$2,000,000.00
LOAN AND SECURITY AGREEMENT
by and between
GISH BIOMEDICAL, INC.
("Borrower")
and
HELLER HEALTHCARE FINANCE, INC.
("Lender")
December 26, 2000
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of December
26, 2000, by and between GISH BIOMEDICAL, INC., a California corporation,
("Borrower"), and HELLER HEALTHCARE FINANCE, INC., a Delaware corporation
("Lender").
RECITALS
A. Borrower desires to establish certain financing arrangements with and
borrow funds from Lender, and Lender is willing to establish such arrangements
for and make loans and extensions of credit to Borrower, on the terms and
conditions set forth below.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the promises and covenants contained in
this Agreement, and for other consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, unless otherwise specified, all references to
"Sections" shall be deemed to refer to Sections of this Agreement, and the
following terms shall have the meanings set forth below:
Section 1.1. Account. "Account" means any right to payment for goods sold
or leased or services rendered, whether or not evidenced by an instrument or
chattel paper, and whether or not earned by performance, including, without
limitation, the right to payment of management fees.
Section 1.2. Account Debtor. "Account Debtor" means any Person obligated on
any Account of Borrower.
Section 1.3. Affiliate. "Affiliate" means, with respect to a specified
Person, any Person directly or indirectly controlling, controlled by, or under
common control with the specified Person, including without limitation their
stockholders and any Affiliates thereof. A Person shall be deemed to control a
corporation or other entity if the Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and business of the
corporation or other entity, whether through the ownership of voting securities,
by contract, or otherwise.
Section 1.4. Agreement. "Agreement" means this Loan and Security Agreement,
as it may be amended or supplemented from time to time.
Section 1.5. Base Rate. "Base Rate" means a rate of interest equal to two
percent (2.0%) above the "Prime Rate of Interest".
Section 1.6. Borrowed Money. "Borrowed Money" means any obligation to repay
money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under GAAP would
be capitalized on the books of Borrower or which is the substantial equivalent
of the financing of the property so leased.
Section 1.7. Borrower. "Borrower" has the meaning set forth in the
Preamble.
Section 1.8. Borrowing Base. "Borrowing Base" has the meaning set forth in
Section 2.1(d).
Section 1.9. Business Day. "Business Day" means any day on which financial
institutions are open for business in the State of Maryland, excluding Saturdays
and Sundays.
Section 1.9.a. Change of Control. "Change of Control" means (i) individuals
who, as of the Closing Date, constituted the board of directors of Borrower
(together with any new directors whose election by that board of directors or
whose nomination for election by the stockholders of Borrower was approved by
two-thirds of the directors of Borrower then still in office who were either
directors at the beginning of the period or whose election or nomination for
election was previously approved) cease for any reason to constitute a majority
of the board of directors of Borrower then in office, or (ii) Kelly Scott's
termination or resignation as an officer of Borrower.
Section 1.10. Closing; Closing Date. "Closing" and "Closing Date" have the
meanings set forth in Section 5.3.
Section 1.11. Collateral. "Collateral" has the meaning set forth in Section
3.1.
Section 1.12. Commitment Fee. "Commitment Fee" has the meaning set forth in
Section 2.4(a).
Section 1.13. Concentration Account. "Concentration Account" has the
meaning set forth in Section 2.3.
Section 1.14. Controlled Group. "Controlled Group" means all businesses
that would be treated as a single employer under Section 4001(b) of ERISA.
Section 1.15. Default Rate. "Default Rate" means a rate per annum equal to
five percent (5%) above the then applicable Base Rate.
Section 1.16. ERISA. "ERISA" has the meaning set forth in Section 4.12.
Section 1.17. Event of Default. "Event of Default" and "Events of Default"
have the meanings set forth in Section 8.1.
Section 1.18. GAAP. "GAAP" means generally accepted accounting principles
applied in a consistent manner.
Section 1.19. Governmental Authority. "Governmental Authority" means and
includes any federal, state, District of Columbia, county, municipal, or other
government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
Section 1.20. Hazardous Material. "Hazardous Material" means any substances
defined or designated as hazardous or toxic waste, hazardous or toxic material,
hazardous or toxic substance, or similar term, by any environmental statute,
rule or regulation or any Governmental Authority applicable to Borrower or its
business, operations or assets.
Section 1.21. Highest Lawful Rate. "Highest Lawful Rate" means the maximum
lawful rate of interest referred to in Section 2.7 that may accrue pursuant to
this Agreement.
Section 1.22. Lender. "Lender" means Heller Healthcare Finance, Inc., a
Delaware corporation.
Section 1.23. Loan. "Loan" has the meaning set forth in Section 2.1(a).
Section 1.24. Loan Documents. "Loan Documents" means and includes this
Agreement, the Note, the Certificate of Validity, and each and every other
document now or hereafter delivered in connection with this Agreement, as any of
them may be amended, modified, or supplemented from time to time.
Section 1.25. Loan Management Fee. "Loan Management Fee" has the meaning
set forth in Section 2.4(c).
Section 1.26. Lockbox. "Lockbox" has the meaning set forth in Section 2.3.
Section 1.27. Lockbox Account. "Lockbox Account" means an account
maintained by Borrower at the Lockbox Bank into which all collections of
Accounts are paid directly.
Section 1.28. Lockbox Bank. "Lockbox Bank" has the meaning set forth in
Section 2.3. Section 1.29. Maximum Loan Amount. "Maximum Loan Amount" has the
meaning set forth in Section 2.1(a).
Section 1.30. Note. "Note" has the meaning set forth in Section 2.1(c).
Section 1.31. Obligations. "Obligations" has the meaning set forth in
Section 3.1.
Section 1.32. Permitted Liens. "Permitted Liens" means: (i) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance; (ii) deposits or pledges to
secure bids, tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of business; (iii) mechanic's,
workmen's, materialmen's or other like liens arising in the ordinary course of
business with respect to obligations which are not due, or which are being
contested in good faith by appropriate proceedings which suspend the collection
thereof and in respect of which adequate reserves have been made (provided that
such proceedings do not, in Lender's reasonable discretion, involve any
substantial risk of the sale, loss or forfeiture of such property or assets or
any interest therein); (iv) liens and encumbrances in favor of Lender; (v) liens
and encumbrances on Borrower's inventory, equipment, furniture, fixtures and any
other items set forth in Section 3.1(f), (g) and (h) herein, and (vi) liens set
forth on Schedule 1.32.
Section 1.37. Person. "Person" means an individual, partnership,
corporation, trust, joint venture, joint stock company, limited liability
company, association, unincorporated organization, Governmental Authority, or
any other entity.
Section 1.38. Plan. "Plan" has the meaning set forth in Section 4.12.
Section 1.39. Premises. "Premises" has the meaning set forth in Section
4.14.
Section 1.40. Prime Rate of Interest. "Prime Rate of Interest" means that
rate of interest designated as such by Fleet Bank, N.A., or any successor
thereto, as the same may from time to time fluctuate.
Section 1.41. Prohibited Transaction. "Prohibited Transaction" means a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Internal Revenue Code that is not exempt under Section 407 or
Section 408 of ERISA or Section 4975(c)(2) or (d) of the Internal Revenue Code
or under a class exemption granted by the U.S. Department of Labor.
Section 1.42. Qualified Account. "Qualified Account" means an Account of
Borrower generated in the ordinary course of Borrower's business from the sale
of goods, which Lender, in its sole and reasonable credit judgment, deems to be
a Qualified Account. Without limiting the generality of the foregoing, no
Account shall be a Qualified Account if: (a) the Account remains unpaid more
than one hundred twenty (120) days past the claim or invoice date (but in no
event more than one one hundred thirty-five (135) days after the applicable
goods have been sold; (b) the Account is subject to any defense, set-off,
counterclaim, deduction, discount, credit, chargeback, freight claim, allowance,
or adjustment of any kind; (c) any part of any goods the sale of which has given
rise to the Account has been returned, rejected, lost, or damaged; (d) if the
Account arises from the sale of goods by Borrower, the sale was not an absolute
sale, or the sale was made on consignment or on approval or on a sale-or-return
basis, or the sale was made subject to any other repurchase or return agreement,
or the goods have not been shipped to the Account Debtor or its designee; (e)
the Account is subject to a lien other than a Permitted Lien; (f) Borrower knows
or should have known of the bankruptcy, receivership, reorganization, or
insolvency of the Account Debtor; (g) the Account is evidenced by chattel paper
or an instrument of any kind, or has been reduced to judgment; (h) the Account
is an Account of an Account Debtor having its principal place of business or
executive office outside the United States; (i) the Account Debtor is an
Affiliate or Subsidiary of Borrower; (j) more than ten percent (10%) of the
aggregate balance of all Accounts owing from the Account Debtor obligated on the
Account are outstanding more than one hundred fifty (150) days past their
invoice date; (j) fifty percent (50%) or more of the aggregate unpaid Accounts
from any single Account Debtor are not deemed Qualified Accounts under this
Agreement; (k) the total unpaid Accounts of the Account Debtor exceed twenty
percent (20%) of the net amount of all Qualified Accounts; (l) any covenant,
representation or warranty contained in the Loan Documents with respect to such
Account has been breached; or (m) the Account fails to meet such other
specifications and requirements which may from time to time be established by
Lender.
Section 1.43. Reportable Event. "Reportable Event" means a "reportable
event" as defined in Section 4043(c) of ERISA for which the notice requirements
of Section 4043(a) of ERISA are not waived.
Section 1.44. Revolving Credit Loan. "Revolving Credit Loan" has the
meaning set forth in Section 2.1(b).
Section 1.45. Term. "Term" has the meaning set forth in Section 2.8.
Section 1.46 Termination Fee. "Termination Fee" shall mean a fee payable
upon termination of the Agreement, as yield maintenance for the loss of bargain
and not as a penalty, equal to either (I) if the date of notice of a termination
is on or before the second anniversary of the Closing Date, the greater of (A)
three percent (3%) of the Maximum Loan Amount (ii) if the date of a notice of
termination is after the second anniversary of the Closing Date and on or before
the third anniversary of the Closing Date, the greater of (A) two percent (2%)
of the Maximum Loan Amount.
ARTICLE II
LOAN
----
Section 2.1. Terms.
(a) The maximum aggregate principal amount of credit extended by
Lender to Borrower under this Agreement (the "Loan") that will be outstanding at
any time is Two Million and No/100 Dollars ($2,000,000.00) (the "Maximum Loan
Amount").
(b) The Loan shall be in the nature of a revolving line of credit,and
shall include sums advanced and other credit extended by Lender to or for the
benefit of Borrower from time to time under this Article II (each a "Revolving
Credit Loan") up to the Maximum Loan Amount depending upon the availability in
the Borrowing Base, the requests of Borrower pursuant to the terms and
conditions of Section 2.2, and on such other basis as Lender may reasonably
determine. The outstanding principal balance of the Loan may fluctuate from time
to time, to be reduced by repayments made by Borrower (which may be made without
penalty or premium), and to be increased by future Revolving Credit Loans,
advances and other extensions of credit to or for the benefit of Borrower, and
shall be due and payable in full upon the expiration of the Term. For purposes
of this Agreement, any determination as to whether there is availability within
the Borrowing Base for advances or extensions of credit shall be made by Lender
in its sole and reasonable discretion and is final and binding upon Borrower.
