Exhibit 10.40
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made between HEMAGEN
DIAGNOSTICS, INC., a Delaware corporation (sometimes referred to as "Hemagen"),
REAGENTS APPLICATIONS, INC., a Delaware corporation (sometimes referred to as
"Reagents") (Hemagen and Reagents are hereafter individually and collectively
referred to as the "Borrower"), and BAY NATIONAL BANK, a national banking
association (the "Bank").
W I T N E S S E T H
NOW, THEREFORE, in consideration of the premises, the
covenants and agreements of the parties hereinafter set forth, and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Loan and Security Agreement, the following
terms shall have the meanings set forth as definitions, unless the specific
context clearly requires a different meaning, and all terms defined in this
Article, or elsewhere in this Loan and Security Agreement, shall be capitalized
throughout this Loan and Security Agreement. Terms defined in the Maryland
version of the Uniform Commercial Code shall have the meanings ascribed to them
therein, and all financial terms not otherwise defined shall have those meanings
as determined under generally accepted accounting principles, consistently
applied ("GAAP"). The plural use of any defined term shall include the singular,
and the singular use of any defined term shall include the plural.
SECTION 1.1. ACCOUNTS, CHATTEL PAPER, DEPOSIT ACCOUNTS,
DOCUMENTS, EQUIPMENT, GENERAL INTANGIBLES, INSTRUMENTS, INVENTORY, INVESTMENT
PROPERTY, LETTER-OF-CREDIT RIGHTS AND SUPPORTING OBLIGATIONS. The terms
"Accounts," "Chattel Paper," "Deposit Accounts," "Documents," "Equipment,"
"General Intangibles" (including payment intangibles), "Instruments" (including
promissory notes), "Investment Property," "Letter-of-Credit Rights," "Inventory"
and "Supporting Obligations" shall have the same respective meanings as are
given to those terms in the Maryland Uniform Commercial Code-Secured
Transactions, Title 9, Commercial Law Article, Annotated Code of Maryland, as
amended.
SECTION 1.2. ADVANCE. The term "Advance" shall mean each
credit to the Operating Account made by the Bank based on a request from
Borrower as provided in
Section 2.1.3 herein, or any extension of credit under the Line of Credit as
herein provided, regardless of whether Borrower has made a specific request
therefor.
SECTION 1.3. AFFILIATE. The term "Affiliate" or "Affiliates"
shall mean any Subsidiary of the Borrower, or any corporation, partnership,
limited liability company or other Person which directly or indirectly controls,
is controlled by, or under direct or indirect common control with, such Person.
"Control" as used herein means the power to direct the management and policies
of the subject Person.
SECTION 1.4. AGREEMENT. The term "Agreement" shall mean this
Loan and Security Agreement, and all amendments, extensions, or modifications by
the parties hereto from time to time, together with all attachments and exhibits
hereto or thereto.
SECTION 1.5. BORROWING BASE CERTIFICATE. The term "Borrowing
Base Certificate" shall mean that report or reports to be delivered pursuant to
Section 6.18 by the Borrower to the Bank, at such intervals as the Bank may from
time to time reasonably determine, but in no event less than monthly,
identifying in form and detail satisfactory to the Bank the amount of Inventory
and Receivables, the Inventory and Receivables claimed to be Eligible Inventory
and Eligible Receivables, respectively, the aging of Receivables, and such other
information as the Bank may from time to time require. Each such Borrowing Base
Certificate shall be certified to be true and accurate in all material respects
as of the time of preparation by the president or chief financial officer of the
Borrower.
SECTION 1.6. CHANGE IN CONTROL. The term "Change in Control"
shall mean, at any time, (i) any Person or "group" (within the meaning of Rules
13d-3 and 13-d-5 under the Exchange Act of 1934) (a) shall have acquired
beneficial ownership of a majority on a fully diluted basis of the voting and/or
economic interest in Hemagen or (b) shall have obtained the power (whether or
not exercised) to elect a majority of the members of the board of directors (or
similar governing body) of Hemagen; (ii) Hemagen shall cease to beneficially own
and control 100% on a fully diluted basis of the economic and voting interest in
the Equity Securities of Reagents; (iii) the sale or other disposition of all or
substantially all of the assets of Reagents or of all or substantially all of
the Equity Securities thereof or (iv) the majority of the seats (other than
vacant seats) on the board of directors (or similar governing body) of Hemagen
cease to be occupied by Persons who either (a) were members of the board of
directors of Hemagen as of the close of business on the Closing Date or (b) were
nominated for election by the board of directors of Hemagen, a majority of whom
were directors as of the close of business on the Closing Date or whose election
or nomination for election was previously approved by a majority of such
directors. As used herein, "Equity Securities" shall mean all common stock
issued as of the Closing Date and all securities issued as of the Closing Date
which are convertible into, or exercisable for, common stock.
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SECTION 1.7. CHANGE IN KEY PERSONNEL. The term "Change in Key
Personnel" shall mean the appointment of a president or chief financial officer
of Hemagen other than Xxxxxxx X. Xxxxx and Xxxxxxx X. Xxxxx, respectfully, or a
material change in the duties of the persons holding such offices, whether such
appointment occurs as a result of resignation, termination of employment (for
any reason), death, incapacity, or for any other reason, except for temporary
appointments occasioned by medical or maternity reasons. In the event of death
or incapacity, a Change in Key Personnel shall occur sixty (60) days thereafter
if a successor reasonably acceptable to the Bank has not been appointed.
SECTION 1.8. CLOSING DATE. The term "Closing Date" shall
mean the date on which the conditions set forth in Section 4.1 are satisfied and
the initial Loan is made.
SECTION 1.9. COLLATERAL. The term "Collateral" shall mean all
of the tangible and intangible property with respect to which the Borrower has
assigned or granted a security interest or lien to the Bank pursuant to the
terms of this Agreement or any of the other Loan Documents.
SECTION 1.10. CURRENT RATIO. The term "Current Ratio" shall
mean the ratio of Current Assets to Current Liabilities. As used herein,
"Current Assets" means the sum of cash, marketable securities, Receivables,
Inventory, prepaid expenses, and other current assets (subject to reserves for
bad debts and obsolescence, respectively, established from time to time in
accordance with GAAP), on a consolidated basis; and "Current Liabilities" means
the sum of all accounts payable, accrued taxes payable, Deferred Revenue, other
current liabilities determined according to GAAP and applied on a consistent
basis and the current portion of long-term liabilities.
SECTION 1.11. CUSTOMER. The term "Customer" or "Customers"
shall mean the person or persons to or for whom the Borrower has sold, leased or
licensed goods, performed services and who is an account debtor or are account
debtors of the Borrower as a result thereof, or which otherwise has a payment
obligation owing to the Borrower.
SECTION 1.11A. DEFERRED REVENUE. "Deferred Revenue" shall
mean booked future revenue for which services remain to be performed and for
which there is no cash payment obligation.
SECTION 1.12. ELIGIBLE INVENTORY. The term "Eligible
Inventory" shall mean all Inventory which is not work in process or has not been
deemed ineligible by the Bank because of age, obsolescence, its slow moving
character or for any other reason as determined by the Bank in its reasonable
discretion.
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SECTION 1.13. ELIGIBLE RECEIVABLES. The term "Eligible
Receivables" shall mean those Receivables which arise from goods sold, leased or
licensed, or from services performed, in the ordinary course of business to or
for Customers other than any Affiliate, and as to which: (a) the delivery of the
goods or the performance of the services has been completed, or the licensing of
property is in effect and no material defaults exist which would jeopardize
Borrower's right to payment thereon, (b) no return, rejection, repossession, or
termination has occurred; (c) the representations and warranties contained in
the Agreement as to Receivables are and continue to be true and accurate; (d) no
more than sixty (60) days have elapsed from the due date so long as such
accounts were due thirty (30) days from billing or invoice date; (e) no
bankruptcy or insolvency proceedings or payment moratoriums of any kind apply;
and (f) the Bank has not, in the Bank's good faith judgment, deemed as
unsatisfactory for any reason. Eligible Receivables shall not include
inter-company Receivables, contra accounts, foreign accounts, finance charges or
the Receivables of any Customer if 50% or more of the account balance of any
such Customer is in excess of ninety (90) days from invoice or billing date.
SECTION 1.14. ENVIRONMENTAL LAWS. The term "Environmental
Laws" shall mean the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601, et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Clean Water Act (33
U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.) and the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as such laws
may be amended or otherwise modified from time to time, and any other present or
future federal, state, local or foreign statute, ordinance, rule, regulation,
order, judgment, decree, permit, license or other binding determination of any
governmental authority imposing liability or establishing standards of conduct
for protection of the environment.
SECTION 1.15. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
SECTION 1.16. EVENT OF DEFAULT. The term "Event of Default"
shall mean the events constituting defaults under this Agreement as set forth in
Article VIII of the Agreement.
SECTION 1.17. INDEBTEDNESS. The term "Indebtedness" shall
mean all items of indebtedness, obligation or liability, whether matured or
unmatured, liquidated or unliquidated, direct or contingent, joint or several,
including, but not limited to: (a) all indebtedness guaranteed, directly or
indirectly, in any manner, or endorsed (other than for collection or deposit in
the ordinary course of business) or discounted with recourse; (b) all
indebtedness in effect guaranteed, directly or indirectly, through agreements,
contingent or otherwise: (1) to purchase such indebtedness; or (2) to purchase,
sell or
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lease (as lessee or lessor) property, products, materials, or supplies or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such indebtedness or to assure the owner of the indebtedness
against loss; or (3) to supply funds to or in any other manner invest in the
debtor; (c) all indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and (d) all indebtedness incurred
as the lessee of goods or under leases that, in accordance with GAAP should not
be reflected as leases on the balance sheet of the lessee.
SECTION 1.18. INVENTORY. The term "Inventory" shall mean goods
held by the Borrower for sale, lease, license or furnished or to be furnished
under contracts of service and goods which are raw materials, work in process or
materials used or consumed in Borrowers' business.
SECTION 1.19. LAWS. The term "Laws" shall mean all ordinances,
statutes, rules, regulations, orders, injunctions, writs or decrees of any
government or political subdivision or agency thereof, or any court or similar
authority established by any thereof.
SECTION 1.20. LINE OF CREDIT. The term "Line of Credit" shall
mean those Advances, readvances and other credit accommodations provided under
this Agreement, and evidenced by the Line of Credit Note, made from time to time
in accordance with the terms of this Agreement.
SECTION 1.21. LINE OF CREDIT NOTE. The term "Line of Credit
Note" shall mean the Promissory Note of even date executed by the Borrower, as
obligor, in the principal sum of One Million Dollars ($1,000,000) and payable to
the order of the Bank.
SECTION 1.22. LIQUIDATION COSTS. The term "Liquidation Costs"
shall mean any and all costs and expenses (including reasonable attorneys' fees
and legal expenses) which are incurred by or on behalf of the Bank (a) to
enforce payment of any of the Obligations, (b) to enforce payment of any
Receivable following the occurrence of an Event of Default, whether as against a
Customer, the Borrower or any surety of any Customer or of any of the
Obligations, (c) in the prosecution or defense of any action growing out of or
connected with the Collateral or any of the Bank's rights therein or thereto,
and (d) in connection with the custody or preservation of the Collateral
following the occurrence of an Event of Default, and the preparation for sale,
sale or other disposition of any Collateral.
SECTION 1.23. LOAN. The term "Loan" or "Loans" shall mean,
separately or collectively, the Line of Credit, including future advances and
readvances, and any
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other Obligation for the payment or repayment of money by the Borrower to the
Bank, whether now existing or hereafter arising.
SECTION 1.24. LOAN DOCUMENTS. The term "Loan Documents" shall
mean all documents executed by the Borrower or any Subsidiary in connection with
the Loans, including, but not limited to, this Agreement, the Line of Credit
Note, appropriate financing statements and continuation statements, assignments
of property rights or interests, or any amendments or modifications thereof or
thereto.
