained in Section 1.11 hereinbelow;
H. All contracts and agreements now or hereafter entered into
covering any part of the Real Estate or the Improvements (collectively, the
"Contracts") and all revenue, income and other benefits thereof, including,
without limitation, management agreements, service contracts, maintenance
contracts, equipment leases, personal property leases and any contracts or
documents relating to construction on any part of the Real Estate or the
Improvements (including plans, drawings, surveys, tests, reports, bonds and
governmental approvals) or to the management or operation of any part of the
Real Estate or the Improvements;
I. All present and future monetary deposits given to any
public or private utility with respect to utility services furnished to any
part of the Real Estate or the Improvements;
J. All present and future funds, accounts, instruments,
accounts receivable, documents, causes of action, claims, general intangibles
(including without limitation, trademarks, trade names, servicemarks and
symbols now or hereafter used in connection with any part of the Real Estate or
the Improvements, all names by which the Real Estate or the Improvements may be
operated or known, all rights to carry on business under such names, and all
rights, interest and privileges which Mortgagor has or may have as developer or
declarant under any covenants, restrictions or declarations now or hereafter
relating to the Real Estate or the Improvements) and all notes or chattel paper
now or hereafter arising from or by virtue of any transactions related to the
Real Estate or the Improvements (collectively, the "General Intangibles");
-2-
<PAGE>
K. All water taps, sewer taps, certificates of occupancy,
permits, licenses, franchises, certificates, consents, approvals and other
rights and privileges now or hereafter obtained in connection with the Real
Estate or the Improvements and all present and future warranties and guaranties
relating to the Improvements;
L. All architectural renderings, models, drawings, plans,
specifications, studies and data now or hereafter relating to the Real Estate
or the Improvements;
M. All right, title and interest of Mortgagor in any
insurance policies or binders now or hereafter relating to the Property
including any unearned premiums thereon;
N. All proceeds, products, substitutions and accessions
(including claims and demands therefor) of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims, including,
without limitation, proceeds of insurance and condemnation awards and proceeds
of refunds of any taxes or assessments levied against the Property with respect
to any period in which this Mortgage encumbers the Property;
O. All other or greater rights and interests of every nature
in the Real Estate or the Improvements and in the possession or use thereof and
income therefrom, whether now owned or hereafter acquired by Mortgagor; and
P. All sums held by or under the control of the holder of the
Prior Mortgage, as that term is defined in Section 4.30 hereof, that were
deposited on account of real estate taxes, insurance premiums or otherwise.
FOR THE PURPOSES OF SECURING:
(1) The debt evidenced by that certain promissory
note (such promissory note, together with any and all renewals, modifications,
consolidations and extensions thereof, is hereinafter referred to as the
"Note") of even date with this Mortgage, made by Mortgagor to the order of
Mortgagee in the original principal amount of Four Million and No/100 Dollars
($4,000,000), together with interest as therein provided;
(2) The full and prompt payment and performance of
all of the provisions, agreements, covenants and obligations herein contained
and contained in any other agreements, documents or instruments now or
hereafter evidencing, guarantying, securing or otherwise relating to the
indebtedness evidenced by the Note, including, but not limited to, the
Hazardous Substances Indemnity Agreement, of even date herewith, from Mortgagor
to Mortgagee (as hereinafter defined) (the Note, this Mortgage, and such other
agreements, documents and instruments, together with any and all renewals,
amendments, extensions and modifications thereof, are hereinafter collectively
referred to as the "Loan Documents") and the payment of all other sums therein
covenanted to be paid;
-3-
<PAGE>
(3) Any and all additional advances made by
Mortgagee to protect or preserve the Property or the lien or security interest
created hereby on the Property, or for taxes, assessments or insurance premiums
as hereinafter provided or for performance of any of Mortgagor's obligations
hereunder or under the other Loan Documents or for any other purpose provided
herein or in the other Loan Documents (whether or not the original Mortgagor
remains the owner of the Property at the time of such advances); and
(4) Any and all other indebtedness now owing or
which may hereafter be owing by Mortgagor to Mortgagee, including, without
limitation, all prepayment fees, however and whenever incurred or evidenced,
whether express or implied, direct or indirect, absolute or contingent, or due
or to become due, and all renewals, modifications, consolidations, replacements
and extensions thereof.
(All of the sums referred to in Paragraphs (1) through (4)
above are herein sometimes referred to as the "secured indebtedness" or the
"indebtedness secured hereby").
TO HAVE AND TO HOLD the Property unto Mortgagee, its
successors and assigns forever, for the purposes and uses herein set forth.
PROVIDED, HOWEVER, that if the principal and interest and all
other sums due or to become due under the Note and the other Loan Documents,
shall have been paid at the time and in the manner stipulated therein and all
other sums payable hereunder and all other indebtedness secured hereby shall
have been paid and all other covenants contained in the Loan Documents shall
have been performed, then, in such case, this Mortgage shall be satisfied and
the estate, right, title and interest of Mortgagee in the Property shall cease,
and upon payment to Mortgagee of all costs and expenses incurred for the
preparation of the release hereinafter referenced and all recording costs if
allowed by law, Mortgagee shall release this Mortgage and the lien hereof by
proper instrument.
ARTICLE I
COVENANTS OF MORTGAGOR
For the purpose of further securing the indebtedness secured
hereby and for the protection of the security of this Mortgage, for so long as
the indebtedness secured hereby or any part thereof remains unpaid, Mortgagor
covenants and agrees as follows:
1.1 Warranties of Mortgagor. Mortgagor, for itself and its
successors and assigns, does hereby represent, warrant and covenant to and with
Mortgagee, its successors and assigns, that:
-4-
<PAGE>
(a) Mortgagor has good and marketable fee simple
title to the Property, subject only to those matters expressly listed as
exceptions to title or subordinate matters in the title insurance policy
accepted by Mortgagee in connection with this Mortgage, excepting therefrom all
preprinted and/or standard exceptions (the "Permitted Exceptions"), and has
full power and lawful authority to grant, bargain, sell, convey, assign,
transfer and mortgage its interest in the Property in the manner and form
hereby done or intended. Mortgagor will preserve its interest in and title to
the Property and will forever warrant and defend the same to Mortgagee against
any and all claims whatsoever and will forever warrant and defend the validity
and priority of the lien and security interest created herein against the
claims of all persons and parties whomsoever, subject to the Permitted
Exceptions. The foregoing warranty of title shall survive the foreclosure of
this Mortgage and shall inure to the benefit of and be enforceable by Mortgagee
in the event Mortgagee acquires title to the Property pursuant to any
foreclosure;
(b) No bankruptcy or insolvency proceedings are
pending, or contemplated by Mortgagor or, to the best knowledge of Mortgagor,
against Mortgagor or by or against any endorser, cosigner or guarantor of the
Note, or any guarantor or indemnitor under any guaranty or indemnity agreement
executed in connection with the Note or the loan evidenced thereby and secured
hereby;
(c) All reports, certificates, affidavits,
statements and other data furnished by or on behalf of Mortgagor or any
guarantor or indemnitor to Mortgagee in connection with the loan evidenced by
the Note are true and correct in all material respects and do not omit to state
any fact or circumstance necessary to make the statements contained therein not
misleading;
(d) The execution, delivery and performance of this
Mortgage, the Note and all of the other Loan Documents have been duly
authorized by all necessary action to be, and are, binding and enforceable
against Mortgagor in accordance with the respective terms thereof and do not
contravene, result in a breach of or constitute (upon the giving of notice or
the passage of time or both) a default under the partnership agreement,
articles of incorporation or other organizational documents of Mortgagor or any
contract or agreement of any nature to which Mortgagor is a party or by which
Mortgagor or any of its property may be bound and do not violate or contravene
any law, order, decree, rule or regulation to which Mortgagor is subject;
(e) The Real Estate and the Improvements, and the
intended use thereof by Mortgagor comply in all material respects with all
applicable restrictive covenants, zoning ordinances, subdivision and building
codes, flood disaster laws, applicable health and environmental laws and
regulations and all other ordinances, orders or requirements issued by any
state, federal or municipal authorities having or claiming jurisdiction over
the Property. The Real Estate and Improvements constitute one or more separate
tax parcels for purposes of ad valorem taxation. The Real Estate and
Improvements do not require any rights over, or restrictions against, other
-5-
<PAGE>
property in order to comply with any of the aforesaid governmental ordinances,
orders or requirements.
(f) All utility services necessary and sufficient
for the full use, occupancy, operation and disposition of the Real Estate and
the Improvements for their intended purposes are available to the Property,
including water, storm sewer, sanitary sewer, gas, electric, cable and
telephone facilities, through public rights-of-way or perpetual private
easements approved by Mortgagee;
(g) All streets, roads, highways, bridges and
waterways necessary for access to and full use, occupancy, operation and
disposition of the Real Estate and the Improvements have been completed, have
been dedicated to and accepted by the appropriate municipal authority and are
open and available to the Real Estate and the Improvements without further
condition or cost to Mortgagor;
(h) All curb cuts, driveways and traffic signals
shown on the survey delivered to Mortgagee prior to the execution and delivery
of this Mortgage are existing and have been fully approved by the appropriate
governmental authority;
(i) There are no judicial, administrative, mediation
or arbitration actions, suits or proceedings pending or threatened against or
affecting Mortgagor, (and, if Mortgagor is a partnership, any of its general
partners) or the Property which, if adversely determined, would materially
impair either the Property or Mortgagor's ability to perform the covenants or
obligations required to be performed under the Loan Documents:
(j) The Property is free from delinquent water
charges, sewer rents, taxes and assessments:
(k) As of the date of this Mortgage, the Property is
free from unrepaired damage caused by fire, flood, accident or other casualty;
(l) As of the date of this Mortgage, no part of the
Real Estate or the Improvements has been taken in condemnation, eminent domain
or like proceeding nor is any such proceeding pending or to Mortgagor's
knowledge and belief, threatened or contemplated;
(m) Mortgagor possesses all franchises, patents,
copyrights, trademarks, trade names, licenses and permits adequate for the
conduct of its business substantially as now conducted;
(n) The Improvements are structurally sound, in good
repair and free of defects in materials and workmanship and have been
constructed and installed in substantial compliance with the plans and
specifications relating thereto. All major building systems located within the
Improvements, including, without limitation, the
-6-
<PAGE>
heating and air conditioning systems and the electrical and plumbing systems,
are in good working order and condition;
(o) Mortgagor has delivered to Mortgagee true,
correct and complete copies of all Contracts and all amendments thereto or
modifications thereof;
(p) Mortgagor and the Property are free from any
past due obligations for sales and payroll taxes;
(q) Other than the Prior Mortgage, as defined in
Section 4.30 hereof, there are no security agreements or financing statements
affecting any of the Property other than (i) as disclosed in writing by
Mortgagor to Mortgagee prior to the date hereof and (ii) the security
agreements and financing statements created in favor of Mortgagee;
(r) The Property forms no part of any property
owned, used or claimed by Mortgagor as a residence or business homestead and is
not exempt from forced sale under the laws of the State in which the Real
Estate is located. Mortgagor hereby disclaims and renounces each and every
claim to all or any portion of the Property as a homestead;
(s) Each Contract constitutes the legal, valid and
binding obligation of Mortgagor and, to the best of Mortgagor's knowledge and
belief, is enforceable against any other party thereto. No default exists, or
with the passing of time or the giving of notice or both would exist, under any
Contract which would, in the aggregate, have a material adverse effect on
Mortgagor or the Property;
(t) No Contract provides any party with the right to
obtain a lien or encumbrance upon the Property superior to the lien of this
Mortgage; and
(u) Mortgagor is not a "foreign person" within the
meaning of ss. 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and
the related Treasury Department Regulations, including temporary regulations;
and
(v) The Mortgagor further represents that no default
or event of default has occurred and is continuing under any Prior Mortgage and
that no event has occurred that with notice or passage of time or both would
constitute such a default or event of default.
1.2 Defense of Title. If, while this Mortgage is in force,
the title to the Property or the interest of Mortgagee therein shall be the
subjects, directly or indirectly, of any action at law or in equity, or be
attached directly or indirectly or endangered, clouded or adversely affected in
any manner, Mortgagor, at Mortgagor's expense, shall take all necessary and
proper steps for the defense of said title or interest, including the
employment of counsel approved by Mortgagee, the prosecution or defense of
litigation, and the compromise or discharge of claims made against said
-7-
<PAGE>
title or interest. Notwithstanding the foregoing, in the event that Mortgagee
determines that Mortgagor is not adequately performing its obligations under
this Section, Mortgagee may, without limiting or waiving any other rights or
remedies of Mortgagee hereunder, take such steps with respect thereto as
Mortgagee shall deem necessary or proper; any and all reasonable costs and
expenses incurred by Mortgagee in connection therewith, together with interest
thereon at the Default Interest Rate (as defined in the Note) from the date
incurred by Mortgagee until actually paid by Mortgagor, shall be immediately
paid by Mortgagor on demand and shall be secured by this Mortgage and by all of
the other Loan Documents securing all or any part of the indebtedness evidenced
by the Note.
1.3 Performance of Obligations. Mortgagor shall pay when due
the principal of and the interest on the indebtedness evidenced by the Note.
Mortgagor shall also pay all charges, fees and other sums required to be paid
by Mortgagor as provided in the Loan Documents, and shall observe, perform and
discharge all obligations, covenants and agreements to be observed, performed
or discharged by Mortgagor set forth in the Loan Documents in accordance with
their terms. Further, Mortgagor shall promptly and strictly perform and comply
with all covenants, conditions, obligations and prohibitions required of
Mortgagor in connection with any other document or instrument affecting title
to the Property, or any part thereof, regardless of whether which document or
instrument is superior or subordinate to this Mortgage.
1.4 Insurance. Mortgagor shall, at Mortgagor's expense,
maintain in force and effect on the Property at all times while this Mortgage
continues in effect the following insurance:
(a) Insurance against loss or damage to the Property
by fire, windstorm, tornado and hail and against loss and damage by such other,
further and additional risks as may be now or hereafter embraced by an
"all-risk" form of insurance policy. The amount of such insurance shall be not
less than one hundred percent (100%) of the full replacement (insurable) cost
of the Improvements, furniture, furnishings, fixtures, equipment and other
items (whether personalty or fixtures) included in the Property and owned by
Mortgagor from time to time, without reduction for depreciation. The
determination of the replacement cost amount shall be adjusted annually to
comply with the requirements of the insurer issuing such coverage or, at
Mortgagee's election, by reference to such indices, appraisals or information
as Mortgagee determines in its reasonable discretion. Full replacement cost, as
used herein, means, with respect to the Improvements, the cost of replacing the
Improvements without regard to deduction for depreciation, exclusive of the
cost of excavations, foundations and footings below the lowest basement floor
and means, with respect to such furniture, furnishings, fixtures, equipment and
other items, the cost of replacing the same, in each case, with inflation guard
coverage to reflect the effect of inflation, or annual valuation. Each policy
or policies shall contain a replacement cost endorsement and either an agreed
amount endorsement (to avoid the operation of any
-8-
<PAGE>
co-insurance provisions) or a waiver of any co-insurance provisions, all subject
to Mortgagee's approval.
(b) Comprehensive Commercial General Liability
Insurance for personal injury, bodily injury death and property damage
liability in amounts not less than $1,000,000.00 per occurrence and
$5,000,000.00 in the aggregate (both inclusive of umbrella coverage) and Fire
Damage Legal Liability of not less than $100,000. During any construction on
the Property, Mortgagor's general contractor for such construction shall also
provide the insurance required in this Subsection (b). Mortgagee hereby retains
the right to periodically review the amount of said liability insurance being
maintained by Mortgagor and to require an increase in the amount of said
liability insurance should Mortgagee deem an increase to be reasonably prudent
under then existing circumstances.
(c) General boiler and machinery insurance coverage
is required if steam boilers or other pressure-fired vessels are in operation
at the Property. Minimum liability amount per accident must equal the greater
of the replacement (insurable) value of the Improvements housing such boiler or
pressure-fired machinery or $1,000,000.00.
(d) If the Property or any part thereof is
identified by the Secretary of Housing and Urban Development as being situated
in an area now or subsequently designated as having special flood hazards
(including, without limitation, those areas designated as Zone A or Zone V),
flood insurance in an amount equal to the lesser of: (i) the minimum amount
required, under the terms of coverage, to compensate for any damage or loss on
a replacement basis (or the unpaid balance of the indebtedness secured hereby
if replacement cost coverage is not available for the type of building
insured); or (ii) the maximum insurance available under the appropriate
National Flood Insurance Administration program.
(e) During the period of any construction on the
Property or renovation or alteration of the Improvements, a so-called
"Builder's All-Risk Completed Value" or "Course of Construction" insurance
policy in non-reporting form for any Improvements under construction,
renovation or alteration in an amount approved by Mortgagee and Worker's
Compensation Insurance covering all persons engaged in such construction,
renovation or alteration.
(f) Loss of rents or loss of business income
insurance in amounts sufficient to compensate Mortgagor for all Rents and
Profits during a period of not less than eighteen (18) months in which the
Property may be damaged or destroyed. The amount of coverage shall be adjusted
annually to reflect the Rents and Profits or income payable during the
succeeding eighteen (18) month period.
(g) Such other insurance on the Property or on any
replacements or substitutions thereof or additions thereto as may from time to
time be required by Mortgagee against other insurable hazards or casualties
which at the time are
-9-
<PAGE>
commonly insured against in the case of property similarly situated, due regard
being given to the height and type of buildings, their construction, location,
use and occupancy.
(h) Such other insurance on the Property or on any
replacements or substitutions thereof or additions thereto as may from time to
time be required by Mortgagee against other insurable hazards or casualties
which at the time are commonly insured against in the case of property
similarly situated including, without limitation, Sinkhole, Mine Subsidence,
Earthquake and Environmental insurance, due regard being given to the height
and type of buildings, their construction, location, use and occupancy.
(i) Statutory limits for worker's compensation
insurance and minimum $500,000 for employer's liability insurance for all
employees of Mortgagor engaged on or with respect to the Subject Premises. If
Mortgagor engages independent contractors, then Mortgagor shall be solely
responsible for verifying and maintaining any appropriate insurance as required
by law or contract for the independent contract.
