LOAN AND SECURITY AGREEMENT
by and between
HEALTH FITNESS CORPORATION,
a Minnesota corporation
FITNESS CENTERS OF AMERICA
dba Fitness System,
a California corporation
XXXXX X. XXXXXXXXX, INC.,
dba International Fitness Club Network,
a Rhode Island corporation
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
Dated as of July 14, 2000
TABLE OF CONTENTS
Page
1. DEFINITIONS.....................................................1
"Account Debtor".................................................1
"Advances".......................................................1
"Affiliate"......................................................1
"Audit"..........................................................1
"Borrower".......................................................2
"Borrower's Address".............................................2
"Business Day"...................................................2
"Change of Control"..............................................2
"Closing Date"...................................................2
"Coast"..........................................................2
"Code"...........................................................2
"Collateral".....................................................2
"Collections"....................................................2
"Collections Multiple"...........................................2
"Credit Limit"...................................................2
"Default"........................................................2
"Debt"...........................................................2
"Debt Service Coverage Ratio"....................................2
"Deposit Account"................................................2
"Dollars or $"...................................................2
"Early Termination Fee"..........................................2
"EBITDA".........................................................2
"Eligible Collections"...........................................2
"Equipment"......................................................2
"Event of Default"...............................................2
"FCA"............................................................2
"GAAP"...........................................................2
"General Intangibles"............................................3
"HealthTrax......................................................3
"HFC"............................................................3
"IFCN"...........................................................3
"Inventory"......................................................3
"Investment Property"............................................3
"Loan Documents".................................................3
"Loans"..........................................................3
"Manchester".....................................................3
"Material Adverse Effect"........................................3
"Maturity Date"..................................................3
"Maximum Dollar Amount"..........................................3
"Minimum Monthly Interest".......................................3
"Obligations"....................................................3
"Permitted Liens"................................................3
"Person".........................................................4
"Prime Rate".....................................................4
"Receivables"....................................................4
"Renewal Date"...................................................4
"Renewal Fee"....................................................4
"Solvent"........................................................4
"Tangible Net Worth".............................................4
"Triggering Event"...............................................5
"Other Terms."...................................................5
2. CREDIT FACILITIES...............................................5
2.1. Loans...............................................5
3. INTEREST AND FEES...............................................5
3.1. Interest............................................5
3.2. Fees................................................5
4. SECURITY INTEREST...............................................5
5. CONDITIONS PRECEDENT............................................5
5.1. Status of Accounts at Closing.......................5
5.2. Minimum Availability................................5
5.3. Landlord Waiver.....................................5
5.4. Executed Agreement..................................5
5.5. Opinion of Borrower's Counsel.......................6
5.6. Priority of Coast's Liens...........................6
5.7. Insurance...........................................6
5.8. Borrower's Existence................................6
5.9. Organizational Documents............................6
5.10. Taxes...............................................6
5.11. Due Diligence.......................................6
5.12. Other Documents and Agreements......................6
5.13. Lockbox/Triparty/Blocked Account Agreements.........6
5.14. Customer Contracts..................................6
5.15. Continuing Guaranties...............................6
5.16. CPA Management Letter...............................6
5.17. Review of Pending Litigation........................6
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.......6
6.1. Existence and Authority.............................6
6.2. Name; Trade Names and Styles........................7
6.3. Place of Business; Location of Collateral...........7
6.4. Title to Collateral; Permitted Liens................7
6.5. Maintenance of Collateral...........................7
6.6. Books and Records...................................7
6.7. Financial Condition, Statements and Reports.........7
6.8. Tax Returns and Payments; Pension Contributions.....7
6.9. Compliance with Law.................................8
6.10. Litigation..........................................8
6.11. Use of Proceeds.....................................8
7. RECEIVABLES AND COLLECTIONS.....................................8
7.1. Representations Relating to Receivables and Collections....8
7.2. Representations Relating to Documents and Legal Compliance.8
7.3. Schedules and Documents relating to Receivables and
Collections.........................................8
7.4. Collection of Receivables and Collections...........8
7.5. Disputes............................................9
7.6. Returns.............................................9
7.7. Verification........................................9
7.8. No Liability........................................9
8. ADDITIONAL DUTIES OF THE BORROWER...............................9
8.1. Financial and Other Covenants.......................9
8.2. Insurance...........................................9
8.3. Reports............................................10
8.4. Access to Collateral, Books and Records............10
8.5. Negative Covenants.................................10
8.6. Remittance of Proceeds.............................10
8.7. Litigation Cooperation.............................10
8.8. Further Assurances.................................11
9. TERM...........................................................11
9.1. Maturity Date......................................11
9.2. Early Termination..................................11
9.3. Payment of Obligations.............................11
10. EVENTS OF DEFAULT AND REMEDIES.................................11
10.1. Events of Default..................................11
10.2. Remedies...........................................12
10.3. Standards for Determining Commercial Reasonableness...13
10.4. Power of Attorney..................................14
10.5. Application of Proceeds............................15
10.6. Remedies Cumulative................................15
11. GENERAL PROVISIONS.............................................15
11.1. Interest Computation...............................15
11.2. Application of Payments............................15
11.3. Charges to Accounts................................15
11.4. Monthly Accountings................................15
11.5. Notices............................................15
11.6. Severability.......................................16
11.7. Integration........................................16
11.8. Waivers............................................16
11.9. No Liability for Ordinary Negligence...............16
11.10. Amendment..........................................16
11.11. Time of Essence....................................16
11.12. Attorneys'Fees, Costs and Charges..................16
11.13. Benefit of Agreement...............................17
11.14. Publicity..........................................17
11.15. Paragraph Headings Construction....................17
11.16. Governing Law; Jurisdiction; Venue.................17
11.17. Mutual Waiver of Jury Trial........................17
Coast
Loan and Security Agreement
Borrower: HEALTH FITNESS CORPORATION,
a Minnesota corporation
Address: 0000 XXXX 00XX XXXXXX, XXXXX 000
XXXXXXXXXXX, XXXXXXXXX 00000
Borrower: FITNESS CENTERS OF AMERICA
dba Fitness Systems,
a California corporation
Address: 0000 XXXX 00XX XXXXXX, XXXXX 000
XXXXXXXXXXX, XXXXXXXXX 00000
Borrower: XXXXX X. XXXXXXXXX, INC.
dba International Fitness Club Network,
a Rhode Island corporation
Address: 000 XXXXXXXXX XXXXX
XXXXXXX, XXXXX XXXXXX 00000
Date: July 14, 2000
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx,
Xxxxxxxxxx 00000, and the borrower named above ("Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to
be a part of this Agreement, and the same is an integral part of this Agreement.
