______________________________________________
______________________________________________
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
MEDICAL GRAPHICS CORPORATION
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of: March 31, 1997
[LOGO]
______________________________________________
______________________________________________
TABLE OF CONTENTS
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 CROSS REFERENCES . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY . . . . . . . . . . . 10
Section 2.1 REVOLVING ADVANCES. . . . . . . . . . . . . . . . . . . . 10
Section 2.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
ADDITIONAL INTEREST; PARTICIPATIONS; USURY . . . . . . . . . . . . . 11
Section 2.6 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.7 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE
AND PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.8 CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . . 12
Section 2.9 VOLUNTARY PREPAYMENT; TERMINATION OF CREDIT FACILITY
BY THE BORROWER; PERMANENT REDUCTION OF THE MAXIMUM LINE . . . . . . 13
Section 2.10 MANDATORY PREPAYMENT . . . . . . . . . . . . . . . . . . 14
Section 2.11 PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.12 PAYMENT ON NON-BANKING DAYS . . . . . . . . . . . . . . 14
Section 2.14 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . 15
Section 2.15 LIABILITY RECORDS . . . . . . . . . . . . . . . . . . . 15
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF . . . . . . . . . . . . 15
Section 3.1 GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . 15
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS . . . 15
Section 3.3 ASSIGNMENT OF INSURANCE . . . . . . . . . . . . . . . . . 15
Section 3.4 OCCUPANCY . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.5 LICENSE . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.6 FINANCING STATEMENT . . . . . . . . . . . . . . . . . . . 16
Section 3.7 SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . 17
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE . . 17
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES . . . . . . . . . . 19
ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 20
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION
NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.3 LEGAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . 20
Section 5.4 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE . . . . . . . . . 21
Section 5.6 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.7 REGULATION U . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.8 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.9 TITLES AND LIENS . . . . . . . . . . . . . . . . . . . . 21
Section 5.10 PLANS . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.11 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.12 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . 22
Section 5.13 SUBMISSIONS TO LENDER . . . . . . . . . . . . . . . . . 23
Section 5.14 FINANCING STATEMENTS . . . . . . . . . . . . . . . . . . 23
Section 5.15 RIGHTS TO PAYMENT . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . 24
Section 6.1 REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . 24
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION . . . . . . 27
Section 6.3 ACCOUNT VERIFICATION . . . . . . . . . . . . . . . . . . 27
Section 6.4 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . 27
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS . . . . . . . . . . . . 28
Section 6.6 MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . . . . 28
Section 6.7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.8 PRESERVATION OF EXISTENCE . . . . . . . . . . . . . . . . 29
Section 6.9 DELIVERY OF INSTRUMENTS, ETC . . . . . . . . . . . . . . 29
Section 6.10 COLLATERAL ACCOUNT . . . . . . . . . . . . . . . . . . . 29
Section 6.11 PERFORMANCE BY THE LENDER . . . . . . . . . . . . . . . 29
Section 6.12 MINIMUM BOOK NET WORTH . . . . . . . . . . . . . . . . . 30
Section 6.13 MAXIMUM DEBT TO BOOK NET WORTH RATIO . . . . . . . . . . 31
Section 6.14 MINIMUM NET INCOME . . . . . . . . . . . . . . . . . . . 31
Section 6.15 MINIMUM DEBT SERVICE COVERAGE RATIO . . . . . . . . . . 31
Section 6.16 AMENDMENTS TO FINANCIAL COVENANTS BASED ON AUDIT . . . . 31
Section 6.17 NEW COVENANTS . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2 INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.3 GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.4 INVESTMENTS AND SUBSIDIARIES . . . . . . . . . . . . . . 33
Section 7.5 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS . . . . . . 34
Section 7.8 SALE AND LEASEBACK . . . . . . . . . . . . . . . . . . . 34
-ii-
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS . . . . . . . . . . . 34
Section 7.10 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . 34
Section 7.11 ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.12 DISCOUNTS, ETC . . . . . . . . . . . . . . . . . . . . . 35
Section 7.13 DEFINED BENEFIT PENSION PLANS . . . . . . . . . . . . . 35
Section 7.14 OTHER DEFAULTS . . . . . . . . . . . . . . . . . . . . . 35
Section 7.15 PLACE OF BUSINESS; NAME . . . . . . . . . . . . . . . . 35
Section 7.16 ORGANIZATIONAL DOCUMENTS; S CORPORATION STATUS . . . . . 35
Section 7.17 SALARIES . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . 36
Section 8.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 36
Section 8.2 RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . 38
Section 8.3 CERTAIN NOTICES . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES . . . . . . . . . . . . . 39
Section 9.2 AMENDMENTS, ETC . . . . . . . . . . . . . . . . . . . . . 39
Section 9.3 ADDRESSES FOR NOTICES, ETC . . . . . . . . . . . . . . . 39
Section 9.4 FURTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . 40
Section 9.5 COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.6 COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . 41
Section 9.7 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.8 PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.9 EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . 42
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.11 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . . 42
Section 9.12 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF
JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-iii-
CREDIT AND SECURITY AGREEMENT
Dated as of March 31, 1997
MEDICAL GRAPHICS CORPORATION, a Minnesota corporation (the
"Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising
out of the sale or lease of goods or rendition of services by the Borrower
on an open account or deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this
definition, "control," when used with respect to any specified Person,
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Availability" means the Borrowing Base less (i) the outstanding
principal balance of the Revolving Note and (ii) the Reserve.
