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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
PRIMESOURCE HEALTHCARE, INC.
PRIMESOURCE SURGICAL, INC.
BIMECO, INC.
(as Borrowers)
AND
XXXXX FARGO BUSINESS CREDIT, INC.
(as Lender)
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DECEMBER 10, 2003
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Table of Contents
ARTICLE I DEFINITIONS........................................................1
Section 1.1 Definitions...................................................1
Section 1.2 Other Definitional Terms; Rules of Interpretation............12
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...........................13
Section 2.1 Revolving Advances...........................................13
Section 2.2 Procedures for Requesting Advances...........................13
Section 2.3 Increased Costs; Capital Adequacy............................14
Section 2.4 Letters of Credit............................................15
Section 2.5 Special Account..............................................16
Section 2.6 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement..................................16
Section 2.7 Obligations Absolute.........................................17
Section 2.8 Inventory Appraisals.........................................17
Section 2.9 Interest; Minimum Interest Charge; Default Interest;
Participations; Clearance Days; Usury........................18
Section 2.10 Fees.........................................................19
Section 2.11 Time for Interest Payments; Payment on
Non-Banking Days; Computation of Interest and Fees...........21
Section 2.12 Lockbox; Collateral Account; Application of Payments.........21
Section 2.13 Discretionary Nature of this Facility; Termination by
the Lender; Automatic Renewal................................22
Section 2.14 Voluntary Prepayment; Termination of the Credit
Facility by the Borrower.....................................23
Section 2.15 Mandatory Prepayment.........................................23
Section 2.16 Revolving Advances to Pay Obligations........................23
Section 2.17 Use of Proceeds..............................................23
Section 2.18 Liability Records............................................23
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF..............................24
Section 3.1 Grant of Security Interest...................................24
Section 3.2 Notification of Account Debtors and Other Obligors...........24
Section 3.3 Assignment of Insurance......................................24
Section 3.4 Occupancy....................................................24
Section 3.5 License......................................................25
Section 3.6 Financing Statement..........................................25
Section 3.7 Setoff.......................................................26
Section 3.8 Collateral...................................................26
ARTICLE IV CONDITIONS OF WILLINGNESS TO CONSIDER LENDING.....................27
Section 4.1 Conditions Precedent to Lender's Willingness to
Consider Making the Initial Revolving Advance and
Letter of Credit.............................................27
Section 4.2 Conditions Precedent to All Advances and Letters of
Credit.......................................................29
ARTICLE V REPRESENTATIONS AND WARRANTIES....................................29
Section 5.1 Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Federal Employer
Identification Number........................................29
Section 5.2 Capitalization...............................................30
Section 5.3 Authorization of Borrowing; No Conflict as to Law or
Agreements...................................................30
Section 5.4 Legal Agreements.............................................30
Section 5.5 Subsidiaries.................................................30
Section 5.6 Financial Condition; No Adverse Change.......................31
Section 5.7 Litigation...................................................31
Section 5.8 Regulation U.................................................31
Section 5.9 Taxes........................................................31
Section 5.10 Titles and Liens.............................................31
Section 5.11 Intellectual Property Rights.................................31
Section 5.12 Plans........................................................33
Section 5.13 Default......................................................33
Section 5.14 Environmental Matters........................................33
Section 5.15 Submissions to Lender........................................34
Section 5.16 Financing Statements.........................................34
Section 5.17 Rights to Payment............................................35
Section 5.18 Financial Solvency...........................................35
ARTICLE VI COVENANTS.........................................................35
Section 6.1 Reporting Requirements.......................................36
Section 6.2 Financial Covenants..........................................39
Section 6.3 Permitted Liens; Financing Statements........................40
Section 6.4 Indebtedness.................................................41
Section 6.5 Guaranties...................................................42
Section 6.6 Investments and Subsidiaries.................................42
Section 6.7 Dividends and Distributions..................................43
Section 6.8 Salaries.....................................................43
Section 6.9 Key Person Life Insurance....................................43
Section 6.10 Books and Records; Inspection and Examination................43
Section 6.11 Account Verification.........................................43
Section 6.12 Compliance with Laws.........................................44
Section 6.13 Payment of Taxes and Other Claims............................44
Section 6.14 Maintenance of Properties....................................44
Section 6.15 Insurance....................................................45
Section 6.16 Preservation of Existence....................................45
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Section 6.17 Delivery of Instruments, etc.................................45
Section 6.18 Sale or Transfer of Assets; Suspension of Business
Operations...................................................45
Section 6.19 Consolidation and Merger; Asset Acquisitions.................46
Section 6.20 Sale and Leaseback...........................................46
Section 6.21 Restrictions on Nature of Business...........................46
Section 6.22 Accounting...................................................46
Section 6.23 Discounts, etc...............................................46
Section 6.24 Plans........................................................46
Section 6.25 Place of Business; Name......................................46
Section 6.26 Constituent Documents; S Corporation Status..................47
Section 6.27 Performance by the Lender....................................47
ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES...........................47
Section 7.1 Events of Default............................................47
Section 7.2 Rights and Remedies..........................................50
Section 7.3 Certain Notices..............................................51
ARTICLE VIII MISCELLANEOUS...................................................51
Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws.........51
Section 8.2 Amendments, Etc..............................................51
Section 8.3 Addresses for Notices; Requests for Accounting...............52
Section 8.4 Further Documents............................................52
Section 8.5 Costs and Expenses...........................................52
Section 8.6 Indemnity....................................................52
Section 8.7 Participants.................................................53
Section 8.8 Execution in Counterparts; Telefacsimile Execution...........53
Section 8.9 Retention of Borrower's Records..............................54
Section 8.10 Binding Effect; Assignment; Complete Agreement;
Exchanging Information.......................................54
Section 8.11 Severability of Provisions...................................54
Section 8.12 Headings.....................................................54
Section 8.13 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial...................................................54
Section 8.14 Appointment of Borrower Agent................................55
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CREDIT AND SECURITY AGREEMENT
Dated as of December 10, 2003
PrimeSource Healthcare, Inc., a Massachusetts corporation
("Healthcare" and in its capacity as agent for the other Borrowers, the
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"Borrower-Agent"), PrimeSource Surgical, Inc., a Delaware corporation
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("Surgical"), and Bimeco, Inc., a Florida corporation ("Bimeco" and jointly and
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severally, individually and collectively with Healthcare and Surgical, the
"Borrower"), and XXXXX FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the
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"Lender"), hereby agree as follows:
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ARTICLE I
DEFINITIONS
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Section 1.1 Definitions. For all purposes of this Agreement,
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except as otherwise expressly provided, the following terms shall have the
meanings assigned to them in this Section or in the Section referenced after
such term:
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including 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) 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.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including 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, restated, supplemented or otherwise modified from time to time.
"Availability" means the difference of (i) the Borrowing Base
and (ii) the sum of (A) the outstanding principal balance of the
Revolving Note and (B) the L/C Amount.
"Appraised Net Orderly Liquidation Value" initially means an
amount equal to sixty percent (60%) of (the sum of (i) the gross book
value of the Inventory less (ii) the value of the Inventory not
determined to be Eligible Inventory), with such sixty percent (60%)
figure to be adjusted up or down from time to time based on various
factors affecting liquidation sales, including, without limitation,
fluctuations in market and inventory conditions, all as determined by
Lender and its appraisers.
"Banking Day" means a day on which the Federal Reserve Bank of
New York is open for business.
"Base Rate" means the rate of interest publicly announced from
time to time by Xxxxx Fargo Bank National Association at its principal
office in San Francisco as its "prime rate", with the understanding that
the "prime rate" is one of Xxxxx Fargo's base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates
of interest are calculated for loans making reference thereto.
"Borrowing Base" means at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) the sum of:
(i) 80% of Eligible Accounts, plus
(ii) the lesser of (A) the product of the Inventory
Advance Rate times the Appraised Net Orderly
Liquidation Value, or (B) $3,750,000, less
(iii) any commissions due from the Borrower to its
sales representatives which are in excess of
$450,000.
The foregoing notwithstanding, if the Accounts of the
Borrower suffer a dilution at any time (on a
year-to-date basis) resulting from bad debts, credit
memos, returned merchandise or any other reason or
any combination thereof (other than payments) in an
amount equal to or greater than five (5%) percent of
consolidated net sales (on a year-to-date basis), the
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Lender will reduce the advance rate for the Eligible
Accounts, as specified in the Borrowing Base, by that
amount by which the dilution exceeds five (5%)
percent of such consolidated net sales. For the
purposes of calculating consolidated net sales under
this section, cash sales shall be excluded.
"Capital Expenditures" means for a period, any expenditure of
money during such period for the lease, purchase or other acquisition of
any capital asset, or for the lease of any other asset whether payable
currently or in the future.
"Change of Control" means the occurrence of any of the following
events:
(a) any Person or "group" (as such term is used in
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934)
is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934, except that
a Person will be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% percent of
the voting power of all classes of voting stock of the Borrower.
(b) During any consecutive two-year period,
individuals who at the beginning of such period constituted the
board of Directors of the Borrower (together with any new
Directors whose election to such board of Directors, or whose
nomination for election by the owners of the Borrower, was
approved by a vote of 66-2/3% of the Directors then still in
office who were either Directors at the beginning of such period
or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
board of Directors of the Borrower then in office.
"Collateral" means all of the Borrower's Accounts, chattel
paper, deposit accounts, documents, Equipment, General Intangibles,
goods, instruments, Inventory, Investment Property, letter-of-credit
rights, letters of credit, 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) in the case of all goods, all accessions; (iii) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or hereafter
covering such goods; (v) all collateral subject to the Lien of any
Security Document; (vi) any money, or other assets of the Borrower that
now or hereafter come into the possession, custody, or control of the
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Lender; (vii) all sums on deposit in the Special Account; and (viii)
proceeds of any and all of the foregoing.
"Collateral Account" means the "Lender Account" as defined in
the Lockbox and Collection Account Agreement.
"Constituent Documents" means with respect to any Person, as
applicable, such Person's certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of
organization, limited liability company agreement, management agreement,
operating agreement, shareholder agreement, partnership agreement or
similar document or agreement governing such Person's existence,
organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person's owners.
"Copyright Security Agreement" means the Copyright Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"Credit Facility" means the discretionary credit facility being
made available to the Borrower by the Lender under Article II.
"Debt" means of a Person as of a given date, 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 for such Person and 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.
"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 day a
Default or Event of Default occurs 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 interest rate equal to three
percent (3%) over the Floating Rate, which interest rate shall change
when and as the Floating Rate changes.
"Director" means a director if the Borrower is a corporation, a
manager or managing member if the Borrower is a limited liability
company, or a general partner if the Borrower is a partnership.
"Earnings Covenant" means the covenant specified in Section
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6.2(b).
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"Earnings Before Taxes" means for a period, pre-tax earnings
from continuing operations but including extraordinary losses.