All such insurance shall (i) be with insurers authorized to
do business in the state within which the Property is located and who have and
maintain a rating of at least "A" from AM Best, (ii) contain the complete
address of the Property (or a complete legal description), (iii) be for terms
of at least one year, (iv) contain deductibles which do not exceed $10,000.00
or, with respect to the policy described in clause (d) above $3,000, and (v) be
subject to the approval of Mortgagee as to insurance companies, amounts,
content, forms of policies, method by which premiums are paid and expiration
dates.
Mortgagor shall as of the date hereof deliver to Mortgagee
evidence that said insurance policies have been paid current as of the date
hereof and certified copies of such insurance policies and original
certificates of insurance signed by an authorized agent of the applicable
insurance companies evidencing such insurance satisfactory to Mortgagee.
Mortgagor shall renew all such insurance and deliver to Mortgagee certificates
evidencing such renewals at least thirty (30) days before any such insurance
shall expire. Without limiting the required endorsements to the insurance
policies, Mortgagor further agrees that all such policies shall include a
standard, non-contributory, mortgagee clause naming:
101 Realty Associates, L.L.C.
its successors and assigns as their
Interests may appear
(x) as an additional insured under all liability insurance policies, (y) as a
mortgagee on all property insurance policies and (z) as the loss payee on all
loss of rents or loss of business income insurance policies. Mortgagor further
agrees that all such insurance policies: (1) shall provide for at least thirty
(30) days' prior written notice to Mortgagee prior to any cancellation or
termination thereof and prior to any
-10-
<PAGE>
modification thereof which affects the interest of Mortgagee; (2) shall contain
an endorsement or agreement by the insurer that any loss shall be payable to
Mortgagee in accordance with the terms of such policy notwithstanding any act
or negligence of Mortgagor which might otherwise result in forfeiture of such
insurance; (3) shall waive all rights of subrogation against Mortgagee; (4) in
the event that the Real Estate or the Improvements constitutes a legal
non-conforming use under applicable building, zoning or land use laws or
ordinances, shall include an ordinance or law coverage endorsement which will
contain Coverage A: "Loss Due to Operation of Law" (with a minimum liability
limit equal to Replacement Cost With Agreed Value Endorsement), Coverage B:
"Demolition Cost" and Coverage C: "Increased Cost of Construction" coverages;
and (5) may be in the form of a blanket policy provided that, in the event that
any such coverage is provided in the form of a blanket policy, Mortgagor hereby
acknowledges and agrees that failure to pay any portion of the premium therefor
which is not allocable to the Property or by any other action not relating to
the Property which would otherwise permit the issuer thereof to cancel the
coverage thereof, would require the Property to be insured by a separate,
single-property policy. The blanket policy must properly identify and fully
protect the Property as if a separate policy were issued for 100% of
Replacement Cost at the time of loss and otherwise meet all of Mortgagee's
applicable insurance requirements set forth in this Section 1.4. The delivery
to Mortgagee of the insurance policies or the certificates of insurance as
provided above shall constitute an assignment of all proceeds payable under
such insurance policies relating to the Property by Mortgagor to Mortgagee as
further security for the indebtedness secured hereby. In the event of
foreclosure of this Mortgage, or other transfer of title to the Property in
extinguishment in whole or in part of the secured indebtedness, all right,
title and interest of Mortgagor in and to all proceeds payable under such
policies then in force concerning the Property shall thereupon vest in the
purchaser at such foreclosure, or in Mortgagee or other transferee in the event
of such other transfer of title. Approval of any insurance by Mortgagee shall
not be a representation of the solvency of any insurer or the sufficiency of
any amount of insurance. In the event Mortgagor fails to provide, maintain,
keep in force or deliver and furnish to Mortgagee the policies of insurance
required by this Mortgage or evidence of their renewal as required herein,
Mortgagee may, but shall not be obligated to, procure such insurance and
Mortgagor shall pay all amounts advanced by Mortgagee therefor, together with
interest thereon at the Default Interest Rate from and after the date advanced
by Mortgagee until actually repaid by Mortgagor, promptly upon demand by
Mortgagee. Any amounts so advanced by Mortgagee, together with interest
thereon, shall be secured by this Mortgage and by all of the other Loan
Documents securing all or any part of the indebtedness secured hereby.
Mortgagee shall not be responsible for nor incur any liability for the
insolvency of the insurer or other failure of the insurer to perform even
though Mortgagee has caused the insurance to be placed with the insurer after
failure of Mortgagor to furnish such insurance. Mortgagor shall not obtain
insurance for the Property in addition to that required by Mortgagee without
the prior written consent of Mortgagee, which consent will not be unreasonably
withheld provided that (i) Mortgagee is a named insured on such insurance, (ii)
Mortgagee receives complete copies of all policies evidencing such instance,
and (iii) such insurance complies with all of the applicable requirements set
forth herein.
-11-
<PAGE>
1.5 Payment of Taxes. Mortgagor shall pay or cause to be
paid, except to the extent provision is actually made therefor pursuant to
Section 1.6 or Section 1.7 of this Mortgage, all taxes and assessments which
are or may become a lien on the Property or which are assessed against or
imposed upon the Property. Mortgagor shall furnish Mortgagee with receipts (or
if receipts are not immediately available, with copies of canceled checks
evidencing payment with receipts to follow promptly after they become
available) showing payment of such taxes and assessments at least fifteen (15)
days prior to the applicable delinquency date therefor. Notwithstanding the
foregoing, Mortgagor may in good faith, by appropriate proceedings and upon
notice to Mortgagee, contest the validity, applicability or amount of any
asserted tax or assessment so long as (a) such contest is diligently pursued,
(b) Mortgagee determines, in its reasonable discretion, that such contest
suspends the obligation to pay the tax and that nonpayment of such tax or
assessment will not result in the sale, loss, forfeiture or diminution of the
Property or any part thereof or any interest of Mortgagee therein, and (c)
prior to the earlier of the commencement of such contest or the delinquency
date of the asserted tax or assessment, Mortgagor deposits in the Impound
Account an amount determined by Mortgagee to be adequate to cover the payment
of such tax or assessment and a reasonable additional sum to cover possible
interest, costs and penalties; provided, however, that Mortgagor shall promptly
cause to be paid any amount adjudged by a court of competent jurisdiction to be
due, with all interest, costs and penalties thereon, promptly after such
judgment becomes final; and provided, further, that, in any event each such
contest shall be concluded, the taxes, assessments, interest, costs and
penalties shall be paid prior to the date any writ or order is issued under
which the Property may be sold, lost or forfeited.
1.6 Tax and Insurance Impound Account. At Mortgagee's option
during the continuation of an Event of Default, Mortgagor shall establish and
maintain at all times while this Mortgage continues in effect an impound
account (the "Impound Account") with Mortgagee for payment of real estate taxes
and assessments and insurance on the Property and as additional security for
the indebtedness secured hereby. After notice from Mortgagee that Mortgagee is
exercising its option hereunder, Mortgagor shall pay to Mortgagee, concurrently
with and in addition to the monthly payment due under the Note and until the
Note and all other indebtedness secured hereby is fully paid and performed,
deposits in an amount equal to one-twelfth (1/12) of the amount of the annual
real estate taxes and assessments that will next become due and payable on the
Property, plus one-twelfth (1/12) of the amount of the annual premiums that
will next become due and payable on insurance policies which Mortgagor is
required to maintain hereunder, each as estimated and determined by Mortgagee.
So long as no event occurs, and no state of facts exists, which, with the
giving of notice and/or the passage of time, would constitute an Event of
Default (as fined in Section 2.1 hereunder) (such event or state of facts, a
"Default") has occurred and is continuing, all sums in the Impound Account
shall be held by Mortgagee in the Impound Account to pay said taxes,
assessments and insurance premiums in one installment before the same become
delinquent. Mortgagor shall be responsible for ensuring the receipt by
Mortgagee, at least thirty (30) days prior to the respective due date for
payment
-12-
<PAGE>
thereof, of all bills, invoices and statements for all taxes, assessments and
insurance premiums to be paid from the Impound Account, and so long as no
Default has occurred and is continuing, Mortgagee shall pay the governmental
authority or other party entitled thereto directly to the extent finds are
available for such purpose in the Impound Account. In making any payment from
the Impound Account, Mortgagee shall be entitled to rely on any bill, statement
or estimate procured from the appropriate public office or insurance company or
agent without any inquiry into the accuracy of such bill, statement of estimate
and without any inquiry into the accuracy, validity, enforceability or
contestability of any tax, assessment, valuation, sale, forfeiture, tax lien or
title or claim thereof. The Impound Account shall be deemed to be escrow or
trust funds, but, at Mortgagee's option and in Mortgagee's discretion, may
either be held in a separate account or be commingled by Mortgagee with the
general funds of Mortgagee. Interest on the funds contained in the Impound
Account shall be paid by Mortgagee to Mortgagor. Upon assignment of this
Mortgage by Mortgagee, any funds in the Impound Account shall be turned over to
the assignee and any responsibility of Mortgagee, as assignor, with respect
thereto shall terminate. If the total funds in the Impound Account shall exceed
the amount of payments actually applied by Mortgagee for the purposes of the
Impound Account, such excess may be credited by Mortgagee on subsequent
payments to be made hereunder or refunded to Mortgagor at Mortgagor's option.
If, however, the Impound Account shall not contain sufficient funds to pay the
sums required when the same shall become due and payable, Mortgagor shall,
within ten (10) days after receipt of written notice thereof, deposit with
Mortgagee the full amount of any such deficiency. If the Mortgagor shall fail
to deposit with Mortgagee the full amount of such deficiency as provided above,
Mortgagee shall have the option, but not the obligation, to make such deposit
and all amounts so deposited by Mortgagee, together with interest thereon at
the Default Interest Rate from the date incurred by Mortgagee until actually
paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall
be secured by this Mortgage and by all of the other Loan Documents securing all
or any part of the indebtedness evidenced by the Note. Upon an Event of
Default, Mortgagee may, but shall not be obligated to, apply at any time the
balance then remaining in the Impound Account against the indebtedness secured
hereby in whatever order Mortgagee shall subjectively determine. No such
application of the Impound Account shall be deemed to cure any Default of Event
of Default hereunder, and any such application shall not limit Mortgagor's
obligation to deposit any deficiency of which Mortgagee gives notice. Upon full
payment of the indebtedness secured hereby in accordance with its terms or at
such earlier time as Mortgagee may elect, the balance of the Impound Account
then in Mortgagee's possession shall be paid over to Mortgagor and no other
party shall have any right or claim thereto.
1.7 Intentionally Omitted.
1.8 Intentionally Omitted.
1.9 Casualty and Condemnation. Mortgagor shall give
Mortgagee prompt written notice of the occurrence of any casualty affecting, or
the institution of
-13-
<PAGE>
any proceedings for eminent domain or for the condemnation of, the Property or
any portion thereof. All insurance proceeds on the Property, and all causes of
action, claims, compensation, awards and recoveries for any damage,
condemnation or taking of all or any part of the Property or for any damage or
injury to it for any loss or diminution in value of the Property, are hereby
assigned to and shall be paid to Mortgagee. Mortgagee may participate in any
suits or proceedings relating to any such proceeds, causes of action, claims,
compensation, awards or recoveries and Mortgagee is hereby authorized, in its
own name or in Mortgagor's name, to adjust any loss covered by insurance or any
condemnation claim or cause of action, and to settle or compromise any claim or
cause of action in connection therewith, and Mortgagor shall from time to time
deliver to Mortgagee any instruments required to permit such participation;
provided, however, that, Mortgagee shall not have the right to participate in
the adjustment of any loss which is not in excess of the lesser of (i) ten
percent (10%) of the then outstanding principal balance of the Note and (ii)
$250,000.00. Mortgagee shall apply any sums received by it under this Section
first to the payment of all of its costs and expenses (including, but not
limited to, legal fees and disbursements) incurred in obtaining those sums, and
then as follows:
(a) In the event that less than sixty percent (60%)
of the Improvements located on the Real Estate have been taken or destroyed,
then if:
(1) no Default or Event of Default is then
continuing hereunder, and
(2) the Property can, in Mortgagee's
judgment, with diligent restoration or repair, be returned to a
condition at least equal to the condition thereof that existed prior
to the casualty or partial taking causing the loss or damage within
the earlier to occur of (i) six (6) months after the receipt of
insurance proceeds or condemnation awards by either Mortgagor or
Mortgagee and (ii) six (6) months prior to the stated maturity date of
the Note, and
(3) all necessary governmental approvals
can be obtained to allow the rebuilding and reoccupancy of the
Property as described in Section 1.9(a)(2) above, and
(4) there are sufficient sums available
(through insurance proceeds or condemnation awards and contributions
by Mortgagor, the full amount of which shall at Mortgagee's option
have been deposited with Mortgagee) for such restoration or repair
(including, without limitation, for any costs and expenses of
Mortgagee to be incurred in administering said restoration or repair)
and for payment of principal and interest to become due and payable
under the Note during such restoration or repair, and
(5) the economic feasibility of the
Improvements after such restoration or repair (and including the
impact of the termination of any Leases due to such casualty or
condemnation) will be such that income from
-14-
<PAGE>
their operation is reasonably anticipated to be sufficient to pay
operating expenses of the Property and debt service on the
indebtedness secured hereby in full with the same coverage ratio
considered by Mortgagee in its determination to make the loan secured
hereby, and
(6) Mortgagor shall have delivered to
Mortgagee, at Mortgagor's sole cost and expense, an appraisal report
in form and substance satisfactory to Mortgagee appraising the value
of the Property as proposed to be restored or repaired to be not less
than the appraised value of the Property considered by Mortgagee in
its determination to make the loan secured hereby, and
(7) Mortgagor so elects by written notice
delivered to Mortgagee within five (5) days after settlement of the
aforesaid insurance or condemnation claim.
then, Mortgagee shall, solely for the purposes of such restoration or repair,
advance so much of the remainder of such sums as may be required for such
restoration or repair, and any funds deposited by Mortgagor therefor, to
Mortgagor in the manner and upon such terms and conditions as would be required
by a prudent interim construction lender, including, but not limited to, the
prior approval by Mortgagee of plans and specifications, contractors and form
of construction contracts and the furnishing to Mortgagee of permits, bonds,
lien waivers, invoices, receipts and affidavits from contractors and
subcontractors in form and substance satisfactory to Mortgagee in its
discretion, with any remainder being applied by Mortgagee for payment of the
indebtedness secured hereby in whatever order Mortgagee directs in its absolute
discretion.
(b) In all other cases, namely, in the event that
sixty percent (60%) or more of the Improvements located on the Real Estate have
been taken or destroyed or Mortgagor does not elect to restore or repair the
Property pursuant to clause (a) above, or otherwise fails to meet the
requirements of clause (a) above, then in any of such events, Mortgagee shall
elect, in Mortgagee's absolute discretion and without regard to the adequacy of
Mortgagee's security, to do either of the following: (1) accelerate the
maturity date of the Note and declare any and all indebtedness secured hereby
to be immediately due and payable and apply the remainder of such sums received
pursuant to this Section to the payment of the indebtedness secured hereby in
whatever order Mortgagee directs in its absolute discretion, with any remainder
being paid to Mortgagor, or (2) notwithstanding that Mortgagor may have elected
not to restore or repair the Property pursuant to the provisions of Section
1.9(a)(7) above, require Mortgagor to restore or repair the Property in the
manner and upon such terms and conditions as would be required by a prudent
interim construction lender, including, but not limited to the deposit by
Mortgagor with Mortgagee, within thirty (30) days after demand therefor, of any
deficiency necessary in order to assure the availability of sufficient funds to
pay for such restoration or repair, including Mortgagee's costs and expenses to
be incurred in connection therewith, the prior
-15-
<PAGE>
approval by Mortgagee of plans and specifications, contractors and form of
construction contracts and the furnishing to Mortgagee of permits, bonds, lien
waivers, invoices, receipt and affidavits from contractors and subcontractors
in form and substance satisfactory to Mortgagee in its discretion, and apply
the remainder of such sums toward such restoration and repair, with any balance
thereafter remaining being applied by Mortgagee for payment of the indebtedness
secured hereby in whatever order Mortgagee directs in its absolute discretion.
Any reduction in the indebtedness secured hereby resulting
from Mortgagee's application of any sums received by it hereunder shall take
effect only when Mortgagee actually receives such sums and elects to apply such
sums to the indebtedness secured hereby and, in any event, the unpaid portion
of the indebtedness secured hereby shall remain in full force and effect and
Mortgagor shall not be excused in the payment thereof. Partial payments
received by Mortgagee, as described in the preceding sentence, shall be applied
first to the final payment due under the Note and thereafter to installments
due under the Note in the inverse order of their due date. If Mortgagor elects,
or Mortgagee directs Mortgagor, to restore or repair the Property after the
occurrence of a casualty or partial taking of the Property as provided above,
Mortgagor shall promptly and diligently, at Mortgagor's sole cost and expense
and regardless of whether the insurance proceeds or condemnation award, as
appropriate, shall be sufficient for the purpose, restore, repair, replace and
rebuild the Property as nearly as possible to its value, condition and
character immediately prior to such casualty or partial taking in accordance
with the foregoing provisions and Mortgagor shall pay to Mortgagee all costs
and expenses of Mortgagee incurred in administering said rebuilding,
restoration or repair, provided the Mortgagee makes such proceeds or award
available for such purpose. Mortgagor agrees to execute and deliver from time
to time such further instruments as may be requested by Mortgagee to confirm
the foregoing assignment to Mortgagee of any award, damage, insurance proceeds,
payment or other compensation. Mortgagee is hereby irrevocably constituted and
appointed the attorney-in-fact of Mortgagor (which power of attorney shall be
irrevocable so long as any Indebtedness secured hereby is outstanding, shall be
deemed coupled with an interest, shall survive the voluntary or involuntary
dissolution of Mortgagor and shall not be affected by any disability or
incapacity suffered by Mortgagor subsequent to the date hereof), with full
power of substitution, subject to the terms of this section, to settle for,
collect and receive any such awards, damages, insurance proceeds, payments or
other compensation from the party or authorities making the same, to appear in
and prosecute any proceedings therefore and to give receipts and acquitances
therefor.