(c) At Closing, Borrower shall execute and deliver to Lender a
promissory note evidencing Borrower's unconditional obligation to repay Lender
for Revolving Credit Loans, advances, and other extensions of credit made under
the Loan, in the form of Exhibit A to this Agreement (as amended, modified,
restated or replaced from time to time, the "Note"), dated the date of this
Agreement, payable to the order of Lender in accordance with the terms thereof.
The Note shall bear interest on the outstanding principal balance of the Note
from the date of the Note until repaid, with interest payable monthly in arrears
on the first Business Day of each month, at a rate per annum (on the basis
of the actual number of days elapsed over a year of 360 days) equal to the Base
Rate, provided that after the occurrence and during the continuance of an Event
of Default such rate shall be equal to the Default Rate. Each Revolving Credit
Loan, advance and other extension of credit shall be deemed evidenced by the
Note, which is deemed incorporated into and made a part of this Agreement by
this reference.
(d) Subject to the terms and conditions of this Agreement, advances
under the Loan shall be made against a borrowing base equal to eighty percent
(80%) of Qualified Accounts due and owing from any Account Debtor (the
"Borrowing Base"). Lender, in its sole and reasonable credit judgment, may
further adjust the Borrowing Base by applying percentages (known as
"liquidity factors") to Qualified Accounts by payor class based upon Borrower's
actual recent collection history for each such payor class in a manner
consistent with Lender's underwriting practices and procedures.1 Such liquidity
factors may be adjusted by Lender throughout the Term as warranted by collection
histories.
Section 2.2. Loan Administration. Borrowings under the Loan shall be as
follows:
(a) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrower may give Lender notice
of its intention to borrow, in which notice Borrower shall specify the amount
of the proposed borrowing and the proposed borrowing date, not later than 2:00
p.m. Eastern time two (2) Business Days before the proposed borrowing date;
provided, however, that no such request may be made at a time when there exists
an Event of Default; and (ii) the becoming due of any amount required to be paid
under this Agreement, whether as interest or for any other Obligation, shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the day
following the due date in the amount required to pay such interest or other
Obligation if such was not paid by Borrower on the due date.
(b) Borrower hereby irrevocably authorizes Lender to disburse the
proceeds of each Revolving Credit Loan requested, or deemed to be requested, as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank
account as may be agreed upon by Borrower and Lender from time to time or
elsewhere if pursuant to written direction from Borrower; and (ii) the
proceeds of each Revolving Credit Loan deemed to be requested under subsection
2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant
interest or other Obligation.
(c) All Revolving Credit Loans, advances and other extensions of
credit to or for the benefit of Borrower shall constitute one general
Obligation of Borrower, and shall be secured by Lender's lien upon all of the
Collateral.
(d) Lender shall enter all Revolving Credit Loans as debits to a loan
account in the name of Borrower and shall also record in said loan account all
payments made by Borrower on any Obligations and all proceeds of Collateral
which are indefeasibly paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits, including interest
and all charges and expenses properly chargeable to Borrower. All collections
into the Concentration Account pursuant to Section 2.3 shall be applied first to
fees, costs and expenses due and owing under the Loan Documents, then to
interest due and owing under the Loan Documents, and then to principal
outstanding with respect to Revolving Credit Loans.
(e) Lender will account to Borrower monthly with a statement of
Revolving Credit Loans, charges and payments made pursuant to this Agreement,
and such accounting rendered by Lender shall be deemed final, binding and
conclusive upon Borrower, absent manifest error, unless Lender is notified
by Borrower in writing to the contrary within thirty (30) days of the date each
accounting is mailed to Borrower. Such notice shall be deemed an objection
to those items specifically objected to in the notice.
Section 2.3. Collections, Disbursements, Borrowing Availability, and
Lockbox Account. Borrower shall maintain a lockbox account (the "Lockbox") with
CITY NATIONAL BANK, N.A. (the "Lockbox Bank"), subject to the provisions of this
Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in the
form attached as Exhibit B, and such other agreements related to the Lockbox
Agreement as Lender may reasonably require. Borrower shall ensure that all
collections of Accounts are paid directly from Account Debtors into the Lockbox,
and that all funds paid into the Lockbox are immediately transferred into a
depository account maintained by Lender at Bank One, N.A., or such other
financial institution as determined by Lender in its sole discretion, by written
notice to Borrowers and the Lockbox Bank (the "Concentration Account"). Lender
shall apply, on a daily basis, all funds transferred into the Concentration
Account pursuant to this Section 2.3 to reduce the outstanding indebtedness
under the Loan (in accordance with Section 2.2(d)), and all future Revolving
Credit Loans, advances and other extensions of credit to be made by Lender under
the conditions set forth in this Article II. To the extent that any collections
of Accounts or proceeds of other Collateral are not sent directly to the Lockbox
but are received by Borrower, such collections shall be held in trust for the
benefit of Lender and immediately remitted, in the form received, to the Lockbox
Bank for transfer to the Concentration Account immediately upon receipt by
Borrower. Borrower acknowledges and agrees that its compliance with the terms of
this Section 2.3 is essential, and that Lender will suffer immediate and
irreparable injury and have no adequate remedy at law, if Borrower, through its
acts or omissions, causes or permits Account Debtors to pay other than to the
Lockbox Account, or if Borrower fails to immediately deposit collections of
Accounts or proceeds of other Collateral in the Lockbox Account as herein
required. Upon Borrower's failure to comply with the terms of this Section 2.3,
Lender will be entitled, in addition to exercising any other rights and remedies
available to it, to assess a non-compliance fee which shall operate to increase
the Base Rate by two percent (2%) per annum during any period of non-compliance.
Lender shall be entitled to assess such fee whether or not an Event of Default
is declared or otherwise occurs. All funds transferred from the Concentration
Account for application to Borrower's indebtedness to Lender shall be applied to
reduce the Loan balance but for purposes of calculating interest shall be
subject to a five (5) Business Day clearance period. If as the result of
collections of Accounts pursuant to the terms and conditions of this Section 2.3
a credit balance exists with respect to the Concentration Account, such credit
balance shall not accrue interest in favor of Borrower, and Lender agrees, upon
receipt of written notice from Borrower, to wire transfer such credit balance on
the next Business Day to an account Designated by Borrower, for so long as no
Event of Default, and no event or circumstance which, with notice or the passage
of time (or both), would constitute an Event of Default, exists.
Section 2.4. Fees.
(a) By executing this Agreement, Borrower agrees unconditionally to
pay to Lender a commitment fee equal to one and one-half percent (1.5%) of the
Maximum Loan Amount (the "Commitment Fee").
(b) Intentionally Deleted.
(c) For so long as the Loan is available to Borrower, Borrower
unconditionally shall pay to Lender a monthly loan management fee (the "Loan
Management Fee") equal to one-fifth of one percent (0.20%) of the average amount
of the outstanding principal balance of the Revolving Credit Loans during the
preceding month. The Loan Management Fee shall be payable monthly in arrears on
the first day of each successive calendar month.
(d) Borrower shall pay to Lender all reasonable out-of-pocket audit
and appraisal fees in connection with audits and appraisals of Borrower's books
and records and such other matters as Lender shall deem appropriate, which shall
be due and payable on the first Business Day of the month following the date
of issuance by Lender of a request for payment thereof to Borrower.
(e) Borrower shall pay to Lender, on demand,any and all fees,costs or
expenses which Lender or any participant pays to a bank or other similar
institution (including, without limitation, any fees paid by Lender to any
participant) arising out of or in connection with (i) the forwarding to Borrower
or any other Person on behalf of Borrower, by Lender, of proceeds of Revolving
Credit Loans made by Lender to Borrower pursuant to this Agreement, and (ii) the
depositing for collection, by Lender or any participant, of any check or item of
payment received or delivered to Lender or any participant on account of
Obligations.
Section 2.5. Payments. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Borrower or Lender of any payments on or proceeds from any of
the Collateral, to the extent of such proceeds, (ii) the occurrence of an Event
of Default if the Loan and the maturity of the payment of the Obligations are
accelerated, or (iii) the termination of this Agreement pursuant to Section 2.8
of this Agreement; provided, however, that if any advance made by Lender in
excess of the Borrowing Base shall exist at any time, Borrower shall,
immediately upon demand, repay such overadvance. Interest accrued on the
Revolving Credit Loans shall be due on the earliest of (i) the first Business
Day of each month (for the immediately preceding month), computed on the last
calendar day of the preceding month, (ii) the occurrence of an Event of Default
if the Loan and the maturity of the payment of the Obligations are accelerated,
or (iii) the termination of this Agreement pursuant to Section 2.8. Except to
the extent otherwise set forth in this Agreement, all payments of principal and
of interest on the Loan, all other charges and any other obligations of Borrower
under this Agreement, shall be made to Lender to the Concentration Account, in
immediately available funds.
Section 2.6. Use of Proceeds. The proceeds of Lender's advances under the
Loan shall be used solely for working capital and for other costs of Borrower
arising in the ordinary course of Borrower's business.
Section 2.7. Interest Rate Limitation. The parties intend to conform
strictly to the applicable usury laws in effect from time to time during the
term of the Loan. Accordingly, if any transaction contemplated by this Agreement
would be usurious under such laws, then notwithstanding any other provision of
this Agreement: (i) the aggregate of all interest that is contracted for,
charged, or received under this Agreement or under any other Loan Document shall
not exceed the maximum amount of interest allowed by applicable law (the
"Highest Lawful Rate"), and any excess shall be promptly credited to Borrower by
Lender (or, to the extent that such consideration shall have been paid, such
excess shall be promptly refunded to Borrower by Lender); (ii) neither Borrower
nor any other Person now or hereafter liable under this Agreement shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the Highest Lawful Rate; and (iii) the effective rate of interest shall be
reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to
Lender for the use, forbearance, and detention of the debt of Borrower to Lender
shall, to the extent permitted by applicable law, be allocated throughout the
full term of the Note until payment is made in full so that the actual rate of
interest does not exceed the Highest Lawful Rate in effect at any particular
time during the full term thereof. If at any time the rate of interest under the
Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to
this Agreement shall be limited, notwithstanding anything to the contrary in
this Agreement, to the Highest Lawful Rate, but any subsequent reductions in the
Base Rate shall not reduce the interest to accrue pursuant to this Agreement
below the Highest Lawful Rate until the total amount of interest accrued equals
the amount of interest that would have accrued if a varying rate per annum equal
to the interest rate under the Note had at all times been in effect. If the
total amount of interest paid or accrued pursuant to this Agreement under the
foregoing provisions is less than the total amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had been in effect, then Borrower agrees to pay to Lender an amount equal to the
difference between (x) the lesser of (A) the amount of interest that would have
accrued if the Highest Lawful Rate had at all times been in effect, or (B) the
amount of interest that would have accrued if a varying rate per annum equal to
the interest rate under the Note had at all times been in effect, and (y) the
amount of interest accrued in accordance with the other provisions of this
Agreement.