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"Eligible Accounts" means all unpaid Accounts arising from the
sale or lease of goods or the performance of services, net of any
credits, but excluding any such Accounts having any of the following
characteristics:
(i) That portion of Accounts unpaid 90 days or
more after the invoice 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, including progress xxxxxxxx,
and that portion of Accounts for which an invoice has not been
sent to the applicable account debtor;
(iv) Accounts constituting proceeds of any item of
Inventory to the extent that such item was produced or sold in
violation of the copyright, trademark or patent of any third
party;
(v) 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);
(vi) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned to
the Lender, in the Lender's possession or control, and with
respect to which a control agreement concerning the
letter-of-credit rights is in effect, and acceptable to the
Lender in all respects, in its sole discretion, or (B) covered
by a foreign receivables insurance policy acceptable to the
Lender in its sole discretion;
(vii) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone out
of business;
(viii) Accounts owed by an Owner, Subsidiary,
Affiliate, Officer or employee of the Borrower;
(ix) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject to
any Lien in favor of any Person other than the Lender, except
Liens securing indebtedness permitted under Section 6.4(f);
(x) That portion of Accounts that has been
restructured, extended, amended or modified in any material
respect;
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(xi) That portion of Accounts that constitutes
advertising, finance charges, service charges or excise taxes;
(xii) Accounts owed by an account debtor, regardless
of whether otherwise eligible, to the extent that the balance of
such Accounts exceeds 20% of the aggregate amount of all
Eligible Accounts, unless otherwise waived by the Lender in its
sole discretion with respect to a Large Transaction;
(xiii) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 50% or more of the total
amount due under Accounts from such debtor is ineligible
hereunder (such 50% figure shall reduce to 40% thirty (30) days
from the date of this Agreement, and shall further reduce by 5%
on the same numerical day each month thereafter until it reaches
25% where it shall remain thereafter); and
(xiv) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the
lower of cost or market value as determined in accordance with GAAP; but
excluding any Inventory having any of the following characteristics:
(i) Inventory that is: in-transit; located at any
warehouse, job site or other premises (other than rental
Inventory in the possession of customers and which is allowed
under clause (ix) below) not approved by the Lender in writing;
located in any location in which the Lender does not have a
perfected 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
any Person; on consignment to any Person or subject to any
bailment unless such consignee or bailee has executed an
agreement with the Lender;
(ii) Supplies, packaging, maintenance parts or
sample Inventory, but not demonstration Inventory used by sales
representative;
(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) Any portion of perishable or live Inventory to
the extent the aggregate market value is over $300,000;
(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;
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(viii) Inventory that is subject to a Lien in favor
of any Person other than the Lender, except Liens securing
indebtedness permitted under Section 6.4(f);
(ix) Inventory that is in the possession of
Borrower's customers pursuant to rental or other similar
agreements or arrangements, except for (1) such Inventory that
Borrower's customers possess as of the date hereof, and (2) such
Inventory that is acquired and possessed by Borrower's customers
after the date hereof provided that the rental or other
agreement executed by such customer contains provisions in favor
of Lender permitting Lender to exercise its rights and remedies
in the Inventory without interference; and
(x) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"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.
"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 present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including
specifically the goods described in any equipment schedule or list
herewith or hereafter furnished to the Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group which includes the Borrower
and which is treated as a single employer under Section 414 of the IRC.
"Event of Default" has the meaning specified in Section 7.1.
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"Financial Covenants" means the covenants set forth in Section
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6.2.
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"Floating Rate" means an annual interest rate equal to the sum
of the Base Rate plus three percent (3%), to reduce by one-half of one
percent (.5%) when the Inventory Advance Rate reaches 75% and further
reduced by an additional one percent (1%) when the Inventory Advance
Rate reaches 60%, which interest rate shall change when and as the Base
Rate changes.
"Floating Rate Advance" means an Advance bearing interest at the
Floating Rate.
"Funding Date" means the date of the initial Advance hereunder.
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"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.6.
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"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 all present and future Intellectual
Property Rights, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, books and records, computer
software, computer programs and other computer materials and records,
the right to use the Borrower's name, and the goodwill of the Borrower's
business.
"Guarantor(s)" means any Person now or hereafter guarantying the
Obligations.
"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.
"IRC" means the Internal Revenue Code of 1986, as amended.
"Infringe" means, when used with respect to Intellectual
Property Rights, any infringement or other violation of Intellectual
Property Rights.
"Intellectual Property Rights" means all actual or prospective
rights arising in connection with any intellectual property or other
proprietary rights, including all rights arising in connection with
copyrights, patents, service marks, trade dress, trade secrets,
trademarks, trade names or mask works.
"Intercompany Indebtedness" means (whether or not evidenced by a
note or other instrument) indebtedness of any Borrower payable to the
other Borrower or any Borrower's Subsidiary, and indebtedness of any
Subsidiary of any Borrower payable to any other Subsidiary of any
Borrower or to any Borrower.
"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.
"Inventory Advance Rate" initially means 85%, reducing by 1%
each month beginning on January 1, 2004, until it reaches 60% where it
shall remain thereafter.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities,
security entitlements, securities accounts, commodity contracts,
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commodity accounts, stocks, bonds, mutual fund shares, money market
shares and U.S. Government securities.
"Issuer" means the issuer of any Letter of Credit.
"Large Transaction" means periodic sales by the Borrower to a
single customer that cause an account debtor's account to exceed the 15%
threshhold set forth in clause (xii) of the definition of Eligible
Accounts.
"L/C Amount" means the sum, without duplication, of (i) the
aggregate face amount of any issued and outstanding Letters of Credit
and (ii) the unpaid amount of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters
of credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.4.
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"Licensed Intellectual Property" has the meaning given in
Section 5.11(c).
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"Lien" means any security interest, mortgage, deed of trust,
pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device, including the interest of each lessor
under any capitalized lease and the interest of any bondsman under any
payment or performance bond, in, of or on any assets or properties of a
Person, whether now owned or hereafter acquired and whether arising by
agreement or operation of law.
"Life Insurance Assignment" means an Assignment of Life
Insurance Policy as Collateral to be executed by the owner and the
beneficiary thereof, in form and substance satisfactory to the Lender,
granting the Lender a first priority Lien on the Life Insurance Policy
to secure payment of the Obligations.
"Life Insurance Policy" means individually and collectively, any
key man life insurance policies which are now or hereafter purchased
and/or maintained by the Borrower.
"Loan Documents" means this Agreement, the Note, the Security
Documents and any L/C Application.
"Lockbox" has the meaning specified in the Lockbox and
Collection Account Agreement.
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"Lockbox and Collection Account Agreement" means the Lockbox and
Collection Account Agreement by and among the Borrower, Xxxxx Fargo Bank
N.A. and the Lender, of even date herewith.
"Material Adverse Effect" means any of the following:
(i) a material adverse effect on the business,
operations, results of operations, prospects, assets,
liabilities or financial condition of the Borrower or any of its
Affiliates, except for Fiber Imaging Technologies, Cathtec
Incorporated and Cardiodyne, Inc., so long as such entities
remain inactive;
(ii) a material adverse effect on the ability of
the Borrower to perform its obligations under the Loan
Documents;
(iii) a material adverse effect on the ability of
the Lender to enforce the Obligations or to realize the intended
benefits of the Security Documents, including a material adverse
effect on the validity or enforceability of any Loan Document or
of any rights against any Guarantor, or on the status,
existence, perfection, priority (subject to Permitted Liens) or
enforceability of any Lien securing payment or performance of
the Obligations; or
(iv) any claim against the Borrower or threat of
litigation which would be likely to cause the Borrower to be
liable to pay an amount exceeding $100,000 (net of insurance,
reimbursements, recoveries or indemnifications) or would be an
event described in clauses (i), (ii) and (iii) above (it being
understood that any judgement which is no more than $300,000
rendered against the Borrower in its current arbitration with
Cardiomed, one of Borrower's former distributors, shall not
constitute a Material Adverse Effect for the purposes of this
clause (iv)).
"Maximum Line" means $7,500,000.
"Minimum Interest Charge" has the meaning given in Section
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2.9(b).
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"Multiemployer Plan" means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA
Affiliate contributes or is obligated to contribute.
"Note" means the Revolving Note.
"Obligation of Reimbursement" has the meaning given in Section
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2.6(a).
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"Obligations" means the Note, the Obligation of Reimbursement
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
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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 all indebtedness of the Borrower arising under any Credit
Document or guaranty between the Borrower and the Lender, whether now in
effect or hereafter entered into.
"Officer" means with respect to the Borrower, an officer if the
Borrower is a corporation, a manager or managing member if the Borrower
is a limited liability company, or a general partner if the Borrower is
a partnership.
"Owned Intellectual Property" has the meaning given in Section
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5.11(a).
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"Owner" means with respect to the Borrower, each Person having
legal or beneficial title to an ownership interest in the Borrower or a
right to acquire such an interest.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender of
even date herewith.
"Pension Plan" means a pension plan (as defined in Section 3(2)
of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate and covered by Title IV of ERISA.
"Permitted Lien" has the meaning given in Section 6.3(a).
--------------
"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 (as defined in Section
3(3) of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including the premises
legally described in Exhibit C attached hereto.
---------
"Reportable Event" means a reportable event (as defined in
Section 4043 of ERISA), other than an event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by the
Pension Benefit Guaranty Corporation.
"Revolving Advance" has the meaning given in Section 2.1 herein.
-----------
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit
-------
A hereto.
-
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"Security Documents" means this Agreement, the Lockbox and
Collection Account Agreement, the Patent and Trademark Security
Agreement, the Life Insurance Assignment, if any, and the Copyright
Security Agreement, and any other document delivered to the Lender from
time to time to secure the Obligations, as the same may be amended or
modified from time to time.
"Security Interest" has the meaning given in Section 3.1 herein.
-----------
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.5
------------
herein.
"Subordination Agreement" means any subordination or
intercreditor agreement executed in the Lender's favor and acknowledged
by the Borrower, and any other subordination or intercreditor agreement
accepted by the Lender from time to time.
"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.
"Termination Date" means the earliest of (i) the date the
Borrower terminates the Credit Facility, or (ii) the date the Lender
demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect in the
state designated in Section 8.13 herein 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.
"Xxxxx Fargo Bank Minnesota" means Xxxxx Fargo Bank Minnesota,
National Association.
Section 1.2 Other Definitional Terms; Rules of Interpretation.
---------------------------------------------------
The words "hereof", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP. All
terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC. References to Articles, Sections, subsections,
Exhibits, Schedules and the like, are to Articles, Sections and subsections of,
or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation". Unless the context in which used
herein otherwise clearly requires, "or" has the inclusive meaning represented by
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the phrase "and/or". Defined terms include in the singular number the plural and
in the plural number the singular. Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided, and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor. Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
---------------------------------------
Section 2.1 Revolving Advances. The Lender may, in its sole
-------------------
discretion, make advances to the Borrower-Agent from time to time from the date
all of the conditions set forth in Section 4.1 are satisfied, deemed to be
------------
post-closing matters, or otherwise waived as conditions to funding hereunder, to
the Termination Date, on the terms and subject to the conditions herein set
forth (the "Revolving Advances"). The Lender shall not consider any request for
a Revolving Advance to the extent the amount of the requested Revolving Advance
exceeds Availability. The Borrower's obligation to pay the Revolving Advances
shall be evidenced by the Revolving Note and shall be secured by the Collateral.
Within the limits set forth in this Section 2.1, the Borrower may request
------------
Revolving Advances, prepay pursuant to Section 2.14 and request additional
-------------
Revolving Advances.
Section 2.2 Procedures for Requesting Advances. The Borrower
------------------------------------
shall comply with the following procedures in requesting Revolving Advances:
(a) TYPE OF ADVANCES. Each Advance shall be funded as a
Floating Rate Advance.
(b) TIME FOR REQUESTS. The Borrower-Agent shall request
each Advance not later than 11:00 a.m., Minneapolis, Minnesota time on
the Banking Day which is the date the Advance is to be made. Each such
request shall be effective upon receipt by the Lender, shall be in
writing or by telephone or telecopy transmission, to be confirmed in
writing by the Borrower-Agent if so requested by the Lender (in the form
of Exhibit D), shall be by (i) an Officer of the Borrower-Agent; or (ii)
---------
a person designated as the Borrower-Agent's agent by an Officer of the
Borrower-Agent in a writing delivered to the Lender; or (iii) a person
whom the Lender reasonably believes to be an Officer of the
Borrower-Agent or such a designated agent. The Borrower shall repay all
Advances even if the Lender does not receive such confirmation and even
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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.