"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank as its "base rate" or, if such bank ceases to announce
a rate so designated, any similar successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time, the lesser of:
(a) the Maximum Line less the Norwest Bank Revolving Advances; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 75% of Eligible Accounts; plus
(ii) the lesser of (A) 40% of Eligible Inventory or
(B) $1,500,000; plus
(iii) to the extent necessary to retire the Borrower's
indebtedness to Marquette Bank on the Funding Date, up to
$250,000, until the earlier of (A) the Borrower receives
not less than $750,000 of the Equity Infusion or (B) 90
days from the Funding Date.
"Capital Expenditures" for a period means any expenditure of money for
the purchase or construction of assets, or for improvements or additions
thereto, which are capitalized on the Borrower's balance sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any Collateral
Account, and any items in any Lockbox; together with (i) all substitutions
and replacements for and products of any of the foregoing; (ii) proceeds of
any and all of the foregoing; (iii) in the case of all tangible goods, all
accessions; (iv) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
tangible goods; and (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
-2-
"Collateral Account Agreement" means the Collateral Account Agreement
of even date herewith by and among the Borrower, Norwest Bank and the
Lender.
"Collateral Pledge Agreement" means the Collateral Pledge Agreement of
even date herewith pursuant to which the Borrower pledges to the Lender and
Norwest Bank all of its shares in Medical Graphics F.S.C. and ErgometRx, as
the same may hereafter be amended, supplemented or restated from time to
time.
"Commitment" means the Lender's commitment to make Advances to or for
the Borrower's account pursuant to Article II.
"Credit Facility" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
"Current Maturities of Long Term Debt" as of a given date means the
amount of the Borrower's long-term debt and capitalized leases which will
become due during the fiscal year beginning on the designated date.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes of
determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Debt to Book Net Worth Ratio" as of a given date means the ratio of
the Borrower's Debt to the Borrower's Book Net Worth.
"Debt Service Coverage Ratio" means the ratio of (i) Funds from
Operations MINUS Capital Expenditures to (ii) Current Maturities of Long
Term Debt.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent (3%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
-3-
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts over 120 days past invoice date
or more than 60 days past the stated due date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether foreign
or domestic (provided, however, that there shall be included in
Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the
United States;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender and Norwest Bank including without limitation any payment or
performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii) or
(ix) above; and
-4-
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion, unless otherwise
approved by the Lender on a case by case basis.
"Eligible Inventory" means all Inventory of the Borrower constituting
raw materials and finished goods, at the lower of cost or market value,
exclusive of overhead, as determined in accordance with GAAP; provided,
however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises not approved by the Lender in writing;
located outside of the states, or localities, as applicable, in which
the Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or non-
negotiable warehouse receipt, xxxx of lading or other document of
title; on consignment from or to any Person or subject to any
bailment;
(ii) Supplies, packaging, service parts, research, sample or
demonstration Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's operations;
(v) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such Inventory;
(viii) Inventory constituting Eligible Export Inventory, as
defined in the Norwest Bank Credit Agreement;
(ix) Inventory that is subject to a security interest in favor of
any Person other than the Lender and Norwest Bank; and
(x) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all
-5-
present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by the Borrower.
"Equity Infusion" has the meaning given in Section 2.13.
"ErgometRx" means ErgometRx, Inc., a Minnesota corporation.
"Event of Default" has the meaning specified in Section 8.1.
"Facility Fees" has the meaning given in Section 2.6(d).
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus four percent (4.00%), which annual rate shall change when and as the
Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of (i) Net
Income, (ii) depreciation and amortization, (iii) deferred income taxes,
and (iv) other non-cash items, each as determined for such period in
accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower's name, and the goodwill
of the Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Key Management" means Xxxxx X. Xxxxxx and Xxxx X. Xxxxxxx.
-6-
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Norwest Bank and, the Lender, of even date herewith.
"Maturity Date" means April 1, 2000.
"Maximum Line" means $4,100,000, unless said amount is reduced
pursuant to Section 2.9, in which event it means the amount to which said
amount is reduced.
"Medical Graphics F.S.C." means Medical Graphics F.S.C., Inc., a US
Virgin Island corporation.
"Medical Graphics Germany" means Medical Graphics GmbH, a German
corporation.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"Net Income" means fiscal year-to-date after-tax net income, as
determined in accordance with GAAP.
"Norwest Bank" means Norwest Bank Minnesota, National Association, a
national banking association.
"Norwest Bank Credit Agreement" means that certain Credit Agreement by
and between Norwest Bank and the Borrower of even date herewith.
