LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of January ___, 1996, and
entered into by and between EDITEK, INC., a Delaware corporation, PSYCHIATRIC
DIAGNOSTIC LABORATORIES OF AMERICA, INC., a Delaware corporation, and
DIAGNOSTIX, INC., a Delaware corporation (collectively, "Borrowers"), with their
principal place of business at 1238 Anthony Road, Burlington, North Carolina
27215, and HELLER FINANCIAL, INC., a Delaware corporation ("Lender"), with
offices at 500 West Monroe Street, Chicago, Illinois 60661. All capitalized
terms used herein are defined in Section 1 of this Agreement.
WHEREAS, Borrowers desire that Lender extend a credit facility to
provide working capital financing and to provide funds for other general
corporate purposes; and
WHEREAS, Borrowers desire to secure their obligations under the Loan
Documents by granting to Lender a security interest in and lien upon certain of
Borrowers' property;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrowers and Lender agree as
follows:
1 DEFINITIONS
1.1 Certain Defined Terms. The following terms used in this Agreement
shall have the following meanings:
"Accounts" means, all "accounts" (as defined in the UCC), accounts
receivable, contract rights and general intangibles relating thereto, notes,
drafts and other forms of obligations owed to or owned by a Borrower arising or
resulting from the sale of goods or the rendering of services.
"Affiliate" means any Person (other than Lender): (a) directly or
indirectly controlling, controlled by, or under common control with, a Borrower;
(b) directly or indirectly owning or holding five percent (5%) or more of any
equity interest in a Borrower; or (c) five percent (5%) or more of whose voting
stock or other equity interest is directly or indirectly owned or held by a
Borrower. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with") means the possession directly or indirectly of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities or by contract or otherwise.
"Agreement" means this Loan and Security Agreement as it may be
amended, supplemented or otherwise modified from time to time.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any or all of
the assets of a Borrower or any of its Subsidiaries other than sales of
Inventory in the ordinary course of business.
"Availability" means, at any time of determination thereof, the Maximum
Revolving Loan Amount, less the outstanding principal balance of the Revolving
Loan.
"Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Base Rate"
shall mean a variable rate of interest per annum equal to the highest of the
"prime rate", "reference rate", "base rate", or other similar rate announced
from time to time by any of Bankers Trust Company, The Chase Manhattan Bank,
National Association or Chemical Bank, or their successors (with the
understanding that any such rate may merely be a reference rate and may not
necessarily represent the lowest or best rate actually charged to any customer
by any such bank).
"Blocked Accounts" has the meaning assigned to that term in subsection
5.6.
"Borrowers" has the meaning assigned to that term in the preamble to
this Agreement.
"Borrowing Base" has the meaning assigned to that term in subsection
2.1(B).
"Borrowing Base Certificate" means a certificate and assignment
schedule duly executed by an officer of the applicable Borrower appropriately
completed and in substantially the form of Exhibit A.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Minnesota, New Jersey,
Illinois, Pennsylvania or North Carolina or is a day on which banking
institutions located in any such state are closed.
"Capital Expenditures" means all expenditures (including deposits) for,
or contracts for expenditures (excluding contracts for expenditures under or
with respect to Capital Leases, but including cash down payments for assets
acquired under Capital Leases) with respect to any fixed assets or improvements,
or for replacements, substitutions or additions thereto, which have a useful
life of more than one year, including the direct or indirect acquisition of such
assets by way of increased product or service charges, offset items or
otherwise.
2
"Capital Lease" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"Closing Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrowers in a form reasonably
acceptable to Lender
"Closing Date" means January ___, 1996.
"Collateral" has the meaning assigned to that term in subsection 2.7.
"Collecting Banks" has the meaning assigned to that term in subsection
5.6.
"Commitment" or "Commitments" means the commitment or commitments of
Lender to make Loans as set forth in subsections 2.l(A) and 2.1(B).
"Compliance Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrowers appropriately
completed and in substantially the form of Exhibit B.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Default Rate" has the meaning assigned to that term in subsection 2.2.
3
"diAGnostix" means diAGnostix, Inc., a Delaware corporation, and its
successors and permitted assigns.
"EBITDA" means, for any period, without duplication, the total of the
following for Borrowers and their respective Subsidiaries on a consolidated
basis, each calculated for such period: (1) net income determined in accordance
with GAAP; plus, to the extent included in the calculation of net income, (2)
the sum of (a) income and franchise taxes paid or accrued; (b) Interest
Expenses, net of interest income, paid or accrued; (c) interest paid in kind;
(d) amortization and depreciation; (e) other non-cash charges (excluding
accruals for cash expenses made in the ordinary course of business) and (f)
Registration Payments paid or accrued; less, to the extent included in the
calculation of net income, (3) the sum of (a) the income of any Person other
than wholly-owned Subsidiaries of Borrowers in which a Borrower or a wholly
owned Subsidiary of a Borrower has an ownership interest unless such income is
received by a Borrower or such wholly-owned Subsidiary in a cash distribution;
(b) gains or losses from sales or other dispositions of assets (other than
Inventory in the normal course of business); and (c) extraordinary or
non-recurring gains, but not net of extraordinary or non-recurring "cash"
losses.
"Editek" means EDITEK, Inc., a Delaware corporation, and its successors
and permitted assigns.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(B).
"Eligible Inventory" has the meaning assigned to that term in
subsection 2.1(B).
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six (6) years been maintained for the employees of any Loan Party or any current
or former ERISA Affiliate.
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"Environmental Laws" means any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal or
the protection of human health or safety, plant life or animal life, natural
resources or the environment.
"Equipment" means all "equipment" (as defined in the UCC), including,
without limitation, all machinery, motor vehicles, trucks, trailers, vessels,
aircraft and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
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"ERISA Affiliate", as applied to any Loan Party, means any Person who
is a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection
8.1.
"Excess Cash Flow" means, for any period, the greater of (A) zero (0);
or (B) without duplication, the total of the following for Borrowers and their
respective Subsidiaries on a consolidated basis, each calculated for such
period: (1) EBITDA; plus (2) tax refunds actually received; less (3) Capital
Expenditures (to the extent actually made in cash and/or due to be made in cash
within such period but in no event more than the amount permitted by subsection
6.5 hereof); less (4) income and franchise taxes paid or accrued excluding any
provision for deferred taxes included in the determination of net income; less
(5) decreases in deferred income taxes resulting from payments of deferred taxes
accrued in prior periods; less (6) Interest Expenses paid or accrued; less (7)
scheduled amortization of Indebtedness actually paid and/or due to be paid
within such period and permitted under subsection 7.5; less (8) voluntary
prepayments of the Term Loans.
"Federal Funds Effective Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Lender from three
Federal funds brokers of recognized standing selected by Lender.
"Fiscal Year" means each twelve month period ending on the last day of
December in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow
divided by Fixed Charges.
"Fixed Charges" means, for any period, and each calculated for such
period (without duplication), (a) Interest Expenses paid or accrued by Borrowers
and their respective Subsidiaries; plus (b) scheduled payments of principal with
respect to all Indebtedness of Borrowers and their respective Subsidiaries; plus
(c) any provision for (to the extent it is greater than zero) income or
franchise taxes included in the determination of net income, excluding any
provision for deferred taxes; plus (d) Restricted Junior Payments made in cash
to the extent permitted under subsection 7.5(b); plus (e) payment of deferred
taxes accrued in any prior period.
"Funding Date" means the date of each funding of a Loan.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"Indebtedness", as applied to any Person, means without duplication:
(a) all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is due
more than six months from the date the obligation is incurred or is evidenced by
a note or similar written instrument; and (e) all indebtedness secured by any
Lien on any property or asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.
"Intangible Assets" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, trademarks, trade
names, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds.
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired, all goodwill associated
with any of the foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.
"Interest Coverage" means, for any period, Operating Cash Flow divided
by Interest Expenses.
6
"Interest Expenses" means, without duplication, for any period, the
following, for Borrowers and their respective Subsidiaries each calculated for
such period: interest expenses deducted in the determination of net income
(excluding (i) the amortization of fees and costs with respect to the
transactions contemplated hereunder on the Closing Date which have been
capitalized as transaction costs; and (ii) interest paid in kind).
"Interest Rate" has the meaning assigned to that term in subsection
2.2(A).
"Inventory" means all "inventory" (as defined in the UCC) including,
without limitation, finished goods, raw materials, work in process and other
materials and supplies used or consumed in a Person's business, and goods which
are returned or repossessed.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" means Heller Financial, Inc. together with its successors and
permitted assigns pursuant to
subsection 9.1.
"Lender's Account" means ABA No. 0710-0001-3, Account No. 52-98695 at
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of Editek.
"Liabilities" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan
Commitment or the Revolving Loan Commitment.
"Loan Documents" means this Agreement, the Term Notes, the Pledge
Agreements and all other instruments, documents and agreements executed by or on
behalf of a Borrower and delivered concurrently herewith or at any time
hereafter to or for Lender in connection with the Loans and other transactions
contemplated by this Agreement, all as amended, restated, supplemented or
modified from time to time.
"Loan Party" means, collectively, Borrowers, Borrowers' respective
Subsidiaries and any other Person (other than Lender) which is or becomes a
party to any Loan Document.
7
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of any Loan Party on an individual basis or taken as a whole or (b)
the ability of any Loan Party to perform its obligations under any Loan Document
to which it is a party or Lender to enforce or collect any of the Obligations.
"Maximum Revolving Loan Amount" has the meaning assigned to that term
in subsection 2.1(B).
"MedTox" means MedTox Laboratories, Inc., a Minnesota corporation, and
its successors and permitted assigns.
"MedTox Acquisition" means the acquisition by PDLA of the business of
MedTox occurring on or about the Closing Date.
"MedTox Acquisition Agreement" means that certain Asset Purchase
Agreement dated effective July 1, 1995, between Editek and MedTox, as amended by
that certain Amendment Agreement dated as of January 2, 1996, between Editek and
MedTox.
"MedTox Acquisition Documents" means the MedTox Acquisition Agreement
and all other documents, agreements and instruments executed or delivered in
connection with the MedTox Acquisition.
"Net Worth" means, as of any date, the sum of the capital stock and
additional paid-in capital plus retained earnings (or minus accumulated deficit)
calculated in conformity with GAAP.
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Lender under the Loan
Documents including the principal amount of all debts, claims and indebtedness
(whether incurred before or after the Termination Date), accrued and unpaid
interest and all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable.
"Operating Cash Flow" means, for any period, (a) EBITDA; less (b)
Capital Expenditures; less (c) Registration Payments paid or accrued.
"PDLA" means Psychiatric Diagnostic Laboratories of America, Inc., a
Delaware corporation, and its successors and permitted assigns.
8
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) easements, rights-of-way, restrictions,
and other similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of any Loan Party or any of
its Subsidiaries; (e) Liens for purchase money obligations, provided that (i)
the purchase of the asset subject to any such Lien is permitted under subsection
6.5, (ii) the Indebtedness secured by any such Lien is permitted under
subsection 7.1, and (iii) such Lien encumbers only the asset so purchased; (f)
Liens in favor of Lender, and (g) Liens set forth on Schedule 1.1(A).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreements" means the stock pledge agreements to be executed
and delivered by each of Editek and Princeton in favor of Lender, in form and
substance reasonably satisfactory to Lender.
"PPSA" means the Personal Property Security Act (Ontario), as amended
from time to time.
"Preferred Stock" means the Series A Convertible Preferred Stock of
Editek, $1.00 par value per share.
"Princeton" means Princeton Diagnostic Laboratories of America, Inc., a
Delaware corporation, and its successors and permitted assigns.
"Pro Forma" means the unaudited consolidated and consolidating balance
sheet of Borrowers and their respective Subsidiaries as of the Closing Date
after giving effect to the MedTox Acquisition and the other transactions
contemplated by this Agreement. The Pro Forma is annexed hereto as Schedule
1.1(B).
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"Projections" means Borrowers' forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a division by
division and Subsidiary by Subsidiary basis and otherwise consistent with
Borrowers' historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.
"Registration Payment" means a cash payment made or required to be made
by a Borrower to a holder of Preferred Stock as a result of Editek's failure to
register the common stock into which such Preferred Stock is convertible or
converted, as provided in Section 2(d) of the Registration Rights Agreements or
any successor or substitute provision.
"Registration Rights Agreements" means those certain Registration
Rights Agreements dated on or about the Closing Date, executed by Editek in
favor of the holders of the Preferred Stock.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of a Borrower or any of its Subsidiaries now or hereafter outstanding, except a
stock dividend; (b) any payment or prepayment of principal of, premium, if any,
or interest on, or any redemption, conversion, exchange, retirement, defeasance,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Subordinated Debt or any shares of any class of stock of a
Borrower or any of its Subsidiaries now or hereafter outstanding; (c) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of a Borrower or
any of its Subsidiaries now or hereafter outstanding; (d) any payment by a
Borrower or any of its Subsidiaries of any management fees or similar fees to
any Affiliate, whether pursuant to a management agreement or otherwise; (e) any
Registration Payment; and (f) any payment of the Tax Liability.
"Revolving Loan" means all advances made by Lender pursuant to
subsection 2.1(B) and any amounts added to the principal balance of the
Revolving Loan pursuant to this Agreement.
"Revolving Loan Commitment" means the commitment of Lender to make the
Revolving Loan in the aggregate not to exceed at anytime $7,000,000.
"Scheduled Installment" has the meaning assigned to that term in
subsection 2.1(A).
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned
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or controlled, directly or indirectly, by that Person or one or more of the
other subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means an amount equal to: (a) Net Worth; less (b)
Intangible Assets; less (c) prepaid expenses; less (d) all obligations owed to
such Person or any of its Subsidiaries by any Affiliate of such Person or any of
its Subsidiaries; and less (e) all loans by such Person to its officers,
stockholders or employees; provided, however, that in computing Tangible Net
Worth hereunder, up to $2,000,000 in book value of patents, trademarks and trade
names shall be deemed not to be Intangible Assets.
"Tax Liability" has the meaning assigned to such term in the MedTox
Acquisition Agreement.
"Term Loans" means, collectively, Term Loan A and Term Loan B.
"Term Loan A" means the advance made pursuant to subsection 2.1(A)(1).
"Term Loan B" means the advance made pursuant to subsection 2.1(A)(2).
"Term Loan Commitment" means the commitment of Lender to make the Term
Loans as set forth in this Agreement.
"Term Note" or "Term Notes" means each promissory note of Borrowers in
a form reasonably acceptable to Lender, issued pursuant to subsection 2.1(E).
