Document:

Prepared by MERRILL CORPORATION

EXHIBIT 4.37

 

[EXECUTION COPY]

FOURTH FORBEARANCE AGREEMENT

THIS FOURTH FORBEARANCE AGREEMENT (this “Agreement”)

is entered into as of November 2, 2001 among LEINER HEALTH PRODUCTS INC.

(the “U.S. Borrower”), VITA HEALTH PRODUCTS INC. (the “Canadian

Borrower,” and together with the U.S. Borrower, the “Borrowers”),

THE BANK OF NOVA SCOTIA, as U.S. Agent and as Canadian Agent, and the lenders

party to the Credit Agreement referred to below.

RECITALS

A.            Pursuant

to that certain Amended and Restated Credit Agreement, dated as of May 15,

1998 (as further amended, supplemented, amended and restated or otherwise

modified prior to the date hereof, the “Credit Agreement”; capitalized

terms used but not defined herein shall have the meanings given them in the

Credit Agreement), the Agents and the Lenders made Loans and other financial

accommodations to the Borrowers.

B.            The

following Defaults or Events of Default (the “Existing Defaults”) exist

under the Credit Agreement:

1.             The failure of the Borrowers to comply with each of the

financial covenants set forth in Section 9.2.4 of the Credit Agreement as

of or for the Fiscal Quarters ending December 31, 2000, March 31,

2001, June 30, 2001 and September 30, 2001; and

2.             The Borrowers’ breach of the representations, warranties

and statements contained in the Loan Documents in connection therewith.

C.            On

or about June 29, 2001, the Borrowers, the Agents and the Lenders entered

into a forbearance agreement (the “First Forbearance Agreement”)

pursuant to which the Agents and the Lenders agreed to forbear with respect to

their rights or remedies against the Borrowers based on the Existing Defaults

until September 1, 2001 and agreed that the forbearance period would be

automatically extended if the Borrowers met certain conditions set forth in

Section 1(b) of the First Forbearance Agreement.

D.            On

or about August 31, 2001, the Borrowers, the Agents and the Lenders

entered into a Second Forbearance Agreement pursuant to which the Agents and

the Lenders agreed to extend the Forbearance Period (as defined in the First

Forbearance Agreement) until September 28, 2001.

E.             On

or about September 28, 2001, the Borrowers, the Agents and the Lenders

entered into a Third Forbearance Agreement pursuant to which the Agents and the

Lenders agreed to further extend the Forbearance Period (as defined in the

First Forbearance Agreement) until November 2, 2001.

F.             The

Borrowers, the Agents and the undersigned Lenders have agreed in principle to a

restructuring of the Obligations on the terms and conditions set forth in the

Term Sheet for Restructuring of Senior Debt (the “Senior Debt Term Sheet”)

annexed hereto as Exhibit A, subject among other things to the completion of

the Agents’ and the Lenders’ due diligence and all required internal credit

approvals and definitive documentation (including financial covenants

satisfactory to the Lenders).

G.            The

Borrowers have requested that the Required Lenders extend their forbearance on

the terms and conditions set forth below to give the Borrowers sufficient time

to fully document the restructuring of the Obligations and the recapitalization

of the Borrowers.

H.            The

Required Lenders are willing to forbear from exercising their rights and

remedies in connection with the Existing Defaults on the terms and conditions

set forth herein.

AGREEMENT

In consideration of the

Recitals and of the mutual promises and covenants contained herein, the

Borrowers, the Agents and the Required Lenders agree as follows:

Section

1.  Agreement to Forbear.

(a)           Forbearance.  During the period (the “Forbearance Period”) commencing on

the date hereof and ending on the earlier to occur of December 14, 2001

and the date of any Forbearance Default (as defined below), and subject to the

satisfaction of the conditions set forth in Section 2 hereof, the Agents

and the Lenders will forbear from exercising their rights and remedies under

the Credit Agreement and the other Loan Documents solely with respect to the

Existing Defaults.  “Forbearance

Default” shall mean: (i) an Event of Default (other than the Existing

Defaults), (ii) the failure of either Borrower to keep or perform any of

the covenants or agreements contained herein providing for a payment or

prepayment to the Agents or the Lenders, (iii) the failure of either

Borrower to keep or perform any of the covenants or agreements contained herein

(other than those referred to in clause (ii) above) two Business Days

after the date the Borrowers receive written notice from an Agent of any such

failure (the “Notice Period”), provided that in the event any

such failure is remedied within the Notice Period, such failure shall not

constitute a Forbearance Default, (iv) any representation or warranty of

either Borrower herein shall be incorrect when made or deemed made in any

material respect, (v) the Borrower and the proposed Investors (the “Investors”)

referred to in the Series A Preferred Stock Proposal Summary dated October 3,

2001 (the “Proposal”) do not execute a commitment letter or definitive

documentation consistent with the Proposal in form and substance acceptable to

the Agents on or before December 10, 2001 and (vi) the U.S. Borrower

and the Subordinated Note Holders holding in excess of 66 2/3% in face

amount of the Subordinated Notes do not enter into a “lock-up” agreement

consistent with the “Term Sheet for Restructuring of Bond Debt” which is

Exhibit B to the Senior Debt Term Sheet in form and substance satisfactory to

the Agents on or before November 20, 2001.

(b)           Nature of the Forbearance.  The forbearance set forth herein is limited and

shall not be deemed (i) a waiver of any Default or Event of Default,

including the Existing Defaults, which now exist or may hereafter arise, (ii) a

forbearance with respect to any term, condition or obligation of the Borrowers

in the Credit Agreement or any other Loan Document other than the Existing

Defaults, (iii) a waiver of any of the conditions precedent to Credit

Extensions contained in Section 7.2 of the Credit Agreement or

(iv) subject to the terms contained herein, to prejudice any right or remedy

which any Agent or any Lender may now or in the future have under or in

connection with the Credit Agreement or any other Loan Document.

Section

2.  Conditions Precedent to

Effectiveness of Agreement.  This

Agreement shall not be effective unless and until each of the following

conditions shall have been satisfied in the sole discretion of the Agents:

(a)           The

Agents shall have received (i) counterparts of this Agreement duly

executed by each of the Borrowers and the Required Lenders and (ii) an

Affirmation and Consent, in form and substance satisfactory to the Agents, duly

executed by each of the Guarantors.

(b)           The

Agents shall have received, for the pro rata benefit of the Lenders executing

this Agreement on or before November 6, 2001 (the “Consenting Lenders”),

a forbearance fee of $175,000, which shall be fully earned when paid and

nonrefundable.

(c)           The

Agents shall have been reimbursed for the unpaid fees and expenses incurred

through the date hereof of its professionals, including the unpaid fees and

expenses of Luskin, Stern & Eisler LLP, PricewaterhouseCoopers LLP, Casas,

Benjamin & White, LLC (“CBW”) and Hunton & Williams.

Section

3.  Representations and Warranties. 

The Borrowers hereby represent and warrant to the Agents and to the

Lenders as follows:

(a)           Recitals.  The Recitals in this Agreement are true and correct in all

respects.

(b)           Incorporation of Representations and Statements.  All statements of the Borrowers contained in

Section 7.2.1 of the Credit Agreement, and all representations and

warranties of the Borrowers in the Credit Agreement and the other Loan

Documents, are incorporated herein in full by this reference and are, other

than with respect to the Existing Defaults, true and correct as of the date

hereof in all material respects.

(c)           Power; Authorization.  Each of the Borrowers has the corporate

power, and has been duly authorized by all requisite corporate action, to

execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement has been duly executed and

delivered by the Borrowers.

(d)           Enforceability.  This Agreement is the legal, valid and

binding obligation of each of the Borrowers, enforceable against them in

accordance with its terms.

(e)           No Violation.  The execution, delivery and performance of this Agreement does

not and will not (i) violate any law, rule, regulation or court order to which

either of the Borrowers is subject, (ii) conflict with or result in a breach of

any Organic Document of the Borrowers or any agreement or instrument to which

either of the Borrowers is party or by which it or its properties are bound, or

(iii) result in the creation or imposition of any Lien, security interest or

encumbrance on any property of either of the Borrowers, whether now owned or

hereafter acquired, other than liens in favor of the Agents.

(f)            Obligations.  As of the date hereof the outstanding principal balance of the

U.S. Revolving Loans is $90,867,415.83; U.S. Letter of Credit Outstandings is

$11,902,372 (of which $1,600,000 is cash collateralized under the terms of a

Cash Collateral Agreement dated as of April 16, 2001); Term B Loans is

$65,125,196.41; Term C Loans is $62,274,581.93; Term D Loans is

$29,254,342.26; Canadian Revolving Loans is Cdn.$28,739,529.87; Canadian Swingline

Loans is Cdn.$230,000; and Canadian Term Loans is Cdn.$16,544,824.21.  Interest and fees have accrued thereon as

provided in the Credit Agreement and the other Loan Documents.  The obligation of the Borrowers to repay the

Loans, together with all interest and fees accrued thereon, and the other

Obligations is absolute and unconditional, and there exists no right of set off

or recoupment, counterclaim or defense of any nature whatsoever to payment of

the Obligations.

Section 4.  Covenants

of Borrowers.  The Borrowers agree as follows:

(a)           Forecasts.  By no later than 4:00 p.m. on the second

Business Day of each week, the Borrowers will deliver to the Agents updated

weekly rolling cash flow forecasts for the following twelve week period,

together with an actual to forecast variance analysis for the preceding week,

which forecasts shall also include a certification from an Authorized Officer

of the U.S. Borrower representing to the information required pursuant to

paragraph (c) below.

(b)           U.S. Balance Sheets.  Within 30 days after the end of each month,

the Borrowers will deliver to the Agents consolidated and consolidating balance

sheets of the U.S. Borrower and its Subsidiaries (including consolidating

balance sheets of the Canadian Borrower and its Subsidiaries) as of the end of

such month, and consolidated and consolidating statements of earnings and cash

flow of the U.S. Borrower and its Subsidiaries (including consolidating

statements of earnings and cash flow of the Canadian Borrower and its

Subsidiaries) for such month and for the period commencing at the end of the

previous Fiscal Year and ending with the last day of such month.

(c)           Disbursements, etc.  The Borrowers will not permit cumulative

(from September 1, 2001) disbursements for all applicable months, as set forth

in the Borrowers’ September 18, 2001 rolling 13-week forecast, as may be

revised with the approval of CBW (the “Forecast”), to exceed 110% of the

cumulative (from September 1, 2001) amounts set forth therefor in the Forecast

and will not permit the cash balance at the end of any month to be less than

90% of the cash balance set forth in the Forecast for such month.  The Borrowers agree that all payments or

disbursements to an Affiliate or employee of a Borrower (including Severance

Payments (as defined below)) inconsistent with the Forecast or which are

otherwise outside of the ordinary course of business must be approved in

advance by David Coles.