"Norwest Bank Revolving Advances" means the outstanding principal
balance of the revolving advances as of a given date made by Norwest Bank
to the Borrower pursuant to the Norwest Bank Credit Agreement.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including
-7-
specifically, but not limited to, all indebtedness of the Borrower arising
under this Agreement, the Note or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or
hereafter entered into.
"Origination Fee" has the meaning given in Section 2.6(a).
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender of even
date herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in Exhibit C attached hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
-8-
"Reserve" means $0 from the Funding Date through the last day of the
first full calendar month after the Funding Date and shall increase $25,000
on the first day of each calendar month thereafter, up to a maximum amount
of $175,000.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Collateral Pledge Agreement, the Lockbox Agreement, the
Patent and Trademark Security Agreement, and any other document delivered
to the Lender from time to time to secure the Obligations, as the same may
hereafter be amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries.
"Tax Expense" as of any date means state and federal income taxes
recorded by the Borrower for the year-to-date period ending on such date.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations after an Event of Default
pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"Warrant" means the Warrant to purchase not less than 62,500 shares of
the Borrower's common stock, of even date herewith by the Borrower in favor
of the Lender.
-9-
Section 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 REVOLVING ADVANCES. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). The
Lender shall have no obligation to make a Revolving Advance to the extent that
the amount thereof would exceed Availability. The Borrower's obligation to pay
the Revolving Advances shall be evidenced by the Revolving Note and shall be
secured by the Collateral as provided in Article III. Within the limits set
forth in this Section 2.1, the Borrower may borrow, prepay pursuant to Section
2.9 and reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Minneapolis time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or
(ii) any person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person whom the
Lender reasonably believes to be an officer of the Borrower or such a
designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand deposit
account maintained with Norwest Bank unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the Lender's
request, the Borrower shall promptly confirm each telephonic request for an
Advance by executing and delivering an appropriate confirmation certificate
to the Lender. The Borrower shall repay all Advances even if the Lender
does not receive such confirmation and even if the person requesting an
Advance was not in fact authorized to do so. Any request for an Advance,
whether written or telephonic, shall be deemed to be a representation by
the Borrower that the conditions set forth in Section 4.2 have been
satisfied as of the time of the request.
-10-
Section 2.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
ADDITIONAL INTEREST; PARTICIPATIONS; USURY. Interest accruing on the Note shall
be due and payable in arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.2(c)and 2.2(d)
the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to Section 2.2(a), the Borrower shall pay to the Lender interest
of not less than $15,000 per calendar month (the "Minimum Interest Charge")
during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Section 2.2(a) on the date and in the manner
provided in Section 2.7.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a participation in
the Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under this
Agreement, along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with
respect to its participation at a lower rate than the Floating Rate, or
otherwise elects to accept less than its prorata share of such fees,
charges and other amounts due under this Agreement.
(e) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Section 2.6 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of $41,000 (the
"Origination Fee"). The Origination Fee shall be due and payable in twelve
(12) substantially equal monthly installments beginning on the first day of
the first month after the Funding Date. The Lender acknowledges receipt of
$45,000 toward payment of the Origination Fee and the fees, costs and
expenses described in Sections 2.6(c) and 9.6.
-11-
(b) UNUSED LINE FEE. For the purposes of this Section 2.6(b), "Unused
Amount" means the Maximum Line reduced by the Norwest Bank Revolving
Advances and the outstanding principal balance of the Revolving Advances.
The Borrower agrees to pay to the Lender an unused line fee at the rate of
one-quarter of one percent (0.25%) per annum on the average daily Unused
Amount from the date of this Agreement to and including the Termination
Date, due and payable on the first day of each fiscal quarter of the
Borrower in arrears and on the Termination Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rates established from time to time by the Lender as its audit fees
(which fees are currently $62.50 per hour per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
(d) FACILITY FEES. The Borrower shall pay the Lender an annual
facility fee equal to one-quarter of one percent (0.25%) of the Maximum
Line, due and payable on each anniversary of the Funding Date, provided
that this fee when combined with any similar fee paid to Norwest Bank
pursuant to the Norwest Bank Credit Agreement shall not exceed in total
one-quarter of one percent (0.25%) of the Maximum Line.
Section 2.7 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND
PAYABLE. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Except as set forth in
Section 2.2(d), interest shall be payable in arrears on the first day of each
month and on the Termination Date.
Section 2.8 CAPITAL ADEQUACY. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.8:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Return", for any period, means the return as determined by such
Related Lender on the Advances based upon its total capital requirements
and a
-12-
reasonable attribution formula that takes account of the Capital
Adequacy Rules then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the Funding Date are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to
the extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender, any
parent corporation of the Lender and any assignee of any interest of the
Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.8, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.9 VOLUNTARY PREPAYMENT; TERMINATION OF CREDIT FACILITY BY
THE BORROWER; PERMANENT REDUCTION OF THE MAXIMUM LINE. Except as otherwise
provided herein, the Borrower may terminate the Credit Facility or prepay the
Advances in whole at any time or from time to time in part, and, subject to
payment and performance of all Obligations and termination of the Credit
Facility, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrower is entitled by law.