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
"Total Loan Commitment" means the aggregate commitment of Lender with
respect to the Revolving Loan Commitment and the Term Loan Commitment.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, as amended from time to time, and any successor
statute.
"Working Capital" means: (a) current assets; less (b) current
liabilities; and less (c) the amount of any obligations owed to such Person or
any of its Subsidiaries by any Affiliate of such Person or any of its
Subsidiaries.
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1.2 Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to such terms in conformity with GAAP. Financial statements and other
information furnished to Lender pursuant to subsection 5.1 shall be prepared in
accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis. In the event any "Accounting Changes" (as defined below) shall
occur and such changes affect financial covenants, standards or terms in this
Agreement, then Borrowers and Lender agree to enter into negotiations in order
to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating the
financial condition of Borrowers shall be the same after such Accounting Changes
as if such Accounting Changes had not been made, and until such time as such an
amendment shall have been executed and delivered by Borrowers and Lender, (A)
all financial covenants, standards and terms in this Agreement shall be
calculated and/or construed as if such Accounting Changes had not been made, and
(B) Borrowers shall prepare footnotes to each Compliance Certificate and the
financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (a)
changes in accounting principles required by GAAP and implemented by Borrowers;
(b) changes in accounting principles recommended by Borrowers' certified public
accountants; and (c) changes in carrying value of Borrowers' or any of their
Subsidiaries' assets, liabilities or equity accounts resulting from (i) the
application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) to the MedTox Acquisition or (ii) any other adjustments
that, in each case, were applicable to, but not included in, the Pro Forma. All
such adjustments resulting from expenditures made subsequent to the Closing Date
(including, but not limited to, capitalization of costs and expenses or payment
of pre-Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made and deducted as part of the calculation of EBITDA in such
period.
1.3 Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, words importing any gender include the
other genders; the words "including," "includes" and "include" shall be deemed
to be followed by the words "without limitation"; references to agreements and
other contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
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2 LOANS AND COLLATERAL
2.1 Loans.
(A)(1) Term Loan A. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrowers herein set forth, Lender agrees to lend to Borrowers on the Closing
Date Term Loan A, which is in the amount of $2,000,000. Term Loan A shall be
funded in one drawing. Amounts borrowed under this subsection 2.1(A)(1) and
repaid may not be reborrowed. Borrowers shall make principal payments in the
amounts of the applicable Scheduled Installments of Term Loan A (or such lesser
principal amount as shall then be outstanding) on the dates and in the amounts
set forth below.
"Scheduled Installment of Term Loan A means, for each date set forth
below, the amount set forth opposite such date.
Date Scheduled Installment
---- ---------------------
August 1, 1997 $111,111.11
September 1, 1997 111,111.11
October 1, 1997 111,111.11
November 1, 1997 111,111.11
December 1, 1997 111,111.11
January 1, 1998 111,111.11
February 1, 1998 111,111.11
March 1, 1998 111,111.11
April 1, 1998 111,111.11
May 1, 1998 111,111.11
June 1, 1998 111,111.11
July 1, 1998 111,111.11
August 1, 1998 111,111.11
September 1, 1998 111,111.11
October 1, 1998 111,111.11
November 1, 1998 111,111.11
December 1, 1998 111,111.11
January 1, 1999 111,111.13
If at any time prior to the commencement of Scheduled Installments of
Term Loan A set forth above, Term Loan B is fully repaid, then on the first day
of each month, commencing on the first day of the month following repayment of
Term Loan B and continuing through July 1, 1997, Borrowers shall make principal
prepayments of Term Loan A in the amount of $111,111.11 each, which prepayments
shall be applied to the Scheduled Installments of Term Loan A in inverse order
of maturity.
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(A)(2) Term Loan B Term Loan B. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties of Borrowers herein set forth, Lender agrees to lend to Borrowers on
the Closing Date Term Loan B, which is in the amount of $2,000,000. Term Loan B
shall be funded in one drawing. Amounts borrowed under this subsection 2.1(A)(2)
and repaid may not be reborrowed. Borrowers shall make principal payments in the
amount of the applicable Scheduled Installment of Term Loan B (or such lesser
principal amount as shall then be outstanding) on the dates and in the amounts
set forth below
"Scheduled Installment of Term Loan B" means, for each date set forth
below, the amount set forth opposite such date.
Date Scheduled Installment
---- ---------------------
February 1, 1996 $111,111.11
March 1, 1996 111,111.11
April 1, 1996 111,111.11
May 1, 1996 111,111.11
June 1, 1996 111,111.11
July 1, 1996 111,111.11
August 1, 1996 111,111.11
September 1, 1996 111,111.11
October 1, 1996 111,111.11
November 1, 1996 111,111.11
December 1, 1996 111,111.11
January 1, 1997 111,111.11
February 1, 1997 111,111.11
March 1, 1997 111,111.11
April 1, 1997 111,111.11
May 1, 1997 111,111.11
June 1, 1997 111,111.11
July 1, 1997 111,111.13
(B) Revolving Loan. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrowers
herein set forth, Lender agrees to lend to Borrowers from time to time an
aggregate amount not to exceed at any time $7,000,000. Amounts borrowed under
this subsection 2.1(B) may be repaid and reborrowed at any time prior to the
earlier of (i) the termination of the Revolving Loan Commitment pursuant to
subsection 8.3 or (ii) the Termination Date. Lender shall have no obligation to
make advances under this subsection 2.1(B) to a Borrower to the extent the
requested advance would cause the balance of the Revolving Loan of such Borrower
then outstanding (after giving effect to any immediate application of the
proceeds thereof) to exceed the Maximum Revolving Loan Amount of such Borrower
or to the extent any requested advance would cause the balance of the Revolving
Loan of all Borrowers then
14
outstanding (after giving effect to any immediate application of the proceeds
thereof) to exceed the Revolving Loan Commitment; provided that Lender may,
in its sole discretion, elect from time to time to make Loans in excess of the
Maximum Revolving Loan Amount of a Borrower or the Revolving Loan Commitment.
Borrowers shall maintain records of the Revolving Loan advanced to or for the
benefit of each Borrower and the amount of all repayments made by each Borrower
of such advances from proceeds of Accounts or otherwise. To the extent that the
outstanding balance of the Revolving Loan owing by a Borrower exceeds such
Borrower's Borrowing Base at any time, such excess shall be deemed to
constitute an intercompany loan to such Borrower from another Borrower whose
outstanding balance of the Revolving Loan is less than its Borrower's
Borrowing Base, which intercompany loans shall be subordinate in right of
payment to the Obligations and shall be subject to the limitations of
subsection 7.1(b).
(1) "Maximum Revolving Loan Amount" means, with respect to
each Borrower, as of any date of determination, the lesser of (a) the Revolving
Loan Commitment and (b) the Borrowing Base of such Borrower.
(2) "Borrowing Base" means, with respect to a Borrower, as of
any date of determination, an amount equal to the sum of (a) eighty-five percent
(85%) of such Borrower's Eligible Accounts plus (b) the lesser of (i) such
Borrower's Inventory Sublimit, and (ii) fifty percent (50%) of such Borrower's
Eligible Inventory, less in each case such reserves as Lender in its reasonable
discretion elects to establish.
(3) "Inventory Sublimit" means, with respect to Editek, the
amount of $800,000, with respect to PDLA, the amount of $500,000 and with
respect to diAGnostix, the amount of $200,000.
(C) Eligible Collateral.
"Eligible Accounts" means, with respect to a Borrower, as at any date
of determination, the aggregate of all Accounts of such Borrower that Lender, in
its reasonable judgment, deems to be eligible for borrowing purposes. Without
limiting the generality of the foregoing, unless otherwise agreed by Lender, the
following Accounts are not Eligible Accounts:
(1) Accounts which, at the date of issuance of the respective
invoice therefor, were payable more than sixty (60) days after the date of
issuance of such invoice;
(2) Accounts which remain unpaid for more than sixty (60) days
after the due date specified in the original invoice or for more than ninety
(90) days after invoice date if no due date was specified;
(3) Accounts which are otherwise eligible with respect to
which the account debtor is owed a credit by a Borrower, but only to the extent
of such credit;
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(4) Accounts due from a customer whose principal place of
business is located outside the United States of America unless such Account is
backed by a letter of credit, in form and substance acceptable to Lender, and
issued or confirmed by a bank that is organized under the laws of the United
States of America or a State thereof, that is acceptable to Lender, provided
that such letter of credit has been delivered to Lender as additional
collateral, or the applicable Borrower is the beneficiary of credit insurance
with respect to such account in such amounts and against such risks as shall be
acceptable to Lender;
(5) Accounts due from a customer which Lender has notified
Borrowers does not have a satisfactory credit standing;
(6) Accounts with respect to which the customer is the United
States of America, any state or any municipality, or any department, agency or
instrumentality thereof, unless the applicable Borrower has, with respect to
such Accounts, complied with the Federal Assignment of Claims Act (31 U.S.C.
Section 3727) or any applicable statute or municipal ordinance of similar
purpose and effect;
(7) Accounts with respect to which the customer is an
Affiliate of a Borrower or a director, officer, agent, stockholder or employee
of a Borrower or any of its Affiliates;
(8) Accounts due from a customer if more than twenty-five
percent (25%) of the aggregate amount of Accounts of such customer have at the
time remained unpaid for more than sixty (60) days after due date or ninety (90)
days after the invoice date if no due date was specified;
(9) Accounts with respect to which there is any unresolved
dispute with the respective customer (but only to the extent of such dispute);
(10) Accounts evidenced by an "instrument" or "chattel paper"
(as defined in the UCC) not in the possession of Lender;
(11) Accounts with respect to which Lender does not have a
valid, first priority and fully perfected security interest;
(12) Accounts subject to any Lien except those in favor of
Lender;
(13) Accounts with respect to which the customer is the
subject of any bankruptcy or other insolvency proceeding;
16
(14) Accounts due from a customer to the extent that all
Accounts of such customer owing to all Borrowers exceed in the aggregate an
amount equal to twenty percent (20%) of the aggregate of all otherwise Eligible
Accounts of all Borrowers at said date;
(15) Accounts with respect to which the customer's obligation
to pay is conditional or subject to a repurchase obligation or right to return
or with respect to which the goods or services giving rise to such Account have
not been delivered (or performed, as applicable) and accepted by such account
debtor, including progress billings, bill and hold sales, guarantied sales, sale
or return transactions, sales on approval or consignment sales;
(16) Accounts with respect to which the customer is located in
Indiana, New Jersey, Minnesota, or any other state denying creditors access to
its courts in the absence of a Notice of Business Activities Report or other
similar filing, unless the applicable Borrower has either qualified as a foreign
corporation authorized to transact business in such state or has filed a Notice
of Business Activities Report or similar filing with the applicable state agency
for the then current year;
(17) Accounts with respect to which the customer is a creditor
of a Borrower, provided, however, that any such Account shall only be ineligible
as to that portion of such Account which is less than or equal to the amount
owed by such Borrower to such Person.
"Eligible Inventory" means, with respect to a Borrower, as at any date
of determination, the value (determined at the lower of cost or market on a
first-in, first-out basis) of all Inventory that is readily marketable raw
materials, supplies in unopened containers or finished goods consisting of
pre-packaged test kits, in each case owned by and in the possession of such
Borrower and located in the United States of America and that Lender, in its
reasonable credit judgment, deems to be eligible for borrowing purposes. Without
limiting the generality of the foregoing, unless otherwise agreed by Lender, the
following is not Eligible Inventory: (a) work-in-process; (b) sample collection
kits; (c) finished goods which do not meet the specifications of the purchase
order for such goods; (d) Inventory which Lender determines, is unacceptable for
borrowing purposes due to age, quality, type, category and/or quantity; (e)
Inventory with respect to which Lender does not have a valid, first priority and
fully perfected security interest; (f) Inventory with respect to which there
exists any Lien in favor of any Person other than Lender; (g) Inventory produced
in violation of the Fair Labor Standards Act and subject to the so-called "hot
goods" provisions contained in Title 29 U.S.C. 215 (a)(i); and (h) Inventory
located at any location other than those set forth on Schedule 4.7.
17
(D) Borrowing Mechanics. On any day when a Borrower desires to borrow
under this subsection 2.1, Editek, acting as agent for such Borrower, shall give
Lender telephonic notice of the proposed borrowing by 11:00 a.m. (Chicago time).
Lender shall not incur any liability to Borrowers for acting upon any telephonic
notice Lender believes in good faith to have been given by a duly authorized
officer or other person authorized to borrow on behalf of a Borrower or for
otherwise acting in good faith under this subsection 2.1(D). Lender will not
make any advance pursuant to any telephonic notice unless Lender has also
received the most recent Borrowing Base Certificates and all other documents
required under subsection 5.1(F). Each advance made to a Borrower under the
Revolving Loan shall be deposited by wire transfer in immediately available
funds in such account of Editek, as agent for each Borrower, as Editek may from
time to time designate to Lender in writing, and Editek shall forward the
appropriate amount of proceeds of each such advance to or for the benefit of the
appropriate Borrower. Unless payment is otherwise timely made by a Borrower, the
becoming due of any amount required to be paid under this Agreement or any of
the other Loan Documents as principal, accrued interest and fees shall be deemed
irrevocably to be a request by such Borrower for a Revolving Loan on the due
date of, and in the amount required to pay, such principal, accrued interest and
fees, and the proceeds of each such Revolving Loan if made by Lender shall be
disbursed by Lender by way of direct payment of the relevant obligation.
Anything herein to the contrary notwithstanding, Lender may elect at any time to
disburse directly to each Borrower advances of the Revolving Loan that are based
upon the Borrowing Base of such Borrower.
(E) Term Notes. Borrowers shall execute and deliver to Lender a Term
Note to evidence each of the Term Loans, such Term Notes to be in the principal
amount of the respective Term Loan Commitment and with other appropriate
insertions. In the event of an assignment under subsection 9.1, Borrowers shall,
upon surrender of the assigning Lender's Notes, issue new Notes to reflect the
new Commitments of the assigning Lender and its assignee.
(F) Evidence of Revolving Loan Obligations. The advances constituting
the Revolving Loan shall be evidenced by this Agreement and notations made from
time to time by Lender in its books and records, including computer records.
Lender's books and records shall constitute presumptive evidence, absent
manifest error, of the accuracy of the information contained therein. Failure by
the Lender to make any such notation or record shall not affect the obligations
of Borrowers to Lender with respect to the Revolving Loans.