(d)           Cooperation.  The Borrowers agree to cooperate fully with the Agents, the

Lenders and their professionals, including in connection with any audit or

appraisal of the business, assets or financial condition of the Borrowers and

their Subsidiaries, in all cases at the Borrowers’ expense.

(e)           Payment of Fees.  In addition to and not in limitation of the

terms of Section 12.3 of the Credit Agreement, the Borrowers agree to pay

on demand all reasonable fees and expenses of (i) the Agents and all

professionals retained by the Agents or by Luskin, Stern & Eisler LLP

(including special counsel engaged to review various litigation issues), and

(ii) each Lender (other than the legal fees of each Lender expressly

excepted from payment under Section 12.3 of the Credit Agreement), in each

case incurred in connection with the Credit Agreement or this Agreement and the

matters contemplated hereby and the restructuring of the Obligations, and

whether incurred prior to or subsequent to the date hereof.

(f)            Bank Accounts.  Neither the Borrowers nor any of their

Subsidiaries will maintain any checking, savings or other account at any bank

or other financial institution, or any other account where money or securities

may be deposited or maintained, other than the accounts specified in the

Amended and Restated Perfection Certificate dated as of June 15, 2001 and

the Control Agreement and First Amendment to Concentration Bank Agreement,

dated as of August 20, 2001.

(g)           Suspension of Commitments.  The Commitments are suspended except that

before the earlier of (x) the termination of the Forbearance Period or (y) the

occurrence of a Default (other than an Existing Default), the U.S. Borrower may

deliver a U.S Issuance Request to the U.S Issuer, and the U.S. Issuer shall

(subject to the receipt by the U.S. Issuer of proper documentation therefor)

issue a U.S. Letter of Credit with respect thereto in a stated amount of not

more than $100,000, the beneficiary of which shall be American Express, in its

capacity as the U.S. Borrower’s corporate travel vendor (or another corporate

travel vendor to the U.S. Borrower), provided that contemporaneously

with such issuance, the U.S Borrower shall permanently repay U.S. Revolving

Loans to the U.S. Agent for the pro rata benefit of the U.S. Lenders in an

amount not less than the stated amount of such U.S. Letter of Credit.

(h)           LIBOR Restrictions.  The outstanding principal amount of the

Loans may not be continued as, or converted into, LIBO Rate Loans or Canadian

BAs, as applicable.

(i)            Increased Interest.  The Applicable Margin shall in each case be

maintained at a rate of 1% over that otherwise in effect in accordance with the

terms of the Credit Agreement.

(j)            Restrictions on Indebtedness, Etc.  The Borrowers and their Subsidiaries are

prohibited from incurring Indebtedness under clauses (d), (g), (h) or (l)

of Section 9.2.2 of the Credit Agreement; making Investments under

clauses (f), (i) or (j) of Section 9.2.5 of the Credit Agreement;

redeeming shares of Capital Stock under clause (iii) of the proviso to

Section 9.2.6 of the Credit Agreement; consummating acquisitions or

mergers under clauses (b), (c) or (d) of Section 9.2.10 of the Credit

Agreement; or paying any fees under clause (b) of Section 9.2.13 of

the Credit Agreement.

(k)           Monthly Payment of Interest and Fees.  All interest for Base Rate Loans and

Canadian Prime Rate Loans, and all Letter of Credit fees payable under

Section 5.3.3 of the Credit Agreement, shall be payable in arrears on the

fifteenth day of each month (instead of the Quarterly Payment Dates).

(l)            Canadian Balance Sheets.  Within 21 days after the end of each month,

the Canadian Borrower will deliver to the Canadian Agent consolidated and

consolidating balance sheets of the Canadian Borrower and its Subsidiaries as

of the end of such month and consolidated statements of earnings and cash flow

of the Canadian Borrower and its Subsidiaries for such month and for the period

commencing at the end of the previous Fiscal Year and ending with the last day

of such month.

(m)          Intercompany Dispositions.  The U.S. Borrower and its U.S. Subsidiaries

will not, directly or indirectly, make any Investments (including intercompany

loans or capital contributions) in or to the Canadian Borrower or any of the

Canadian Borrower’s Subsidiaries, or sell, transfer, lease, contribute or

otherwise convey (including by way of merger), or grant options, warrants or

other rights (all collectively referred to as a “Disposition”) with

respect to all or any part of their assets to the Canadian Borrower or any of

the Canadian Borrower’s Subsidiaries other than in the ordinary course of business

consistent with past practices.  The

Canadian Borrower and its Subsidiaries will not, directly or indirectly, make

any Investments (including intercompany loans or capital contributions) in or

to (or pay dividends or make distributions to) the U.S. Borrower or any of the

U.S. Borrower’s U.S. Subsidiaries, or make any Disposition with respect to all

or any part of their assets to the U.S. Borrower or any of the U.S. Borrower’s

U.S. Subsidiaries, other than in the ordinary course of business consistent with

past practices.

(n)           Restrictions on Reallocation of Commitments.  The Borrowers’ right to reallocate the

unused Canadian Revolving Loan Commitment Amount and the unused U.S. Revolving

Loan Commitment Amount pursuant to, respectively, Sections 2.2.3 and 3.2.2

of the Credit Agreement is suspended.

(o)           Antitrust Proceeds.  Unless otherwise agreed to by the Required

Lenders, including as to amount and application, concurrently with the receipt

by either of the Borrowers or any of their Affiliates of any judgment,

settlement or other proceeds or amounts, however characterized (with all of the

foregoing collectively referred to as the “Proceeds”), arising from or

in connection with any antitrust claims (the “Claims”) (including claims

pending in (i) the United States District Court for the Central District

of California styled Leiner Health Products Inc. v. F. Hoffman-LaRoche Ltd.,

et al., Case No. 99-09832-JSL and (ii) the United States District

Court for the District of Columbia entitled In Re Vitamins Antitrust

Litigation, MDL No. 1285, Misc. No. 99-0197, and all facts and

circumstances at issue therein), the U.S. Borrower shall make, or cause to be

made, a mandatory prepayment of the Loans in the amount of such Proceeds (with

such prepayment being applied to the remaining Term Loan amortization payments pro

rata in accordance with the amount of each such remaining Term Loan

amortization payment) and the cash collateralization of all Letters of Credit

and a corresponding reduction of each Revolving Loan Commitment Amount.  The Borrowers reaffirm and ratify the

perfected security interest in the Claims and Proceeds of the Agents and the

Lenders.

(p)           Restructuring.  The Borrowers will report to the Agents on a

weekly basis with respect to the status of the documentation of their

agreements with the Investors and the Subordinated Note Holders.  The Borrowers agree to continue to negotiate

a restructuring of their indebtedness and liabilities in good faith with the

Agents and the Lenders.

(q)           Chief Financial Officer.  The U.S. Borrower agrees to hire a chief

financial officer of the U.S. Borrower (the “CFO”) who shall be

reasonably satisfactory to the Agents and use good faith efforts to complete

such hiring on or before December 31, 2001.  The Borrowers shall provide the Agents and CBW with access to the

executive search firm retained in connection with the CFO search process and

will direct such firm to fully cooperate with the Agents and CBW regarding all

reasonable requests for information or documentation in connection

therewith.  The Borrowers will continue

to work in good faith with the Agents and their professionals to refine the

description of the required qualifications, capabilities, role and authority of

the CFO position.

(r)            Severance Agreements.  The Borrowers shall not enter into any

severance agreement (a “Severance Agreement”) with, or similar

arrangement providing for the payment of money or other consideration (a “Severance

Payment”) to, any current or former employee in connection with the termination

(under any circumstances) of such employee’s employment with a Borrower without

the Agents’ prior written consent, which shall not be unreasonably withheld or

delayed, provided that a Borrower may enter into a Severance and Release

Agreement (a “Release”) which is contemplated by and executed in

connection with a Severance Agreement existing on the date hereof, so long as

such Release does not expand the rights of any employee under the related

Severance Agreement.  The Borrowers will

promptly deliver to the Agents copies of all Releases reasonably requested by

the Agents or CBW and will not make any Severance Payments or enter into any

Release without first providing 5 Business Days’ prior written notice to

the Agents.  The Borrowers will not make

any discretionary non-contractual Severance Payments without the Agents’ prior

written consent.

(s)           Net Disposition Proceeds.  The Borrowers agree that notwithstanding

anything to the contrary contained in the second sentence of the definition of

“Net Disposition Proceeds” in the Credit Agreement, Net Disposition Proceeds

shall exclude only an aggregate amount equal to $500,000 of proceeds of

Permitted Dispositions received on or after July 1, 2001 through and until

the termination of the Forbearance Period, provided that the proceeds of

(i) any Permitted Disposition resulting in proceeds of less than $50,000 and

(ii) the sale of Obsolete Inventory (as defined below), shall also be

excluded from Net Disposition Proceeds and shall not be counted toward the $500,000

basket.  “Obsolete Inventory”

shall mean inventory for which the U.S. Borrower took an inventory reserve for

Fiscal Year 2001 or which comprises part of a discontinued product line, other

than inventory transferred in connection with a sale of all of the stock, all

or substantially all of the assets, or a division or other similar operating or

administrative unit of a Borrower or a Subsidiary or Affiliate of a

Borrower.  As part of the second weekly

rolling cash flow forecast for any month, the U.S. Borrower shall deliver to

the Agents, with respect to the prior month, a report certified by David Coles,

of the sales value, standard cost and inventory reserve associated with the

Obsolete Inventory sold in such month.

(t)            Continued Compliance with Loan Documents.  Each of the Borrowers will continue to

comply with all of its covenants and other obligations under the Credit

Agreement and the other Loan Documents.

(u)           Disclosure Statement and Plan.  The U.S. Borrower shall deliver a draft

of its disclosure statement and plan of reorganization under Chapter 11 of the

U.S. Bankruptcy Code to the Agents on or before November 20, 2001, and

shall use commercially reasonable efforts to complete a disclosure statement

and plan in form and substance satisfactory to the Agents by December 10,

2001.

The provisions contained in paragraphs (a), (c),

(d), (f), (i), (o), (r), (s) and (u) above shall continue to and including the

date of termination of the Forbearance Period (and shall terminate on such

date) and the provisions contained in paragraphs (b), (e), (g), (h), (j),

(k), (l), (m), (n), (p), (q) and (t) shall survive termination of the

Forbearance Period.  Nothing in this

Agreement, including paragraph 4(s) or the termination thereof, shall

prejudice or otherwise affect the right of any party to argue that the sale of

Obsolete Inventory by a Borrower does or does not constitute a Permitted

Disposition or that the proceeds of any such sale do or do not constitute Net

Disposition Proceeds, and no party shall assert in any proceeding or other

context that terms of paragraph 4(s) or the termination thereof are

relevant to any such argument.