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable or General
Intangible.
"Advances" means the Loans described in Section 2.1(a) of the Schedule.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Audit" means to inspect, audit and copy Borrower's books and records
and the Collateral.
"Borrower" has the meaning set forth in the introduction to this
Agreement.
"Borrower's Address" has the meaning set forth in the introduction to
this Agreement.
"Business Day" means a day on which Coast is open for business.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty percent
(20%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"Closing Date" date of the initial funding under this Agreement.
"Coast" has the meaning set forth in the introduction to this
Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
"Collections" means all of Borrower's collections on Receivables
received from its Account Debtors.
"Collections Multiple" has the meaning set forth in subparagraph (a) of
Section 2.1 of the Schedule.
"Credit Limit" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Debt" means, as of the date of determination, the sum, but without
duplication, of any and all of Borrower's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Borrower (directly or
indirectly) for or in respect of money borrowed; (ii) all obligations for the
deferred purchase price of property or services; and (iii) all capital leases.
"Debt Service Coverage Ratio" means the ratio, in any fiscal quarter,
whose numerator is Borrower's EBITDA and whose denominator is all principal and
interest payments by Borrower.
"Deposit Account" has the meaning set forth in Section 9105 of the
Code.
"Dollars or $" means United States dollars.
"Early Termination Fee" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"EBITDA" means, in any fiscal period, Borrower's consolidated net
income or net loss (other than extraordinary or non-recurring gains of Borrower
for such period), plus (i) the amount of all interest expense, income tax
expense, depreciation expense and amortization expense of Borrower for such
period, on a consolidated basis, and plus (ii) a one time allowance for due
diligence costs attributable to the potential HFC acquisition/merger with
HealthTrax with such allowance to be limited to the lesser of actual due
diligence costs or Three Hundred Thousand Dollars ($300,000).
"Eligible Collections" means Borrower's Collections arising in the
ordinary course of Borrower's business, which Coast, in its good faith
discretion, deems eligible for Advances purposes, based on considerations as
Coast may from time to time deem appropriate.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 10.1 of
this Agreement.
"FCA" means Borrower Fitness Centers of America dba Fitness Systems, a
California corporation.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, investment property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the goodwill
of the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"HealthTrax means HealthTrax, Inc. a Connecticut corporation.
"HFC" means Borrower Health Fitness Corporation, a Minnesota
corporation.
"IFCN" means Borrower Xxxxx X. Xxxxxxxxx, Inc., dba International
Fitness Club Network, a Rhode Island corporation.
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Investment Property" has the meaning set forth in Section 9115 of the
Code as in effect as of the date hereof.
"Loan Documents" means this Agreement, the agreements and documents
listed on Section 5 of the Schedule, and any other agreement, instrument or
document executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof.
"Manchester" means the Manchester Companies, Inc., a _________________.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"Maturity Date" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2.1 of the
Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of
the Schedule.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"Permitted Liens" means the following:
(a) purchase money security interests in specific items of Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing by Coast,
which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently with this
Agreement;
(f) liens of material-men, mechanics, warehousemen, carriers, or other similar
liens arising in the ordinary course of business and securing obligations which
are not delinquent;
(g) liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by liens of the type described above in clauses (a) or
(b) above, provided that any extension, renewal or replacement lien is limited
to the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; or
(h) liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under clause
(d) above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Coast's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Coast, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, general
partnership, limited partnership, limited liability partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not that rate is the lowest
interest rate charged by said bank. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published in
the Wall Street Journal on the first business day of the applicable month, as
the base rate on corporate loans at large U.S. money center commercial banks.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is
renewed pursuant to Section 9.1 hereof, and each anniversary thereafter that
this Agreement is renewed pursuant to Section 9.1 hereof.
"Renewal Fee" means the fee that Borrower must pay Coast upon renewal
of this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Tangible Net Worth" means consolidated Owner's equity, plus
subordinated debt otherwise permitted hereunder, less, goodwill, patents,
trademarks, copyrights, franchises, formulas, leasehold interests, leasehold
improvements, non-compete agreements, engineering plans, deferred tax benefits,
organization costs, prepaid items, and any other assets of Borrower that would
be treated as intangible assets on Borrower's balance sheet prepared in
accordance with GAAP.
"Triggering Event" means: (i) the perfection of Coast's security
interests in first and only positions (subject only to Permitted Liens) against
the Collateral belonging to Borrowers FCA and IFCN which, at Coast's option,
shall require the receipt by Coast of "of record" UCC searches reflecting
Coast's first and only security interests (subject only to Permitted Liens),
(ii) the completion of due diligence with respect to such Borrowers the results
of which are satisfactory to Coast in its sole and absolute discretion, and
(iii) the receipt by Coast of satisfactory evidence that Borrowers FCA and IFCN
are in good standing in the states of their formation.
"Other Terms." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1. Loans. Coast will make loans to Borrower (the "Loans"), in amounts and in
percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce the
Collections Multiple applicable to Advances without declaring a Default or an
Event of Default if it determines that there has occurred a Material Adverse
Effect. On an ongoing basis and without the occurrence of a Default, Event of
Default or Material Adverse Effect, Coast shall establish a reserve for
Borrower's bi-weekly payroll, with such reserve to be in an amount equal to 100%
of the payroll for the prior bi-weekly period.
3. INTEREST AND FEES
3.1. Interest. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement. Interest shall be payable monthly, on the last day
of the month. Interest may, in Coast's discretion, be charged to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as the
other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast Minimum Monthly Interest during the
term of this Agreement with respect to the Loans in the amount set forth on the
Schedule.
3.2. Fees. Borrower shall pay Coast the fee(s) shown on the Schedule, which are
in addition to all interest and other sums payable to Coast and are deemed fully
earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when
due, Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral")
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the
satisfaction, in the sole discretion of Coast, at or prior to the first advance
of funds hereunder, of each, every and all of the following conditions:
5.1. Status of Accounts at Closing. No accounts payable shall be due and unpaid
ninety (90) days past its invoice date except for such accounts payable: (i)
being contested in good faith in appropriate proceedings and for which adequate
reserves have been provided, and (ii) approved by Coast in writing.