2.2 Interest Interest
(A) Rate of Interest. The Loans and all other Obligations shall bear
interest from the date such Loans are made or such other Obligations become due
to the date paid at a rate per annum equal to (i) one and one-half percent
(1.50%) plus the Base Rate with respect to the Revolving Loan, (ii) two percent
(2.00%) plus the Base Rate with respect to Term Loan A and (iii) two and
one-half percent (2.50%) plus the Base Rate with respect to Term Loan B (the
"Interest
18
Rate"). After the occurrence and during the continuance of an Event of Default,
the Loans and all other Obligations shall, at Lender's option, bear interest
at a rate per annum equal to three percent (3.0%) plus the Interest Rate
(the "Default Rate").
(B) Computation and Payment of Interest. Interest on the Loans and all
other Obligations shall be computed on the daily principal balance on the basis
of a 360 day year for the actual number of days elapsed in the period during
which it accrues and shall be payable monthly in arrears on the first day of
each month. Any publicly announced change in the Base Rate shall result in an
adjustment to the Interest Rate on the day such change takes effect. Whenever
interest payable hereunder is calculated on the basis of a year of 360 days,
each rate of interest determined pursuant to such calculation expressed as an
annual rate for the purpose of the Interest Act (Canada) is equivalent to such
rate as so determined multiplied by the number of days in the calendar year in
which the same is to be ascertained and divided by 360.
(C) Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or any other Loan Document, Borrowers shall not be
required to pay, and Lender shall not be permitted to collect, any amount of
interest in excess of the maximum amount of interest permitted by law ("Excess
Interest"). If any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this Agreement or in any
other Loan Document, then in such event: (1) the provisions of this subsection
shall govern and control; (2) neither Borrowers nor any Loan Party shall be
obligated to pay any Excess Interest; (3) any Excess Interest that Lender may
have received hereunder shall be, at Lender's option, (a) applied as a credit
against the outstanding principal balance of the Obligations or accrued and
unpaid interest (not to exceed the maximum amount permitted by law), (b)
refunded to the payor thereof, or (c) any combination of the foregoing; (4) the
interest rate(s) provided for herein shall be automatically reduced to the
maximum lawful rate allowed from time to time under applicable law (the "Maximum
Rate"), and this Agreement and the other Loan Documents shall be deemed to have
been and shall be, reformed and modified to reflect such reduction; and (5)
neither Borrowers nor any Loan Party shall have any action against Lender for
any damages arising out of the payment or collection of any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any
Obligations is calculated at the Maximum Rate rather than the applicable rate
under this Agreement, and thereafter such applicable rate becomes less than the
Maximum Rate, the rate of interest payable on such Obligations shall remain at
the Maximum Rate until Lender shall have received the amount of interest which
Lender would have received during such period on such Obligations had the rate
of interest not been limited to the Maximum Rate during such period.
2.3 Fees.
(A) Closing Fee. Borrowers shall pay to Lender on the Closing Date a
closing fee in the amount of $165,000.
19
(B) Unused Line Fee. Borrowers shall pay to Lender a fee in an amount
equal to the Revolving Loan Commitment less the sum of the average daily balance
of the Revolving Loan during the preceding month multiplied by three-eighths
percent (0.375) per annum, such fee to be calculated on the basis of a 360
day year for the actual number of days elapsed and to be payable monthly in
arrears on the first day of the first month following the Closing Date and the
first day of each month thereafter.
(C) Prepayment Fees. If Borrowers voluntarily prepay the Obligations in
full (other than voluntary prepayments of the Revolving Loan which do not
terminate the Revolving Loan Commitment, including payments of the Revolving
Loan from the Blocked Accounts), or, in the case of any voluntary prepayment of
any Term Loan, in part, prior to the Termination Date, Borrowers at the time of
prepayment shall pay to Lender, as compensation for the costs of being prepared
to make funds available to Borrowers under this Agreement, and not as a penalty,
an amount determined by multiplying the percentage set forth below by (1) in the
case of a prepayment in full of the Obligations, the sum of the outstanding
principal balance of the Term Loans at the date of such prepayment plus the
amount of the Revolving Loan Commitment, or (2) in the case of a prepayment of
the Term Loans only, in whole or in part, the amount of such prepayment: three
percent (3.00%) upon a prepayment during the first Loan Year; two percent
(2.00%) upon a prepayment during the second Loan Year; and one percent (1.00%)
upon a prepayment during the third Loan Year. Borrower shall not be required to
pay prepayment fees in connection with any mandatory prepayments of the
Obligations pursuant to subsection 2.4(B) or the last sentence of subsection
2.1(A)(1).
(D) Collateral Monitoring Fee. On the Closing Date and on the first day
of each calendar quarter thereafter, Borrowers shall pay Lender a nonrefundable
collateral monitoring fee of $5,000; provided, however, that if as a result of a
Borrower's merging with another Borrower, the number of Borrowers decreases to
two or fewer, then such collateral monitoring fee shall reduce to $2,500 per
quarter commencing on the first day of the calendar quarter following such
merger.
(E) Audit Fees. Borrowers agree to pay Lender an audit fee for each
inspection equal to $650 per auditor per day or any portion thereof, excluding
all full days spent by Lender traveling to or from Borrowers' locations,
together with out-of-pocket expenses, or the reasonable fees, expenses and
out-of-pocket costs paid to third party auditors. Audit fees shall not exceed
$20,000 per year, plus out-of-pocket expenses, except during the existence of an
Event of Default.
(F) Other Fees and Expenses. Borrowers shall pay to Lender, for its own
account, all charges for returned items and all other bank charges incurred by
Lender, as well as Lender's standard wire transfer charges for each wire
transfer made under this Agreement.
20
2.4 Payments and Prepayments.
(A) Manner and Time of Payment. In its sole discretion, Lender may
charge interest and other amounts payable hereunder to the Revolving Loan, all
as set forth on Lender's books and records. If Lender elects to bill Borrowers
for any amount due hereunder, such amount shall be immediately due and payable
with interest thereon as provided herein. All payments made by Borrowers with
respect to the Obligations shall be made without deduction, defense, setoff or
counterclaim. All payments to Lender hereunder shall, unless otherwise directed
by Lender, be made in accordance with subsection 5.6. Proceeds remitted to
Lender's Account shall be credited to the Obligations on the day such proceeds
were received, provided, however, for the purpose of calculating interest on the
Obligations, such funds shall be deemed received on the first Business Day
thereafter. Proceeds remitted to Lender's Account by wire transfer shall be
credited to the Obligations on the Business Day received; provided, however, for
the purpose of calculating interest on the Obligations such funds shall be
deemed received the first Business Day thereafter.
(B) Mandatory Prepayments.
(1) Overadvance. At any time that the principal balance of the
Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrowers shall, upon
demand by Lender, immediately repay the Revolving Loan to the extent necessary
to reduce the principal balance to an amount that is equal to or less than the
Maximum Revolving Loan Amount.
(2) Proceeds of Asset Dispositions. For so long as any portion
of either Term Loan remains outstanding, immediately upon receipt by a Borrower
or any of its Subsidiaries of proceeds of any Asset Disposition (in one or a
series of related transactions), which proceeds exceed $10,000 (it being
understood that if the proceeds exceed $10,000, the entire amount and not just
the portion above $10,000 shall be subject to this subsection 2.4(B)(2)),
Borrowers shall prepay the Term Loans in an amount equal to such proceeds. If
Borrowers reasonably expect the proceeds of any Asset Disposition to be
reinvested within 180 days to repair or replace such assets with like assets,
Borrowers shall deliver the proceeds to Lender to be applied to the Revolving
Loan, and Borrowers may, so long as no Default or Event of Default shall have
occurred and be continuing, reborrow such proceeds only for such repair or
replacement. If Borrowers fail to reinvest such proceeds within 180 days,
Borrowers hereby authorize Lender to make a Revolving Loan to repay the Term
Loans as required hereby. All such prepayments shall be applied first in payment
of Scheduled Installments of Term Loan B in the inverse order of maturity and
second in payment of Scheduled Installments of Term Loan A in the inverse order
of maturity.
21
(3) Prepayments from Excess Cash Flow. For so long as any
portion of either Term Loan remains outstanding, within ninety (90) days after
the end of each Fiscal Year, Borrowers shall prepay the Term Loans in an amount
equal to fifty percent (50%) of Excess Cash Flow for such prior Fiscal Year
calculated on the basis of the audited financial statements for such Fiscal Year
delivered to Lender pursuant to subsection 5.1(C). All such prepayments from
Excess Cash Flow shall first be applied in payment of Scheduled Installments of
Term Loan B until repaid in full and then in repayment of Term Loan A each in
inverse order of maturity. Concurrently with the making of any such payment,
Borrowers shall deliver to Lender a certificate of Borrowers' chief executive
officer or chief financial officer demonstrating its calculation of the amount
required to be paid.
(C) Voluntary Prepayments and Repayments. Except as provided in
subsection 2.4(B) and except for partial prepayments from the proceeds of equity
securities issued by Borrowers on or after the Closing Date, Borrowers'
Obligations may only be prepaid in full and not in part. Borrowers may, at any
time upon not less than three Business Days' prior notice to Lender, prepay the
Term Loans or terminate the Revolving Loan Commitment; provided, however, the
Revolving Loan Commitment may not be terminated by Borrowers until the Term
Loans are paid in full.
(D) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 Term of this Agreement. This Agreement shall be effective
until December 31, 1998 (the "Termination Date"). The Commitments shall (unless
earlier terminated) terminate upon the earlier of (i) the occurrence of an event
specified in subsection 8.3 or (ii) the Termination Date. Upon termination in
accordance with subsection 8.3 or on the Termination Date, all Obligations shall
become immediately due and payable without notice or demand. Notwithstanding any
termination, until all Obligations have been fully paid and satisfied, Lender
shall be entitled to retain security interests in and liens upon all Collateral,
and even after payment of all Obligations hereunder, Borrowers' obligation to
indemnify Lender in accordance with the terms hereof shall continue.
2.6 Statements. Lender shall render a monthly statement of account
to Borrowers within twenty (20) days after the end of each month. Such statement
of account shall constitute an account stated unless Borrowers make written
objection thereto within thirty (30) days from the date such statement is mailed
to Borrowers. Borrowers promise to pay all of the Obligations as such amounts
become due or are declared due pursuant to the terms of this Agreement.
22
2.7 Grant of Security Interest. To secure the payment and
performance of the Obligations, including all renewals, extensions,
restructurings and refinancings of any or all of the Obligations, each Borrower
hereby grants to Lender a continuing security interest, lien and mortgage in and
to all right, title and interest of such Borrower in the following property of
such Borrower, whether now owned or existing or hereafter acquired or arising
and regardless of where located (all being collectively referred to as the
"Collateral"): (A) Accounts, and all guaranties and security therefor, and all
goods and rights represented thereby or arising therefrom including the right of
stoppage in transit, replevin and reclamation; (B) Inventory; (C) general
intangibles (as defined in the UCC); (D) documents (as defined in the UCC) or
other receipts covering, evidencing or representing goods; (E) instruments (as
defined in the UCC); (F) chattel paper (as defined in the UCC); (G) Equipment;
(H) Intellectual Property; (I) all deposit accounts of such Borrower maintained
with any bank or financial institution; (J) all cash and other monies and
property of such Borrower in the possession or under the control of Lender or
any participant; (K) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software that at any
time evidence or contain information relating to any of the property described
above or are otherwise necessary or helpful in the collection thereof or
realization thereon; and (L) proceeds of all or any of the property described
above, including, without limitation, the proceeds of any insurance policies
covering any of the above described property.
2.8 Capital Adequacy and Other Adjustments. In the event Lender
shall have determined that the adoption after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, reserve requirements or similar requirements
or compliance by Lender or any corporation controlling Lender with any request
or directive regarding capital adequacy, reserve requirements or similar
requirements (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) from any central bank or governmental
agency or body having jurisdiction does or shall have the effect of increasing
the amount of capital, reserves or other funds required to be maintained by
Lender or any corporation controlling Lender and thereby reducing the rate of
return on Lender's or such corporation's capital as a consequence of its
obligations hereunder, then Borrowers shall from time to time within fifteen
(15) days after notice and demand from Lender (together with the certificate
referred to in the next sentence) pay to Lender additional amounts sufficient to
compensate such Lender for such reduction. A certificate as to the amount of
such cost and showing the basis of the computation of such cost submitted by
Lender to Borrowers shall, absent manifest error, be final, conclusive and
binding for all purposes.
2.9 Taxes.
(A) No Deductions. Any and all payments or reimbursements made
hereunder or under the Term Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however, the
following: taxes imposed on the net income of Lender by the jurisdiction under
the laws of which Lender is organized or doing business or any political
subdivision thereof
23
and taxes imposed on its net income by the jurisdiction of Lender's applicable
lending office or any political subdivision thereof (all such taxes, levies,
imposts, deductions, charges or withholdings and all liabilities with
respect thereto excluding such taxes imposed on net income, herein "Tax
Liabilities"). If Borrowers shall be required by law to deduct any such Tax
Liabilities from or in respect of any sum payable hereunder to Lender, then the
sum payable hereunder shall be increased as may be necessary so that, after
making all required deductions, Lender receives an amount equal to the sum it
would have received had no such deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the Closing
Date, (i) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (ii) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (iii)
compliance by Lender with any request or directive (whether or not having the
force of law) from any governmental authority, agency or instrumentality:
(1) does or shall subject Lender to any tax of any kind
whatsoever with respect to this Agreement, the other Loan Documents or any Loans
made hereunder, or change the basis of taxation of payments to Lender of
principal, fees, interest or any other amount payable hereunder (except for net
income taxes, or franchise taxes imposed in lieu of net income taxes, imposed
generally by federal, state or local taxing authorities with respect to interest
or commitment or other fees payable hereunder or changes in the rate of tax on
the overall net income of Lender); or
(2) does or shall impose on Lender any other condition or
increased cost in connection with the transactions contemplated hereby or
participations herein; and the result of any of the foregoing is to increase the
cost to Lender of making or continuing any Loan hereunder, as the case may be,
or to reduce any amount receivable hereunder, then, in any such case, Borrowers
shall promptly pay to Lender, upon its demand, any additional amounts necessary
to compensate Lender, on an after-tax basis, for such additional cost or reduced
amount receivable, as determined by Lender with respect to this Agreement or the
other Loan Documents. If Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify Borrowers of the event by
reason of which Lender has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by
Lender to Borrowers shall, absent manifest error, be final, conclusive and
binding for all purposes.