Section

5.  Effect and Construction of

Agreement.  Except as expressly provided herein, the

Credit Agreement and the other Loan Documents shall remain in full force and

effect in accordance with their respective terms, and this Agreement shall not

be construed to:

(a)           impair

the validity, perfection or priority of any Lien or security interest securing

the Obligations;

(b)           waive

or impair any rights, powers or remedies of any Agent or any Lender under the

Credit Agreement or any other Loan Document upon termination of the Forbearance

Period, with respect to the Existing Defaults or otherwise;

(c)           constitute

an agreement by any Agent or any Lender or to require any Agent or any Lender

to extend the Forbearance Period, or grant additional forbearance periods, or

extend the term of the Credit Agreement or the time for payment of any of the

Obligations; or

(d)           require

any Lender to make any Loans or other extensions of credit to the Borrower.

In the event of any inconsistency between the terms of

this Agreement and the Credit Agreement or any of the other Loan Documents,

this Agreement shall govern.  The

Borrowers acknowledge that they have consulted with counsel and with such other

experts and advisors as they have deemed necessary in connection with the

negotiation, execution and delivery of this Agreement.  This Agreement shall be construed without

regard to any presumption or rule requiring that it be construed against the

party causing this Agreement or any part hereof to be drafted.

Section

6.  Reference to and Effect on the

Loan Documents.

(a)           Upon

the effectiveness hereof, each reference in the Credit Agreement to “this

Agreement,” “hereunder,” “hereof” or words of like import referring to the

Credit Agreement, and each reference in the other Loan Documents to the Credit

Agreement, “thereunder,” “thereof” or words of like import referring to the

Credit Agreement, shall mean and be a reference to the Credit Agreement, as

amended hereby.

(b)           This

Agreement shall be a Loan Document.

Section

7.  Miscellaneous.

(a)           Further Assurances.  The Borrowers agree to execute such other

and further documents and instruments as the Agents may request to implement

the provisions of this Agreement.

(b)           Benefit of Agreement.  This Agreement shall be binding upon and

inure to the benefit of and be enforceable by the parties hereto and their

respective successors and assigns.  No

other person or entity shall be entitled to claim any right or benefit

hereunder, including, without limitation, the status of a third-party

beneficiary of this Agreement.

(c)           Integration.  This Agreement, together with the Credit Agreement and the other

Loan Documents, constitutes the entire agreement and understanding among the

parties relating to the subject matter hereof, and supersedes all prior

proposals, negotiations, agreements and understandings relating to such subject

matter.  In entering into this

Agreement, the Borrowers acknowledge that they are relying on no statement,

representation, warranty, covenant or agreement of any kind made by any Agent,

any Lender or any employee or agent of any Agent or any Lender, except for the

agreements of the Agents and the Lenders set forth herein.

(d)           Severability.  The provisions of this Agreement are intended to be

severable.  If any provision of this

Agreement shall be held invalid or unenforceable in whole or in part in any

jurisdiction, such provision shall, as to such jurisdiction, be ineffective to

the extent of such invalidity or enforceability without in any manner affecting

the validity or enforceability of such provision in any other jurisdiction or

the remaining provisions of this Agreement in any jurisdiction.

(e)           Counterparts; Telecopied Signatures.  This Agreement may be executed in any number

of counterparts and by different parties to this Agreement on separate

counterparts, each of which, when so executed, shall be deemed an original, but

all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by

facsimile transmission shall be deemed to be, and effective as, an original

signature hereto.

(f)            Notices.  Any notices with respect to this Agreement shall be given in the

manner provided for in Section 12.2 of the Credit Agreement.

(g)           Survival.  Except as otherwise provided herein, all representations,

warranties, covenants, agreements, undertakings, waivers and releases of the

Borrowers contained herein shall survive the termination of the Forbearance

Period.

(h)           Amendment.  No amendment, modification, rescission, waiver or release of any

provision of this Agreement shall be effective unless the same shall be in

writing and signed by the Borrowers, the Agents and the Required Lenders.

Section

8.  RELEASE OF CLAIMS. 

EACH OF THE BORROWERS HEREBY ACKNOWLEDGES AND AGREES THAT IT DOES NOT

HAVE ANY DEFENSES, COUNTERCLAIMS, OFFSETS, CROSS-CLAIMS, CLAIMS OR DEMANDS OF

ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL

OR ANY PART OF THE LIABILITY OF THE BORROWERS TO REPAY ANY AGENT OR ANY LENDER

AS PROVIDED IN THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS OR TO SEEK

AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM ANY AGENT OR ANY LENDER.  EACH OF THE BORROWERS HEREBY VOLUNTARILY AND

KNOWINGLY RELEASES AND FOREVER DISCHARGES THE AGENTS AND THE LENDERS, AND EACH

AGENT’S AND LENDER’S PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS,

ATTORNEYS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,

CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN

OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,

CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART

ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH THE BORROWERS MAY NOW

OR HEREAFTER HAVE AGAINST ANY SUCH AGENT OR LENDER, AND SUCH AGENT’S OR

LENDER’S PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS, ATTORNEYS,

SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS

ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE,

INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER

THE CREDIT AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION AND EXECUTION OF

THIS AGREEMENT.

Each of the Borrowers acknowledges and agrees that it

understands the meaning and effect of Section 1542 of the California Civil Code

which provides:

“A general release does not extend to claims which the creditor does

not know or suspect to exist in his favor at the time of executing the release,

which if known by him must have materially affected his settlement with the

debtor.”

EACH OF THE BORROWERS AGREES TO ASSUME THE RISK OF ANY

AND ALL UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS,

LIABILITIES, INDEBTEDNESS AND OBLIGATIONS WHICH ARE RELEASED, WAIVED AND

DISCHARGED BY THIS AGREEMENT.  EACH OF

THE BORROWERS HEREBY WAIVES AND RELINQUISHES ALL RIGHTS AND BENEFITS WHICH IT

MIGHT OTHERWISE HAVE UNDER THE AFOREMENTIONED SECTION 1542 OF THE CALIFORNIA

CIVIL CODE OR ANY SIMILAR LAW, TO THE EXTENT SUCH LAW MAY BE APPLICABLE, WITH

REGARD TO THE RELEASE OF SUCH UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES,

CLAIMS, CONTRACTS, LIABILITIES, INDEBTEDNESS AND OBLIGATIONS.  TO THE EXTENT THAT SUCH LAWS MAY BE

APPLICABLE, EACH OF THE BORROWERS WAIVES AND RELEASES ANY RIGHT OR DEFENSE

WHICH IT MIGHT OTHERWISE HAVE UNDER ANY OTHER LAW OF ANY APPLICABLE

JURISDICTION WHICH MIGHT LIMIT OR RESTRICT THE EFFECTIVENESS OR SCOPE OF ANY OF

THEIR WAIVERS OR RELEASES HEREUNDER.

Section

9.  GOVERNING LAW; JURISDICTION;

WAIVER OF JURY TRIAL.  THIS AGREEMENT SHALL BE

GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE

OF NEW YORK.  THE JURISDICTIONAL, VENUE

AND SERVICE OF PROCESS PROVISIONS IN SECTION 12.14 OF THE CREDIT AGREEMENT

AND THE JURY TRIAL WAIVER IN SECTION 12.15 OF THE CREDIT AGREEMENT SHALL

APPLY TO ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT.

 

IN

WITNESS WHEREOF,

the parties hereto have executed this Agreement as of the date first above

written.

	

   

  	

  LEINER HEALTH

  PRODUCTS INC.

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	 

	

   

  	

   

  	

  Name: 

  
	

   

  	

   

  	

  Title:

  
	

   

  	

   

  
	

   

  	

  VITA HEALTH

  PRODUCTS INC.

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	 

	

   

  	

   

  	

  Name: 

  
	

   

  	

   

  	

  Title:

  

AGREED TO AND ACCEPTED

AS OF THE DATE FIRST

ABOVE WRITTEN:

THE BANK OF NOVA SCOTIA

As Canadian Agent and a Lender

 

	

  By:

  	

   

  
	

   

  	

  Name:

  
	

   

  	

  Title:

  

 

AGREED TO AND ACCEPTED

AS OF THE DATE FIRST 

ABOVE WRITTEN:

THE BANK OF NOVA SCOTIA,

as the U.S. Agent and a Lender

 

	

  By:

  	

   

  
	

   

  	

  Name:

  
	

   

  	

  Title:

  

PRIVILEGED

AND CONFIDENTIAL

10/30/01

LEINER HEALTH PRODUCTS INC.

Term Sheet for Restructuring of Senior Debt

 

	

  This Term Sheet

  is a draft for discussion purposes only and does not represent a commitment,

  obligation or understanding on the part of the Agents or any of the

  Lenders.  Neither the Agents nor any

  Lender shall be so obligated unless and until all internal credit approvals

  are sought and obtained, all definitive documentation is negotiated and

  executed and all conditions precedent are satisfied or waived.  The definitive documentation may contain

  terms which vary from the terms described herein.

  Capitalized terms used

  herein and not otherwise defined herein have the meaning given to them in the

  Amended and Restated Credit Agreement dated as of May 15, 1998 among

  Leiner Health Products Inc., Vita Health Products Inc., the financial

  institutions from time to time party thereto, the Bank of Nova Scotia as

  agent for the U.S. Lenders and as agent for the Canadian Lenders, Merrill

  Lynch Capital Corporation, as Documentation Agent and Salomon Brothers

  Holding Company, Inc. as Syndication Agent (as amended, the “Existing

  Credit Agreement”).

  

 

 

	

  I.  RESTRUCTURING OF THE OBLIGATIONS

  
	

  New Term A Loan

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Principal Amount:

  	

   

  	

  US

  $200,000,000 (to be split pro rata between U.S. Facility and Canadian

  Facility)

  
	

  Maturity Date:

  	

   

  	

  March

  31, 2004, provided that the Borrower shall have the option to extend

  the Maturity Date for two one year periods upon payment of the applicable

  Extension Fee if there is no Event of Default.  The Maturity Date shall in no event extend beyond March 31,

  2006.

  
	

  Extension Fee:

  	

   

  	

  1.25%

  of the outstanding principal amount of the New Term A Loan for the first one

  year extension.  2.0% of the

  outstanding principal amount of the New Term A Loan for the second one year

  extension.

  
	

  Interest Rate:

  	

   

  	

  U.S.

  Alternate Base Rate plus 2.25% (for U.S. Loans) and Canadian Prime

  Rate plus 2.25% (for Canadian Loans), payable monthly in arrears,

  subject to the following increases:  

  
	

   

  	

   

  	

   

  (i)

   

   

   

  (ii)

  	

   

  an increase of an additional .50%, if the Leverage

  Ratio is not equal to or less than (i) 5.00 to 1.00 by the end of 2003

  Fiscal Year (March 31, 2003) or (ii) 4.00 to 1.00 by the end of

  2004 Fiscal Year (March 31, 2004); and 

  

   

  an additional 1.0% on April 1, 2004.