SECTION 1.25. MATERIAL ADVERSE EFFECT. The term "Material
Adverse Effect" shall mean a material adverse effect on any of the following:
(i) the operations, business, assets, properties, or condition (financial or
otherwise) of Borrower (either individually, or taken as a whole), (ii) the
ability of the Borrower to perform its obligations under the Loan Documents to
which it is a party (either individually or taken as a whole), (iii) the
legality, validity or enforceability of this Agreement or any other Loan
Document, (iv) the rights and remedies of the Bank under any Loan Document, (v)
the validity, perfection or priority of a lien or security interest in favor of
the Bank as to any part of the Collateral or (vi) the value of any material part
of the Collateral.
SECTION 1.26. OBLIGATIONS. The terms "Obligation" or
"Obligations" shall mean any obligation of payment or performance by the
Borrower owing to the Bank, including: (a) any and all sums due to the Bank
under the Loan or otherwise under the terms of this Agreement, the Line of
Credit Note and the Loan Documents; (b) any and all sums advanced by the Bank to
preserve or protect the Collateral and the value of the Collateral or to
preserve, protect, or perfect the Bank's security interest in the Collateral;
(c) in the event of any proceeding to enforce the collection of the Obligations
or any of them, after default, and/or upon demand, the reasonable expenses of
retaking, holding, preparing for sale, selling or otherwise disposing of or
realizing on the Collateral, or of any exercise by the Bank of the Bank's rights
in the event of default, together with reasonable attorneys' fees, expenses of
collection, and court costs as provided in the Loan Documents; and (d) any other
Indebtedness or liability of the Borrower to the Bank, whether direct or
indirect, joint or several, absolute or contingent, now existing or hereafter
arising.
SECTION 1.27. OPERATING ACCOUNT. The term "Operating Account"
shall mean the commercial checking account to be established and maintained by
Hemagen with the Bank and to be utilized as the means of making Advances under
the Line of Credit.
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SECTION 1.28. PERMITTED LIENS. The term "Permitted Liens"
shall mean:
(a) Liens for taxes, assessments, or similar charges
incurred in the ordinary course of business that are not yet due and payable;
(b) Liens of mechanics, materialmen, warehousemen,
carriers, or other like liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable;
(c) Liens or security interests in favor of the Bank;
(d) Existing liens disclosed in Schedule "A" attached
hereto and incorporated herein;
(e) Subsequently arising liens approved in writing by
the Bank; and
(f) Purchase money security interests in Equipment
acquired from vendors so long as the aggregate cost of all Equipment acquired in
any one fiscal year which is subject to a vendor purchase money security
interest does not exceed the sum of $250,000.
SECTION 1.29. PERSON. The term "Person" shall mean any
individual, corporation, partnership, association, limited liability company,
limited liability partnership, joint-stock company, trust, unincorporated
organization, joint venture, court, or government or political subdivision or
agency thereof.
SECTION 1.30. PRIME RATE. The term "Prime Rate" shall mean the
prime rate (or the highest of such prime rate if there is a range of such rates)
as published from time to time in the Money Rates column of the Wall Street
Journal (the "Index"). If the Index shall remain unpublished for more than
thirty (30) days or shall cease to exist, then the Bank shall have the right, in
its sole discretion, to select a comparable rate of interest consistent with
similar rates charged to other customers of the Bank whose interest is based
upon the "Prime Rate."
SECTION 1.31. RECEIVABLES. As used herein, the term
"Receivables" shall mean all of the Borrower's Accounts, Instruments, Documents,
Chattel Paper, rents, promissory notes, notes receivable, General Intangibles,
Letter-of-Credit Rights, Supporting Obligations and chooses in action, or any
other right to payment, now existing or hereafter created or arising, and all
cash and non-cash proceeds and products thereof, and all rights thereto
including rights in rejected, returned or repossessed goods, arising from the
sale of or providing of Inventory, goods, or services by the Borrower.
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SECTION 1.32. RECORDS. The term "Records" shall mean
correspondence, memoranda, tapes, discs, papers, books and other documents or
transcribed information of any type, whether expressed in ordinary or machine
language, maintained by the Borrower in connection with the Collateral or its
business operations.
SECTION 1.33. SUBSIDIARY. The term "Subsidiary" shall mean
any subsidiary of the Borrower, or any corporation, partnership, limited
liability company or other Person of which fifty percent (50%) or more of the
legal or beneficial ownership interests are held, directly or indirectly, by a
Borrower, whether now owned or hereafter existing or acquired, and their
successors.
SECTION 1.34. SUBORDINATED DEBT. The term "Subordinated Debt"
shall mean any and all indebtedness and liabilities of any Borrower which have
been subordinated as to collection, enforcement rights and/or lien priority by
written agreement, or by the express written terms of the subordinated
indebtedness instruments, to the principal and interest of the Loan amount owned
by the Borrower to the Bank. Subordinated Debt shall specifically include
outstanding subordinated convertible notes, with warrants to purchase common
stock, issued on or about May 22, 2000 in the aggregate principal amount of Six
Million Three Hundred Fifteen Thousand Dollars ($6,315,000), due April 17, 2005
(the "Subordinated Convertible Notes").
SECTION 1.35. SUBORDINATED DEBT NOTEHOLDERS. The term
"Subordinated Debt Noteholders" shall mean those Persons now holding
Subordinated Convertible Notes which or who are identified on Schedule "B"
attached hereto along with the current mailing address of such Person and the
portion of the aggregate principal indebtedness owing to such Person pursuant to
the foregoing Subordinated Convertible Notes.
SECTION 1.36. TANGIBLE NET WORTH. The term "Tangible Net
Worth" shall mean the consolidated amount of Borrowers' and their Subsidiaries'
total assets, exclusive of goodwill, trademarks, patents, licenses and such
other assets as Bank may determine from time to time are properly classified as
intangible assets in accordance with GAAP, less consolidated Total Liabilities
plus Subordinated Debt.
SECTION 1.37. TOTAL LIABILITIES. The term "Total Liabilities"
shall mean all liabilities on a consolidated basis of Borrower and its
Subsidiaries for borrowed money or, without duplication, any other Indebtedness
due from a Borrower to any Person, including an Affiliate, determined in
accordance with GAAP.
SECTION 1.38. TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO.
The term "Total Liabilities to Tangible Net Worth Ratio" shall mean the ratio of
consolidated Total Liabilities, less Subordinated Debt and Deferred Revenue, to
consolidated Tangible Net Worth.
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ARTICLE II
TERMS AND PURPOSE OF THE LOANS
SECTION 2.1. THE LINE OF CREDIT. The Bank, subject to all of
the terms and conditions of this Agreement, may extend to the Borrower, from
time to time, such Advances and readvances under the Line of Credit in a maximum
aggregate principal amount at any time outstanding not to exceed the lesser of
(a) the sum of (i) 80% of Eligible Receivables, plus (ii) the lesser of Three
Hundred Thousand Dollars ($300,000) or thirty percent (30%) of Eligible
Inventory, or (b) One Million Dollars ($1,000,000) (the "Advance Rate"). The
following specific terms and conditions shall apply to the Line of Credit:
SECTION 2.1.1. PURPOSE OF THE LINE OF CREDIT. The
proceeds of the Line of Credit shall be used by the Borrower to fund general
working capital needs, including but not limited to budgeted capital
expenditures, and direct expenses attributable to the consolidation of
Borrower's office and manufacturing operations.
SECTION 2.1.2. INTEREST RATE; LINE OF CREDIT NOTE.
Advances under the Line of Credit shall bear interest at a floating annual rate
of interest equal to the interest rate obtained by adding three-quarters of one
percentage point (0.75%) to the Prime Rate in effect from time to time. Changes
in the applicable interest rate will be made as of the occurrence of changes in
the Prime Rate. The Line of Credit shall be evidenced by, and shall be repaid
with interest in accordance with, the provisions of the Line of Credit Note
which shall be duly executed and delivered by the Borrower and be payable to the
order of the Bank on the date hereof, the terms and conditions of which are
incorporated herein by reference. The date and amounts of each Advance made by
the Bank and each payment made by the Borrower shall be recorded by the Bank on
the books and records of the Bank, but any failure to record such dates or
amounts shall not relieve the Borrower of its obligation of repayment hereunder
or under the Line of Credit Note.
SECTION 2.1.3. ADVANCES UNDER THE LINE OF CREDIT.
Subject to compliance by the Borrower with all of the terms and conditions of
this Agreement, the continued satisfactory financial condition of the Borrower,
the satisfaction of all conditions precedent to the making of Advances hereunder
and the non-existence of any default or any event, circumstance, act or omission
which with the giving of notice, the passage of time, or both, would constitute
an Event of Default hereunder, the Bank shall make Advances to the Borrower or
for the Borrower's account from time to time in such amounts as the Borrower may
request (subject to the Advance Rate and all reductions, reservations,
adjustments or modifications as herein provided). Advances
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under the Line of Credit shall be made upon the request of Borrower, which
request may be written and shall be made by any person authorized from time to
time by the Borrower. Each request for an Advance shall be in the form of
Exhibit "A" attached hereto. The Bank shall credit such Advances to the
Operating Account. The Borrower agrees that no request for an Advance under the
Line of Credit shall be made which, if honored or paid, would cause the
aggregate amount of Advances made and outstanding to exceed the maximum
principal amount available under the Advance Rate. Without implying any
obligation to do so, if the Bank issues any letter of credit for the account of
the Borrower, the aggregate amount of all such letter of credit obligations
shall be reserved against the Line of Credit so long as such obligations remain
outstanding. Letters of credit shall only be issued upon terms acceptable to the
Bank, in its sole discretion, and shall constitute an Obligation hereunder
secured by the Collateral. In no event shall the Bank be obligated to make any
Advance if an Event of Default hereunder shall have occurred unless and until
such Event of Default shall be cured (if the Borrower is given the right to cure
the applicable Event of Default hereunder), or if such Advance would cause the
total amount of Advances made to or for the Borrower and outstanding under this
Agreement to exceed the maximum principal amount available under the Advance
Rate. Notwithstanding the foregoing, any Advance made, from time to time, which
exceeds principal availability as herein described, or which may be made during
the period an Event of Default has occurred, is occurring, or may occur, shall
constitute an Obligation the repayment of which shall be the liability of the
Borrower and secured by the Collateral.
SECTION 2.1.4. REPAYMENT OF THE LINE OF CREDIT. The
Borrower shall repay to the order of the Bank all principal, accrued interest,
and all other Obligations due under the Line of Credit when due. The Borrower
shall pay to the Bank, on the first day of each month during which a principal
balance is outstanding under the Line of Credit, accrued interest on the
outstanding and unpaid principal balance of the Line of Credit. Interest shall
be payable monthly following preparation by the Bank of an interest statement
showing interest due through the end of the monthly payment period. In the event
interest for the final days of any period is estimated, the Borrower's account
shall be debited or credited, as the case may be, to reflect actual interest due
through the end of such period. Upon the request of the Borrower, the Bank shall
automatically debit the Borrower's Operating Account on the due date of, and in
the amount of, the interest shown to be due on each monthly statement. The
Borrower shall pay to the Bank the entire outstanding and unpaid principal
balance under the Line of Credit, together with accrued interest thereon and any
fees or charges payable pursuant to the Loan Documents, on March 31, 2004, the
final and absolute due date, or earlier upon acceleration as provided herein and
in the Line of Credit Note.
SECTION 2.1.5. PREPAYMENT OF THE LINE OF CREDIT. The
Borrower (a) may prepay the Line of Credit in whole or part at any time and from
time to time
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without penalty or additional interest, and (b) shall prepay all or any portion
of principal Advances which exceed the maximum principal then available as
computed under the Advance Rate. The Line of Credit may be reduced, from time to
time, to a zero balance without affecting the continuing validity of this
Agreement or the continuing security interest and lien of the Bank in and to the
Collateral.
SECTION 2.2. LOAN COMMITMENT FEE. The Borrower shall pay unto
the Bank a loan commitment fee in the amount of $2,500. Such fee shall be
payable on the Closing Date.