3 CONDITIONS TO LOANS
3.1 Conditions to Loans. The obligations of Lender to make Loans on the
Closing Date and on each Funding Date are subject to satisfaction of all of the
conditions set forth below.
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(A) Closing Deliveries. Lender shall have received, in form and
substance satisfactory to Lender, all documents, instruments and information
identified on Schedule 3.1(A) and all other agreements, notes, certificates,
orders, authorizations, financing statements, mortgages and other documents
which Lender may at any time reasonably request.
(B) Security Interests. Lender shall have received satisfactory
evidence that all security interests and liens granted to Lender pursuant to
this Agreement or the other Loan Documents have been duly perfected and
constitute first priority liens on the Collateral, subject only to Permitted
Encumbrances.
(C) Closing Date Availability. After giving effect to the consummation
of the transactions contemplated hereunder on the Closing Date and the payment
by Borrowers of all costs, fees and expenses relating thereto, the Maximum
Revolving Loan Amount on the Closing Date shall exceed the principal balance of
the Revolving Loans by at least $1,500,000.
(D) Representations and Warranties. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made by Borrowers to
Lender after the Closing Date and approved by Lender.
(E) Fees. With respect to Loans to be made or issued on the Closing
Date, Borrowers shall pay the fees payable on the Closing Date referred to in
subsection 2.3 out of the proceeds of the Loan.
(F) No Default. No event shall have occurred and be continuing or would
result from the consummation of the requested borrowing that would constitute an
Event of Default or a Default.
(G) Performance of Agreements. Each Loan Party shall have performed in
all material respects all agreements and satisfied all conditions which any Loan
Document provides shall be performed by it on or before that Funding Date.
(H) No Prohibition. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Lender
from making any Loans.
(I) No Litigation. There shall not be pending or, to the knowledge of
Borrowers, threatened, any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration by, against or affecting any
Loan Party or any of its Subsidiaries or any property of any Loan Party or any
of its Subsidiaries that has not been disclosed by Borrowers in writing, and
there shall have occurred no development in any such action, charge, claim,
demand,
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suit, proceeding, petition, governmental investigation or arbitration that,
in the opinion of Lender, would reasonably be expected to have a Material
Adverse Effect.
(J) Issuance of Preferred Stock. Editek shall have issued the Preferred
Stock for an aggregate gross purchase price of not less than $16,000,000, and
Editek shall have received the net cash proceeds from such issuance in an amount
not less than $15,040,000.
(K) MedTox Acquisition. The MedTox Acquisition shall have been
consummated on substantially the terms set forth in the MedTox Acquisition
Documents. In connection with the MedTox Acquisition, MedTox shall have accepted
shares of Editek's common stock in payment for not less than $5,000,000 of the
purchase price for such acquisition.
4 BORROWERS' REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement and to make Loans,
Borrowers represent and warrant to Lender that the following statements are and
will be true, correct and complete:
4.1 Organization, Powers, Capitalization.
(A) Organization and Powers. Each of the Loan Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and qualified to do business in all states where
such qualification is required except where failure to be so qualified could not
be reasonably expected to have a Material Adverse Effect. Each of the Loan
Parties has all requisite corporate power and authority to own and operate its
properties, to carry on its business as now conducted and proposed to be
conducted and to enter into each Loan Document.
(B) Capitalization. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 4.1(B). All issued and outstanding shares of
capital stock of each of the Loan Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens other than those
in favor of Lender and such shares were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The capital stock
of each of the Loan Parties is owned by the stockholders and in the amounts set
forth on Schedule 4.1(B). No shares of the capital stock of any Loan Party,
other than those described above, are issued and outstanding. Except as set
forth on Schedule 4.1(B), there are no preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or understandings for
the purchase or acquisition from any Loan Party, of any shares of capital stock
or other securities of any such entity.
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4.2 Authorization of Borrowing, No Conflict. Each Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Closing Date, the execution, delivery and
performance of the Loan Documents by each Loan Party signatory thereto will have
been duly authorized by all necessary corporate and shareholder action. The
execution, delivery and performance by each Loan Party of each Loan Document to
which it is a party and the consummation of the transactions contemplated by
this Agreement and the other Loan Documents by each Loan Party do not contravene
and will not be in contravention of any applicable law, the corporate charter or
bylaws of any Loan Party or any agreement or order by which any Loan Party or
any Loan Party's property is bound. This Agreement is, and the other Loan
Documents, including the Term Notes, when executed and delivered will be, the
legally valid and binding obligations of the applicable Loan Parties
respectively, each enforceable against the Loan Parties, as applicable, in
accordance with their respective terms.
4.3 Financial Condition. All financial statements concerning
Borrowers and their respective Subsidiaries which have been or will hereafter be
furnished by Borrowers and their respective Subsidiaries to Lender pursuant to
this Agreement have been or will be prepared in accordance with GAAP
consistently applied throughout the periods involved (except as disclosed
therein) and do or will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended. The Pro Forma was prepared by Borrowers
based on the unaudited balance sheets of Borrowers dated December 31, 1995. The
Projections delivered and to be delivered have been and will be prepared by
Borrowers in light of the past operations of the business of Borrowers and their
respective Subsidiaries, and such Projections represent and will represent the
good faith estimate of Borrowers and their senior management concerning the most
probable course of its business as of the date such Projections are prepared and
delivered.
4.4 Indebtedness and Liabilities. As of the Closing Date, no
Borrower nor any of its Subsidiaries has (a) any Indebtedness except as
reflected on the Pro Forma; or (b) any Liabilities other than as reflected on
the Pro Forma or as incurred in the ordinary course of business following the
date of the Pro Forma.
4.5 Account Warranties. Borrowers represent, warrant and covenant
as to each Account that, at the time of its creation, the Account is a valid,
bona fide account, representing an undisputed indebtedness incurred by the named
account debtor for goods actually sold and delivered or for services completely
rendered; there are no setoffs, offsets or counterclaims, genuine or otherwise,
against the Account; the Account does not represent a sale to an Affiliate or a
consignment, sale or return or a bill and hold transaction; no agreement exists
permitting any deduction or discount (other than the discount stated on the
invoice); a Borrower is the lawful owner of the Account and has the right to
assign the same to Lender; the Account is free of all security interests, liens
and encumbrances other than those in favor of Lender, and the Account is due and
payable in accordance with its terms.
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4.6 Names. Schedule 4.6 sets forth all names, trade names,
fictitious names and business names under which each Borrower currently conducts
business or has at any time during the past five years conducted business.
4.7 Locations; FEIN. Schedule 4.7 sets forth the location of each
Borrower's principal place of business, the location of each Borrower's books
and records, the location of all other offices of each Borrower and all
Collateral locations, and such locations are Borrowers' sole locations for their
business and the Collateral. Each Borrower's federal employer identification
number is set forth on the signature page hereof.
4.8 Title to Properties; Liens. Each Borrower and each of its
Subsidiaries has good, sufficient and legal title, subject to Permitted
Encumbrances, to all its respective material properties and assets. Except for
Permitted Encumbrances, all such properties and assets are free and clear of
Liens. To the best knowledge of Borrowers after due inquiry, there are no
actual, threatened or alleged defaults with respect to any leases of real
property under which any Borrower or any of its Subsidiaries is lessee or lessor
which would have a Material Adverse Effect.
4.9 Litigation; Adverse Facts. There are no judgments outstanding
against any Loan Party or affecting any property of any Loan Party nor is there
any action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration now pending or, to the best knowledge of Borrowers
after due inquiry, threatened against or affecting any Loan Party or any
property of any Loan Party which could reasonably be expected to result in any
Material Adverse Effect. No Loan Party has received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed to any
liability which could reasonably be expected to result in any Material Adverse
Effect.
4.10 Payment of Taxes. All material tax returns and reports of each
Borrower and each of its Subsidiaries required to be filed by any of them have
been timely filed, and all taxes, assessments, fees and other governmental
charges upon such Persons and upon their respective properties, assets, income
and franchises which are shown on such returns as due and payable have been paid
when due and payable. As of the Closing Date, none of the United States income
tax returns of each Borrower or any of its Subsidiaries are under audit. No tax
liens have been filed and no claims (except as otherwise permitted by Section
5.9) are being asserted with respect to any such taxes. The charges, accruals
and reserves on the books of each Borrower and each of its Subsidiaries in
respect of any taxes or other governmental charges are in accordance with GAAP.
4.11 Performance of Agreements. None of the Loan Parties and none
of their respective Subsidiaries is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person, and no condition exists that, with
the giving of notice or the lapse of time or both, would constitute such a
default.
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4.12 Employee Benefit Plans. Each Borrower, each of its
Subsidiaries and each ERISA Affiliate is in compliance in all material respects
with all applicable provisions of ERISA, the IRC and all other applicable laws
and the regulations and interpretations thereof with respect to all Employee
Benefit Plans. No material liability has been incurred by any Borrower, any of
its Subsidiaries or any ERISA Affiliate which remains unsatisfied for any
funding obligation, taxes or penalties with respect to any Employee Benefit
Plan.
4.13 Intellectual Property. Each Borrower and each of its
Subsidiaries owns, is licensed to use or otherwise has the right to use, all
Intellectual Property used in or necessary for the conduct of its business as
currently conducted, and all such Intellectual Property is identified on
Schedule 4.13.
4.14 Broker's Fees. Except as set forth on Schedule 4.14, no
broker's or finder's fee or commission will be payable with respect to any of
the transactions contemplated hereby.
4.15 Environmental Compliance. Each Loan Party has been and is
currently in compliance with all applicable Environmental Laws, including
obtaining and maintaining in effect all permits, licenses or other
authorizations required by applicable Environmental Laws. There are no claims,
liabilities, investigations, litigation, administrative proceedings, whether
pending or threatened, or judgments or orders relating to any Hazardous
Materials asserted or threatened against any Loan Party or relating to any real
property currently or formerly owned, leased or operated by any Loan Party.
4.16 Solvency. As of and from and after the date of this Agreement,
each Borrower: (a) owns and will own assets the fair salable value of which are
(i) greater than the total amount of its liabilities (including contingent
liabilities) and (ii) greater than the amount that will be required to pay the
probable liabilities of such Borrower as they mature; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (c) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due. There is no material fact known to a Borrower that has or
could have a Material Adverse Effect and that has not been fully disclosed
herein or in such other documents, certificates and statements furnished to
Lender for use in connection with the transactions contemplated hereby.
4.17 Disclosure. No representation or warranty of Borrowers, any of
their respective Subsidiaries or any other Loan Party contained in this
Agreement, the financial statements, the other Loan Documents, or any other
document, certificate or written statement furnished to Lender by or on behalf
of any such Person for use in connection with the Loan Documents contains any
untrue statement of a material fact or omitted, omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances in which the same were
made. The Projections and pro forma financial information
29
contained in such materials are based upon good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being
recognized by Lender that such projections as to future events are not to
be viewed as facts and that actual results during the period or periods covered
by any such projections may differ from the projected results. There is no
material fact known to Borrowers that has had or will have a Material Adverse
Effect and that has not been disclosed herein or in such other documents,
certificates and statements furnished to Lender for use inconnection with the
transactions contemplated hereby.
4.18 Insurance. Each Borrower and each of its Subsidiaries
maintains adequate insurance policies for public liability, property damage for
its business and properties, product liability, and business interruption, no
notice of cancellation has been received with respect to such policies and each
Borrower and each of its Subsidiaries is in compliance with all conditions
contained in such policies.
4.19 Compliance with Laws. No Borrower nor any of its Subsidiaries
is in violation of any law, ordinance, rule, regulation, order, policy,
guideline or other requirement of any domestic or foreign government or any
instrumentality or agency thereof, having jurisdiction over the conduct of its
business or the ownership of its properties, including, without limitation, any
violation relating to any use, release, storage, transport or disposal of any
Hazardous Material, which violation would subject a Borrower or any of its
Subsidiaries, or any of their respective officers to criminal liability or have
a Material Adverse Effect and no such violation has been alleged.
4.20 Bank Accounts. Schedule 4.20 sets forth the account numbers
and locations of all bank accounts of each Borrower and its Subsidiaries.
4.21 Subsidiaries. Borrowers have no Subsidiaries other than as set
forth on Schedule 4.21.
4.22 Employee Matters. Except as set forth on Schedule 4.22, (a) no
Loan Party nor any of such Loan Party's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrowers after due inquiry, threatened between any Loan Party and its
respective employees, other than employee grievances arising in the ordinary
course of business which could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedule 4.22, no Borrower nor any of its Subsidiaries is subject to an
employment contract.
4.23 Governmental Regulation. None of the Loan Parties is, or after
giving effect to any loan will be, subject to regulation under the Public
Utility Holding Company Act of 1935, the
30
Federal Power Act or the Investment Company Act of 1940 or to any federal or
state statute or regulation limiting its ability to incur indebtedness for
borrowed money.
Borrowers may, at any time and from time to time and subject to
subsection 5.13, amend any one or more of the Schedules referred in this Section
4 and any representation or warranty contained herein which refers to any such
Schedule shall from and after the date of any such amendment refer to such
Schedule as so amended, provided, however, that in no event may Borrowers amend
any such Schedule if such amendment would reflect or evidence a Default or Event
of Default.
5 AFFIRMATIVE COVENANTS
Borrowers covenant and agree that, so long as any of the Commitments
hereunder shall be in effect and until payment in full of all Obligations,
unless Lender shall otherwise give its prior written consent, Borrowers shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 5 applicable to such Person.
5.1 Financial Statements and Other Reports. Borrowers will maintain,
and cause each of their respective Subsidiaries to maintain, a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in conformity with GAAP.
Borrowers will deliver to Lender the financial statements and other reports
described below.
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Borrowers will deliver (1)
the consolidated and consolidating balance sheet of Borrowers and their
respective Subsidiaries as at the end of such month and the related consolidated
and consolidating statements of income, stockholders' equity and cash flow for
such month and for the period from the beginning of the then current Fiscal Year
to the end of such month, and (2) a schedule of the outstanding Indebtedness for
borrowed money of Borrowers and their respective Subsidiaries describing in
reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each such debt
issue or loan.
(B) Quarterly Financials. As soon as available and in any
event within forty-five (45) days after the end of each quarter of a Fiscal
Year, Borrowers will deliver the consolidated and consolidating balance sheet of
Borrowers and their respective Subsidiaries as at the end of such period and the
related consolidated and consolidating statements of income, stockholders'
equity and cash flow for such quarter of a Fiscal Year and for the period from
the beginning of the then current Fiscal Year to the end of such quarter of a
Fiscal Year and such financial statements shall have been reviewed by a firm of
independent certified public accountants selected by Borrowers and acceptable to
Lender.