5.2. Minimum Availability. Borrower shall have minimum availability immediately
following the initial funding in the amount set forth on the Schedule.
5.3. Landlord Waiver. Coast shall have received duly executed landlord waivers
and access agreements in form and substance satisfactory to Coast, in Coast's
sole and absolute discretion, and, when deemed appropriate by Coast, in form for
recording in the appropriate recording office, with respect to all leased
locations where Borrower maintains any inventory or equipment.
5.4. Executed Agreement. Coast shall have received this Agreement duly executed
and in form and substance satisfactory to Coast in its sole and absolute
discretion.
5.5. Opinion of Borrower's Counsel. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion, which shall, among other things, describe the lawsuit filed
by HealthSouth against Borrower and which will discuss the lawsuit's current
status.
5.6. Priority of Coast's Liens. Coast shall have received the results of "of
record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.7. Insurance. Coast shall have received copies of the insurance binders or
certificates evidencing Borrower's compliance with Section 8.2 hereof, including
lender's loss payee endorsements.
5.8. Borrower's Existence. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
5.9. Organizational Documents. Coast shall have received copies of Borrower's
By-laws and all amendments thereto, and Coast shall have received copies of the
resolutions of the board of directors of Borrower, authorizing the execution and
delivery of this Agreement and the other documents contemplated hereby, and
authorizing the transactions contemplated hereunder and thereunder, and
authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.10. Taxes. Coast shall have received evidence from Borrower that Borrower has
complied with all tax withholding and Internal Revenue Service regulations, in
form and substance satisfactory to Coast in its sole and absolute discretion.
5.11. Due Diligence. Coast shall have completed its due diligence with respect
to Borrower.
5.12. Other Documents and Agreements. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
5.13. Lockbox/Triparty/Blocked Account Agreements. Coast shall have evidence
that all Collections of Borrower shall be collected pursuant to one or more
lockbox, triparty, or blocked account agreements, with the form and substance of
such agreements to be acceptable to Coast in its sole and absolute discretion.
5.14. Customer Contracts. Coast shall have received copies of all of Borrower's
customer contracts for Coast's review, with the results of such review to be
acceptable to Coast in its sole and absolute discretion.
5.15. Continuing Guaranties. Coast shall have received the Continuing Guaranties
of Borrower's active and inactive subsidiaries, with the form and content of
such Continuing Guaranties to be acceptable to Coast in its sole and absolute
discretion.
5.16. CPA Management Letter. Coast shall have received a CPA Management Letter,
in form and content acceptable to Coast in its sole and absolute discretion.
5.17. Review of Pending Litigation. Borrower shall have informed Coast of its
pending litigation and Coast shall have conducted searches with respect to
pending litigation against Borrower including, without limitation, obtaining the
court docket with respect to the HealthSouth litigation. In addition, Borrower
shall provide Coast with the status of all pending litigation. Such pending
litigation including, without limitation, the HealthSouth litigation, shall be
reviewed by Coast with the results of such review to be acceptable to Coast in
its sole and absolute discretion.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
6.1. Existence and Authority. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2. Name; Trade Names and Styles. The name of Borrower set forth in the heading
to this Agreement is its correct name. Listed on the Schedule are all prior
names of Borrower and all of Borrower's present and prior trade names. Borrower
shall give Coast thirty (30) days' prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
6.3. Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
6.4. Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
6.5. Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Coast in writing of any material loss
or damage to the Collateral.
6.6. Books and Records. Borrower has maintained and will maintain at Borrower's
Address complete and accurate books and records, comprising an accounting system
in accordance with GAAP.
6.7. Financial Condition, Statements and Reports. All financial statements now
or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8. Tax Returns and Payments; Pension Contributions. Borrower has timely filed,
and will timely file, all tax returns and reports required by foreign, federal,
state and local law, and Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and contributions
now or in the future owed by Borrower. Borrower may, however, defer payment of
any contested taxes, provided that Borrower (a) in good faith contests
Borrower's obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Coast in writing of the
commencement of, and any material development in, the proceedings, and (c) posts
bonds or takes any other steps required to keep the contested taxes from
becoming a lien upon any of the Collateral. As of the date hereof, Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9. Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10. Litigation. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11. Use of Proceeds. All proceeds of all Loans shall be used solely for lawful
business purposes. Borrower is not purchasing or carrying any "margin stock" (as
defined in Regulation U of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any Loan will be used to purchase or carry any
"margin stock" or to extend credit to others for the purpose of purchasing or
carrying any "margin stock."
7. RECEIVABLES AND COLLECTIONS
7.1. Representations Relating to Receivables and Collections. Borrower
represents and warrants to Coast as follows: All Receivables and Collections
represent and arise out of undisputed bona fide existing unconditional
obligations of and from Account Debtors created by the sale, delivery and
acceptance of goods or the rendition of services in the ordinary course of
Borrower's business.
7.2. Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables and Collections are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Receivable
and Collection shall fully comply with all applicable laws and governmental
rules and regulations. All signatures and indorsements on all documents,
instruments, and agreements relating to all Receivables and Collections are and
shall be genuine, and all such documents, instruments and agreements are and
shall be legally enforceable in accordance with their terms.
7.3. Schedules and Documents relating to Receivables and Collections. Borrower
shall deliver to Coast via facsimile, unless otherwise directed by Coast, at
such locations and at such intervals as Coast may request, transaction reports
and loan requests, schedules of Receivables, and schedules of Collections, all
on Coast's standard forms; provided, however, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables and Collections, nor shall Coast's
failure to advance or lend against a specific Collection affect or limit Coast's
security interest and other rights therein. Loan requests received after 10:30
A.M. Los Angeles, California time, will not be considered by Coast until the
next Business Day. Together with each such schedule, or later if requested by
Coast, Borrower shall furnish Coast with copies (or, at Coast's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Receivables or Collections, and Borrower warrants the genuineness
of all of the foregoing. Borrower shall also furnish to Coast an aged accounts
receivable trial balance in such form and at such intervals as Coast shall
request. In addition, Borrower shall deliver to Coast the originals of all
instruments, chattel paper, security agreements, guarantees and other documents
and property evidencing or securing any Receivables or Collections, upon receipt
thereof and in the same form as received, with all necessary indorsements, all
of which shall be with recourse. Borrower shall also provide Coast with copies
of all credit memos as and when requested by Coast.