Section 2.8. Term.
(a) Subject to Lender's right to cease making Revolving Credit Loans
to Borrower upon or after any Event of Default,this Agreement shall be in effect
for a period of three (3) years from the Closing Date, unless terminated as
provided in this Section 2.8 (the "Term"), and this Agreement shall be renewed
for one-year periods thereafter upon the mutual written agreement of the
parties.
(b) Notwithstanding anything in this Agreement to the contrary,
Lender may terminate this Agreement upon or after the occurrence of an Event of
Default.
(c) Upon at least thirty (30) days prior written notice to Lender
(the "Termination Notice Period"), Borrower may terminate this Agreement after
the first annual anniversary of the Closing Date, provided however, at the
effective date of any termination, Borrower shall pay to Lender (in addition
to the then outstanding principal, accrued interest and other Obligations owing
under the terms of this Agreement and any other Loan Documents) as yield
maintenance for the loss of bargain and not as a penalty, an amount equal to the
[applicable] Termination Fee. Consistent with the foregoing, Borrower has
no right to terminate this Agreement until after the first anniversary of the
Closing Date.
(d) All of the Obligations shall be immediately due and payable upon
the termination date stated in any notice of termination of this Agreement (the
"Termination Date"); provided that, notwithstanding anything in Section 2.8(c)
to the contrary, the Termination Date shall be effective no earlier than the
first Business Day of the month following the expiration of the Termination
Notice Period. All undertakings, agreements, covenants, warranties, and
representations of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds.
(e) Notwithstanding any provision of this Agreement which makes
reference to the continuance of an Event of Default, nothing in this Agreement
shall be construed to permit Borrower to cure an Event of Default following the
lapse of the applicable cure period,and Borrower shall have no such right in any
instance unless specifically granted in writing by Lender.
ARTICLE III
COLLATERAL
----------
Section 3.1. Generally.
A. As security for the payment of all liabilities of Borrower to Lender,
including without limitation: (i) indebtedness evidenced under the Note,
repayment of Revolving Credit Loans, advances and other extensions of credit,
all fees and charges owing by Borrower, (including without limitation the
Termination Fee) and all other liabilities and obligations of every kind or
nature whatsoever of Borrower to Lender, whether now existing or hereafter
incurred, joint or several, matured or unmatured, direct or indirect, primary or
secondary, related or unrelated, due or to become due, including but not limited
to any extensions, modifications, substitutions, increases and renewals thereof,
(ii) the payment of all reasonable amounts advanced by Lender to preserve,
protect, defend, and enforce its rights under this Agreement and in the
following property in accordance with the terms of this Agreement, and (iii) the
payment of all reasonable expenses incurred by Lender in connection therewith
(collectively, the "Obligations"), Borrower hereby assigns and grants to Lender,
subject to Section 3.1B below, a continuing first priority lien on and security
interest in, upon, and to the following property (the "Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or arising
Accounts, accounts receivable and rights to payment of every kind and
description, and all of Borrower's contract rights, chattel paper, documents
and instruments with respect thereto, and all of Borrower's rights, remedies,
security and liens, in, to and in respect of the Accounts, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any Account Debtor, and credit
and other insurance;
(b) All moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, in transit to, in possession of,
or under the control of Lender or a bailee or Affiliate of Lender, from or
for Borrower, whether for safekeeping, pledge, custody, transmission,collection
or otherwise, and all of Borrower's deposits (general or special), balances,
sums and credits with Lender at any time existing;
(c) All of Borrower's right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in, Accounts,
including, without limitation, all goods described in invoices or other
documents or instruments with respect to, or otherwise representing or
evidencing, any Account, and all returned, reclaimed or repossessed goods;
(d) All of Borrower's now owned or hereafter acquired deposit
accounts into which Accounts are deposited, including the Lockbox Account;
(e) All of Borrower's now owned and hereafter acquired or arising
general intangibles and other property of every kind and description with
respect to, evidencing or relating to its Accounts, accounts receivable and
other rights to payment, including, but not limited to, all existing and future
customer lists, choses in action, claims, books, records, ledger cards,
contracts, licenses, formulae, tax and other types of refunds, returned
and unearned insurance premiums, rights and claims under insurance policies,
and computer programs, information, software, records, and data, as the same
relates to the Accounts;
(f) All of Borrower's other general intangibles (including, without
limitation, any proceeds from insurance policies after payment of prior
interests), patents, unpatented inventions, trade secrets, copyrights, contract
rights, goodwill, literary rights, rights to performance, rights under licenses,
choses-in-action, claims, information contained in computer media (such as data
bases, source and object codes, and information therein), things in action,
trademarks and trademarks applied for (together with the goodwill associated
therewith) and derivatives thereof, trade names, including the right to make,
use, and vend goods utilizing any of the foregoing, and permits, licenses,
certifications, authorizations and approvals, and the rights of Borrower
thereunder, issued by any governmental, regulatory, or private authority,
agency, or entity whether now owned or hereafter acquired, together with all
cash and non-cash proceeds and products thereof;
(g) All of Borrower's now owned or hereafter acquired inventory of
every description which is held by Borrower for sale or lease or is
furnished by Borrower under any contract of service or is held by Borrower as
raw materials, work in process or materials used or consumed in a business,
wherever located, and as the same may now and hereafter from time to time be
constituted, together with all cash and non-cash proceeds and products thereof;
(h) All of Borrower's now owned or hereafter acquired machinery,
equipment, computer equipment, tools, tooling, furniture, fixtures, goods,
supplies, materials, work in process, whether now owned or hereafter acquired,
together with-all additions, parts, fittings, accessories, special tools,
attachments, and accessions now and hereafter affixed thereto and/or used
in connection therewith, -all replacements thereof and substitutions therefor,
and all cash and non-cash proceeds and products thereof; and
(i) The proceeds (including, without limitation, insurance proceeds)
of all of the foregoing.
B. Notwithstanding anything hereinabove to the contrary, Lender agrees to
release its lien on property described in Section 3.1.A(f)-(h) above following
written notice from Borrower stating that Borrower has obtained a commitment for
new financing (provided such financing is in compliance with Section 7.1 herein)
which is to be secured by some or all of the property described in Section
3.1.A(f)-(h). Lender's release of the lien on such property shall occur
contemporaneously with Borrower's closing on such new financing.
Section 3.2. Lien Documents. At Closing and thereafter as Lender deems
necessary in its sole discretion, Borrower shall execute and deliver to Lender,
or have executed and delivered (all in form and substance satisfactory to Lender
in its sole and reasonable discretion):
(a) UCC-1 Financing Statements pursuant to the Uniform Commercial
Code in effect in the jurisdiction(s) in which Borrower operates, which Lender
may file in any jurisdiction where any Collateral is or may be located and in
any other jurisdiction that Lender deems appropriate; provided that
a carbon, photographic, or other reproduction or other copy of this Agreement
or of a financing statement is sufficient as and may be filed in lieu of a
financing statement; and
(b) Any other agreements, documents, instruments, and writings
deemed necessary by Lender or as Lender may otherwise request from time to time
in its sole and reasonable discretion to evidence, perfect, or protect Lender's
lien and security interest in the Collateral required under this Agreement.
Section 3.3. Collateral Administration.
(a) All Collateral (except deposit accounts) will at all times be
kept by Borrower at its principal office(s) as set forth on Schedule 4.15 and
shall not be moved from such locations without the prior written consent of
Lender, which consent shall not be unreasonably withheld.
(b) Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender on
such periodic basis as Lender shall request a sales and collections report for
the preceding period, in form satisfactory to Lender. In addition, if Accounts
in an aggregate face amount in excess of $50,000.00 become ineligible because
they fall within one of the specified categories of ineligibility set forth in
the definition of Qualified Accounts or otherwise, Borrower shall notify Lender
of such occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Lender, Borrower shall execute and deliver to Lender formal written
assignments of all of its Accounts weekly or daily, which shall include all
Accounts that have been created since the date of the last assignment, together
with copies of claims, invoices or other information related thereto.
(c) Whether or not an Event of Default has occurred, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender or any designee of Lender or Borrower, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude such verification
process.
(d) To expedite collection, Borrower shall endeavor in the first
instance to make collection of its Accounts for Lender. Lender retains the
right at all times after the occurrence and during the continuance of an Event
of Default, to notify Account Debtors that Accounts have been assigned to Lender
and to collect Accounts directly in its own name and to charge the reasonable
collection costs and expenses,including reasonable attorneys' fees, to Borrower.
Section 3.4. Other Actions. In addition to the foregoing, Borrower (i)
shall direct each Account Debtor to make payments into the Lockbox, and hereby
authorizes Lender, upon Borrower's failure to send such notices within ten (10)
days after the date of this Agreement, and (ii) shall do anything further that
may be lawfully required by Lender to secure Lender and effectuate the
intentions and objects of this Agreement, including but not limited to the
execution and delivery of lockbox agreements, continuation statements,
amendments to financing statements, and any other documents required under this
Agreement. At Lender's request, Borrower shall also immediately deliver to
Lender all items for which Lender must receive possession to obtain a perfected
security interest. Borrower shall, on Lender's demand, deliver to Lender all
notes, certificates, and documents of title, chattel paper, warehouse receipts,
instruments, and any other similar instruments constituting Collateral.
Section 3.5. Searches. Before Closing, and thereafter (as and when
determined by Lender in its sole and reasonable discretion), Lender will perform
the searches described in clauses (a) and (b) below against Borrower (the
results of which are to be consistent with Borrower's representations and
warranties under this Agreement), all at Borrower's expense:
(a) Uniform Commercial Code searches with the Secretary of State and
local filing offices of each jurisdiction where Borrower maintains its executive
offices, a place of business, or assets; and
(b) Judgment,federal tax lien and corporate and partnership tax lien
searches, in each jurisdiction searched under clause (a) above.
In addition, prior to Closing, at Borrower's expense, Borrower shall obtain
and deliver to Lender good standing certificates showing Borrower to be in good
standing in its state of formation and in each other state in which it is doing
and currently intends to do business for which qualification is required.