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(C) Year-End Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, Borrowers will
deliver: (1) the consolidated balance sheet of Borrowers and their respective
Subsidiaries as at the end of such year and the related consolidated statements
of income, stockholders' equity and cash flow for such Fiscal Year; (2) a
schedule of the outstanding Indebtedness of Borrowers and their respective
Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan; (3) a report with respect to the
financial statements from a firm of independent certified public accountants
selected by Borrowers and acceptable to Lender, which report shall be
unqualified as to going concern and scope of audit of Borrowers and their
respective Subsidiaries and shall state that (a) such consolidated financial
statements present fairly the consolidated financial position of Borrowers and
their respective Subsidiaries as at the dates indicated and the results of their
operations and cash flow for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years and (b) that the examination by
such accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards; and (4)
copies of the consolidating financial statements of Borrowers and their
respective Subsidiaries, including (a) consolidating balance sheets of Borrowers
and their respective Subsidiaries as at the end of such Fiscal Year showing
intercompany eliminations and (b) related consolidating statements of earnings
of Borrowers and their respective Subsidiaries showing intercompany
eliminations.
(D) Accountants' Certification and Reports. Together with each
delivery of consolidated financial statements of Borrowers and their respective
Subsidiaries pursuant to subsection 5.1(C), Borrowers will deliver (1) a written
statement by its independent certified public accountants (a) stating that the
examination has included a review of the terms of this Agreement as same relate
to accounting matters and (b) stating whether, in connection with the
examination, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof and
(2) a letter addressed to Lender from such accountants stating that such
accountants have been informed that a primary intent of Borrowers was to have
the professional services such accountants provided to Borrowers in preparing
their audit report and the letter referred to in this subsection 5.1(D) benefit
or influence Lender, and identifying Lenders as a party that Borrowers have
indicated intends to rely on such professional services provided to Borrowers by
such accountants. Promptly upon receipt thereof, Borrowers will deliver copies
of all significant reports submitted to Borrowers by independent public
accountants in connection with each annual, interim or special audit of the
financial statements of Borrowers made by such accountants, including the
comment letter submitted by such accountants to management in connection with
their annual audit.
(E) Compliance Certificate. Together with the delivery of each
set of financial statements referenced in subparts (A), (B) and (C) of this
subsection 5.1, Borrowers will deliver to
32
Lender a Compliance Certificate, together with copies of the calculations
and work-up employed to determine Borrowers' compliance or noncompliance
with the financial covenants set forth in Section 6.
(F) Borrowing Base Certificates, Registers and Journals. On
the Closing Date and within five (5) Business Days after both the fifteenth and
the last day of each month and from time to time upon the request of Lender,
each Borrower shall deliver to Lender: (1) a Borrowing Base Certificate updated
since the date of the prior Borrowing Base Certificate, together with a report
of the outstanding balance of the Revolving Loan owing by such Borrower and the
amount of all intercompany advances owing by and to such Borrower; (2) an
invoice register or sales journal describing all sales of such Borrower since
the date of the prior invoice register, in form and substance satisfactory to
Lender, and, if Lender so requests, copies of invoices evidencing such sales and
proofs of delivery relating thereto; (3) a cash receipts journal describing all
cash receipts of such Borrower since the date of the prior cash receipts
journal; (4) an aged trial balance of all its then existing Accounts; and (5) an
aged trial balance of all its then existing accounts payable; and (6) a detailed
inventory listing and cover summary report. All such reports shall be in form
and substance satisfactory to Lender. Notwithstanding the foregoing, upon the
later of July 1, 1996, and the first day of the month following Lender's
completion of an acceptable field examination of each Borrower's reporting of
its Accounts and Inventory, provided that no Default or Event of Default shall
have occurred and be continuing and provided that Borrowers continuously
maintain thereafter aggregate Availability of not less than $750,000, Borrowers
shall be required to deliver to Lender the reports set forth in this subsection
5.1(F) only once each month, within five (5) Business Days after last day of
each month.
(G) Management Report. Together with each delivery of
financial statements of Borrowers and their respective Subsidiaries pursuant to
subdivisions (A), (B) and (C) of this subsection 5.1, Borrowers will deliver a
management report: (1) describing the operations and financial condition of
Borrowers and their respective Subsidiaries for the month then ended and the
portion of the current Fiscal Year then elapsed (or for the Fiscal Year then
ended in the case of year-end financials); (2) setting forth in comparative form
the corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the most recent Projections for the
current Fiscal Year delivered to Lender pursuant to 5.1(O); and (3) discussing
the reasons for any significant variations. The information above shall be
presented in such detail as Lender and Borrowers shall mutually agree within two
(2) months after the Closing Date (or in the absence of an agreement, in such
detail as Lender shall reasonably request based upon similar reports received
from its other asset-based lending borrowers) and shall be certified by the
chief financial officer of Borrowers to the effect that such information fairly
presents the results of operations and financial condition of Borrowers and
their respective Subsidiaries as at the dates and for the periods indicated.
(H) Appraisals. From time to time, upon the request of Lender,
Borrowers will obtain and deliver to Lender, at Borrowers' expense, appraisal
reports in form and substance and
33
from appraisers satisfactory to Lender, stating the then current fair
market and orderly liquidation values of all or any portion of the Collateral;
provided, however, so long as no Event of Default is continuing, Lender shall
not request an appraisal as to any particular category of Collateral to
be performed more than once every Loan Year at Borrowers' expense.
(I) Government Notices. Borrowers will deliver to Lender
promptly after receipt copies of all notices, requests, subpoenas, inquiries or
other writings received from any governmental agency concerning any Employee
Benefit Plan, the violation or alleged violation of any Environmental Laws, the
storage, use or disposal of any Hazardous Material, the violation or alleged
violation of the Fair Labor Standards Act or Borrowers' payment or non-payment
of any taxes including any tax audit.
(J) Events of Default, etc. Promptly upon any officer of a
Borrower obtaining knowledge of any of the following events or conditions,
Borrowers shall deliver a certificate of Borrowers' chief executive officer
specifying the nature and period of existence of such condition or event and
what action Borrowers have taken, are taking and propose to take with respect
thereto: (1) any condition or event that constitutes an Event of Default or
Default; (2) any notice of default that any Person has given to Borrowers or any
of their respective Subsidiaries or any other action taken with respect to a
claimed default; or (3) any Material Adverse Effect.
(K) Trade Names. Borrowers and each of their respective
Subsidiaries will give Lender at least thirty (30) days advance written notice
of any change of name or of any new trade name or fictitious business name. Each
Borrower's use of any trade name or fictitious business name will be in
compliance with all laws regarding the use of such names.
(L) Locations. Borrowers will give Lender at least thirty (30)
days advance written notice of any change in a Borrower's principal place of
business or any change in the location of its books and records or the
Collateral or of any new location for its books and records or the Collateral.
(M) Bank Accounts. Borrowers will give Lender prompt notice of
any new bank accounts a Borrower or any of its Subsidiaries intends to establish
prior to its their opening same.
(N) Litigation. Promptly upon any officer of a Borrower or its
subsidiaries obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrowers to Lender or (2) any material development in any action, suit,
proceeding, governmental investigation or arbitration at any time pending
against or affecting any Loan Party or any property of any Loan Party which is
reasonably likely to have a Material Adverse Effect, Borrowers will promptly
give notice thereof to Lender and provide such other information as may be
reasonably available to them to enable Lender and its counsel to evaluate such
matter.
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(O) Projections. As soon as available and in any event no
later than the last day of Borrowers' Fiscal Year, Borrowers will deliver
consolidated and consolidating Projections of Borrowers and their respective
Subsidiaries through the Termination Date, which Projections shall be month by
month for the forthcoming Fiscal Year and shall be year by year thereafter.
(P) Preferred Stock and Indebtedness Notices. Borrowers shall
promptly deliver copies of all notices given or received by a Borrower and any
of its Subsidiaries with respect to noncompliance with any term or condition
related to the Preferred Stock or any Indebtedness, and shall promptly notify
Lender of any potential or actual event of default with respect to the Preferred
Stock or any Indebtedness.
(Q) Other Information. With reasonable promptness, Borrowers
will deliver such other information and data with respect to any Loan Party, any
Subsidiary of any Loan Party or the Collateral as Lender may reasonably request
from time to time.
(R) Opening Balance Sheet. As soon as available and in any
event within ninety (90) days after the Closing Date, Borrowers will deliver an
audited consolidated and consolidating balance sheet as of the effective date of
the MedTox Acquisition prepared by a firm of independent certified public
accountants reasonably acceptable to Lender.
5.2 Access to Accountants. Borrowers authorize Lender to discuss the
financial condition and financial statements of Borrowers and their respective
Subsidiaries with Borrowers' independent public accountants upon reasonable
notice to Borrowers of its intention to do so, and authorizes such accountants
to respond to all of Lender's inquiries.
5.3 Inspection. Borrowers shall permit Lender and any authorized
representatives designated by Lender to visit and inspect any of the properties
of Borrowers or any of its Subsidiaries, including their financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss their affairs, finances and business with their officers and independent
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably requested. Borrowers acknowledge that Lender intends
to make such inspections on at least a quarterly basis.
5.4 Collateral Records. Borrowers shall keep full and accurate books
and records relating to the Collateral and shall mark such books and records to
indicate Lender's security interests in the Collateral.
5.5 Account Covenants; Verification. Borrowers shall, at their own
expense: (a) cause all invoices evidencing Accounts and all copies thereof to
bear a notice that such invoices are payable to the lockboxes established in
accordance with subsection 5.6 and (b) use its best efforts to assure prompt
payment of all amounts due or to become due under the Accounts. No discounts,
35
credits or allowances will be issued, granted or allowed with respect to
Accounts by Borrowers to customers and no returns will be accepted without
Lender's prior written consent; provided, that until Lender notifies Borrowers
to the contrary, Borrowers may presume consent. Borrowers will immediately
notify Lender in the event that a customer alleges any dispute or claim with
respect to an Account or of any other circumstances known to Borrowers that may
impair the validity or collectibility of an Account. Lender shall have the
right, at any time or times hereafter, to verify the validity, amount or any
other matter relating to an Account, by mail, telephone or in person. After the
occurrence of a Default or an Event of Default, Borrowers shall not, without the
prior consent of Lender, adjust, settle or compromise the amount or payment of
any Account, or release wholly or partly any customer or obligor thereof, or
allow any credit or discount thereon.
5.6 Collection of Accounts and Payments. Each Borrower shall establish
lockboxes and blocked accounts (collectively, "Blocked Accounts") in such
Borrower's name with such banks ("Collecting Banks") as are acceptable to Lender
(subject to irrevocable instructions acceptable to Lender as hereinafter set
forth) to which all account debtors of such Borrower shall directly remit all
payments on Accounts and in which such Borrower will immediately deposit all
payments made for Inventory or other payments constituting proceeds of
Collateral in the identical form in which such payment was made, whether by cash
or check. The Collecting Banks shall acknowledge and agree, in a manner
satisfactory to Lender, that all payments made to the Blocked Accounts are the
sole and exclusive property of Lender, and that the Collecting Banks have no
right of setoff against the Blocked Accounts and that all such payments received
will be promptly transferred to Lender's Account. Borrowers hereby agree that
all payments received by Lender, whether by cash, check, wire transfer or any
other instrument, made to such Blocked Accounts or otherwise received by Lender
and whether on the Accounts or as proceeds of other Collateral or otherwise will
be the sole and exclusive property of Lender. The applicable Borrower shall
irrevocably instruct each Collecting Bank to promptly transfer all payments or
deposits to the Blocked Accounts into Lender's Account. Each Borrower, and any
of its Affiliates, employees, agents or other Persons acting for or in concert
with a Borrower, shall, acting as trustee for Lender, receive, as the sole and
exclusive property of Lender, any monies, checks, notes, drafts or any other
payments relating to and/or proceeds of Accounts or other Collateral which come
into the possession or under the control of a Borrower or any of a Borrower's
Affiliates, employees, agents or other Persons acting for or in concert with a
Borrower, and immediately upon receipt thereof, Borrowers or such Persons shall
remit the same or cause the same to be remitted, in kind, to the Blocked
Accounts or to Lender at its address set forth in subsection 9.6 below.
5.7 Endorsement. Each Borrower hereby constitutes and appoints Lender
and all Persons designated by Lender for that purpose as such Borrower's true
and lawful attorney-in-fact, with power to endorse such Borrower's name to any
of the items of payment or proceeds described in subsection 5.6 above and all
proceeds of Collateral that come into Lender's possession or under Lender's
control. Both the appointment of Lender as each Borrower's attorney and Lender's
rights and powers are coupled with an interest and are irrevocable until payment
in full and complete performance of all of the Obligations.
36
5.8 Corporate Existence. Each Borrower will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business.
Borrowers will promptly notify Lender of any change in a Borrower's or its
Subsidiaries' ownership or corporate structure.
5.9 Payment of Taxes. Borrowers will, and will cause each of their
respective Subsidiaries to, pay all taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or with respect to
any of its franchises, business, income or property before any penalty accrues
thereon provided that no such tax need be paid if a Borrower or one of its
Subsidiaries is contesting same in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such Borrower or such
Subsidiary has established appropriate reserves as shall be required in
conformity with GAAP.
5.10 Maintenance of Properties; Insurance. Each Borrower will maintain
or cause to be maintained in good repair, working order and condition all
material properties used in the business of such Borrower and its Subsidiaries
and will make or cause to be made all appropriate repairs, renewals and
replacements thereof. Borrowers will maintain or cause to be maintained, with
financially sound and reputable insurers, public liability and property damage
insurance with respect to their respective businesses and properties and the
businesses and properties of their respective Subsidiaries against loss or
damage of the kinds customarily carried or maintained by corporations of
established reputation engaged in similar businesses and in amounts acceptable
to Lender. Borrowers shall cause Lender to be named as loss payee on all
insurance policies relating to any Collateral and as additional insured under
all liability policies, in each case pursuant to appropriate endorsements in
form and substance satisfactory to Lender and shall collaterally assign to
Lender as security for the payment of the Obligations all business interruption
insurance of Borrowers. Borrowers shall apply any proceeds received from any
policies of insurance relating to any Collateral to the Obligations as set forth
in subsection 2.4(B).
