Loan Agreement - Applied Analytical Industries Inc. and NationsBank NA
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of December 30, 1996 (the "Loan
Agreement"), is by and between
APPLIED ANALYTICAL INDUSTRIES, INC., a corporation organized and
existing under the laws of the State of Delaware and having its principal place
of business in Wilmington, North Carolina (the "Borrower"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States and having offices in Wilmington,
North Carolina (the "Bank").
RECITALS
A. The Borrower has requested that the Bank provide a revolving credit
facility of up to $20,000,000.00 for the purposes described herein.
B. The Bank has agreed to provide the requested revolving credit
facility to the Borrower on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the Borrower and the Bank agree as follows:
ARTICLE I
Definitions
-----------
1.01 For the purposes hereof:
"Adjusted CD Rate" shall be equal to the sum of (1) the
quotient of (a) the CD Rate, divided by (b) the difference of (i) one
minus (ii) the appropriate reserve requirement imposed on the Bank by
the Federal Reserve System (expressed as a decimal), plus (2) the
appropriate assessment rate imposed on the Bank by the Federal Deposit
Insurance Corporation with regard to the applicable Rate Period. The
computation of the Adjusted CD Rate shall also include such adjustments
as may be necessary in the future with respect to impositions on the
Bank for insurance and other fees, assessments and surcharges which
occur because of the Bank's sale of the certificate of deposit which
established the CD Rate;
"Adjusted LIBOR Rate" means the rate as determined by the Bank
at which deposits in the requested amount and for three month interest
periods are offered to prime banks in the London Interbank Market, as
published weekly by the Federal Reserve Bank of New York in its H-15
Statistical Release, such rate being adjusted for the cost of reserve
requirements as prescribed by the Federal Reserve System.
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The Adjusted LIBOR rate for any Saturday or Sunday or any other day on
which the London Interbank Market is not open shall be the Adjusted
LIBOR rate for the immediately preceding day on which the London
Interbank Market is open.
"Applicable Percentage" means for the Revolving Loans, the
appropriate applicable percentages corresponding to the Leverage Ratio
in effect as of the most recent Calculation Date as shown below:
<TABLE>
<CAPTION>
Tier Leverage Ratio LIBOR Margin CD Margin
---- -------------- ------------ ---------
<S> <C> <C> <C>
One equal to or .75% .80%
less than .25
to 1.0
Two greater than 1.00% 1.05%
.25 but equal
to or less
than .50
Three greater than 1.25% 1.30%
.50
</TABLE>
The Applicable Percentage for Revolving Loans shall, in each case, be
determined and adjusted quarterly on each March 1, June 1, September 1
and December 1 (each a "Calculation Date"); provided that the initial
Applicable Percentage shall be based on Tier One and shall remain at
Tier One until the Calculation Date on March 1, 1997, and, thereafter,
the Applicable Percentage shall be determined by the then current
Leverage Ratio. Each Applicable Percentage shall be effective from one
Calculation Date until the next Calculation Date. On the Revolving Loan
Maturity Date, each of the margins set forth above shall be increased
by .10%.
"Business Day" means any day not a Saturday, Sunday or legal
holiday on which the Bank is open for business in Wilmington, North
Carolina;
"Cash Flow Coverage Ratio" means for any consecutive four
fiscal quarterly periods of the Borrower, the ratio of (x) EBITDA minus
cash dividends (each computed for such four consecutive fiscal
quarterly periods) to (y) current maturities of long term debt and
capitalized leases (each computed for such four consecutive fiscal
quarterly periods) plus 20% of the average outstanding principal
balance of the Revolving Loans for such four consecutive fiscal
quarterly periods plus interest expense plus current provision for
income taxes (each computed for such four consecutive fiscal quarterly
periods);
"CD Rate" shall be the interest rate which it would be
necessary for the Bank to pay in connection with a sale by the Bank, if
possible, of a certificate of deposit for a
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domestic deposit having a term approximately equivalent to a
given Rate Period;
"Closing Date" means the date as of which this
Loan Agreement is executed by the Borrower and the
Bank;
"Commitment" means the commitment by the Bank to
make Revolving Loans to the Borrower hereunder;
"Consistent Basis" in reference to the application of
Generally Accepted Accounting Principles, means that the accounting
principles observed in the period referred to are comparable in all
material respects to those applied in the most recent preceding period,
except for the impact of implementing new rules or regulations;
"Current Assets" means all items which, in accordance with
Generally Accepted Accounting Principles, would be classified as
current assets on a balance sheet of the Borrower;
"Current Liabilities" means all items which, in accordance
with Generally Accepted Accounting Principles, would be classified as
current liabilities on a balance sheet of the Borrower;