1.10 Mechanics' Liens. Mortgagor shall pay when due all
claims and demands of mechanics, materialmen, laborers and others for any work
performed or materials delivered for the Real Estate or Improvements; provided,
however, that, Mortgagor shall have the right to contest in good faith any such
claim or demand, so long as it does so diligently, by appropriate proceedings
and without prejudice to Mortgagor, and provided that neither the Property nor
any interest therein would be in any danger of sale, loss or forfeiture as a
result of such proceeding or contest. In the event Mortgagor shall contest any
such claim or demand, Mortgagor shall promptly
-16-
<PAGE>
notify Mortgagee of such contest and thereafter shall, upon Mortgagee's
request, promptly provide a bond, cash deposit or other security satisfactory
to Mortgagee to protect Mortgagee's interest and security should the contest be
unsuccessful. If Mortgagor shall fail to immediately discharge or provide
security against any such claim or demand as aforesaid, Mortgagee may do so and
any and all expenses incurred by Mortgagee, together with interest thereon at
the Default Interest Rate from the date incurred by Mortgagee until actually
paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall
be secured by this Mortgage and by all of the other Loan Documents securing all
or any part of the indebtedness evidenced by the Note. The occurrence and
during the continuation of an Event of Default.
1.11 Rents and Profits. As additional and collateral security
for the payment of the indebtedness secured hereby and cumulative of any and
all rights and remedies herein provided for, Mortgagor hereby absolutely and
presently assigns to Mortgagee all existing and future Leases, and all existing
and future Rents and Profits upon the occurrence and during the continuation of
an Event of Default. Mortgagor hereby grants to Mortgagee the sole, exclusive
and immediate right, without taking possession of the Property, to demand,
collect (by suit or otherwise), receive and give valid and sufficient receipts
for any and all of said Rents and Profits, for which purpose Mortgagor does
hereby irrevocably make, constitute and appoint Mortgagee its attorney-in-fact
with full power to appoint substitutes or a trustee to accomplish such purpose
(which power of attorney shall be irrevocable so long as any indebtedness
secured hereby is outstanding, shall be deemed to be coupled with an interest,
shall survive the voluntary or involuntary dissolution of Mortgagor and shall
not be affected by any disability or incapacity suffered by Mortgagor
subsequent to the date hereof.) Mortgagee shall be without liability for any
loss which may arise from a failure or inability to collect Rents and Profits,
proceeds or other payments. However, until the occurrence of an Event of
Default under this Mortgage, Mortgagor shall have a license to collect and
receive the Rents and Profits when due and prepayments thereof for not more
than one month prior to due date thereof. Upon the occurrence of an Event of
Default, Mortgagor's license shall automatically terminate without notice to
Mortgagor and Mortgagee may thereafter, without taking possession of the
Property, collect the Rents and Profits itself or by an agent or receiver. From
and after the termination of such license, Mortgagor shall be the agent of
Mortgagee in collection of the Rents and Profits and all of the Rents and
Profits so collected by Mortgagor shall be held in trust by Mortgagor for the
sole and exclusive benefit of Mortgagee and Mortgagor shall, within one (1)
business day after receipt of any Rents and Profits, pay the same to Mortgagee
to be applied by Mortgagee as hereinafter set forth. Neither the demand for or
collection of Rents and Profits by Mortgagee, nor the exercise of Mortgagee's
rights as assignee of the Leases, shall constitute any assumption by Mortgagee
of any obligations under any Lease or other agreement relating thereto.
Mortgagee is obligated to account only for such Rents and Profits as are
actually collected or received by Mortgagee. Mortgagor irrevocably agrees and
consents that the respective payors of the Rents and Profits shall, upon demand
and notice from Mortgagee of an Event of Default hereunder, pay said Rents and
Profits to Mortgagee without liability to determine the actual existence of any
Event of Default claimed by Mortgagee.
-17-
<PAGE>
Mortgagor hereby waives any right, claim or demand which Mortgagor may now or
hereafter have against any such payor by reason of such payment of Rents and
Profits to Mortgagee, and any such payment shall discharge such payor's
obligation to make such payment to Mortgagor. All Rents and Profits collected
or received by Mortgagee shall be applied against all expenses of collection,
including, without limitation, attorneys' fees, against costs of operation and
management of the Property and against the indebtedness secured hereby, in
whatever order or priority as to any of the items so mentioned as Mortgagee
directs in its sole subjective discretion and without regard to the adequacy of
its security. Neither the exercise by Mortgagee of any rights under this
Section nor the application of any Rents and Profits to the secured
indebtedness shall cure or be deemed a waiver of any Default or Event of
Default hereunder. The assignment of Leases and of Rents and Profits
hereinabove granted shall continue in full force and effect during any period
of foreclosure or redemption with respect to the Property.
1.12 Leases.
(a) Lease Requirements. Each Lease executed after
the date hereof affecting any of the Real Estate or the Improvements must
provide, in a manner approved by Mortgagee, that (i) such Lease is subject and
subordinate to this Mortgage, and (ii) the tenant, lessee or licensee, as
appropriate, will attorn to, and recognize as its landlord, lessor or licensor,
any person succeeding to the interest of Mortgagor in such Lease upon any
foreclosure of this Mortgage or deed in lieu of foreclosure. Each such Lease
shall also provide that, upon request of said successor-in-interest, the
tenant, lessee or licensee shall execute and deliver an instrument or
instruments confirming its attornment as provided for in this Section;
provided, however, that neither Mortgagee nor any successor-in-interest shall
be bound by any payment of rental for more than one (1) month in advance, or
any amendment or modification of said Lease made without the express written
consent of Mortgagee or said successor-in-interest. No Lease shall contain any
option to purchase all or any portion of the Property. No Lease shall contain
any right of first refusal to lease or purchase all or any portion of the
Property. No Lease shall contain any right to terminate the term thereof
(except in the event of the destruction of all or substantially all of the
Property).
(b) Acts Requiring Consent of Mortgagee. Mortgagor
shall not, without the prior written consent of Mortgagee, (i) enter into any
Lease of all or any portion of the Property either (Y) for space in excess of
10,000 rentable square feet, or (Z) for a term (including, without limitation,
options exercisable by the lessee thereunder) of greater than five (5) years
(any such lease, a "Major Lease"); (ii) cancel, terminate, abridge or otherwise
modify the terms of any Major Lease, or accept a surrender thereof; (iii)
consent to any assignment of, or subletting of all or any portion of the
premises demised under, any Major Lease unless required by the terms thereof;
(iv) cancel, terminate abridge, release or otherwise modify any guaranty of any
Major Lease or the terms thereof; (v) enter into any Lease not meeting the
requirements of Section 1.12(a) of this Mortgage; or (vi) enter into any Lease
containing material
-18-
<PAGE>
adverse variations from the current form lease approved by Mortgagee. The
request for approval or each such proposed Lease shall be made to Mortgagee in
writing. As part of such request, Mortgagor shall furnish to Mortgagee (and any
loan services specified from time to time by Mortgagee): (1) such biographical
and financial information about the proposed tenant as Mortgagee may require in
conjunction with its review, (2) a copy of the proposed Lease, and (3) a
summary of the material terms of such proposed Lease (including, without
limitation, rental terms and the term of the proposed Lease and any options).
(c) Affirmative Covenants Regarding Leases.
Mortgagor shall at all times promptly and faithfully perform, or cause to be
performed, all of the covenants, conditions and agreements contained in all
Leases, now or hereafter existing, on the part of the landlord, lessor or
licensor thereunder to be kept and performed. Mortgagor shall promptly send
copies to Mortgagee of all notices of default which Mortgagor shall send or
receive under any Lease. Mortgagor, at no cost or expense to Mortgagee, shall
enforce, short of termination, the performance and observance of each and every
condition and covenant of each of the other parties under each Lease. Mortgagor
shall furnish to Mortgagee, within ten (10) days after a request by Mortgagee
to do so, but in any event by January 1 of each year, a current rent roll
certified by Mortgagor as being true and correct containing the names of all
tenants, lessees and licensees with respect to the Property, the terms of their
respective Leases, the spaces occupied and the rentals or fees payable
thereunder and the amount of each tenant's security deposit. Upon the request
of Mortgagee, Mortgagor shall deliver to Mortgagee (i) a copy of each Lease;
and (ii) an estoppel certificate from the tenant under each Lease (provided
that Mortgagee shall not be required to deliver such certificates more
frequently than twice in any calendar year).
(d) Negative Covenants Regarding Leases. Mortgagor
shall not enter into any Lease (i) without the prior written consent of
Mortgagee where such consent is required pursuant to this Mortgage; (ii) except
on terms consistent with the terms for similar leases in the market area of the
Real Estate, including, without limitation, as to the rental rate, security
deposit, tenant improvement and work letter terms and free rent periods; (iii)
other than with a third-party tenant unrelated to Mortgagor or any Affiliate
(as defined herein) of Mortgagor; or (iv) except for an actual occupancy by the
tenant, lessee or licensee thereunder. Mortgagor shall not do or suffer to have
done any act that might result in a default by the landlord, lessor or licensor
under any Lease or allow the tenant, lessee or licensee thereunder to withhold
payment or rent and shall not further assign any Lease or any Rents and
Profits. Mortgagor shall not, without the prior written consent of Mortgagee:
(1) modify any Lease; (2) terminate or accept the surrender of any Lease; or
(3) waive or release any other party from the performance or observance of any
obligation or condition under any Lease; provided, however, that with respect
to all Leases other than Major Leases, provided no Default exists hereunder,
Mortgagor may do any of the foregoing in the normal course of business in a
manner which is consistent with sound and customary leasing and management
practices for similar properties in the community in which the Property is
located. Mortgagor shall not solicit or accept the prepayment of any rents
-19-
<PAGE>
under any Lease for more than one (1) month prior to the due date thereof.
Mortgagor shall not execute any other assignment of the lessor's interest in
the Leases or the Rents and Profits.
(e) Security Deposits. All security deposits of
tenants, whether held in cash or in any other form, shall not be commingled
with any other funds of Mortgagor or any other person and, if cash, shall be
deposited by Mortgagor at such commercial or savings bank or banks, or
otherwise held in compliance with applicable law, as may be reasonably
satisfactory to Mortgagee. Any bond or other instrument which Mortgagor is
permitted to hold in lieu of cash security deposits under any applicable legal
requirements shall be maintained in full force and effect in the full amount of
such deposits unless replaced by cash deposits as hereinabove described; shall
be issued by an institution reasonably satisfactory to Mortgagee; shall, if
permitted pursuant to any applicable legal requirements, name Mortgagee as
payee or mortgagee thereunder or, at Mortgagee's option, be assigned or fully
assignable to Mortgagee; and shall, in all respects, comply with any applicable
legal requirements and otherwise be reasonably satisfactory to Mortgagee.
Mortgagor shall, upon request, provide Mortgagee with evidence reasonably
satisfactory to Mortgagee of Mortgagor's compliance with the foregoing. Upon an
Event of Default under this Mortgage, Mortgagor shall, immediately upon
Mortgagee's request (if permitted by applicable law), deliver to Mortgagee the
security deposits (and any interest previously earned thereon and not disbursed
to the person(s) lawfully entitled to receive same) with respect to all or any
portion of the Property, to be held by Mortgagee subject to the terns of the
Leases.
(f) Rights of Mortgagee Upon Default. Upon an Event
of Default, whether before or after the whole principal sum secured hereby is
declared to by immediately due or whether before or after the institution of
legal proceedings to foreclose this Mortgage, forthwith upon demand of
Mortgagee, Mortgagor shall surrender to Mortgagee and Mortgagee shall be
entitled to take actual possession of the Property or any part thereof
personally, or by its agent or attorneys. In such event, Mortgagee shall have,
and Mortgagor hereby gives and grants to Mortgagee the right, power and
authority to make and enter into Leases for such rents and for such periods of
occupancy and upon conditions and provisions as Mortgagee may deem desirable in
its sole discretion, and Mortgagor expressly acknowledges and agrees that the
term of such Lease may extend beyond the date of any foreclosure sale at the
Property; it being the intention of Mortgagor that in such event Mortgagee
shall be deemed to be and shall be the attorney-in-fact of Mortgagor for the
purpose of making and entering into Leases for the rents and upon the terms,
conditions and provisions deemed desirable to Mortgagee in its sole discretion
and with like effect as if such Leases had been made by Mortgagor as the owner
in fee simple of the Property free and clear of any conditions or limitations
established by this Mortgage. The power and authority hereby given and granted
by Mortgagor to Mortgagee shall be deemed to be coupled with an interest, shall
not be revocable by Mortgagor so long as any indebtedness secured hereby is
outstanding, shall survive the voluntary or involuntary dissolution of
Mortgagor and shall not be affected by any disability or incapacity suffered by
-20-
<PAGE>
Mortgagor subsequent to the date hereof. In connection with any action taken by
Mortgagee pursuant to this Section, Mortgagee shall not be liable for any loss
sustained by Mortgagor resulting from any failure to let the Property, or any
part thereof, or from any other act or omission of Mortgagee in managing the
Property, nor shall Mortgagee be obligated to perform or discharge any
obligation, duty or liability under any Lease or under or by reason of this
instrument or the exercise of rights or remedies hereunder. Mortgagor shall,
and does hereby, indemnify Mortgagee for, and hold Mortgagee harmless from, any
and all claims, actions, demands, liabilities, loss or damage which may or
might be incurred by Mortgagee under any such Lease or under this Mortgage or
by the exercise of rights or remedies hereunder and from any and all claims and
demands whatsoever which may be asserted against Mortgagee by reason of any
alleged obligations or undertakings on its part to perform or discharge any of
the terms, covenants or agreements contained in any such Lease other than those
finally determined to have resulted solely from the gross negligence or willful
misconduct of Mortgagee. Should Mortgagee incur any such liability, the amount
thereof, including, without limitation, costs, expenses and attorneys' fees,
together with interest thereon at the Default Interest Rate from the date
incurred by Mortgagee until actually paid by Mortgagor, shall be immediately
due and payable to Mortgagee by Mortgagor on demand and shall be secured hereby
and by all of the other Loan Documents securing all or any part of the
indebtedness evidenced by the Note. Nothing in this Section shall impose on
Mortgagee any duty, obligation or responsibility for the control, care,
management or repair of the Property, or for the carrying out of any of the
terms and conditions of any such Lease, nor shall it operate to make Mortgagee
responsible or liable for any waste committed on the Property by the tenants or
by any other parties or for any dangerous or defective condition of the
Property, or for any negligence in the management, upkeep, repair or control of
the Property. Mortgagor hereby assents to, ratifies and confirms any and all
actions of Mortgagee with respect to the Property taken under this Section. The
foregoing rights are in addition to all other rights and remedies granted to
Mortgagee pursuant to this Mortgage.
(g) Representations to Leases. Mortgagor hereby
represents and warrants as follows:
(i) Mortgagor has delivered a true, correct
and complete schedule (the "Rent Roll") of all Leases affecting the
Property as of the date hereof, which accurately and completely sets
forth in all material respects for each Lease the following: the name
of the Tenant, the Lease expiration date, extension and renewal
provisions, the base rent payable, the security deposit held
thereunder and any other material provisions of such Lease;
(ii) Each Lease constitutes the legal,
valid and binding obligation of Mortgagor and, to the best of
Mortgagor's knowledge and belief, is enforceable against the Tenant
thereof. No default exists, or with the passing of time or the giving
of notice or both would exist, under any Lease which would, in the
aggregate, have a material adverse effect on Mortgagor or the
Property;
-21-
<PAGE>
(iii) No Tenant under any Lease has, as of
the date hereof, paid rent more than one (1) month in advance, and the
rents under such Leases have not been waived, released, or otherwise
discharged or compromised;
(iv) All work to be performed by Mortgagor
under the Leases has been substantially performed, all contributions
to be made by Mortgagor to the Tenants thereunder have been made and
all other conditions precedent to each such tenant's obligations
thereunder have been satisfied;
(v) Such Tenant under a Lease has entered
into occupancy of the demised premises;
(vi) Mortgagor has delivered to Mortgagee
true, correct and complete copies of all Leases described in the Rent
Roll;
(vii) To the best of Mortgagor's knowledge
and belief, each Tenant is free from bankruptcy, reorganization or
arrangement proceedings or a general assignment for the benefit of
creditors; and
(viii) No Lease provides any party with the
right to obtain a lien or encumbrance upon the Property superior to
the lien of this Mortgage.
1.13 Alienation and Further Encumbrances.
(a) Mortgagor acknowledges that Mortgagee has relied
upon the principals of Mortgagor and their experience in owning and operating
properties similar to the Property in connection with the closing of the loan
evidenced by the Note. Accordingly, except as specifically allowed hereinbelow
in this Section and notwithstanding anything to the contrary contained in
Section 4.6 hereof, in the event that the Property or any part thereof or
interest therein shall be sold, conveyed, disposed of, alienated, hypothecated,
leased (except to Tenants under Leases which are approved, or deemed approved,
in accordance with the provisions of Section 1.12 hereof), assigned, pledged,
mortgaged, further encumbered or otherwise transferred or Mortgagor shall be
divested of its title to the Property or any interest therein, in any manner or
way, whether voluntarily or involuntarily, without the prior written consent of
Mortgagee being first obtained, which consent may be withheld in Mortgagee's
sole discretion, then, the same shall constitute an Event of Default hereunder
and Mortgagee shall have the right, at its option, to declare any or all of the
indebtedness secured hereby, irrespective of the maturity date specified in the
Note, immediately due and payable and to otherwise exercise any of its other
rights and remedies contained in Article III hereof. For the purposes of this
Section 1.13(a): (i) in the event either Mortgagor or, if applicable, any of
its general partners or managing members is a corporation or trust, the sale,
conveyance, transfer or disposition of more than 50% of the issued and
outstanding capital stock of Mortgagor or any of its general partners or
managing members or of the beneficial interest of such trust (or the issuance
of new shares of capital stock in Mortgagor or any of its general partners or
managing
-22-
<PAGE>
members so that immediately after such issuance the total capital stock then
issued and outstanding is more than 110% of the total immediately prior to such
issuance) shall be deemed to be a transfer of an interest in the Property, and
(ii) in the event Mortgagor or any general partner or managing member of
Mortgagor is a limited or general partnership, a joint venture or a limited
liability company, a change in the ownership interests in any general partner,
any joint venturer or any member, either voluntarily, involuntarily or
otherwise, or the sale, conveyance, transfer, disposition, alienation,
hypothecation or encumbering of all or any portion of the interest of any such
general partner, joint venturer or member in Mortgagor or such general partner
(whether in the form of a beneficial or partnership interest or in the form of
a power of direction, control or management, or otherwise), shall be deemed to
be a transfer of an interest in the Property. Notwithstanding the foregoing,
however, (1) limited partnership and/or non-managing member interests in
Mortgagor or in any general partner or managing member of Mortgagor shall be
freely transferable without the consent of Mortgagee, and (2) any involuntary
transfer caused by the death of Mortgagor or any general partner, shareholder,
joint venturer, or beneficial owner of a trust shall not be a default under
this Mortgage so long as Mortgagor is reconstituted, if required, following
such death and so long as those persons responsible for the management of
Mortgagor and the Property remain unchanged as a result of such death or any
replacement management is approved by Mortgagee, and (3) gifts for estate
planning purposes of any individual's interests in Mortgagor or in any of
Mortgagor's general partners, managing members or joint venturers to the spouse
or any lineal descendant of such individual, or to a trust for the benefit of
any one or more of such individual, spouse or lineal descendant, shall not be
an Event of Default under this Mortgage so long as Mortgagor is reconstituted,
if required, following such gift and so long as those persons responsible for
the management of the Property and Mortgagor remain unchanged following such
gift or any replacement management is approved by Mortgagee.