  

 

	

  Amortization:

  	

   

  	

  Quarterly principal payments

  in the following amounts on the last Business Day of the following Fiscal

  Quarters (assuming the Maturity Date is extended until March 31, 2006):

  
	

   

  	

   

  	

   

  Fiscal

  Quarter Ended

  June 30, 2002 through

  March 31, 2003 

  June 30, 2003 through March 31, 2004 

  June 30, 2004 through December 31, 2005 

  March 31, 2006

  	

  US$

  Amount/Quarter 

  1,000,000

  2,000,000

  3,000,000

  remaining

  principal balance

   

  
	

   

  	

   

  	

  Payments shall be made pro

  rata between the U.S. Facility and Canadian Facility.  

  
	

   

  	

   

  	

  Additional amortization

  payments equal to 50% of Excess Cash Flow (to be defined in the definitive

  documentation) paid annually in arrears commencing at the end of FY ’03,

  i.e., March 31, 2003.  Each Excess

  Cash Flow payment will reduce principal amortization payments in the inverse

  order of their maturity.

  
	

  Mandatory

  Prepayment:

  	

   

  	

  50% of cash generated

  by any permanent reduction in working capital, which shall be measured

  monthly.

  
	

  New

  Term B Loan

  
	

   

  	

   

  	

   

  
	

  Principal

  Amount:

  	

   

  	

  US

  $79,000,000 (to be split pro rata between U.S. Facility and Canadian

  Facility).

  
	

  Maturity Date:

  	

   

  	

  September 30, 2003.

  
	

  Interest:

  	

   

  	

  LIBOR plus .50%,

  payable in cash, monthly in arrears. 

  In addition, an amount equal to 10% per annum shall be payable in

  kind, quarterly in arrears.

  
	

  Board Rights:

  	

   

  	

  At the closing of the

  restructuring, the existing stockholders agreement will be amended to provide

  that if the New Term B Loan is not paid in full on or before September 30,

  2003 and the leverage ratio is equal to or greater than 5.5x, the Term B Loan

  Noteholders will be entitled to nominate a majority of the board of directors

  of the ultimate parent holding company of the U.S. Borrower (the “Parent”)1. 

  The stockholders will agree take all action necessary to elect such

  nominees.  The Term B Loan Noteholders

  will be express third party beneficiaries of the amended stockholders

  agreement.

  
					

	

  1

  	

   

  	

  The Parent is Leiner Health Products Group Inc.  The U.S. Borrower is a direct wholly owned

  subsidiary of PLI Holdings Inc., which in turn is the direct wholly-owned

  subsidiary of the Parent.

  

 

	

  New

  Revolving  

  Loan

  	

   

  	

  See Exhibit A.

  
	

   

  	

   

  	

   

  
	

  Other

  Terms

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Series B Junior 

  Convertible 

  Preferred:

  	

   

  	

  Amount: 

  At the Closing of the restructuring, the Lenders will be issued Series

  B Junior Convertible Preferred Stock of the Parent convertible into common

  stock of the Parent representing an aggregate of 3% of the fully diluted

  equity of the Parent.

  
	

   

  	

   

  	

  Liquidation Preference:

  Upon the

  occurrence of any of the events that customarily would entitle the holders of

  preferred stock to a liquidation preference, including any merger,

  consolidation or sale of all or substantially all of the assets, or upon any

  Qualified IPO (as defined below), the holders of the Series B Junior

  Convertible Preferred will be entitled to receive, prior and in preference to

  any payment of any consideration to any holder of any equity security of the

  company junior to the Series B Junior Convertible Preferred and the Series C

  Junior Preferred (which will be issued to the bondholders as described in

  Exhibit B), an amount equal to $7.5 million. 

  A “Qualified IPO” means the closing of a firmly underwritten public

  offering of the company’s common stock for a total offering of not less than

  $150 million (after deduction of underwriters’ commissions and

  expenses).  

   

  At Closing and at all

  times thereafter, the Series B Junior Convertible Preferred will rank senior

  to any subsequently offered equity securities or other securities convertible

  or exchangeable into equity securities of the company with respect to

  liquidation preference, and the company will be prohibited from redeeming any

  such equity security as long as the Series B Junior Convertible Preferred

  remains outstanding.

  
				

 

	

   

  	

   

  	

  Registration Rights: 

  The Series B Junior Convertible Preferred and the common stock

  issuable upon conversion of such Preferred shall be subject to the existing

  stockholders agreement and the holders of such stock will have unlimited

  piggyback registration rights as set forth therein.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Anti-dilution

  Protection:  Based on below fair market value issuances,

  with customary exceptions.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Voting Rights: 

  On all relevant matters (other than as required by law) the Series B

  Junior Convertible Preferred will vote with the common and not as a separate

  class.  Each share of Series B

  Preferred shall have ____ votes.

  
	

  Mandatory 

  Prepayments:

  	

   

  	

  The net proceeds from

  the Anti-trust Litigation will be applied against (i) all accrued but

  unpaid fees, (ii) accrued but unpaid Term Loan B (current pay) interest,

  (iii) Term Loan B PIK interest, (iv) Term Loan B principal,

  (v) accrued but unpaid Term Loan A interest, and (vi) Term Loan A

  principal.

  
	

  Restructuring

  Fee:

  	

   

  	

  1% of total outstanding

  principal payable at Closing

  
	

  Continuation

  Fee:

  	

   

  	

  1% of total outstanding

  principal payable on the first anniversary of the Closing and 0.75% of total

  outstanding principal payable annually commencing on the second anniversary

  of the Closing.

  
	

  Collateral:

  	

   

  	

  Same as under Existing

  Credit Agreement.

  
	

  Covenants:

  	

   

  	

  Covenant package to be

  negotiated.  Financial condition and

  operational covenants will be set with reference to the Borrower’s current

  business plan.

  
	

  Permitted 

  Dispositions:

  	

   

  	

  Same as Existing Credit

  Agreement definition, as modified by the waivers and forbearance

  agreement.  Sales of inventory,

  including inventory reserved against in 2001 Fiscal Year and obsolete

  inventory, will constitute Permitted Dispositions but proceeds therefrom will

  not constitute Net Disposition Proceeds.

  
	

  Conditions to 

  Restructuring:

  	

   

  	

  To be agreed upon,

  including (a) the Borrower’s agreement to use its best efforts to hire a

  CFO on or before December 31, 2001, who shall be reasonably satisfactory

  to the Agents; (b) the Lenders’ satisfaction with Borrowers’ agreement

  with other creditors; and (c) the Lenders’ satisfaction with terms of any

  agreement reached with third party equity source.

  
	

  New Management

  Default:

  	

   

  	

  Failure of the U.S.

  Borrower to replace the CEO, President, COO or CFO of the U.S. Borrower

  within 180 days of any such person’s termination of employment.  The U.S. Borrower will provide the Agents

  with access to the executive search firm retained in connection with the

  replacement search process and will direct such firm to fully cooperate with

  the Agents regarding all reasonable requests for information or documents in

  connection therewith.

  
	

  Miscellaneous:

  	

   

  	

  Other terms and

  conditions typical of this type of transaction including releases in favor of

  the Lenders and payment of all fees and expenses (including attorneys’ fees)

  of the Lenders.

  

 

	

  II. 

  TREATMENT OF OTHER CREDITORS

  
	

  Bondholders:

  	

   

  	

  Outstanding bonds will

  be purchased for a combination of cash and preferred equity with funds made

  available by third party investors. 

  The terms and conditions of such purchase are set forth on Exhibit B.  The definitive documentation regarding of

  the equity to be issued to the third party investor shall be satisfactory to

  the Lenders in their sole discretion. 

  Without limiting the foregoing, any redemption, dividend or other

  liquidity rights given to the third party investors must be subordinate to

  the rights of the Lenders in their capacity as holders of the New Term A Loan

  and New Term B Loan, but not as holders of the Series B Junior Preferred.

  
	

  Trade Creditors:

  	

   

  	

  Trade will continue to

  be paid on a current basis, consistent with past practice.

  

 

	

  III.  GENERAL

  
	

  Timing:

  	

   

  	

  Execution of mutually satisfactory documentation by

  December 15, 2001.

  
	

  Forbearance

  Agreement

  	

   

  	

  To be extended until December 15, 2001.

  
	

  Documentation:

  	

   

  	

  Voting Agreement,

  including: 

  ·        

  Form of Second Amended and Restated Credit Agreement 

  ·        

  Form of Series B Preferred Stock Certificate of Designation 

  ·        

  Form of Amended Stockholders Agreement, including, registration

  rights 

  ·        

  Approval of 

  ·        

  Form of Series C Preferred Stock Certificate of Designation 

  ·        

  Form of Series A Preferred Stock Purchase Agreement

  
	

   

  	

   

  	

   

  
	

  Implementation:

  	

   

  	

  Prepackaged or

  pre-arranged Chapter 11 filing.

  
	

  Non Binding:

  	

   

  	

  This term sheet is not

  intended to be legally binding on any of the parties hereto.

  

Exhibit A

 

LEINER

HEALTH PRODUCTS INC.

 

	

  Term Sheet for New Revolving Credit Facility

  
	

   

  
	

  Size:

  	

   

  	

  U.S. $20,000,0002

  
	

   

  	

   

  	

   

  
	

  Interest:

  	

   

  	

  LIBOR plus 3%

  
	

   

  	

   

  	

   

  
	

  Collateral:

  	

   

  	

  Superpriority

  lien, excluding antitrust litigation proceeds

  
	

   

  	

   

  	

   

  
	

  Maturity Date:

  	

   

  	

  Same as New Term A Loan

  
	

   

  	

   

  	

   

  
	

  Availability:

  	

   

  	

  Borrowing Base less an amount equal to (i)

  $100,000,000 minus (ii) the aggregate amount of Term A Loan Prepayments that

  are based on permanent reductions in working capital.

  
	

   

  	

   

  	

   

  
	

  Borrowing Base:

  	

   

  	

  Based upon advance rates as follows:

  

	

  2

  	

   

  	

  This amount does not include Outstanding Letters of

  Credit in the amount of US $11,902,372, which shall remain outstanding

  following the Closing.

  

 

	

  Accounts Receivable:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Aging

  	

   

  	

  Advance

  Rate

  
	

   

  	

   

  	

   

  
	

  Current

  	

   

  	

  85%

  
	

  1-30 days

  	

   

  	

  60%

  
	

  >30 days

  	

   

  	

  0%

  
	

   

  	

   

  	

   

  
	

  Inventory:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Type

  	

   

  	

  Advance

  Rate

  
	

   

  	

   

  	

   

  
	

  Raw Materials

  	

   

  	

  50%

  
	

  Bulk

  	

   

  	

  10%

  
	

  WIP

  	

   

  	

  10%

  
	

  Components

  	

   

  	

  0%

  
	

  Finished Goods

  	

   

  	

  60%

  
	

   

  	

   

  	

   

  
	

  Machinery & Equipment:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Advance

  Rate

  
	

   

  	

   

  	

   

  
	

  Net Book Value

  	

   

  	

  25%

  

 

 

	

  Up Front Fee:

  	

   

  	

  2%

  
	

   

  	

   

  	

   

  
	

  Unused 

  Commitment Fee:

  	

   

  	

  0.5%

  

Exhibit

B

 

LEINER

HEALTH PRODUCTS INC.