7.4. Collection of Receivables and Collections. Borrower shall have the right to
collect all Receivables and Collections, unless and until an Event of Default
has occurred. Borrower shall hold all payments on, and proceeds of, Receivables
and Collections in trust for Coast, and Borrower shall deliver all such payments
and proceeds to Coast within one (1) Business Day after receipt by Borrower, in
their original form, duly endorsed to Coast, to be applied to the Obligations in
such order as Coast shall determine. Coast may, in its discretion, require that
all proceeds of Collateral be deposited by Borrower into a lockbox account, or
such other "blocked account" as Coast may specify, pursuant to a blocked account
agreement in such form as Coast may specify. Coast or its designee may, at any
time, notify Account Debtors that Coast has been granted a security interest in
the Receivables and Collections.
7.5. Disputes. Borrower shall notify Coast promptly of all disputes or claims
relating to Receivables or Collections. Borrower hereby acknowledges that unless
and until Borrower informs Coast, in writing, of a dispute and or return
relating to Receivables or Collections, Coast is entitled to and will rely on
the Receivables or Collections for the entirety of the Obligations, regardless
of the timing of any advance(s) on the Loans. Borrower shall not forgive
(completely or partially), compromise or settle any Receivable or Collection for
less than payment in full, or agree to do any of the foregoing, except that
Borrower may do so, provided that: (a) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, and in arm's
length transactions, which are reported to Coast on the regular reports provided
to Coast; (b) no Default or Event of Default has occurred and is continuing; and
(c) taking into account all such discounts settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit. Coast may, at any time
after the occurrence of an Event of Default, settle or adjust disputes or claims
directly with Account Debtors for amounts and upon terms which Coast considers
advisable in its reasonable credit judgment and, in all cases, Coast shall
credit Borrower's Loan account with only the net amounts received by Coast in
payment of any Receivables or Collections.
7.6. Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (a) hold the returned Inventory in trust for
Coast, (b) segregate all returned Inventory from all of Borrower's other
property, (c) conspicuously label the returned Inventory as subject to Coast's
security interest, and (d) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
7.7. Verification. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables and Collections, by means of mail, telephone or otherwise,
either in the name of Borrower or Coast or such other name as Coast may choose.
7.8. No Liability. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable or
Collection, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable or Collection, or for settling any Receivable or Collection in good
faith for less than the full amount thereof, nor shall Coast be deemed to be
responsible for any of Borrower's obligations under any contract or agreement
giving rise to a Receivable or Collection. Nothing herein shall, however,
relieve Coast from liability for its own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER
8.1. Financial and Other Covenants. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.
8.2. Insurance. Borrower shall, at all times insure all of the tangible personal
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to Coast, in such form and amounts as Coast may reasonably
require, and Borrower shall provide evidence of such insurance to Coast, so that
Coast is satisfied that such insurance is, at all times, in full force and
effect. All liability insurance policies of Borrower shall name Coast as an
additional insured, and all property casualty and related insurance policies of
Borrower shall name Coast as a loss payee thereon and Borrower shall cause a
lender's loss payee endorsement in form reasonably acceptable to Coast. Upon
receipt of the proceeds of any such insurance, Coast shall apply such proceeds
in reduction of the Obligations as Coast shall determine in its sole discretion,
except that, provided no Default or Event of Default has occurred and is
continuing, Coast shall release to Borrower insurance proceeds with respect to
Equipment totaling less than the amount set forth in Section 8 of the Schedule,
which shall be utilized by Borrower for the replacement of the Equipment with
respect to which the insurance proceeds were paid. Coast may require reasonable
assurance that the insurance proceeds so released will be so used. If Borrower
fails to provide or pay for any insurance, Coast may, but is not obligated to,
obtain the same at Borrower's expense. Borrower shall promptly deliver to Coast
copies of all reports made to insurance companies.
8.3. Reports. Borrower, at its expense, shall provide Coast with the written
reports set forth in Section 8 of the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating plans
and other financial documentation), as Coast shall from time to time reasonably
specify.
8.4. Access to Collateral, Books and Records. At reasonable times but not less
frequently than quarterly and on one (1) Business Day's notice, Coast, or its
agents, shall have the right to perform Audits. Coast shall take reasonable
steps to keep confidential all confidential information obtained in any Audit,
but Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The Audits shall be at Borrower's expense and the charge for the Audits
shall be Seven Hundred Fifty Dollars ($750) per person per day (or such higher
amount as shall represent Coast's then current standard charge for the same),
plus reasonable out-of-pocket expenses. Borrower will not enter into any
agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address,
without first notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement.
8.5. Negative Covenants. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another entity, except in a transaction in which
(i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) the Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of business, or (ii)
in a transaction or a series of transactions not involving the payment of an
aggregate amount in excess of the amount set forth in Section 8 of the Schedule;
(c) enter into any other transaction outside the ordinary course of business;
(d) sell or transfer any Collateral, except for the sale of finished Inventory
in the ordinary course of Borrower's business, and except for the sale of
obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or other third
party;
(f) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis;
(g) make any loans of any money or other assets, except (i) advances to
customers or suppliers in the ordinary course of business, (ii) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, and (iii) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which would have a
Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the obligations of
another party or entity;
(j) pay or declare any dividends or distributions on the ownership interests in
Borrower (except for dividends or distributions payable solely in stock form of
ownership interests in Borrower);
(k) make any change in Borrower's capital structure which would have a Material
Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are
only permitted if no Default or Event of Default is continuing or would occur as
a result of such transaction.
8.6. Remittance of Proceeds. All proceeds of any Collateral shall be delivered
to Coast within one (1) Business Day after receipt by Borrower, in their
original form, duly endorsed to Coast, to be applied to the Obligations in such
order as Coast shall determine. Borrower agrees that it will not commingle
proceeds of Collateral with any of Borrower's other funds or property, but will
hold such proceeds separate and apart from such other funds and property and in
an express trust for Coast. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
8.7. Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.8. Further Assurances. Borrower agrees, at its expense, on request by Coast,
to execute all documents and take all actions, as Coast, may deem reasonably
necessary or useful in order to perfect and maintain Coast's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
9. TERM
9.1. Maturity Date. This Agreement shall continue in effect until the Maturity
Date; provided that the Maturity Date shall automatically be extended, and this
Agreement shall automatically and continuously renew, for successive additional
terms of one year each, unless one party gives written notice to the other, not
less than one hundred twenty (120) days prior to the Maturity Date or the next
Renewal Date, that such party elects to terminate this Agreement effective on
the Maturity Date or such next Renewal Date. If this Agreement is renewed under
this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the amount shown
in Section 3 of the Schedule. The Renewal Fee shall be due and payable on the
Renewal Date and thereafter shall bear interest at a rate equal to the rate
applicable to the Loans.