SECTION 2.3. CROSS-COLLATERALIZATION. All Collateral shall
secure all Loans and Obligations, in equal order of priority, and a default on
any Obligation or Loan shall be a default as to all Obligations, unless
expressly waived by the Bank.
SECTION 2.4. JOINT AND SEVERAL LIABILITY. The Obligations due
hereunder shall be the joint and several liability of each Borrower.
ARTICLE III
SECURITY FOR THE LOANS
The repayment of the Loans, the satisfaction of the
Obligations, and the full, complete and absolute performance by the Borrower of
each of the terms and conditions of the Loan Documents and all other
Obligations, direct or indirect, owing to the Bank shall be secured by, and the
Borrower hereby grants to the Bank a continuing security interest in, the
following:
SECTION 3.1. GRANT OF SECURITY INTEREST. The Borrower hereby
assigns to the Bank all of the Borrower's right, title, and interest in and to,
and grants to the Bank a continuing lien security interest in and to all of its
personal property assets, including, without limitation, the following tangible
and intangible assets in which it has an interest, wherever located, whether now
owned or hereafter acquired by the Borrower, together with all substitutions
therefor, and replacements and renewals thereof:
(a) Accounts (including all Receivables);
(b) Chattel Paper;
(c) Documents;
(d) Equipment;
(e) General Intangibles;
(f) Instruments;
(g) Inventory;
(h) Goods;
(i) Deposit Accounts;
(j) Letter-of-Credit Rights;
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(k) Supporting Obligations;
(l) Fixtures; and
(m) All Records relating to or pertaining to any
of the above.
The Borrower hereby assigns, transfers and sets over to the Bank all of the
Borrower's right, title and interest in and to, and grants to the Bank a
continuing security interest in all amounts that may be owing at any time and
from time to time by the Bank to the Borrower in any capacity, including, but
not limited to, any balance or share belonging to the Borrower of any deposit
account or other account with the Bank, which security interest shall be
independent of and in addition to any right of set-off which the Bank may have.
It is the intention of the parties that this Agreement shall constitute control
of such Collateral, as that term is used in the Maryland Uniform Commercial Code
- Secured Transactions, Title 9, Commercial Law Article, Annotated Code of
Maryland, as amended.
SECTION 3.2. PATENTS, TRADEMARKS. The Borrower hereby grants,
assigns, conveys and transfers to the Bank as collateral security all patents,
trademarks and service marks, as set forth in Schedule "C" attached hereto, and
as hereafter may be prosecuted and obtained. Such assignments shall be evidenced
by assignment instruments acceptable to the Bank and its counsel executed by the
Borrower which shall be recorded and indexed among the records of the United
States Patent and Trademark Office.
SECTION 3.3. PROCEEDS AND PRODUCTS. The Bank's security
interests provided for herein shall apply to the proceeds, including but not
limited to insurance proceeds, and the products of the Collateral.
SECTION 3.4. PRIORITY OF SECURITY INTERESTS. After giving
effect to the express terms of the Subordinated Convertible Notes, each of the
security interests granted or conveyed by the Borrower to the Bank pursuant to
this Agreement at the time of any disbursement hereunder shall be a first
priority lien security interest in the Collateral, subject only to any Permitted
Lien.
SECTION 3.5. FUTURE ADVANCES. The security interests and liens
granted or conveyed by the Borrower shall secure all current and all future
Advances made by the Bank to the extent such current and future Advances
constitute Obligations, and the Bank may advance or readvance upon repayment by
the Borrower of all or any portion of the sums loaned to the Borrower and any
such advancement or readvancement shall be fully secured by the security
interests and liens created by this Agreement or any of the other Loan
Documents.
SECTION 3.6 COLLATERAL SECURES ALL OBLIGATIONS. The Collateral
shall secure all principal, interest, and other sums due under the Line of
Credit Note, and all
12
other Obligations, Liquidation Costs or sums due or arising hereunder of
whatever kind or character.
ARTICLE IV
CONDITIONS PRECEDENT
All duties and obligations of the Bank hereunder are
specifically subject to the full satisfaction of the conditions precedent set
forth in this Article IV as follows:
SECTION 4.1. REQUIRED DOCUMENTS. The Borrower shall deliver to
the Bank prior to or at the Closing Date the following:
(a) A certified (as of the date of the closing)
copy of resolutions of the Borrower (i) authorizing the execution, delivery and
performance of the Loan Documents, and (ii) stating the incumbency and
containing the signatures of the officers of the Borrower executing the Loan
Documents;
(b) A Certificate of Good Standing, as of a
current date, issued by the Delaware Secretary of State, evidencing the good
standing of the Borrower, certificates from other state agencies that the
Borrower has qualified as a foreign corporation in any such other state or
jurisdiction;
(c) A certified copy of the Articles of
Incorporation and Bylaws of the Borrower, including all amendments thereto;
(d) Proof of current insurance coverages
required by this Agreement, including delivery of certificates, policies and/or
true photocopies of policies as the Bank may direct, which designate the Bank as
sole loss payee for all losses with respect to Inventory, Equipment and other
tangible personal property;
(e) Duly executed Line of Credit Note;
(f) Duly executed Financing Statements(s) in
form suitable for recordation;
(g) An opinion of counsel for the Borrower as to
the due execution and enforceability of the Loan Documents, and such other
matters as the Bank and Bank's counsel may reasonably determine;
(h) Assignments of Patents, Trademarks or
Copyrights or other similar intangible property in form recordable with the
United States Patent and Trademark Office;
13
(i) Duly executed Landlord's Waivers; and
(j) Such other requirements as are set forth in
this Agreement or in the Loan Documents, or as the Bank may reasonably require.
SECTION 4.2. SATISFACTION OF TERMS. At the time of each
Advance, readvance or other credit extended hereunder, the Borrower shall have
complied with all of the terms and conditions hereof, all representations and
warranties shall be true and accurate as of such date, and no Event of Default
shall have occurred and be continuing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Loans and enter into the
Agreement, the Borrower makes the following representations and warranties and
acknowledges the Bank's justifiable reliance thereon and the Bank's full right
to so rely as of the date hereof and at the time of each Advance under the Line
of Credit. Unless otherwise provided, the representations and warranties shall
be deemed made by each Borrower with respect to its property and business
operations and affairs.
SECTION 5.1. ACCURACY AND COMPLETENESS OF INFORMATION. All
information, documents, reports, statements, financial statements, and data
submitted by or on behalf of the Borrower or any Subsidiary in connection with
the Loan, or in support thereof, are true, accurate, and complete in all
material respects and contain no knowingly false, incomplete or misleading
statements, nor omit to state any matter the omission of which could be
misleading.
SECTION 5.2. NON-EXISTENCE OF DEFAULTS, ETC. Except to the
extent disclosed in writing to the Bank by the Borrower as of the date hereof,
neither the Borrower nor any Subsidiary is in default with respect to any of its
existing Indebtedness, and the making and performance of this Agreement and the
Loan Documents will not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the charter or bylaw provisions of the Borrower or
any Subsidiary, violate any Laws which would impair the Collateral or the Bank's
lien and security interest therein or result in a default under any contract,
agreement, or instrument to which the Borrower or any Subsidiary is a party or
by which the Borrower or any Subsidiary or its property is bound; or (b) result
in the creation or imposition of any security interest in, or lien or
encumbrance upon, any of the assets of the Borrower or any Subsidiary, except in
favor of the Bank.
14
SECTION 5.3. LITIGATION. Except to the extent disclosed in
Schedule "D" as of the date hereof there is no action, suit, investigation, or
proceeding pending or, to the knowledge of the Borrower, threatened against the
Borrower or any Subsidiary.
SECTION 5.4. LIABILITIES OR ADVERSE CHANGES. Neither the
Borrower nor any Subsidiary has any direct or contingent liability or
Indebtedness known to the Borrower and not previously disclosed to the Bank, nor
does the Borrower know of any matter which could have a Material Adverse Effect.
SECTION 5.5. TITLE TO COLLATERAL. The Borrower has good and
marketable title to all of the existing Collateral except as specifically
identified in Schedule "E" hereto and will have good and marketable title to all
of the Collateral hereafter acquired. The Bank's liens described herein shall
constitute first priority lien security interests, subject in priority only to
any lien or security interest of the Bank granted by the Borrower in the same
Collateral in connection with another loan transaction, any other Loan Document,
or any other Permitted Lien.
SECTION 5.6. USE OF LOAN PROCEEDS. The Borrower shall use the
proceeds of the Loans only for the purposes represented to the Bank as set forth
in this Agreement.
SECTION 5.7. CORPORATE STATUS. Each Borrower is a corporation
validly organized and incorporated under the Laws of the State of Delaware. The
Borrower is qualified as a foreign corporation to conduct business in the states
identified in Schedule "F" attached hereto. The Borrower has the power to own
its properties, conduct its business and affairs, and enter into the Loans and
perform the Obligations. The Borrower's entry into the Loans with the Bank has
been validly and effectively approved by its Board of Directors and shareholders
as may be required by its charter, bylaws, or applicable Law. All copies of the
charter, bylaws, and corporate resolutions, as the case may be, of the Borrower
and any Subsidiary certified to the Bank on the Closing Date are true, accurate,
and complete and no action has been taken in diminution or abrogation thereof.
The Borrower has not changed its name, been the surviving corporation in a
merger, acquired any business, or changed the location of its chief executive
office within the last five (5) years, except as disclosed in Exhibit "G". The
Borrower does not use, and has not for the last five (5) years used, any trade
name, nor has Borrower conducted business under any name other than its
corporate name.
SECTION 5.8. VALIDITY, BINDING NATURE, AND ENFORCEABILITY OF
THE LOAN DOCUMENTS. The Loan Documents executed by the Borrower are the valid
and binding obligations of the Borrower, fully enforceable against the Borrower
in accordance with their terms.
15
SECTION 5.9. DEFAULTS UNDER LOAN DOCUMENT. There is not
currently existing any action, event, or condition which would constitute an
Event of Default on the part of the Borrower under this Agreement under any
other Loan Document, and no action, event or condition has occurred and is
continuing to occur which, with the giving of notice or the passage of time, or
both, would constitute a default by the Borrower under any provision of this
Agreement or under any other Loan Document.
SECTION 5.10. TAXES. Except as set forth in Schedule G-1, the
Borrower and all Subsidiaries: (a) have each filed all federal, state and local
tax returns and other reports which are required by Law to be filed prior to the
date hereof; (b) have each paid or caused to be paid all taxes, assessments and
other governmental charges that are due and payable prior to the date hereof,
except where the same are being contested in good faith by appropriate
proceedings with adequate reserves therefor having been set aside; and (c) have
each made adequate provision for the payment of such taxes, assessments or other
charges accruing but not yet payable. The Borrower has no knowledge of any
deficiency or additional assessment in a materially important amount in
connection with any taxes, assessments or charges not provided for on the
Borrower's books of account or reflected in the Borrower's financial statements.
SECTION 5.11. ERISA. All "Defined Benefit Pension Plans," as
that term is defined in ERISA, of the Borrower meet, as of the date hereof, the
minimum funding standards of Section 302 of ERISA, as amended, and no
"Reportable Event" or "Prohibited Transaction," as those terms are defined in
ERISA, has occurred with respect to any such pension plan, and no notice of any
violation of ERISA or rules and regulations promulgated thereunder has been
received by Borrower, or is known to Borrower, with respect to any other
retirement or welfare benefit plan subject to ERISA which is maintained or
sponsored by the Borrower.
SECTION 5.12. COMPLIANCE WITH LAWS. Except as otherwise
disclosed to the Bank, or except to the extent that the failure to comply would
not have a Material Adverse Effect, the Borrower has complied with all
applicable Laws with respect to: (a) any restrictions, specifications, or other
requirements pertaining to products that the Borrower sells, leases or licenses,
or to the services it performs; (b) the conduct of its business; and (c) the
use, maintenance, and operation of the real and personal properties owned or
leased by it in the conduct of its business. The Borrower has complied, and
shall continue to comply, with all laws, ordinances, rules, regulations,
guidelines, orders and decrees in regard to product safety, plant safety, and
the disposal of toxic wastes and hazardous substances.