1.14 Payment of Utilities, Assessments, Charges, Etc.
Mortgagor shall pay when due all utility charges which are incurred by
Mortgagor or which may become a charge or lien against any portion of the
Property for gas, electricity, water and sewer services furnished to the Real
Estate and/or the Improvements and all other assessments or charges of a
similar nature, or assessments payable pursuant to any restrictive covenants,
whether public or private, affecting the Real Estate and/or the Improvements or
any portion thereof, whether or not such assessments or charges are or may
become liens thereon.
1.15 Access Privileges and Inspections. Mortgagee and the
agents, representatives and employees of Mortgagee shall, subject to the rights
of tenants, have full and free access to the Real Estate and the Improvements
and any other location where books and records concerning the Property are kept
at all reasonable business hours for the purposes of inspecting the Property
and of examining, copying making extracts from the books and records of
Mortgagor relating to the Property. Mortgagor shall lend assistance to all such
agents, representatives and employees of Mortgagee.
-23-
<PAGE>
1.16 Waste; Alteration of Improvements. Mortgagor shall not
commit, suffer or permit any waste on the Property nor take any actions that
might invalidate any insurance carried on the Property. Mortgagor shall
maintain the Property in good condition and repair. No part of the Improvements
may be removed, demolished or materially altered, without the prior written
consent of Mortgagee. Without the prior written consent of Mortgagee, Mortgagor
shall not commence construction of any improvements on the Real Estate other
than improvements required for the maintenance or repair of the Property.
1.17 Zoning. Without the prior written consent of Mortgagee,
Mortgagor shall not seek, make, suffer, consent to or acquiesce in any change
in the zoning or conditions of use of the Real Estate or the Improvements.
Mortgagor shall comply with and make all payments required under the provisions
of any covenants, conditions or restrictions affecting the Real Estate or the
Improvements. Mortgagor shall comply with all existing and future requirements
of all governmental authorities having jurisdiction over the Property.
Mortgagor shall keep all licenses, permits, franchises and other approvals
necessary for the operation of the Property in full force and effect. Mortgagor
shall operate the Property as a commercial property, in accordance with its
current usage, for so long as the indebtedness secured hereby is outstanding.
If, under applicable zoning provisions, the use of all or any part of the Real
Estate or the Improvements is or becomes a nonconforming use, Mortgagor shall
not cause or permit such use to be discontinued or abandoned without the prior
written consent of Mortgagee. Without limiting the foregoing, in no event shall
Mortgagor take any action that would reduce or impair either (a) the number of
parking spaces at the Property, or (b) the access to the Property from adjacent
public roads. Further, without Mortgagee's prior written consent, Mortgagor
shall not file or subject any part of the Real Estate or the Improvements to
any declaration of condominium or co-operative or convert any part of the Real
Estate or the Improvements to a condominium, co-operative or other form of
multiple ownership and governance.
1.18 Financial Statements and Books and Records. Mortgagor
shall keep accurate books and records of account of the Property and its own
financial affairs sufficient to permit the preparation of financial statements
therefrom in accordance with generally accepted accounting principles.
Mortgagee and its duly authorized representatives shall have the right to
examine, copy and audit Mortgagor's records and books of account at all
reasonable times. So long as this Mortgage continues in effect, Mortgagor shall
provide to Mortgagee, in addition to any other financial statements required
hereunder or under any of the other Loan Documents, the following financial
statements and information, all of which must be certified to Mortgagee as
being true and correct by Mortgagor or the person or entity to which they
pertain, as applicable, be prepared in accordance with generally accepted
accounting principles consistently applied and be in form and substance
acceptable to Mortgagee:
(a) copies of all tax returns filed by Mortgagor,
within thirty (30) days after the date of filing;
-24-
<PAGE>
(b) if reasonably requested by Mortgagee quarterly
operating statements for the Property, within forty-five (45) days after the
end of each calendar quarter;
(c) annual financial statements for Mortgagor, each
principal or general partner, if applicable, in Mortgagor, and each indemnitor
and guarantor under any indemnity or guaranty executed in connection with the
loan secured hereby, and, if reasonably requested by Mortgagee, annual balance
sheets for the Property, all within ninety (90) days after the end of each
calendar year; and
(d) such other information with respect to the
Property, Mortgagor, the principals or general partners, if applicable, in
Mortgagor, and each indemnitor and guarantor under any indemnity or guaranty
executed in connection with the loan secured hereby, which may be requested
from time to time by Mortgagee, within a reasonable time after the applicable
request.
1.19 Further Documentation. (a) Mortgagor shall, on the
request of Mortgagee and at the reasonable expense of Mortgagor: (1) promptly
correct any defect, error or omission which may be discovered in the contents
of this Mortgage or in the contents of any of the other Loan Documents; (2)
promptly execute, acknowledge, deliver and record or file such further
instruments (including, without limitation, further mortgages, deeds of trust,
security deeds, security agreements, financing statements, continuation
statements and assignments of rents or leases) and promptly do such further
acts as may be necessary, desirable or proper to carry out more effectively the
purposes of this Mortgage and the other Loan Documents and to subject to the
liens and security interests hereof and thereof any property intended by the
terms hereof and thereof to be covered hereby and thereby, including
specifically, but without limitation, any renewals, additions, substitutions,
replacements or appurtenances to the Property; (3) promptly execute,
acknowledge, deliver, procure and record or file any document or instrument
(including specifically any financing statement) deemed advisable by Mortgagee
to protect, continue or perfect the liens or the security interests hereunder
against the rights or interests of third persons; and (4) promptly furnish to
Mortgagee, upon Mortgagee's request, a duly acknowledged written statement and
estoppel certificate addressed to such party or parties as directed by
Mortgagee and in form and substance supplied by Mortgagee, setting forth all
amounts due under the Note, stating whether any Default or Event of Default has
occurred and stating whether all grace periods have expired hereunder, and
stating whether any offsets or defenses exist against the indebtedness secured
hereby and containing such other matters as Mortgagee may reasonably require.
(b) Mortgagor will promptly take all actions necessary to
remove or make other arrangements reasonably satisfactory to Mortgagee with
respect to the existing judgment lien of $50,000 in favor of Clemente Mendoza
currently in effect against the Property.
-25-
<PAGE>
1.20 Payment of Costs: Reimbursement to Mortgagee. Mortgagor
shall pay all reasonable costs and expenses of every character incurred in
connection with the closing of the loan evidenced by the Note and secured
hereby or otherwise attributable or chargeable to Mortgagor as the owner of the
Property, including, without limitation, appraisal fees, recording fees,
documentary, stamp, mortgage or intangible taxes, brokerage fees and
commissions, title policy premiums and title search fees, uniform commercial
code/tax lien/litigation search fees, escrow fees and reasonable attorneys'
fees. If Mortgagor defaults in any such payment, which default is not cured
within any applicable grace or cure period, Mortgagee may pay the same and
Mortgagor shall reimburse Mortgagee on demand for all such costs and expenses
incurred or paid by Mortgagee, together with such interest thereon at the
Default Interest Rate from and after the date of Mortgagee's making such
payment until reimbursement thereof by Mortgagor. Any such sums disbursed by
Mortgagee, together with such interest thereon, shall be additional
indebtedness of Mortgagor secured by this Mortgage and by all of the other Loan
Departments securing all or any part of the indebtedness evidenced by the Note.
Further, Mortgagor shall promptly notify Mortgagee in writing of any litigation
or threatened litigation affecting Mortgagee's interest in the Property, or any
other demand or claim which, if enforced, could impair or threaten to impair
Mortgagee's security hereunder. Without limiting or waiving any other rights
and remedies of Mortgagee hereunder, if Mortgagor fails to perform any of its
covenants or agreements contained in this Mortgage or in any of the other Loan
Documents and such failure is not cured within any applicable grace or cure
period, or if any action or proceeding of any kind (including, but not limited
to, any bankruptcy, insolvency, arrangement, reorganization or other debtor
relief proceeding) is commenced which might affect Mortgagee's interest in the
Property or Mortgagee's right to enforce its security, then Mortgagee may, at
its option, with or without notice to Mortgagor, make any appearances, disburse
any sums and take any actions as may be necessary or desirable to protect or
enforce the security of this Mortgagee may, at its option, with or without
notice to Mortgagor, make any appearances, disburse any sums and take any
actions as may be necessary or desirable to protect or enforce the security of
this Mortgage or to remedy the failure of Mortgagor to perform its covenants
and agreements (without, however, waiving any default of Mortgagor). Mortgagor
agrees to pay on demand all expenses of Mortgagee incurred with respect to the
foregoing (including, but not limited to, reasonable fees and disbursements of
counsel), together with interest thereon at the Default Interest Rate from and
after the date on which Mortgagee incurs such expenses until reimbursement
thereof by Mortgagor. Any such expenses so incurred by Mortgagee, together with
interest thereon as provided above, shall be additional indebtedness of
Mortgagor secured by this Mortgage and by all of the other Loan Documents
securing all or any part of the indebtedness evidenced by the Note. The
necessity for any such actions and of the amounts to be paid shall be
determined by Mortgagee in its discretion. Mortgagee is hereby empowered to
enter and to authorize others to enter upon the Property or any or any part
thereof for the purpose of performing or observing any such defaulted term,
covenant or condition without thereby becoming liable to Mortgagor or any
person in possession holding under Mortgagor. Mortgagor hereby acknowledges and
agrees that the remedies set forth in this Section 1.20 shall be exercisable by
Mortgagee, and any and all payments
-26-
<PAGE>
made or costs or expenses incurred by Mortgagee in connection therewith shall
be secured hereby and shall be, without demand, immediately repaid by Mortgagor
with interest thereon at the Default Interest Rate, notwithstanding the fact
that such remedies were exercised and such payments made and costs incurred by
Mortgagee after the filing by Mortgagor of a voluntary case or the filing
against Mortgagor of an involuntary case pursuant to or within the meaning of
the Bankruptcy Reform Act of 1978, as amended, Title 11 U.S.C., or after any
similar action pursuant to any other debtor relief law (whether statutory,
common law, case law or otherwise) of any jurisdiction whatsoever, now or
hereafter, in effect, which may be or become applicable to Mortgagor,
Mortgagee, any guarantor or indemnitor, the secured indebtedness or any of the
Loan Documents. Mortgagor hereby indemnifies and holds Mortgagee harmless from
and against all loss, cost and expenses with respect to any Event of Default
hereof, any liens (i.e., judgments, mechanics' and materialmen's liens, or
otherwise), charges and encumbrances filed against the Property, and from any
claims and demands for damages or injury, including claims for property damage,
personal injury or wrongful death, arising out of or in connection with any
accident or fire or other casualty on the Real Estate or the Improvements or
any nuisance made or suffered thereon, including, in any case, attorneys' fees,
costs and expenses as aforesaid, whether at pretrial, trial or appellate level,
and such indemnity shall survive payment in full of the indebtedness secured
hereby. This Section shall not be construed to require Mortgagee to incur any
expenses, make any appearances or take any actions.
1.21 Security Interest. This Mortgage is also intended to
encumber and create a security interest in, and Mortgagor hereby grants to
Mortgagee a security interest in all sums on deposit with Mortgagee pursuant to
the provisions of Sections 1.6 and 1.7 hereof or any other Section hereof (said
property is hereinafter referred to collectively as the "Collateral"). It is
hereby agreed that to the extent permitted by law, all of the foregoing
property is to be deemed and held to be a part of and affixed to the Real
Estate and the Improvements. The foregoing security interest shall also cover
Mortgagor's leasehold interest in any of the foregoing property which is leased
by Mortgagor. Mortgagor shall, from time to time upon the request of Mortgagee,
supply Mortgagee with a current inventory of all of the property in which
Mortgagee is granted a security interest hereunder, in such detail as Mortgagee
may require. Mortgagor shall promptly replace all of the Collateral subject to
the lien or security interest of this Mortgage when worn or obsolete with
Collateral comparable to the worn out or obsolete Collateral when new and will
not, without the prior written consent of Mortgagee, remove from the Real
Estate or the Improvements any of the Collateral subject to the lien or
security interest of this Mortgage except such as is replaced by an article of
equal suitability and value as above provided, owned by Mortgagor free and
clear of any lien or security interest except that created by this Mortgage and
the other Loan Documents and except as otherwise expressly permitted by the
terms of Section 1.13 of this Mortgage. All of the Collateral shall be kept at
the location of the Real Estate except as otherwise required by the terms of
the Loan Documents. Mortgagor shall not use any of the Collateral in violation
of any applicable statute, ordinance or insurance policy.
-27-
<PAGE>
1.22 Security Agreement. This Mortgage constitutes a security
agreement between Mortgagor and Mortgagee with respect to the Collateral in
which Mortgagee is granted a security interest hereunder, and, cumulative of
all other rights and remedies of Mortgagee hereunder, Mortgagee shall have all
of the rights and remedies of a secured party under any applicable Uniform
Commercial Code. Mortgagor hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Mortgagee the attorney-in-fact of
Mortgagor to execute and deliver and, if appropriate, to file with the
appropriate filing officer or office such security agreements, financing
statements, continuation statements or other instruments as Mortgagee may
request or require in order to impose, perfect or continue the perfection of
the lien or security interest created hereby. Except with respect to Rents and
Profits to the extent specifically provided herein to the contrary, Mortgagee
shall have the right of possession of all cash, securities, instruments,
negotiable instruments, documents, certificates and any other evidences of cash
or other property or evidences of rights to cash rather than property, which
are now or hereafter a part of the Property and Mortgagor shall promptly
deliver the same to Mortgagee, endorsed to Mortgagee, without further notice
from Mortgagee. Mortgagor agrees to furnish Mortgagee with notice of any change
in the name, identity, organizational structure, residence, or principal place
of business or mailing address of Mortgagor within ten (10) days of the
effective date of any such change. Upon an Event of Default, Mortgagee shall
have the rights and remedies as prescribed in the Mortgage, or as prescribed by
general law, or as prescribed by any applicable Uniform Commercial Code, all at
Mortgagee's election. Any disposition of the Collateral may be conducted by an
employee or agent of Mortgagee. Any person, including both Mortgagor and
Mortgagee, shall be eligible to purchase any part or all of the Collateral at
any such disposition. Expenses of retaking, holding, preparing for sale,
selling or the like (including, without limitation, Mortgagee's attorneys' fees
and legal expenses) together with interest thereon at the Default Interest Rate
from the date incurred by Mortgagee until actually paid by Mortgagor, shall be
paid by Mortgagor on demand and shall be secured by this Mortgage and by all of
the other Loan Documents securing all or any part of the indebtedness evidenced
by the Note. Mortgagee shall have the right to enter upon the Real Estate and
the Improvements or any real property where any of the property which is the
subject of the security interest granted herein is located to take possession
of, assemble and collect the same or to render it unusable, or Mortgagor, upon
demand of Mortgages, shall assemble such property and make it available to
Mortgagee at the Real Estate, a place which is hereby deemed to be reasonably
convenient to Mortgagee and Mortgagor. If notice is required by law, Mortgagee
shall give Mortgagor at least ten (10) days' prior written notice of the time
and place of any public sale of such property or of the time of or after which
any private sale or any other intended disposition thereof is to be made, and
if such notice is sent to Mortgagor, as the same is provided for the mailing of
notices herein, it is hereby deemed that such notice shall be and is reasonable
notice to Mortgagor. No such notice is necessary for any such property which is
perishable, threatens to decline speedily in value or is of a type customarily
sold on a recognized market. Any sale made pursuant to the provisions of this
Section shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with
-28-
<PAGE>
the foreclosure sale as provided in Section 3.1(e) hereof upon giving the same
notice with respect to the sale of the Property hereunder as is required under
said Section 3.1(e). Furthermore, to the extent permitted by law, in
conjunction with, in addition to or in substitution for the rights and remedies
available to Mortgagee pursuant to any applicable Uniform Commercial Code:
(a) In the event of a foreclosure sale, the Property
may, at the option of Mortgagee, be sold as a whole or in parts, as determined
by Mortgagee in its sole discretion; and
(b) It shall not be necessary that Mortgagee take
possession of the aforementioned Collateral, or any part thereof, prior to the
time that any sale pursuant to the provisions of this Section is conducted and
it shall not be necessary that said Collateral, or any part thereof, be present
at the location of such sale; and
(c) Mortgagee may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by Mortgagee, including the sending of notices and the conduct of the
sale, but in the name and on behalf of Mortgagee.
The name and address of Mortgagor (as Debtor under any
applicable Uniform Commercial Code) are:
USA Detergents, Inc.