 

Term Sheet for

Restructuring of Bond Debt

 

The $85,000,000 of the 9 5/8% Senior Subordinate Notes due

June 30, 2007 shall be exchanged for the following consideration:

 

	

  Cash:

  	

   

  	

  $15,000,000 in cash payable upon the closing of the

  restructuring.

  
	

   

  	

   

  	

   

  
	

  Preferred Stock:

  	

   

  	

  Amount:  At the

  closing of the restructuring, the Bondholders will be issued Series C Junior

  Preferred Stock of the Parent.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Liquidation Preference: 

  Upon the occurrence of any of the events that customarily would

  entitle the holders of preferred stock to a liquidation preference, including

  any merger, consolidation or sale of all or substantially all of the assets,

  or upon any Qualified IPO (as defined below), the holders of the Series C

  Junior Preferred will be entitled to receive, prior and in preference to any

  payment of any consideration to any holder of any equity security of the

  company junior to the Series C Junior Preferred and the Series B Junior

  Convertible Preferred amount equal to $7 million.  A “Qualified IPO” means the closing of a firmly underwritten

  public offering of the company’s common stock for a total offering of not

  less than $150 million (after deduction of underwriters’ commissions and

  expenses).

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  At Closing and at all times thereafter, the Series C

  Junior Preferred will rank senior to any subsequently offered equity

  securities or other securities convertible or exchangeable into equity

  securities of the company with respect to liquidation preference, and the

  company will be prohibited from redeeming any such equity security as long as

  the Series C Junior Preferred remains outstanding.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Voting Rights:  On all

  relevant matters (other than as required by law) the Series C Junior

  Preferred will vote with the common and not as a separate class.  Each share of Preferred shall have ______

  votes.Prepared by MERRILL CORPORATION

 

American National Bank

and Trust Company of Chicago

 

INSTALLMENT NOTE (SECURED)

 

	

  $92,539.00

  	

   

  	

  Chicago, Illinois

  	

   

  	

  July 2, 2001

  
	

   

  	

   

  	

   

  	

   

  	

  Due July 2, 2006

  

 

                FOR VALUE RECEIVED, the undersigned (jointly and

severally if more than one) (“Borrower”), promises to pay to the order of American National Bank and Trust Company of Chicago (“Bank”),

at its principal place of business in Chicago, Illinois or such other place as

Bank may designate from time to time hereafter, the principal sum of NINETY TWO

THOUSAND FIVE HUNDRED THRITY NINE AND 00/100 DOLLARS, which sum shall be due on

July 2, 2006, and shall be payable in successive monthly installments of

principal and interest in the aggregate amount of $1,854.29 The first

installment shall be due on the last day of July, 2001, and successive

installments shall be paid on the same day of month, thereafter until paid.

 

                Borrower's obligations and liabilities to Bank under

this Note, and all other obligations and liabilities of Borrower to Bank

(including without limitation all debts, claims and indebtedness) whether

primary, secondary, direct, contingent, fixed or otherwise, including those

evidenced in rate hedging agreements designed to protect the Borrower from the

fluctuation of interest rates, heretofore now and/or from time to time

hereafter owing, due or payable, however evidenced, created, incurred, acquired

or owing and however arising, whether under this Note, any agreement,

instrument or document heretofore, now or from time to time hereafter executed

and delivered to Bank by or on behalf of Borrower, or by oral agreement or

operation of law or otherwise shall be defined and referred to herein as

“Borrower's Liabilities.”

 

                The unpaid principal balance of Borrower's

Liabilities due hereunder shall bear interest from the date of disbursement

until paid, computed at a daily rate equal to

the daily rate equivalent of 7.5% per annum (computed on the basis

of a 360-day year and actual days elapsed); or provided, however,

that in the event that any of Borrower's Liabilities are not paid when due, the

unpaid amount of Borrower's Liabilities shall bear interest after the due date

until paid at a rate equal to the sum of the rate that would otherwise be in

effect plus 3%.

 

                Borrower warrants and represents to Bank that

Borrower shall use the proceeds represented by this Note solely for proper

business purposes and consistently with all applicable laws and statutes.

 

                To secure the prompt payment to Bank of Borrower's

Liabilities and the prompt, full and faithful performance by Borrower of all of

the provisions to be kept, observed or performed by Borrower under this Note

and/or any other agreement, instrument or document heretofore, now and/or from

time to time hereafter delivered by or on behalf of Borrower to Bank, Borrower

grants to Bank a security interest in and to the following property: (a) all of

Borrower's now existing and/or owned and hereafter arising or acquired monies,

reserves, deposits, deposit accounts and interest or dividends thereon,

securities, cash, cash equivalents and other property now or at any time or

times hereafter in the possession or under the control of Bank or its bailee

for any purpose; (b) an American National

Bank and Trust Company of Chicago DDA pursuant to Security Agreement (Specific)

dated July 2, 2001, as amended from time to time, by and between Borrower and

Bank; and (c) all substitutions, renewals, improvements, accessions

or additions thereto, replacements, offspring, rents, issues, profits, returns,

products and proceeds thereof, including without limitation proceeds of

insurance policies insuring the foregoing collateral (all of the foregoing

property is referred to herein individually and collectively as “Collateral”).

                Regardless of the adequacy of the Collateral, any deposits or other

sums at any time credited by or payable or due from Bank to Borrower, or any

monies, cash, cash equivalents, securities, instruments, documents or other

assets of Borrower in the possession or control of Bank or its Bailee for any

purpose, may be reduced to cash and applied by Bank to or setoff by Bank

against Borrower's Liabilities.

 

                Borrower agrees to deliver to Bank immediately upon

Bank's demand, such additional collateral as Bank may request from time to time

should the value of the Collateral (in Bank's sole and exclusive opinion)

decline, deteriorate, depreciate or become impaired, or should Bank deem itself

insecure for any reason whatsoever, including without limitation a change in

the financial condition of Borrower or any party liable with respect to

Borrower's Liabilities, and does hereby grant to Bank a continuing security

interest in such other collateral, which shall be deemed to be a part of the

Collateral. Borrower shall execute and deliver to Bank, at any time upon Bank's

demand therefor, all agreements, instruments, documents and other written

matter that Bank may request, in form and substance acceptable to Bank, to

perfect and maintain perfected Bank's security interest in the Collateral or

any additional collateral. Borrower agrees that a carbon, photographic or

photostatic copy, or other reproduction, of this Note or of any financing

statement, shall be sufficient as a financing statement.

 

                Bank may take, and Borrower hereby waives notice of,

any action from time to time that Bank may deem necessary or appropriate to

maintain or protect the Collateral, and Bank's security interest therein, and

in particular Bank may at any time (i) transfer the whole or any part of the

Collateral into the name of the Bank or its nominee, (ii) collect any amounts

due on Collateral directly from persons obligated thereon, (iii) take control

of any proceeds and products of Collateral, and/or (iv) sue or make any

compromise or settlement with respect to any Collateral. Borrower hereby

releases Bank from any and all causes of action or claims which Borrower may

now or hereafter have for any asserted loss or damage to Borrower claimed to be

caused by or arising from: (a) Bank's taking any action permitted by this

paragraph; (b) any failure of Bank to protect, enforce or collect in whole or

in part any of the Collateral; and/or (c) any other act or omission to act on

the part of the Bank, its officers, agents or employees, except for willful

misconduct.

                The occurrence of any one of the following events

shall constitute a default by the Borrower (“Event of Default”) under this

Note: (a) if Borrower fails to pay any of Borrower's Liabilities when due and

payable or declared due and payable (whether by scheduled maturity, required

payment, acceleration, demand or otherwise); (b) if Borrower or any guarantor

of any of Borrower's Liabilities fails or neglects to perform, keep or observe

any term, provision, condition, covenant, warranty or representation contained

in this Note; (c) occurrence of a default or an event of default under any

agreement, instrument or document heretofore, now or at any time hereafter

delivered by or on behalf of Borrower to Bank; (d) occurrence of a default or

an event of default under any agreement, instrument or document heretofore, now

or at any time hereafter delivered to Bank by any guarantor of Borrower's

Liabilities or by any person or entity which has granted to Bank a security

interest or lien in and to some or all of such person's or entity's real or

personal property to secure the payment of Borrower's Liabilities; (e) if the

Collateral or any other of Borrower's assets are attached, seized, subjected to

a writ, or are levied upon or become subject to any lien or come within the

possession of any receiver, trustee, custodian or assignee for the benefit of

creditors; (f) if a notice of lien, levy or assessment is filed of record or

given to Borrower with respect to all or any of Borrower's assets by any

federal, state or local department or agency; (g)  Borrower or any guarantor of Borrower's

Liabilities becomes insolvent or generally fails to pay or admits in writing

its inability to pay debts as they become due, if a petition under Title 11 of

the United States Code or any similar law or regulation is filed by or against

Borrower or any such guarantor, if Borrower or any such guarantor shall make an

assignment for the benefit of creditors, if any case or proceeding is filed by

or against Borrower or any such guarantor for its dissolution or liquidation,

or if Borrower or any such guarantor is enjoined, restrained or in any way

prevented by court order from conducting all or any material part of its

business affairs; (h) the death or incompetency of Borrower or any guarantor of

Borrower's Liabilities, or the appointment of a conservator for all or any

portion of Borrower's assets or the Collateral; (i) the revocation, termination

or cancellation of any guaranty of Borrower’s Liabilities without written

consent of Bank; (j) if a contribution failure occurs with respect to any

pension plan maintained by Borrower or any corporation, trade or business that

is, along with Borrower, a member of a controlled group of corporations or a

controlled group of trades or businesses (as described in Sections 414(b) and

(c) of the Internal Revenue Code of 1986 or Section 4001 of the Employee

Retirement Income Security Act of 1974, as amended, “ERISA”) sufficient to give

rise to a lien under Section 302(f) of ERISA; (k) if Borrower or any guarantor

of Borrower's Liabilities is in default in the payment of any obligations,

indebtedness or other liabilities to any third party and such default is

declared and is not cured within the time, if any, specified therefor in any

agreement governing the same; (l) if any material statement, report or

certificate made or delivered by Borrower, any of Borrower’s partners,

officers, employees or agents or any guarantor of Borrower’s Liabilities is not

true and correct; or (m) if Bank is reasonably insecure. 