"Current Ratio" means the ratio of Current Assets to Current
Liabilities;
"EBITDA" means for any period of computation, earnings
before interest expense, provision for income taxes, depreciation and
amortization;
"Event of Default" shall have the meaning given to said term
in Section 8.01 hereof;
"Funded Debt" means all interest bearing obligations of the
Borrower including, without limitation, all obligations evidenced by
promissory notes or other similar contracts but excluding such items as
trade payables and accruals;
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants, or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report, as such
principles are from time to time supplemented and amended;
"Guarantors" means each of the Subsidiaries of the
Borrower;
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"Guaranty Agreement" means the guaranty agreement executed by
the Guarantors in favor of the Bank pursuant to which the Guarantors
guarantee the repayment of the Revolving Loans;
"Leverage Ratio" means as of any date of determination,
the ratio of Total Liabilities to Tangible Net Worth;
"Loan Documents" means this Loan Agreement, the Revolving
Note and the Guaranty Agreement;
"Person" means an individual, a corporation, a partnership, a
joint venture, an association, a joint stock company, a trust, an
unincorporated organization or a government or any agency or political
subdivision thereof;
"Prime Rate" means the rate of interest publicly announced by
the Bank in Charlotte, North Carolina from time to time as its "prime
rate." The Prime Rate is not necessarily the best or lowest rate of
interest offered by the Bank;
"Rate Period" shall be ninety (90) days. The last day in the
Rate Period shall be a Business Day; if not, such last day shall be
changed to the immediately preceding Business Day;
"Revolving Loan" means a Loan made pursuant to
Section 2.01 hereof;
"Revolving Note" means the promissory note of the Borrower
executed and delivered as provided in Section 2.02 hereof;
"Revolving Loan Committed Amount" means the maximum principal
amount of Revolving Loans permitted to be outstanding under Section
2.01;
"Revolving Loan Maturity Date" means May 31, 1998;
"Subsidiary" means any corporation more than 50% of the
outstanding voting stock of which at the time is owned directly or
indirectly by the Borrower and/or by one or more Subsidiaries; and
"Tangible Net Worth" means total stockholders' equity of the
Borrower determined in accordance with Generally Accepted Accounting
Principles on a Consistent Basis, with no upward adjustments due to a
revaluation of assets, minus the book value of assets which would be
treated as intangibles under Generally Accepted Accounting Principles,
including, but not limited to, goodwill, trade-names, trademarks,
copyrights, patents and unamortized debt discount and
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minus loans or advances to employees, stockholders, subsidiaries,
affiliates or related companies and minus investment in subsidiaries.
1.02 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with then current
Generally Accepted Accounting Principles applied on a Consistent Basis.
ARTICLE II
Revolving Loans
---------------
2.01 Revolving Loans. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, the Bank agrees to
make Revolving Loans to the Borrower, at any time or from time to time on or
after the date hereof and until the Revolving Loan Maturity Date, in an
aggregate principal amount at any time outstanding not to exceed TWENTY MILLION
DOLLARS ($20,000,000.00) (the "Revolving Loan Committed Amount") for purposes of
financing the Borrower's capital expenditures, acquisitions and working capital
needs. The Borrower may borrow, repay and reborrow hereunder on or after the
date hereof and prior to the Revolving Loan Maturity Date, subject to the terms,
provisions and limitations set forth herein. The outstanding principal balance
of the Revolving Loans on the Revolving Loan Maturity Date (the "Outstanding
Balance") shall be repaid in 72 consecutive installments, the first 71 of which
shall be in an amount equal to 1/72nd of the Outstanding Balance and the 72nd of
which shall be in an amount equal to the then remaining portion of the
Outstanding Balance. Such principal installments shall commence on June 30, 1998
and shall continue thereafter through and including the final principal
installment due on May 31, 2004.
2.02 Revolving Note. The Revolving Loans by the Bank shall be evidenced
by the Revolving Note duly executed by the Borrower, dated the Closing Date, in
substantially the form of Exhibit 2.02 attached hereto, payable to the order of
the Bank in a principal amount equal to the Revolving Loan Committed Amount.
2.03 Interest. The outstanding principal balance of the Revolving Loans
shall bear interest at a rate equal to the Adjusted CD Rate plus the Applicable
Margin or the Adjusted LIBOR Rate plus the Applicable Margin. The Borrower shall
select either of the foregoing rates as of the first day of each March, June,
September and December and once selected, the selected rate shall be applicable
for the quarterly period commencing on each of such dates. Notwithstanding the
foregoing, the rate at which interest is calculated on the outstanding principal
balance of the Revolving Loans shall not exceed the Prime Rate at any time.