-----------
(c) DISBURSEMENT. Upon fulfillment of the applicable
conditions set forth in Article IV and the Lender's determination to
make the Advance, the Lender shall disburse the proceeds of the
requested Advance by crediting the same to the Borrower's demand deposit
account maintained with Xxxxx Fargo Bank N.A. unless the Lender and the
Borrower shall agree in writing to another manner of disbursement.
Section 2.3 Increased Costs; Capital Adequacy.
---------------------------------
If the Lender determines at any time that its Return has been
reduced as a result of any Rule Change, such Lender may so notify the
Borrower-Agent and require the Borrower, beginning fifteen (15) days
after such notice, 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 2.3:
-----------
(i) "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,
including rules requiring financial institutions to maintain
total capital in amounts based upon percentages of outstanding
loans, binding loan commitments and letters of credit.
(ii) "L/C Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding letters
of credit, 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, including those that impose
taxes, duties or other similar charges, or mandate reserves,
special deposits or similar requirements against assets of,
deposits with or for the account of, or credit extended by any
Related Lender, on letters of credit.
(iii) "Related Lender" includes (but is not limited
to) the Lender, any parent of the Lender, any assignee of any
interest of the Lender hereunder and any participant in the
Credit Facility.
(iv) "Return", for any period, means the percentage
determined by dividing (i) the sum of interest and ongoing fees
earned by the Lender under this Agreement during such period, by
(ii) the average capital such Lender is required to maintain
during such period as a result of its being a party to this
Agreement, as determined by such Lender based upon its total
capital requirements and a reasonable attribution formula that
takes account of the Capital Adequacy Rules, and
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L/C Rules then in effect, costs of issuing or maintaining any
Advance or Letter of Credit and amounts received or receivable
under this Agreement or the Notes with respect to any Advance or
Letter of Credit. 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.
(v) "Rule Change" means any change in any Capital
Adequacy Rule, or L/C Rule occurring after the date of this
Agreement, or any change in the interpretation or administration
thereof by any governmental or regulatory authority, but the
term does not include any changes that at the Funding Date are
scheduled to take place under the existing Capital Adequacy
Rules, or L/C Rules or any increases in the capital that the
Lender is required to maintain to the extent that the increases
are required due to a regulatory authority's assessment of that
Lender's financial condition.
The initial notice sent by the Lender shall be sent as promptly as
practicable after such Lender learns that its Return has been reduced,
shall include a demand for payment of the amount necessary to restore
such Lender's Return for the quarter in which the notice is sent, and
shall state in reasonable detail the cause for the reduction in its
Return and its calculation of the amount of such reduction. Thereafter,
such Lender may send a new notice during each calendar quarter setting
forth the calculation of the reduced Return for that quarter and
including a demand for payment of the amount necessary to restore its
Return for that quarter. The Lender's calculation in any such notice
shall be conclusive and binding absent demonstrable error.
Section 2.4 Letters of Credit.
-----------------
(a) The Lender may, in its sole discretion, cause an Issuer
to issue, from the Funding Date to the Termination Date, one or more
irrevocable standby or documentary letters of credit (each, a "Letter of
Credit") for the Borrower's account by guaranteeing payment of the
Borrower's obligations or being a co-applicant. The Lender shall not
consider requests to cause an Issuer to issue any Letter of Credit if
the face amount of the Letter of Credit to be issued would exceed the
lesser of:
(i) An amount to be determined by Lender from time
to time in its sole discretion less the L/C Amount, or
(ii) Availability.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into between the Borrower and the Lender for the
benefit of the Issuer, completed in a manner satisfactory to the Lender
and the Issuer. The terms and conditions set forth in each such L/C
Application shall supplement the terms and conditions hereof, but if the
terms of any such L/C Application and the terms of this Agreement are
inconsistent, the terms hereof shall control.
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(b) Any request to cause an Issuer to issue a Letter of
Credit 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 date
of the request.
Section 2.5 Special Account. If the Credit Facility is
-----------------
terminated for any reason while any Letter of Credit is outstanding, the
Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account. The
Lender may apply amounts on deposit in the Special Account at any time or from
time to time to the Obligations in the Lender's sole discretion. The Borrower
may not withdraw any amounts on deposit in the Special Account as long as the
Lender maintains a security interest therein. The Lender agrees to transfer any
balance in the Special Account to the Borrower when the Lender is required to
release its security interest in the Special Account under applicable law, or
upon expiration of all of the outstanding Letters of Credit.
Section 2.6 Payment of Amounts Drawn Under Letters of Credit;
--------------------------------------------------
Obligation of Reimbursement. The Borrower acknowledges that the Lender, as
-----------------------------
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrower shall pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower shall pay to the Lender on the day a draft
is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and
expenses that the Issuer or the Lender may pay or incur relative to such
draw and the applicable L/C Application, plus interest on all such
amounts, charges and expenses as set forth below (the Borrower's
obligation to pay all such amounts is herein referred to as the
"Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit,
the Borrower authorizes the Lender to make a Revolving Advance in the
amount of the Obligation of Reimbursement and to apply the proceeds of
such Revolving Advance thereto. Such Revolving Advance shall be
repayable in accordance with and be treated in all other respects as a
Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when
the Borrower is unable, because a Default Period exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the draft
until payment in full at the Default Rate. Notwithstanding the
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Borrower's inability to obtain a Revolving Advance for any reason, the
Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance
made under this Section 2.6, shall be evidenced by the Revolving Note
-----------
and shall bear interest as provided in Section 2.9.
-----------
Section 2.7 Obligations Absolute. The Borrower's obligations
---------------------
arising under Section 2.6 shall be absolute, unconditional and irrevocable, and
-----------
shall be paid strictly in accordance with the terms of Section 2.6, under all
-----------
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other
right which the Borrower may have at any time, against any beneficiary
or any transferee of any Letter of Credit (or any persons or entities
for whom any such beneficiary or any such transferee may be acting), or
other person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer under any Letter
of Credit against presentation of a draft or certificate which does not
strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
Section 2.8 Inventory Appraisals. The Lender may from time to
---------------------
time, including, without limitation, every six months beginning three months
from the date of this Agreement, obtain at the Borrower's expense an appraisal
of Inventory by an appraiser acceptable to the Lender in its sole discretion.
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Section 2.9 Interest; Minimum Interest Charge; Default Interest;
---------------------------------------------------
Participations; Clearance Days; Usury.
-------------------------------------
(a) NOTE. Except as set forth in Subsections 2.9(c) and (f),
--------------------------
the outstanding principal balance of the Note shall bear interest at the
Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Subsection 2.9(a), the Borrower shall pay to the
------------------
Lender interest of not less than ten thousand dollars ($10,000) 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
Subsection 2.9(a) on the first day of each month following each
------------------
anniversary of the Funding Date and on the Termination Date.
(c) DEFAULT INTEREST RATE. Upon notice to the Borrower-Agent
from the Lender from time to time, the principal of the Advances
outstanding from time to time shall bear interest at the Default Rate,
effective as of the first day of the fiscal month during which any
Default Period begins through the last day of such Default Period. The
Lender's election to charge the Default Rate shall be in its sole
discretion and shall not be a waiver of any of its other rights and
remedies. The Lender's election to charge interest at the Default Rate
for less than the entire period during which the Default Rate may be
charged shall not be a waiver of its right to later charge the Default
Rate for the entire such period.
(d) CLEARANCE DAYS. Notwithstanding Section 2.12(b)(ii),
--------------------
interest at the interest rate applicable under this Section 2.9 shall
-----------
accrue on the amount of all payments (even if in the form of immediately
available federal funds) for two (2) business day(s) to account for
float purposes.
(e) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances or the Obligation of Reimbursement, the
Borrower shall be obligated to the Lender to pay the full amount of all
interest calculated under this Section 2.9, 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 that calculated under this Section 2.9, or otherwise
------------
elects to accept less than its prorata share of such fees, charges and
other amounts due under this Agreement. No participant shall be entitled
to the benefits of Section 2.3 to a greater extent than the Lender would
-----------
have been had it not sold a participation interest to such participant.
(f) 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. Notwithstanding anything to the contrary contained in
any Loan Document, all agreements which either now are or which shall
become agreements between the Borrower and the Lender are hereby limited
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so that in no contingency or event whatsoever shall the total liability
for payments in the nature of interest, additional interest and other
charges exceed the applicable limits imposed by any applicable usury
laws. If any payments in the nature of interest, additional interest and
other charges made under any Loan Document are held to be in excess of
the limits imposed by any applicable usury laws, it is agreed that any
such amount held to be in excess shall be considered payment of
principal hereunder, and the indebtedness evidenced hereby shall be
reduced by such amount so that the total liability for payments in the
nature of interest, additional interest and other charges shall not
exceed the applicable limits imposed by any applicable usury laws, in
compliance with the desires of the Borrower and the Lender. This
provision shall never be superseded or waived and shall control every
other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
Section 2.10 Fees.
----
(a) ORIGINATION FEE. The Borrower shall pay the Lender a
fully earned and non-refundable origination fee of $75,000 due and
payable upon the execution of this Agreement. The Lender has received
$45,000 toward payment of this fee and the fees, costs and expenses
described in Sections 2.10(b) and 8.5.
---------------- ---
(b) AUDIT FEES. The Borrower shall pay the Lender, on
demand, audit fees in connection with any audits or inspections
conducted by or on behalf of the Lender, not to be more than one audit
per quarter unless there has been an Event of Default or Default, 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 $850.00 per day per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
(c) LETTER OF CREDIT FEES. The Borrower shall pay to the
Lender a fee with respect to each Letter of Credit, if any, accruing on
a daily basis and computed at the annual rate of Two percent (2%), of
the aggregate amount that may then be drawn under it assuming compliance
with all conditions for drawing (the "Aggregate Face Amount"), from and
including the date of issuance of such Letter of Credit until such date
as such Letter of Credit shall terminate by its terms or be returned to
the Lender, due and payable monthly in arrears on the first day of each
month and on the Termination Date; provided, however that during Default
-----------------
Periods, in the Lender's sole discretion and without waiving any of its
other rights and remedies, such fee shall increase to Five percent (5%)
of the Aggregate Face Amount. The foregoing fee shall be in addition to
any and all fees, commissions and charges of the Issuer with respect to
or in connection with such Letter of Credit.
(d) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower shall
pay to the Lender, on written demand, the administrative fees charged by
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the Issuer in connection with the honoring of drafts under any Letter of
Credit, amendments thereto, transfers thereof and all other activity
with respect to the Letters of Credit at the then-current rates
published by the Issuer for such services rendered on behalf of
customers of the Issuer generally.
(e) TERMINATION FEES. If the Credit Facility is terminated
(i) by the Lender during a Default Period that begins on or before the
third anniversary of the Funding Date or (ii) by the Borrower by any
means other than cash flow of the Borrower when no Default or Event of
Default exists hereunder on or before the third anniversary of the
Funding Date the Borrower shall pay to the Lender a fee in an amount
equal to a percentage of the Maximum Line as follows:
(A) three percent (3%) if the termination occurs on or
before the first anniversary of the Funding Date;
(B) two percent (2%) if the termination occurs after the
first anniversary of the Funding Date but on or before the
second anniversary of the Funding Date; and
one percent (1%) if the termination occurs after the second anniversary of the
Funding Date but on or before the third anniversary of the Funding Date.