 

                Upon the occurrence of an Event of Default, at Bank's

option, without notice by Bank to or demand by Bank of Borrower: (i) all of

Borrower's Liabilities shall be immediately due and payable; (ii) Bank may

exercise any one or more of the rights and remedies accruing to a secured party

under the Uniform Commercial Code of the relevant jurisdiction and any other

applicable law upon default by a debtor; (iii) Bank may enter, with or without

process of law and without breach of the peace, any premises where the

Collateral is or may be located, and may seize or remove the Collateral from

said premises and/or remain upon said premises and use the same for the purpose

of collecting, preparing and disposing of the Collateral; and/or (iv) Bank may

sell or otherwise dispose of the Collateral at public or private sale for cash

or credit, provided, however, that Borrower shall be credited with the net

proceeds of any such sale only when the same are actually received by Bank. 

 

                Upon an Event of Default, Borrower, immediately upon

demand by Bank, shall assemble the Collateral and make it available to Bank at

a place or places to be designated by Bank which is reasonably convenient to

Bank and Borrower.

 

                All of Bank's rights and remedies under this Note are

cumulative and non-exclusive. The acceptance by Bank of any partial payment made

hereunder after the time when any of Borrower's Liabilities become due and

payable will not establish a custom or waive any rights of Bank to enforce

prompt payment hereof. Bank's failure to require strict performance by Borrower

of any provision of this Note shall not waive, affect or diminish any right of

Bank thereafter to demand strict compliance and performance therewith. Any

waiver of an Event of Default hereunder shall not suspend, waive or affect any

other Event of Default hereunder. Borrower and every endorser waive

presentment, demand and protest and notice of presentment, protest, default,

non-payment, maturity, release, compromise, settlement, extension or renewal of

this Note, and hereby ratify and confirm whatever Bank may do in this regard.

Borrower further waives any and all notice or demand to which Borrower might be

entitled with respect to this Note by virtue of any applicable statute or law

(to the extent permitted by law).

                Borrower agrees to pay, immediately upon demand by Bank, any and all

costs, fees and expenses (including reasonable attorneys' fees, costs and

expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and

(ii) in representing Bank in any litigation, contest, suit or dispute, or to

commence, defend or intervene or to take any action with respect to any

litigation, contest, suit or dispute (whether instituted by Bank, Borrower or

any other person) in any way relating to this Note, Borrower's Liabilities or

the Collateral, and to the extent not paid the same shall become part of

Borrower's Liabilities hereunder.

 

                This Note shall be deemed to have been submitted by

Borrower to Bank and to have been made at Bank's principal place of business. 

 

                This Note shall be governed and controlled by the

internal laws of the State of Illinois and not the law of conflicts. The Bank

may provide, without any limitation whatsoever, any information or knowledge

the Bank may have about the undersigned or any matter relating to this Note and

any related documents to BANK ONE CORPORATION, or any of its subsidiaries or

affiliates or their successors, or to any one or more purchasers or potential

purchasers of this Note or any related documents, and the undersigned waives

any right to privacy the undersigned may have with respect to such matters. The

Borrower agrees that the Bank may at any time sell, assign or transfer one or

more interests or participations in all or any part of its rights or

obligations in this Note to one or more purchasers whether or not related to

the Bank.

 

                TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER

IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL

ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR

RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY

OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE

JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND

STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE

VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH

THIS PARAGRAPH. 

 

                BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY

JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND

ANY RIGHTS UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT,

DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN

CONNECTION HEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN

CONNECTION WITH OR RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT,

DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR

PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

	

   

  	

  “BORROWER”

  
	

  1900 East Golf Road Suite

  1200

  	

  EBIX. Com, Inc.

  
	

  Schaumburg, Illinois 60173

  	

  an Illinois corporation

  
	

   

  	

   

  
	

   

  	

  BY:

  	

  /s/ R. Baum

  
	

  FEIN: 

  	

   

  	

   

  	

  ITS:

  	

         CFO

  
					

 

 

American National Bank

and Trust Company of Chicago

 

SECURITY AGREEMENT (SPECIFIC)

 

                THIS SECURITY AGREEMENT (this "Agreement"), dated as of the

2nd day of July, 2001, by and between AMERICAN

NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("BANK"), a

national banking association with its principal place of business at 120 South

LaSalle Street, Chicago, Illinois 60603, and EBIX. Com, Inc.

("Borrower"), an Illinois corporation with its chiefs executive

office or sole place of business at 1900 East Golf Road Suite 1200 Schaumburg,

Illinois 60173, has reference to the following facts and circumstances:

 

	

   

  	

  A.

  	

  Pursuant to Borrower's

  request, Bank heretofore, now and from time to time hereafter, has and/or may

  loan or advance monies, extend credit and/or extend other financial

  accommodations to or for the benefit of Borrower.

  
	

   

  	

   

  	

   

  
	

   

  	

  B.

  	

  To secure repayment of the

  same and all of "Borrower's Liabilities" (as hereinafter defined),

  Borrower wishes to provide Bank with a security interest in and/or collateral

  assignment of Borrower's assets.

  
	

   

  	

   

  	

   

  

                NOW THEREFORE, in consideration of the terms and

conditions set forth herein, and of any loans or extensions of credit

heretofore, now or hereafter made to or for the benefit of Borrower by Bank,

the parties hereto agree as follows:

 

1. DEFINITIONS AND TERMS

 

1.1                           When used herein, the

words, terms and/or phrases set forth below shall have the following meanings:

 

	

   

  	

  A.

  	

  "Borrower's

  Liabilities":

  all obligations and liabilities of Borrower to Bank (including without

  limitation all debts, claims, indebtedness and attorneys’ fees and expenses

  as provided for in Paragraph 6.11) whether primary, secondary, direct,

  contingent, fixed or otherwise, including Rate Hedging Obligations (as

  defined in subparagraph G herein), heretofore, now and/or from time to time

  hereafter owing, due or payable, however evidenced, created, incurred,

  acquired or owing and however arising, whether under this Agreement or the

  "Other Agreements" (hereinafter defined) or by operation of law or

  otherwise.

  
	

   

  	

   

  	

   

  
	

   

  	

  B.

  	

  “Charges”: all national, federal, state, county,

  city, municipal and/or other governmental (or any instrumentality, division,

  agency, body or department thereof, including without limitation the Pension

  Benefit Guaranty Corporation) taxes, levies, assessments, charges, liens,

  claims or encumbrances upon and/or relating to the Borrower’s ownership

  and/or use of any of its assets, and/or Borrower’s income and/or gross

  receipts.

  
	

   

  	

   

  	

   

  
	

   

  	

  C.

  	

  “Collateral”: shall have the meaning set forth in

  Paragraph 2.2.

  
	

   

  	

   

  	

   

  
	

   

  	

  D.

  	

  “Indebtedness”: (i) indebtedness for borrowed money or

  for the deferred purchase price of property or services; (ii) obligations as

  lessee under leases which shall have been or should be, in accordance with

  generally accepted accounting principles, recorded as capital leases; (iii)

  obligations under direct or indirect guaranties in respect of and obligations

  (contingent or otherwise) to purchase or otherwise acquire, or otherwise to

  assure a creditor against loss in respect of, indebtedness or obligations of

  others of the kinds referred to in clauses (i) or (ii) above; and (iv)

  liabilities with respect to unfunded vested benefits under plans covered by

  Title IV of the Employee Retirement Income Security Act of 1974, as amended

  (“ERISA”), and in effect from time to time.

  
	

   

  	

   

  	

   

  
	

   

  	

  E.

  	

  "Other

  Agreements":

  all agreements, instruments and documents, including without limitation,

  guaranties, mortgages, deeds of trust, loan agreements, notes, pledges,

  powers of attorney, consents, assignments, contracts, notices, security

  agreements, leases, subordination agreements, financing statements and all

  other written matter heretofore, now and/or from time to time hereafter

  executed by and/or on behalf of Borrower and delivered to Bank.

  
	

   

  	

   

  	

   

  
	

   

  	

  F.

  	

  “Persons”: any individual, sole proprietorship,

  partnership, joint venture, trust, unincorporated organization, association,

  corporation, limited liability company, institution, entity, party or

  government (whether national, federal, state, county, city, municipal or

  otherwise, including without limitation, any instrumentality, division,

  agency, body or department thereof).

  
	

   

  	

   

  	

   

  
	

   

  	

  G.

  	

  “Rate

  Hedging Obligations”:

  shall mean any and all obligations of the Borrower, whether absolute or

  contingent and howsoever and whenever created, arising, evidenced or acquired

  (including all renewals, extensions and modifications thereof and

  substitutions therefor), under (i) any and all agreements designed to protect

  the Borrower from the fluctuations of interest rates, exchange rates or

  forward rates applicable to such party’s assets, liabilities or exchange

  transactions, including, but not limited to: interest rate swap agreements,

  dollar-denominated or cross-currency interest rate exchange agreements,

  forward currency exchange agreements, interest rate cap, floor or collar

  agreements, forward rate currency agreements or agreements relating to

  interest rate options, puts and warrants, and (ii) any and all agreements

  relating to cancellations, buy backs, reversals, terminations or assignments

  of any of the foregoing.

  

 

 

1.2                           Except as otherwise

defined in this Agreement or the Other Agreements, all words, terms and/or

phrases used herein and therein shall be defined by the applicable definition

therefor (if any) in the Illinois Uniform Commercial Code as in effect from

time to time.

 

2. COLLATERAL

 

2.1      To secure the prompt payment to Bank of

Borrower's Liabilities and the prompt, full and faithful performance by

Borrower of all of the provisions to be kept, observed or performed by Borrower

under this Agreement and/or the Other Agreements, Borrower grants to Bank a

continuing security interest in and to, and collaterally assigns to Bank, the

following property of Borrower, wherever located, whether now or hereafter

existing, owned, licensed, leased (to the extent of Borrower's leasehold

interest therein), or consigned (to the extent of Borrower's ownership interest

therein): DDA

	

   

  
	

   

  
	

   

  
	

   

  

 

2.2                           All of the aforesaid

property and products, proceeds and supporting obligations of the foregoing in

Paragraph 2.1 above, including without limitation, proceeds of insurance

policies insuring the foregoing are herein individually and collectively called

the “Collateral”. The terms used herein to identify the Collateral shall have

the same meaning as are assigned to such terms in the Illinois Uniform

Commercial Code as in effect from time to time.

 

2.3                           Borrower shall make

appropriate entries upon its financial statements and its books and records

disclosing Bank’s security interest in the Collateral.

 

2.4                           All of Borrower's

Liabilities shall constitute one obligation secured by Bank's security interest

in the Collateral and by all other security interests, liens, claims and

encumbrances heretofore, now and/or from time to time hereafter granted by

Borrower to Bank.

 

2.5                           Borrower authorizes

Bank to file financing statements and Borrower shall execute and deliver to

Bank, at the request of Bank, all agreements, instruments and documents (the

"Supplemental Documentation") that Bank may reasonably request, in

form and substance acceptable to Bank, to perfect and maintain perfected Bank's

security interest in the Collateral and to consummate the transactions

contemplated in or by this Agreement or the Other Agreements. Borrower agrees

that a carbon, photographic or photostatic copy, or other reproduction of this

Agreement or of any financing statement, shall be sufficient to evidence Bank’s

security interest.