5.11 Compliance with Laws. Each Borrower will, and will cause each of
its Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and which
may be imposed in the future in all jurisdictions in which each Borrower or any
of its Subsidiaries is now doing business or may hereafter be doing business,
other than those laws the noncompliance with which would not have a Material
Adverse Effect.
5.12 Further Assurances. Each Borrower shall, and shall cause each of
its Subsidiaries to, from time to time, execute such guaranties, financing or
continuation statements, documents, security agreements, reports and other
documents or deliver to Lender such instruments, certificates of title or other
documents as Lender at any time may reasonably request to evidence, perfect or
otherwise implement the guaranties and security for repayment of the Obligations
provided for in the Loan Documents. At Lender's request, Borrowers shall cause
any Subsidiaries of Borrowers
37
promptly to guaranty the Obligations and to grant to Lender security interests
in the real, personal and mixed property of such Subsidiary to secure the
Obligations.
5.13 Collateral Locations. Borrowers will keep the Collateral at
the locations specified on Schedule 4.7. With respect to any new location (which
in any event shall be within the continental United States), Borrowers will
execute such documents and take such actions as Lender deems necessary to
perfect and protect the security interests of the Lender in the Collateral prior
to the transfer or removal of any Collateral to such new location.
5.14 Bailees. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of a Borrower's agents or processors,
such Borrower shall, upon the request of Lender, notify such warehouseman,
bailee, agent or processor of the security interests in favor of Lender created
hereby and shall instruct such Person to hold all such Collateral for Lender's
account subject to Lender's instructions.
5.15 Use of Proceeds and Margin Security. Borrowers shall use the
proceeds of all Loans for proper business purposes consistent with all
applicable laws, statutes, rules and regulations. No portion of the proceeds of
any Loan shall be used by a Borrower or any of its Subsidiaries for the purpose
of purchasing or carrying of margin stock within the meaning of Regulation G or
Regulation U, or in any manner that might cause the borrowing or the application
of such proceeds to violate Regulation T or Regulation X or any other regulation
of the Board of Governors of the Federal Reserve System, or to violate the
Exchange Act.
6 FINANCIAL COVENANTS
Borrowers covenant and agree that so long as any of the Commitments
remain in effect and until payment in full of all Obligations, Borrowers shall
comply with and shall cause each of their respective Subsidiaries to comply with
all covenants in this Section 6.
6.1 Tangible Net Worth. Borrowers shall maintain a consolidated
Tangible Net Worth of at least the amounts set forth below at the end of each
quarter of a Fiscal Year set forth below.
Fiscal Quarter Amount
March 31, 1996 $ 500,000
June 30, 1996 1,000,000
September 30, 1996 1,500,000
December 31, 1996 2,000,000
March 31, 1997 2,500,000
June 30, 1997 2,500,000
September 30, 1997 2,700,000
38
December 31, 1997 3,000,000
March 31, 1998 3,500,000
June 30, 1998 4,000,000
September 30, 1998 4,750,000
December 31, 1998 and as of the
end of each of each fiscal quarter
thereafter 5,250,000
6.2 Minimum EBITDA. Borrowers shall at all times maintain a
consolidated EBITDA less Registration Payments paid or accrued of at least the
amount set forth below for the applicable period set forth below.
Editek &
Period diAGnostix PDLA Consolidated
Two (2) Months ending February 29, $ 100,000 $ 50,000 $ 150,000
Three (3) months ending March 31, 1996 100,000 100,000 200,000
Four (4) months ending April 30, 1996 100,000 400,000 500,000
Five (5) months ending May 31, 1996 100,000 800,000 900,000
Six (6) months ending June 30, 1996 200,000 1,000,000 1,200,000
Seven (7) months ending July 31, 1996 200,000 1,400,000 1,600,000
Eight (8) months ending August 31, 1996 200,000 1,800,000 2,000,000
Nine (9) months ending September 30, 1996 200,000 2,100,000 2,300,000
Ten (10) months ending October 31, 1996 300,000 2,400,000 2,700,000
Eleven (11) months ending November 30, 1996 300,000 2,800,000 3,100,000
Twelve (12) month ending December 31, 1996 300,000 3,100,000 3,400,000
Twelve (12) month ending March 31, 1997 350,000 3,100,000 3,450,000
Twelve (12) month ending June 30, 1997 350,000 3,150,000 3,500,000
Twelve (12) month ending September 30, 1997 400,000 3,150,000 3,550,000
Twelve (12) month ending December 31, 1997 400,000 3,200,000 3,600,000
Twelve (12) month ending March 31, 1998 400,000 3,250,000 3,650,000
Twelve (12) month ending June 30, 1998 500,000 3,200,000 3,700,000
Twelve (12) month ending September 30, 1998 500,000 3,250,000 3,750,000
Twelve (12) month ending December 31, 1998
and for the twelve (12) months ending at the
end of each fiscal quarter thereafter 500,000 3,300,000 3,800,000
6.3 Ratio of Indebtedness to Tangible Net Worth. The ratio of (a)
Borrowers' consolidated Indebtedness to (b) Borrowers' consolidated Tangible Net
Worth, shall be no greater than the ratio set forth below at the end of each
quarter of a Fiscal Year set forth below.
39
Fiscal Quarter Ratio
March 31, 1996 7.5:1
June 30, 1996 7.5:1
September 30, 1996 7.5:1
December 31, 1996 7.5:1
March 31, 1997 4.5:1
June 30, 1997 4.5:1
September 30, 1997 4.5:1
December 31, 1997 4.5:1
March 31, 1998 3.0:1
June 30, 1998 3.0:1
September 30, 1998 3.0:1
December 31, 1998 and as of the
end of each of each fiscal quarter
thereafter 3.0:1
6.4 Capital Expenditure Limits. The aggregate amount of all
Capital Expenditures of Borrowers and their respective Subsidiaries (excluding
trade-ins and excluding Capital Expenditures in respect of replacement assets to
the extent funded with casualty insurance proceeds) will not exceed $950,000 in
any Fiscal Year. In the event that a Borrower or any of its Subsidiaries enters
into a Capital Lease or other contract with respect to fixed assets, for
purposes of calculating Capital Expenditures under this subsection only, the
amount of the Capital Lease or contract initially capitalized on such Borrower's
or Subsidiary's balance sheet prepared in accordance with GAAP shall be
considered expended in full on the date that such Borrower or Subsidiary enters
into such Capital Lease or contract.
6.5 Fixed Charge Coverage. Borrowers shall not permit their
consolidated Fixed Charge Coverage for any period set forth below to be less
than the amount set forth below for such period.
Period Amount
Three (3) Months ending March 31, 1996 0.8
Six (6) months ending June 30, 1996 1.0
Nine (9) months ending September 30, 1996 1.3
Twelve (12) month ending December 31, 1996 1.3
40
Twelve (12) month ending March 31, 1997 1.3
Twelve (12) month ending June 30, 1997 1.4
Twelve (12) month ending September 30, 1997 1.4
Twelve (12) month ending December 31, 1997 1.4
Twelve (12) month ending March 31, 1998 1.4
Twelve (12) month ending June 30, 1998 1.4
Twelve (12) month ending September 30, 1998 1.4
Twelve (12) month ending December 31, 1998
and for the twelve (12) months ending at the
end of each fiscal quarter thereafter 1.4
6.6 Interest Coverage. Borrowers shall not permit their
consolidated Interest Coverage for any period set forth below to be less than
the amount set forth below for such period.
Period Amount
Three (3) Months ending March 31, 1996 3.0
Six (6) months ending June 30, 1996 3.4
Nine (9) months ending September 30, 1996 4.6
Twelve (12) month ending December 31, 1996 5.6
Twelve (12) month ending March 31, 1997 6.0
Twelve (12) month ending June 30, 1997 6.0
Twelve (12) month ending September 30, 1997 6.0
Twelve (12) month ending December 31, 1997 6.0
Twelve (12) month ending March 31, 1998 6.0
Twelve (12) month ending June 30, 1998 6.0
Twelve (12) month ending September 30, 1998 6.0
Twelve (12) month ending December 31, 1998
and for the twelve (12) months ending at the
end of each fiscal quarter thereafter 6.0
7 NEGATIVE COVENANTS
Borrowers covenant and agree that so long as any of the Commitments
remain in effect and until payment in full of all Obligations, unless Borrowers
have received the prior written consent of Lender, Borrowers shall not and will
not permit any of their respective Subsidiaries to:
7.1 Indebtedness and Liabilities. Directly or indirectly create,
incur, assume, guaranty, or otherwise become or remain directly or indirectly
liable, on a fixed or contingent basis, with respect to any Indebtedness except:
(a) the Obligations; (b) intercompany Indebtedness, not to exceed $250,000
outstanding at any time in the aggregate, among Borrowers; provided that such
41
Indebtedness is subordinated in right of payment to the Obligations; (c)
Indebtedness (excluding capital leases) not to exceed $100,000 in the aggregate
at any time outstanding secured by purchase money Liens; (d) Indebtedness under
Capital Leases not to exceed $250,000 outstanding at any time in the aggregate;
and (e) Indebtedness existing on the Closing Date and identified on Schedule
7.1. Except for Indebtedness described permitted in the preceding sentence,
Borrowers will not, and will not permit any of their respective Subsidiaries to,
incur any Liabilities except for trade payables and normal accruals in the
ordinary course of business not yet due and payable or with respect to a
Borrower or any of its Subsidiaries is contesting in good faith the amount or
validity thereof by appropriate proceedings and then only to the extent that
such Borrower or Subsidiary has established adequate reserves therefor, if
appropriate under GAAP.
7.2 Guaranties. Except for endorsements of instruments or items of
payment for collection in the ordinary course of business, guaranty, endorse, or
otherwise in any way become or be responsible for any obligations of any other
Person, whether directly or indirectly by agreement to purchase the indebtedness
of any other Person or through the purchase of goods, supplies or services, or
maintenance of working capital or other balance sheet covenants or conditions,
or by way of stock purchase, capital contribution, advance or loan for the
purpose of paying or discharging any indebtedness or obligation of such other
Person or otherwise.
7.3 Transfers, Liens and Related Matters.
(A) Transfers. Sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to any of the Collateral
or the assets of such Person, except that Borrowers and their respective
Subsidiaries may (i) sell inventory in the ordinary course of business; and
(ii) make Asset Dispositions if all of the following conditions are met:
(1) the market value of assets sold or otherwise disposed of in any single
transaction or series of related transactions does not exceed $25,000 and
the aggregate market value of assets sold or otherwise disposed of in any
Fiscal Year does not exceed $50,000; (2) the consideration received is at
least equal to the fair market value of such assets; (3) the sole consideration
received is cash; (4) the net proceeds of such Asset Disposition are applied as
required by subsection 2.4(B); (5) after giving effect to the sale or other
disposition of the assets included within the Asset Disposition and the
repayment of the Obligations with the proceeds thereof, Borrowers are in
compliance on a pro forma basis with the covenants set forth in Section 6
recomputed for the most recently ended month for which information is
available and is in compliance with all other terms and conditions
contained in this Agreement; and (6) no Default or Event of Default shall
then exist or result from such sale or other disposition.
(B) Liens. Except for Permitted Encumbrances, directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to any
of the Collateral or the assets of such Person or any proceeds, income or
profits therefrom.
42
(C) No Negative Pledges. Enter into or assume any agreement (other than
the Loan Documents) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
(D) No Restrictions on Subsidiary Distributions to Borrowers. Except as
provided herein, directly or indirectly create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to: (1) pay dividends or make any
other distribution on any of such Subsidiary's capital stock owned by a
Borrower or any Subsidiary of a Borrower; (2) subject to subordination
provisions, pay any indebtedness owed to a Borrower or any other Subsidiary;
(3) make loans or advances to a Borrower or any other Subsidiary; or (4)
transfer any of its property or assets to a Borrower or any other
Subsidiary.
7.4 Investments and Loans. Make or permit to exist investments in
or loans to any other Person, except: (a) Cash Equivalents; and (b) loans and
advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business in an aggregate outstanding amount
not in excess of $50,000 at any time.
7.5 Restricted Junior Payments. Directly or indirectly declare, order,
pay, make or set apart any sum for any Restricted Junior Payment, except that:
(a) Subsidiaries of Borrowers may make Restricted Junior
Payments with respect to their common stock to the extent necessary to
permit Borrowers to pay the Obligations, to make Restricted Junior
Payments permitted under clause (b) below and to permit Borrowers to
pay expenses incurred in the ordinary course of business; and
(b) Editek may make dividend payments on the Preferred Stock
and may make Registration Payments, provided that all of the following
limitations shall be applicable to dividend payments and Registration
Payments:
(i) no Default or Event of Default may be
existence at the time of such payment or
may be created by any such payment;
(ii) no such payment may be made prior to
February 1, 1997;
(iii) no such payment may be made prior to the
repayment in full of all principal of and interest on Term
Loan B;
(iv) no such payment may be made in any Fiscal
Year prior to the delivery to Lender of Borrowers' audited
financial statements for the previous Fiscal Year;
43
(v) the aggregate amount of dividend payments and
Registration Payments in a Fiscal Year shall not exceed of the
lesser of (A) nine percent (9%) of the amount of outstanding
Preferred Stock and (B) one-third of Borrowers' Excess Cash
Flow for the previous Fiscal Year, as determined from
Borrower's audited financial statements delivered to Lender;
and
(vi) after giving effect to any such payment,
Availability shall not be less than $500,000.
7.6 Restriction on Fundamental Changes. (a) Enter into any
transaction of merger or consolidation, except that a Borrower may merge with
another Borrower and PDLA may merge with Princeton; (b) liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution); (c) convey, sell,
lease, sublease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its business or assets,
or the capital stock of any of its Subsidiaries, whether now owned or hereafter
acquired; or (d) except for the MedTox Acquisition, 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.
7.7 Changes Relating to Preferred Stock. Change or amend the terms
of the Preferred Stock if the effect of such amendment is to: (a) increase the
dividend rate thereon; (b) change the redemption provisions thereof; or (c)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Preferred Stock in a manner adverse to any Borrower, any of
its Subsidiaries, or Lender.
7.8 Transactions with Affiliates. Directly or indirectly, enter
into or permit to exist any transaction (including the purchase, sale or
exchange of property or the rendering of any service) with any Affiliate or with
any officer, director or employee of any Loan Party, except for transactions in
the ordinary course of and pursuant to the reasonable requirements of Borrowers'
business and upon fair and reasonable terms which are fully disclosed to Lender
and which are no less favorable to Borrowers than they would obtain in a
comparable arm's length transaction with an unaffiliated Person.