Section 3.6. Power of Attorney. Each of the officers of Lender is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrower (without requiring any of them to act as such) with full power of
substitution to do the following: (i) endorse the name of Borrower upon any and
all checks, drafts, money orders, and other instruments for the payment of money
that are payable to Borrower and constitute collections on Borrower's Accounts;
(ii) execute in the name of Borrower any financing statements, schedules,
assignments, instruments, documents, and statements that Borrower is obligated
to give Lender under this Agreement; and (iii) do such other and further acts
and deeds in the name of Borrower that Lender may deem necessary or desirable to
enforce any Account or other Collateral or perfect Lender's security interest or
lien in any Collateral. In addition, if Borrower breaches its obligation to
direct payments of the proceeds of the Collateral to the Lockbox Account,
Lender, as the irrevocably made, constituted and appointed true and lawful
attorney for Borrower pursuant to this paragraph, may, by the signature or other
act of any of Lender's officers (without requiring any of them to do so), direct
any federal, state or private payor or fiscal intermediary to pay proceeds of
the Collateral to Borrower by directing payment to the Lockbox Account.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lender, and shall be deemed to
represent and warrant on each day on which any Obligations shall be outstanding
under this Agreement, that:
Section 4.1. Subsidiaries. Except as set forth in Schedule 4.1, Borrower
has no subsidiaries.
Section 4.2. Organization and Good Standing. Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of its state of
formation, is in good standing as a foreign corporation in each jurisdiction in
which the character of the properties owned or leased by it therein or the
nature of its business makes such qualification necessary, has the corporate
power and authority to own its assets and transact the business in which it is
engaged, and has obtained all certificates, licenses and qualifications required
under all laws, regulations, ordinances, or orders of public authorities
necessary for the ownership and operation of all of its properties and
transaction of all of its business.
Section 4.3. Authority. Borrower has full corporate power and authority to
enter into, execute, and deliver this Agreement and to perform its obligations
under this Agreement, to borrow the Loan, to execute and deliver the Note, and
to incur and perform the obligations provided for in the Loan Documents, all of
which have been duly authorized by all necessary corporate action. No consent or
approval of shareholders of, or lenders to, Borrower and no consent, approval,
filing or registration with any Governmental Authority is required as a
condition to the validity of the Loan Documents or the performance by Borrower
of its obligations under the Loan Documents.
Section 4.4. Binding Agreement. This Agreement and all other Loan Documents
constitute, and the Note, when issued and delivered pursuant to this Agreement
for value received, will constitute, the valid and legally binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms.
Section 4.5. Litigation. Except as disclosed in Schedule 4.5, there are no
actions, suits, proceedings or investigations pending or threatened against
Borrower before any court or arbitrator or before or by any Governmental
Authority which, in any one case or in the aggregate, if determined adversely to
the interests of Borrower, could have a material adverse effect on the business,
properties, condition (financial or otherwise) or operations, current or
prospective, of Borrower, or upon its ability to perform its obligations under
the Loan Documents. Borrower is not in default with respect to any order of any
court, arbitrator, or Governmental Authority applicable to Borrower or its
properties.
Section 4.6. No Conflicts. The execution and delivery by Borrower of this
Agreement and the other Loan Documents do not, and the performance of its
obligations under the Loan Documents will not, violate, conflict with,
constitute a default under, or result in the creation of a lien or encumbrance
upon the property of Borrower (other than for the benefit of Lender) under: (i)
any provision of Borrower's articles of incorporation or bylaws, (ii) any
provision of any law, rule, or regulation applicable to Borrower, or (iii) any
of the following: (A) any indenture or other agreement or instrument to which
Borrower is a party or by which Borrower or its property is bound; or (B) any
judgment, order or decree of any court, arbitration tribunal, or Governmental
Authority having jurisdiction over Borrower which is applicable to Borrower.
Section 4.7. Financial Condition. The annual financial statements of
Borrower as of and for the period ending June 30, 2000 audited by Ernst & Young
and the unaudited financial statements of Borrower as of and for the period
ending September 30, 2000, certified by the chief financial officer of Borrower,
which have been delivered to Lender, fairly present the financial condition of
Borrower and the results of its operations and changes in financial condition as
of the dates and for the periods referred to, and have been prepared in
accordance with GAAP. There are no material unrealized or anticipated
liabilities, direct or indirect, fixed or contingent, of Borrower as of the
dates of such financial statements which are not reflected in such financial
statements or in the notes to such financial statements. There has been no
adverse change in the business, properties, condition (financial or otherwise)
or operations (current or prospective) of Borrower since September 30, 2000,
which are not reflected in such financial statements or in the notes to such
financial statements. Borrower's fiscal year ends on June 30. The federal tax
identification number of Borrower is 95-3046028 .
Section 4.8. No Default. Borrower is not in default under or with respect
to any obligation in any respect which could be adverse to its business,
operations, property or financial condition, or which could adversely affect the
ability of Borrower to perform its obligations under the Loan Documents. No
Event of Default or event which, with the giving of notice or lapse of time, or
both, could become an Event of Default, has occurred and is continuing.
Section 4.9. Title to Properties. Borrower has good and marketable title to
its properties and assets, including the Collateral and the properties and
assets reflected in the financial statements described in Section 4.7, subject
to no lien, mortgage, pledge, encumbrance or charge of any kind, other than
Permitted Liens. Borrower has not agreed or consented to cause any of its
properties or assets whether owned now or hereafter acquired to be subject in
the future (upon the happening of a contingency or otherwise) to any lien,
mortgage, pledge, encumbrance or charge of any kind other than Permitted Liens.
Section 4.10. Taxes. Borrower has filed, or has obtained extensions for the
filing of, all federal, state and other tax returns which are required to be
filed, and has paid all taxes shown as due on those returns and all assessments,
fees and other amounts due as of the date of this Agreement. All tax liabilities
of Borrower were, as of September 30, 2000 and are now, adequately provided for
on Borrower's books. No tax liability has been asserted by the Internal Revenue
Service or other taxing authority against Borrower for taxes in excess of those
already paid.
Section 4.11. Securities and Banking Laws and Regulations.
(a) The use of the proceeds of the Loan and Borrower's issuance of
the Note will not directly or indirectly violate or result in a violation of the
Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including without limitation
Regulations U, T or X of the Board of Governors of the Federal Reserve System.
Borrower is not engaged in the business of extending credit for the purpose of
the purchasing or carrying "margin stock" within the meaning of those
regulations. No part of the proceeds of the Loan under this Agreement will be
used to purchase or carry any margin stock or to extend credit to others for
such purpose.
(b) Borrower is not an investment company within the meaning of the
Investment Company Act of 1940, as amended, nor is it, directly or indirectly,
controlled by or acting on behalf of any Person which is an investment company
within the meaning of that Act.
Section 4.12. ERISA. No employee benefit plan (a "Plan") subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued
pursuant to ERISA that is maintained by Borrower or under which Borrower could
have any material liability under ERISA (i) has failed to meet minimum funding
standards established in Section 302 of ERISA, (ii) has failed to substantially
comply with all applicable requirements of ERISA and of the Internal Revenue
Code, including all applicable rulings and regulations thereunder, or (iii) has
engaged in or been involved in a prohibited transaction (as defined in ERISA)
under ERISA or under the Internal Revenue Code. Neither Borrower nor any member
of a Controlled Group that includes Borrower has assumed, or received notice of
a claim asserted against Borrower or another member of the Controlled Group for,
withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments
Act of 1980, as amended) with respect to any multi-employer pension plan.
Borrower has timely made when due all contributions with respect to any
multi-employer pension plan in which it participates and no event has occurred
triggering a material claim against Borrower for withdrawal liability with
respect to any multi-employer pension plan in which Borrower participates.
Section 4.13. Compliance with Law. Except as described in Schedule 4.13,
Borrower is not in violation of any statute, rule or regulation of any
Governmental Authority (including, without limitation, any statute, rule or
regulation relating to employment practices or to environmental, occupational
and health standards and controls). Borrower has obtained all licenses, permits,
franchises, and other governmental authorizations necessary for the ownership of
its properties and the conduct of its business. Borrower is current with all
reports and documents required to be filed with any state or federal securities
commission or similar Governmental Authority and is in full compliance with all
applicable rules and regulations of such commissions.
Section 4.14. Environmental Matters. No use, exposure, release, generation,
manufacture, storage, treatment, transportation or disposal of Hazardous
Material has occurred or is occurring on or from any real property on which the
Collateral is located or which is owned, leased or otherwise occupied by
Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower, except as described in Schedule 4.14. All Hazardous Material used,
treated, stored, transported to or from, generated or handled on the Premises,
or off the Premises by Borrower, has been disposed of on or off the Premises by
or on behalf of Borrower in a lawful manner. There are no underground storage
tanks present on or under the Premises owned or leased by Borrower. No other
environmental, public health or safety hazards exist with respect to the
Premises.
Section 4.15. Places of Business. As of the Closing Date, the only places
of business of Borrower, and the places where it keeps and intends to keep the
Collateral and records concerning the Collateral, are at the addresses set forth
in Schedule 4.15. Schedule 4.15 also lists the owner of record of each such
property.
Section 4.16. Intellectual Property. Borrower exclusively owns or possesses
all the patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, franchises, licenses, and rights with
respect to the foregoing necessary for the current conduct of its business,
without any conflict with the rights of others. Borrower is not in default of
any obligation or undertaking with respect to such intellectual property or
rights. Borrower is not infringing on any patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
franchises, licenses, any rights with respect to the foregoing, or any other
intellectual property rights of others and the Borrower is not aware of any
infringement by others of any such rights owned by Borrower.
Section 4.17. Stock Ownership. The ownership percentages of Borrower stock
owned by Borrower's Principals is set forth on Schedule 4.17. For purposes of
this Agreement, the "Principals" are Kelly Scott, Les Taeger, William Campbell
and Doug Whittaker.
Section 4.18. Material Facts. Neither this Agreement nor any other Loan
Document nor any other agreement, document, certificate, or statement furnished
to Lender by or on behalf of Borrower in connection with the transactions
contemplated by this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements contained in
this Agreement or other Loan Document not misleading. Except as disclosed in
Borrower's SEC filings, there is no fact known to Borrower that materially
adversely affects or in the future may materially adversely affect the business,
operations, affairs or financial condition of Borrower, or any of its properties
or assets.
Section 4.19. Investments, Guarantees, and Certain Contracts. Borrower does
not own or hold any equity or long-term debt investments in, have any
outstanding advances to, have any outstanding guarantees for the obligations of,
or have any outstanding borrowings from, any Person, except as described on
Schedule 4.19. Borrower is not a party to any contract or agreement, or subject
to any corporate restriction, which materially adversely affects its business.
Section 4.20. Business Interruptions. Within five years before the date of
this Agreement, neither the business, property or assets, or operations of
Borrower has been adversely affected in any way by any casualty, strike,
lockout, combination of workers, or order of the United States of America or
other Governmental Authority, directed against Borrower. There are no pending
or, to Borrower's knowledge, threatened labor disputes, strikes, lockouts, or
similar occurrences or grievances against Borrower or its business.
Section 4.21. Names. Within five years before the date of this Agreement,
Borrower has not conducted business under or used any other name (whether
corporate, partnership or assumed) other than as shown on Schedule 4.21.
Borrower is the sole owner of all names listed on that Schedule and any and all
business done and invoices issued in such names are Borrower's sales, business,
and invoices. Each trade name of Borrower represents a division or trading style
of Borrower and not a separate Person or independent Affiliate.