(a) TERMINATION BY BORROWER. The Borrower may terminate the Credit
Facility at any time in accordance with subsection (b).
(b) PERMANENT REDUCTION OF MAXIMUM LINE. The Borrower may at any time
and from time to time, upon at least 30 days' prior written notice to the
Lender, permanently reduce in part or completely the Maximum Line or
terminate the Credit Facility in accordance with the following provisions:
(i) The Borrower may not reduce the Maximum Line to an amount
less than the then-aggregate outstanding balance of the Revolving
Advances.
(ii) If a reduction of the Maximum Line occurs at any time other
than the Maturity Date, the Borrower shall pay to the Lender a premium
in an amount equal to a percentage of the reduction as follows:
-13-
(A) Three percent (3%) if the reduction occurs on or before
the first anniversary of the Funding Date;
(B) Two percent (2%) if the reduction occurs after the
first anniversary of the Funding Date but on or before the second
anniversary of the Funding Date; and
(C) One percent (1%) if the reduction occurs after the
second anniversary of the Funding Date;
PROVIDED, HOWEVER, that if the Borrower reduces the Maximum Line to
zero, the Borrower shall pay to the Lender an amount equal to the
greater of (1) the premium set forth in (A) through (C) above or
(2) the product of $15,000 and the number of calendar months remaining
after the such reduction occurs through the Maturity Date.
(iii) Any reduction in the Maximum Line must be in an amount
not less than $500,000 or an integral multiple thereof.
(iv) If the Borrower reduces the Maximum Line to zero, all
Obligations shall be immediately due and payable.
Section 2.10 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess. Any payment received by the
Lender under this Section 2.10 or under Section 2.9 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.11 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations 1 Banking
Day after receipt by the Lender. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.
Section 2.12 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
-14-
Section 2.13 EQUITY INFUSION. The Borrower intends to sell 444,444
shares of its class A convertible stock to Family Financial Strategies, Inc. in
exchange for $1,500,000, of which $500,000 shall be due and payable on or before
the Funding Date and $1,000,000 shall be due and payable on or before April 30,
1997 (the "Equity Infusion").
Section 2.14 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances to retire its indebtedness to Marquette Capital Bank, N.A. and for
ordinary working capital needs.
Section 2.15 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time during a Default Period notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, xxx for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
-15-
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good xxxxx xxxx to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such
goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5 LICENSE. Without limiting the generality of the Patent and
Trademark Security Agreement, the Borrower hereby grants to the Lender a non-
exclusive, worldwide and royalty-free license to use or otherwise exploit all
trademarks, franchises,
-16-
trade names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Medical Graphics Corporation
000 Xxx Xxxxx Xxxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Center
Xxxxx Xxxxxx xxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Federal Tax Identification No. 00-0000000
Section 3.7 SETOFF. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE. The
Lender's obligation to make the initial Revolving Advance hereunder shall be
subject to the condition precedent that the Lender shall have received all of
the following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
-17-
(b) The Note, properly executed by the Borrower.
(c) The Warrant, properly executed by the Borrower.
(d) Evidence that after giving effect to the initial Advance, and
after accounting for the projected cashflow shortfall through December 31,
1997, satisfying all of the Borrower's obligations to Marquette Capital
Bank, N.A., book overdrafts and closing costs at the time of closing,
Availability shall be not less than $300,000.
(e) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing the Premises, together with a landlord's disclaimer
and consent with respect to each such lease.
(f) The Collateral Pledge Agreement, properly executed by the
Borrower together with certificates representing all of the Borrower's
shares in Medical Graphics F.S.C. and ErgometRx and stock powers with
respect to such certificates.
(g) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank.
(h) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank.
(i) The Patent and Trademark Security Agreement, properly executed by
the Borrower.
(j) Evidence that the Borrower shall receive not later than
simultaneously with the making of the initial Advance, not less than
$500,000 of the Equity Infusion.
(k) Current searches of appropriate filing offices showing that
(i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements or assignments of
patents, trademarks or copyrights have been filed and remain in effect
against the Borrower except those financing statements and assignments of
patents, trademarks or copyrights relating to Permitted Liens or to liens
held by Persons who have agreed in writing that upon receipt of proceeds of
the Advances, they will deliver UCC releases and/or terminations and
releases of such assignments of patents, trademarks or copyrights
satisfactory to the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(l) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required,
-18-
shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf.
(m) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(n) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(o) A certificate of an officer of the Borrower confirming, in his
personal capacity, the representations and warranties set forth in
Article V.
(p) Support agreements in favor of the Lender, properly executed by
the Key Management, each in their personal capacity.
(q) An opinion of counsel to the Borrower, addressed to the Lender.
(r) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(s) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.6 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under
Section 9.6, including all legal expenses incurred through the date of this
Agreement.