9.2. Early Termination. This Agreement may be terminated prior to the Maturity
Date as follows: (a) by Borrower, effective three (3) Business Days after
written notice of termination is given to Coast; or (b) by Coast at any time
after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Loans.
9.3. Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Notwithstanding
any termination of this Agreement, all of Coast's security interests in all of
the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations have been paid and
performed in full; provided that, without limiting the fact that Loans are
subject to the discretion of Coast, Coast may, in its sole discretion, refuse to
make any further Loans after termination. No termination shall in any way affect
or impair any right or remedy of Coast, nor shall any such termination relieve
Borrower of any Obligation to Coast, until all of the Obligations have been paid
and performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, Coast shall promptly deliver to
Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Coast's security interests.
10. EVENTS OF DEFAULT AND REMEDIES
10.1. Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate made or
delivered to Coast by Borrower or any of Borrower's officers, employees or
agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to Coast as
provided in Sections 7.4 and 8.6 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if any) set
forth in the Schedule or shall fail to perform any other non-monetary Obligation
which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation, which
failure is not cured within five (5) Business Days after the date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not cured
within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business failure of
Borrower or any guarantor of any of the Obligations; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any guarantor of any
of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is (i) not timely
controverted, or (ii) not cured by the dismissal thereof within thirty (30) days
after the date commenced; or
(l) revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset of
any kind pledged by any third party to secure any or all of the Obligations, or
any attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any payment on
account of any indebtedness or obligation which has been subordinated to the
Obligations, other than as permitted in the applicable subordination agreement,
or if any Person who has subordinated such indebtedness or obligations
terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer or
experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or
(p) Borrower shall generally not pay its debts as they become due, or Borrower
shall conceal, remove or transfer any part of its property, with intent to
hinder, delay or defraud its creditors, or make or suffer any transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or
(q) there shall be any Material Adverse Effect; or
(r) Manchester ceases to manage the Borrower or be a management consultant to
the Borrower, unless, at least forty-five (45) days prior thereto Coast has
received written notice of the intent to make such change and Coast has
consented to the proposed replacement management consultant, which consent Coast
agrees that it will not unreasonably withhold; or
(s) Borrower fails to provide written notice to Coast, in the event that either
Xxxxxxx Xxxxxxxx or Xxxxxx Xxxx ceases to be an officer, director or active in
the management of the Borrower.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2. Remedies. Upon the occurrence, and during the continuance, of any Event of
Default, Coast, at its option, and without notice or demand of any kind (all of
which are hereby expressly waived by Borrower), may do any one or more of the
following:
(a) Cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be immediately
due, payable and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation;
(c) Take possession of any or all of the Collateral wherever it may be found,
and for that purpose Borrower hereby authorizes Coast without judicial process
to enter onto any of Borrower's premises without interference to search for,
take possession of, keep, store or remove any of the Collateral, and remain on
the premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as Coast deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Coast seek to take possession of
any of the Collateral by Court process, Borrower hereby irrevocably waives:
(i) any bond and any surety or security relating thereto required by any
statute, court rule or otherwise as an incident to such possession;
(ii) any demand for possession prior to the commencement of any suit or action
to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not dispose of, any
such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make it
available to Coast at places designated by Coast which are reasonably convenient
to Coast and Borrower, and to remove the Collateral to such locations as Coast
may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Coast shall have the right to use Borrower's premises, vehicles, hoists, lifts,
cranes, equipment and all other property without charge. Coast is hereby granted
a license or other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its condition
at the time Coast obtains possession of it or after further manufacturing,
processing or repair, at one or more public and/or private sales, in lots or in
bulk, for cash, exchange or other property, or on credit, and to adjourn any
such sale from time to time without notice other than oral announcement at the
time scheduled for sale. Coast shall have the right to conduct such disposition
on Borrower's premises without charge, for such time or times as Coast deems
reasonable, or on Coast's premises, or elsewhere and the Collateral need not be
located at the place of disposition. Coast may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables, Collections and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables, Collections and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and state income
tax returns and the books and records utilized in the preparation thereof or
referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in connection
with bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Loans. Without limiting any of Coast's rights and remedies, from and after the
occurrence and during the continuance of an Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional three percent
per annum.
10.3. Standards for Determining Commercial Reasonableness. Borrower and Coast
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days prior to the
sale, and, in the case of a public sale, notice of the sale is published at
least seven (7) days before the sale in a newspaper of general circulation in
the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general, non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or without the
Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m. Los Angeles,
California time;
(e) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4. Power of Attorney. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in its sole
discretion, deem advisable in order to perfect and maintain Coast's security
interest in the Collateral, or in order to exercise a right of Borrower or
Coast, or in order to fully consummate all the transactions contemplated under
this Agreement, and all other present and future agreements;
(b) After the occurrence and during the continuance of an Event of Default,
execute on behalf of Borrower any document exercising, transferring or assigning
any option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Coast's Collateral or in
which Coast has an interest;
(c) After the occurrence and during the continuance of an Event of Default,
execute on behalf of Borrower, any invoices relating to any Receivable or
Collection, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast's
possession;
(e) Endorse all checks and other forms of remittances received by Coast;
(f) After the occurrence and during the continuance of an Event of Default, pay,
contest or settle any lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same;
(g) After the occurrence and during the continuance of an Event of Default,
grant extensions of time to pay, compromise claims and settle Receivables,
Collections and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
(h) After the occurrence and during the continuance of an Event of Default, pay
any sums required on account of Borrower's taxes or to secure the release of any
liens therefor, or both;
(i) After the occurrence and during the continuance of an Event of Default,
settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books or records
belonging to, or relating to, Borrower to give Coast the same rights of access
and other rights with respect thereto as Coast has under this Agreement; and
(k) After the occurrence and during the continuance of an Event of Default, take
any action or pay any sum required of Borrower pursuant to this Agreement and
any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities, obligations
and attorneys' fees incurred by Coast (including attorneys' fees and expenses
incurred pursuant to bankruptcy) with respect to the foregoing shall be added to
and become part of the Obligations, and shall be payable on demand. Coast may
charge the foregoing to Borrower's loan account and the foregoing shall
thereafter bear interest at the same rate applicable to the Loans. In no event
shall Coast's rights under the foregoing power of attorney or any of Coast's
other rights under this Agreement be deemed to indicate that Coast is in control
of the business, management or properties of Borrower. Borrower shall pay,
indemnify, defend, and hold Coast and each of its officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a result of or related
to the execution, delivery, enforcement, performance, and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person hereunder with
respect to any Indemnified Liability that a court of competent jurisdiction
finally determines to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
10.5. Application of Proceeds. All proceeds realized as the result of any sale
of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6. Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
11. GENERAL PROVISIONS
11.1. Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables, Collections and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations three (3)
Business Days after receipt by Coast of immediately available funds, and, for
purposes of the foregoing, any such funds received after 10:30 AM Los Angeles,
California time, on any day shall be deemed received on the next Business Day.