SECTION 5.13. ACCURACY OF REPRESENTATIONS AND WARRANTIES. No
representation or warranty by the Borrower contained herein contains any untrue
statement of material fact or omits to state a material fact necessary to make
such
16
representation or warranty not misleading in light of the circumstances
under which it was made.
SECTION 5.14. CONSENTS, APPROVALS, AND AUTHORIZATIONS. Each
consent, approval or authorization of, or filing, registration or qualification
with, any Person which is required to be obtained or effected by the Borrower in
connection with the execution and delivery of this Agreement and the Loan
Documents, or the undertaking or performance of any obligation hereunder or
thereunder, has been duly obtained or effected.
SECTION 5.15. TITLE TO ASSETS OTHER THAN COLLATERAL. The
Borrower has good and marketable title to all of its assets, subject to no
security interest, encumbrance, lien, or claim of any Person other than the
Bank, except for the interests of lessors under operating leases wherein the
Borrower is the lessee.
SECTION 5.16. COPYRIGHTS, PATENTS, TRADEMARKS, LICENSES, ETC.
The Borrower owns or is licensed or otherwise has the right to use all of the
patents, trademarks, service marks, tradenames, copyrights, contractual
franchises, authorizations, and other rights if the failure to so own or be
licensed or otherwise have the right to use the same could have a Material
Adverse Effect. No slogan or other advertising device, product, process, method,
substance, part, or other material now employed or now contemplated to be
employed by the Borrower infringes on any rights held by any other Person.
Except as specifically disclosed in Schedule "H", no claim or litigation
regarding any of the foregoing is pending or, to the Borrower's knowledge,
threatened, and no patent, invention, device, application, principle, or any
statute, law, rule, regulation, standard, or code is pending or proposed that,
in either case, could reasonably be expected to have a Material Adverse Effect.
SECTION 5.17. PLACE OF BUSINESS. The Borrower's chief
executive office, principal place of business, and only place of business where
its Records relating to Receivables are kept, is located at 0000 Xxx Xxxxxx
Xxxx, Xxxxxxxx, Xxxxxxxx 00000. The Borrower also occupies space as a lessee and
maintains Equipment and Inventory at the locations set forth in Schedule "I"
attached hereto and incorporated herein.
SECTION 5.18. AFFILIATES AND SUBSIDIARIES. As of the date
hereof, Hemagen has no Subsidiaries other than Reagents, and Reagents has no
Subsidiaries except as disclosed in Schedule "J" attached hereto. Schedule "J"
also sets forth an accurate and complete list of the respective jurisdictions of
incorporation or organization and qualification and the percentage of capital
stock owned by Borrower or other Subsidiaries. All of the issued and outstanding
shares of capital stock of such Subsidiaries have been duly authorized and
issued and are fully paid and nonassessable.
17
SECTION 5.19. MATERIAL CONTRACTS AND COMMITMENTS. Except as
disclosed in Schedule "K" (a) the Borrower is not in default under any binding
material contract or commitment of any kind (such as requirements contracts,
contracts for future purchase or delivery of goods and lease or sales
agreements); (b) all parties to any material contract or commitment binding upon
the Borrower have complied with the provisions of such contracts and
commitments; and (c) no Customer is in default under any material contract or
commitment which is binding upon the Borrower and no event has occurred which,
but for the giving of notice or the passage of time, or both, would constitute a
default thereunder. As used in this Section 5.19, the term "material contract or
commitment" shall mean any contract or commitment for a consideration in excess
of Two Hundred Fifty Thousand Dollars ($250,000).
SECTION 5.20. FINANCIAL STATEMENTS. The financial statements,
copies of which have heretofore been furnished to the Bank, are complete and
correct and present fairly in accordance with GAAP the financial condition of
the Borrower and its consolidated Subsidiaries at such dates and the
consolidated and consolidating results of their operations and changes in
financial position for the fiscal periods then ended.
SECTION 5.21. INVESTMENT COMPANY ACT. The Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
SECTION 5.22. FEDERAL RESERVE BOARD REGULATIONS. Neither the
Borrower nor any of its Subsidiaries is engaged or will engage, principally or
as one of its important activities, in the business of obtaining or extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of such terms under Regulation U. No part of the
proceeds of any Loan issued hereunder will be used for "purchasing" or
"carrying" "margin stock" as so defined or for any purpose that violates, or
that would be inconsistent with, the provisions of the Regulations of the Board
of Governors of the Federal Reserve System, including Regulations U, T and X.
SECTION 5.23. SECURITIES ACTS. The Borrower has not issued any
unregistered securities in violation of the registration requirements of Section
5 of the Securities Act of 1933, as amended, or any other law, and is not
violating any rule, regulation, or requirement under the Securities Act of 1933,
as amended, or the Securities and Exchange Act of 1934, as amended. The Borrower
is not required to qualify an indenture under the Trust Indenture Act of 1939,
as amended, in connection with its execution and delivery of the Line of Credit
Note.
SECTION 5.24. HAZARDOUS MATERIALS, ENVIRONMENTAL LAWS. Neither
the Borrower nor any Subsidiary has: (i) caused or permitted hazardous materials
to be placed, held, located, or disposed of in, on, under, or about the former
or present business locations or any parts thereof, nor have such locations ever
been used (whether
18
by the Borrower or, to the knowledge of the Borrower, by any other Person) for
activities involving, directly or indirectly, the use, generation, treatment,
storage, or disposal of any hazardous materials; (ii) caused or permitted to be
incorporated into or utilized in the construction of any improvements located at
such business locations any chemical, material, or substance to which exposure
is prohibited, limited, or regulated by any Environmental Laws or which, even if
not so regulated, is known to pose a hazard (either in its present form or if
disturbed or removed) to the health and safety of the occupants of, or of
property adjacent to such business locations; or (iii) discovered any occurrence
or condition at such business locations or any property adjacent to or in the
vicinity thereof that could cause any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability, or use of such
property under any Environmental Laws. The Borrower is not aware, after diligent
inquiry, of any breach or material violations of any Environmental Laws in the
past or current conduct of its business and operations.
SECTION 5.25. SOLVENCY. The Borrower, both before and after
the funding of any Loan hereunder, is solvent, has assets having a fair market
value in excess of the amount required to pay its probable liabilities on its
existing Indebtedness as they become absolute and matured, and has and will
have, until the Obligations have been paid and performed in full, access to
adequate capital for the conduct of its business and the ability to pay its
Indebtedness from time to time incurred in connection therewith, as such
Indebtedness matures.
SECTION 5.26. REPRESENTATIONS AS TO RECEIVABLES. As to each
and every Receivable:
(a) The Receivable is genuine and bona fide and arises from
the sale, lease or license of goods or the performance of
services by Borrower;
(b) The Customer owing the Receivable is indebted to Borrower
in the full face amount of the Receivable;
(c) The Customer has authority to enter into the transaction
giving rise to the Receivable;
(d) The Receivable has not been previously assigned or
encumbered or charged by a lien or security interest,
except any Permitted Lien;
(e) The Borrower is the sole owner of the Receivable and has
the full right and absolute authority to assign the
Receivable;
(f) The Receivable is a valid and binding obligation of the
Customer, fully enforceable according to its terms, and
is not subject to any offset
19
(other than unapplied credits approved by the Borrower),
counterclaim, or other defense on the part of such
Customer or to any claim on the part of such Customer
denying liability thereunder in whole or in part;
(g) The Receivable is not, nor will it become, contingent
upon the fulfillment or performance by Borrower of any
contract or condition whatsoever;
(h) No agreement has been made, nor will be made, with any
Customer for any reduction, discount, or return of goods
(other than returns of leased goods), except as may be
customarily given by Borrower in the ordinary course of
business such as for prompt payment by the Customer;
(i) The stated due date of the Receivable is correct; and
(j) The Receivable is not evidenced by any Instrument or
Chattel Paper, unless the same be duly endorsed and
delivered to the Bank (but without implying any intention
or commitment for the Bank to make Advances on
Instruments or Chattel Paper).
SECTION 5.27. REPRESENTATIONS AS TO INVENTORY. As to each and
every item of Inventory, the Borrower represents that:
(a) Substantially all Inventory is, and shall remain at all
times, Inventory of good and merchantable quality and fit
for the particular purpose for which it was intended;
(b) All sales of Inventory shall be made only in the ordinary
course of business; and
(c) The Bank's security interest in the Inventory shall be in
a lien priority position such that there shall be no
other liens, encumbrances or security interests at any
time upon the Inventory except Permitted Liens.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees, during the term of this
Agreement and while any Obligations are outstanding and unpaid, to do and
perform the following:
20
SECTION 6.1. PAYMENTS. All Obligations shall be paid in full
when and as due, time being of the essence.
SECTION 6.2. PERFORMANCE. All Obligations shall be fully and
completely performed, when and as required, time being of the essence.
SECTION 6.3. PROTECTION OF SECURITY. Except as otherwise
provided in this Agreement, the value of the Collateral shall at all times be
protected and preserved, ordinary wear and tear excepted.
SECTION 6.4. INSURANCE. The Borrower shall obtain and maintain
the following insurance coverages:
SECTION 6.4.1. CASUALTY INSURANCE. The Borrower shall
obtain and maintain, and the Borrower shall cause its Subsidiaries to obtain and
maintain, during the term of the Loan for all of their respective assets and
properties, both real, personal, and mixed, including but not limited to the
Collateral, fire and extended coverage casualty insurance. Such insurance shall
be written in amounts reasonably satisfactory to the Bank and sufficient to
prevent any co-insurance liability (which amount shall be the full insurable
value of their respective assets and properties unless the Bank in writing
agrees to a lesser amount) naming the Bank as first mortgagee and sole loss
payee with respect to the tangible personal property Collateral (except for any
Equipment in which a lender holds a purchase money security interest) with an
insurance company and upon policy forms which are acceptable to and approved by
the Bank. The Bank, on request, shall be supplied with a certificate of
insurance and/or duplicate originals or copies of the aforementioned insurance
policies and paid receipts evidencing payment of the premiums due on the same.
The aforementioned policies shall be endorsed so as to make them noncancellable
unless thirty (30) days prior notice of cancellation is provided to the Bank.
The Borrower shall give the Bank prompt notice of any loss covered by such
casualty insurance. The Borrower shall have the sole right to adjust any loss
covered by an insurance policy and to receive the proceeds if the claim is equal
to or less than One Hundred Thousand Dollars ($1000,000). If the claim is in
excess of One Hundred Thousand Dollars ($100,000), the Bank shall have the right
to join the Borrower in adjusting any such loss. All monies received as payment
for a loss covered by an insurance policy paid over to the Bank (i.e., claims in
excess of One Hundred Thousand Dollars ($100,000)) shall be applied to the
replacement of the damaged or destroyed assets or properties, unless an Event of
Default shall have occurred and be continuing in which event, at the Bank's
option, such insurance proceeds shall be applied to the payment of amounts due
under the Loan. Any election to apply insurance proceeds to the Loan shall be
made by the Bank in its sole discretion. The Borrower may not take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained above unless the Bank is
21
included thereon with losses payable to the Bank as above provided. The Borrower
shall immediately notify the Bank whenever any such separate insurance is taken
out and shall promptly deliver to the Bank the policy or policies of such
insurance.
SECTION 6.4.2. LIABILITY AND WORKERS' COMPENSATION
INSURANCE. The Borrower shall obtain and maintain, and the Borrower shall cause
its Subsidiaries to obtain and maintain, during the term of the Loan public
liability and property damage insurance in such amounts, with insurance
companies, and upon policy forms reasonably acceptable to and approved by the
Bank. The Borrower shall obtain and maintain during the term of the Loan,
workers' compensation insurance, in such amounts, with insurance companies, and
in forms reasonably acceptable to and approved by the Bank. The Borrower, on
request, shall supply the Bank with copies of the liability and workers'
compensation insurance policies and receipts evidencing the payment of premiums
due thereon or, alternatively, certificates from the insurance companies
certifying to the existence of policies, summarizing the terms of the policies,
and indicating the payment of premiums due thereon.