(t) A copy of the Norwest Bank Credit Agreement and all other
documents required therein, properly executed by Norwest Bank and the
Borrower, together with evidence that all conditions precedent to making
the initial Norwest Bank Revolving Advance shall be satisfied not later
than simultaneously with the initial Advance.
(u) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
-19-
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Minnesota and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification number is correctly set forth in Section 3.6
hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws;
(iv) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other material agreement, lease or instrument to
-20-
which the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. The Borrower has no Subsidiaries other than
Medical Graphics Germany which the Borrower is in the process of winding up and
Medical Graphics F.S.C.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 1995 and its unaudited financial statements for
the fiscal year-to-date period ended December 31, 1996 and those statements
fairly present the Borrower's financial condition on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the Borrower's business, properties or condition (financial or
otherwise).
Section 5.6 LITIGATION. Except as set forth on Schedule 5.6, there are
no actions, suits or proceedings pending or, to the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Affiliates or the
properties of the Borrower or any of its Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Affiliates, would have a material adverse effect on the financial condition,
properties or operations of the Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 TAXES. Except as set forth on Schedule 5.8 and described
in the letter from the Borrower's accountants attached thereto, the Borrower and
its Affiliates (a) have paid or caused to be paid to the proper authorities when
due all federal, state and local taxes required to be withheld by each of them;
(b) have filed all federal, state and local
-21-
tax returns which to the knowledge of the officers of the Borrower or any
Affiliate, as the case may be, are required to be filed, and (c) have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 TITLES AND LIENS. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming the Borrower as debtor is on file
in any office except to perfect only Permitted Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA;
or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
-22-
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law except
for small quantities in the ordinary course of its business and in strict
compliance with all Environmental Laws, and no Hazardous Substances have
ever been stored, buried, spilled, leaked, discharged, emitted or released
in, on or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not disposed
of Hazardous Substances in such a manner as to create any liability under
any Environmental Law.
(d) There are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law
or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in substantial compliance with
all Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and there is no threat that any
such permit will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's businesses.
-23-
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the
following requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, the Borrower's audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the Borrower's balance sheet as
at the end of such fiscal year and the related statements of the Borrower's
income, retained earnings and cash flows for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and
-24-
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; (ii) a report signed by
such accountants stating that in making the investigations necessary for
said opinion they obtained no knowledge, except as specifically stated, of
any Default or Event of Default hereunder and all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not
the Borrower is in compliance with the requirements set forth in
Sections 6.12, 6.13, 6.14, 6.15 and 7.10; and (iii) a certificate of the
Borrower's chief financial officer stating that such financial statements
have been prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;
(b) as soon as available and in any event within 20 days after the
end of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such
month and for the year to date period then ended, prepared, if the Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments;
and accompanied by a certificate of the Borrower's chief financial officer,
substantially in the form of Exhibit B hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail
the facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the Borrower
is in compliance with the requirements set forth in Sections 6.12, 6.13,
6.14, 6.15 and 7.10;
(c) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, an inventory certification report, an accounts
receivable certification and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory and Eligible Inventory as at the end of such
month or shorter time period;
(d) on the first Banking Day of each week as of the last Banking Day
of the prior week, an inventory certification, signed by the Borrower's
chief financial officer;
(e) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each month
of such
-25-
year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer
as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(f) as soon as possible and in any event within 15 days after the end
of each month, a copy of the Borrower's checking account statement as of
the last day of such month from each bank with which the Borrower maintains
a checking account;
(g) as soon as available and in any event within ten days after they
are due, copies of tax payments and written notice of any and all taxes due
but not paid;
(h) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of $25,000
individually or $100,000 in the aggregate during any fiscal year;
(i) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(j) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event and the action
which the Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation;
(k) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the Borrower proposes
to take with respect thereto, together with a copy of any notice of such
failure required to be provided to the Pension Benefit Guaranty
Corporation;
-26-
(l) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding $25,000 individually or
$100,000 in the aggregate during any fiscal year; (ii) credit memos;
(iii) any goods returned to or recovered by the Borrower; and (iv) any
change in the persons constituting the Borrower's officers and directors;
(m) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral
or such other collateral or the prospect of payment thereof;
(n) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent
to its stockholders;
(o) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(p) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(q) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
The Borrower shall also deliver copies of the items required by subsections (a),
(b) and (e) to each participant in the Credit Facility at the same time as they
are delivered to the Lender.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other
-27-
collateral covered by the Security Documents or any other property of the
Borrower at any time during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such
-28-
discontinuance is, in the Lender's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect
to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 COLLATERAL ACCOUNT.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
-29-
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.11.