Coast shall be entitled to charge Borrower's account for such three (3) Business
Days of "clearance" or "float" at the rate(s) set forth in Section 3 of the
Schedule on all checks, wire transfers and other items received by Coast,
regardless of whether such three (3) Business Days of "clearance" or "float"
actually occur, and shall be deemed to be the equivalent of charging three (3)
Business Days of interest on such collections. This across-the-board three (3)
Business Day clearance or float charge on all collections is acknowledged by the
parties to constitute an integral aspect of the pricing of Coast's financing of
Borrower. Coast shall not, however, be required to credit Borrower's account for
the amount of any item of payment which is unsatisfactory to Coast in its good
faith discretion, and Coast may charge Borrower's loan account for the amount of
any item of payment which is returned to Coast unpaid.
11.2. Application of Payments. Subject to Section 10.5 hereof, all payments with
respect to the obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3. Charges to Accounts. Coast may, in its discretion, require that Borrower
pay monetary Obligations in cash to Coast, or charge them to Borrower's Loan
account, in which event they will bear interest from the date due to the date
paid at the same rate applicable to the Loans.
11.4. Monthly Accountings. Coast shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Coast), unless Borrower notifies Coast in
writing to the contrary within thirty (30) days after each account is rendered,
describing the nature of any alleged errors or omissions.
11.5. Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, facsimile or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6. Severability. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
11.7. Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Coast and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
11.8. Waivers. The failure of Coast at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9. No Liability for Ordinary Negligence. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10. Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Coast.
11.11. Time of Essence. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
11.12. Attorneys' Fees, Costs and Charges. Borrower shall reimburse Coast for
all attorneys' fees (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and all filing, recording, search, title insurance, appraisal,
audit, and other costs incurred by Coast, pursuant to, or in connection with, or
relating to this Agreement (whether or not a lawsuit is filed), including, but
not limited to, any attorneys' fees and costs (including attorneys' fees and
expenses incurred pursuant to bankruptcy) Coast incurs in order to do the
following: prepare and negotiate this Agreement and the documents relating to
this Agreement; obtain legal advice in connection with this Agreement or
Borrower; enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security interest
in, the Collateral; and otherwise represent Coast in any litigation relating to
Borrower. If either Coast or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its costs and attorneys' fees (including attorneys'
fees and expenses incurred pursuant to bankruptcy), including (but not limited
to) attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay Coast's
standard charges for returned checks and for wire transfers, in effect from time
to time. All attorneys' fees, costs and charges (including attorneys' fees and
expenses incurred pursuant to bankruptcy) and other fees, costs and charges to
which Coast may be entitled pursuant to this Agreement may be charged by Coast
to Borrower's loan account and shall thereafter bear interest at the same rate
as the Loans.
11.13. Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Coast; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Coast, and any prohibited assignment shall
be void. No consent by Coast to any assignment shall release Borrower from its
liability for the Obligations. Coast may assign its rights and delegate its
duties hereunder without the consent of Borrower. Coast reserves the right to
syndicate all or a portion of the transaction created herein or sell, assign,
transfer, negotiate, or grant participations in all or any part of, or any
interest in Coast's rights and benefits hereunder. In connection with any such
syndication, assignment or participation, Coast may disclose all documents and
information which Coast now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Coast assigns its rights and obligations
hereunder to a third Person, Coast thereafter shall be released from such
assigned obligations to Borrower.
11.14. Publicity. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15. Paragraph Headings Construction. Paragraph headings are only used in this
Agreement for convenience. Borrower and Coast acknowledge that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. The term "including", whenever used in
this Agreement, shall mean "including (but not limited to)". This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against Coast or Borrower under any rule of construction or otherwise.
11.16. Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17. Mutual Waiver of Jury Trial. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
HEALTH FITNESS CORPORATION,
a Minnesota corporation
By
President or Vice President
By
Secretary or Ass't Secretary
FITNESS CENTERS OF AMERICA dba Fitness Systems,
a California corporation
By
President or Vice President
By
Secretary or Ass't Secretary
XXXXX X. XXXXXXXXX, INC., dba International Fitness Club Network,
a Rhode Island corporation
By
President or Vice President
By
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
By
Title:
1.
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: HEALTH FITNESS CORPORATION
a Minnesota corporation
Address: 0000 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Borrower: FITNESS CENTERS OF AMERICA
dba Fitness Systems,
a California corporation
Address: 0000 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Borrower: XXXXX X. XXXXXXXXX, INC.
dba International Fitness Club Network,
a Rhode Island corporation
Address: 000 Xxxxxxxxx Xxxxx
Xxxxxxx, Xxxxx Xxxxxx 00000
Date: July 14, 2000
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, a California
corporation and the above-borrower of even date.