SECTION 6.5. COLLECTION OF ACCOUNTS; SALE OF INVENTORY.
Subject to Section 9.2, the Borrower shall collect Receivables. The Borrower
shall sell Inventory only in the ordinary course of business unless prior
written consent to the contrary is obtained from the Bank.
SECTION 6.6. MAINTENANCE OF EXISTENCE. The Borrower shall
take all necessary actions to preserve its existence, franchises and good
standing in its state of incorporation and in any other state where qualified as
a foreign corporation, and shall comply with all present and future Laws
applicable in the operation and conduct of business, and all material agreements
to which it is subject. The Borrower shall not change its place of
incorporation.
SECTION 6.7. NOTICE OF LITIGATION AND PROCEEDINGS. The
Borrower shall give immediate notice to the Bank of: (a) any litigation or
proceeding in which Borrower or any Subsidiary is a party if an adverse decision
therein would require it to pay more than Fifty Thousand Dollars ($50,000) or
deliver assets the value of which equals or exceeds such sum (whether or not the
claim is considered to be covered by insurance); and (b) the institution of any
other suit or proceeding which might have a Material Adverse Effect on the
Collateral, the Borrower's operations, financial condition, property, or
business.
SECTION 6.8. PAYMENT OF INDEBTEDNESS TO THIRD PERSONS. The
Borrower shall pay when and as due, or within applicable grace periods, all
Indebtedness due third Persons, except when the amount thereof is being
contested in good faith by appropriate proceedings and with adequate reserves
therefor being set aside by the Borrower.
22
SECTION 6.9. NOTICE OF CHANGE OF BUSINESS LOCATION. The
Borrower shall notify the Bank thirty (30) days in advance of: (a) any change in
the location of its existing offices or places of business; (b) the
establishment of any new, or the discontinuance of any existing, place of
business; and (c) any change in or addition to the location of the place where
the Inventory, Equipment or Records are kept.
SECTION 6.10. PENSION PLANS. The Borrower shall: (a) fund all
of its defined benefit pension plans in accordance with, and in amounts not less
than required by, the minimum funding standards of Section 302 of ERISA, as
amended; (b) furnish the Bank promptly, upon request, with copies of all reports
or other statements filed with the United States Department of Labor or the
Internal Revenue Service with respect to all retirement plans; and (c) promptly
advise the Bank of the occurrence of any Reportable Event or Prohibited
Transaction with respect to any such plan.
SECTION 6.11. MAINTENANCE OF ASSETS AND PROPERTIES. The
Borrower shall maintain its assets and property, real, personal, and mixed, in
good condition and repair, normal wear and tear excepted, and shall pay and
discharge or cause to be paid and discharged when due, the cost of repairs to or
maintenance of the same, and shall pay or cause to be paid all rental or
mortgage payments due on any real estate used or owned by the Borrower.
SECTION 6.12. PAYMENT OF TAXES. The Borrower shall pay when
and as due, without interest or penalty, and shall cause its Subsidiaries to pay
when and as due, without interest or penalty, all taxes, assessments and charges
or levies imposed upon it or on any of its property or which it is required to
withhold and payover to any taxing authority or which it must pay on its income,
except where contested in good faith by appropriate proceedings with adequate
reserves therefor having been set aside by it. The Borrower shall pay all such
taxes, assessments, charges or levies forthwith whenever foreclosure on any lien
that attaches (or security therefor) appears imminent.
SECTION 6.13. FURTHER ASSURANCES AND POWER OF ATTORNEY. The
Borrower agrees to execute such other and further documents, including, without
limitation, promissory notes, security agreements, agreements, financing
statements, continuation statements, and the like as may from time to time in
the sole opinion of the Bank or the Bank's counsel be deemed necessary, proper,
or convenient, to perfect, confirm, establish, reestablish, continue, or
complete the security interest in the Collateral and the purposes and intentions
of this Agreement, it being the intention of the Borrower to hereby provide a
full and absolute warranty of further assurance to the Bank. The Borrower
expressly authorizes the Bank to file financing statements, continuation
statements or other instruments without the signature of the Borrower. Upon the
written request of the Bank that the Borrower execute any such document and the
failure of the Borrower to so execute any such document within five (5) days, or
at any
23
time and from time to time upon the occurrence and during the continuance of any
Event of Default, as the case may be, the Borrower hereby irrevocably and
automatically appoints the Bank as the Borrower's attorney-in-fact to execute
any such document in the Borrower's name and on the Borrower's behalf and such
power of attorney shall constitute a power of attorney coupled with an interest
and be irrevocable.
SECTION 6.14. ADVANCEMENTS. If the Borrower should fail to
perform any of the affirmative covenants contained in this Article or to protect
or preserve its assets and properties to the extent required by this Agreement,
or if the Borrower should fail to protect or preserve the Collateral to the
extent required by this Agreement or the status and priority of the security
interest of the Bank in the Collateral, the Bank may make Advances to perform
the same on behalf of the Borrower. All sums so advanced shall be deemed to be
an Advance made pursuant to the Line of Credit and immediately upon advancement
become secured by the security interests created by this Agreement, and subject
to the terms and provisions of this Agreement and all of the applicable Loan
Documents, and shall become part of the principal amount owed to the Bank with
interest to be assessed at the applicable rate thereon. The Borrower shall repay
on demand all sums so advanced on the Borrower's behalf, plus any reasonable
expenses or costs incurred by the Bank, including reasonable attorney's fees,
with interest thereon at the highest rate provided for in the applicable Loan
Documents from the date of advancement. The provisions of this Section shall not
be construed to prevent the institution of the rights and remedies of the Bank
upon the occurrence of an Event of Default by the Borrower. The contrary
notwithstanding, the authorization contained in this Section shall impose no
duty or obligation on the Bank to perform any action or make any Advance on
behalf of the Borrower and is for the sole benefit and protection of the Bank.
SECTION 6.15. PROTECT AND PRESERVE INTELLECTUAL PROPERTY. The
Borrower shall take all actions necessary to preserve and protect its U.S. and
foreign patents, trademarks, service marks, and proprietary trade secrets and
know-how including, for example, paying patent maintenance fees when due,
renewing registered trademarks and service marks, and preventing piracy of trade
secrets, and shall take reasonable steps to expand its intellectual property
portfolio by securing the confidentiality thereof and/or the timely prosecution
of trademark, service xxxx and patent applications, including continuations
thereof. Borrower shall protect its intellectual property from infringement and
misuse by others, and shall pursue all claims for improper use by all reasonably
practical means to safeguard such intellectual property for its own benefit,
including timely opposition of potentially infringing trademark applications and
appropriate litigation. Borrower shall likewise preserve and protect
intellectual property licensed from any third party, and shall require third
party licensees of Borrower's intellectual property to do the same.
24
SECTION 6.16. COLLECTION OF RECEIVABLES BY THE BORROWER.
Unless the Borrower's authority to collect the Receivables has been terminated
by the Bank as provided in this Agreement, the Borrower, at the Borrower's sole
expense, shall collect, when and as due, all sums due on the Receivables. The
Borrower shall take such action in collecting the Receivables as the Bank may
reasonably request, or in the absence of such request, as the Borrower may deem
advisable. Upon the request of the Bank, the Borrower shall execute a lockbox
agreement with the Bank and the Borrower shall continue to have all Receivables
directed to the Bank for deposit in the Operating Account or such other account
designated by the Bank.
SECTION 6.17. NOTICE TO BANK OF EVENTS AFFECTING COLLATERAL;
BORROWER'S RIGHT TO COMPROMISE RECEIVABLES; RETURNED OR REPOSSESSED GOODS. The
Borrower, immediately upon learning thereof, shall report to the Bank any
material: (a) reclamation, return or repossession of goods; (b) claim(s) or
dispute(s) asserted by any Customer or other obligor; and (c) matters affecting
the value, enforceability or collectibility of any Receivable. Without limiting
the generality of the foregoing, each matter referred to above which involves a
return of goods or claim in excess of One Hundred Thousand Dollars ($100,000)
shall be generally deemed to be material. The Borrower shall not, without the
Bank's consent, such consent not to be unreasonably withheld, materially
compromise or adjust any of the Receivables (or extend the time for payment
thereof) other than in the ordinary course of business, or grant any additional
discounts, allowances or credits thereon, provided that the Borrower may grant,
in the ordinary course of business, to any party obligated on any of the
Receivables, any rebate, refund, or adjustment to which such party may be
entitled, and may accept, in connection therewith, the return of goods, the sale
or lease of which shall have given rise to such Receivable.
SECTION 6.18. CONFIRMATION AS TO AND DOCUMENTATION OF
COLLATERAL. The Borrower shall provide the Bank with a Borrowing Base
Certificate within twenty (20) days after the close of each fiscal month, or at
intervals and in such additional detail as the Bank may from time to time
require, reflecting the status of, and changes in, Eligible Inventory or
Eligible Receivables (including an aging of all Receivables). Further, the
Borrower shall provide the Bank upon reasonable request from time to time with:
(a) copies of Customers' invoices or billing statements; (b) information related
to transactions giving rise to licensing fees or other remuneration for the use
of tangible or intangible property; (c) evidence of shipment or delivery of
goods or merchandise to or performance of services for Customers; and (d) such
further schedules and information as the Bank may require, all at Borrower's
expense. The items to be provided under this Section are to be in form
reasonably satisfactory to the Bank and shall be delivered to the Bank from time
to time solely for the Bank's convenience in maintaining its records of the
Collateral. The Borrower's failure to deliver any of such items to the Bank
shall not affect, terminate, modify or otherwise limit the Bank's security
interest in the Collateral.
25
SECTION 6.19. MAINTAIN RECORDS AND MAKE AVAILABLE TO BANK FOR
INSPECTION. The Borrower shall maintain Records pertaining to the Collateral,
and the conduct and operation of its business, in such detail, form and scope as
the Bank shall reasonably require. During normal business hours, and upon
reasonable notice to Borrower, the Bank and its duly authorized representatives
shall have full access to, and the right to audit, check, inspect and make
abstracts and copies from, such Records. The Bank shall have the right to
confirm and verify all Receivables and do whatever the Bank may deem reasonably
necessary to protect the Bank's interests. The Bank or the Bank's agents may
enter upon any of the Borrower's premises with prior notice during normal
business hours and from time to time for the purpose of inspecting the
Collateral and any and all such Records. Notwithstanding the foregoing, upon the
occurrence of an Event of Default, the Bank may enter the business premises and
inspect, audit, review, examine and/or take possession of and remove any or all
such Records, or copies thereof, provided, however, in the absence of fraud such
Records or copies thereof shall be at all times reasonably available to the
Borrower.
SECTION 6.20. MONTHLY AGING REPORT. The Borrower shall furnish
to the Bank, within twenty (20) days following the end of each month during the
term of the Loan, an accounts payable report and aging in form reasonably
acceptable to the Bank.
SECTION 6.21. BANK AUDITS. The Bank may conduct audits at the
Borrower's place or places of business, including audits as to the Receivables,
Inventory and any other Collateral, and the Borrower's Records. Except following
the occurrence of an Event of Default, such audits shall be conducted during
normal business hours with prior notice to the Borrower. The Borrower shall pay
(or reimburse) the Bank for the actual cost and expense of such audits.
SECTION 6.22. FINANCIAL STATEMENTS; CERTIFICATION AS TO EVENTS
OF DEFAULT. The Borrower shall furnish the Bank:
(a) Within forty-five (45) days after the last day of
each fiscal quarter, consolidated and consolidating statements of income and
cash flow statements for such fiscal quarter and balance sheets as of the end of
such fiscal quarter of the Borrower and its Subsidiaries, accompanied in each
case by a certificate of the chief financial officer of the Borrower stating
that such financial statements are presented fairly in accordance with GAAP.