1735 Jersey Avenue
North Brunswick, New Jersey 08902
The name and address of Mortgagee (as Secured Party under any
applicable Uniform Commercial Code) are;
101 Realty Associates, L.L.C.
333 Seventh Avenue, 11th Floor
New York, New York 10001
1.23 Easements and Rights-of-Way. Mortgagor shall not grant
any easement or right-of-way with respect to all or any portion of the Real
Estate or the Improvements without the prior written consent of Mortgagee. The
purchaser at any foreclosure sale hereunder may, at its discretion, disaffirm
any easement or right-of-way granted in violation of any of the provisions of
this Mortgage and may take immediate possession of the Property free from, and
despite the terms of, such grant of easement or right-of-way. If Mortgagee
consents to the grant of an easement or right-of-way, Mortgagee agrees to grant
such consent provided that Mortgagee is paid a standard review fee together
with all other expenses, including, without limitation, attorneys' fees,
incurred by Mortgagee in the review of Mortgagor's request and in the
preparation of documents effecting the subordination.
-29-
<PAGE>
1.24 Compliance with Laws. Mortgagor shall at all times
comply with all statutes, ordinances, orders, regulations and other
governmental or quasi-governmental requirements and private covenants now or
hereafter relating to the ownership, construction, use or operation of the
Property, including, but not limited to, those concerning employment and
compensation of persons engaged in operation and maintenance of the Property
and any environmental or ecological requirements, even if such compliance shall
require structural changes to the Property; provided, however, that Mortgagor
may, upon providing Mortgagee with security satisfactory to Mortgagee, proceed
diligently and in good faith to contest the validity or applicability of any
such statute, ordinance, regulation or requirement so long as during such
contest the Property shall not be subject to any lien, charge, fine or other
liability and shall not be in danger of being forfeited, lost or closed.
Mortgagor shall not use or occupy, or allow the use or occupancy of, the
Property in any manner which violates any Lease of or any other agreement
applicable to the Property or any applicable law, rule, regulation or order or
which constitutes a public or private nuisance or which makes void, voidable or
cancelable, or increases the premium of, any insurance then in force with
respect thereto.
1.25 Additional Taxes. In the event of the enactment after
this date of any law of the state where the Property is located or of any other
governmental entity deducting from the value of the Property for the purpose of
taxation any lien or security interest thereon, or imposing upon Mortgagee the
payment of the whole or any part of the taxes or assessments or charges of
liens herein required to be paid by Mortgagor, or changing in any way the laws
relating to the taxation of mortgages or security agreements or debts secured
by mortgages or security agreements or the interest of the Mortgagee or secured
party in the property covered thereby, or the manner of collection of such
taxes so as to adversely affect this Mortgage or the indebtedness secured
hereby or Mortgagee, then, and in any such event, Mortgagor, upon demand by
Mortgagee, shall pay such taxes, assessments, charges or liens, or reimburse
Mortgagee therefor; provided, however, that if in the opinion of counsel for
Mortgagee (a) it might be unlawful to require Mortgagor to make such payment,
or (b) the making of such payment might result in the imposition of interest
beyond the maximum amount permitted by law, then and in either such event,
Mortgagee may elect, by notice in writing given to Mortgagor, to declare all of
the indebtedness secured hereby to be and become due and payable in full thirty
(30) days from the giving of such notice.
1.26 Secured Indebtedness. It is understood and agreed that
this Mortgage shall secure payment of not only the indebtedness evidenced by
the Note but also any and all substitutions, replacements, renewals and
extensions of the Note, any and all indebtedness and obligations arising
pursuant to the terms hereof and any and all indebtedness and obligations
arising pursuant to the terms of any of the other Loan Documents, all of which
indebtedness is equally secured with and has the same priority as any amounts
advanced as of the date hereof. It is agreed that any future advances made by
Mortgagee to or for the benefit of Mortgagor from time to time under this
Mortgage or the other Loan Documents and whether or not such advances are
-30-
<PAGE>
obligatory or are made at the option of Mortgagee, or otherwise, made for any
purpose, and all interest accruing thereon, shall be equally secured by this
Mortgage and shall have the same priority as all amounts, if any, advanced as
of the date hereof and shall be subject to all of the terms and provisions of
this Mortgage.
1.27 Mortgagor's Waivers. To the full extent permitted by
law, Mortgagor agrees that Mortgagor shall not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, moratorium or extension, or
any law now or hereafter in force providing for the reinstatement of the
indebtedness secured hereby prior to any sale of the Property to be made
pursuant to any provisions contained herein or prior to the entering of any
decree, judgment or order of any court of competent jurisdiction, or any right
under any statute to redeem all or any part of the Property so sold. Mortgagor,
for Mortgagor and Mortgagor's successors and assigns, and for any and all
persons ever claiming any interest in the Property, to the full extent
permitted by law, hereby knowingly, intentionally and voluntarily with and upon
the advice of competent counsel: (a) waives, releases, relinquishes and forever
foregoes all rights of valuation, appraisement, stay of execution,
reinstatement and notice of election or intention to mature or declare due the
secured indebtedness (except such notices as and specifically provided for
herein); (b) waives, releases, relinquishes and forever foregoes all right to a
marshalling of the assets of Mortgagor, including the Property, to a sale in
the inverse order of alienation, or to direct the order in which any of the
Property shall be sold in the event of foreclosure of the liens and security
interests hereby created and agrees that any court having jurisdiction to
foreclose such liens and security interests may order the Property sold as an
entirety; and (c) waives, releases, relinquishes and forever foregoes all
rights and periods of redemption provided under applicable law. To the full
extent permitted by law, Mortgagor shall not have or assert any right under any
statute or rule of law pertaining to the exemption of homestead or other
exemption under any federal, state or local law now or hereafter in effect, the
administration of estates of decedents or other matters whatever to defeat,
reduce or affect the right of Mortgagee under the terms of this Mortgage to a
sale of the Property, for the collection of the secured indebtedness without
any prior or different resort for collection, or the right of Mortgagee under
the terms of this Mortgage to the payment of the indebtedness secured hereby
out of the proceeds of sale of the Property in preference to every other
claimant whatever. Further, Mortgagor hereby knowingly, intentionally and
voluntarily, with and upon the advice of competent counsel waives, releases
relinquishes and forever foregoes all present and future statutes of
limitations as a defense to any action to enforce the provisions of this
Mortgage or to collect any of the indebtedness secured hereby to the fullest
extent permitted by law. Mortgagor covenants and agrees that upon the
commencement of a voluntary or involuntary bankruptcy proceeding by or against
Mortgager, Mortgagor shall not seek a supplemental stay or otherwise shall not
seek pursuant to 11 U.S.C. ss. 105 or any other provision of the Bankruptcy
Reform Act of 1978, as amended, or any other debtor relief law (whether
statutory, common law, case law, or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, which may be or become applicable, to stay,
interdict, condition, reduce or inhibit the ability of Mortgagee to enforce any
rights of
-31-
<PAGE>
Mortgagee against any guarantor or indemnitor of the secured obligations or any
other party liable with respect thereto by virtue of any indemnity, guaranty or
otherwise.
1.28 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
COUNSEL, (i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE REAL
ESTATE IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THE NOTE, THIS MORTGAGE OR ANY OTHER OF THE LOAN DOCUMENTS,
(ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION OVER THE COUNTY IN WHICH THE
REAL ESTATE IS LOCATED, (iii) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND,
(iv) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY
ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT
THE RIGHT OF MORTGAGEE TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER
FORUM). MORTGAGOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE MORTGAGOR AT THE
ADDRESS FOR NOTICES DESCRIBED IN SECTION 4.5 HEREOF, AND CONSENTS AND AGREES
THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE
(BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS
SERVED IN ANY OTHER MANNER PERMITTED BY LAW).
(b) MORTGAGEE AND MORTGAGOR, TO THE FULL EXTENT PERMITTED BY
LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE
OF COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FOREGO THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY
RELATING TO THE INDEBTEDNESS SECURED HEREBY OR ANY CONDUCT, ACT OR OMISSION OF
MORTGAGEE OR MORTGAGOR, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS,
EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH MORTGAGEE
OR MORTGAGOR, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE.
1.29 Management. The management of the Property shall be by
either: (a) Mortgagor or an entity affiliated with Mortgagor approved by
Mortgagee for so long as Mortgagor or said affiliated entity is managing the
Property in a first class manner; or (b) a professional property management
company approved by Mortgagee. Such management by an affiliated entity or a
professional property management company
-32-
<PAGE>
shall be pursuant to a written agreement approved by Mortgagee. In no event
shall any manager be removed or replaced or the terms of any management
agreement modified or amended without the prior written consent of Mortgagee.
After an Event of Default hereunder or a default under any management contract
then in effect, which default is not cured within any applicable grace or cure
period, Mortgagee shall have the right to terminate, or to direct Mortgagor to
terminate, such management contract upon thirty (30) days' notice and to
retain, or to direct Mortgagor to retain, a new management agent approved by
Mortgagee. All Rents and Profits generated by or derived from the Property
shall first be utilized solely for current expenses directly attributable to
the ownership and operation of the Property, including, without limitation,
current expenses relating to Mortgagor's liabilities and obligations with
respect to this Mortgage and the other Loan Documents, and none of the Rents
and Profits generated by or derived from the Property shall be diverted by
Mortgagor and utilized for any other purposes unless all such current expenses
attributable to the ownership and operation of the Property have been fully
paid and satisfied. It shall be a condition of Mortgagee's consent to any
management agreement, whether with an affiliate of Mortgagor or a professional
property management company, that such manager enter into an agreement with
Mortgagee whereby the manager acknowledges and agrees to the aforesaid rights
of Mortgagee, and as to such other matters as Mortgagee may require.
1.30 Hazardous Waste and Other Substances.
The terms and provisions of the Hazardous Substances
Indemnity Agreement are incorporated by reference as if fully set forth herein.
1.31 Indemnification; Subrogation.
(a) Mortgagor shall indemnify, defend and hold
Mortgagee harmless against: (i) any and all claims for brokerage, leasing,
finders or similar fees which may be made relating to the Property or the
secured indebtedness, and (ii) any and all liability, obligations, losses,
damages, penalties, claims, actions, suits, costs and expenses (including
Mortgagee's reasonable attorneys' fees, together with reasonable appellate
counsel fees, if any) of whatever kind or nature which may be asserted against,
imposed on or incurred by Mortgagee in connection with the secured
indebtedness, this Mortgage, the Property, or any part thereof, or the exercise
by Mortgagee of any rights or remedies granted to it under this Mortgage;
provided, however, that nothing herein shall be construed to obligate Mortgagor
to indemnify, defend and hold harmless Mortgagee from and against any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs and expenses enacted against, imposed on or incurred by Mortgagee by
reason of Mortgagee's willful misconduct or gross negligence.
(b) If Mortgagee is made a party defendant to any
litigation or any claim is threatened or brought against Mortgagee concerning
the secured indebtedness, this Mortgage, the Property, or any part thereof, or
any interest therein,
-33-
<PAGE>
or the construction, maintenance, operation or occupancy or use thereof, then
Mortgagor shall indemnify, defend and hold Mortgagee harmless from and against
all liability by reason of said litigation or claims, including reasonable
attorneys' fees (together with reasonable appellate counsel fees, if any) and
expenses incurred by Mortgagee in any such litigation or claim, whether or not
any such litigation or claim is prosecuted to judgment. If Mortgagee commences
an action against Mortgagor to enforce any of the terms hereof or to prosecute
any breach by Mortgagor of any of the terms hereof or of any of the other Loan
Documents, or to recover any sum secured hereby, Mortgagor shall pay to
Mortgagee its reasonable attorneys' fees (together with reasonable appellate
counsel fees, if any) and expenses. The right to such reasonable attorneys'
fees (together with reasonable appellate counsel fees, if any) and reasonable
expenses shall be deemed to have accrued on the commencement of such action,
and shall be enforceable whether or not such action is prosecuted to judgment.
If Mortgagor breaches any term of this Mortgage, Mortgagee may engage the
services of an attorney or attorneys to protect its rights hereunder, and in
the event of such engagement following any breach by Mortgagor, Mortgagor shall
pay Mortgagee reasonable attorneys' fees (together with reasonable appellate
counsel fees, if any) and reasonable expenses incurred by Mortgagee, whether or
not an action is actually commenced against Mortgagor by reason of such breach.
All references to "attorneys" in this Subsection and elsewhere in this Mortgage
shall include without limitation any attorney or law firm engaged by Mortgagee
and Mortgagee's in-house counsel, and all references to "fees and expenses" in
this Subsection and elsewhere in this Mortgage shall include without limitation
any fees of such attorney or law firm and any allocation charges and allocation
costs of Mortgagee's in-house counsel.
(c) A waiver of subrogation shall be obtained by
Mortgagor from its insurance carrier and, consequently, Mortgagor waives any
and all right to claim or recover against Mortgagee, its officers, employees,
agents and representatives, for loss of or damage to Mortgagor, the Property,
Mortgagor's property or the property of others under Mortgagor's control from
any cause insured against or required to be insured against by the provisions
of this Mortgage.
ARTICLE II
EVENTS OF DEFAULT
2.1 Events of Default. The occurrence of any of the following
shall be an "Event of Default" hereunder:
(a) Mortgagor fails to punctually perform any
covenant, agreement, obligation, term or condition of the Note, this Mortgage
or any other Loan Document which requires payment of any money to Mortgagee,
and such failure continues for the applicable period set forth therein or, if
no period is set forth, for ten (10) days after such payment becomes due or, if
due on demand, is demanded (except those regarding payments to be made under
the Note, which failure is subject to any grace periods set forth in the Note).
-34-
<PAGE>
(b) Mortgagor fails to provide insurance as required
by Section 1.4 hereof or fails to perform any covenant, agreement, obligation,
term or condition set forth in Section 1.5 or 1.16 hereof.
(c) Mortgagor fails to perform any other covenant,
agreement, obligation, term or condition set forth herein other than those
otherwise described in this Section 2.1 and, to the extent such failure or
default is susceptible of being cured, the continuance of such failure or
default for thirty (30) days after written notice thereof from Mortgagee to
Mortgagor; provided, however, that if such default is susceptible of cure but
such cure cannot be accomplished with reasonable diligence within said period
of time, and if Mortgagor commences to cure such default promptly after receipt
of notice thereof from Mortgagee, and thereafter prosecutes the curing of such
default with reasonable diligence, such period of time shall be extended for
such period of time as may be necessary to cure such default with reasonable
diligence, but not to exceed an additional sixty (60) days.
(d) Any representation or warranty made herein, in
or in connection with any application or commitment relating to the loan
evidenced by the Note, or in any of the other Loan Documents to Mortgagee by
Mortgagor, by any principal or general partner in Mortgagor or by any
indemnitor or guarantor under any indemnity or guaranty executed in connection
with the loan secured hereby is determined by Mortgagee to have been false or
misleading in any material respect at the time made.
(e) There shall be a sale, conveyance, disposition,
alienation, hypothecation, leasing, assignment, pledge, mortgage, granting of a
security interest in or other transfer or further encumbrancing of the
Property, Mortgagor or, if applicable, its general partners, or any portion
thereof or any interest therein, in violation of Section 1.13 hereof.
(f) A default occurs under any of the other Loan
Documents which has not been cured within any applicable grace or cure period
therein provided.
(g) Mortgagor, any principal or general partner in
Mortgagor, if applicable, or any indemnitor or guarantor under any indemnity or
guaranty executed in connection with the loan secured hereby becomes insolvent,
or shall make a transfer in fraud of creditors, or shall make an assignment for
the benefit of creditors, shall file a petition in bankruptcy, shall
voluntarily be adjudicated insolvent or bankrupt or shall admit in writing the
inability to pay debts as they mature, shall petition or apply to any tribunal
for or shall consent to or shall not contest the appointment of a receiver,
trustee, custodian or similar officer for Mortgagor, for any such principal or
general partner of Mortgagor or for any such indemnitor or guarantor or for a
substantial part of the assets of Mortgagor, of any such principal or general
partner of Mortgagor or of any such indemnitor or guarantor, or shall commence
any case, proceeding or other action under any bankruptcy, reorganization,
arrangement, readjustment or debt,
-35-
<PAGE>
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect.
(h) A petition is filed or any case, proceeding or
other action is commenced against Mortgagor, against any principal or general
partner of Mortgagor, if applicable, or against any indemnitor or guarantor
under any indemnity or guaranty executed in connection with the loan secured
hereby seeking to have an order for relief entered against it as debtor or
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts or other relief under any law relating to
bankruptcy, insolvency, arrangement, reorganization, receivership or other
debtor relief under any law or statute of any jurisdiction whether now or
hereafter in effect or a court of competent jurisdiction enters an order for
relief against Mortgagor, against any principal or general partner of Mortgagor
or against any indemnitor or guarantor under any indemnity or guaranty executed
in connection with the loan secured hereby, as debtor, or an order, judgment or
decree is entered appointing, with or without the consent of Mortgagor, of any
such principal or general partner of Mortgagor or of any such indemnitor or
guarantor, a receiver, trustee, custodian or similar officer for Mortgagor, for
any such principal or general partner of Mortgagor or for any such indemnitor
or guarantor, or for any substantial part of any of the properties of
Mortgagor, of any such principal or general partner of Mortgagor or of any such
indemnitor or guarantor, and if any such event shall occur, such petition,
case, proceeding, action, order, judgment or decree shall not be dismissed
within sixty (60) days after being commenced.
(i) The Property or any part thereof shall be taken
on execution or other process of law in any action against Mortgagor.
(j) Mortgagor abandons all or a portion of the
Property.
(k) The holder of any lien or security interest on
the Property (without implying the consent of Mortgagee to the existence or
creation of any such lien or security interest), whether superior or
subordinate to this Mortgage, including without limitation the Prior Mortgage,
as that term is defined in Section 4.30 hereof or any of the other Loan
Documents, declares a default and such default is not cured within any
applicable grace or cure period set forth in the applicable document or such
holder institutes foreclosure or other proceedings for the enforcement of its
remedies thereunder.
(l) The Property, or any part thereof, is subjected
to actual or threatened waste or to removal, demolition or material alteration
so that the value of the Property is materially diminished thereby and
Mortgagee determines (in its subjective determination) that it is not
adequately protected from any loss, damage or risk associated therewith.