Interest calculated at the foregoing rates shall be due and payable monthly in
arrears on the last day of each month.
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2.04 Commitment Fee. The Borrower agrees to pay the Bank a commitment
fee in an amount equal to 0.15% per annum of the average daily unused portion of
the Commitment, such fee to be paid quarterly in arrears on the last day of each
calendar quarter.
ARTICLE III
Additional Provisions Regarding Revolving Loans
-----------------------------------------------
3.01 Default Rate. If the Borrower shall default in the payment when
due (subject to applicable grace periods, if any) of the principal of or
interest on any Loan or any other amount becoming due hereunder, the Borrower
shall on demand from time to time pay interest on any overdue payment of
principal and, to the extent permitted by law, on overdue payments of interest
up to the date of actual payment (after as well as before judgment):
(i) in the case of principal of or interest on a Loan at a
rate equal to 2% per annum above the rate which would otherwise be
payable hereunder; and
(ii) in the case of any other amount payable hereunder or
under any of the other Loan Documents (other than principal of or
interest on any Loan referred to in clause (i) above), at a rate 2% per
annum above the Prime Rate.
3.02 Voluntary Prepayments. The Borrower shall have the right at any
time and from time to time to prepay any Loan in whole or in part, without
premium or penalty, upon at least one Business Day's notice to the Bank;
provided, however, partial prepayments of any Loan shall be applied to principal
installments thereunder in the inverse order of maturities.
3.03 Capital Adequacy.
(a) In the event that the Bank shall have determined
that the adoption or implementation on or after the Closing Date
of any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof or by any court, or compliance by the Bank (or any lending
office of the Bank) with any request or directive made or issued after
the Closing Date regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency,
has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of its obligations hereunder to a level
below that which the
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Bank could have achieved but for such adoption, change or compliance
(taking into consideration the Bank's policies as the case may be, with
respect to capital adequacy) by an amount deemed by the Bank to be
material, then from time to time the Borrower shall pay to the Bank
such additional amount or amounts as will compensate the Bank for any
such reduction suffered; provided, however, that no such amounts shall
be payable with respect to a reduction in rate of return incurred more
than 90 days before the Bank demands compensation under this Section.
(b) Failure on the part of the Bank to demand compensation for
any reduction in return on capital with respect to any period shall not
constitute a waiver of the Bank's rights to demand compensation for any
reduction in return on capital in such period or in any other period.
The protection of this Section shall be available to the Bank
regardless of any possible contention of invalidity or inapplicability
of the law, regulation or condition which shall have been imposed.
ARTICLE IV
Conditions of Lending
---------------------
4.01 Conditions. The Bank shall not be obligated to make any Revolving
Loan hereunder unless the representations and warranties contained in Article V
hereof are true and correct as of the date of the making of such Revolving Loan
and unless immediately after the making of such Revolving Loan no Event of
Default nor any event which upon notice or lapse of time or both would
constitute such an Event of Default shall have occurred and be continuing.
ARTICLE V
Representations and Warranties
------------------------------
The Borrower hereby represents and warrants to the Bank that:
5.01 Corporate Existence and Power. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly qualified and in good standing as a foreign corporation
authorized to do business in every jurisdiction where the failure to so qualify
would have a material adverse effect on the Borrower. Further, the Borrower has
all power and authority to own and operate its properties and to carry on its
business as now conducted.
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5.02 Authorization of Loan Agreement. The Borrower has the power and
authority to enter into this Loan Agreement and to perform its obligations under
and consummate the transactions contemplated by this Loan Agreement and has by
proper corporate action duly authorized the execution and delivery of this Loan
Agreement. When executed and delivered, this Loan Agreement and the other Loan
Documents will be valid and binding obligations of the Borrower enforceable in
accordance with their respective terms.
5.03 No Violation of Corporate Restrictions. Neither the execution and
delivery of this Loan Agreement, nor the performance of the obligations under or
consummation of the transactions contemplated by this Loan Agreement, violates
or will violate any law or governmental order, conflicts or will conflict with
any provision of any charter document or by-law of the Borrower or any material
term or provision of any agreement or instrument to which the Borrower is a
party or by which the Borrower is bound, or constitutes or will constitute a
breach of or a default under any such agreement or instrument (unless
appropriate written waivers have been received and delivered to the Bank).
5.04 Governmental Consents. No consent, approval or authorization of,
or filing, registration or qualification with, any governmental authority on the
part of the Borrower is required as a condition to the execution, delivery or
performance of this Loan Agreement or any of the other Loan Documents by the
Borrower.