 

2.6                           Bank shall have the

right, at any time during Borrower's usual business hours, to inspect the

Collateral and all related records (and the premises upon which it is located)

and to verify the amount and condition of or any other matter relating to the

Collateral.

 

2.7                           Borrower warrants and

represents to and covenants with Bank that: (a) Bank's security interest in the

Collateral is now and at all times hereafter shall be perfected and have a

first priority except as expressly agreed to in writing by the Bank; (b) the

offices and/or locations where Borrower keeps the Collateral are at Borrower's

residence, chief executive office or place of business specified at the

beginning of this Agreement, and Borrower shall not remove the Collateral

therefrom except as may occur in the ordinary course of business, and shall not

keep any such Collateral at any other offices or locations unless Borrower

gives Bank written notice thereof at least thirty (30) days prior thereto and

the same is within the United States of America; and (c) the address specified

at the beginning of this Agreement is Borrower's sole residence, chief

executive office or sole place of business, and Borrower, by written notice

delivered to Bank at least thirty (30) days prior thereto, shall advise Bank of

Borrower's acquiring any new residence or opening of any new office or place of

business or closing of any existing residence, office or place of business, and

any new residence, office or place of business shall be within the United

States of America.

 

Exceptions:

 

(Borrower's additional

place(s) of business)

	

   

  
	

   

  
	

  _____________________________

  

 

(Additional locations where

Borrower's Collateral is stored or held)

	

   

  
	

   

  
	

  _____________________________

  

 

2.8      At the request of Bank, Borrower shall

receive, as the sole and exclusive property of Bank and as trustee for Bank, all

monies, checks, notes, drafts and all other payments for and/or proceeds of

Collateral which come into the possession or under the control of Borrower and

immediately upon receipt thereof, Borrower shall remit the same (or cause the

same to be remitted), in kind, to Bank or at Bank's direction.

 

2.9                           Upon demand or an

Event of Default (as hereinafter defined), Bank may take control of, in any

manner, and may endorse Borrower's name to any of the items of payment or

proceeds described in Paragraph 2.8 above and, pursuant to the provisions of

this Agreement, Bank shall apply the same to and on account of Borrower's

Liabilities.

 

2.10                           Bank, at its option,

may at any time or times hereafter, but shall be under no obligation to, pay,

acquire and/or accept an assignment of any security interest, lien, encumbrance

or claim asserted by any person or entity against the Collateral.

 

2.11    In no event shall Borrower make any sale,

transfer or other disposition of any of the Collateral except as authorized in

a writing executed by Bank and delivered to Borrower. No such authorization

given by Bank to sell any specified portion of Collateral or any items thereof,

and no waiver by Bank in connection therewith shall establish a custom or

constitute a waiver of the prohibition contained in this Agreement against such

sales, with respect to any portion of the Collateral or any item thereof not

covered by said authorization.

 

2.12                           Regardless of the

adequacy of any collateral securing Borrower's Liabilities hereunder, any deposits

or other sums at any time credited by or payable or due from Bank to Borrower,

or any monies, cash, cash equivalents, securities, instruments, documents or

other assets of Borrower in the possession or control of Bank or its bailee for

any purpose may, upon demand or an Event of Default or event or condition which

with notice or lapse of time would constitute an Event of Default, be reduced

to cash and applied by Bank to or setoff by Bank against Borrower's Liabilities

hereunder.

 

3. WARRANTIES, REPRESENTATIONS AND COVENANTS;

INSURANCE AND TAXES

 

3.1                           Borrower, at its sole

cost and expense, shall keep and maintain (a) the Collateral insured for the

full insurable value against all hazards and risks ordinarily insured against

by other owners or users of such properties in similar businesses, and (b)

business interruption insurance and public liability and property damage

insurance relating to Borrower's ownership and use of its assets. All such

policies of insurance shall be in form, with insurers and in such amounts as

may be satisfactory to Bank. Borrower shall deliver to Bank the original (or

certified) copy of each policy of insurance, or a certificate of insurance, and

evidence of payment of all premiums for each such policy. Such policies of

insurance (except those

of public liability) shall contain a standard form lender’s loss payable

clause, in form and substance acceptable to Bank, showing loss payable to Bank,

and shall provide that the insurance companies will give Bank at least thirty

(30) days written notice before any such policy or policies of insurance shall

be altered or canceled and that no act or default of Borrower or any other

Person shall affect the right of Bank to recover under such policy or policies

of insurance in case of loss or damage. Borrower hereby directs all insurers

under such policies of insurance (except those of public liability) to pay all

proceeds payable thereunder directly to Bank and hereby irrevocably appoints

Bank as Borrower's agent and attorney-in-fact to make, settle and adjust claims

under such policies of insurance and endorse the name of Borrower on any check,

draft, instrument or other item of payment for the proceeds of such policies of

insurance.

 

Unless

Borrower provides Bank with evidence of the insurance coverage required by this

Agreement, Bank may purchase insurance at Borrower’s expense to protect Bank’s

interests in the Collateral. This insurance may, but need not, protect

Borrower’s interests. The coverage that Bank purchases may not pay any claim that

Borrower makes or any claim that is made against Borrower in connection with

the Collateral. Borrower may later cancel any insurance purchased by Bank, but

only after providing Bank with evidence that Borrower has obtained insurance as

required by this Agreement. If

Bank purchases insurance for the Collateral, Borrower will be responsible for

the costs of that insurance, including interest and other charges Bank may

impose in connection with the placement of the insurance, until the effective

date of the cancellation or expiration of the insurance. The costs of the

insurance may be added to Borrower’s total outstanding balance or obligation.

The costs of the insurance may be more than the cost of the insurance Borrower

is able to obtain on its own.

 

3.2                           Borrower shall pay

promptly, when due, all Charges and shall not permit any Charges to arise, or

remain, and will promptly discharge the same.

 

4. WARRANTIES, REPRESENTATIONS AND COVENANTS; GENERAL

 

4.1                           Borrower warrants and

represents to and covenants with Bank that: (a) Borrower has the right, power

and capacity and is and will be duly authorized and empowered to enter into,

execute, deliver and perform this Agreement and the Other Agreements; (b) the

execution, delivery and/or performance by Borrower of this Agreement and the

Other Agreements shall not, and will not, by the lapse of time, the giving of

notice or otherwise, constitute a violation of any applicable law or a breach

of any provision contained in Borrower's Articles of Incorporation, By-Laws, Articles

of Partnership, Articles of Organization, Operating Agreement or similar

document, or contained in any agreement, instrument or document to which

Borrower is now or hereafter a party or by which it is or may be bound; (c)

Borrower’s name as it appears in this Agreement is its exact name as appears in

Borrower’s organizational documents, as amended; (d) Borrower’s state

organization number (if a registered organization) is ___________; (e) Borrower

shall immediately notify Bank in writing of any change in its name, business

organization or jurisdiction under which the Borrower is organized (or change

of principal residence if a sole proprietor); (f) Borrower has and at all times

hereafter shall have good, indefeasible and merchantable title to and ownership

of the Collateral, free and clear of all liens, claims, security interests and

encumbrances except those of Bank; (g) Borrower is now and at all times

hereafter, shall be solvent and generally paying its debts as they mature and

Borrower now owns and shall at all times hereafter own property which, at a

fair valuation, is greater than the sum of its debts; (h) Borrower is not, and

will not be during the term hereof in violation of any applicable federal,

state or local statute, regulation or ordinance that, in any respect materially

and adversely affects its business, property, assets, operations or condition,

financial or otherwise; and (i) Borrower is not in default with respect to any

indenture, loan agreement, mortgage, deed or other similar agreement relating

to the borrowing of monies to which it is a party or by which it is bound.

 

4.2                           Borrower warrants and

represents to and covenants with Bank that Borrower shall not, without Bank's

prior written consent thereto: (a) grant a security interest in, assign, sell,

lease, license or transfer any of the Collateral to any Person or permit, grant

or suffer a lien, claim or encumbrance upon any of the Collateral; (b) enter

into any transaction not in the ordinary course of business which materially and

adversely affects Borrower's ability to repay Borrower's Liabilities, any other

obligations and liabilities of Borrower to any third party or the Collateral;

and (c) other than as specifically permitted in or contemplated by this

Agreement or the Other Agreements, encumber, pledge, mortgage, sell, lease,

license or otherwise dispose of or transfer whether by sale, loan,

distribution, merger, consolidation or otherwise, any of Borrower's assets.

 

4.3                           Borrower covenants

with Bank that Borrower shall cause to be furnished to Bank such data and

information (financial and otherwise) as Bank, from time to time, may request

bearing upon or related to the Collateral, Borrower's financial condition

and/or results of operations.

 

5. DEFAULT

 

5.1                           The occurrence of any

one of the following events shall constitute a default by the Borrower

("Event of Default") under this Agreement: (a) if Borrower fails to

pay any of Borrower's Liabilities when due and payable or declared due and

payable (whether by scheduled maturity, required payment, acceleration, demand

or otherwise); (b) if Borrower fails or neglects to perform, keep or observe

any term, provision, condition, covenant, warranty or representation contained

in this Agreement or any of the Other Agreements; (c) occurrence of a default

or Event of Default under any of the Other Agreements heretofore, now or at any

time hereafter delivered by or on behalf of Borrower to Bank; (d) occurrence of

a default or an Event of Default under any agreement, instrument or document heretofore,

now or at any time hereafter delivered to Bank by any guarantor of Borrower's

Liabilities or by any Person which has granted to Bank a security interest or

lien in such Person's real or personal property to secure the payment of

Borrower's Liabilities; (e) if the Collateral or any other of Borrower's assets

are attached, seized,

subjected to a writ, or are levied upon or become subject to any lien or come

within the possession of any receiver, trustee, custodian or assignee for the

benefit of creditors; (f) if a notice of lien, levy or assessment is filed of

record or given to Borrower with respect to all or any of Borrower's assets by

any federal, state, local department or agency; (g) if Borrower or any

guarantor of Borrower's Liabilities becomes insolvent or generally fails to pay

or admits in writing its inability to pay debts as they become due, if a

petition under Title 11 of the United States Code or any similar law or

regulation is filed by or against Borrower or any such guarantor, if Borrower

or any such guarantor shall make an assignment for the benefit of creditors, if

any case or proceeding is filed by or against Borrower or any such guarantor

for its dissolution or liquidation, if Borrower or any such guarantor is

enjoined, restrained or in any way prevented by court order from conducting all

or any material part of its business affairs; (h) the death or incompetency of

Borrower or any guarantor of Borrower's Liabilities, or the appointment of a

conservator for all or any portion of Borrower's assets or the Collateral; (i)

the revocation, termination, or cancellation of any guaranty of Borrower’s

Liabilities without written consent of Bank; (j) if a contribution failure

occurs with respect to any pension plan maintained by Borrower or any corporation,

trade or business that is, along with Borrower, a member of a controlled group

of corporations or controlled group of trades or businesses (as described in

Sections 414(b) and (c) of the Internal Revenue Code of 1986 or Section 4001 of

ERISA) sufficient to give rise to a lien under Section 302(f) of ERISA; (k) if

Borrower or any guarantor of Borrower's Liabilities is in default in the

payment of any obligations, indebtedness or other liabilities to any third

party and such default is declared and is not cured within the time, if any,

specified therefor in any agreement governing the same; (l) if any material

statement, report or certificate made or delivered by Borrower, any of

Borrower’s partners, officers, employees or agents or any guarantor of

Borrower’s Liabilities is not true and correct; or (m) if Bank is reasonably

insecure.