-30-
Section 6.12 MINIMUM BOOK NET WORTH. The Borrower will maintain its
Book Net Worth, determined as at the end of each month listed below, at an
amount not less than the amount set forth opposite such period:
MONTH MINIMUM BOOK NET WORTH
----------------- ----------------------
March 31, 1997 $1,355,000
April 30, 1997 $2,200,000
May 31, 1997 $2,120,000
June 30, 1997 $2,565,000
July 31, 1997 $2,565,000
August 31, 1997 $2,660,000
September 30, 1997 $3,400,000
October 31, 1997 $3,520,000
November 30, 1997 $3,765,000
December 31, 1997 $4,570,000
-31-
Section 6.13 MAXIMUM DEBT TO BOOK NET WORTH RATIO. The Borrower will
maintain, during each period or as of each date described below, its Debt to its
Book Net Worth Ratio, determined as at the end of each month, at not more than
the ratio set forth opposite such period:
PERIOD/DATE MAXIMUM DEBT TO BOOK
NET WORTH RATIO
March 30, 1997 7.50 to 1.00
April 30, 1997 5.25 to 1.00
May 31, 1997 5.25 to 1.00
June 30, 1997 through 5.00 to 1.00
August 31, 1997
September 30, 1997 through 4.50 to 1.00
November 30, 1997
December 31, 1997 4.00 to 1.00
Section 6.14 MINIMUM NET INCOME. The Borrower will achieve as of each
date listed below, Net Income, of not less than the amount set forth opposite
such date:
DATE MINIMUM NET INCOME
March 31, 1997 ($2,385,000)
April 30, 1997 ($2,540,000)
May 31, 1997 ($2,195,000)
June 30, 1997 ($2,175,000)
July 31, 1997 ($2,175,000)
August 31, 1997 ($2,080,000)
September 30, 1997 ($1,340,000)
October 31, 1997 ($1,220,000)
November 30, 1997 ($975,000)
December 31, 1997 ($170,000)
Section 6.15 MINIMUM DEBT SERVICE COVERAGE RATIO. The Borrower will
achieve a Debt Service Coverage Ratio of 0.80 to 1.00 as of December 31, 1997,
and 1.00 to 1.00 as of each fiscal year end thereafter.
Section 6.16 AMENDMENTS TO FINANCIAL COVENANTS BASED ON AUDIT. If the
Borrower's Net Income or Book Net Worth as shown on its certified financial
statements for its fiscal year ended December 31, 1996 vary by more than $25,000
from those amounts provided by the Borrower to the Lender in establishing the
financial covenants set forth in
-32-
Sections 6.12 through 6.15, the Lender may amend such financial covenants
to account for such variance.
Section 6.17 NEW COVENANTS. On or before January 31, 1998, The
Borrower and the Lender shall agree on new covenant levels for Sections 6.12,
6.13, 6.14, 6.15 and 7.10 for periods after such date. The new covenant levels
will be based on the Borrower's projections for such periods and shall be no
less stringent than the present levels.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; EXCLUDING, HOWEVER, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto, securing indebtedness for borrowed money permitted under
Section 7.2;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower, not exceeding $50,000 for any one
purchase or $150,000 in the aggregate during any fiscal year and so long as
no Default Period is then in existence and none would exist immediately
after such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any
-33-
other indebtedness or liability evidenced by notes, bonds, debentures or
similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued
by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Xxxxx'x Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) the Borrower's investment, but only to the extent as of
the date hereof, in Medical Graphics Germany Medical Graphics F.S.C.
and ErgometRx;
-34-
(iii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $30,000; and
(iv) advances in the form of progress payments, prepaid rent
not exceeding one month or security deposits.
(b) The Borrower will not create or permit to exist any Subsidiaries
other than Medical Graphics Germany and Medical Graphics F.S.C.
Section 7.5 DIVIDENDS. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The restrictions of the preceding
sentence shall not apply to , sales or leases of the Borrower's surplus,
obsolete or worn-out property, sales to insurers in settlement of insurable
losses and sales of property where such property is being replaced and the
replacement property is subject to the Security Interest. The Borrower will not
in any manner transfer any property without prior or present receipt of full and
adequate consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
-35-
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than $150,000 in the aggregate
during any fiscal year, or more than $50,000 in any one transaction.