5.05 Litigation. Except as set forth on Exhibit 5.05 attached hereto,
there are no material pending, or to the best knowledge of Borrower, threatened,
legal proceedings to which the Borrower is a party or of which any of its
properties are the subject.
5.06 Other Agreements. The Borrower is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any material agreement or instrument to which it is a
party.
5.07 Taxes. The Borrower has filed or caused to be filed all federal,
state and local tax returns which are required to be filed by the Borrower and
has paid or caused to be paid all taxes as shown on said returns or on any
assessment to the extent such taxes have become due, except for taxes which are
being contested in good faith and against which reserves in accordance with
Generally Accepted Accounting Principles will be established. The Borrower does
not know of any proposed material tax assessments against it. No extension of
time for assessment or payment of any federal, state or local tax by the
Borrower is in effect.
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5.08 Liens. None of the assets of the Borrower is subject to any
mortgage, pledge, title retention lien or other lien, encumbrance or security
interest, except (i) for current taxes not delinquent or taxes being contested
in good faith and by appropriate proceedings, (ii) liens arising in the ordinary
course of business for sums not due or sums being contested in good faith and by
appropriate proceedings, but not involving any borrowed money or the deferred
purchase price of property or services, (iii) mechanics' and materialmen's
liens, reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting real property which do not in the aggregate materially
detract from the value of said properties or materially interfere with their use
in the ordinary conduct of the Borrower's business and (iv) to the extent shown
in Exhibit 5.08.
5.09 ERISA. The Borrower has not incurred any accumulated unfunded
deficiency within the meaning of the Employee Retirement Income Security Act of
1974 ("ERISA") nor has incurred any material liability to the Pension Benefit
Guaranty Corporation ("PBGC") established under such Act (or any successor
thereto under such Act) in connection with the employee benefit plans
established or maintained by the Borrower. The Borrower is in compliance in all
material respects with those provisions of ERISA and the regulations and public
interpretations thereunder which are applicable to the Borrower and its
Subsidiaries. No Reportable Event (as defined in ERISA) has occurred with
respect to any Plan.
5.10 Subsidiaries. The Borrower has no Subsidiaries as of the date
hereof except as set forth on Exhibit 5.10 attached hereto.
5.11 Regulation U. The Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System).
5.12 Patents and Trademarks. The Borrower possesses all of the
necessary patents, licenses, trademarks, trademark rights, tradenames, tradename
rights and copyrights material to conduct its business as now conducted, without
known conflict with any patent, license, trademark, tradename or copyright of
any other Person.
5.13 Financial Information Provided. The Borrower represents that the
financial information it has heretofore furnished to the Bank dated September
30, 1996 with regard to its operations is true and correct, and presents fairly
the financial position of the Borrower, and there have been no material adverse
changes since that date.
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5.14 Environmental Compliance. The Borrower has fully complied with all
laws, ordinances, regulations and orders, including without limitation all
zoning, safety and environmental laws, ordinances, regulations and orders,
applicable to its business or properties and the present uses by the Borrower of
its properties do not violate any such laws, ordinances, regulations or orders.
There is not currently and in the past there has not been (i) any use,
treatment, storage or disposal of any hazardous substance or material or
pollutant on any of the Borrower's properties, except as of the date hereof as
disclosed on Exhibit 5.14 attached hereto, (ii) any spill, leakage, discharge or
release of any hazardous substance or material or pollutant thereon or
therefrom, or (iii) any off-site disposal by the Borrower of any hazardous
substance or material or pollutant in any location, except as disclosed on
Exhibit 5.14 attached hereto.