(f) WAIVER OF TERMINATION FEES. The Borrower will not be
required to pay the termination fees otherwise due under subsection
----------
2.10(e) if such termination is made because of refinancing by an
-------
affiliate of the Lender.
(g) DELINQUENT REPORTING FEES. In the event that the
Borrower fails to comply with any reporting requirements hereunder, the
Borrower shall pay Two Hundred and 00/100 Dollars ($200.00) per day for
each item which is not in compliance, until the Borrower is in
compliance with all applicable reporting requirements.
(h) WIRE TRANSFER FEE. Borrower agrees to pay to the Lender
a fee in the amount of Twenty and 00/100 Dollars ($20.00) for each wire
transfer initiated by or for the account of the Borrower.
(i) AUTOMATED DEPOSIT PROCESSING FEE. Borrower agrees to pay
to the Lender all fees charged to the Lender by Automated Deposit
Processing in connection with the transfer of funds in the Collateral
Account and/or the Lockbox. Such fees are currently in the amount of Two
Hundred and 00/100 Dollars ($200.00) per month.
(j) ANNUAL FACILITY FEE. Commencing with the date hereof,
Borrower agrees to pay to the Lender, , an annual facility fee equal to
0.25% of the Maximum Line which shall be due and payable on the first
day of each successive anniversary of this Agreement commencing on
December 10, 2004.
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(k) MONITORING FEE. Borrower agrees to pay to the Lender, on
or before the first day of each month beginning with January 1, 2004, a
monthly monitoring fee equal to Two Thousand and 00/100 Dollars
($2,000.00).
(l) AUTOMATED CLEARING HOUSE ("ACH"). Borrower agrees to pay
to the Lender all fees charged to the Lender by ACH in connection with
the transfer of funds in the Collateral Account and/or in the Lockbox.
Such fees are currently in the amount of Twenty ($20.00) Dollars per
month.
(m) OTHER FEES. The Lender may from time to time, upon five
(5) days prior notice to the Borrower-Agent during a Default Period,
charge additional fees for Revolving Advances made and Letters of Credit
issued in excess of Availability, for late delivery of reports and for
other reasons, in lieu of imposing interest at the Default Rate. The
Borrower's request for a Revolving Advance or the issuance of a Letter
of Credit at any time after such notice is given and such five (5) day
period has elapsed shall constitute the Borrower's agreement to pay the
fees described in such notice.
Section 2.11 Time for Interest Payments; Payment on Non-Banking
---------------------------------------------------
Days; Computation of Interest and Fees
--------------------------------------
(a) TIME FOR INTEREST PAYMENTS. Interest accruing on
Floating Rate Advances shall be due and payable in arrears on the last
day of each month and on the Termination Date.
(b) 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.
(c) COMPUTATION OF INTEREST AND FEES. 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.
Section 2.12 Lockbox; Collateral Account; Application of
-------------------------------------------------
Payments.
--------
(a) LOCKBOX AND COLLATERAL ACCOUNT.
(i) The Borrower shall instruct all account
debtors to pay all Accounts directly to the Lockbox. If,
notwithstanding such instructions, the Borrower receives any
payments on Accounts, the Borrower shall deposit such payments
into the Collateral Account. The Borrower shall also deposit all
other cash proceeds of Collateral directly to the Collateral
Account. Until so deposited, the Borrower shall hold all such
payments and cash proceeds in trust for and as
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the property of the Lender and shall not commingle such property
with any of its other funds or property. All deposits in the
Collateral Account shall constitute proceeds of Collateral and
shall not constitute payment of the Obligations.
(ii) 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.
(b) APPLICATION OF PAYMENTS.
(i) The Borrower may, from time to time, in
accordance with the Lockbox and Collection Account Agreement,
cause funds in the Collateral Account to be transferred to the
Lender's general account for payment of the Obligations. Except
as provided in the preceding sentence, amounts deposited in the
Collateral Account shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all
Obligations.
(ii) All payments to the Lender shall be made in
immediately available funds and shall be applied to the
Obligations upon receipt by the Lender. Funds received from the
Collateral Account shall be deemed to be immediately available.
The Lender may hold all payments not constituting immediately
available funds for three (3) additional days before applying
them to the Obligations.
Section 2.13 Discretionary Nature of this Facility; Termination
---------------------------------------------------
by the Lender; Automatic Renewal. This Agreement contains the terms and
-----------------------------------
conditions upon which the Lender presently expects to make Advances to the
Borrower. Each Advance shall be in the Lender's sole discretion, and the Lender
need not show that an adverse change has occurred in the Borrower's condition,
financial or otherwise, or that any of the conditions of Article IV have not
been met, in order to refuse to make any requested Advance or to demand payment
of the Obligations. The Lender may at any time terminate the Credit Facility
whereupon the Lender shall no longer consider requests for Advances under this
Agreement. Unless and until terminated by the Lender at any time or by the
Borrower pursuant to Section 2.14, the Credit Facility shall remain in effect.
------------
Notwithstanding anything to the contrary in the Agreement but
without impacting, changing or limiting the demand and discretionary nature of
this Credit Facility in any manner, should the Lender decide to exercise its
rights to terminate this Credit Facility while there is no outstanding Event of
Default, Lender agrees to provide the Borrower with a written notice of its
intentions to terminate this Credit Facility and the Borrower shall have 120
days from receiving such notice to satisfy its outstanding Obligations to the
Lender. Provided that there is no Event of Default hereunder, during such 120
-22-
day period Borrower may continue to request Advances and Lender, in its sole
discretion, may consider such requests and make Advances, all as otherwise
provided in this Agreement. However, in the event that an Event of Default
occurs during such 120 day period, the Borrowers right to such 120 day period
shall immediately terminate and the Lender shall have any and all rights
available to it under this Agreement without restriction.
Section 2.14 Voluntary Prepayment; Termination of the Credit
--------------------------------------------------
Facility by the Borrower. Except as otherwise provided herein, the Borrower may
------------------------
prepay the Advances in whole at any time or from time to time in part. The
Borrower may terminate the Credit Facility at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender
termination fees in accordance with Section 2.10(e). Subject to termination of
----------------
the Credit Facility and payment and performance of all Obligations, the Lender
shall, at the Borrower's expense, release or terminate the Security Interest and
the Security Documents to which the Borrower is entitled by law. In furtherance
of the foregoing, the Lender shall execute and deliver to Borrower-Agent, at
Borrower's expense, such documents, instruments and agreements, and make such
filings and give such notices, as Borrower-Agent may reasonably request to
evidence the release and termination of the Security Interest.
Section 2.15 Mandatory Prepayment. Without notice or demand, if
--------------------
the sum of the outstanding principal balance of the Revolving Advances plus the
L/C Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.15 or
------------
under Section 2.14 may be applied to the Obligations then due and payable, in
------------
such order and in such amounts as the Lender, in its discretion, may from time
to time determine.
Section 2.16 Revolving Advances to Pay Obligations.
----------------------------------------------
Notwithstanding anything in Section 2.1, the Lender may, 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, make a Revolving
------------
Advance in an amount equal to the portion of the Obligations from time to time
due and payable.
Section 2.17 Use of Proceeds. The Borrower shall use the
----------------
proceeds of Advances and each Letter of Credit to repay its existing credit
facilities and for ordinary working capital purposes.
Section 2.18 Liability Records. The Lender may maintain from
------------------
time to time, at its discretion, 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
-23-
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. Each Borrower hereby
---------------------------
pledges, assigns and grants to the Lender a lien and security interest
(collectively referred to as the "Security Interest") in all of its rights,
title and interest in the Collateral, whether now or hereafter acquired, as
security for the payment and performance of the Obligations. Upon request by the
Lender, the Borrower will grant the Lender a security interest in all commercial
tort claims it may have against any Person.
Section 3.2 Notification of Account Debtors and Other Obligors.
--------------------------------------------------
The Lender may at any time (whether or not a Default Period then exists) 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 and open 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.
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 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.
-24-
Section 3.4 Occupancy.
---------
(a) The Borrower hereby irrevocably grants to the Lender the
right to take exclusive 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 Credit Facility, (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers, and (iii) the Default Period has been cured or
waived.
(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 any
-------
other Security Document, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all Intellectual Property Rights of the Borrower for the purpose of: (a)
completing the manufacture of any in-process materials during any Default Period
so that such materials become saleable Inventory, all in accordance with the
same quality standards previously adopted by the Borrower for its own
manufacturing and subject to the Borrower's reasonable exercise of quality
control; and (b) selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
-25-
Section 3.6 Financing Statement. The Borrower authorizes the
--------------------
Lender to file from time to time where permitted by law, such financing
statements naming Borrower as debtor and describing the Collateral as "all
personal property, whether now or hereafter acquired," or describing specific
items of Collateral including, commercial tort claims, as the Lender deems
necessary or useful to perfect the Security Interest. 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 applicable Borrower:
Primesource Healthcare, Inc.
0000 Xxxx Xxxxxxxx Xx.
Xxxxxx, XX 00000
Attn: Xxxxx XxXxxxx, Chief Financial Officer
Federal Employer Identification No. 00-0000000
Primesource Surgical, Inc.
c/o PrimeSource Healthcare, Inc.
0000 Xxxx Xxxxxxxx Xx.
Xxxxxx, XX 00000
Attn: Xxxxx XxXxxxx, Chief Financial Officer
Federal Employer Identification No. 00-0000000
Organizational Identification No. 2619796
Bimeco, Inc.
c/o PrimeSource Healthcare, Inc.
0000 Xxxx Xxxxxxxx Xx.
Xxxxxx, XX 00000
Attn: Xxxxx XxXxxxx, Chief Financial Officer
Federal Employer Identification No. 00-0000000
Organizational Identification No. 484713
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Section 3.7 Setoff. 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
-26-
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.
Section 3.8 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 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. The Lender has no obligation to clean-up or otherwise prepare the
Collateral for sale. The Borrower waives any right it may have to require the
Lender to pursue any third person for any of the Obligations.
ARTICLE IV
CONDITIONS OF WILLINGNESS TO CONSIDER LENDING
---------------------------------------------
Section 4.1 Conditions Precedent to Lender's Willingness to
---------------------------------------------------
Consider Making the Initial Revolving Advance and Letter of Credit. The Lender's
------------------------------------------------------------------
willingness to consider making the initial Advance hereunder or to cause any
Letters of Credit to be issued 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.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any
Person other than the Borrower, together with, in the case of any goods
held by such Person for resale, (i) a consignee's acknowledgment and
waiver of Liens, (ii) UCC financing statements sufficient to protect the
Borrower's and the Lender's interests in such goods, (iii) UCC searches
showing that no other secured party has filed a financing statement
against such Person and covering property similar to the Borrower's
other than the Borrower, or if there exists any such secured party,
evidence that each such secured party has received notice from the
Borrower and the Lender sufficient to protect the Borrower's and the
Lender's interests in the Borrower's goods from any claim by such
secured party, and (iv) an acknowledgment and waiver of Liens from each
-27-
subcontractor who has possession of the Borrower's goods from time to
time.
(d) An acknowledgment and waiver of Liens from each
warehouse in which the Borrower is storing Inventory.
(e) The Lockbox and Collection Account Agreement, properly
executed by the Borrower and Lender.
(f) Control agreements, properly executed by the Borrower
and each bank at which the Borrower maintains deposit accounts.
(g) The Patent and Trademark Security Agreement, properly
executed by the Borrower.
(h) The Copyright Security Agreement, properly executed by
the Borrower.