 

5.2                           All of Bank's rights

and remedies under this Agreement and the Other Agreements are cumulative and

non-exclusive.

 

5.3                           Upon an Event of

Default, Borrower's Liabilities shall be immediately due and payable.

 

5.4                           Upon an Event of

Default, Bank, in its sole and absolute discretion, may exercise any one or

more of the rights and remedies accruing to a secured party under the Uniform

Commercial Code as in effect from time to time of the relevant state and any

other applicable law upon default by a debtor.

 

5.5                           Upon an Event of

Default, Borrower, immediately upon demand by Bank, shall assemble the

Collateral and make it available to Bank at a place or places to be designated

by Bank which is reasonably convenient to Bank and Borrower. Borrower

recognizes that in the event Borrower fails to perform, observe or discharge

any of its obligations or liabilities under this Agreement or the Other

Agreements, no remedy of law will provide adequate relief to Bank, and agrees

that Bank shall be entitled to temporary and permanent injunctive relief in any

such case without the necessity of proving actual damages.

 

5.6                           Upon an Event of

Default, without notice, demand or legal process of any kind, Bank may take

possession of any or all of the Collateral (in addition to Collateral of which

it already has possession), wherever it may be found, and for that purpose may

pursue the same wherever it may be found, and may enter into any of Borrower's

premises where any of the Collateral may be or is supposed to be, and search

for, take possession of, remove, keep and store any of the Collateral until the

same shall be sold or otherwise disposed of, and Bank shall have the right to

store the same in any of Borrower's premises without cost to Bank. Borrower

agrees that Bank has no duty to repair or clean the Collateral prior to sale,

and that the disposal of the Collateral in its present condition, without

repair or cleanup shall not affect the commercial reasonableness of such sale

or disposition.

 

5.7                           Any notice required

to be given by Bank of a sale, lease, or other disposition of the Collateral or

any other intended action by Bank, (i) deposited in the United States mail,

postage prepaid and duly addressed to Borrower at the address specified at the

beginning of this Agreement, or (ii) sent via certified mail, return receipt

requested, or (iii) sent via facsimile, or (iv) delivered personally, not less

than ten (10) days prior to such proposed action, shall constitute commercially

reasonable and fair notice to Borrower.

 

5.8                           Upon an Event of

Default, Borrower agrees that Bank may, if Bank deems it reasonable, postpone

or adjourn any such sale of the Collateral from time to time by an announcement

at the time and place of sale or by announcement at the time and place of such

postponed or adjourned sale, without being required to give a new notice of

sale. Borrower agrees that Bank has no obligation to preserve rights against prior parties to the Collateral. The

Bank’s compliance with any applicable state or federal requirements in

connection with the disposition of the Collateral shall not be considered to

adversely affect the commercial reasonableness of any sale of the Collateral.

Further, to the extent permitted by law, Borrower waives and releases any cause

of action and claim against Bank as a result of Bank's possession, collection

or sale of the Collateral, any liability or penalty for failure of Bank to

comply with any requirement imposed on Bank relating to notice of sale, holding

of sale or reporting of sale of the Collateral, and any right or redemption

from such sale.

 

6. GENERAL

 

6.1                           Borrower waives the

right to direct the application of any and all payments at any time or times

hereafter received by Bank on account of Borrower's Liabilities and Borrower

agrees that Bank shall have the continuing exclusive right to apply and

re-apply any and all such payments in such manner  as Bank may deem advisable, notwithstanding any entry by Bank upon

any of its books and records.

 

6.2                           This Agreement and

Other Agreements shall be binding upon and inure to the benefit of the heirs,

representatives, successors and assigns of Borrower and Bank.

 

6.3                           Bank's failure to

require strict performance by Borrower of any provision of this Agreement shall

not waive, affect or diminish any right of Bank thereafter to demand strict

compliance and performance therewith. Any suspension or waiver by Bank of an

Event of Default by Borrower under this Agreement or the Other Agreements shall

not suspend, waive or affect any other Event of Default by Borrower under this

Agreement or the Other Agreements, whether the same is prior or subsequent

thereto and whether of the same or of a different type. None of the undertakings,

agreements, warranties, covenants and representations of Borrower contained in

this Agreement or the Other Agreements and no Event of Default by Borrower

under this Agreement or the Other Agreements shall be deemed to have been

suspended or waived by Bank unless such suspension or waiver is by an

instrument in writing signed by an officer of Bank and directed to Borrower

specifying such suspension or waiver.

 

6.4      If any provision of this Agreement or the

Other Agreements or the application thereof to any person, entity or

circumstance is held invalid or unenforceable, the remainder of this Agreement

and the Other Agreements and the application of such provision to other

Persons, or circumstances will not be affected thereby and the provisions of

this Agreement and the Other Agreements shall be severable in any such

instance.

 

6.5                           Borrower hereby

appoints Bank as Borrower's agent and attorney-in-fact for the purpose of

carrying out the provisions of this Agreement and taking any action and

executing any agreement, instrument or document which Bank may deem necessary

or advisable to accomplish the purposes hereof which appointment is irrevocable

and coupled with an interest. All monies paid for the purposes herein, and all

costs, fees and expenses paid or incurred in connection therewith, shall be

part of Borrower's Liabilities, payable by Borrower to Bank on demand.

 

6.6                           Except as otherwise

specifically provided in this Agreement, Borrower waives any and all notice or

demand which Borrower might be entitled to receive by virtue of any applicable

statute or law, and waives presentment, demand and protest and notice of

presentment, protest, default, dishonor, non-payment, maturity, release,

compromise, settlement, extension or renewal of any or all agreements, instruments

or documents at any time held by Bank on which Borrower may in any way be

liable.

 

6.7                           This Agreement, or a

carbon, photographic or other reproduction of this Agreement or of any

financing statement covering the Collateral or any portion thereof, shall be

sufficient as a financing statement and may be filed as such.

 

6.8                           Except as otherwise

provided in the Other Agreements, if any provision contained in this Agreement

is in conflict with, or inconsistent with any provision in the Other

Agreements, the provision contained in this Agreement shall control.

 

6.9                           The terms and

provisions of this Agreement and the Other Agreements shall supersede any prior

agreement or understanding of the parties hereto, and contain the entire

agreement of the parties hereto with respect to the matters covered herein.

This Agreement and the Other Agreements may not be modified, altered, or

amended except by an agreement in writing signed by Borrower and Bank. This

Agreement shall continue in full force and effect so long as any portion or

component of Borrower's Liabilities shall be outstanding. All of Borrower's

warranties, representations, undertakings, and covenants contained in this

Agreement or the Other Agreements shall survive the termination or cancellation

of the same. Should a claim ("Recovery Claim") be made upon the Bank

at any time for recovery of any amount received by the Bank in payment of

Borrower's Liabilities (whether received from Borrower or otherwise) and should

the Bank repay all or part of said amount by reason of (1) any judgment, decree

or order of any court or administrative body having jurisdiction over Bank or

any of its property; or (2) any settlement or compromise of any such Recovery

Claim effected by the Bank with the claimant (including Borrower), this

Agreement and the security interests granted Bank hereunder shall continue in

effect with respect to the amount so repaid to the same extent as if such

amount had never originally been received by the Bank, notwithstanding any

prior termination of this Agreement, the return of this Agreement to Borrower,

or the cancellation of any note or other instrument evidencing Borrower's

Liabilities.

 

6.10                           This Agreement and

the Other Agreements shall be governed and controlled by the internal laws of

the State of Illinois and not the law of conflicts.

 

6.11    If at anytime or times hereafter, whether or

not Borrower's Liabilities are outstanding at such time, Bank: (a) employs

counsel for advice or other representation, (i) with respect to the Collateral,

this Agreement, the Other Agreements or the administration of Borrower's

Liabilities or the Collateral, (ii) to represent Bank in any litigation,

arbitration, contest, dispute, suit or proceeding or to commence, defend or

intervene or to take any other action in or with respect to any litigation,

contest, dispute, suit or proceeding in any way or respect relating to the

Collateral, this Agreement, the Other Agreements, or Borrower's affairs, or

(iii) to enforce any rights of Bank against Borrower or any other Person or

entity which may be obligated to Bank by virtue of this Agreement or the Other

Agreements; (b) takes any action with respect to administration of Borrower's

Liabilities or to protect, collect, sell, liquidate or otherwise dispose of the

Collateral; and/or (c) attempts to or enforces any of Bank's rights or remedies

under this Agreement or the Other Agreements, the reasonable costs, fees and

expenses incurred by Bank with respect to the foregoing, shall be part of

Borrower's Liabilities, payable by Borrower to Bank on demand.

 

6.12                           The Bank may provide,

without any limitation whatsoever, any information or knowledge the Bank may

have about the undersigned or any matter relating to this agreement and any

related documents to BANK ONE CORPORATION, or any of its subsidiaries or

affiliates or their successors, or to any one or more purchasers or potential

purchasers of this agreement or any related documents, and the undersigned

waives any right to privacy the undersigned may have with respect to such matters.

The Borrower agrees that the Bank may at any time sell, assign or transfer one

or more interests or participations in all or any part of its rights or

obligations in this agreement to one or more purchasers whether or not related

to the Bank.

 

6.13                           BORROWER,

IRREVOCABLY, AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL

ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR

RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE

LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF

ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY

LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER

HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY

LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH.

 

6.14                           BORROWER HEREBY

IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM

OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH

THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR

AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION

HEREWITH OR THEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY ARISING

IN CONNECTION WITH OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR ANY

SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH

ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT

BEFORE A JURY.

 

                IN WITNESS WHEREOF,

this Agreement has been duly executed as of the day and year specified at the

beginning hereof.

 

BORROWER:

	

  EBIX. Com, Inc.

  
	

  an Illinois corporation

  
	

   

  
	

   

  
	

  BY:

  	

  /s/ R. J.

  Baum

  	

   

  
	

   

  	

   

  	

   

  
	

  ITS:

  	

       CFO

  	

   

  

 

Accepted this 2nd day of

July, 2001, at Bank's principal place of business in the City of Chicago, State

of Illinois.

 

AMERICAN

NATIONAL BANK AND

TRUST

COMPANY OF CHICAGO

 

	

  BY:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  ITS:

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