(b) Within one hundred twenty (120) days after the last
day of each fiscal year of the Borrower, consolidated and consolidating
statements of income and cash flow statements for such year and balance sheets
as of the end of such year presented fairly in accordance with GAAP and
accompanied by an unqualified report of a firm of independent certified public
accountants acceptable to the Bank and
26
including therewith a copy of the management letter from such certified public
accountants. The Bank shall have the right, from time to time, to discuss the
affairs of the Borrower and any Subsidiary directly with the independent
certified public accountant (subject to any applicable rules of the Securities
and Exchange Commission as to confidentiality), and this Agreement shall
constitute an irrevocable direction and authorization to such certified public
accountant to discuss such affairs with the Bank, and to provide the Bank with
such information and documentation as the Bank may reasonably require.
(c) Within ten (10) days of filing, the Borrower shall
cause to be delivered to the Bank a true and correct copy of its federal income
tax return prepared by its independent certified public accountant, and true and
correct copies of federal income tax returns filed by any Subsidiary.
(d) Promptly after sending, filing, or publishing the
same, copies of all proxy statements, financial statements, and reports that the
Borrower sends to its public stockholders or Subordinated Debt Noteholders, and
copies of all regular and periodic reports and all registration statements that
the Borrower files with the Securities and Exchange Commission and copies of all
press releases issued by Borrower.
(e) Within thirty (30) days after the end of each of the
Borrower's fiscal years, a copy of the Borrower's projections for operations for
the next fiscal year, such projections to be in form and detail satisfactory to
the Bank.
(f) Not later than forty-five (45) days after the end of
each fiscal quarter, a certificate of the president or chief financial officer
of the Borrower stating that no Event of Default has occurred and is continuing,
or if to the contrary, a statement as to the nature thereof and the action that
the Borrower proposes to take with respect thereto, together with a certificate
of such officer setting forth calculations certified to be true, complete, and
correct showing compliance with the financial covenants stated in Sections 6.24
through 6.26 as of the end of such fiscal quarter.
(g) Promptly with such additional financial and other
information as the Bank may from time to time reasonably request.
SECTION 6.23. MAINTENANCE OF EQUIPMENT. The Borrower
covenants to maintain and preserve all Equipment in a state of good and
efficient working order, normal wear and tear excepted.
SECTION 6.24. MINIMUM TANGIBLE NET WORTH. The Borrower shall
at all times maintain a minimum Tangible Net Worth of at least Four Million
Dollars ($4,000,000).
27
SECTION 6.25. MINIMUM CURRENT RATIO. The Borrower shall at all
times maintain a minimum Current Ratio of at least two to one (2.0:1.0).
SECTION 6.26. TOTAL LIABILITIES TO TANGIBLE NET WORTH. The
Borrower shall at all times maintain a Total Liabilities to Tangible Net Worth
Ratio of not more than one-half to one (0.5:1.0).
SECTION 6.27. INDEMNIFICATION. The Borrower shall indemnify,
defend, and hold harmless the Bank and each of its officers and other employees,
representatives, and agents (each, an "Indemnified Party") from and against any
and all claims, obligations, penalties, actions, suits, judgments, reasonable
costs and disbursements, losses, liabilities, and damages (including, without
limitation, reasonable attorneys' fees) of any kind whatsoever (collectively and
severally, "Claims") that may at any time be imposed on, assessed against, or
incurred by such Indemnified Party in anyway relating to or arising out of the
Loan Documents or the transactions contemplated thereby or any action reasonably
taken or omitted to be taken by such Indemnified Party in connection with the
foregoing; provided, however, that the Borrower shall not be liable for any
portion of any Claims arising out of or resulting from the gross negligence or
willful misconduct of such Indemnified Party.
SECTION 6.28. BANK ACCOUNTS. The Borrower shall maintain all
of its deposit banking accounts with the Bank during the term of this Agreement
(excepting approved local accounts), and shall deposit all cash collections and
the cash proceeds of Receivables in such accounts.
ARTICLE VII
NEGATIVE COVENANTS
Each Borrower covenants and agrees during the term of this
Agreement and while any Obligations are outstanding and unpaid not to do or to
permit to be done or to occur any of the acts or happenings set forth below,
without the prior written consent of the Bank.
SECTION 7.1. CHANGE OF NAME, MERGER, SALE OF STOCK ETC. The
Borrower shall not change its corporate name or enter into any merger,
consolidation, reorganization or recapitalization without the prior written
consent of the Bank.
SECTION 7.2. CHANGE STATE OF INCORPORATION. The Borrower shall
not incorporate, reincorporate or take any action to change its place of
organization or incorporation from the State of Delaware.
28
SECTION 7.3. SALE OR TRANSFER OF ASSETS. The Borrower shall
not sell, transfer, lease, license or otherwise dispose of all or (except in the
ordinary course of business) any material part of the Collateral or its assets.
SECTION 7.4. ENCUMBRANCE OF ASSETS. Excepting Permitted
Liens, the Borrower shall not mortgage, pledge, grant or permit to exist a
security interest in or lien upon any of its assets of any kind, whether now
owned or hereafter acquired.
SECTION 7.5. GUARANTEES. The Borrower shall not become liable,
directly or indirectly, as guarantor or otherwise for any obligation of any
other Person, except for the endorsement of checks, drafts, instruments or
commercial paper for deposit or collection in the ordinary course of business.
SECTION 7.6. INDEBTEDNESS. The Borrower shall not incur,
create, assume, or permit to exist any Indebtedness except: (a) the Loan; (b)
existing Indebtedness previously disclosed to the Bank; (c) unsecured trade
Indebtedness incurred in the ordinary course of business; and (d) secured
Indebtedness arising from purchase money security interest financing of
Equipment as permitted under this Agreement.
SECTION 7.7. INVESTMENTS. Without the prior written consent
of the Bank, the Borrower will not form any subsidiary or make any investment in
or make any loan in the nature of any investment to any Person, including
without limitation any Subsidiary or Affiliate, including, without limitation,
Hemagen Diagnosticos Comercio, Importacao e Exportacao, Ltd., a Brazilian
limited liability company, but excluding any transfers between Hemagen and
Reagents or vice versa.
SECTION 7.8 LEASES. The Borrower shall not become or be
liable as lessee with respect to any lease of any property, real, personal or
mixed, except for leases in existence on the date hereof or previously disclosed
to Bank in writing and renewals or extensions thereof with normal rent
adjustments, except for (a) such leases as at any time may be entered into by
Borrower with respect to motor vehicle equipment, standard office equipment and
material handling equipment with an aggregate annual rental cost of $85,000 or
less, (b) real estate leases with a term of six (6) months or less, (c) real
estate leases which when aggregated with all other real estate leases result in
basic monthly rents not exceeding $40,000, and (d) real estate leases approved
by the Bank, such approval not to be unreasonably withheld.
SECTION 7.9. LOANS. The Borrower will not make any loan or
advance to any Person, including without limitation any Affiliate, or any
partner, officer or employee of the Borrower or any Affiliate, except for
temporary advances to officers and employees of the Borrower in the ordinary
course of business.
29
SECTION 7.10. ACQUISITION OF STOCK OR ASSETS OF THIRD PERSON.
Without the prior written consent of the Bank, the Borrower will not acquire any
stock or equity interests in, or all or substantially all of the assets of, any
Person.
SECTION 7.11. DIVIDENDS AND DISTRIBUTIONS. The Borrower shall
not declare and pay dividends nor make other distributions on outstanding
capital stock without the prior written consent of the Bank.
SECTION 7.12. OBLIGATIONS TO SUBORDINATED DEBT NOTEHOLDERS.
The Borrower shall not change, amend, modify or alter the terms of any note
instruments evidencing the obligations owing to the Subordinated Debt
Noteholders.
SECTION 7.13. ASSIGNMENT OF THIS AGREEMENT. The Borrower may
not assign or attempt to assign this Agreement.
SECTION 7.14. EXCEPTION TO NEGATIVE COVENANTS. Notwithstanding
the prohibitions set forth above in this Article VII, the Borrower shall be
permitted to enter into unsecured acquisitions of assets or stock (or equity
interests) of a third-party entity which (a) consist of, or convey ownership of,
a business enterprise or product line similar, related to or complementary to
products now sold by Borrower; (b) in any one instance is for a fixed purchase
price not exceeding $200,000; and (c) which purchase price, when aggregated with
other acquisitions under this Section 7.14 during the preceding twelve (12)
months, will not exceed $500,000.
ARTICLE VIII
EVENTS OF DEFAULT
The occurrence of any of the following events or circumstances
and the expiration of any applicable cure or grace period shall constitute
"Events of Default" hereunder and shall entitle the Bank to exercise the Bank's
rights and remedies under Article IX hereof:
SECTION 8.1. FAILURE TO PAY. The failure by the Borrower to
pay any Obligation, which failure shall not be cured or discharged within a
period of five (5) days after the same becomes due and payable.
SECTION 8.2. FAILURE TO PERFORM. The failure of the Borrower
to perform or observe any Obligation (which failure is not specifically
enumerated in this Article VIII as an Event of Default).
SECTION 8.3. FAILURE OF WARRANTY OR REPRESENTATION TO BE
TRUE. The failure of any representation or warranty provided in this Agreement
to be true and
30
accurate in all material respects, and to continue to be true and accurate in
all material respects at all times while any of the Obligations remain
outstanding or unsatisfied.
SECTION 8.4. FAILURE TO PERFORM COLLATERAL COVENANTS. The
failure by the Borrower to perform or observe any covenant or agreement with
respect to the Collateral.
SECTION 8.5. FAILURE TO PERFORM AFFIRMATIVE COVENANTS. The
failure by the Borrower to perform or observe any affirmative covenant provided
in this Agreement, other than one otherwise specifically enumerated in this
Article VIII as an Event of Default.
SECTION 8.6. FAILURE TO SATISFY FINANCIAL COVENANTS. A
failure to satisfy any financial covenant set forth in Sections 6.24 through
6.26, inclusive, as of the end of each fiscal quarter; provided, however, such
failure shall not be deemed an Event of Default until (a) thirty (30) days have
elapsed from the date the Borrower's quarterly compliance certificate required
under Section 6.22(f) is delivered or due to the Bank; or (b) the Bank's written
notice to Borrower declaring such non-compliance an Event of Default, whichever
occurs first. During the thirty (30) day period provided in (a) above, the Bank,
in its discretion, may waive compliance of the violated covenant for the
preceding quarterly period, modify or alter the covenant requirement or impose
new covenants for future quarters, limit or restrict Advances, or elect to
exercise its remedy under (b) above.
SECTION 8.7. VIOLATION OF NEGATIVE COVENANTS. A violation by
the Borrower of any of the negative covenants provided in this Agreement, other
than one otherwise specifically enumerated in this Article VIII as an Event of
Default.
SECTION 8.8. DEFAULT UNDER LOAN DOCUMENTS. A breach of or
default by the Borrower under the terms, covenants, and conditions set forth in
any other Loan Document, which is not cured within any applicable cure or grace
period.
SECTION 8.9. CROSS-DEFAULT. A breach of, default by, or
demand for payment by the Borrower under the terms, covenants, or conditions of
any present or future agreements, loans, guarantees, or other transactions of
the Borrower or any Subsidiary with the Bank (but without implying any duty to
make any future loan or financial accommodation not presently contemplated in
this Agreement), regardless of whether such a default is declared thereunder by
the Bank, which is not cured within any applicable cure or grace period.
SECTION 8.10. JUDGMENTS. The Borrower shall suffer final
judgments for payment of money aggregating in excess of Fifty Thousand Dollars
($50,000) in any one fiscal year, and shall not discharge the same within a
period of thirty (30) days unless,
31
pending further proceedings, the Borrower posts a supersedeas bond or execution
has been effectively stayed.
SECTION 8.11. LEVY BY SECURED CREDITOR. A secured or judgment
creditor of the Borrower shall obtain possession of any of the Collateral by any
means, including, but without limitation, levy, distraint, replevin or
self-help.
SECTION 8.12. FAILURE TO PAY DEBTS TO THIRD PERSONS. Excepting
Subordinated Debt owing to the Subordinated Debt Noteholders, the Borrower or
any Subsidiary shall fail to pay any Indebtedness of any material nature due any
third-party and such failure shall continue beyond any applicable grace period,
or the Borrower or any Subsidiary shall suffer to exist any other event of
default under any agreement binding upon the Borrower or Subsidiary regardless
of whether default is actually declared thereunder, and such other event of
default shall continue beyond any applicable grace period.