(i) Current searches of appropriate filing offices showing
that (i) no Liens have been filed and remain in effect against the
Borrower except Permitted Liens or Liens held by Persons who have agreed
in writing that upon receipt of proceeds of the initial Advances, they
will satisfy, release or terminate such Liens in a manner satisfactory
to the Lender, and (ii) 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.
(j) A certificate of the Borrower's Secretary or Assistant
Secretary certifying that attached to such certificate are (i) the
resolutions of the Borrower's Directors and, if required, Owners,
authorizing the execution, delivery and performance of the Loan
Documents, (ii) true, correct and complete copies of the Borrower's
Constituent Documents, and (iii) examples of 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.
(k) Current certificates issued by the Secretaries of State
of Massachusetts, Delaware and Florida certifying that each Borrower is
in compliance with all applicable organizational requirements of such
States, as applicable.
(l) 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.
(m) A certificate of an Officer of the Borrower confirming,
in his capacity as an officer, the representations and warranties set
forth in Article V.
---------
-28-
(n) 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.
(o) Payment of the fees and commissions due under Section
-------
2.10 through the date of the initial Advance or Letter of Credit and
----
expenses incurred by the Lender through such date and required to be
paid by the Borrower under Section 8.5, including all legal expenses
-----------
incurred through the date of this Agreement.
(p) Evidence that after making the initial Revolving
Advance, Availability shall be not less than $250,000.
(q) Such other documents as the Lender in its reasonable
discretion may require.
Section 4.2 Conditions Precedent to All Advances and Letters of
----------------------------------------------------
Credit. The Lender will not consider any request for an Advance or to cause a
------
Letter of Credit to be issued unless:
(a) the representations and warranties contained in Article
V are correct on and as of the date of such Advance or issuance of a
Letter of Credit 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 or issuance of a Letter of Credit which constitutes a
Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
Each Borrower represents and warrants to the Lender as follows:
Section 5.1 Existence and Power; Name; Chief Executive Office;
---------------------------------------------------
Inventory and Equipment Locations; Federal Employer Identification Number.
-------------------------------------------------------------------------------
Healthcare is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Massachusetts and is duly licensed or
qualified to transact business in all jurisdictions where the failure to be so
licensed and qualified would result in a Material Adverse Effect and the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. Surgical is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly licensed or qualified to transact
business in all jurisdictions where the failure to be so licensed and qualified
would result in a Material Adverse Effect and the character of the property
-29-
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary. Bimeco is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Florida and
is duly licensed or qualified to transact business in all jurisdictions where
the failure to be so licensed and qualified would result in a Material Adverse
Effect and 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 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 and
------------
all of the Borrower's material records relating to its business or the
Collateral are kept at that location. The Borrower's chief executive office and
principal place of business is located at the address set forth in Schedule 5.1.
------------
All Inventory and Equipment is located at that location or at one of the other
locations listed in Schedule 5.1 (except for Inventory and Equipment that is in
transit). The Borrower's federal employer identification number is correctly set
forth in Section 3.6.
-----------
Section 5.2 Capitalization. Schedule 5.2 constitutes a correct
-------------- ------------
and complete list of all 5.0% or more ownership interests of the Borrower and
rights to acquire 5.0% or more ownership interests including the record holder,
number of interests and percentage interests on a fully diluted basis, and an
organizational chart showing the ownership structure of all Subsidiaries of the
Borrower.
Section 5.3 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 or company action, as applicable, and do
not and will not (i) require any consent or approval of the Borrower's Owners
that has not been obtained; (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) to the Borrowers' knowledge after due
inquiry, violate any provision of any law, rule or regulation (including
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 Constituent Documents, in either case that
would result in a Material Adverse Effect; (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 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 Lien (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
-30-
Section 5.4 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 5.5 Subsidiaries. Except as set forth in Schedule 5.5
------------ -------------
hereto, the Borrower has no Subsidiaries.
Section 5.6 Financial Condition; No Adverse Change. The Borrower
--------------------------------------
has furnished to the Lender its audited financial statements for its fiscal year
ended June 30, 2003 and unaudited financial statements for the
fiscal-year-to-date period ended October 31, 2003, 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 change in the Borrower's
business, properties or condition (financial or otherwise) which has had a
Material Adverse Effect.
Section 5.7 Litigation. Except as listed on Schedule 5.7
---------- -------------
attached hereto, 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, could have a Material Adverse
Effect.
Section 5.8 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 5.9 Taxes. The Borrower and its Affiliates 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. The Borrower and its
Affiliates have filed all federal, state and local 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 the Borrower and its Affiliates 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 5.10 Titles and Liens. The Borrower has good and
------------------
absolute title to, or a valid leasehold in, all Collateral free and clear of all
Liens other than Permitted Liens. To the Borrowers' knowledge after due inquiry
no financing statement naming the Borrower as debtor is on file in any office
except to perfect only Permitted Liens.
-31-
Section 5.11 Intellectual Property Rights.
----------------------------
(a) OWNED INTELLECTUAL PROPERTY. Schedule 5.11 is a complete
-------------
list of all patents, applications for patents, trademarks, applications
for trademarks, service marks, applications for service marks, mask
works, trade dress and copyrights for which the Borrower is the
registered owner (the "Owned Intellectual Property"). To the best
knowledge of the Borrower and except as disclosed on Schedule 5.11, (i)
--------------
the Borrower owns the Owned Intellectual Property free and clear of all
restrictions (including covenants not to xxx a third party), court
orders, injunctions, decrees, writs or Liens, whether by written
agreement or otherwise, (ii) no Person other than the Borrower owns or
has been granted any right in the Owned Intellectual Property, (iii) all
Owned Intellectual Property is valid, subsisting and enforceable and
(iv) the Borrower has taken all commercially reasonable action necessary
to maintain and protect the Owned Intellectual Property.
(b) AGREEMENTS WITH EMPLOYEES AND CONTRACTORS. The Borrower
has entered into a legally enforceable agreement with each of its key
employees and subcontractors obligating each such Person to assign to
the Borrower, without any additional compensation, any Intellectual
Property Rights created, discovered or invented by such Person in the
course of such Person's employment or engagement with the Borrower
(except to the extent prohibited by law), and further requiring such
Person to cooperate with the Borrower, without any additional
compensation, in connection with securing and enforcing any Intellectual
Property Rights therein, except where the absence of such agreement
could reasonably be expected to result in a Material Adverse Effect;
provided, however, that the foregoing shall not apply with respect to
employees and subcontractors whose job descriptions are of the type such
that no such assignments are reasonably foreseeable.
(c) INTELLECTUAL PROPERTY RIGHTS LICENSED FROM OTHERS.
Schedule 5.11 is a complete list of all agreements under which the
--------------
Borrower has licensed Intellectual Property Rights from another Person
("Licensed Intellectual Property") other than readily available,
non-negotiated licenses of computer software and other intellectual
property used solely for performing accounting, word processing and
similar administrative tasks ("Off-the-shelf Software") and a summary of
any ongoing payments the Borrower is obligated to make with respect
thereto. To the best knowledge of the Borrower or except as disclosed on
Schedule 5.11 and in written agreements copies of which have been given
-------------
to the Lender, the Borrower's licenses to use the Licensed Intellectual
Property are free and clear of all restrictions, Liens, court orders,
injunctions, decrees, or writs, whether by written agreement or
otherwise. Except as disclosed on Schedule 5.11, the Borrower is not
--------------
obligated or under any liability whatsoever to make any payments of a
material nature by way of royalties, fees or otherwise to any owner of,
licensor of, or other claimant to, any Intellectual Property Rights.
-32-
(d) OTHER INTELLECTUAL PROPERTY NEEDED FOR BUSINESS. Except
for Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned
-------------
Intellectual Property and the Licensed Intellectual Property constitute
all Intellectual Property Rights used or necessary to conduct the
Borrower's business as it is presently conducted or as the Borrower
reasonably foresees conducting it.
(e) INFRINGEMENT. Except as disclosed on Schedule 5.11, the
-------------
Borrower has no knowledge of, and has not received any written claim or
notice alleging, any Infringement of another Person's Intellectual
Property Rights (including any written claim that the Borrower must
license or refrain from using the Intellectual Property Rights of any
third party) nor, to the Borrower's knowledge, is there any threatened
claim or any reasonable basis for any such claim, in each case that
could reasonably be expected to result in a Material Adverse Effect.
Section 5.12 Plans. Except as disclosed to the Lender in writing
-----
prior to the date hereof, neither the Borrower nor any ERISA Affiliate (i)
maintains or has maintained any Pension Plan, (ii) contributes or has
contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required under Section 601 of ERISA,
Section 4980B of the IRC or applicable state law). Neither the Borrower nor any
ERISA 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, the IRC or
applicable state law with respect to any Plan. No Reportable Event exists in
connection with any Pension Plan. Each Plan which is intended to qualify under
the IRC is so qualified, and no fact or circumstance exists which may have an
adverse effect on the Plan's tax-qualified status. Neither the Borrower nor any
ERISA Affiliate has (i) any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not
waived, (ii) any liability under Section 4201 or 4243 of ERISA for any
withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan or (iii) any liability or knowledge of any facts 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 routine claims for
benefits under the Plan).
Section 5.13 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 reasonably be expected to have a Material Adverse Effect.
Section 5.14 Environmental Matters.
---------------------
(a) 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 material liability or obligation for either
the Borrower or the Lender under common law of any jurisdiction or under
-33-
any Environmental Law, 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 material
liability.
(b) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
material liability under any Environmental Law.
(c) To the Borrower's best knowledge, 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 material 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.
(d) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
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. The Borrower has
no knowledge of any permit required under any Environmental Law that is
scheduled to expire within 12 months and has no knowledge of any threat
that any such permit will be withdrawn, terminated, limited or
materially changed.
(e) 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.
(f) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents of
which the Borrower has knowledge describing or relating in any way to
the Premises or Borrower's businesses.
Section 5.15 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 (i)
true and correct in all material respects, (ii) does not omit any material fact
necessary to make such information not misleading and, (iii) as to projections,
valuations or proforma financial statements, present a good faith opinion as to
such projections, valuations and proforma condition and results.
Section 5.16 Financing Statements. The Borrower has provided to
--------------------
the Lender duly authorized financing statements and has authorized the filing of
financing statements sufficient when filed to perfect the Security Interest and
the other security interests created by the Security Documents in that
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portion of the Collateral that can be perfected by the filing of a financing
statement. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral which is capable of being perfected by filing financing statements.
None of the Collateral is or will become a fixture on real estate, unless a
sufficient fixture filing or financing statement covering fixtures, as required,
is in effect with respect thereto.
Section 5.17 Rights to Payment. To the Borrower's best
-------------------
knowledge, each right to payment and each instrument, document, chattel paper
and other agreement constituting or evidencing Collateral is (or, in the case of
all future 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.
Section 5.18 Financial Solvency. Both before and after giving
-------------------
effect to the transactions contemplated in the Loan Documents, none of the
Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy Code and
Section 2 of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of
the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or by
taking any action with respect thereto, intends to, nor believes that it
will, incur debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or by
taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; or
(e) at this time contemplates filing a petition in
bankruptcy or for an arrangement or reorganization or similar proceeding
under any law any jurisdiction, nor, to the best knowledge of the
Borrower, is the subject of any actual, pending or threatened
bankruptcy, insolvency or similar proceedings under any law of any
jurisdiction.