ARTICLE VI
Affirmative Covenants
---------------------
6.01 The Borrower agrees that as long as its obligations hereunder
remain outstanding and until the Commitment hereunder is terminated (unless the
Bank shall otherwise consent in writing), the Borrower will, and will cause its
Subsidiaries to with respect to the subsections (e) through (o) below:
(a) within ninety (90) days of the end of each fiscal year,
deliver to the Bank either (i) the Borrower's Annual Report on Form
10-K for such fiscal year or (ii) a detailed consolidated financial
report of the Borrower and its Subsidiaries as of the end of such
fiscal year (including a balance sheet, income statement and statements
of cash flows and stockholders' equity) based on Generally Accepted
Accounting Principles applied on a Consistent Basis containing an
unqualified opinion of nationally recognized independent certified
public accountants;
(b) within forty-five (45) days after the end of each fiscal
quarter of each fiscal year, deliver either (i) the copy of Form 10-Q
for such quarter as filed with the Securities and Exchange Commission
or (ii) financial information and reports as of the end of such fiscal
quarter (including a balance sheet and income statement) of the
Borrower and its Subsidiaries (in consolidated form) certified by the
chief financial officer of the Borrower to be correct and accurate;
(c) together with each delivery of financial reports required
by Section 6.01(a) and (b) hereof, deliver to the Bank a statement
signed by the chief
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financial officer of the Borrower substantially in the form of Exhibit
6.01(c) hereto, setting forth that the Borrower has kept, observed,
performed and fulfilled each and every agreement binding on it
contained in this Loan Agreement and the Loan Documents and is not at
the time in default in the keeping, observance, performance or
fulfillment of any of the terms, provisions and conditions of this Loan
Agreement or any of the Loan Documents and that no Event of Default
specified in Article VIII hereof, nor any event, which, upon notice or
lapse of time or both, would constitute such an Event of Default, has
occurred, or if such Event of Default exists or would occur as the case
may be, stating the nature thereof, the period of existence thereof and
what action the Borrower proposes to take with respect thereto;
(d) promptly, from time to time, deliver to the Bank a copy of
all filings made under the Securities and Exchange Act of 1934 and such
other information regarding the Borrower's operations, business affairs
and financial condition as the Bank may reasonably request. The Bank is
hereby authorized to deliver a copy of any such financial information
delivered hereunder to the Bank to any regulatory authority having
jurisdiction over the Bank with appropriate confidential restrictions
being noted on any submissions of such information;
(e) maintain or cause to be maintained all personal property
material to its business in good working order and condition and make
all needed repairs, replacements and renewals as are necessary to
conduct its business in accordance with prudent business practices;
(f) do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and
franchises;
(g) (i) comply with or contest in good faith all statutes and
governmental regulations of which the Borrower has knowledge and the
noncompliance of which would have a material adverse effect on the
financial condition of the Borrower; and (ii) pay all taxes,
assessments, governmental charges, claims for labor, supplies, rent and
any other obligation which, if unpaid, might become a lien against any
of its properties except liabilities being contested in good faith and
against which adequate reserves have been established;
(h) at all times keep its insurable properties insured to such
extent and against such risks, including, without limitation, public
liability
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insurance, hazard insurance, worker's compensation and other insurance
required by law and is customary with companies of comparable size in
the same or similar business but at all times of the type and at least
in the amount of the present coverage of the Borrower;
(i) preserve and protect its patents, licenses trademarks,
trademark rights, tradenames, tradename rights and copyrights and
maintain all of its other material properties and assets used or useful
in the conduct of its business in good repair, working order and
condition and from time to time cause to be made all proper
replacements, betterments and improvements thereto;
(j) keep true books of records and accounts in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis,
and in which full, true and correct entries will be made of the
Borrower's dealings and transactions;
(k) permit any officer of the Bank designated by the Bank to
visit and inspect any of the Borrower's properties, books and financial
records at such times as the Bank may reasonably request upon
reasonable notice and during ordinary business hours;
(l) upon the request of the Bank, authorize any officer of the
Bank to discuss its financial statements and financial affairs at any
time and from time to time with the Borrower's independent certified
public accountants upon reasonable notice and during ordinary business
hours with a representative of the Borrower present;
(m) deliver to the Bank forthwith, upon any officer of the
Borrower obtaining knowledge of an Event of Default or an event which
would constitute such an Event of Default but for the requirement that
notice be given or time elapse or both, a certificate signed by the
chief executive officer of the Borrower specifying the nature and
period of existence thereof and what action the Borrower proposes to
take with respect thereto;
(n) within ten (10) days of the event becoming known to any
officer of the Borrower, notify the Bank in writing of the occurrence
of any of the following events:
(i) the pendency or commencement of any action, suit
or proceeding at law or in equity under which a party or
parties seek an amount equal to or exceeding $250,000.00;
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(ii) any event or condition which shall constitute an
event of default under any other agreement for borrowed money
or any known or potential materially adverse change in any
other material contractual agreement;
(iii) any levy of an attachment, execution or other
process against its assets; and
(iv) any change in any existing agreement or contract
which may materially adversely affect any of its businesses or
affairs, financial or otherwise;
(o) the Borrower shall (i) at all times, make prompt payment
of all contributions required under all employee benefit plans
("Plans") to meet the minimum funding standard set forth in ERISA
(defined herein) with respect to its Plans; (ii) within thirty (30)
days after the filing thereof, furnish to the Bank copies of each
annual report/return (Form 5500 Series), as well as all schedules and
attachments required to be filed with the Department of Labor and/or
the Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each of its Plans for each
Plan Year; (iii) notify the Bank immediately of any fact, including,
but not limited to, any Reportable Event (as defined in ERISA) arising
in connection with any of its Plans, which might constitute grounds for
termination thereof by the PBGC or for, the appointment by the
appropriate United States District Court of a trustee to administer
such Plan, together with a statement, if requested by the Bank, as to
the reason therefor and the action, if any, proposed to be taken with
respect thereof; and (iv) furnish to the Bank, upon its request, such
additional information concerning any of the Borrower's Plans as may be
reasonably requested;
(p) satisfy the following financial tests:
(i) the Borrower will maintain as of the end of each
fiscal quarter (commencing with the fiscal quarter ending
December 31, 1996) Tangible Net Worth of not less than
$40,000,000.00;
(ii) the Borrower shall maintain as of the end of
each fiscal quarter (commencing with the fiscal quarter ending
December 31, 1996) a Current Ratio of not less than 2.0 to
1.0;
(iii) the Borrower shall maintain a Cash Flow
Coverage Ratio of not less than 1.25 to 1.0 computed as of the
last day of each fiscal quarter
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commencing with the fiscal quarter ending December 31, 1996;
(iv) the Borrower shall maintain a Leverage Ratio of
not greater than 1.00 to 1.0 computed on the last day of each
fiscal quarter commencing with the fiscal quarter ending
December 31, 1996; and
(v) the Borrower shall maintain a ratio of Funded
Debt to EBITDA of not greater than 2.5 to 1.0 computed on the
last day of each fiscal quarter commencing with the fiscal
quarter ending December 31, 1996.