Section 4.22 Joint Ventures. Borrower is not engaged in any joint venture
or partnership with any other Person, except as set forth on Schedule 4.22.
Section 4.23 Accounts. Lender may rely, in determining which Accounts are
Qualified Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Qualified Account, Borrower represents that:
(a) The Account is genuine and in all respects what it purports to
be, and is not evidenced by a judgment;
(b) The Account arises out of a completed, bona fide sale and
delivery of goods by Borrower in the ordinary course of its business and in
accordance with the terms and conditions of all purchase orders, contracts,
certification, participation, certificate of need, or other documents relating
thereto and forming a part of the contract between Borrower and the Account
Debtor;
(c) The Account is for a liquidated amount maturing as stated in a
duplicate claim or invoice covering such sale, a copy of which has been
furnished or is available to Lender;
(d) The Account, and Lender's security interest in such Account, is
not, and will not (by voluntary act or omission by Borrower), be in the
future, subject to any offset, lien, deduction, defense, dispute,
counterclaim or any other adverse condition, and each such Account is
absolutely owing to Borrower and is not contingent in any respect or for any
reason;
(e) To the best of Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or
enforceability of any Accounts or tend to reduce the amount payable thereunder
from the face amount of the claim or invoice and statements delivered to Lender
with respect thereto;
(f)To the best of Borrower's knowledge, (i) the Account Debtor under
the Account had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
solvent;
(g)To the best of Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debtor under the
Account which might result in any material adverse change in such Account
Debtor's financial condition or the collectibility of such Account;
(h) The Account has been billed and forwarded to the Account
Debtor for payment in accordance with applicable laws and compliance and
conformance with any and requisite procedures, requirements and regulations
governing payment by such Account Debtor with respect to such Account.
(i) Borrower has obtained and currently has all licenses, permits and
authorizations that are necessary in the generation of such Accounts.
Section 4.24. Solvency. Both before and after giving effect to the
transactions contemplated by the terms and provisions of this Agreement,
Borrower (taken as a whole) (i) owns property whose fair saleable value is
greater than the amount required to pay all of Borrower's Indebtedness
(including contingent debts), (ii) was and is able to pay all of its
Indebtedness as such Indebtedness matures, and (iii) had and has capital
sufficient to carry on its business and transactions and all business and
transactions in which it about to engage. For purposes of this Agreement, the
term "Indebtedness" means, without duplication (x) all items which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Borrower as of the date on which
Indebtedness is to be determined, (y) all obligations of any other person or
entity which such Borrower has guaranteed, and (z) the Obligations.
Section 4.25. Year 2000 Compliance.
(a) All devices, systems, machinery, information technology, computer
software and hardware, and other date sensitive technology (collectively, the
"Systems") necessary for Borrower to carry on its business as currently
conducted and as expected to be conducted in the future are Year 2000 Compliant
or will be Year 2000 Compliant within a period of time calculated to result in
no material disruption of any of Borrower's business operations. For purposes of
these provisions, "Year 2000 Compliant" means that such Systems are designed to
be used before, during and after the Gregorian calendar year 2000 A.D. and will
operate during each such time period without error related to date data,
specifically including any error relating to, or the product of, date data that
represents or refers to different centuries or more than one century.
(b) Borrower has: (i) undertaken a detailed inventory, review, and
assessment of all areas within its business and operations that could be
adversely affected by the failure of Borrower to be Year 2000 Compliant on a
timely basis; (ii) developed a detailed plan and time line for becoming Year
2000 Compliant on a timely basis; and (iii) to date, implemented that plan in
accordance with the timetable in all material respects.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
Section 5.1. Conditions Precedent to Agreement. The obligation of Lender to
enter into and perform this Agreement and to make Revolving Credit Loans is
subject to the following conditions precedent:
(a) Lender shall have received two (2)originals of this Agreement,the
Certificate of Validity, and all other Loan Documents required to be executed
and delivered at or before Closing (other than the Note, as to which Lender
shall receive only one original), executed by Borrower and any other required
Persons, as applicable.
(b) Lender shall have received all searches and good standing
certificates required by Section 3.5.
(c) Borrower shall have complied and shall then be in compliance with
all the terms, covenants and conditions of the Loan Documents.
(d) There shall have occurred and be continuing no Event of Default
and no event which, with the giving of notice or the lapse of time, or both,
could constitute such an Event of Default.
(e) The representations and warranties contained in Article IV shall
be true and correct.
(f) Lender shall have received copies of all board of directors
resolutions, and other action taken by Borrower to authorize the execution,
delivery and performance of the Loan Documents and the borrowing of the Loan
under the Loan Documents, as well as the names and signatures of the officers of
Borrower authorized to execute documents on its behalf in connection with the
Loan, all as also certified as of the date of this Agreement by Borrower's chief
financial officer, or equivalent, and such other papers as Lender may require.
(g) Lender shall have received copies, certified as true, correct and
complete by a corporate officer of each Borrower, of the certificate of
incorporation of each Borrower, with any amendments to any of the foregoing, and
all other documents necessary for performance of the obligations of Borrower
under this Agreement and the other Loan Documents.
(h) Lender shall have received a written opinion of counsel for
Borrower, dated the date of this Agreement, substantially in the form of Exhibit
C.
(i) Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered under
this Agreement, including, without limitation, a borrowing base certificate
calculating the Borrowing Base.
(j) Lender shall have received the Commitment Fee.
(k) The Lockbox, Lockbox Account and the Concentration Account shall
have been established.
(l) Lender shall have received a certificate of Borrower's chief
financial officer, dated the Closing Date, certifying that all of the conditions
specified in this Section have been fulfilled.
(m) On or before February 15, 2001, Lender shall have received
Landlord Estoppel Certificates from the landlords of both facilities operated by
Borrower in the form of Exhibit D attached hereto.
Section 5.2. Conditions Precedent to Advances. Notwithstanding any other
provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances
or other extensions of credit under the Loan shall be disbursed under this
Agreement unless the following conditions have been satisfied or waived
immediately before such disbursement:
(a) The representations and warranties on the part of Borrower
contained in Article IV of this Agreement shall be true and correct in all
respects at and as of the date of disbursement or advance, as though made on
and as of such date (except to the extent that such representations and
warranties expressly relate solely to an earlier date and except that the
references in Section 4.7 to financial statements shall be deemed to be a
reference to the then most recent annual and interim financial statements of
Borrower furnished to Lender pursuant to Section 6.1).
(b) No Event of Default or event which, with the giving of notice
of the lapse of time, or both, could become an Event of Default shall have
occurred and be continuing or would result from the making of the disbursement
or advance.
(c) No material adverse change in the condition (financial or
otherwise), properties, business, or operations of Borrower shall have
occurred and be continuing with respect to Borrower since the date of this
Agreement.
Section 5.3. Closing. Subject to the conditions of this Article V, the Loan
shall be made available on the date as is mutually agreed by the parties (the
"Closing Date") at such time as may be mutually agreeable to the parties upon
the execution of this Agreement (the "Closing") at such place as may be
requested by Lender.
Section 5.4. Waiver of Rights. By completing the Closing under this
Agreement, or by making advances under the Loan, Lender does not waive a breach
of any representation or warranty of Borrower under this Agreement or under any
other Loan Document, and all of Lender's claims and rights resulting from any
breach or misrepresentation by Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that for so long as Borrower may borrow under
this Agreement and until payment in full of the Note and performance of all
other obligations of Borrower under the Loan Documents:
Section 6.1. Financial Statements and Collateral Reports. Borrower will
furnish to Lender (i) a sales and collections report and accounts receivable
aging Schedule on a form acceptable to Lender within fifteen (15) days after the
end of each calendar month, which shall include, but not be limited to, a report
of sales, credits issued, and collections received; (ii) payables aging
schedules within fifteen (15) days after the end of each calendar month; (iii)
internally prepared monthly financial statements for Borrower, certified by the
chief financial officer of Borrower, within forty-five (45) days of the end of
each calendar month, accompanied by actual vs. budget variance reports; (iv) to
the extent prepared by Borrower, annual projections, profit and loss statements,
balance sheets, and cash flow reports (prepared on a monthly basis) for the
succeeding fiscal year within thirty (30) days before the end of each of
Borrower's fiscal years; (v) internally prepared annual financial statements for
Borrower within ninety (90) days after the end of each of Borrower's fiscal
years; (vi) annual audited financial statements for Borrower prepared by a firm
of independent public accountants satisfactory to Lender, within ninety (90)
days after the end of each of Borrower's fiscal years; (vii) promptly upon
receipt thereof, copies of any reports submitted to Borrower by the independent
accountants in connection with any interim audit of the books of Borrower and
copies of each management control letter provided to Borrower by independent
accountants; (viii) as soon as available, copies of all financial statements and
notices provided by Borrower to all of its stockholders; and (ix) such
additional information, reports or statements as Lender may from time to time
reasonably request. All financial statements shall include a balance sheet and
statement of earnings and shall be prepared in accordance with GAAP.
Section 6.2. Payments Under this Agreement. Borrower will make all payments
of principal, interest, fees, and all other payments required under this
Agreement and under the Loan, and under any other agreements with Lender to
which Borrower is a party, as and when due.
Section 6.3. Existence, Good Standing, and Compliance with Laws. Borrower
will do or cause to be done all things necessary (i) to obtain and keep in full
force and effect all corporate existence, rights, licenses, privileges, and
franchises of Borrower necessary to the ownership of its property or the conduct
of its business, and comply with all applicable current and future laws,
ordinances, rules, regulations, orders and decrees of any Governmental Authority
having or claiming jurisdiction over Borrower; and (ii) to maintain and protect
the properties used or useful in the conduct of the operations of Borrower, in a
prudent manner, including without limitation the maintenance at all times of
such insurance upon its insurable property and operations as required by law or
by Section 6.7.
Section 6.4. Legality. The making of the Loan and each disbursement or
advance under the Loan shall not be subject to any penalty or special tax, shall
not be prohibited by any governmental order or regulation applicable to
Borrower, and shall not violate any rule or regulation of any Governmental
Authority, and necessary consents, approvals and authorizations of any
Governmental Authority to or of any such disbursement or advance shall have been
obtained.
Section 6.5. Lender's Satisfaction. All instruments and legal documents and
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to Lender and its counsel, and
Lender shall have received all documents, including records of corporate
proceedings and opinions of counsel, which Lender may have requested in
connection therewith.
Section 6.6. Taxes and Charges. Borrower will timely file all tax reports
and pay and discharge all taxes, assessments and governmental charges or levies
imposed upon Borrower, or its income or profits or upon its properties or any
part thereof, before the same shall be in default and before the date on which
penalties attach thereto, as well as all lawful claims for labor, material,
supplies or otherwise which, if unpaid, might become a lien or charge upon the
properties or any part thereof of Borrower; provided, however, that Borrower
shall not be required to pay and discharge or cause to be paid and discharged
any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith and by appropriate proceedings
by Borrower, and Borrower shall have set aside on their books adequate reserve
therefor; and provided further, that such deferment of payment is permissible
only so long as Borrower's title to, and its right to use, the Collateral is not
adversely affected thereby and Lender's lien and priority on the Collateral are
not adversely affected, altered or impaired thereby.