Section 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS; S CORPORATION STATUS. The
Borrower will not amend its certificate of incorporation or articles of
incorporation. After prior notice to the Lender, the Borrower may amend its
bylaws provided that such amendments do not adversely affect the Lender. The
Borrower will not become an S Corporation within the meaning of the Internal
Revenue Code of 1986, as amended.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 10% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment. The restrictions of this Section
shall
-36-
not apply to compensation in the form of options or warrants to acquire stock
of the Borrower in favor of such Persons.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become due
and payable;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement for more
than three days after notice from the Lender;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in the Norwest Bank Credit Agreement;
(e) The Borrower shall be or become insolvent, or admit in writing
its inability to pay its debts as they mature, or make an assignment for
the benefit of creditors; or the Borrower shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower; or the Borrower shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower;
(f) An order for relief naming the Borrower as debtor shall be
entered under the United States Bankruptcy Code;
(g) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or by any of its officers) in any agreement,
certificate, instrument or financial statement or other statement
contemplated by or made or
-37-
delivered pursuant to or in connection with this Agreement shall prove to
have been incorrect in any material respect when deemed to be effective;
(h) Except for judgments against the Borrower in connection with the
litigation described on Schedule 5.6 to the extent of $325,000, the
rendering against the Borrower of a final judgment, decree or order for the
payment of money in excess of $25,000 individually or $100,000 in the
aggregate and the continuance of such judgments, decrees or orders
unsatisfied and in effect for any period of 30 consecutive days without a
stay of execution;
(i) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(j) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Plan or to appoint a trustee to administer any Plan; or the Borrower shall
have filed for a distress termination of any Plan under Title IV of ERISA;
or the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency
which is being
-38-
contested in good faith and by proper proceedings and for which it shall
have set aside on its books adequate reserves therefor) or notice of any
state or federal tax liens shall be filed or issued;
(n) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(o) Any event or circumstance with respect to the Borrower shall
occur such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur;
(p) Xxxx X. Xxxxxxxx or Xxxx Xxxx shall cease to be a director on the
Borrower's board of the directors;
(q) Xxxxx X. Xxxxxx shall cease to actively fulfill the duties of the
Borrower's chief executive officer; or
(r) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 RIGHTS AND REMEDIES. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment, notice
of dishonor, protest or further notice of any kind, all of which the
Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower
to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Borrower
hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith,
-39-
the Borrower will on demand assemble the Collateral and make it available
to the Lender at a place to be designated by the Lender which is reasonably
convenient to both parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available
to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be
(a) personally delivered, (b) sent by first
-40-
class United States mail, (c) sent by overnight courier of national
reputation, or (d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below:
If to the Borrower:
Medical Graphics Corporation
000 Xxx Xxxxx Xxxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
Telecopier: 612/484-4874
Attention: Xxxx X. Xxxxxxx
If to the Lender:
Norwest Business Credit, Inc.
Norwest Center
Xxxxx Xxxxxx xxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Telecopier: 612/341-2472
Attention: Xxxxxx X. Xxxxxxx
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to
-41-
any surplus and shall remain liable for any deficiency. The Lender's duty of
care with respect to Collateral in its possession (as imposed by law) shall
be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of
a bailee or other third person, exercises reasonable care in the selection of
the bailee or other third person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not be obligated
to preserve any rights the Borrower may have against prior parties, to
realize on the Collateral at all or in any particular manner or order or to
apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) reasonable attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including without limitation
all such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.7 INDEMNITY. In addition to the payment of expenses pursuant
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(a) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution and
delivery of the Loan Documents or the making of the Advances;
(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation of
the covenant contained in Section 6.4(b); and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with the foregoing and any other
investigative, administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against any such Indemnitee, in any manner related
to or
-42-
arising out of or in connection with the making of the Advances and the
Loan Documents or the use or intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
-43-
Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Minnesota. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States District Court, District of Minnesota, Fourth Division; and (iv) agrees
that a final judgment in any such suit, action or proceeding
[Signature Page Follows]
-44-
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
NORWEST BUSINESS CREDIT, INC. MEDICAL GRAPHICS CORPORATION
By _________________________________ By _________________________________
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxxxx
Its Assistant Vice President Its Chief Executive Officer
-45-
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Compliance Certificate
Exhibit C Premises
___________________
Schedule 2.14 Sources and Uses of Funds
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 5.6 Litigation
Schedule 5.8 Taxes
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$4,100,000 Minneapolis, Minnesota
March 31, 1997
For value received, the undersigned, MEDICAL GRAPHICS CORPORATION,
a Minnesota corporation (the "Borrower"), hereby promises to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Four Million
One Hundred Thousand Dollars ($4,100,000) or, if less, the aggregate unpaid
principal amount of all Revolving Advances made by the Lender to the Borrower
under the Credit Agreement (defined below) together with interest on the
principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the
date hereof until this Note is fully paid at the rate from time to time in
effect under the Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time,
the "Credit Agreement") by and between the Lender and the Borrower. The
principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
MEDICAL GRAPHICS CORPORATION
By _________________________________
Xxxxx X. Xxxxxx
Its Chief Executive Officer
A-2
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Xxxxxx X. Xxxxxxx
Norwest Business Credit, Inc.
Date: _____________________, 199___
Subject: Medical Graphics Corporation
Financial Statements
In accordance with our Credit and Security Agreement dated as of
March 31, 1997 (the "Credit Agreement"), attached are the financial statements
of Medical Graphics Corporation (the "Borrower") as of and for ________________,
_____ (the "Reporting Date") and the year-to-date period then ended (the
"Current Financials"). All terms used in this certificate have the meanings
given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition and the results of its operations as of the date
thereof.
EVENTS OF DEFAULT. (Check one):
/ / The undersigned does not have knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement.