ARTICLE VII
Negative Covenants
------------------
7.01 The Borrower agrees that as long as its obligations hereunder
remain outstanding and until the Commitment is terminated (unless the Bank shall
otherwise consent in writing), the Borrower shall not:
(a) incur, create, assume or permit to exist any indebtedness
for borrowed money, howsoever evidenced, or its equivalent (including
but not limited to leases required to be capitalized under Generally
Accepted Accounting Principles), except
(i) indebtedness set forth in the financial
statements referred to in Section 5.13 hereof and as set forth
in Exhibit 7.01(a)(i);
(ii) additional indebtedness extended by the Bank;
and
(iii) purchase money indebtedness incurred to finance
the acquisition of equipment on installment contracts with
terms not to exceed 6 months;
(b) incur, create or permit to exist any pledge, lien, charge
or other encumbrance of any nature whatsoever on the property of the
Borrower or any of its Subsidiaries, whether now owned or hereafter
acquired, other than
(i) liens as disclosed in Exhibit 5.08 hereto;
(ii) any unfiled lien of materialmen, mechanics,
workmen, warehousemen, carriers, landlords or repairmen;
provided that if such a
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lien shall be perfected and shall not be contested in good
faith, it shall be discharged of record immediately by
payment, bond or otherwise;
(iii) tax liens which are being contested in good
faith, or which constitute liens for taxes the payment of
which is not yet required;
(iv) liens in favor of the Bank;
(v) liens incurred in connection with the purchase
money indebtedness permitted under Section 1.01(a)(iii); and
(vi) liens on assets securing indebtedness or
obligations in amounts less than $10,000.00;
(c) sell, lease, transfer or otherwise dispose of any of the
properties and assets of the Borrower or any of its Subsidiaries to any
Person other than (i) sales in the ordinary course of business and (ii)
other sales so long as the aggregate net book value of the assets sold
pursuant to such sales shall not exceed $2,000,000.00;
(d) seek or permit dissolution or liquidation of the Borrower
in whole or in part;
(e) guaranty, or become liable for, the obligations of any
other Person (provided, however, (i) this shall not prevent the
Borrower or any of its Subsidiaries from endorsing negotiable
instruments for collections in the ordinary course of business and (ii)
this shall not prevent the Borrower from entering into guarantees,
endorsements or debt assumptions for related, affiliate or subsidiary
entities of the Borrower so long as the aggregate amount of such
guaranties, endorsements or debt assumptions shall not exceed
$4,000,000.00 at any time);
(f) make any loans or advances in excess of $2,000,000.00 in
the aggregate; provided, however, the Borrower may make loans or
advances to related, affiliate or subsidiary entities of the Borrower
so long as the aggregate amount of such guaranties, endorsements or
debt assumptions shall not exceed $4,000,000.00 at any time;
(g) consolidate with, merge into or be acquired by any Person;
provided, however, the Borrower shall be permitted to enter into merger
and/or consolidation transactions so long as the Borrower is the
surviving entity;
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<PAGE> 16
(h) change the general character of business of the Borrower
or any of its Subsidiaries or engage in any type of business not
reasonably related to the business of the Borrower or any of its
Subsidiaries as presently conducted;
(i) (1) pay any cash dividends to the shareholders of the
Borrower, (2) make any distribution on any shares of any class of the
capital stock of the Borrower which results in a reduction to
stockholders' equity, (3) apply any of the Borrower's property or
assets to the purchase, redemption or other retirement of any shares of
any class of capital stock resulting in a reduction to stockholders'
equity in excess of $1,000,000.00 in the aggregate, except as set forth
in the existing stock option and award plans or (4) amend in any way
the capital structure of the Borrower;
(j) create or permit to exist or become effective, directly or
indirectly, any prohibition or restriction on the creation or existence
of any lien upon the assets of the Borrower or any of its Subsidiaries
other than as set forth herein; or
(k) create or permit to exist any Subsidiary unless such
Subsidiary guarantees the obligations of the Borrower hereunder
pursuant to the Guaranty Agreement.