Section 6.7. Insurance. Borrower will carry adequate insurance with
responsible companies reasonably satisfactory to Lender in such amounts and
against such risks as is customarily maintained by similar businesses and by
owners of similar property in the same general area.
Section 6.8. General Information. Borrower will furnish to Lender such
information as Lender may, from time to time, reasonably request with respect to
the business or financial affairs of Borrower, and permit any officer, employee
or agent of Lender to visit and inspect any of the properties, to examine the
minute books, books of account and other records, including management letters
prepared by Borrower's auditors, of Borrower, and make copies thereof or
extracts therefrom, and to discuss its and their business affairs, finances and
accounts with, and be advised as to the same by, the accountants and officers of
Borrower, all at such times and as often as Lender may reasonably require.
Section 6.9. Maintenance of Property. Borrower will maintain, keep and
preserve all of its properties in good repair, working order and condition and
from time to time make all necessary repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly conducted at all times.
Section 6.10. Notification of Events of Default and Adverse Developments.
Borrower promptly will notify Lender upon the occurrence of: (i) any Event of
Default; (ii) any event which, with the giving of notice or lapse of time, or
both, could constitute an Event of Default; (iii) any event, development or
circumstance whereby the financial statements previously furnished to Lender
fail in any material respect to present fairly, in accordance with GAAP, the
financial condition and operational results of Borrower; (iv) any judicial,
administrative or arbitration proceeding pending against Borrower, and any
judicial or administrative proceeding known by Borrower to be threatened against
it which, if adversely decided, could adversely affect its condition (financial
or otherwise) or operations (current or prospective) or which may expose
Borrower to uninsured liability of $100,000.00 or more; (v) any default claimed
by any other creditor for Borrowed Money over $100,000 of Borrower other than
Lender; and (vi) any other development in the business or affairs of Borrower
which may have a material adverse effect; in each case describing the nature of
the event or development. In the case of notification under clauses (i) and
(ii)), Borrower should set forth the action Borrower proposes to take with
respect to such event.
Section 6.11. Employee Benefit Plans. Borrower will (i) comply with the
funding requirements of ERISA with respect to the Plans for its employees, or
will promptly satisfy any accumulated funding deficiency that arises under
Section 302 of ERISA; (ii) furnish Lender, promptly after filing the same, with
copies of all reports or other statements filed with the United States
Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal
Revenue Service with respect to all Plans, or which Borrower, or any member of a
Controlled Group, may receive from such Governmental Authority with respect to
any such Plans, and (iii) promptly advise Lender of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any such Plan and the
action which Borrower proposes to take with respect thereto. Borrower will make
all contributions when due with respect to any multi-employer pension plan in
which it participates and will promptly advise Lender: (x) upon its receipt of
notice of the assertion against Borrower of a claim for withdrawal liability;
(y) upon the occurrence of any event which could trigger the assertion of a
claim for withdrawal liability against Borrower; and (z) upon the occurrence of
any event which would place Borrower in a Controlled Group as a result of which
any member (including Borrower) thereof may be subject to a claim for withdrawal
liability, whether liquidated or contingent.
Section 6.12. Financing Statements. Borrower shall provide to Lender
evidence satisfactory to Lender as to the due recording of termination
statements, releases of collateral, and Forms UCC-3, and shall cause to be
recorded financing statements on Form UCC-1, duly executed by Borrower and
Lender, in all places necessary to release all existing security interests and
other liens in the Collateral (other than as permitted by this Agreement) and to
perfect and protect Lender's first priority lien and security interest in the
Collateral, as Lender may request.
Section 6.13. Financial Records. Borrower shall keep current and accurate
books of records and accounts in which full and correct entries will be made of
all of its business transactions, and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance with GAAP.
Section 6.14. Collection of Accounts. Borrower shall continue to collect
its Accounts in the ordinary course of business.
Section 6.15. Places of Business. Borrower shall give thirty (30) days'
prior written notice to Lender of any change in the location of any of its
places of business, of the places where its records concerning its Accounts are
kept, of the places where the Collateral is kept, or of the establishment of any
new, or the discontinuance of any existing, places of business.
Section 6.16. Business Conducted. Borrower shall continue in the business
currently conducted by it using its best efforts to maintain its customers and
goodwill. Borrower shall not engage, directly or indirectly, in any line of
business substantially different from the business conducted by it immediately
before the Closing Date, or engage in business or lines of business which are
not reasonably related thereto, without prior written notice to and the prior
written consent of Lender, which consent shall not be unreasonably withheld..
Section 6.17. Litigation and Other Proceedings. Borrower shall give prompt
notice to Lender of any litigation, arbitration, or other proceeding before any
Governmental Authority against or affecting Borrower if the amount claimed is
more than $100,000.00.
Section 6.18. Bank Accounts. Borrower shall assign to Lender all of its
depository and disbursement accounts into which collections of Accounts are
deposited.
Section 6.19. Submission of Collateral Documents. Borrower will, on demand
of Lender, make available to Lender copies of shipping and delivery receipts
evidencing the shipment of goods that gave rise to an Account, invoice for each
Account and copies of any written contract or order from which the Account
arose. Borrower shall promptly notify Lender if an Account becomes evidenced or
secured by an instrument or chattel paper and upon request of Lender, will
promptly deliver any such instrument or chattel paper to Lender.
Section 6.20. Officer's Certificates. Together with the financial
information delivered pursuant to Section 6.1, Borrower shall deliver to Lender
a certificate of its chief financial officer, in form and substance satisfactory
to Lender:
(a) Setting forth the information (including detailed calculations)
required to establish whether Borrower is in compliance with the requirements of
Articles VI and VII as of the end of the period covered by the financial
statements then being furnished; and
(b) Stating that the signer has reviewed the relevant terms of this
Agreement, and has made (or caused to be made under his supervision) a review of
the transactions and conditions of Borrower from the beginning of the accounting
period covered by the income statements being delivered to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or which
is then, or with the passage of time or giving of notice or both, could become
an Event of Default, and if any such condition or event existed during such
period or now exists, specifying the nature and period of existence thereof and
what action Borrower has taken or proposes to take with respect thereto.
Section 6.22. Visits and Inspections. Borrower agrees to permit
representatives of Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and inspect the
properties of Borrower, and to inspect, audit and make extracts from its books
and records, and discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial condition,
business prospects and results of operations.
Section 6.23. Net Worth. Borrower will not at any time allow its net worth,
as computed in accordance with GAAP, to fall below $ 8,000,000.
ARTICLE VII
NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that so long as Borrower may borrow under
this Agreement and until payment in full of the Note and performance of all
other obligations of Borrower under the Loan Documents:
Section 7.1. Borrowing. Borrower will not create, incur, assume or suffer
to exist any liability for Borrowed Money except: (i) indebtedness to Lender;
(ii) indebtedness of Borrower secured by mortgages, encumbrances or liens
expressly permitted by Section 7.3; (iii) accounts payable to trade creditors
and current operating expenses (other than for borrowed money) which are not
aged more than one hundred twenty (120) days from the billing date or more than
thirty (30) days from the due date, in each case incurred in the ordinary course
of business and paid within such time period, unless the same are being
contested in good faith and by appropriate and lawful proceedings, and Borrower
shall have set aside such reserves, if any, with respect thereto as are required
by GAAP and deemed adequate by Borrower and its independent accountants; and
(iv) borrowings incurred in the ordinary course of its business and not
exceeding $100,000.00 in the aggregate outstanding at any one time without the
prior written consent of Lender, such consent to be withheld or granted based on
Lender's determination in its sole and reasonable discretion whether such
borrowings would have a detrimental impact on (a) Borrower's ability to repay
the Loan and/or (b) the Lender's priority rights in the Collateral. Borrower
will not make prepayments on any existing or future indebtedness for Borrowed
Money to any Person (other than Lender, to the extent permitted by this
Agreement or any subsequent agreement between Borrower and Lender).
Section 7.2. Joint Ventures. Borrower will not invest directly or
indirectly in any joint venture for any purpose without the prior written notice
to, and the prior written consent of, Lender, which consent shall not be
unreasonably withheld.
Section 7.3. Liens and Encumbrances. Borrower will not create, incur,
assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any
kind (including the charge upon property purchased under a conditional sale or
other title retention agreement) upon, or any security interest in, any of its
Collateral, whether now owned or hereafter acquired, except for Permitted Liens.
Section 7.4. Restriction on Fundamental Changes. Borrower will not, without
prior written notice to Lender, and prior Lender's approval, which approval will
not be unreasonably withheld: (i) enter into any transaction of merger or
consolidation; (ii) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution); (iii) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, any of its
assets, or the capital stock of any subsidiary of Borrower, whether now owned or
hereafter acquired; or (iv) acquire by purchase or otherwise all or any
substantial part of the business or assets of, or stock or other evidence of
beneficial ownership of, any Person. Borrower agrees that compliance with this
Section 7.4 is a material inducement to Lender's advancing credit under this
Agreement and Borrower further agrees that any breach of the terms of this
Section 7.4 shall constitute a material default. Borrower further agrees that in
addition to all other remedies available to Lender, Lender shall be entitled to
specific enforcement of the covenants in this Section 7.4, including injunctive
relief.
Section 7.5. Sale and Leaseback. Borrower will not, directly or indirectly,
enter into any arrangement whereby Borrower sells or transfers all or any
material part of its assets and thereupon and within one year thereafter rents
or leases the assets so sold or transferred without prior written notice to and
the prior written consent of Lender, which consent shall not be unreasonably
withheld.
Section 7.6. Dividends, Distributions and Management Fees. Upon notice from
Lender to Borrower of the existence of an Event of Default under this Agreement,
Borrower will not declare or pay any dividends or other distributions with
respect to, purchase, redeem or otherwise acquire for value any of its
outstanding stock now or hereafter outstanding, or return any capital of its
stockholders, nor shall Borrower pay management fees or fees of a similar nature
to any Person.
Section 7.7. Loans. Borrower will not make loans or advances to any Person,
other than (i) trade credit extended in the ordinary course of its business, and
(ii) advances for business travel and similar temporary advances made in the
ordinary course of business to officers, stockholders, directors, and employees.
Section 7.8. Contingent Liabilities. Borrower will not assume, guarantee,
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
Section 7.9. Subsidiaries. Borrower will not form any subsidiary, or make
any investment in or any loan in the nature of an investment to, any other
Person without prior written notice to and the prior written consent of Lender,
which consent shall not be unreasonably withheld. . Section 7.10. Compliance
with ERISA. Borrower will not permit with respect to any Plan covered by Title
IV of ERISA any Prohibited Transaction or any Reportable Event.