SECTION 2 - CREDIT FACILITIES
Section 2.1 - Credit Limit: Loans in a total amount at any time
outstanding not to exceed the lesser of a
total of Five Million Dollars ($5,000,000)
at any one time outstanding (the "Maximum
Dollar Amount"), or the sum of (a) and (b)
below:
(a) Advances in an amount not to exceed at
any time the lesser of:
(1) two and one-quarter (2.25) times
(the "Collections Multiple")
average recurring monthly Eligible
Collections of Borrower HFC only,
measured on the basis of a rolling
twelve (12) month moving average,
until August 15, 2000 when such
Collections Multiple applicable to
Borrower HFC only will be reduced
to two (2), and, upon the
occurrence of the Triggering Event,
the Collections Multiple shall be
two (2) times the average recurring
monthly Eligible Collections of
Borrower's HFC, FCA and IFCN,
collectively, provided, however,
that Advances against the --------
------- Eligible Collections of
IFCN shall only be made on an
amount of Eligible Collections
comprising no more than 50% of
amount of all Eligible Collections
of Borrower's HFC, FCA and IFCN,
collectively, and provided,
further, that the -------- -------
Collections Multiple shall be
subject to reduction by a factor of
0.25 for each 10% decline in
monthly Collections, measured on
the basis of a rolling twelve (12)
month moving average of
Collections, however, a reduced
Collections Multiple may, in
Coast's sole and absolute
discretion, be increased to its
prior level upon, among other
things, Borrower's achievement and
maintenance of monthly Collections
for three (3) consecutive months in
an amount equal to or greater than
the monthly Collections attained in
the month prior to the month in
which a decline of 10% occurred, or
(2) two (2) times three (3) month
annualized EBITDA, calculated by
measuring EBITDA for the rolling
three (3) month period immediately
preceding the measurement date and
annualizing such measurement by
multiplying such three (3) month
EBITDA by four (4), plus
(b) Coast, from time to time, may make
additional Advances, subject to the Maximum
Dollar Amount, against the collections
generated by companies acquired by Borrower
in the future ("target companies"), with
such Advances to be made on substantially
similar terms and conditions as specified in
the immediately preceding paragraph (a).
Coast's decision to make such Advances will
be subject to, among other things: (i) the
absence of an Event of Default both prior to
and as a result of the consummation of the
proposed acquisition, (ii) the target
companies having reasonable business
synergies with Borrower's business
activities as conducted on the Closing Date,
(iii) acceptable audit results of the target
companies, (iv) mutual agreement on
financial covenant requirements for the
target companies including, without
limitation, leverage, debt service coverage,
working capital and net worth covenants, (v)
completion of Coast's normal due diligence
and credit approval procedures.
Notwithstanding anything to the contrary
contained in the paragraph, the decision to
make additional Advances will be at Coast's
sole and absolute discretion.
SECTION 3 - INTEREST AND FEES
Section 3.1 - Interest Rate: A rate equal to the Prime Rate plus 3.0% per
annum, calculated on the basis of a 360-day
year for the actual number of days elapsed.
The interest rate applicable to all Loans
shall be adjusted monthly effective as of
the first day of each month, and the
interest to be charged for each month shall
be based on the highest Prime Rate in effect
during said month, but in no event shall the
rate of interest charged on any Loans in any
month be less than 9% per annum.
Said Interest Rate will be subject to
reduction to the Prime Rate plus the
applicable margin set forth below, following
two (2) consecutive quarters of achievement
and compliance with all terms and conditions
of this Agreement including achievement and
maintenance of the applicable minimum
Tangible Net Worth requirement, set forth
below, for two (2) consecutive quarters,
confirmed, in each case, by the 10Q filed
with the Securities and Exchange Commission
("SEC") for interim quarters and the 10K
filed with the SEC or CPA year-end audited
financial statements for fiscal year ending
quarters:
Applicable minimum Applicable
Tangible Net Worth Margin Per Annum
Equal to or greater than
$100,000 but less than
$500,000 2.50%
Equal to or greater than
$500,000 but less than
$1,000,000 2.00%
Equal to or greater than
$1,000,000 1.50%
Notwithstanding the foregoing, there will be
no Interest Rate reductions until such time
as Coast receives and confirms Borrower's
performance, by reference to either the 10K
filed with the SEC or by reference to CPA
audited financial statements, for the fiscal
year ending period of December 31, 2000 (the
"FYE 2000 Statements"). If the FYE 2000
Statements reflect Borrower's achievement
and maintenance of the "Applicable minimum
Tangible Net Worth" thresholds referenced
above, and Borrower is otherwise eligible
for an Interest Rate reduction, the Interest
Rate will prospectively, but not
retroactively, be reduced to the "Applicable
Margin Per Annum". Thereafter, future rate
reductions, if any, will be made with
reference to the 10Qs filed with the SEC for
interim quarters and either the 10K filed
with the SEC or CPA year-end audited
financial statements for fiscal year ending
quarters.
Section 3.1 - Minimum Monthly
Interest: An amount equal to the interest that would
have accrued had the daily aggregate
outstanding balance of all Loans been equal
to fifty percent (50%) of the Maximum Dollar
Amount.
Section 3.2 - Loan Fee: One Hundred and Fifty Thousand Dollars
($150,000), such amount being fully earned
on the Closing Date, and payable Fifty
Thousand Dollars ($50,000) on the Closing
Date and Fifty Thousand Dollars ($50,000) on
the first and second anniversaries of the
Closing Date.
Section 3.2 - Collateral
Monitoring Fee: Two Thousand Dollars $2,000, per month,
payable on the Closing Date (prorated for
any partial month at the beginning of the
term of this Agreement) and on the first day
of each month during the term of this
Agreement.
Section 9.1 - Renewal Fee: One-half of one percent (0.50%) of the
Maximum Dollar Amount per year.
Section 9.2 - Early Termination
Fee: An amount equal to: (i) three percent (3%)
of the Maximum Dollar Amount (as defined in
the Schedule), if termination occurs on or
before the first anniversary of the
effective date of this Agreement, provided,
however, there will be no Early Termination
Fee if during the calendar year ending
December 31, 2000, Coast is unwilling or
unable to extend a credit facility to
finance the acquisition of HealthTrax and as
a result of such unwillingness or inability
on the part of Coast to so finance, Borrower
repays in full its Obligations and
terminates this Agreement; or, two percent
(2%) of the Maximum Dollar Amount, if
termination occurs after the first
anniversary and before the Maturity Date.