ARTICLE VIII
Events of Default and Acceleration
----------------------------------
8.01 Any of the following shall constitute an "Event of Default" under
this Loan Agreement:
(a) Nonpayment. Nonpayment when and as due of any principal,
interest or other payment hereunder or under the Revolving Notes and
the continuation of such nonpayment for a period of five (5) days.
(b) Breach of Covenants. Other than as set forth in Section
8.01(a) hereof, the failure to perform and observe any covenant or
other obligation contained herein or in any other Loan Documents and
the continuation of such failure for a period of thirty (30) days after
receipt of written notice from the Bank thereof.
(c) False Statements. If any representation or warranty made
by the Borrower or any Guarantor in this Loan Agreement, any other Loan
Document or in any document, certificate, statement or report
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<PAGE> 17
heretofore or hereafter made shall be untrue in any material respect.
(d) Bankruptcy. In the event that the Borrower or any
Guarantor
(1) shall make an assignment for the benefit of
creditors; or
(2) has a petition initiating a proceeding under any
section or chapter of the Bankruptcy Code or its amendments,
filed by or against the Borrower or any Guarantor and, if
against the Borrower or any Guarantor, such petition is not
set aside within ninety (90) days after such filing; or
(3) shall file any proceedings for dissolution or
liquidation; or
(4) has a receiver, trustee or custodian appointed
for all or part of its or his assets; or
(5) seeks to make an adjustment, settlement or
extension of its or his debts with its or his creditors
generally; or
(6) has a notice of an action for enforcement of a
lien filed or recorded or a judgment lien or execution
obtained against it or him in excess of an aggregate of
$50,000.00 which notice of lien is not removed, insured,
reserved for (in amounts satisfactory to the Bank), satisfied,
bonded or contested in good faith within thirty (30) days
after any officer of the Borrower or the applicable Guarantor,
as the case may be, becomes aware of such lien;
(e) if an event of default occurs under any agreement for
Funded Debt by and between the Borrower and the Bank which is in
existence as of the date hereof or which is entered into subsequent to
the date hereof;
(f) if the Borrower in the performance of any other agreement
for Funded Debt between it and any other lender defaults and such
default permits such other lender to accelerate such other indebtedness
of the Borrower for borrowed money;
(g) any change shall occur with respect to the chief executive
officer management position of the Borrower; or
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<PAGE> 18
(h) any Guarantor shall default in the performance of any
obligation under the Guaranty Agreement.
8.02 Remedies. Upon the occurrence of any such Event of Default and
after the applicable grace period, if any, and unless the Bank agrees to waive
in writing such an Event of Default:
(a) Termination of Commitment. The Bank, in its sole
discretion, may terminate the Commitment.
(b) Acceleration of Indebtedness. All of the indebtedness of
any and every kind owing by the Borrower to the Bank, howsoever
evidenced, now existing or hereafter arising, shall become due and
payable upon written notice to the Borrower (other than an Event of
Default described in Section 8.01(d) in which case such indebtedness
shall become due and payable immediately without necessity of written
demand) without the necessity of any other demand, presentment, protest
or notice upon the Borrower, all of which are hereby expressly waived
by the Borrower.
(c) Acceleration of Obligations. All of the obligations of the
Borrower under the Loan Documents shall thereupon be immediately due
and payable without the necessity of any other demand, presentment,
protest or notice upon the Borrower, all of which are hereby expressly
waived by the Borrower.
(d) Right of Set-Off. Regardless of the adequacy of the
collateral, the Bank shall have the right, immediately and without
further action by it, to set-off against the Revolving Note, all money
owed by the Bank in any capacity to the Borrower, whether or not due,
and the Bank shall be deemed to have exercised such right of set-off
and to have made a charge against any such money immediately upon the
occurrence of such event of default even though such charge is made or
entered on the books of the Bank subsequent thereto. If the Bank
exercises its right of set-off described in this paragraph, it will
provide the Borrower, in adequate detail, a description of all amounts
set-off against the Revolving Note.