7.9 Environmental Liabilities. (a) Violate any applicable
Environmental Law; (b) dispose of any Hazardous Materials (except in accordance
with applicable law) into or onto or from, any real property owned, leased or
operated by any Loan Party; or (c) permit any Lien imposed pursuant to any
Environmental Law to be imposed or to remain on any real property owned, leased
or operated by any Loan Party.
44
7.10 Conduct of Business. From and after the Closing Date, engage
in any business other than businesses of the type engaged in by Borrowers or
such Subsidiary on the Closing Date.
7.11 Compliance with ERISA. Establish any new Employee Benefit Plan
or amend any existing Employee Benefit Plan if the liability or increased
liability resulting from such establishment or amendment is material. No
Borrower nor any of its Subsidiaries shall fail to establish, maintain and
operate each Employee Benefit Plan in compliance in all material respects with
the provisions of ERISA, the IRC and all other applicable laws and the
regulations and interpretations thereof.
7.12 Tax Consolidations. File or consent to the filing of any
consolidated income tax return with any Person other than a Borrower or any of
its Subsidiaries.
7.13 Subsidiaries. Establish, create or acquire any new Subsidiaries.
7.14 Fiscal Year. Change its Fiscal Year.
7.15 Press Release; Public Offering Materials. Disclose the name of
Lender in any press release or in any prospectus, proxy statement or other
materials filed with any governmental entity relating to a public offering of
the capital stock of any Loan Party except as may be required by law.
7.16 Bank Accounts. Establish any new bank accounts, or amend or
terminate any Blocked Account or lockbox agreement.
8 DEFAULT, RIGHTS AND REMEDIES
8.1 Event of Default. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) Payment. Failure to make payment of any of the Obligations
when due and in the case of interest, such failure shall not be cured within
five (5) days of the applicable due date; or
(B) Default in Other Agreements. (1) Failure of a Borrower or any of
its Subsidiaries to pay when due any principal or interest on any
Indebtedness (other than the Obligations) or (2) breach or default of
a Borrower or any of its Subsidiaries with respect to any Indebtedness
(other than the Obligations); if such failure to pay, breach or default
entitles the holder to cause such Indebtedness having an individual
principal amount in excess of $25,000 or having
45
an aggregate principal amount in excess of $50,000 to become or be declared due
prior to its stated maturity; or
(C) Breach of Certain Provisions. Failure of Borrowers to perform
or comply with any term or condition contained in subsections 5.1 (A), (B), (C)
and (R), 5.3, 5.5 or 5.6 or contained in Section 6 or Section 7; or
(D) Breach of Warranty. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
(E) Other Defaults Under Loan Documents. A Borrower or any other
Loan Party defaults in the performance of or compliance with any term
contained in this Agreement or the other Loan Documents and such default is
not remedied or waived within ten (10) days after receipt by Borrowers of
notice from Lender of such default (other than occurrences described in
other provisions of this subsection 8.1 for which a different grace or cure
period is specified or which constitute immediate Events of Default); or
(F) Change in Control. Editek ceases to beneficially own and
control, directly or indirectly, one hundred percent (100%) of the issued
and outstanding shares of each class of capital stock of PDLA and diAGnostix;
or
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. (1) A court
enters a decree or order for relief with respect to a Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed or other similar relief is not
granted under any applicable federal or state law; or (2) the continuance of any
of the following events for sixty (60) days unless dismissed, bonded or
discharged: (a) an involuntary case is commenced against a Borrower or any of
its Subsidiaries, under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect; or (b) adecree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over a Borrower or any of its Subsidiaries,
or over all or a substantial part of their respective property, is entered; or
(c) an interim receiver, trustee or other custodian is appointed without
the consent of a Borrower or any of its Subsidiaries, for all or a
substantial part of the property of such Borrower or Subsidiary; or
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An
order for relief is entered with respect to a Borrower or any of its
Subsidiaries, or a Borrower or any of its Subsidiaries commences a voluntary
case under the Bankruptcy Code or any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case or to the conversion of an involuntary
case to a voluntary case under any such law or consents to the appointment
of or taking possession by a receiver, trustee or other
46
custodian for all or a substantial part of its property; or (2) a Borrower or
any of its Subsidiaries makes any assignment for the benefit of creditors; or
(3) the board of directors of a Borrower or any of its Subsidiaries
adopts any resolution or otherwise authorizes action to approve any of the
actions referred to in this subsection 8.1(H); or
(I) Liens. Any lien, levy or assessment is filed or recorded with
respect to or otherwise imposed upon all or any part of the Collateral or the as
sets of a Borrower or any of its Subsidiaries by the United States or any
department or instrumentality thereof or by any state, county, municipality or
other governmental agency (other than Permitted Encumbrances) unless such lien,
levy or assessment is stayed, vacated, paid or discharged within ten (10) days
or Borrowers contest the validity thereof in good faith by appropriate
proceedings and establish appropriate reserves on their books in respect
thereof; or
(J) Judgment and Attachments. Any money judgment, writ or warrant of
attachment, or similar process involving (1) an amount in any individual case
in excess of $25,000 or (2) an amount in the aggregate at any time in excess
of $50,000 (in either case not adequately covered by insurance as to which
the insurance company has acknowledged coverage) is entered or filed against a
Borrower or any of its Subsidiaries or any of their respective assets and
remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(K) Dissolution. Any order, judgment or decree is entered against
a Borrower or any of its Subsidiaries decreeing the dissolution or split up
of a Borrower or that Subsidiary and such order remains undischarged or
unstayed for a period in excess of twenty (20) days; or
(L) Solvency. A Borrower ceases to be solvent (as represented by
Borrowers in subsection 4.17) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(M) Injunction. A Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part
of its business and such order continues for more than thirty (30) days; or
(N) Invalidity of Loan Documents. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null
and void, or any Loan Party denies that it has any further liability under any
Loan Documents to which it is party, or gives notice to such effect; or
(O) Failure of Security. Lender does not have or ceases to have a
valid and perfected first priority security interest in the Collateral
(subject to Permitted Encumbrances), in each case, for any reason other than
the failure of Lender to take any action within its control; or
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(P) Damage, Strike, Casualty. Any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy,
or other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing
activities at any facility of a Borrower or any of its Subsidiaries if any
such event or circumstance could reasonably be expected to have a Material
Adverse Effect; or
(Q) Licenses and Permits. The loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter acquired
by a Borrower or any of its Subsidiaries, if such loss, suspension,
revocation or failure to renew could have a Material Adverse Effect; or
(R) Forfeiture. There is filed against a Borrower any civil
or criminal action, suit or proceeding under any federal or state
racketeering statute (including, without limitation, the Racketeer
Influenced and Corrupt Organization Act of 1970), which action, suit or
proceeding (1) is not dismissed within one hundred twenty (120) days;
and (2) could result in the confiscation or forfeiture of any
material portion of the Collateral; or
8.2 Suspension of Commitments. Upon the occurrence of any Default
or Event of Default, notwithstanding any grace period or right to cure, Lender,
without notice or demand, may immediately cease making additional Loans and the
Commitments shall be suspended; provided that, in the case of a Default, if the
subject condition or event is waived or cured within any applicable grace or
cure period, the Commitments shall be reinstated.
8.3 Acceleration. Upon the occurrence of any Event of Default
described in the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrowers, and the Commitments shall thereupon terminate. Upon the
occurrence and during the continuance of any other Event of Default, Lender may,
by written notice to Borrowers, declare all or any portion of the Obligations to
be, and the same shall forthwith become, immediately due and payable and the
Commitments shall thereupon terminate.
8.4 Remedies. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any rights or remedies
available to Lender at law or in equity, Lender may exercise in respect of the
Collateral, in addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all obligors on the Accounts to make
all payments directly to Lender; (b) require Borrowers to, and Borrowers hereby
agree that they will, at their expense and upon request of Lender forthwith,
assemble all or part of the Collateral as directed by Lender and make it
available to Lender at a place to be designated by Lender which is reasonably
convenient to both parties; (c) withdraw all cash in the Blocked Accounts and
apply such monies in payment of the Obligations in
48
the manner provided in subsection 8.7; (d) without notice or demand or legal
process, enter upon any premises of a Borrower and take possession of the
Collateral; and (e) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Lender's offices or elsewhere, at such time or times, for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as Lender may deem commercially reasonable. Borrowers agree that,
to the extent notice of sale shall be required by law, at least ten (10) days
notice to Borrowers of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral, if permitted by law, Lender may bid (which bid
may be, in whole or in part, in the form of cancellation of indebtedness) for
the purchase of the Collateral or any portion thereof for the account of Lender.
Lender shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Borrowers shall remain liable for any
deficiency. Lender may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. To
the extent permitted by law, Borrowers hereby specifically waive all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Lender shall not be required to proceed
against any Collateral but may proceed against Borrowers directly.
8.5 Appointment of Attorney-in-Fact. Each Borrower hereby
constitutes and appoints Lender as such Borrower's attorney-in-fact with full
authority in the place and stead of such Borrower and in the name of such
Borrower, Lender or otherwise, from time to time in Lender's discretion while an
Event of Default is continuing to take any action and to execute any instrument
that Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including: (a) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral; (b) to adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any customer or
obligor thereunder or allow any credit or discount thereon; (c) to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper, in connection with clause (a) above; (d) to file any claims or take any
action or institute any proceedings that Lender may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights
of Lender with respect to any of the Collateral; and (e) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts and
other documents relating to the Collateral. The appointment of Lender as each
Borrower's attorney and Lender's rights and powers are coupled with an interest
and are irrevocable until payment in full and complete performance of all of the
Obligations.
49
8.6 Limitation on Duty of Lender with Respect to Collateral.
Beyond the safe custody thereof, Lender shall have no duty with respect to any
Collateral in its possession or control (or in the possession or control of any
agent or bailee) or with respect to any income thereon or the preservation of
rights against prior parties or any other rights pertaining thereto. Lender
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which Lender accords its own property.
Lender shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by Lender in good faith.
8.7 Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, (a) Borrowers irrevocably waive the right to
direct the application of any and all payments at any time or times thereafter
received by Lender from or on behalf of Borrowers, and Borrowers hereby
irrevocably agree that Lender shall have the continuing exclusive right to apply
and to reapply any and all payments received at any time or times after the
occurrence and during the continuance of an Event of Default against the
Obligations in such manner as Lender may deem advisable notwithstanding any
previous entry by Lender upon any books and records and (b) the proceeds of any
sale of, or other realization upon, all or any part of the Collateral shall be
applied: first, to all fees, costs and expenses incurred by Lender with respect
to this Agreement, the other Loan Documents or the Collateral; second, to all
fees due and owing to Lender; third, to accrued and unpaid interest on the
Obligations; fourth, to the principal amounts of the Obligations outstanding;
and fifth, to any other indebtedness or obligations of any Borrower owing to
Lender. Lender shall account to Borrowers for any surplus and Borrowers shall be
liable for any deficiency.
8.8 License of Intellectual Property. Each Borrower hereby
assigns, transfers and conveys to Lender, effective during the existence of any
Event of Default hereunder, the non-exclusive right and license to use all
Intellectual Property owned or used by such Borrower together with any goodwill
associated therewith, all to the extent necessary to enable Lender to realize on
the Collateral and any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all successors,
assigns and transferees of Lender and its successors, assigns and transferees,
whether by voluntary conveyance, operation of law, assignment, transfer,
foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is
granted free of charge, without requirement that any monetary payment whatsoever
be made to Borrowers by Lender.
8.9 Canadian Remedies. If any Event of Default shall have occurred
and be continuing, in addition to and not in limitation of any other rights or
remedies provided for herein or any rights or remedies available to Lender or
otherwise available to it at law or in equity, Lender shall have the following
rights, powers and remedies, subject to compliance with the PPSA, in respect of
any of the Collateral to which the PPSA is applicable:
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(A) to appoint any Person to be an agent or any
Person to be a receiver, manager or receiver and manager (herein called
the "Receiver") of such Collateral and to remove any Receiver so
appointed and to appoint another if the Lender so desires, it being
agreed that any Receiver appointed pursuant to the provisions of this
Agreement will have all of the powers of the Lender hereunder, and in
addition, will have the power to carry on the business of any Borrower;
(B) to make payments to parties having prior charges or
encumbrances on properties on which any Borrower may hold charges or
encumbrances;
(C) to take possession of all or any part of such
Collateral with power to exclude the Borrowers, their agents and
servants therefrom;
(D) to preserve, protect and maintain such Collateral
and make such replacements thereof and additions thereto as the Lender
may deem advisable;
(E) to enjoy and exercise all powers necessary or
incidental to the performance of all functions provided for in this
Agreement, including, without limitation, the power to purchase on
credit, the power to borrow in any Borrower's name or in the name of
the Receiver, the power to borrow on all or any part of such Collateral
in priority to this Agreement or otherwise for such purposes as may be
approved by the Lender to be evidenced by a Receiver's certificate, and
to advance its own money to the Borrowers at such rates of interest as
it may deem reasonable, provided that the Receiver may borrow money
only with the prior consent of the Lender;
(F) to sell, lease or dispose of all or any part of
such Collateral whether by public or private sale or lease or otherwise
in such manner and on such terms as to the Lender may seem commercially
reasonable, including, without limitation, terms that provide time for
payment or credit, provided that:
(1) the Lender or the Receiver will not be
required to sell, lease or dispose of such Collateral, but may
peaceably and quietly take, hold, use, occupy, possess and
enjoy such Collateral, without molestation, eviction,
hindrance or interruption by any Borrower or any other person
or persons whomsoever;
(2) the Lender or the Receiver may
convey, transfer and assign to a purchaser or purchasers
the title to any of such Collateral so sold; and
(3) the Borrowers will be entitled to be
credited with the actual proceeds of any such sale, lease or
other disposition only when such proceeds are received by the
Lender or the Receiver in cash;
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(G) to seize, collect, demand, enforce, recover and
receive all or any part of the Accounts, and to notify account debtors
of the Borrowers to pay such Accounts to the Lender or the Receiver,
and to give valid and binding receipts and discharges therefor and in
respect thereof, and to compromise all or any part of the Accounts that
may seem bad or doubtful to the Lender or the Receiver, and to give
time for payment thereof, with or without security;
(H) to enjoy and exercise all of the rights and
remedies of a secured party under the PPSA;
(I) to dispose of all or any part of such Collateral
in the condition in which it was on the date possession of it was
taken, or after any commercially reasonable repair, processing or
preparation for disposition;
(J) if such Collateral is perishable, or the Lender
or the Receiver believes on reasonable grounds that any part of such
Collateral will decline speedily in value, such Collateral is of a type
customarily sold on a recognized market, the cost of care and storage
of such Collateral is disproportionately large relative to its value,
or the Receiver disposes of such Collateral in the course of the
Borrowers' business, then the Lender or Receiver may sell or otherwise
dispose of any part of such Collateral without giving any notice
whatsoever;
(K) to commence, continue or defend proceedings in
any court of competent jurisdiction in the name of the Lender, the
Receiver or any Borrower for the purpose of exercising any of the
rights, powers and remedies set out in this subsection 8.09, including
the institution of proceedings for the appointment of a receiver,
manager or receiver and manager of such Collateral; and
(L) at the sole option of the Lender, elect to retain
all or any part of such Collateral in satisfaction of the Obligations.