Section 7.11. Transactions with Affiliates. Borrower will not enter into
any transaction, including without limitation the purchase, sale, or exchange of
property, or the loaning or giving of funds to any Affiliate or subsidiary,
except in the ordinary course of business and pursuant to the reasonable
requirements of Borrower's business and upon terms substantially the same and no
less favorable to Borrower as it would obtain in a comparable arm's length
transaction with any Person not an Affiliate or subsidiary, and so long as the
transaction is not otherwise prohibited under this Agreement. For purposes of
the foregoing, Lender consents to the transactions described on Schedule 7.11.
Section 7.12. Use of Lender's Name. Borrower will not use Lender's name (or
the name of any of Lender's affiliates) in connection with any of its business
operations. Borrower may disclose to third parties that Borrower has a borrowing
relationship with Lender. Nothing contained in this Agreement is intended to
permit or authorize Borrower to make any contract on behalf of Lender.
Section 7.13. Change in Control. There shall occur no Change in Control.
Section 7.14. Contracts and Agreements. Borrower will not become or be a
party to any contract or agreement which would breach this Agreement, or breach
any other instrument, agreement, or document to which Borrower is a party or by
which it is or may be bound.
Section 7.15. Margin Stock. Borrower will not carry or purchase any "margin
security" within the meaning of Regulations U, T or X of the Board of Governors
of the Federal Reserve System.
Section 7.16. Truth of Statements and Certificates. Borrower will not
furnish to Lender any certificate or other document that contains any untrue
statement of a material fact or that omits to state a material fact necessary to
make it not misleading in light of the circumstances under which it was
furnished.
ARTICLE VIII
EVENTS OF DEFAULT
-----------------
Section 8.1. Events of Default. Each of the following (individually, an
"Event of Default" and collectively, the "Events of Default") shall constitute
an event of default under this Agreement:
(a) A default in the payment of any installment of principal of, or
interest upon, the Note when due and payable, whether at maturity or otherwise,
or any breach of Section 2.3, which default or breach, as applicable, shall have
continued unremedied for a period of five (5) days after written notice of the
default or breach from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or other
monetary obligations owing to Lender arising out of or incurred in connection
with this Agreement when such payment is due and payable, which default
shall have continued unremedied for a period of five (5) days after written
notice of the default from Lender to Borrower;
(c) A default in the due observance or performance by Borrower or any
guarantor of the Obligations of any other term, covenant or agreement contained
in any of the Loan Documents, which default shall have continued unremedied for
a period of twenty (20) days after written notice of the default from Lender to
Borrower;
(d) Any representation or warranty made by Borrower in this Agreement
or in any of the other Loan Documents, any financial statement, or any statement
or representation made in any other certificate, report or opinion delivered
in connection with this Agreement or the other Loan Documents proves to have
been incorrect or misleading in any material respect when made, which default
shall have continued unremedied for a period of twenty (20) days after written
notice of the default from Lender to Borrower;
(e) Any obligation of Borrower (other than its Obligations under this
Agreement) for the payment of Borrowed Money due on indebtedness having a
principal amount in excess of $50,000 is not paid when due or within any
applicable grace period, or such obligation becomes or is declared to be due and
payable before the expressed maturity of the obligation, or there shall have
occurred an event which, with the giving of notice or lapse of time, or both,
would cause any such obligation to become, or allow any such obligation to be
declared to be, due and payable, except to the extent contested in good faith;
(f) Borrower makes an assignment for the benefit of creditors, offers
a composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter conducted by Borrower;
(g) (i) Borrower files a petition in bankruptcy, (ii) Borrower
is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for
any receiver of or any trustee for itself or any substantial part of its
property, (iii) Borrower commences any proceeding relating to itself
under any reorganization, arrangement, readjustment or debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, (iv) any such proceeding is commenced against Borrower and such
proceeding remains undismissed for a period of sixty (60) days, (v) Borrower
by any act indicates its consent to, approval of, or acquiescence in, any such
proceeding or the appointment of any receiver of or any trustee for a Borrower
or any substantial part of its property, or suffers any such receivership
or trusteeship to continue undischarged for a period of sixty (60) days;
(h) One or more final judgments over $100,000 against Borrower or
attachments against its property not fully and unconditionally covered by
insurance shall be rendered by a court of record and shall remain unpaid,
unstayed on appeal, undischarged, unbonded and undismissed for a period of ten
(10) days;
(i) A Reportable Event which might constitute grounds for
termination of any Plan covered by Title IV of ERISA or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan or for the entry of a lien or encumbrance to secure any deficiency, has
occurred and is continuing thirty (30) days after its occurrence, or any
such Plan is terminated, or a trustee is appointed by an appropriate United
States District Court to administer any such Plan, or the Pension Benefit
Guaranty Corporation institutes proceedings to terminate any such Plan or
to appoint a trustee to administer any such Plan, or a lien or encumbrance
is entered to secure any deficiency or claim;
(j) There shall occur a Change in Control.
(j) There shall occur any uninsured damage to or loss, theft or
destruction of any portion of the Collateral that exceeds $100,000 in the
aggregate;
(k) Borrower breaches or violates the terms of, or a default or an
event which could, whether with notice or the passage of time, or both,
constitute a default, occurs under any other existing or future agreement
(related or unrelated) between Borrower and Lender;
(l) Upon the issuance of any execution or distraint process against
Borrower or any of its property or assets;
(m) Borrower ceases any material portion of its business operations
as currently conducted;
(n) Any indication or evidence is received by Lender that Borrower
may have directly or indirectly been engaged in any type of activity which, in
Lender's discretion, may result in the forfeiture of any property of Borrower
to any Governmental Authority, the forfeiture of which would have a material
adverse affect on Borrower's operations and financial condition, which default
shall have continued unremedied for a period of ten (10) days after written
notice from Lender;
(o) Borrower or any Affiliate of Borrower, shall challenge or contest
, in any action, suit or proceeding, the validity or enforceability of
this Agreement, or any of the other Loan Documents, the legality or
the enforceability of any of the Obligations or the perfection or priority of
any Lien granted to Lender;
(q) Borrower shall be criminally indicted or convicted under any
law that could lead to a forfeiture of any Collateral;
(r) There shall occur a material adverse change in the financial
condition or business prospects of Borrower, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender; or
(s) A default or event of default occurs under any other note,
instrument, deed of trust, mortgage, loan agreement, security agreement, letter
agreement or other document executed and delivered by any Borrower or
Guarantor, or any Affiliate of Borrower or Guarantor, in connection with any
financing provided by Lender or Lender's Affiliate to any such parties;
Section 8.2. Acceleration. Upon the occurrence of any of the foregoing
Events of Default, the Note shall become and be immediately due and payable upon
declaration to that effect delivered by Lender to Borrower; provided that, upon
the happening of any event specified in Section 8.1(g), the Note shall be
immediately due and payable without declaration or other notice to Borrower.
Section 8.3. Remedies.
(a) Upon the occurrence of and during the continuance of an Event of
Default under this Agreement or the other Loan Documents, Lender, in addition to
all other rights, options, and remedies granted to Lender under this Agreement
or at law or in equity, may take any of the following steps (which list is given
by way of example and is not intended to be an exhaustive list of all such
rights and remedies):
(i) Terminate the Loan, whereupon all outstanding Obligations
(including without limitation the Termination Fee which fee shall also be due
and payable upon acceleration hereunder) shall be immediately due and payable;
(ii) Exercise all other rights granted to it under this
Agreement and all rights under the UCC in effect in the applicable
jurisdiction(s) and under any other applicable law; and
(iii) Exercise all rights and remedies under all Loan
Documents now or hereafter in effect, including but not limited to:
(A) The right to take possession of, send notices
regarding, and collect directly the Collateral,with or without judicial process;
(B) The right to (by its own means or with judicial
assistance) enter any of Borrower's premises and take possession of the
Collateral, or render it unusable, or dispose of the Collateral on such
premises in compliance with subsection (C) below, without any liability for
rent, storage, utilities, or other sums, and Borrower shall not resist or
interfere with such action;
(C) The right to require Borrower at Borrower's expense
to assemble all or any part of the Collateral and make it available to
Lender at any place designated by Lender; and
(D) The right to reduce the Maximum Loan Amount or to use
the Collateral and/or funds in the Concentration Account in amounts up to the
Maximum Loan Amount for any reason.
(b) Borrower agrees that a notice received by it at least ten (10)
days before the time of any intended public sale, or the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Collateral which threatens to speedily
decline in value or which is sold on a recognized market may be sold
immediately by Lender without prior notice to Borrower. At any sale or
disposition of Collateral, Lender may (to the extent permitted by applicable
law) purchase all or any part of the Collateral, free from any right of
redemption by Borrower, which right is hereby waived and released. Borrower
covenants and agrees not to interfere with or impose any obstacle to Lender's
exercise of its rights and remedies with respect to the Collateral.
Section 8.4. Nature of Remedies. Lender shall have the right to proceed
against all or any portion of the Collateral to satisfy [the liabilities and
Obligations of Borrower to Lender in any order. All rights and remedies granted
Lender under this Agreement and under any agreement referred to in this
Agreement, or otherwise available at law or in equity, shall be deemed
concurrent and cumulative, and not alternative remedies, and Lender may proceed
with any number of remedies at the same time until the Loans, and all other
existing and future liabilities and obligations of Borrower to Lender, are
satisfied in full. The exercise of any one right or remedy shall not be deemed a
waiver or release of any other right or remedy, and Lender, upon the occurrence
of an Event of Default, may proceed against Borrower, and/or the Collateral, at
any time, under any agreement, with any available remedy and in any order.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. Expenses and Taxes.
(a) Borrower agrees to pay, on Closing, a reasonable documentation
preparation fee, together with reasonable actual audit and appraisal fees and
all other reasonable out-of-pocket charges and expenses incurred by Lender in
connection with the negotiation, preparation, legal review and execution of each
of the Loan Documents, including but not limited to UCC and judgment lien
searches and UCC filings and fees for post-Closing UCC and judgment lien
searches. In addition, Borrower shall pay all such reasonable fees associated
with any amendments to the Loan Documents following Closing.
(b) Borrower also agrees to pay all reasonable out-of-pocket charges
and expenses incurred by Lender (including the reasonable fees and expenses of
Lender's counsel) in connection with the enforcement, protection or preservation
of any right or claim of Lender, the termination of this Agreement, the
termination of any liens of Lender on the Collateral, and the collection of any
amounts due under the Loan Documents. If Lender uses in-house counsel for any of
these purposes (i.e., for any task in connection with the enforcement,
protection or preservation of any right or claim of Lender and the collection of
any amounts due under its Loan Documents), Borrower further agrees that its
Obligations under the Loan Documents include reasonable charges for such work
commensurate with the fees that would otherwise be charged by outside legal
counsel selected by Lender for the work performed.