SECTION 5 - CONDITIONS PRECEDENT
Section 5.2 - Minimum Availability: $200,000
Section 5.14 - Other Documents
and Agreements: 1. UCC-1 financing statements, fixture
filings and termination statements;
2. Security Agreements (including
those covering copyrights, patents
and trademarks);
3. Opinion Letter from Borrower's
counsel;
4. Landlord Waiver(s);
5. Continuing Guaranties of Borrower's
active and non-active subsidiaries;
and
6. Lockbox/Triparty/Blocked Account
Agreement(s);
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.2 - Prior Names of
Borrower: See the Representation and Warranties of
Borrower attached hereto as Exhibit "A" and
incorporated herein by reference.
Section 6.2 - Prior Names of
Borrower: See the Representation and Warranties of
Borrower attached hereto as Exhibit "A " and
incorporated herein by reference.
Section 6.2 - Existing Trade Names
of Borrower: See the Representation and Warranties of
Borrower attached hereto as Exhibit "A " and
incorporated herein by reference.
Section 6.3 - Other Locations and
Addresses: See the Representation and Warranties of
Borrower attached hereto as Exhibit "A " and
incorporated herein by reference.
Section 6.10 - Material Adverse
Litigation: See Litigation Disclosure attached hereto as
Exhibit "B".
Section 6.10 - Future Claims and
Litigation: Borrower will promptly inform Coast in
writing of any claim, proceeding, litigation
or investigation in the future threatened or
instituted by or against Borrower involving
any single claim of Fifty Thousand Dollars
($50,000) or more, or involving One Hundred
Thousand Dollars ($100,000) or more in the
aggregate.
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
Section 8.1 - Other Provisions: 1. Borrower's ongoing minimum Tangible
Net Worth, to be measured on a
quarterly basis, shall be no more
negative than a negative Two
Million Seven Hundred Thousand
Dollars (($2,700,000)) on the
Closing Date and at any time
thereafter provided, however, that
said negative amount will be
decreased quarterly in an amount
equal to eighty percent (80%) of
Borrower's net profit after tax
and, in the event the applicable
ongoing minimum Tangible Net Worth
requirement of this paragraph
becomes a positive number, such
positive number will be increased
quarterly in an amount equal to
eighty percent (80%) of Borrower's
net profit after tax.
2. Borrower's ongoing Debt Service
Coverage Ratio, measured quarterly
and based on a rolling four (4)
quarter moving average, shall be at
least 1.30 to 1.00.
3. Borrower's ongoing ratio of Debt to
EBITDA, measured quarterly, shall
not exceed 2.0 to 1.0, with such
ratio to be calculated by measuring
such ratio of Debt to EBITDA for a
trailing three (3) quarters and
annualizing such trailing three (3)
quarters EBITDA.
Section 8.2 - Insurance: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast shall
release to Borrower insurance proceeds with
respect to Equipment totaling less than
Fifty Thousand Dollars ($50,000).
Section 8.3 - Reporting: Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by
invoice date, within ten (10) days
after the end of each month.
2. Monthly internally prepared
financial statements, as soon as
available, and in any event within
thirty (30) days after the end of
each month.
3. Quarterly internally prepared
financial statements, on a
consolidating to consolidated
basis, as soon as available, and in
any event within forty-five (45)
days after the end of each fiscal
quarter of Borrower.
4. Quarterly customer lists, including
customer name, address, and phone
number.
5. Annual financial statements, on a
consolidating to consolidated
basis, as soon as available, and in
any event within ninety (90) days
following the end of Borrower's
fiscal year, containing the
unqualified opinion of, and
certified by, an independent
certified public accountant
acceptable to Coast.
6. Monthly, within 10 days after the
end of each month, profiles of
Borrower's contracts with its
Account Debtors, with such profiles
to include the status of contracts
including, without limitation,
information on contract maturities,
renewals, additions and
cancellations.
Section 8.5 - Negative Covenants
(Acquired Assets): Fifty Thousand Dollars ($50,000.00)
SECTION 9 - TERM
Section 9.1 - Maturity Date: The last Business Day of the month three (3)
years from the Closing Date, subject to
automatic renewal as provided in Section 9.1
of the Agreement, and early termination as
provided in Section 9.2 of the Agreement.
EXHIBIT "A"
[Borrower's Representations and Warranties]
EXHIBIT "B"
[Litigation Disclosure]
In May 1999, the Borrower and certain of its subsidiaries sold substantially all
of the assets and business of certain rehabilitation and physical therapy
businesses to HealthSouth Corporation, including the assets and business of
Sports & Orthopedic Physical Therapy (SOPT) located at the Medical Arts
Building, 000 Xxxxxxxx Xxxx, Xxxxx 0000, Xxxxxxxxxxx XX and at Minneapolis Heart
Institute Building, 000 Xxxx 00xx Xxxxxx, Xxxxx 000 Xxxxxxxxxxx, XX. The
Borrower subsequently discovered that two physical therapists (Xxxx Xxxxxxx and
Xxxxx Xxxxxxx) who were previously employed at such SOPT sites, opened competing
rehabilitation and physical therapy businesses shortly after closing in
locations near the above SOPT clinic sites.
In April 2000, the Borrower was served with a Summons and Complaint by
HealthSouth Corporation. The Complaint contains five separate claims against the
Borrower, all of which assert that the Borrower had knowledge of Xx. Xxxxxxx'x
and Xx. Xxxxxxx'x preparation to open competing businesses shortly after the
closing of the sale to HealthSouth. HealthSouth asserts that the Borrower's
failure to disclose this information constitutes a breach of representation and
warranty contained in the Asset Purchase Agreement and an actionable
misrepresentation. As a result, HealthSouth seeks a refund from the Borrower of
$1,200,000, the portion of the purchase price which HealthSouth alleges was
allocated to the two clinic sites at issue.
The Borrower denies having any knowledge of Xx. Xxxxxxx'x and Xx. Xxxxxxx'x
preparation to open competing businesses. Moreover, the Borrower has alleged
certain affirmative defenses including failure to plead fraud with sufficient
particularity. The Borrower has also asserted a counterclaim against HealthSouth
for Abuse of Process on the basis that HealthSouth was a potential purchaser of
HFC's assets and is using this lawsuit as a means of interfering with the sale
of such assets to another party. The Borrower plans to amend its counterclaim to
assert an additional claim against HealthSouth for payment of certain Accounts
Receivables to which the Borrower is entitled under the terms of the purchase
agreement. The precise amount of this additional counterclaim is unknown but is
believed to be approximately $50,000.
According to a Pretrial Order, the parties may seek discovery until June 1,
2001. The case will be considered "ready for trial" as of October 1, 2001.