SECTION 8.13 DEFAULT OR FAILURE TO PAY SUBORDINATED DEBT. A
default in the payment when due of any amounts owing to the Subordinated Debt
Noteholders.
SECTION 8.14. INVOLUNTARY BANKRUPTCY. The commencement of a
proceeding before a court having jurisdiction against or with respect to the
Borrower in an involuntary case under the federal bankruptcy laws or any state
insolvency or similar laws seeking: (a) the liquidation of the Borrower; (b) a
reorganization of the Borrower or the Borrower's business and affairs, or (c)
the appointment of a receiver, liquidator, assignee, custodian, trustee, or
similar official for the Borrower or any of the Borrower's property including,
but not limited to, the Collateral.
SECTION 8.15. VOLUNTARY BANKRUPTCY. The commencement by the
Borrower of a voluntary case under the federal bankruptcy laws or any state
insolvency or similar laws or the consent by the Borrower to the appointment for
taking possession by a receiver, liquidator, assignee, custodian, trustee, or
similar official for the Borrower or any of the Borrower's property including,
but not limited to, the Collateral, or the making by the Borrower of any
assignment for the benefit of creditors or the failure by the Borrower generally
to pay its debts as they become due either as to the amount of such debts or the
number of such debts.
SECTION 8.16. MATERIAL ADVERSE CHANGE. Any change shall occur
in the financial condition, business operations or otherwise, of the Borrower
which could have a Material Adverse Effect as determined in the sole discretion
of the Bank in good faith.
SECTION 8.17. IMPAIRMENT OF COLLATERAL. Any event or series of
events shall occur which the Bank deems, in good faith and in its sole
discretion, to impair the
32
Collateral or other security for the Loan or otherwise threaten the value
thereof, or which has a Material Adverse Effect on the prospects of repayment of
the Loan.
SECTION 8.18. CHANGE IN CONTROL, CHANGE IN KEY PERSONNEL. A
Change in Control or Change in Key Personnel shall occur.
SECTION 8.19. CURE. Notwithstanding anything above contained
in this Article VIII, the Borrower shall have fifteen (15) days to cure any
Event of Default specified in Sections 8.2 through 8.5, and 8.7 through 8.12, so
long as such Event of Default is susceptible to cure. During any cure period,
the Bank may make or withhold Advances in its sole discretion. Such cure period
may, in the Bank's sole discretion, be extended if such cure is diligently being
pursued and such continuing Event of Default does not substantially impair the
prospects of repayment of the Loan. Nothing herein contained shall limit the
continuing obligation of the Borrower to notify the Bank of any Event of Default
and the Borrower's actions to cure such default within the periods above stated.
Upon the occurrence of an Event of Default described in Section 8.13,
8.14 or 8.15, all Obligations hereunder and under the Line of Credit Note shall
immediately accelerate and be due and payable, in full, without further action
or notice by the Bank. Except as provided in Section 8.6 and in the immediately
preceding sentence, upon the occurrence of any other Event of Default which is
not cured within the applicable cure period, if any, or waived, the Bank shall
have no further obligation to make any additional Advances under the Line of
Credit Note, and the Bank, in its sole discretion, may thereupon accelerate all
Obligations and declare all Obligations immediately due and payable, in full.
ARTICLE IX
RIGHTS AND REMEDIES ON THE OCCURRENCE
OF AN EVENT OF DEFAULT
SECTION 9.1. RIGHTS AND REMEDIES. In addition to all other
rights and remedies provided by Law and the Loan Documents, the Bank, on the
occurrence of any Event of Default, and the expiration of any grace or cure
period, if any, may:
(a) Refuse to make further Advances or
readvances on the Line of Credit;
(b) Accelerate and call due and/or demand the
immediate payment of the unpaid principal balance of the Loan, and all accrued
interest and other sums due as of the date of default;
(c) Impose any default rate of interest;
33
(d) Foreclose any security interest, lien,
assignment, or pledge created by any Loan Document or this Agreement;
(e) Confess judgment or file suit against the
Borrower on the Line of Credit Note;
(f) File suit against the Borrower on this
Agreement, or any other Loan Document;
(g) Seek specific performance or injunctive
relief to enforce performance of the undertakings, duties, and agreements
provided in the Loan Documents, whether or not a remedy at law exists or is
adequate;
(h) Exercise any rights of a secured creditor
under the Maryland Uniform Commercial Code-Secured Transactions, Title 9,
Commercial Law Article, Annotated Code of Maryland, as amended, including the
right to take possession of the Collateral without the use of judicial process
and the right to require the Borrower to assemble the Collateral at such place
as the Bank may specify; or
(i) Set-off any amounts in any account or
represented by any certificate with the Bank in the name of the Borrower or in
which the Borrower has an interest.
SECTION 9.2. COLLECTION OF RECEIVABLES BY BANK. The Bank, at
any time or from time to time following the occurrence of an Event of Default
which is a continuing Event of Default, may terminate the Borrower's authority
to collect the Receivables and may exercise any or all of the rights contained
in this Section. Upon such a termination of the Borrower's authority, the Bank
shall have the right to send notice of assignment or notice of the Bank's
security interest to any and all Customers or any third party holding or
otherwise concerned with any of the Collateral, and thereafter the Bank shall
have the sole right to collect the Receivables and take possession of the
Collateral and Records relating thereto. All of the Bank's reasonable collection
expenses shall be charged to the Borrower's account and added to the
Obligations. If the Bank is collecting the Receivables as provided, the Bank
shall have the right to receive, indorse, assign and deliver in the Bank's name
or the Borrower's name any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and the Borrower hereby waives
notice of presentment, protest and nonpayment of any instrument so indorsed. If
the Bank is collecting the Receivables directly as above provided, the Borrower
hereby constitutes and appoints the Bank or the Bank's designee as the
Borrowers' attorney-in-fact with power with respect to the Receivables: (a) to
indorse the Borrower's name upon any notes, acceptances, checks, drafts, money
orders or other evidences of payment of Collateral
34
that may come into the Bank's possession; (b) to sign the Borrower's name on any
invoice relating to any of the Receivables, drafts against Customers,
assignments and verifications of Receivables and notices to Customers; (c) to
send verifications of Receivables to any Customer; (d) to notify the Post Office
authorities to change the address for delivery of mail addressed to the
Borrower; (e) to receive, open and dispose of all mail addressed to the
Borrower; and (f) to do all other acts and things necessary, proper, or
convenient to carry out the terms, conditions, purposes and intent of this
Agreement. All good faith acts of the Bank as such attorney or designee are
hereby ratified and approved, and such attorney or designee shall not be liable
for any acts of omission or commission other than acts of willful misconduct,
nor for any error of judgment or mistake of fact or law exercised in accordance
with this Agreement. The power of attorney hereby granted, being coupled with an
interest, is irrevocable while any of the Obligations remain unpaid. The Bank
may, without notice to or consent from the Borrower, xxx upon or otherwise
collect, extend the time of payment of or compromise or settle for cash, credit
or otherwise upon any terms, any of the Receivables or any securities,
instruments or insurance applicable thereto or release any obligor thereon. The
Bank is authorized and empowered to accept the return of the goods represented
by any of the Receivables, without notice to or consent by the Borrower, all
without discharging or in any way affecting the Borrower's liability hereunder.
The Bank does not, by anything herein or in any assignment or otherwise, assume
any of the Borrower's obligations under any contract or agreement assigned to
the Bank, and the Bank shall not be responsible in any way for the performance
by the Borrower of any of the terms and conditions thereof, except for acts of
willful misconduct or gross negligence.
SECTION 9.3. SALE OF COLLATERAL. In addition to any other
remedy provided herein, upon the occurrence of any Event of Default, and the
expiration of any grace or cure period, if any, the Bank may immediately,
without advertisement, sell in a commercially reasonable manner at public or
private sale or otherwise realize upon, in Baltimore, Maryland, or elsewhere,
the whole or any part of the Collateral, or any interest which the Borrower may
have therein. After deducting from the proceeds of sale or other disposition of
the Collateral all reasonable expenses, including all reasonable expenses for
legal services, the Bank shall apply such proceeds toward the satisfaction of
the Obligations in any order or manner as the Bank may determine. Any remainder
of the proceeds after satisfaction in full of the Obligations shall be
distributed as required by applicable Law. Written notice of any sale or other
disposition shall be given to the Borrower at least ten (10) days before the
time of any intended public sale or of the time after which any intended private
sale or other disposition of the Collateral is to be made, which the Borrower
hereby agrees shall be reasonable notice of such sale or other disposition. The
Borrower agrees to assemble, or to cause to be assembled, at the Borrower's own
expense, the Collateral at such place or places as the Bank shall designate. At
any such sale or other disposition, the Bank may, to the extent permissible
under applicable Law, purchase the whole or any part of the Collateral, free
35
from any right of redemption on the part of the Borrower, which right is hereby
waived and released. The Borrower waives the right, if any, to have the
Collateral marshaled upon a sale. Without limiting the generality of any of the
rights and remedies conferred upon the Bank under this Section, the Bank may, to
the full extent permitted by applicable law: (a) peacefully enter upon the
premises of the Borrower, exclude therefrom the Borrower or any entity connected
therewith, and take immediate possession of the Collateral, either personally or
by means of a receiver appointed by a court of competent jurisdiction, using all
necessary force to do so; (b) at the Bank's option, use, operate, manage, and
control the Collateral in any lawful manner (but without any obligation to
continue the business operations of the Borrower); (c) collect and receive all
rents, income, revenue, earnings, issues, and profits therefrom; and (d)
maintain, preserve, alter or remove the Collateral as the Bank may determine in
the Bank's discretion. The Borrower and all Guarantors shall indemnify and save
harmless the Bank for any action or inaction taken in connection therewith,
except for acts or omissions of gross negligence or willful misconduct.
SECTION 9.4. ATTORNEYS' FEES AND EXPENSES. The Borrower shall
pay all attorneys' fees and expenses which the Bank may incur as a result or in
consequence of the happening of an Event of Default, even if the Event of
Default is cured and the Loan is placed in good standing.
SECTION 9.5. REMEDIES CUMULATIVE. The rights and remedies
provided in this Agreement or in the Loan Documents or under applicable Law
shall be cumulative and the exercise of any particular right or remedy shall not
preclude the exercise of any other rights or remedies in addition to, or as an
alternative of, such right or remedy.
SECTION 9.6. NOTICE OF DEFAULT. Except as otherwise
specifically provided in this Agreement, the Bank shall have no duty or
obligation to provide the Borrower with a notice of the existence of an Event of
Default upon the occurrence of an Event of Default or before exercising the
Bank's rights and remedies in consequence of the happening of the Event of
Default, nor shall the Bank be required to give any period of time for the
Borrower to cure a default. The Bank may, however, in the Bank's sole and
absolute discretion, give such a notice to evidence the existence of the Event
of Default and if the Bank, in the Bank's sole and absolute discretion, gives
the Borrower a period of time to cure the default in the notice thereof, the
Borrower shall have such period of time to cure the default before the Bank
exercises the Bank's rights and remedies in consequence of the default. The
failure or forbearance of the Bank to exercise the Bank's rights and remedies
upon the happening of an Event of Default shall not be a waiver of the default
or an excusing of the default by the Bank, and if the default shall continue to
exist, the Borrower authorizes the Bank to exercise at any time the Bank's
rights and remedies in consequence of the default. If, however, the Borrower
cures the default within any applicable cure period to the Bank's full and
complete satisfaction before the
36
Bank has exercised the Bank's rights and remedies, the Bank shall no longer have
the right to exercise the Bank's rights and remedies in consequence of the
default. If, however, the Bank has already exercised the Bank's rights and
remedies and the Borrower cures the default which authorized the exercise of the
rights and remedies by the Bank, but after any applicable cure period, the Bank,
in the Bank's sole and absolute discretion, may either accept the default as
cured, reinstate the subject Loan in good standing, cease to exercise the Bank's
rights and remedies, and deal with the Borrower as though a default had not
occurred, or continue to exercise the Bank's rights and remedies and refuse to
recognize or accept the default as having been cured.