/ / The undersigned has knowledge of the occurrence of a Default or Event
of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
FINANCIAL COVENANTS. I further hereby certify as follows:
1. MINIMUM BOOK NET WORTH. Pursuant to Section 6.12 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________ which / / satisfies / / does not satisfy the requirement that
such amount be not less than $_____________ on the Reporting Date[ as set
forth in table below:
MONTH MINIMUM BOOK NET WORTH
March 31, 1997 $1,355,000
April 30, 1997 $2,200,000
May 31, 1997 $2,120,000
June 30, 1997 $2,565,000
July 31, 1997 $2,565,000
August 31, 1997 $2,660,000
September 30, 1997 $3,400,000
October 31, 1997 $3,520,000
November 30, 1997 $3,765,000
December 31, 1997 $4,570,000
2. MAXIMUM DEBT TO BOOK NET WORTH RATIO. Pursuant to Section 6.13 of
the Credit Agreement, as of the Reporting Date, the Borrower's Debt to its
Book Net Worth Ratio was _____ to 1.00 which / / satisfies / / does not
satisfy the requirement that such ratio be no more than ______ to 1.00 on
the Reporting Date as set forth in table below:
PERIOD/DATE MAXIMUM DEBT TO BOOK NET
WORTH RATIO
March 30, 1997 7.50 to 1.00
April 30, 1997 5.25 to 1.00
May 31, 1997 5.25 to 1.00
June 30, 1997 through 5.00 to 1.00
August 31, 1997
September 30, 1997 through 4.50 to 1.00
November 30, 1997
December 31, 1997 4.00 to 1.00
3. MINIMUM NET INCOME. Pursuant to Section 6.14 of the Credit
Agreement, the Borrower's Net Income for the ________ period ending on the
Reporting Date, was $____________, which / / satisfies / / does not satisfy
the requirement that such amount be not less than $_____________ during
such period as set forth in table below:
B-2
DATE MINIMUM NET INCOME
March 31, 1997 ($2,385,000)
April 30, 1997 ($2,540,000)
May 31, 1997 ($2,195,000)
June 30, 1997 ($2,175,000)
July 31, 1997 ($2,175,000)
August 31, 1997 ($2,080,000)
September 30, 1997 ($1,340,000)
October 31, 1997 ($1,220,000)
November 30, 1997 ($975,000)
December 31, 1997 ($170,000)
4. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to Section 6.15 of
the Credit Agreement, the Depositing Date marks the Borrower's fiscal year
end and the Borrower's Debt Service Coverage Ratio on the Reporting Date
was ____ to 1.00 which / / satisfies / / does not satisfy the requirement
that such amount be not less than 0.80 to 1.00 on December 31, 1997 or 1.00
to 1.00 on December 31 of each year thereafter.
5. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the fiscal year ended
______________, ___, for Capital Expenditures, $__________________ in the
aggregate and at most $______________ in any one transaction, which / /
satisfies / / does not satisfy the requirement that such expenditures not
exceed $150,000 in the aggregate and $50,000 for any one transaction during
such year.
6. SALARIES. As of the Reporting Date, the Borrower / / is / / is
not in compliance with Section 7.17 of the Credit Agreement concerning
salaries.
B-3
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
MEDICAL GRAPHICS CORPORATION
By ____________________________
Its Chief Financial Officer
B-4
Exhibit C to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
[To be completed by Borrower]
Schedule 2.11-1
Schedule 5.1 to Credit and Security
Agreement
TRADE NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF BUSINESS, AND LOCATIONS
OF COLLATERAL
TRADE NAMES, DBAs
-----------------
MedGraphics
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
--------------------------------------------------
Medical Graphics Corporation
000 Xxx Xxxxx Xxxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
OTHER INVENTORY AND EQUIPMENT LOCATIONS
---------------------------------------
None.
Schedule 5.1-1
Schedule 5.6 to Credit and Security
Agreement
Litigation
Schedule 5.1-1
Schedule 5.8 to Credit and Security
Agreement
Taxes
Schedule 5.1-1
Schedule 7.1 to Credit and Security
Agreement
PERMITTED LIENS
Creditor Collateral Jurisdiction Filing Date Filing No.
-------- ---------- ------------ ----------- ----------
Norwest Bank All Equipment, MN Secretary of March 27, 1927796
Inventory, State 1997
Accounts, General
Intangibles, and
foreign accounts
(subject to an
Intercreditor
Agreement
between Norwest
Bank and the
Lender).
Norwest Bank All Equipment, MN Secretary of March 27, 1927797
Inventory, State 1997
Accounts, General
Intangibles, and
foreign accounts
(subject to an
Intercreditor
Agreement
between Norwest
Bank and the
Lender).
Schedule 7.1-1
Schedule 7.2 to Credit and Security
Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
Indebtedness
------------
Creditor Principal Maturity Date Monthly Collateral
Amount Payment
-------- --------- ------------- ------- ----------
Norwest Bank $1,750,000 April 1, 1998 Revolving See Permitted Liens
Line of Credit Schedule
Guaranties
----------
Primary Obligor Amount and Description of Beneficiary of Guaranty
Obligation Guaranteed
--------------- ------------------------- -----------------------
None
Schedule 7.1-1