(m) Any dissolution, termination, partial or
complete liquidation, merger or consolidation of Mortgagor.
-36-
<PAGE>
(n) Any Event of Default occurs under any of the
other Loan Documents.
(o) Mortgagor defaults under any Major Lease, and
such default continues beyond any applicable notice and/or cure period under
such Major Lease.
ARTICLE III
REMEDIES
3.1 Remedies Available. If there shall occur an Event of
Default under this Mortgage, then this Mortgage is subject to foreclosure as
provided by law and Mortgagee may, at its option and by or through a trustee,
nominee, assignee or otherwise, to the fullest extent permitted by law,
exercise any or all of the following rights, remedies and recourses, either
successively or concurrently:
(a) Acceleration. Accelerate the maturity date of
the Note and declare any or all of the indebtedness secured hereby to be
immediately due and payable without any presentment, demand, protest, notice,
or action of any kind whatever (each of which is hereby expressly waived by
Mortgagor), whereupon the same shall become immediately due and payable. Upon
any such acceleration, payment of such accelerated amount shall constitute a
prepayment of the principal balance of the Note and any applicable prepayment
fee provided for in the Note shall then be immediately due and payable.
(b) Entry on the Property. Either in person or by
agent, with or without bringing any action or proceeding, or by a receiver
appointed by a court and without regard to the adequacy of its security, enter
upon and take possession of the Property, or any part thereof, without force or
with such force as is permitted by law and without notice or process or with
such notice or process as is required by law unless such notice and process is
waivable, in which case Mortgagor hereby waives such notice and process, and do
any and all acts and perform any and all work which may be desirable or
necessary in Mortgagee's judgment to complete any unfinished construction on
the Real Estate, to preserve the value, marketability or rentability of the
Property, to increase the income therefrom, to manage and operate the Property
or to protect the security hereof and all sums expended by Mortgagee therefor,
together with interest thereon at the Default Interest Rate, shall be
immediately due and payable to Mortgagee by Mortgagor on demand and shall be
secured hereby and by all of the other Loan Documents securing all or any part
of the indebtedness evidenced by the Note.
(c) Collect Rents and Profits. With or without
taking possession of the Property, sue or otherwise collect the Rents and
Profits, including those past due and unpaid.
-37-
<PAGE>
(d) Appointment of Receiver. Upon, or at any time
prior to or after, initiating the exercise of any power of sale, instituting
any judicial foreclosure or instituting any other foreclosure of the liens and
security interests provided for herein or any other legal proceedings
hereunder, make application to a court of competent jurisdiction for
appointment of a receiver for all or any part of the Property, as a matter of
strict right and without notice to Mortgagor and without regard to the adequacy
of the Property for the repayment of the indebtedness secured hereby or the
solvency of Mortgagor or any person or persons liable for the payment of the
indebtedness secured hereby, and Mortgagor does hereby irrevocably consent to
such appointment, waives any and all notices of and defenses to such
appointment and agrees not to oppose any application therefor by Mortgagee, but
nothing herein is to be construed to deprive Mortgagee of any other right,
remedy or privilege Mortgagee may now have under the law to have a receiver
appointed, provided, however, that, the appointment of such receiver, trustee
or other appointee by virtue of any court order, statute or regulation shall
not impair or in any manner prejudice the rights of Mortgagee to receive
payment of the Rents and Profits pursuant to other terms and provisions hereof.
Any such receiver shall have all of the usual powers and duties of receivers in
similar cases, including, without limitation, the full power to hold, develop,
rent, lease, manage, maintain. operate and otherwise use or permit the use of
the Property upon such terms and conditions as said receiver may deem to be
prudent and reasonable under the circumstances as more fully set forth in
Section 3.3 below. Such receivership shall, at the option of Mortgagee,
continue until full payment of all of the indebtedness secured hereby or until
title to the Property shall have passed by foreclosure sale under this Mortgage
or deed in lieu of foreclosure.
(e) Foreclosure. Immediately commence an action to
foreclose this Mortgage or to specifically enforce its provisions or any of the
indebtedness secured hereby pursuant to the statutes in such case made and
provided and sell the Property or cause the Property to be sold in accordance
with the requirements and procedures provided by said statutes in a single
parcel or in several parcels at the option of Mortgagee.
(1) In the event foreclosure proceedings are filed
by Mortgagee, all expenses incident to such proceeding, including, but
not limited to, attorneys' fees and costs, shall be paid by Mortgagor
and secured by this Mortgage and by all of the other Loan Documents
securing all or any part of the indebtedness evidenced by the Note.
The secured indebtedness and all other obligations secured by this
Mortgage, including, without limitation, interest at the Default
Interest Rate (as defined in the Note), any prepayment charge, fee or
premium required to be paid under the Note in order to prepay
principal (to the extent permitted by applicable law), attorneys' fees
and any other amounts due and unpaid to Mortgagee under the Loan
Documents, may be bid by Mortgagee in the event of a foreclosure sale
hereunder. In the event of a judicial sale pursuant to a foreclosure
decree, it is understood and agreed that Mortgagee or its assigns may
become the purchaser of the Property or any part thereof.
-38-
<PAGE>
(2) Mortgagee may, by following the
procedures and satisfying the requirements prescribed by applicable
law, foreclose on only a portion of the Property and, in such event,
said foreclosure shall not affect the lien of this Mortgage on the
remaining portion of the Property foreclosed.
(f) Other. Exercise any other right or remedy
available hereunder, under any of the other Loan Documents or at law or in
equity.
3.2 Application of Proceeds. To the fullest extent permitted
by law, the proceeds of any sale under this Mortgage shall be applied to the
extent funds are so available to the following items in such order as Mortgagee
in its discretion may determine:
(a) To payment of the costs, expenses and fees of
taking possession of the Property, and of holding, operating, maintaining,
using, leasing, repairing, improving, marketing and selling the same and of
otherwise enforcing Mortgagee's right and remedies hereunder and under the
other Loan Documents, including, but not limited to, receivers' fees, court
costs, attorneys', accountants', appraisers', managers' and other professional
fees, title charges and transfer taxes.
(b) To payment of all sums expended by Mortgagee
under the terms of any of the Loan Documents and not yet repaid, together with
interest on such sums at the Default Interest Rate.
(c) To payment of the secured indebtedness and all
other obligations secured by this Mortgage, including, without limitation,
interest at the Default Interest Rate and, to the extent permitted by
applicable law, any prepayment fee, charge or premium required to be paid under
the Note in order to prepay principal, in any order that Mortgagee chooses in
its sole discretion.
The remainder, if any, of such funds shall be disbursed to
Mortgagor or to the person or persons legally entitled thereto.
3.3 Right and Authority of Receiver or Mortgagee in the Event
of Default; Power of Attorney. Upon the occurrence of an Event of Default
hereunder, and entry upon the Property pursuant to Section 3.1(b) hereof or
appointment of a receiver pursuant to Section 3.1(d) hereof, and under such
terms and conditions as may be prudent and reasonable under the circumstances
in Mortgagee's or the receiver's sole discretion, all at Mortgagor's expense,
Mortgagee or said receiver, or such other persons or entities as they shall
hire, direct or engage, as the case may be, may do or permit one or more of the
following, successively or concurrently: (a) enter upon and take possession and
control of any and all of the Property; (b) take and maintain possession of all
documents, books, records, papers and accounts relating to the Property; (c)
exclude Mortgagor and its agents, servants and employees wholly from the
Property, (d) manage and operate the Property; (e) preserve and maintain the
Property, which shall include Mortgagee's right to enforce all contracts
affecting the Property;
-39-
<PAGE>
(f) make repairs and alterations to the Property; (g) complete any construction
or repair of the improvements, with such changes, additions or modifications of
the plans and specifications or intended disposition and use of the
Improvements as Mortgagee may in its sole discretion deem appropriate or
desirable to place the Property in such condition as will, in Mortgagee's sole
discretion, make it or any part thereof readily marketable or rentable; (h)
conduct a marketing or leasing program with respect to the Property, or employ
a marketing or leasing agent or agents to do so, directed to the leasing or
sale of the Property under such terms and conditions as Mortgagee may in its
sole discretion deem appropriate or desirable; (i) employ such contractors,
subcontractors, materialmen, architects, engineers, consultants, managers,
brokers, marketing agents, or other employees, agents, independent contractors
or professionals, as Mortgagee may in its sole discretion deem appropriate or
desirable to implement and effectuate the rights and powers herein granted; (j)
execute and deliver, in the name of Mortgagee as attorney-in-fact and agent of
Mortgagor or in its own name as Mortgagee, such documents and instruments as
are necessary or appropriate to consummate authorized transactions; (k) enter
into such Leases whether of real or personal property, under such terms and
conditions as Mortgagee may in its sole discretion deem appropriate or
desirable; (l) collect and receive the Rents and Profits from the Property; (m)
eject Tenants or repossess personal property, as provided by law, for breaches
of the conditions of their Leases; (n) sue for unpaid Rents and Profits,
payments, income or proceeds in the name of Mortgagor or Mortgagee; (o)
maintain actions in forcible entry and detainer, ejectment for possession and
actions in distress for rent, (p) compromise or give acquittance for Rents and
Profits, payments, income or proceeds that may become due; (q) delegate or
assign any and all rights and powers given to Mortgagee by this Mortgage; and
(r) do any acts which Mortgagee in its sole discretion deems appropriate or
desirable to protect the security hereof and use such measures, legal or
equitable, as Mortgagee may in its sole discretion deem appropriate or
desirable to implement and effectuate the provisions of this Mortgage. This
Mortgage shall constitute a direction to and full authority to any Tenant,
lessee, or other third party who has heretofore dealt or contracted or may
hereafter deal or contract with Mortgagor or Mortgagee, at the request of
Mortgagee, to pay all amounts owing under any Lease, contract or other
agreement to Mortgagee without proof of the Event of Default relied upon. Any
such Tenant, lessee or third party is hereby irrevocably authorized to rely
upon and comply with (and shall be fully protected by Mortgagor in so doing)
any request, notice or demand by Mortgagee for the payment to Mortgagee of any
Rents and Profits or other sums which may be or thereafter become due under its
Lease, contract or other agreement, or for the performance of any undertakings
under any such Lease, contract or other agreement, and shall have no right or
duty to inquire whether any Event of Default under this Mortgage, or any
default under any of the other Loan Documents has actually occurred or is then
existing. Mortgagor hereby constitutes and appoints Mortgagee, its assignees,
successors, transferees and nominees, as Mortgagor's true and lawful
attorney-in-fact and agent, with full power of substitution in the Property, in
Mortgagor's name, place and stead, to do or permit any one or more of the
foregoing described rights, remedies, powers and authorities, successively or
concurrently, and said power of attorney shall be deemed a power coupled with
an interest and irrevocable so long as any
-40-
<PAGE>
indebtedness secured hereby is outstanding. Any money advanced by Mortgagee in
connection with any action taken under this Section 3.3, together with interest
thereon at the Default Interest Rate from the date of making such advancement
by Mortgagee until actually paid by Mortgagor, shall be a demand obligation
owing by Mortgagor to Mortgagee and shall be secured by this Mortgage and by
every other instrument securing the secured indebtedness.
3.4 Occupancy After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale, Mortgagor or
Mortgagor's representatives, successors or assigns, or any other persons
claiming any interest in the Property by, through or under Mortgagor (except
tenants of space in the Improvements subject to Leases entered into prior to
the date hereof), are occupying or using the Property, or any part thereof,
then, to the extent not prohibited by applicable law, each and all shall, at
the option of Mortgagee or the purchaser at such sale, as the case may be,
immediately become the tenant of the purchaser at such sale, which tenancy
shall be a tenancy from day-to-day, terminable at the will of either landlord
or tenant, at a reasonable rental per day based upon the value of the Property
occupied or used, such rental to be due daily to the purchaser. Further, to the
extent permitted by applicable law, in the event the tenant fails to surrender
possession of the Property upon the termination of such tenancy, the purchaser
shall be entitled to institute and maintain an action for unlawful detainer of
the Property in the appropriate court of the county in which the Real Estate is
located.
3.5 Notice to Account Debtors. Mortgagee may, at any time
after an Event of Default hereunder, notify the account debtors and obligors of
any accounts, chattel paper, negotiable instruments or other evidences of
indebtedness, to Mortgagor included in the Property to pay Mortgagee directly.
Mortgagor shall at any time or from time to time upon the request of Mortgagee
provide to Mortgagee a current list of all such account debtors and obligors
and their addresses.
3.6 Cumulative Remedies. All remedies contained in this
Mortgage are cumulative and Mortgagee shall also have all other remedies
provided at law and in equity or in any other Loan Documents. Such remedies may
be pursued separately successively or concurrently at the sole subjective
direction of Mortgagee and may be exercised in any order and as often as
occasion therefor shall arise. No act of Mortgagee shall be construed as an
election to proceed under any particular provisions of this Mortgage to the
exclusion of any other provision of this Mortgage or as an election of remedies
to the exclusion of any other remedy which may then or thereafter be available
to Mortgagee. No delay or failure by Mortgagee to exercise any right or remedy
under this Mortgage shall be construed to be a waiver of that right or remedy
or of any Event of Default hereunder. Mortgagee may exercise any one or more of
its rights and remedies at its option without regard to the adequacy of its
security.
3.7 Payment of Expenses. Mortgagor shall pay on demand all of
Mortgagee's expenses incurred in any efforts to enforce any terms of this
Mortgage whether or not any lawsuit is filed and whether or not foreclosure is
commenced but
-41-
<PAGE>
not completed, including, but not limited to, legal fees and disbursements,
foreclosure costs and title charges, together with interest thereon from and
after the date incurred by Mortgagee until actually paid by Mortgagor at the
Default Interest Rate, and the same shall be secured by this Mortgage and by
all of the other Loan Documents securing all or any part of the indebtedness
evidenced by the Note.
ARTICLE IV
MISCELLANEOUS TERMS AND CONDITIONS
4.1 Time of Essence. Time is of the essence with respect to
all provisions of this Mortgage.
4.2 Release of Mortgage. If all of the secured indebtedness
be paid, then and in that event only, all rights under this Mortgage shall
terminate except for those provisions hereof which by their terms survive, and
the Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, which shall be released by
Mortgagee in due form at Mortgagor's cost. No release of this Mortgage or the
lien hereof shall be valid unless executed by Mortgagee.
4.3 Certain Right of Mortgagee. Without affecting Mortgagor's
liability for the payment of any of the indebtedness secured hereby, Mortgagee
may from time to time and without notice to Mortgagor: (a) release any person
liable for the payment of the indebtedness secured hereby; (b) extend or modify
the terms of payment of the indebtedness secured hereby; (c) accept additional
real or personal property of any kind as security or alter, substitute or
release any property securing the indebtedness secured hereby; (d) recover any
part of the Property; (e) consent in writing to the making of any subdivision
map or plat thereof; (f) join in granting any easement therein; or (g) join in
any extension agreement of the Mortgage or any agreement subordinating the lien
hereof.
4.4 Waiver of Certain Defenses. No action for the enforcement
of the lien hereof or of any provision hereof shall be subject to any defense
which would not be good and available to the party interposing the same in an
action at law upon the Note or any of the other Loan Documents.
4.5 Notices. All notices, demands, requests or other
communications to be sent by one party to the other hereunder or required by
law shall be in writing and shall be deemed to have been validly given or
served by delivery of the same in person to the intended addressee, or by
depositing the same with Federal Express or another reputable private courier
service for next business day delivery, or by depositing the same in the United
States mail, postage prepaid, registered or certified mail, return receipt
requested in any event addressed to the intended addressee at its address set
forth on the first page of this Mortgage or at such other address as may be
designated by such party as herein provided. All notices, demands and requests
shall be effective upon such personal delivery, or one (1) business day after
being deposited
-42-
<PAGE>
with the private courier service, or two (2) business days after being
deposited in the United States mail as required above. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given as herein required shall be deemed to be receipt of
the notice, demand or request sent. By giving to the other party hereto at
least fifteen (15) days' prior written notice thereof in accordance with the
provisions hereof, the parties hereto shall have the right from time to time to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
4.6 Successors and Assigns. The terms, provisions,
indemnities, covenants and conditions hereof shall be binding upon Mortgagor
and the successors and assigns of Mortgagor, including all successors in
interest of Mortgagor in and to all or any part of the Property, and shall
inure to the benefit of Mortgagee, its directors, officers, shareholders,
employees and agents and their respective successors and assigns and shall
constitute covenants running with the land. All references in this Mortgage to
Mortgagor or Mortgagee shall be deemed to include all such parties' successors
and assigns, and the term "Mortgagee" as used herein shall also mean and refer
to any lawful holder or owner, including pledgees and participants, of any of
the indebtedness secured hereby. If Mortgagor consists of more than one person
or entity, each will be jointly and severally liable to perform the obligations
of Mortgagor.
4.7 Severability. A determination that any provision of this
Mortgage is unenforceable or invalid shall not affect the enforceability or
validity of any other provision, and any determination that the application of
any provision of this Mortgage to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.
4.8 Gender. Within this Mortgage, words of any gender shall
be held and construed to include any other gender, and words in the singular
shall be held and construed to include the plural, and vice versa, unless the
context otherwise requires.
4.9 Waiver; Discontinuance of Proceedings. Mortgagee may
waive any single Event of Default by Mortgagor hereunder without waiving any
other prior or subsequent Event of Default. Mortgagee may remedy any Event of
Default by Mortgagor hereunder without waiving the Event of Default remedied.