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ARTICLE VI
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. Borrower will deliver, or
-----------------------
cause to be delivered, each of the following to the Lender, and which shall be
in form and detail acceptable to the Lender:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and
in any event within 90 days after the end of each fiscal year of the
Borrower, the Borrower will deliver, or cause to be delivered, to the
Lender, 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 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 and all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with
the Financial Covenants; and (iii) a certificate of the Borrower's chief
financial officer stating that such financial statements have been
prepared in accordance with GAAP, fairly represent the Borrower's
financial position and the results of its operations, and whether or not
such officer has knowledge of the occurrence of any Default or Event of
Default and, if so, stating in reasonable detail the facts with respect
thereto.
(b) MONTHLY FINANCIAL STATEMENTS. As soon as available and
in any event within 20 days after the end of each month, the Borrower
will deliver to the Lender an unaudited/internal balance sheet and
statements of income and retained earnings and cash flow 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, at Lenders request, stating
(i) that such financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments and fairly represent the
Borrower's financial position and the results of its operations, (ii)
whether or not such officer has knowledge of the occurrence of any
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Default or Event of Default 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 Financial Covenants.
(c) COLLATERAL REPORTS. Within 15 days after the end of each
month or more frequently if the Lender so requires, the Borrower will
deliver to the Lender agings of the Borrower's accounts receivable and
its accounts payable, an inventory certification report, 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.
In addition, within 2 days after the end of each week or more frequently
if the Lender so requires, Borrower will deliver a calculation of
Borrower's Inventory and an inventory certification report.
(d) PROJECTIONS. At least 30 days before the beginning of
each fiscal year of the Borrower, the Borrower will deliver to the
Lender the projected balance sheets and income statements and cash flow
statements for each month of such year, each in reasonable detail,
representing the Borrower's good faith projections and certified by the
Borrower's chief financial Officer as being identical to the projections
used by the Borrower for internal planning purposes and to his best
knowledge the most accurate projections available, together with a
statement of underlying assumptions and such supporting schedules and
information as the Lender may in its discretion require.
(e) LITIGATION. Immediately after obtaining knowledge
thereof, the Borrower will deliver to the Lender notice in writing of
all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower (i) of the type described in
Section 5.14(c) or (ii) which seek a monetary recovery against the
-------------------------
Borrower in excess of $100,000 (net of insurance, reimbursements,
recoveries or indemnifications).
(f) DEFAULTS. 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 Default or Event of Default,
the Borrower will deliver to the Lender 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
thereof.
(g) PLANS. 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 Pension Plan has occurred, the Borrower will
deliver to the Lender a 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. 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 Pension Plan under Section 412(m) of the
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IRC, the Borrower will deliver to the Lender a 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. As soon as
possible, and in any event with 10 days after the Borrower knows or has
reason to know that it has or is reasonably expected to have any
liability under Section 4201 or 4243 of ERISA for any withdrawal,
partial withdrawal, reorganization or other event under any
Multiemployer Plan, the Borrower will deliver to the Lender a statement
of the Borrower's chief financial Officer setting forth details as to
such liability and the action which Borrower proposes to take with
respect thereto.
(h) DISPUTES. Promptly upon obtaining knowledge thereof, the
Borrower will deliver to the Lender notice of (i) any disputes or claims
by the Borrower's customers; (ii) credit memos; or (iii) any goods
returned to or recovered by the Borrower, to the extent such items
exceed $50,000 individually or $100,000 in the aggregate during any
fiscal year.
(i) OFFICERS AND DIRECTORS. Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice any change in the persons
constituting the Borrower's Officers and Directors.
(j) COLLATERAL. Promptly upon knowledge thereof, the
Borrower will deliver to the Lender notice of any material loss of or
material damage to any Collateral or of any substantial adverse change
in any Collateral or the prospect of payment thereof.
(k) COMMERCIAL TORT CLAIMS. Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice of any commercial tort
claims it may bring against any person that could reasonably be expected
to result in an award in favor of the Borrower in excess of $50,000,
including the name and address of each defendant, a summary of the
facts, an estimate of the Borrower's damages, copies of any complaint or
demand letter submitted by the Borrower, and such other information as
the Lender may request.
(l) INTELLECTUAL PROPERTY.
(i) The Borrower will give the Lender 30 days prior
written notice of its intent to acquire material Intellectual
Property Rights; except for transfers permitted under Section
-------
6.18, the Borrower will give the Lender 30 days prior written
----
notice of its intent to dispose of material Intellectual
Property Rights; and upon request, shall provide the Lender with
copies of all applicable documents and agreements relating to
the foregoing.
(ii) Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of (A) any material
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Infringement of its Intellectual Property Rights by others, (B)
claims that the Borrower is Infringing another Person's
Intellectual Property Rights and (C) any threatened
cancellation, termination or material limitation of its
Intellectual Property Rights that could reasonably be expected
to have Material Adverse Effect.
(iii) Promptly upon receipt, the Borrower will give the
Lender copies of all registrations and filings with respect to
its Intellectual Property Rights.
(m) REPORTS TO OWNERS. Promptly after their distribution,
the Borrower will deliver to the Lender copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its Owners.
(n) SEC FILINGS. Promptly after the sending or filing
thereof, the Borrower will deliver to the Lender copies of all regular
and periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any national securities exchange.
(o) TAX RETURNS. Promptly, and in any event by not later
five days after they are due, copies of the state and federal tax
returns and all schedules thereto and an updated personal financial
statement of each owner of the Borrower and each Guarantor.
(p) VIOLATIONS OF LAW. Promptly upon knowledge thereof, the
Borrower will deliver to the Lender 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.
(q) INVOICES. Borrower will provide Lender with copies of
each invoice and related evidence of delivery of applicable Inventory
which is greater than or equal to $25,000 promptly after Borrower
receives evidence of such delivery.
(r) OTHER REPORTS. From time to time, with reasonable
promptness, the Borrower will deliver to the Lender 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 reasonably request.
Section 6.2 Financial Covenants.
-------------------
(a) CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than $300,000 in the
aggregate during any fiscal year, or more than $50,000 in any one
transaction.
(b) EARNINGS. The Borrower will achieve, during each quarter
and on a year-to-date basis at the end of each quarter, Earnings Before
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Taxes of not less than seventy percent (70%) of its projected Earnings
Before Taxes set forth in the projected income statements required
pursuant to Section 6.1(d) hereof, or delivered to Lender in connection
--------------
with the initial funding of the Credit Facility and attached hereto as
Exhibit E, or, in the alternative, if the Borrower has projected a loss,
---------
Borrower will not incur on a year-to-date basis and at the end of each
quarter, a loss greater than its projected loss. This covenant shall be
tested quarterly commencing March 31, 2004 and re-set annually and shall
initially be tested using those statements attached hereto as Exhibit E.
In the event that the Borrower fails to meet its projections as set
forth in this Section and such failure was based on a change in GAAP
occurring subsequent to the delivery of the projected income statements,
then compliance with this Earnings Covenant shall be based on GAAP as it
existed at the time the projections were delivered until the earlier of
the next set of projections being provided under this Agreement or
Lender requesting that the projections be updated.
Section 6.3 Permitted Liens; Financing Statements.
-------------------------------------
(a) The Borrower will not create, incur or suffer to exist
any Lien 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"):
(i) in the case of any of the Borrower's property
which is not Collateral, covenants, restrictions, rights,
easements and minor irregularities in title, and like of similar
encumbrances which do not materially interfere with the
Borrower's business or operations as presently conducted;
(ii) Liens in existence on the date hereof and
listed in Schedule 6.3 hereto and any extensions thereof,
-------------
securing indebtedness for borrowed money, and Liens securing
indebtedness permitted under Section 6.4(f);
(iii) the Security Interest and Liens created by the
Security Documents;
(iv) purchase money Liens relating to the
acquisition of machinery and equipment of the Borrower not
exceeding the lesser of cost or fair market value thereof not
exceeding $50,000 for any one purchase or $300,000 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;
(v) Liens for taxes not yet due or that are being
contested in good faith and by appropriate proceedings, in each
case if adequate reserves are maintained therefor on the
Borrower's books in accordance with GAAP;
(vi) ordinary course pledges or deposits in
connection with workers' compensation, unemployment insurance
and other social security legislation, other than any Lien
imposed under ERISA;
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(vii) Liens relating to banker's liens, rights of
set-off or similar rights and remedies regarding deposit
accounts or other funds maintained with a creditor depository
institution, securing normal course amounts owing to such bank
with respect to cash management and operating account
arrangements;
(viii) restrictions on transfers of securities
imposed by applicable securities laws;
(ix) Liens arising out of judgments or awards not
resulting in an Event of Default and in respect of which the
Borrower shall in good faith be prosecuting an appeal or
proceedings for review in respect of which there is a subsisting
stay of execution pending such appeal or proceedings;
(x) Liens or purported Liens evidenced by the
filing of precautionary UCC financing statements relating solely
to ordinary course operating leases of personal property
permitted hereunder; and
(xi) Liens securing purchase money indebtedness for
inventory up to $1,500,000 as permitted under Section 6.4(d) as
long as such Lien is (1) limited to just the inventory and not
the proceeds therefrom, and (2) is automatically released upon
any sale of the related inventory, in whole or in part (except
the foregoing sections (1) and (2) shall not apply to the Lien
of the Installment Purchase Agreement with Xxxxxx Healthcare
Corporation existing as of the date hereof, but only with
respect to inventory sold to Borrower pursuant to such Purchase
Agreement prior to the date hereof).
(b) The Borrower will not amend any financing statements in
favor of the Lender except as permitted by law. Any authorization by the
Lender to any Person to amend financing statements in favor of the
Lender shall be in writing.
Section 6.4 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 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 6.4 hereto, and any refinancings,
-------------
refundings, renewals, amendments or extensions thereof (provided that,
the amount of such indebtedness is not increased, and fees and expenses
reasonably incurred, in connection therewith);
(c) indebtedness relating to Permitted Liens, or guaranties
permitted under Section 6.5 to the extent they may be considered
indebtedness;
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(d) upon the prior notification of the Lender, purchase
money indebtedness in an aggregate outstanding principal amount not to
exceed at any time $1,500,000 for inventory purposes, and indebtedness
arising solely from the Capital Expenditures described in Section 6.2(a)
herein;
(e) Intercompany Indebtedness, provided that such
indebtedness shall be unsecured, pledged (if evidence by a note or other
instrument) to the Lender as security for the Obligations, and
subordinated in right of payment to the payment in full of the
Obligations on terms satisfactory to the Lender in its sole discretion;
(f) Indebtedness in an aggregate outstanding principal
amount not to exceed $5,000,000 only if the creditors relating to such
indebtedness have executed intercreditor and subordination agreements
with the Lender, in a form and substance satisfactory to the Lender in
its sole discretion, by which such creditors, among other things, must
agree to (1) fully subordinate their security interests in the Borrower
or the Collateral to that of the Lenders interest; (2) stand still with
respect to the Collateral until the Obligations have been satisfied in
full; and (3) not accept any payment with respect to such indebtedness
until the Obligations have been satisfied in full, or on terms and
conditions otherwise agreed to by Lender in its sole discretion; and
(g) indebtedness that may be deemed to exist pursuant to any
surety, customs and appeal, statutory or performance bonds and similar
obligations, provided that such indebtedness is not yet due, payable or
delinquent, or is otherwise being contested in good faith with adequate
reserves set aside therefor, provided that such indebtedness does not in
the aggregate exceed $100,000.
Section 6.5 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 6.4 hereto, and any
------------
refinancings, renewals, replacements, or extensions of the foregoing.
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Section 6.6 Investments and Subsidiaries. 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
any partnership or joint venture, except:
(a) 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);
(b) travel advances or loans to the Borrower's Officers and
employees not exceeding at any one time an aggregate of $5,000;
(c) advances in the form of progress payments, prepaid rent
not exceeding one month or security deposits;
(d) current investments in the Subsidiaries in existence on
the date hereof and listed in Schedule 5.5 hereto; and
------------
(e) Intercompany Indebtedness to the extent permitted under
Section 6.4(e).