(c) Borrower shall pay all taxes (other than taxes based upon or
measured by Lender's income or revenues or any personal property tax),
if any, in connection with the issuance of the Note and the recording of the
security documents therefor. The obligations of Borrower under this clause
(c) shall survive the payment of Borrower's indebtedness under this Agreement
and the termination of this Agreement.
Section 9.2. Entire Agreement; Amendments. This Agreement and the other
Loan Documents constitute the full and entire understanding and agreement among
the parties with regard to their subject matter and supersede all prior written
or oral agreements, understandings, representations and warranties made with
respect thereto. No amendment, supplement or modification of this Agreement nor
any waiver of any provision thereof shall be made except in writing executed by
the party against whom enforcement is sought.
Section 9.3. No Waiver; Cumulative Rights. No waiver by any party to this
Agreement of any one or more defaults by the other party in the performance of
any of the provisions of this Agreement shall operate or be construed as a
waiver of any future default or defaults, whether of a like or different nature.
No failure or delay on the part of any party in exercising any right, power or
remedy under this Agreement shall operate as a waiver of such right, power or
remedy nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise of such right, power or remedy or
the exercise of any other right, power or remedy. The remedies provided for in
this Agreement are cumulative and are not exclusive of any remedies that may be
available to any party to this Agreement at law, in equity or otherwise.
Section 9.4. Notices. Any notice or other communication required or
permitted under this Agreement shall be in writing and personally delivered,
mailed by registered or certified mail (return receipt requested and postage
prepaid), sent by telecopier (with a confirming copy sent by regular mail), or
sent by prepaid overnight courier service, and addressed to the relevant party
at its address set forth below, or at such other address as such party may, by
written notice, designate as its address for purposes of notice under this
Agreement:
(a) If to Lender, at:
Heller Healthcare Finance, Inc.
2 Wisconsin Circle, 4th Floor
Chevy Chase, Maryland 20815
Attention: Steven M. Curwin, Deputy General Counsel
Telephone: (301) 961-1640
Telecopier: (301) 664-9866
(b) If to Borrower, at:
Gish Biomedical, Inc.
2681 Kelvin Avenue
Irvine, California 92614
Attention: Mr. Les Taeger
Telephone: (949) 553-7303
Telecopier: (___) ___-____
If mailed, notice shall be deemed to be given five (5) days after being
sent, and if sent by personal delivery, telecopier or prepaid courier, notice
shall be deemed to be given when delivered.
Section 9.5. Severability. If any term, covenant or condition of this
Agreement, or the application of such term, covenant or condition to any party
or circumstance shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall be valid and
enforced to the fullest extent permitted by law. Upon determination that any
such term is invalid, illegal or unenforceable, Lender may, but is not obligated
to, advance funds to Borrower under this Agreement until the parties to this
Agreement amend this Agreement so as to effect the original intent of the
parties as closely as possible in a valid and enforceable manner.
Section 9.6. Successors and Assigns. This Agreement, the Note, and the
other Loan Documents shall be binding upon and inure to the benefit of Borrower
and Lender and their respective successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of Lender,
which may be withheld in its sole discretion. Lender may sell, assign, transfer,
or participate any or all of its rights or obligations under this Agreement
without notice to or consent of Borrower.
Section 9.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
Section 9.8. Interpretation. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any party because that
party or its legal representative drafted that provision. The titles of the
paragraphs of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement. Any pronoun used in this
Agreement shall be deemed to include singular and plural and masculine, feminine
and neuter gender as the case may be. The words "herein," "hereof," and
"hereunder" shall be deemed to refer to this entire Agreement, except as the
context otherwise requires.
Section 9.9. Survival of Terms. All covenants, agreements, representations
and warranties made in this Agreement, any other Loan Document, and in any
certificates and other instruments delivered in connection with this Agreement
shall be considered to have been relied upon by Lender and shall survive the
making by Lender of the Loans contemplated by this Agreement and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
until all liabilities and obligations of Borrower to Lender are satisfied in
full.
Section 9.10. Release of Lender. For and in consideration of the Loan,
Borrower, voluntarily, knowingly, unconditionally, and irrevocably, with
specific and express intent, for and on behalf of itself and its agents,
attorneys, heirs, successors, and assigns (collectively the "Releasing Parties")
does hereby, except to the extent of Lender Parties or Released Parties
negligence or willful misconduct, or failure to act in a commercially reasonable
fashion, fully and completely release, acquit and forever discharge Lender, and
its successors, assigns, heirs, affiliates, subsidiaries, parent companies,
principals, directors, officers, employees, shareholders and agents (hereinafter
called the "Lender Parties"); and any other person, firm, business, corporation,
insurer, or association which may be responsible or liable for the acts or
omissions of the Lender Parties, or who may be liable for the injury or damage
resulting therefrom (collectively the {"Released Parties"), of and from any and
all actions, causes of action, suits, debts, disputes, damages, claims,
obligations, liabilities, costs, expenses and demands of any kind whatsoever, at
law or in equity, whether matured or unmatured, liquidated or unliquidated,
vested or contingent, choate or inchoate, known or unknown that the Releasing
Parties (or any of them) have, whether now or in the future, (whether directly
or indirectly) against the Released Parties or any of them. The Borrower
acknowledges that the foregoing release is a material inducement to Lender's
decision to extend to Borrower the financial accommodations hereunder and has
been relied upon by Lender in agreeing to make the Loan.
Section 9.11. Time. Whenever Borrower is required to make any payment or
perform any act on a Saturday, Sunday, or a legal holiday under the laws of the
State of Maryland (or other jurisdiction where Borrower is required to make the
payment or perform the act), the payment may be made or the act performed on the
next Business Day. Time is of the essence in Borrower's performance under this
Agreement and all other Loan Documents.
Section 9.12. Commissions. The transaction contemplated by this Agreement
was brought about by Lender and Borrower acting as principals and without any
brokers, agents, or finders being the effective procuring cause. Borrower
represents that it has not committed Lender to the payment of any brokerage fee,
commission, or charge in connection with this transaction. If any such claim is
made on Lender by any broker, finder, or agent or other person, Borrower will
indemnify, defend, and hold Lender harmless from and against the claim and will
defend any action to recover on that claim, at Borrower's cost and expense,
including Lender's counsel fees. Borrower further agrees that until any such
claim or demand is adjudicated in Lender's favor, the amount demanded will be
deemed a liability of Borrower under this Agreement, secured by the Collateral.
Section 9.13. Third Parties. No rights are intended to be created under
this Agreement or under any other Loan Document for the benefit of any third
party donee, creditor, or incidental beneficiary of Borrower. Nothing contained
in this Agreement shall be construed as a delegation to Lender of Borrower's
duty of performance, including without limitation Borrower's duties under any
account or contract in which Lender has a security interest.
Section 9.14. Discharge of Borrower's Obligations. Lender, in its
reasonable discretion, shall have the right at any time, and from time to time,
without prior notice to Borrower if Borrower fails to do so, to: (i) obtain
insurance covering any of the Collateral as required under this Agreement; (ii)
pay for the performance of any of Borrower's obligations under this Agreement;
(iii) discharge taxes, liens, security interests, or other encumbrances at any
time levied or placed on any of the Collateral in violation of this Agreement
unless Borrower is in good faith with due diligence by appropriate proceedings
contesting those items; and (iv) pay for the maintenance and preservation of any
of the Collateral. Expenses and advances shall be added to the Loan, until
reimbursed to Lender and shall be secured by the Collateral. Any such payments
and advances by Lender shall not be construed as a waiver by Lender of an Event
of Default.
Section 9.15. Information to Participants. Lender may divulge to any
participant it may obtain in the Loan, or any portion of the Loan, all
information, and furnish to such participant copies of reports, financial
statements, certificates, and documents obtained under any provision of this
Agreement or any other Loan Document.
Section 9.16. Indemnity. Borrower hereby agrees to indemnify and hold
harmless Lender, its partners, officers, agents and employees (collectively,
"Indemnitee"), except to the extent due to Lender negligence or willful
misconduct, from and against any liability, loss, cost, expense, claim, damage,
suit, action or proceeding ever suffered or incurred by Lender (including
reasonable attorneys' fees and expenses) arising from Borrower's failure to
observe, perform or discharge any of its covenants, obligations, agreements or
duties under this Agreement, or from the breach of any of the representations or
warranties contained in Article IV of this Agreement. In addition, Borrower
shall defend Indemnitee against and save it harmless from all claims of any
Person with respect to the Collateral. Notwithstanding any contrary provision in
this Agreement, the obligation of Borrower under this Section 9.16 shall survive
the payment in full of the Obligations and the termination of this Agreement.
Section 9.17. Lender Approvals. Unless expressly provided herein to the
contrary, any approval, consent, waiver or satisfaction of Lender with respect
to any matter that is the subject of this Agreement, the other Loan Documents
may be granted or withheld by Lender in its sole and absolute discretion.
Section 9.17. Choice of Law; Consent to Jurisdiction. THIS AGREEMENT AND
THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS
COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND, BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF
MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED
IN SECTION 9.4. OR IF SERVED BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAW.
Section 9.18. Cooperation in Discovery and Litigation. IN ANY LITIGATION,
TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS OF BORROWER OR OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR
MANAGING AGENTS OF BORROWER FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES
REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A
DEPOSITION, AT TRIAL OR OTHERWISE). BORROWER AGREES THAT LENDER'S COUNSEL IN ANY
SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF
UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE
USED IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION. BORROWER IN ANY
EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH
DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY
LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM)
OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE IN ANY
JURISDICTION THAT RECOGNIZES THAT (OR ANY SIMILAR) DISTINCTION.
Section 9.19. Waiver of Trial by Jury. BORROWER HEREBY (A) COVENANTS AND
AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND
(B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT
SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND
REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT, SO AS TO SERVE AS CONCLUSIVE
EVIDENCE OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S
COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL
NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
Section 9.20. Confession of Judgment. BORROWER AUTHORIZES ANY ATTORNEY
ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE
CLERK OF SUCH COURT TO APPEAR ON BEHALF OF BORROWER IN ANY COURT IN ONE OR MORE
PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OF PROTHONOTARY OR OTHER COURT
OFFICIAL, AND TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE
FULL AMOUNT DUE ON THIS AGREEMENT (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY
AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT
(15%) OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR
OPPORTUNITY OF BORROWER FOR PRIOR HEARING. BORROWER AGREES AND CONSENTS THAT
VENUE AND JURISDICTION SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE
STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF MARYLAND. BORROWER WAIVES THE BENEFIT OF ANY
AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED
CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS,
STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE
ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A
JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST
BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY
IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT
ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR
MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS
OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
LENDER:
HELLER HEALTHCARE FINANCE, INC.
a Delaware corporation
By: /s/ Brett Robinson
----------------------------
Name: Brett Robinson
Title: Vice President
BORROWER:
GISH BIOMEDICAL, INC.
a California corporation
By: /s/ Leslie M. Taeger
----------------------------
Name: Leslie M. Taeger
Title: CFO