SECTION 9.7. PROOF OF SUMS DUE ON LOANS. In any action or
proceeding brought by the Bank to collect the sums owed on the Loan, an
affidavit made under oath by an officer of the Bank setting forth the unpaid
balance of principal, and any accrued interest, default interest, and late
charges owed on the Loan shall be presumed correct in the absence of manifest
error, and shall be admissible in evidence for the purpose of establishing the
truth of what it asserts.
SECTION 9.8. OBLIGATIONS OF THE BORROWER HEREUNDER
UNCONDITIONAL. The payment and performance of the Obligations shall be the
absolute and unconditional duty and obligation of the Borrower, and shall be
independent of any defense or any right of set-off, recoupment or counterclaim
which the Borrower might otherwise have against the Bank and the Borrower shall
pay absolutely net the payments of the principal and interest to be made on
account of the Loan and all other payments required hereunder, free of any
deductions and without abatement, diminution or set-off other than those herein
expressly provided, and until such time as the Obligations have been fully paid
and performed, the Borrower: (a) will not suspend or discontinue any payments
provided for herein or in the Line of Credit Note; (b) will perform and observe
all of the Borrowers' other covenants and agreements contained in the Loan
Documents, including without limitation, making all payments required to be made
to the Bank; and (c) will not terminate or attempt to terminate the Loan
Documents for any cause.
ARTICLE X
GENERAL CONDITIONS AND TERMS
SECTION 10.1. LOAN COSTS. The Loans and all transactions
relating thereto and provided for herein shall be made at no cost to the Bank
and all fees including, without limitation, the Bank's reasonable counsel fees,
title insurance premiums, recordation costs, costs of documentary stamps,
photocopying expense, appraisals, lien searches, travel expenses for the Bank's
agents, employees, and counsel, and all other reasonable expenses shall be paid
by the Borrower, whether incurred prior to or after closing, such that the
subject transactions shall be cost free to the Bank.
37
SECTION 10.2. INCORPORATION. The terms and conditions of the
Loan Documents are incorporated by reference and made a part hereof as if fully
set forth herein. In the event of any inconsistencies between this Agreement and
any other Loan Document, such inconsistencies shall be construed, interpreted,
and resolved so as to benefit the Bank, independent of whether this Agreement or
another Loan Document controls, and the Bank's election of which interpretation
or construction is for the Bank's benefit shall govern.
SECTION 10.3. WAIVERS. The Bank may at any time or from time
to time waive all or any rights under this Agreement or any other Loan Document,
but any waiver or indulgence by the Bank at any time or from time to time shall
not constitute, unless specifically so expressed by the Bank in writing (except
to the extent an express waiver need not be in writing under the provisions of
another Section of this Agreement), a future waiver of performance or exact
performance by the Borrower.
SECTION 10.4. NO THIRD PARTY BENEFICIARY RIGHTS. No person not
a party to this Agreement shall have any benefit hereunder nor have third party
beneficiary rights as a result of this Agreement or any other Loan Documents,
nor shall any party be entitled to rely on any actions or inactions of the Bank
or the Bank's agents, all of which are done for the sole benefit and protection
of the Bank.
SECTION 10.5. CONTINUING OBLIGATION OF BORROWER. The terms,
conditions, and covenants set forth herein and in the Loan Documents shall
survive closing and shall constitute a continuing obligation of the Borrower
during the course of the transaction contemplated herein. The obligations of the
Borrower under this Agreement shall remain in effect so long as any Obligation
is outstanding, unpaid or unsatisfied between the Borrower or a Guarantor and
the Bank.
SECTION 10.6. BINDING OBLIGATION. This Agreement shall be
binding upon and inure to the benefit of the Borrower and its successors and
permitted assigns, and the Bank and its successors and assigns.
SECTION 10.7. NOTICES. Any notice required or permitted by or
in connection with this Agreement or any other Loan Document shall be in writing
and made by hand delivery, by certified mail, return receipt requested, postage
prepaid, or by overnight courier for next business day delivery, addressed to
the Bank or the Borrower at the appropriate address set forth below or to such
other address as may be hereafter specified by written notice by the Bank or the
Borrower, and shall be considered given as of the date of hand delivery, as of
three (3) days after the date of mailing, or the date specified for delivery
with an overnight courier service, independent of the date of actual delivery,
as the case may be:
38
If to the Bank:
BAY NATIONAL BANK
Suite 325 - 0000 Xxxx Xxxxx Xxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxxxx
Senior Director, Client Services
(000) 000-0000
If to the Borrower:
HEMAGEN DIAGNOSTICS, INC.
0000 Xxx Xxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxx
President & CEO
(000) 000-0000
Notice to Hemagen shall constitute notice to Reagents, and vice versa.
SECTION 10.8. FINAL AGREEMENT. This Agreement and the Loan
Documents contain the final and entire agreement and understanding of the
parties, and any terms and conditions not set forth in this Agreement or the
Loan Documents are not a part of this Agreement and the understanding of the
parties hereto.
SECTION 10.9. EXTENSIONS. The payment of the Obligations
hereunder may be extended, from time to time, without impairing or otherwise
affecting the liability of the Borrower, any indorser, guarantor or other party
liable hereunder or under any Loan Document, or the continuing security interest
in the Collateral provided herein. This Agreement shall terminate only upon
written notice from the Bank.
SECTION 10.10. AMENDMENT. This Agreement may be amended or
altered only in writing signed by the party to be bound by the amendment or
alteration.
SECTION 10.11. TIME. Time is of the essence of this Agreement.
SECTION 10.12. CHOICE OF LAW. The laws of the State of
Maryland, exclusive of its conflict of laws rules, shall govern the rights and
obligations of the parties to this Agreement and all other Loan Documents, and
the interpretation and construction and enforceability thereof and any and all
issues relating to the transactions contemplated herein. The Borrower consents
to the jurisdiction of, and agrees that venue shall be proper in the Circuit
Court for any County of Maryland or
39
Baltimore City if suit is filed by the Bank to enforce or construe the Loan
Documents. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT IN CONNECTION WITH THE LOANS, THIS
AGREEMENT OR THE LOAN DOCUMENTS.
SECTION 10.13. DISCLOSURE. The Bank may disclose financial
information concerning the Borrower to any other financial institution which may
share or participate in the Loan. Except as above provided, the Bank shall
maintain the confidentiality of all financial and trade proprietary information
of Borrower in accordance with applicable state and federal Laws.
SECTION 10.14. NUMBER, GENDER, AND CAPTIONS. As used herein,
the singular shall include the plural and the plural may refer to only the
singular. The use of any gender shall be applicable to all genders. The captions
contained herein are for purposes of convenience only and are not a part of this
Agreement.
SECTION 10.15. AGENT. Reagents Applications, Inc. hereby
appoints Hemagen Diagnostics, Inc. its exclusive agent to act for and on its
behalf in requesting Advances, receiving notices, accepting service of process,
and in taking any and all other actions in connection with this Agreement, the
Loan and the Line of Credit Note.
[REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
40
The Bank shall have no duty or obligation to see to the use or applications of
Advances as between either Borrower.
IN WITNESS WHEREOF, the Bank and the Borrower execute and seal
this Agreement on this 26th day of September, 2002, with the specific intention
that this Agreement constitute a document under seal.
WITNESS/ATTEST: THE BANK:
BAY NATIONAL BANK
___________________________ By: _____________________________ (SEAL)
Xxxxxx X. Xxxxxxxxx
Senior Director, Client Services
THE BORROWER:
HEMAGEN DIAGNOSTICS, INC.
____________________________ By: ____________________________ (SEAL)
Xxxxxxx X. Xxxxx
President & CEO
REAGENTS APPLICATIONS, INC.
____________________________ By: ____________________________ (SEAL)
Xxxxxxx X. Xxxxx
Xxxxxxxxx
00
XXXXX XX XXXXXXXX, XXXX/XXXXXX OF _________________, to wit:
I HEREBY CERTIFY, that on this 26th day of September, 2002,
before me, the undersigned Notary Public, personally appeared Xxxxxx X.
Xxxxxxxxx, who acknowledged himself to be the Senior Director, Client Services
of Bay National Bank, a national banking association, known to me (or
satisfactorily proved) to be the person who executed the aforegoing Loan and
Security Agreement, and acknowledged that he, being authorized so to do,
executed the same for the purposes therein contained as the duly authorized
Senior Director, Client Services of Bay National Bank, by signing the name of
Bay National Bank by himself as Senior Director, Client Services.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_______________________________
Notary Public
My Commission Expires:
_________________________
STATE OF MARYLAND, CITY/COUNTY OF _________________, to wit:
I HEREBY CERTIFY, that on this 26th day of September, 2002,
before me, the undersigned Notary Public, personally appeared Xxxxxxx X. Xxxxx
who acknowledged himself to be the President & CEO of HEMAGEN DIAGNOSTICS, INC.,
a Delaware corporation, known to me (or satisfactorily proved) to be the person
who executed the aforegoing Loan and Security Agreement, and acknowledged that
he, being authorized so to do, executed the same for the purposes therein
contained as the duly authorized President & CEO of Hemagen Diagnostics, Inc. by
signing the name of Hemagen Diagnostics, Inc., by himself as President & CEO.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_______________________________
Notary Public
My Commission Expires:
_________________________
00
XXXXX XX XXXXXXXX, XXXX/XXXXXX OF _____________________, to wit:
I HEREBY CERTIFY, that on this 26th day of September, 2002,
before me, the undersigned Notary Public, personally appeared Xxxxxxx X. Xxxxx
who acknowledged himself to be the President of REAGENTS APPLICATIONS, INC., a
Delaware corporation, known to me (or satisfactorily proved) to be the person
who executed the aforegoing Loan and Security Agreement, and acknowledged that
he, being authorized so to do, executed the same for the purposes therein
contained as the duly authorized President of Reagents Applications, Inc. by
signing the name of Reagents Applications, Inc., by himself as President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_______________________________
Notary Public
My Commission Expires:
_________________________
43
SCHEDULES AND EXHIBIT
Schedule "A" (1.28.(d)) Existing Liens
Schedule "B" (1.34.) Subordinated Debt Holders
Schedule "C" (3.2.) Federally Registered Patents, Trademarks
Schedule "D" (5.3.) Litigation
Schedule "E" (5.5.) Title to Collateral
Schedule "F" (5.7.) States of Incorporation, Qualification
Schedule "G" (5.7.) Name Changes, Acquisitions, Change of Business Locations
Schedule "G-1" (5.10.) Taxes
Schedule "H" (5.16.) Claims as to Intellectual Property
Schedule "I" (5.17.) Business Locations
Schedule "J" (5.18.) Subsidiaries
Schedule "K" (5.19.) Material Contracts in Default
Exhibit "A" (2.1.3.) Request for Advance
EXHIBIT "A"
REQUEST FOR ADVANCE
TO: Bay National Bank
Attn: Xxxxxx X. Xxxxxxxxx
Senior Director, Client Services
FROM: Hemagen Diagnostics, Inc. ("Borrower")
DATE: ____________________
RE: Loan and Security Agreement dated September 26, 2002 between
Borrower, Reagents Applications, Inc. and Bay National Bank (the
"Loan Agreement").
Pursuant to Section 2.1.3. of the Loan Agreement, a request for an
Advance is requested.
(i) Amount of principal requested: $______________
(ii) Date Advance to be deposited in _______________
Borrower's Operating Account
(iii) Purpose of Advance _____________________________
_____________________________
_____________________________
_____________________________
The undersigned certifies to Bay National Bank that no Event of Default
has occurred and is continuing (or would have occurred with the giving of notice
or passage of time, or both) under the Loan Agreement or other Loan Documents.
All capitalized terms used herein which are defined in the Loan Agreement shall
have the same meanings herein.
HEMAGEN DIAGNOSITCS, INC.
By:__________________________(SEAL)
Name:_____________________
Title:____________________