Section 6.7 Dividends and Distributions. 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 6.8 Salaries. The Borrower will not pay excessive or
--------
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or, without the written consent of the Lender in its sole
discretion, 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.
Section 6.9 Key Person Life Insurance. The right to receive the
-------------------------
proceeds of the Life Insurance Policy shall be assigned to the Lender by the
Life Insurance Assignment or other instrument reasonably acceptable to the
Lender and the applicable insurance provider.
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Section 6.10 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 reasonably 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 company
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 hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender, at the Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding the Borrower. The Borrower will permit
the Lender, or its employees, accountants, attorneys or agents, to examine and
inspect any Collateral or any other property of the Borrower at any time during
ordinary business hours upon two Banking Day's prior notice thereof.
Section 6.11 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 6.12 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 material liability or
obligation under the common law of any jurisdiction or any Environmental
Law.
Section 6.13 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 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 upon any properties of
the Borrower; provided, that the Borrower shall not be required to pay any such
-44-
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 6.14 Maintenance of Properties.
-------------------------
(a) The Borrower will keep and maintain the Collateral 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 6.14 shall
-------------
prevent the Borrower from discontinuing the operation and maintenance of
any of its properties if such discontinuance is, in the Borrower's
judgment, desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender. The Borrower will
take all commercially reasonable steps necessary to protect and maintain
its Intellectual Property Rights.
(b) The Borrower will defend the Collateral against all
Liens, claims or demands of all Persons (other than the Lender) claiming
the Collateral or any interest therein. The Borrower will keep all
Collateral free and clear of all Liens except Permitted Liens. The
Borrower will take all commercially reasonable steps necessary to
prosecute any Person Infringing its Intellectual Property Rights and to
defend itself against any Person accusing it of Infringing any Person's
Intellectual Property Rights.
Section 6.15 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 maintain business interruption insurance and 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. All policies of liability insurance required hereunder shall
name the Lender as an additional insured.
Section 6.16 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 6.17 Delivery of Instruments, etc. Upon request by the
------------------------------
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel paper constituting Collateral, duly endorsed
or assigned by the Borrower.
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Section 6.18 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 in connection with the
ordinary course replacement or disposition of equipment, and will not liquidate,
dissolve or suspend business operations. The Borrower will not transfer any part
of its ownership interest in any Intellectual Property Rights and will not
permit any agreement under which it has licensed Licensed Intellectual Property
to lapse, except that the Borrower may transfer such rights or permit such
agreements to lapse if it shall have reasonably determined that the applicable
Intellectual Property Rights are no longer useful in its business. If the
Borrower transfers any Intellectual Property Rights for value, the Borrower will
pay over the proceeds to the Lender for application to the Obligations. The
Borrower will not license any other Person to use any of the Borrower's
Intellectual Property Rights, except that the Borrower may grant licenses in the
ordinary course of its business in connection with sales of Inventory or
provision of services to its customers.
Section 6.19 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 6.20 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 6.21 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.
Section 6.22 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 6.23 Discounts, etc. After notice from the Lender, with
---------------
respect to a particular account debtor the Borrower will not grant any discount,
credit or allowance to any customer of the Borrower or accept any return of
goods sold. The Borrower will not at any time materially modify, amend,
subordinate, cancel or terminate the obligation of any account debtor or other
obligor of the Borrower.
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Section 6.24 Plans. Unless disclosed to the Lender pursuant to
-----
Section 5.12, neither the Borrower nor any ERISA Affiliate will (i) adopt,
create, assume or become a party to any Pension Plan, (ii) incur any obligation
to contribute to any Multiemployer Plan, (iii) incur any obligation to provide
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required by law) or (iv) amend any Plan in
a manner that would materially increase its funding obligations.
Section 6.25 Place of Business; Name. The Borrower will not
-------------------------
transfer its chief executive office or principal place of business, or move,
relocate or close any business location without providing thirty (30) days prior
written notice to Lender. 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 or
jurisdiction of organization.
Section 6.26 Constituent Documents; S Corporation Status. The
----------------------------------------------
Borrower will not materially amend its Constituent Documents without the
Lender's prior written consent. The Borrower will not become an S Corporation.
Section 6.27 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 6.13 and 6.15,
----------------------
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 the payment of taxes, the satisfaction of Liens, 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
Default 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 6.27.
------------
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ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
--------------------------------------
Section 7.1 Events of Default. Notwithstanding that the Lender
-----------------
may demand immediate payment of the Obligations at any time, whether or not a
Default Period then exists, and without waiving or limiting in any respect the
Lender's right to so demand payment of the Obligations at any time, this
Agreement sets forth a non-exclusive list of certain critical events after the
occurrence of which the Lender expects that it would demand immediate payment of
the Obligations and exercise its remedies. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations on demand or
on any portion of the Obligations that otherwise becomes due and
payable;
(b) Default in the performance, or breach, of any covenant
or agreement of the Borrower contained in this Agreement;
(c) A Change of Control shall occur;
(d) Any Financial Covenant shall become inapplicable due to
the lapse of time and the failure to amend any such covenant to cover
future periods;
(e) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower or any Guarantor shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without the
application or consent of the Borrower or such Guarantor, as the case
may be; or the Borrower or any Guarantor 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 or him under the laws
of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or any such
Guarantor; 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 or any Guarantor;
(f) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(g) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within 30 days and the Borrower shall not have delivered a
renewal thereof or substitute therefor to the Lender before the
expiration of such 30-day period; or the Borrower shall fail to pay any
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premium on the Life Insurance Policy when due; or the Borrower shall
take any other action that impairs the value of the Life Insurance
Policy.
(h) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its Officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(i) The rendering against the Borrower of an arbitration
award, final judgment, decree or order for the payment of money in
excess of $100,000 (net of insurance, reimbursements, recoveries or
indemnifications) and the continuance of such arbitration award,
judgment, decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution, except for any such award,
judgment, decree or order which is no more than $300,000 rendered
against the Borrower in its current arbitration with Cardiomed, one of
Borrower's former distributors;
(j) A default under any bond, debenture, note or other
evidence of material indebtedness of the Borrower in excess of $500,000
in principal amount outstanding 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 material lease or other contract, and the expiration of the
applicable period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument, lease or contract;
(k) Any Reportable Event, which the Lender determines in
good faith might constitute grounds for the termination of any Pension
Plan or for the appointment by the appropriate United States District
Court of a trustee to administer any Pension 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 Pension Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Pension Plan or to appoint a
trustee to administer any Pension Plan; or the Borrower or any ERISA
Affiliate shall have filed for a distress termination of any Pension
Plan under Title IV of ERISA; or the Borrower or any ERISA Affiliate
shall have failed to make any quarterly contribution required with
respect to any Pension Plan under Section 412(m) of the IRC, 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 Pension Plan; or any withdrawal, partial withdrawal,
reorganization or other event occurs with respect to a Multiemployer
Plan which results or could reasonably be expected to result in a
material liability of the Borrower to the Multiemployer Plan under Title
IV of ERISA.
-49-
(l) An event of default shall occur under any Security
Document;
(m) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell or attempt to sell all or
substantially all of its assets, without the Lender's prior written
consent;
(n) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising hereunder;
(o) Any Guarantor or person signing a support agreement in
favor of the Lender shall repudiate, purport to revoke or fail to
perform his obligations under his guaranty or support agreement in favor
of the Lender, any individual Guarantor shall die or any other Guarantor
shall cease to exist;
(p) The Borrower shall take or participate in any action
which would be prohibited under the provisions of any Subordination
Agreement or make any payment on the Subordinated Indebtedness (as
defined in the Subordination Agreement) that any Person was not entitled
to receive under the provisions of the Subordination Agreement;
(q) 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; or
(r) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between such Affiliate
and the Lender shall occur.
Section 7.2 Rights and Remedies. As provided in Section 2.13,
-------------------- -------------
the Lender may, at any time, refuse to make any requested Advance, demand
payment of the Advances or terminate the Credit Facility, whether or not a
Default Period then exists. In addition, 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-Agent, 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;
(b) 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;
-50-
(c) the Lender may exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC,
including 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 (with or without giving any warranties as
to the Collateral, title to the Collateral or similar warranties), and,
in connection therewith, 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;
(d) the Lender may make demand upon the Borrower-Agent and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Section 2.16 an amount equal to the aggregate maximum amount
-------------
available to be drawn under all Letters of Credit then outstanding,
assuming compliance with all conditions for drawing thereunder;
(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 7.1(e) or (f), the Obligations shall be immediately due
-------------------------
and payable automatically without presentment, demand, protest or notice of any
kind. If the Lender sells any of the Collateral on credit, the Obligations will
be reduced only to the extent of payments actually received. If the purchaser
fails to pay for the Collateral, the Lender may resell the Collateral and shall
apply any proceeds actually received to the Obligations.
Section 7.3 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 8.3) at least ten
------------
calendar days before the date of intended disposition or other action.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1 No Waiver; Cumulative Remedies; Compliance with
---------------------------------------------------
Laws. 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
-51-
cumulative and not exclusive of any remedies provided by law. The Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.
Section 8.2 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 8.3 Addresses for Notices; Requests for Accounting.
--------------------------------------------------
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 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 next to its signature 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. All requests
under Section 9-210 of the UCC (i) shall be made in a writing signed by a person
-------------
authorized under Section 2.2(b), (ii) shall be personally delivered, sent by
--------------
registered or certified mail, return receipt requested, or by overnight courier
of national reputation (iii) shall be deemed to be sent when received by the
Lender and (iv) shall otherwise comply with the requirements of Section 9-210.
-------------
The Borrower requests that the Lender respond to all such requests which on
their face appear to come from an authorized individual and releases the Lender
from any liability for so responding. The Borrower shall pay Lender the maximum
amount allowed by law for responding to such requests.
Section 8.4 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, control
agreements 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).
-52-
Section 8.5 Costs and Expenses. The Borrower shall pay on demand
------------------
all costs and expenses, including reasonable attorneys' fees, incurred by the
Lender in connection with the Obligations, this Agreement, the Loan Documents,
any Letter of Credit and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including 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 8.6 Indemnity. In addition to the payment of expenses
---------
pursuant to Section 8.5, the Borrower shall 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"):
(i) 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;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.14 proves to be incorrect in any respect
------------
or as a result of any violation of the covenant contained in
Section 6.12(b); and
---------------
(iii) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and expenses
of any kind or nature whatsoever (including 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 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
-53-
under this Section 8.6 shall survive the termination of this Agreement and the
-----------
discharge of the Borrower's other obligations hereunder.
Section 8.7 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 8.8 Execution in Counterparts; Telefacsimile Execution.
---------------------------------------------------
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. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
Section 8.9 Retention of Borrower's Records. The Lender shall
--------------------------------
have no obligation to maintain any electronic records or any documents,
schedules, invoices, agings, or other papers delivered to the Lender by the
Borrower or in connection with the Loan Documents for more than four months
after receipt by the Lender.
Section 8.10 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.
To the extent permitted by law, the Borrower waives and will not assert against
any assignee any claims, defenses or set-offs which the Borrower could assert
against the Lender. This Agreement shall also bind all Persons who become a
party to this Agreement as a borrower. 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, Xxxxx Fargo &
Company, and all direct and indirect subsidiaries of Xxxxx Fargo & Company, 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.
Section 8.11 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.
-54-
Section 8.12 Headings. Article, Section and subsection 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 8.13 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 Massachusetts.