Neither the failure by Mortgagee to exercise, nor the delay by Mortgagee in
exercising, any right, power or remedy upon any Event of Default by Mortgagor
hereunder shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right, power or remedy at a later
date. No single or partial exercise by Mortgagee of any right, power or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time. No modification or waiver of any
provision hereof nor consent to any departure by Mortgagor therefrom shall in
any event be effective unless the same shall be in writing and signed by
Mortgagee, and then such waiver or consent shall bc effective only in the
specific instance and for the
-43-
<PAGE>
specific purpose given. No notice to nor demand on Mortgagor in any case shall
of itself entitle Mortgagor to any other or further notice or demand in similar
or other circumstances. Acceptance by Mortgagee of any payment in an amount
less than the amount then due on any of the secured indebtedness shall be
deemed an acceptance on account only and shall not in any way affect the
existence of a Default or an Event of Default hereunder. In case Mortgagee
shall have proceeded to invoke any right, remedy or recourse permitted
hereunder or under the other Loan Documents and shall thereafter elect to
discontinue or abandon the same for any reason, Mortgagee shall have the
unqualified right to do so and, in such an event, Mortgagor and Mortgagee shall
be restored to their former positions with respect to the indebtedness secured
hereby, the Loan Documents, the Property and otherwise, and the rights,
remedies, resources and powers of Mortgagee shall continue as if the same had
never been invoked.
4.10 Section Headings. The headings of the sections and
paragraphs of this Mortgage are for convenience of reference only, are not to
be considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.
4.11 Governing Law. This Mortgage will be governed by and
construed in accordance with the laws of the State in which the Real Estate is
located, provided that to the extent any of such laws may now or hereafter be
preempted by Federal law, in which case such Federal law shall so govern and be
controlling.
4.12 Counting of Days. The term "days" when used herein shall
mean calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the state within which the Real Estate is located the
period shall be deemed to end on the next succeeding business day. The term
"business day" when used herein shall mean a weekday, Monday through Friday,
except a legal holiday or a day on which banking institutions in the State in
which the Real Estate is located are authorized by law to be closed.
4.13 Relationship of the Parties. The relationship between
Mortgagor and Mortgagee is that of a borrower and a lender only and, in the
context of this Mortgage and the Property and Loan Documents, neither of those
parties is, nor shall it hold itself out to be, the agent, employee, joint
venturer or partner of the other party.
4.14 Application of the Proceeds of the Note. To the extent
that proceeds of the Note are used to pay indebtedness secured by any
outstanding lien, security interest, charge or prior encumbrance against the
Property, such proceeds have been advanced by Mortgagee at Mortgagor's request
and Mortgagee shall be subrogated to any and all rights, security interests and
liens owned by any owner or holder of such outstanding liens, security
interests, charges or encumbrances, irrespective of whether said liens,
security interests, charges or encumbrances are released.
4.15 Unsecured Portion of Indebtedness. If any part of the
secured indebtedness cannot be lawfully secured by this Mortgage or if any part
of the Property
-44-
<PAGE>
cannot be lawfully subject to the lien and security interest hereof to the full
extent of such indebtedness, then all payments made shall be applied on said
indebtedness first in discharge of that portion thereof which is unsecured by
this Mortgage.
4.16 Cross Default. An Event of Default shall be a default
under each of the other Loan Documents.
4.17 Interest After Sale. In the event the Property or any
part thereof shall be sold upon foreclosure as provided hereunder, to the
extent permitted by law, the sum for which the same shall have been sold shall,
for purposes of redemption (pursuant to the laws of the state in which the
Property is located), bear interest at the Default Interest Rate.
4.18 Inconsistency with Other Loan Documents. In the event of
any inconsistency between the provisions hereof and the provisions in any of
the other Loan Documents, it is intended that the provisions selected by
Mortgagee in its sole subjective discretion shall be controlling.
4.19 Construction of this Document. This document may be
construed as a mortgage, security deed, deed of trust, chattel mortgage,
conveyance, assignment, security agreement, pledge, financing statement,
hypothecation or contract, or any one or more of the foregoing, in order to
fully effectuate the liens and security interests created hereby and the
purposes and agreements herein set forth.
4.20 No Merger. It is the desire and intention of the parties
hereto that this Mortgage and the lien hereof do not merge in fee simple title
to the Property. It is hereby understood and agreed that should Mortgagee
acquire any additional or other interests in or to the Property or the
ownership thereof, then, unless a contrary intent is manifested by Mortgagee as
evidenced by an appropriate document duly recorded, this Mortgage and the lien
hereof shall not merge in such other or additional interests in or to the
Property, toward the end that this Mortgage may be foreclosed as if owned by a
stranger to said other or additional interests.
4.21 Rights With Respect to Junior Encumbrances. Any person
or entity purporting to have or to take a junior mortgage or other lien upon
the Property or any interest therein shall be subject to the rights of
Mortgagee to amend, modify, increase, vary, alter or supplement this Mortgage,
the Note or any of the other Loan Documents and to extend the maturity date of
the indebtedness secured hereby and to increase the amount of the indebtedness
secured hereby and to waive or forebear the exercise of any of its rights and
remedies hereunder or under any of the other Loan Documents and to release any
collateral or security for the indebtedness secured hereby, in each and every
case without obtaining the consent of the holder of such junior lien and
without the lien or security interest of this Mortgage closing its priority
over the rights of any such junior lien.
-45-
<PAGE>
4.22 Mortgagee May File Proofs of Claim. In the case of any
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Mortgagor or, if applicable, the
principals or general partners or members in Mortgagor, or their respective
creditors or property, Mortgagee, to the extent permitted by law, shall be
entitled to file such proofs of claim and other documents as may be necessary
or advisable in order to have the claims of Mortgagee allowed in such
proceedings for the entire secured indebtedness at the date of the institution
of such proceedings and for any additional amount which may become due and
payable by Mortgagor hereunder after such date.
4.23 Fixture Filing. This Mortgage shall be effective from
the date of its recording as a financing statement filed as a fixture filing
with respect to all goods constituting part of the Property which are or are to
become fixtures.
4.24 After-Acquired Property. All property acquired by
Mortgagor after the date of this Mortgage which by the terms of this Mortgage
shall be subject to the lien and the security interest created hereby, shall
immediately upon the acquisition thereof by Mortgagor and without further
mortgage, conveyance or assignment become subject to the lien and security
interest created by this Mortgage. Nevertheless, Mortgagor shall execute,
acknowledge, deliver and record or file, as appropriate, all and every such
further mortgages, security agreements, financing statements, assignments and
assurances, as Mortgagee shall require for accomplishing the purposes of this
Mortgage.
4.25 No Representation. By accepting delivery of any item
required to be observed, performed or fulfilled or to be given to Mortgagee
pursuant to the Loan Documents, including, but not limited to, any officer's
certificates balance sheet, statement of profit and loss or other financial
statement, survey, appraisal or insurance policy, Mortgagee shall not be deemed
to have warranted, consented to, or affirmed the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance of delivery thereof shall not be or
constitute any warranty, consent or affirmation with respect thereto by
Mortgagee.
4.26 Counterparts. This Mortgage may be executed in any
number of counterparts, each of which shall be effective only upon delivery and
thereafter shall be deemed an original, and all of which shall be taken to be
one and the same instrument, for the same effect as if all parties hereto had
signed the same signature page. Any signature page of this Mortgage may be
detached from any counterpart of this Mortgage without impairing the legal
effect of any signatures thereon and may be attached to another counterpart of
this Mortgage identical in form hereto but having attached to it one or more
additional signature pages.
4.27 Recording and Filing. Mortgagor will cause the Loan
Documents and all amendments and supplements thereto and substitutions therefor
to be recorded, filed, re-recorded and re-filed in such manner and in such
places as Mortgagee shall reasonably request, and will pay on demand all such
recording, filing, re-recording and
-46-
<PAGE>
re-filing taxes, fees and other charges. Mortgagor shall reimburse Mortgagee,
or its servicing agent, for the costs incurred in obtaining a tax service
company to verify the status of payment of taxes and assessments on the
Property.
4.28 Entire Agreement and Modification. This Mortgage and the
other Loan Documents contain the entire agreements between the parties relating
to the subject matter hereof and thereof and all prior agreements relative
hereto and thereto which are not contained herein or therein are terminated.
This Mortgage and the other Loan Documents may not be amended, revised, waived,
discharged, released or terminated orally but only by a written instrument or
instruments executed by the party against which enforcement of the amendment,
revision, waiver, discharge, release or termination is asserted. Any alleged
amendment, revision, waiver, discharge, release or termination which is not so
documented shall not be effective as to any party.
4.29 Maximum Interest. The provisions of this Mortgage and of
all agreements between Mortgagor and Mortgagee, whether now existing or
hereafter arising and whether written or oral, are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of the Note or otherwise, shall the amount paid,
or agreed to be paid ("Interest"), to Mortgagee for the use, forbearance or
retention of the money loaned under the Note exceed the maximum amount
permissible under applicable law. If, from any circumstance whatsoever,
performance or fulfillment of any provision hereof or of any agreement between
Mortgagor and Mortgagee shall, at the time performance or fulfillment of such
provision shall be due, exceed the limit for Interest prescribed by law or
otherwise transcend the limit of validity prescribed by applicable law, then
ipso facto the obligation to be performed or fulfilled shall be reduced to such
limit and if, from any circumstance whatsoever, Mortgagee shall ever receive
anything of value deemed Interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive Interest shall be applied to
the reduction of the principal balance owing under the Note in the inverse
order of its maturity (whether or not then due) or at the option of Mortgagee
be paid over to Mortgagor, and not to the payment of Interest. All Interest
(including any amounts or payments deemed to be Interest) paid or agreed to be
paid to Mortgagee shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full period until
payment in full of the principal balance of the Note so that the Interest
thereon for such full period will not exceed the maximum amount permitted by
applicable law. This paragraph will control all agreements between Mortgagor
and Mortgagee.
4.30 Second Mortgage.
1. Certain Definitions:
(a) "Prior Mortgage" means the mortgage or
mortgages of all or part of the Property to which
this Mortgage is subordinate as set forth in the
title policy insuring the lien of this Mortgage,
-47-
<PAGE>
together with the note or notes secured thereby and
all other documents securing said note or notes.
(b) "Prior Mortgagee" means the holder or
holders of the Prior Mortgage.
2. With respect to the Prior Mortgage, the following
terms, covenants, conditions, representations and warranties shall apply:
(1) the Mortgagor hereby warrants and represents as
follows: (i) all interest payments, principal payments and
other payments and charges required thereby have been paid to
the extent they are payable to the date hereof; (ii) the
Mortgagor is not in default under any of the terms or
provisions of the Prior Mortgage required to be observed or
performed; (iii) no term, covenant or provisions of the Prior
Mortgage prohibits or imposes a limitation upon the grant and
demise of this Mortgage; and (iv) the Mortgagor has, prior to
its execution hereof, delivered to the Mortgagee true and
correct duplicate original copies of the Prior Mortgage and
of any and all amendments and modifications thereof.
(2) The Mortgagor covenants and agrees as follows:
(i) to promptly pay when due, all payments, additional
payments and other sums or charges required to be paid by the
Mortgagor under the Prior Mortgage; (ii) to perform and
observe all covenants and conditions to be performed and/or
observed by the Mortgagor under the Prior Mortgage and shall
immediately deliver to Mortgagee photocopies of all notices
received by Mortgagor from any holder of a Prior Mortgage
within three (3) days after receipt thereof by Mortgagor;
(iii) not to do, permit, suffer or refrain from doing
anything as a result of which, there could be a default under
or breach of any of the terms of the Prior Mortgage; and (iv)
not to modify, amend or in any way alter or permit the
alteration of any of the terms of the Prior Mortgage without
the prior written consent of the Mortgagee, nor to surrender
the property demised thereunder; (v) not to waive, excuse or
discharge any of the obligations and agreements of the Prior
Mortgagee; (vi) to do all things necessary to preserve
unimpaired all of Mortgagor's rights under the Prior
Mortgage; (vii) to furnish to the Mortgagee such information
and evidence as the Mortgagee may reasonably require
concerning the Mortgagor's due observance, performance and
compliance with the terms, covenants and provisions of the
Prior Mortgage.
(3) In the event of any default beyond the
applicable grace period set forth in the Prior Mortgage by
the Mortgagor in the performance of any of its obligations
under the Prior Mortgage, including, without limitation, any
default in the terms of repayment thereunder
-48-
<PAGE>
including but not limited to charges and impositions made
payable by the Prior Mortgagee thereunder, then, in each and
every case, the Mortgagee may, at its option and without
notice, cause the default or defaults to be remedied and
otherwise exercise any and all of the rights of the Mortgagor
thereunder in the name of and on behalf of the Mortgagor. The
Mortgagor shall, on demand, reimburse the Mortgagee for all
advances made and expenses incurred by the Mortgagee in
curing any such default (including, without limitation,
reasonable attorney's fees), together with interest thereon
computed at the Default Interest Rate as that term is defined
in the Note dated the date hereof made by Mortgagor to
Mortgagee in the original principal amount of $4,000,000 (the
"Note") from the date that an advance is made or expense is
incurred to and including the date the same is paid.
(4) The Mortgagor shall use its best efforts to
obtain and deliver to the Mortgagee within thirty (30) days
after request by the Mortgagee, an estoppel certificate from
the Prior Mortgagee under the Prior Mortgage setting forth
(i) the names of the parties thereto, (ii) that the Prior
Mortgage has not been modified or, if it has been modified,
the date of each modification (together with copies of each
such modification certified as true and correct by the Prior
Mortgagee), (iii) the terms of payment under the Prior
Mortgage, (iv) the date to which all payments and charges of
any type required pursuant to the terms thereof have been
paid by the Mortgagor under the Prior Mortgage, and (v)
whether there are any alleged defaults of the Mortgagor under
the Prior Mortgage and, if there are, setting forth the
nature thereof in reasonable detail.
(5) The Mortgagor hereby irrevocably designates the
Mortgagee its agent and attorney-in-fact to perform or
observe on behalf of the Mortgagor any covenant or condition
which the Mortgagor fails to perform or observe under the
Prior Mortgage within any applicable grace period specified
in the Prior Mortgage, including, but not limited to, the
payment of any principal and/or interest payable under the
Prior Mortgage, and any advances made by the Mortgagee in
connection with such performance or observance shall be
repaid by the Mortgagor within ten (10) days of demand with
interest at the Default Interest Rate and the amount so
advanced with interest, shall be a lien upon the Property and
shall be secured by this Mortgage. The performance or
observance of such covenant or condition by the Mortgagee
shall not prevent the Mortgagor's failure so to perform or
observe from constituting an Event of Default. In performing
or observing any such covenant or condition, the Mortgagee
shall have the right to enter upon the Property. Upon receipt
by the Mortgagee from the Mortgagor and/or the holder of the
Prior Mortgage of any notice of default under the Prior
Mortgage, the Mortgagee may rely thereon and take any action
permitted by this Section 4.30 to remedy such default
notwithstanding that the existence of such default or the
nature
-49-
<PAGE>
thereof may be questioned or denied by the Mortgagor. Nothing
contained in this Section 4.30 shall be deemed to create any
duty or obligation on the part of the Mortgagee to take any
action with respect to the Prior Mortgage and/or the curing
of any defaults thereunder.
(6) If the Mortgagor or any subsequent owner of the
Property becomes the Prior Mortgagee then notwithstanding
anything to the contrary contained in any document, agreement
or the law, the lien of the Prior Mortgage shall merge with
the fee ownership of the Property and the lien of this
Mortgage shall automatically become a first mortgage lien on
the Property.
(7) To the extent that the rights of the Prior
Mortgagee preclude or preempt the Mortgagee from exercising
any of its rights given Mortgagee under this Mortgage then
the rights of the Prior Mortgagee shall control and to the
extent that the terms of the Prior Mortgage are inconsistent
with the terms of this Mortgage then the Mortgagee
acknowledges that the terms provided for in this Mortgage are
subordinate to the terms of the Prior Mortgage for so long as
the Prior Mortgage remains a lien on the Property prior to
the lien of this Mortgage.
THE MORTGAGOR HEREBY REPRESENTS AND ACKNOWLEDGES
THAT THE MORTGAGOR HAS RECEIVED, WITHOUT CHARGE, A TRUE COPY
OF THIS MORTGAGE.
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as
of the day and year first above written.
ATTEST: USA DETERGENTS, INC.
By /s/ Richard D. Coslow
---------------------
Richard D. Coslow
Sr. Vice President
/s/ Uri Evan
- --------------------
Uri Evan
-50-
<PAGE>
USA DETERGENTS, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 350,000 Shares
USA Detergents, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that Frederick R. Adler or his permitted assigns, is entitled
to purchase from the Company, at any time or from time to time commencing on
December 26, 2000 and ending at 5:00 P.M., New York City time, on December 26,
2002, three hundred fifty thousand (350,000) fully paid and non-assessable
shares of the common stock, $.01 par value per share, of the Company for an
aggregate purchase price of two million seven hundred fifty six thousand, two
hundred fifty dollars ($2,756,250) (computed on the basis of $7.875 per share);
provided, however, that any portion or all of such 350,000 shares of common
stock may be so purchased prior to December 26, 2000 at any time on or after
the occurrence of an Accelerating Event (as later defined), as provided in
Section 5 below. The Company is issuing and the Holder (as hereinafter defined)
is purchasing this Warrant in consideration of the payment to the Company by
the Holder of one hundred seventy-five thousand dollars ($175,000), which
payment may be made in cash, the delivery of a promissory note executed by the
Holder, or any other form or means mutually acceptable to Holder and the
Company. As used herein, (i) the common stock, $.01 par value per share, of the
Company, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"COMMON STOCK," (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to individually
as a "WARRANT SHARE" and collectively as the "WARRANT SHARES," (iii) the
aggregate purchase price payable for the Warrant Shares hereunder is referred
to as the "AGGREGATE WARRANT PRICE," (iv) the price payable for each of the
Warrant Shares hereunder is referred to as the "PER SHARE WARRANT PRICE," (v)
this Warrant, all similar Warrants issued on the date hereof and all Warrants
hereafter issued in exchange or substitution for this Warrant or such similar
Warrants are referred to as the "WARRANTS," (vi) the holder of this Warrant is
referred to as the "HOLDER" and the holder of this Warrant and all other
Warrants or Warrant Shares issued upon the exercise of any Warrant are referred
to as the "HOLDERS", and (vii) the period during which this Warrant is
exercisable, including the period if any from and after an Accelerating Event,
is referred to as the "EXERCISE PERIOD". The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of
Warrant Shares shall be adjusted by dividing the Aggregate Warrant Price by the
Per Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT. (a) At any time or times during the
Exercise Period, the Holder may exercise this Warrant, in whole or in part, as
follows:
<PAGE>
(i) By presentation and surrender of this Warrant to the
Company at the address set forth in Subsection 9(a) hereof, with the
Subscription Form annexed hereto (or a reasonable facsimile thereof)
duly executed and accompanied by payment of the Per Share Warrant
Price for each Warrant Share to be purchased. Payment for Warrant
Shares shall be made by cash, check payable to the order of the
Company or by wire transfer to an account designated by the Company
for such purpose; or
(ii) By presentation and surrender of this Warrant to the
Company at the address set forth in Subsection 9(a) hereof, with a
Cashless Exercise Form annexed hereto (or a reasonable facsimile
thereof) duly executed (a "CASHLESS EXERCISE"). Such presentation and
surrender shall be deemed a waiver of the Holder's obligation to pay
all or any portion of the Aggregate Warrant Price. In the event of a
Cashless Exercise, the Holder shall exchange its Warrant for that
number of shares of Common Stock determined by multiplying the number
of Warrant Shares being exercised by a fraction, the numerator of
which shall be the difference between the then current market price
per share of the Common Stock and the Per Share Warrant Price, and the
denominator of which shall be the then current market price per share
of Common Stock. For purposes of any computation under this Section
1(a)(ii), the then current market price per share of Common Stock at
any date shall be deemed to be the average for the five consecutive
business days immediately prior to the Cashless Exercise of the daily
closing prices of the Common Stock on the principal national
securities exchange on which the Common Stock is admitted to trading
or listed, or if not listed or admitted to trading on any such
exchange, the closing prices as reported by the Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the
average of the highest reported bid and lowest reported asked prices
as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or if not then publicly traded,
the fair market price of the Common Stock as determined by the Board
of Directors.