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<PAGE> 19
ARTICLE IX
Miscellaneous
-------------
9.01 Notices. All notices and other communications hereunder shall be
sufficiently given and shall be deemed given when delivered or when mailed by
registered or certified mail, postage prepaid, addressed as follows:
(a) if to the Borrower:
Applied Analytical Industries, Inc.
5051 New Centre Drive
Wilmington, North Carolina 28403
Attention: Mark P. Colonnese
(b) if to the Bank
NationsBank, N.A.
155 North Front Street
Wilmington, North Carolina 28401
Attention: David Houston
9.02 Waiver. No failure or delay on the part of the Bank in the
exercise of any right, power or privilege hereunder or under any other Loan
Document shall operate as a waiver of any such right, power or privilege nor
shall any such failure or delay preclude any other or further exercise thereof.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
9.03 Survival. All covenants, agreements, representations and
warranties made herein and in the other Loan Documents shall survive the making
by the Bank of the Revolving Loans and the execution and delivery to the Bank of
the Loan Documents and shall continue in full force and effect so long as any of
the indebtedness of the Borrower to the Bank evidenced by the Notes or any
obligations under the Commitment remain outstanding.
9.04 Successors and Assigns. This Loan Agreement and the Loan Documents
shall inure to the benefit of and be binding upon successors and assigns of the
Bank; provided, however, the Borrower shall not assign any of its rights or
obligations hereunder without the prior written consent of the Bank.
9.05 Costs. The Borrower agrees to pay all reasonable costs and
expenses in connection with the preparation, execution and delivery of the Loan
Documents, including, without limitation, the reasonable fees and out-of-pocket
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<PAGE> 20
expenses of special counsel to the Bank (not to exceed $10,000.00), and, after
the occurrence of an Event of Default, costs and expenses of the Bank in
connection with the enforcement of this Loan Agreement or the other Loan
Documents (including without limitation reasonable attorneys fees) and to hold
the Bank harmless from any and all such costs, expenses and liabilities.
9.06 Amendment; Waiver; Consents. No approval, decision, option or
action required of the Bank ("Approval") hereunder nor any modification,
amendment or waiver ("Waiver") of any provision of this Loan Agreement or any
other Loan Document nor any consent to any departure by the Borrower therefrom
("Consent") shall in any event be effective unless the same shall be in writing
signed by the Bank and delivered in accordance with the provisions of Section
9.01 hereof, and then such Approval, Waiver or Consent shall be effective only
in the specific instance and for the purpose for which given but any such
Approval, Waiver or Consent when signed shall be effective and binding upon the
Bank. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
9.07 Year. Interest, fees and premiums hereunder shall be computed on
the basis of a three hundred sixty (360) day year for the actual number of days
in the billing period.
9.08 Payment on Business Day. Should any installment or other payment
of the principal of or interest on the Notes become due and payable on other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day thereafter and in the case of an installment of
principal, interest shall be payable thereon at the rate per annum herein
specified during such extension.
9.09 Counterparts. This Loan Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Loan Agreement
to produce or account for more than one such counterpart.
9.10 Assignment. The Bank may, at any time, transfer or assign all or
any portion of the indebtedness evidenced by the Revolving Note held by the Bank
and the terms hereof shall extend to any subsequent holder of the Revolving
Note.
9.11 Term. The term of this Loan Agreement shall be until the Bank is
no longer obligated to lend under the Commitment and the Bank has received
payment in full of the unpaid principal and interest of the Revolving Note.
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<PAGE> 21
9.12 Captions. The captions herein are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Loan Agreement nor the interest of any provisions hereof.
9.13 Governing Law. This Loan Agreement and the other Loan Documents
and all matters relating thereto shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina. The
Borrower hereby submits to the jurisdiction and venue of the state and federal
courts of North Carolina and agrees that the Bank may, at its option, enforce
its rights under the Loan Documents in such courts. The Borrower hereby agrees
that both the federal and state courts in Mecklenburg County, North Carolina are
a convenient forum and agrees not to raise as a defense that such courts are not
a convenient forum.
9.14 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS LOAN AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LOAN
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR
(II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC.
91 OR ANY
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<PAGE> 22
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASSIONING RESORT TO SUCH REMEDIES.
9.15 Loan Documents. The Bank agrees to provide the Borrower with
copies of all of the Loan Documents in acceptable electronic format.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be executed under seal as of the day and year first above written.
APPLIED ANALYTICAL INDUSTRIES, INC.
ATTEST:
By /s/ By /s/
------------------------------ ------------------------------
Title Title Vice-President
---------------------------- ------------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By /s/
------------------------------
Title Vice President
------------------------------
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