The parties hereto hereby (i) consent to the personal jurisdiction of the state
and federal courts located in the State of Massachusetts in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other Loan
Documents may be venued in either the State or Federal courts located in Suffolk
County, Massachusetts; and (iv) agree that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Section 8.14. Appointment of Borrower Agent.
-----------------------------
(a) Each of the Borrowers hereby represents and warrants that
Healthcare provides valuable financial, management and administrative services
for each of the Borrowers, and the Borrowers are Affiliates of one another, and
therefore each of the Borrowers has determined that it is advantageous and
convenient for it to enter into this Agreement on a basis of joint and several
liability and to designate Healthcare as its agent to effect borrowings and
other extensions of credit under this Agreement and to distribute the proceeds
of borrowings to it, and each Borrower, by entering into this Agreement, desires
and intends to induce the Bank to enter into this Agreement.
(b) Each of the Borrowers hereby irrevocably appoints Healthcare as its
agent to effect borrowings, obtain other extensions of credit and to execute
instruments and documents and take other actions in the name, or on behalf of,
but not as a lender to, such Borrower, as provided or contemplated in this
Agreement. Each of the Borrowers represents and covenants that all requests for
Revolving Advances and Letters of Credit under this Agreement shall be made
solely by the Borrower Agent as agent for the Borrowers, and that the authority
of the Borrower Agent so to request Revolving Advances and Letters of Credit on
behalf of, and to bind, the Borrowers, shall continue unless and until (i) the
Lender actually receives written notice of the termination of such authority
signed by the respective Presidents or Treasurers of each of the Borrowers, (ii)
this Agreement has been terminated, and (iii) all Obligations of such Borrower
have been paid or otherwise satisfied. Notwithstanding any provision to the
contrary elsewhere in this Agreement or such other Loan Documents, the Borrower
Agent shall not have any duties or responsibilities, except those expressly set
forth herein and therein, or any fiduciary relationship with any Borrower and no
implied covenants, functions, responsibilities duties, obligations or
liabilities shall be read into this Agreement or the other Loan Documents or
otherwise exist against the Borrower Agent. Furthermore, in performing its
-55-
duties under this appointment, the Borrower Agent shall be acting solely as a
conduit for money transfers between the Lender and the Borrowers, and the
Borrower Agent shall not make, nor shall it be construed as making, any loans or
advances of money under this Agreement to any of the Borrowers.
(c) Each Borrower agrees to execute and deliver to the Lender
confirmatory assignments of Accounts and accounts receivable and to make
remittances on Accounts and accounts receivable in accordance with any
instructions given by the Lender from time to time to the Borrower Agent as
agent for the Borrowers.
(d) Each of the Borrowers further agrees and acknowledges that any
Revolving Advances which may be made by the Lender under the credit facilities
provided under this Agreement may be made directly to the Borrower Agent
notwithstanding any notice or knowledge by the Lender that such Revolving
Advance is intended for the use of another Borrower, and the Lender shall have
no responsibility with respect to whether or when the Borrower Agent distributes
or delivers the proceeds of any Revolving Advances to any other Borrower, and
payment or delivery by the Lender of the proceeds of such Revolving Advances to
the Borrower Agent shall be deemed to be a payment or delivery to each of the
Borrowers. Without limiting the foregoing, each Borrower acknowledges that it
shall be directly indebted to the Lender for each Revolving Advance distributed
to it by the Borrower Agent as if that Revolving Advance had been made directly
by the Lender to the Borrower which received such proceeds (whether or not the
subject advance was based upon the Accounts and/or Inventory of such Borrower
which actually received such distribution), in addition to which the other
Borrowers shall be jointly and severally obligated to the Lender in that amount.
(e) The Lender shall have no responsibility to inquire as to the
distribution of Revolving Advances and Letter of Credit made by the Lender
through the Borrower Agent as described herein.
(f) The Borrower Agent and each of the Borrowers agrees, jointly and
severally, to indemnify, defend, and to hold the Lender and its Affiliate and
its designee harmless from and against any liability, claim, demand, expense, or
loss made against the Lender or its Affiliate and/or its designee on account of,
or arising out of, this Agreement and the transactions contemplated hereby, the
Lender or its Affiliate and/or its designee's reliance upon loan requests
submitted by the Borrower Agent and any other action taken by the Lender or its
Affiliate and/or its designee hereunder or under any of the Security Documents
or any other agreement with the Borrower Agent and/or the Borrowers and/or any
other Person.
(g) The revolving credit facility established in this Agreement
constitutes one combined aggregate line of credit for all of the Borrowers, and
the Eligible Accounts of all of the Borrowers shall be aggregated in calculating
the Borrowing Base for Revolving Advances hereunder.
-56-
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
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.
BORROWER:
WITNESS AS ALL BORROWERS: PRIMESOURCE HEALTHCARE, INC.
/s/ Xxxxxxxx Xxxxxxx
--------------------------------- BY: /s/ Xxxxx XxXxxxx
------------------------------
By: XXXXXXXX XXXXXXX NAME: XXXXX XXXXXXX
------------------------------
TITLE: CHIEF FINANCIAL OFFICER
Notice Address for Borrower:
---------------------------
Primesource Healthcare, Inc. and PRIMESOURCE SURGICAL, INC.
Primesource Surgical, Inc.
Bimeco, Inc. BY:
0000 Xxxx Xxxxxxxx Xx. NAME: XXXXX XXXXXXX
Xxxxxx, XX 00000 TITLE: CHIEF FINANCIAL OFFICER
Telecopier:
----------------------
Attention: Xxxxx XxXxxxx BIMECO, INC.
E-mail: xxxxxxxx@xxxx.xxx
BY:
NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
LENDER:
WITNESS:
/s/ Xxxx Xxxxxx XXXXX FARGO BUSINESS CREDIT, INC.
---------------------------------
By: XXXX XXXXXX By: /s/ Xxxx X. Xxxxx
------------------------------ ------------------------------
Notice Address for Lender: Name: XXXX X. XXXXX
------------------------- ----------------------------
Xxxxx Fargo Business Credit, Inc Its: ASSISTANT VICE PRESIDENT
000 Xxxxxxxxxx Xxxxxx -----------------------------
Xxxxxx, XX 00000
Telecopier: 0-000-000-0000
Attention: Xxxx X. Xxxxx
E-mail: Xxxx.X. Xxxxx @xxxxxxxxxx.xxx
-57-
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Revolving Note
Exhibit B [INTENTIONALLY
DELETED]
Exhibit C Premises
Exhibit D Form of Notice of Borrowing
Exhibit E Financial Projections
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 5.2 Capitalization and Organizational Chart
Schedule 5.5 Subsidiaries
Schedule 5.7 Litigation
Schedule 5.11 Intellectual Property Disclosures
Schedule 6.3 Permitted Liens
Schedule 6.4 Permitted Indebtedness and Guaranties
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$7,500,000.00 BOSTON, MASSACHUSETTS
DECEMBER , 2003
--
For value received, the undersigned, PRIMESOURCE HEALTHCARE, INC., a
Massachusetts corporation, PRIMESOURCE SURGICAL, INC., a Delaware corporation,
and BIMECO, INC., a Florida corporation (collectively and separately, the
"Borrower"), hereby jointly and severally, individually and collectively,
--------
promise to pay ON DEMAND, and if demand is not sooner made, then as provided in
the Credit Agreement (defined below), to the order of XXXXX FARGO BUSINESS
CREDIT, INC., a Minnesota corporation ("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 Seven Million Five Hundred
Thousand and 00/100 Dollars ($7,500,000.00) 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 (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 shall pay all costs of collection, including reasonable
attorneys' fees and legal expenses if 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.
This Note shall be deemed to take effect as an instrument under the
laws of the State of Massachusetts.
IN WITNESS WHEREOF, each of the undersigned Borrowers by its duly
authorized officer has caused this Note to be executed as an instrument under
seal as of the date first written above.
WITNESSED AS TO ALL: PRIMESOURCE HEALTHCARE, INC.
BY: BY:
------------------------- ---------------------------
NAME: NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
PRIMESOURCE SURGICAL, INC.
BY:
---------------------------
NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
BIMECO, INC.
BY:
---------------------------
NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
Exhibit B to Credit and Security Agreement
[Intentionally Deleted]
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_]
Exhibit D to Credit and Security Agreement
NOTICE OF BORROWING
-------------, -------
TO: Xxxxx Fargo Business Credit, Inc.
------------------------------
------------------------------
------------------------------
Telecopier:
-------------------
Attention:
--------------------
We refer to that certain Credit and Security Agreement dated as of
December 10, 2003 (as amended or modified to date, the "Credit Agreement") by
and between the undersigned and Xxxxx Fargo Business Credit, Inc. Capitalized
terms used herein but not otherwise defined shall have the same meanings
assigned to them in the Credit Agreement.
Pursuant to Section 2.2(b) of the Credit Agreement, we hereby
request or confirm our request for an Advance on the date, of the type(s) and in
the amount(s) specified below.
Amount of Advance Type of Advance Date of Borrowing
----------------- --------------- -----------------
$
PRIMESOURCE HEALTHCARE, INC.
BY:
---------------------------
NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
PRIMESOURCE SURGICAL, INC.
BY:
---------------------------
NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
BIMECO, INC.
BY:
---------------------------
NAME: XXXXX XXXXXXX
TITLE: CHIEF FINANCIAL OFFICER
Exhibit E to Credit and Security Agreement
PROJECTIONS
(see attached)
Schedule 5.1 to Credit and Security Agreement
TRADE NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF BUSINESS,
AND LOCATIONS OF COLLATERAL
TRADE NAMES
-----------
[_to be completed by Borrower_]
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
---------------------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
OTHER INVENTORY AND EQUIPMENT LOCATIONS
---------------------------------------
[_to be completed by Borrower_]
Schedule 5.2 to Credit and Security Agreement
CAPITALIZATION AND ORGANIZATIONAL CHART
---------------------------------------
--------------------------------------------------------------------------------
| | | | |
| HOLDER | TYPE OF RIGHTS/ | NO. OF SHARES (AFTER | PERCENT INTEREST ON A|
| | STOCK | EXERCISE OF ALL RIGHTS | FULLY DILUTED BASIS |
| | | TO ACQUIRE SHARES) | |
-------------- ----------------- ------------------------ ----------------------
| | | | |
-------------- ----------------- ------------------------ ----------------------
| | | | |
-------------- ----------------- ------------------------ ----------------------
Attach organizational chart showing the ownership structure of all Subsidiaries
of the Borrower.
[_to be completed by Borrower_]
Schedule 5.5 to Credit and Security Agreement
SUBSIDIARIES
------------
[_to be completed by Borrower_]
Schedule 5.7 to Credit and Security Agreement
LITIGATION
----------
Schedule 5.11 to Credit and Security Agreement
INTELLECTUAL PROPERTY DISCLOSURES
---------------------------------
[_to be completed by Borrower_]
Schedule 6.3 to Credit and Security Agreement
PERMITTED LIENS
---------------
Creditor Collateral Jurisdiction Filing Date Filing No.
-------- ---------- ------------ ----------- ----------
[_to be completed by Borrower_]
Schedule 6.4 to Credit and Security Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
-------------------------------------
Indebtedness
------------
Creditor Principal Maturity Monthly Collateral
-------- --------- -------- ------- ----------
Amount Date Payment
------ ---- -------
[_to be completed by Borrower_]
Guaranties
----------
Primary Obligor Amount and Description of Beneficiary of Guaranty
--------------- ------------------------- -----------------------
Obligation Guaranteed
---------------------
[_To be completed by Borrower_]