(b) If this Warrant is exercised in part, this
Warrant must be exercised for a number of whole shares of the Common Stock, and
the Holder is entitled to receive a new Warrant covering the Warrant Shares
which have not been exercised and setting forth the proportionate part of the
Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender
of this Warrant, the Company will (i) issue a certificate or certificates, in
such denominations as are requested for delivery by the Holder, in the name of
the Holder for the largest number of whole shares of the Common Stock to which
the Holder shall be entitled and, if this Warrant is exercised in whole, in
lieu of any fractional share of the Common Stock to which the Holder shall be
entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional share (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercisable in part, pursuant to
the provisions of this Warrant. The Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon
-2-
<PAGE>
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times
(a) have authorized and in reserve, and will keep available, solely for
issuance or delivery upon the exercise of this Warrant, the shares of the
Common Stock and other securities and properties as from time to time shall be
receivable upon the exercise of this Warrant, free and clear of all
restrictions on sale or transfer and free and clear of all preemptive rights
and rights of first refusal and (b) keep the shares of the Common Stock
receivable upon the exercise of this Warrant authorized for listing on such
exchange upon notice of issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company
shall hereafter (i) pay a dividend or make a distribution on its capital stock
in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company, the Per Share
Warrant Price shall be adjusted so that the Holder upon the exercise hereof
shall be entitled to receive the number of shares of Common Stock or other
capital stock of the Company which he would have owned immediately following
such action had such Warrant been exercised immediately prior thereto. An
adjustment made pursuant to this Subsection 3(a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common
Stock, referred to in Subsection 3(a), and also excluding cash dividends or
cash distributions paid out of net profits legally available therefor if the
full amount thereof, together with the value of other dividends and
distributions made substantially concurrently therewith or pursuant to a plan
which includes payment thereof, is equivalent to not more than 5% of the
Company's net worth) (any such nonexcluded event being herein called a "SPECIAL
DIVIDEND"), the Per Share Warrant Price shall be adjusted by multiplying the
Per Share Warrant Price then in effect by a fraction, the numerator of which
shall be the then current market price of the Common Stock (defined as the
average for the five consecutive business days immediately prior to the record
date of the daily closing price of the Common Stock as reported by the national
securities exchange upon which the Common Stock is then listed or if not listed
on any such exchange, the average of the closing prices as reported by the
Nasdaq National Market, or if not then listed on the Nasdaq National Market,
the average of the highest reported bid and lowest reported
-3-
<PAGE>
asked prices as reported by NASDAQ, or if not then publicly traded, the fair
market price as determined by the Company's Board of Directors) less the fair
market value (as determined by the Company's Board of Directors) of the
evidences of indebtedness, cash, securities or property, or other assets issued
or distributed in such Special Dividend applicable to one share of Common Stock
and the denominator of which shall be such then current market price per share
of Common Stock. An adjustment made pursuant to this Subsection 3(b) shall
become effective immediately after the record date of any such Special
Dividend.
(c) Except as provided in Subsection 3(e), in case
the Company shall hereafter issue or sell any shares of Common Stock for a
consideration per share less than the Per Share Warrant Price on the date of
such issuance or sale, the Per Share Warrant Price shall be adjusted as of the
date of such issuance or sale so that the same shall equal the price determined
by dividing (i) the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Per Share Warrant
Price plus (B) the consideration received by the Company upon such issuance or
sale by (ii) the total number of shares of Common Stock outstanding after such
issuance or sale.
(d) Except as provided in Subsections 3(b) and 3(e),
in case the Company shall hereafter issue or sell any rights, options, warrants
or securities convertible into Common Stock entitling the holders thereof to
purchase Common Stock or to convert such securities into Common Stock at a
price per share (determined by dividing (i) the total amount, if any, received
or receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "TOTAL CONSIDERATION") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) less than
the then current Per Share Warrant Price in effect on the date of such issuance
or sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by dividing
(i) the sum of (A) the number of shares of Common Stock outstanding on the date
of such issuance or sale multiplied by the Per Share Warrant Price plus (B) the
Total Consideration by (ii) the number of shares of Common Stock outstanding on
the date of such issuance or sale plus the maximum number of additional shares
of Common Stock issuable upon exercise or conversion of such securities.
(e) No adjustment in the Per Share Warrant Price
shall be required in the case of (i) the issuance by the Company of options to
purchase shares of Common Stock pursuant to the Company's 1995 Stock Option
Plan and the Company's Non-Employee Directors Stock Option Plan and the
issuance by the Company of shares of Common Stock upon the exercise of such
options and (ii) the issuance by the Company of Common Stock pursuant to the
exercise of any Warrant.
(f) In case of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a
party other than a merger or
-4-
<PAGE>
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange
effected in connection with a merger of a third corporation into the Company),
the Holder of this Warrant shall have the right thereafter to receive on the
exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(f) shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, statutory exchanges, sales or conveyances. The issuer of any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant shall be responsible for all of the agreements and obligations of
the Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than 20 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(g) In case any event shall occur as to which the
other provisions of this Section 3 are not strictly applicable but as to which
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants representing
the right to purchase a majority of the Warrant Shares subject to all
outstanding Warrants may appoint a firm of independent public accountants of
recognized national standing reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
(h) No adjustment in the Per Share Warrant Price
shall be required unless such adjustment would require an increase or decrease
of at least $0.10 per share of Common Stock; provided, however, that any
adjustments which by reason of this Subsection 3(h) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment;
provided further, however, that adjustments
-5-
<PAGE>
shall be required and made in accordance with the provisions of this Section 3
(other than this Subsection 3(h)) not later than such time as may be required
in order to preserve the tax-free nature of a distribution to the Holder of
this Warrant or Common Stock issuable upon exercise hereof. All calculations
under this Section 3 shall be made to the nearest cent or to the nearest
1/l00th of a share, as the case may be. Anything in this Section 3 to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Per Share Warrant Price, in addition to those required by this Section
3, as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its stockholders shall not be taxable.
(i) Whenever the Per Share Warrant Price is adjusted
as provided in this Section 3 and upon any modification of the rights of a
Holder of Warrants in accordance with this Section 3, the Company shall
promptly obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Per Share Warrant
Price and the number of Warrant Shares after such adjustment or the effect of
such modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants.
(j) If the Board of Directors of the Company shall
(i) declare any dividend or other distribution with respect to the Common
Stock, other than a cash dividend subject to the first parenthetical in
Subsection 3(b), (ii) offer to the holders of shares of Common Stock any
additional shares of Common Stock, any securities convertible into or
exercisable for shares of Common Stock or any rights to subscribe thereto, or
(iii) propose a dissolution, liquidation or winding up of the Company, the
Company shall mail notice thereof to the Holders of the Warrants not less than
15 days prior to the record date fixed for determining stockholders entitled to
participate in such dividend, distribution, offer or subscription right or to
vote on such dissolution, liquidation or winding up.
(k) If, as a result of an adjustment made pursuant
to this Section 3, the Holder of any Warrant thereafter surrendered for
exercise shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock of the Company,
the Board of Directors (whose determination shall be conclusive and shall be
described in a written notice to the Holder of any Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
4. FULLY PAID STOCK; TAXES. The Company agrees that the
shares of the Common Stock represented by each and every certificate for
Warrant Shares delivered on the exercise of this Warrant shall, at the time of
such delivery, be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive
-6-
<PAGE>
rights or rights of first refusal, and the Company will take all such actions
as may be necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share
or certificate therefor.
5. EARLIER EXERCISE UPON AN ACCELERATING EVENT.
Notwithstanding anything to the contrary contained herein, at any time during
the period commencing on or after the occurrence of an Accelerating Event and
ending at 5:00 p.m., New York City time, on December 26, 2002, the Holder
(which term, for purposes of this Section 5, shall include any of the heirs,
successors or assigns of a Holder, as provided in Section 6 hereof) of any
Warrant shall be entitled to purchase, in whole or in part, the Warrant Shares
(or such other kind and amount of securities, cash or property as may be
purchasable in substitution therefor as provided in Subsection 3(f) or (g)
above) provided for in said Warrant, for the purchase price and under the terms
contained herein. For purposes of this Warrant, the term "Accelerating Event"
shall mean and include any of the following: (i) the sale by the Company of any
of its securities, whether debt or equity, to any person, entity or group of
persons or entities, in one transaction or a series of related transactions,
resulting in gross proceeds to the Company of not less than $20 million, or any
other form of investment in the Company (in one transaction or a series of
related transactions) by any person, entity or group of not less than $20
million; or (ii) the reorganization, merger, combination, share exchange or
consolidation of the Company with or into another corporation, or the merger,
reorganization, combination, share exchange or consolidation of another
corporation into the Company, with the effect that, immediately after such
transaction, either (X) the stockholders of the Company in existence
immediately prior to the transaction shall hold less than 80% of either (a) the
equity ownership of the then outstanding securities of the surviving
corporation or (b) the combined voting power of the then outstanding securities
of the surviving corporation having the right to vote generally in the election
of directors, or (Y) any person, entity or group of persons or entities shall
have become the beneficial owner of securities of the surviving corporation of
such transaction representing 20% or more of either (a) the equity ownership of
the then outstanding securities of the surviving corporation or (b) the
combined voting power of the then outstanding securities of the surviving
corporation having the right to vote generally in the election of directors, or
(Z) a change in control, directly or indirectly, of the Company shall have
occurred; or (iii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all
the assets of the Company to any person, entity or group of persons or
entities; or (iv) the death of Holder or disability (mental or physical) for a
period of ninety consecutive days of Holder; or (v) the occurrence of any event
or issuance of any securities contemplated by the provisions of this Section 5
but not expressly provided for herein.
6. LIMITED TRANSFERABILITY. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the
-7-
<PAGE>
Act. The Company may treat the registered Holder of this Warrant as he or it
appears on the Company's books at any time as the Holder for all purposes. The
Company shall permit any Holder of a Warrant or his duly authorized attorney,
upon written request during ordinary business hours, to inspect and copy or
make extracts from its books showing the registered holders of Warrants. All
Warrants issued upon the transfer or assignment of this Warrant will be dated
the same date as this Warrant, and all rights of the Holder thereof shall be
identical to those of the Holder. Notwithstanding the foregoing, this Warrant
may be transferred, by will, laws of decedent and distribution, or by operation
of law, to and may be exercised by, the heirs, successors, assigns and/or legal
representatives of Holder (as if any such person or entity were the Holder
hereof) upon the Holder's death or disability.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right to vote
or to consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
9. NOTICES. All notices and other communications required or
permitted to be given under this Warrant shall be in writing and shall be
deemed to have been duly given if delivered personally or by facsimile
transmission, or sent by recognized overnight courier or by certified mail,
return receipt requested, postage paid, to the parties hereto as follows:
(a) if to the Company at 1735 Jersey Avenue, North
Brunswick, New Jersey 08902, Att.: President, facsimile no.
(732 246-8833), or such other address as the Company has
designated in writing to the Holder,
(b) if to the Holder at 1520 South Ocean Boulevard,
Palm Beach, Florida 33480, facsimile no. (561) 659-7995 or
such other address or facsimile number as the Holder has
designated in writing to the Company.
10. HEADINGS. The headings of this Warrant have been inserted
as a matter of convenience and shall not affect the construction hereof.
11. APPLICABLE LAW. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
-8-
<PAGE>
IN WITNESS WHEREOF, USA Detergents, Inc. has caused this
Warrant to be signed by its Chief Executive Officer and its corporate seal to
be hereunto affixed and attested by its Secretary as of this 26th day of
December, 1997.
USA DETERGENTS, INC.
By: /s/ Uri Evan
--------------------------------------
Uri Evan, Chief Executive Officer
ATTEST:
Daniel Bergman
- -------------------------------------
Secretary
[Corporate Seal]
-9-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells,
assigns and transfers unto __________________________ the foregoing Warrant and
all rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
_________________________.
Dated: ________________________ Signature:___________________________
Address: ____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns
and transfers unto ____________________________ the right to purchase
______________ shares of the Common Stock of _________________________ covered
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer that part of said Warrant on the
books of ______________________________.
Dated: ________________________ Signature:___________________________
Address: ____________________________
-10-
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section
1(a)(i), and tenders herewith payment of the purchase price in full in the form
of cash, check or wire transfer in the amount of $___________.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay any cash for any fractional share to:
Name
--------------------------------------
(Please Print Name, Address and Social
Security No.)
Address
-----------------------------------
-----------------------------------
Social
------------------------------------
Security Number
Signature
--------------------------------
NOTE: The above signature
should correspond exactly
with the name on the first
page of this Warrant or
with the name of the
assignee appearing in the
assignment form below.
Date
-------------------------------------
And if said number of shares shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned for the balance remaining of the shares purchasable
thereunder.
-11-
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender
_________ shares purchasable under this Warrant for such shares of Common Stock
issuable in exchange therefor pursuant to the Cashless Exercise provisions of
the within Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay cash for fractional shares to:
Name
--------------------------------------
(Please Print Name, Address and Social
Security No.)
Address
-----------------------------------
-----------------------------------
Social
------------------------------------
Security Number
Signature
--------------------------------
NOTE: The above signature
should correspond exactly
with the name on the first
page of this Warrant or
with the name of the
assignee appearing in the
assignment form below.
Date
-------------------------------------
And if said number of shares shall not be all the shares
exchangeable or purchasable under the within Warrant, a new Warrant is to be
issued in the name of the undersigned for the balance remaining of the shares
purchasable thereunder.
-12-
<PAGE>
AGREEMENT
The undersigned, USA Detergents, Inc., a Delaware corporation (the
"Company"), and Frederick R. Adler, an individual ("Adler"), hereby agree as
follows:
1. The Company desires to retain the services of Adler for the next
three years, commencing on January 1, 1998, to assist the Company in exploring
the possibility of strategic and/or financing alternatives for the Company,
which may include any of the following: (i) the sale by the Company of any of
its securities, whether debt or equity, to any person, entity or group of
persons or entities, in one transaction or a series of related transactions, or
any other form of investment in the Company (in one transaction or a series of
related transactions) by any person, entity or group; or (ii) the
reorganization, merger, combination, share exchange or consolidation of the
Company with or into another corporation or the merger, reorganization,
combination, share exchange or consolidation of another corporation into the
Company; or (iii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all
the assets of the Company to any person, entity or group of persons or
entities; or (iv) any transaction, financing or issuance of securities which is
of a similar nature to any of the foregoing or which Adler in his discretion
believes may be appropriate for the Company to consider.
2. Adler agrees to so assist the Company for the next three years.
Adler shall devote such time and attention in the performance of his services
hereunder, as Adler in his discretion deems necessary and/or appropriate.
3. In consideration of the sum of $175,000 and of the services to be
provided by Adler as provided above, the Company hereby grants to Adler a
warrant to purchase 350,000 shares of the common stock, $.01 par value per
share, of the Company, in the form attached hereto as Exhibit A, at a per share
purchase price of $7.875, being the closing price of the Common Stock on the
Nasdaq National Market on the date hereof. The $175,000 purchase price for the
Warrant may be paid, at Adler's option, in cash or by delivery of a promissory
note in the form attached hereto as Exhibit B.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the 26th day of December, 1997.
USA Detergents, Inc.
By: /s/ Uri Evan
-------------------------
/s/ Frederick R. Adler
-------------------------
Frederick R. Adler
<PAGE>
Exhibit 21
SUBSIDIARIES OF USA DETERGENTS, INC.
Big Cloud Powder Corporation
Chicago Management Powder Corp.
Chicago Contract Powder Corporation
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-98988 and 33-98986 of USA Detergents, Inc. on Form S-8 of our report
dated March 4, 1998, appearing in this Annual Report on Form 10-K of USA
Detergents, Inc. for the year ended December 31, 1997.
/s/ Deloitte & Touche LLP
New York, New York
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERANCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,848
<SECURITIES> 0
<RECEIVABLES> 25,216
<ALLOWANCES> 867
<INVENTORY> 17,258
<CURRENT-ASSETS> 54,315
<PP&E> 54,524
<DEPRECIATION> 8,852
<TOTAL-ASSETS> 102,808
<CURRENT-LIABILITIES> 47,007
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 15,446
<TOTAL-LIABILITY-AND-EQUITY> 102,808
<SALES> 227,269
<TOTAL-REVENUES> 227,269
<CGS> 175,851
<TOTAL-COSTS> 70,826
<OTHER-EXPENSES> 2,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,742
<INCOME-TAX> (24,529)
<INCOME-CONTINUING> (3,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,081)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