8.10 Waivers, Non-Exclusive Remedies. No failure on the part of
Lender to exercise, and no delay in exercising and no course of dealing with
respect to, any right under this Agreement or the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise by Lender
of any right under this Agreement or any other Loan Document preclude any other
or further exercise thereof or the exercise of any other right. The rights in
this Agreement and the other Loan Documents are cumulative and are not exclusive
of any other remedies provided by law.
8.11 Judgment.
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(A) If for the purposes of obtaining judgment in any
court it is necessary to convert a sum due hereunder or under any instrument
delivered hereunder in any currency (the "Original Currency") into another
currency (the "Other Currency"), the parties hereto agree, to the fullest
extent permitted by law, that the rate of exchange used shall be that at
which in accordance with normal banking procedures the Lender could
purchase the Original Currency with the Other Currency on the Business
Day preceding that on which the payment is made.
(B) The obligation of any Borrower with respect to any
sum due from it to the Lender hereunder or under such instrument shall,
notwithstanding any judgment in any Other Currency, be discharged only to
the extent that on the Business Day following receipt by the Lender of any sum
adjudged to be so due in the Other Currency, the Lender may, in accordance with
normal banking procedures, purchase the Original Currency with the Other
Currency. If the amount of the Original Currency so purchased is less than the
sum originally due to the Lender in the Original Currency, such Borrower
agrees to indemnify the Lender against such loss, and if the amount of the
Original Currency so purchased exceeds the sum originally due to the Lender
in the Original Currency, the Lender agrees to remit to the Borrowers
such excess. This indemnity shall constitute an obligation separate and
independent from the other obligations contained in this Agreement, shall give
rise to a separate and independent cause of action, shall apply irrespective of
any indulgence granted by the Lender from time to time and shall continue in
full force and effect notwithstanding any judgment or order for a liquidated
sum in respect of any amount due hereunder or under any judgment or order.
9 MISCELLANEOUS
9.1 Assignments and Participations. Lender may assign its rights
and delegate its obligations under this Agreement and further may assign, or
sell participations in, all or any part of the Loans, the Commitments or any
other interest herein to an Affiliate or to another Person. In the case of an
assignment authorized under this subsection 9.1, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would
if it were a Lender hereunder. Lender shall be relieved of its obligations
hereunder with respect to the Commitments or assigned portion thereof. Borrowers
hereby acknowledge and agree that any assignment will give rise to a direct
obligation of Borrowers to the assignee and that the assignee shall be
considered to be a "Lender". Lender may furnish any information concerning
Borrowers and their respective Subsidiaries in its possession from time to time
to assignees and participants (including prospective assignees and
participants).
9.2 Set Off. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, Lender, each assignee of Lender's interest,
and each participant is hereby authorized by Borrowers at any time or from time
to time, without notice to Borrowers or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all balances held
53
by it at any of its offices for the account of a Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to a Borrower
or its Subsidiaries) and any other property at any time held or owing by that
Lender or assignee to or for the credit or for the account of a Borrower
against and on account of any of the Obligations then outstanding; provided,
that no participant shall exercise such right without the prior written consent
of Lender.
Borrowers hereby agree, to the fullest extent permitted by law, that
any Lender, assignee or participant may exercise its right of setoff with
respect to amounts in excess of its pro rata share of the Obligations (or, in
the case of a participant, in excess of its pro rata participation interest in
the Obligations) and that such Lender, assignee or participant, as the case may
be, shall be deemed to have purchased for cash in the amount of such excess,
participations in each other Lender's or holder's share of the Obligations.
9.3 Expenses and Attorneys' Fees. Whether or not the transactions
contemplated hereby shall be consummated, Borrowers agree to promptly pay all
reasonable fees, costs and expenses incurred by Lender in connection with any
matters contemplated by or arising out of this Agreement or the other Loan
Documents including the following, and all such reasonable fees, costs and
expenses shall be part of the Obligations, payable on demand and secured by the
Collateral: (a) reasonable fees, costs and expenses (including reasonable
attorneys' fees, allocated costs of internal counsel and reasonable fees of
environmental consultants, accountants and other professionals retained by
Lender) incurred in connection with the examination, review, due diligence
investigation, documentation and closing of the financing arrangements evidenced
by the Loan Documents; (b) reasonable fees, costs and expenses (including
reasonable attorneys' fees, allocated costs of internal counsel and reasonable
fees of environmental consultants, accountants and other professionals retained
by Lender) incurred in connection with the review, negotiation, preparation,
documentation, execution and administration of the Loan Documents, the Loans,
and any amendments, waivers, consents, forbearances and other modifications
relating thereto or any subordination or intercreditor agreements; (c)
reasonable fees, costs and expenses incurred in creating, perfecting and
maintaining perfection of Liens in favor of Lender; (d) reasonable fees, costs
and expenses incurred in connection with forwarding to Borrowers the proceeds of
Loans including Lender's standard wire transfer fee; (e) reasonable fees, costs,
expenses and bank charges, including bank charges for returned checks, incurred
by Lender in establishing, maintaining and handling lock box accounts, blocked
accounts or other accounts for collection of the Collateral; (f) reasonable
fees, costs, expenses (including reasonable attorneys' fees and allocated costs
of internal counsel) and costs of settlement incurred in collecting upon or
enforcing rights against the Collateral or incurred in any action to enforce
this Agreement or the other Loan Documents or to collect any payments due from
Borrowers or any other Loan Party under this Agreement or any other Loan
Document or incurred in connection with any refinancing or restructuring of the
credit arrangements provided under this Agreement, whether in the nature of a
"workout" or in connection with any insolvency or bankruptcy proceedings or
otherwise.
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9.4 Indemnity. In addition to the payment of expenses pursuant to
subsection 9.3, whether or not the transactions contemplated hereby shall be
consummated, Borrowers agree to indemnify, pay and hold Lender, and the
officers, directors, employees, agents, consultants, auditors, persons engaged
by Lender to evaluate or monitor the Collateral, affiliates and attorneys of
Lender and such holders (collectively called the "Indemnitees") harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including the reasonable fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) that may be imposed on, incurred by, or
asserted against that Indemnitee, in any manner relating to or arising out of
this Agreement or the other Loan Documents, the consummation of the transactions
contemplated by this Agreement, the statements contained in the commitment
letters, if any, delivered by Lender, Lender's agreement to make the Loans
hereunder, the use or intended use of the proceeds of any of the Loans or the
exercise of any right or remedy hereunder or under the other Loan Documents (the
"Indemnified Liabilities"); provided that Borrowers shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of that Indemnitee as determined by a
court of competent jurisdiction.
9.5 Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or of the other Loan
Documents, or consent to any departure by Borrowers therefrom, shall be
effective unless the same shall be in writing and signed by Lender and
Borrowers. Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given.
9.6 Notices. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective party as set forth below
and may be personally served, telecopied or sent by overnight courier service or
United States mail and shall be deemed to have been given: (a) if delivered in
person, when delivered; (b) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. Chicago time or,
if not, on the next succeeding Business Day; (c) if delivered by overnight
courier, two (2) days after delivery to such courier properly addressed; or (d)
if by U.S. Mail, four (4) Business Days after depositing in the United States
mail, with postage prepaid and properly addressed.
If to Borrowers: Editek, Inc.
1238 Anthony Road
Burlington, North Carolina 27215
Attention: President
Telecopy No.: (910) 229-4471
55
With a copy to: Petree Stockton, L.L.P.
4101 Lake Boone Trail, Suite 400
Raleigh, North Carolina 27607-6519
Attention: James F. Verdonik
Telecopy No.: (919) 420-1800
If to Lender: HELLER FINANCIAL, INC.
Attn: HBC Portfolio Manager
500 West Monroe Street
Chicago, Illinois 60661
Telecopy No.: (312) 441-6969
With a copy to: HELLER FINANCIAL, INC.
Attn: Legal Department
500 West Monroe Street
Chicago, Illinois 60661
Telecopy No. (312) 441-7367
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
9.6.
9.7 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrowers set forth in subsections 9.3 and 9.4 shall survive
the payment of the Loans and the termination of this Agreement.
9.8 Indulgence Not Waiver. No failure or delay on the part of
Lender in the exercise of any power, right or privilege shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
9.9 Marshaling; Payments Set Aside. Lender shall not be under any
obligation to marshal any assets in favor of any Loan Party or any other party
or against or in payment of any or all of the Obligations. To the extent that
any Loan Party makes a payment or payments to Lender or Lender enforces its
security interests or exercise its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued
56
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
9.10 Entire Agreement. This Agreement, the Term Notes, and the
other Loan Documents referred to herein embody the final, entire agreement among
the parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. There are no oral agreements among the parties hereto.
9.11 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
9.12 Severability. The invalidity, illegality or unenforceability
in any jurisdiction of any provision in or obligation under this Agreement or
the other Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
9.13 Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
9.14 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
9.15 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns except that Borrowers may not assign their rights or obligations
hereunder without the prior written consent of Lender.
9.16 No Fiduciary Relationship; Limitation of Liabilities.
(A) No provision in this Agreement or in any
of the other Loan Documents and no course of dealing between the parties
shall be deemed to create any fiduciary duty by Lender to Borrowers.
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(B) Neither Lender, nor any affiliate, officer,
director, shareholder, employee, attorney, or agent of Lender shall have any
liability with respect to, and Borrowers hereby waive, release, and
agree not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by Borrowers in
connection with, arising out of, or in any way related to, this Agreement
or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Borrowers hereby waive, release, and agree not to sue Lender or any of Lender's
affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
9.17 CONSENT TO JURISDICTION. EACH BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TERM
NOTES OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE TERM
NOTES, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS.
9.18 WAIVER OF JURY TRIAL. EACH BORROWER AND LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, THE TERM NOTES OR THE OTHER LOAN
DOCUMENTS. BORROWERS AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE TERM NOTES AND THE OTHER LOAN
DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. BORROWERS AND LENDER FURTHER WARRANT AND REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
9.19 Construction. Each Borrower and Lender each acknowledge that
it has had the benefit of legal counsel of its own choice and has been afforded
an opportunity to review this Agreement and the other Loan Documents with its
legal counsel and that this Agreement and the other Loan Documents shall be
construed as if jointly drafted by Borrowers and Lender.
58
9.20 Counterparts; Effectiveness. This Agreement and any
amendments, waivers, consents, or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one and the same instrument.
This Agreement shall become effective upon the execution of a counterpart hereof
by each of the parties hereto.
9.21 No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Lender shall have the right to
act exclusively in the interest of Lender and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to Borrowers or any of any Borrower's shareholders or any other
Person.
9.22 Confidentiality. Lender shall hold all nonpublic information
identified as such by Borrowers in accordance with such Person's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound business practices and in any event may make
disclosure reasonably required by a bona fide offeree or assignee (or
participation), or as required or requested by any Governmental Authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other advisors, and shall require any such offeree or assignee (or
participant) to agree (and require any of its offerees, assignees or
participants to agree) to comply with this Section 9.22. In no event shall
Lender be obligated or required to return any materials furnished by Borrowers;
provided, however, each Offeree shall be required to agree that if it does not
become a assignee (or participant) it shall return all materials furnished to it
by Borrowers in connection herewith.
[Signatures appear on following page]
59
Loan and Security Agreement - Signature Page
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
HELLER FINANCIAL, INC.
By:
Title:
EDITEK, INC.
By:
Title:
FEIN:
PSYCHIATRIC DIAGNOSTIC
LABORATORIES OF AMERICA, INC.
By:
Title:
FEIN:
DIAGNOSTIX, INC.
By:
Title:
FEIN:
60
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY ___, 1996
between
EDITEK, INC.
PSYCHIATRIC DIAGNOSTIC LABORATORIES OF AMERICA, INC.
DIAGNOSTIX, INC.
as Borrowers
and
HELLER FINANCIAL, INC.
as Lender
61
TABLE OF CONTENTS
SECTION 1 DEFINITIONS
1.1 Certain Defined Terms...................................... 1
1.2 Accounting Terms........................................... 11
1.3 Other Definitional Provisions.............................. 12
SECTION 2 LOANS AND COLLATERAL
2.1 Loans...................................................... 12
(A)(1) Term Loan A....................................... 12
(A)(2) Term Loan B....................................... 13
(B) Revolving Loan................... ............ 14
(C) Eligible Collateral................... ......... 15
(D) Borrowing Mechanics............................... 17
(E) Term Notes........................................ 18
(F) Evidence of Revolving Loan Obligations............ 18
2.2 Interest................................................... 18
(A) Rate of Interest......................... ........ 18
(B) Computation and Payment of Interest............... 18
(C) Interest Laws..................................... 18
2.3 Fees....................................................... 19
(A) Closing Fee....................................... 19
(B) Unused Line Fee................................... 19
(C) Prepayment Fees.................................. 19
(D) Collateral Monitoring Fee......................... 20
(E) Audit Fees........................................ 20
(F) Other Fees and Expenses........................... 20
2.4 Payments and Prepayments................................... 20
(A) Manner and Time of Payment........................ 20
(B) Mandatory Prepayments............................. 21
(1) Overadvance.............................. 21
(2) Proceeds of Asset Dispositions........... 21
(3) Prepayments from Excess Cash Flow........ 21
(C) Voluntary Prepayments and Repayments............. 21
(D) Payments on Business Days......................... 22
2.5 Term of this Agreement..................................... 22
2.6 Statements................................................. 22
2.7 Grant of Security Interest................................. 22
2.8 Capital Adequacy and Other Adjustments..................... 23
i
(A) No Deductions..................................... 23
(B) Changes in Tax Laws............................... 23
SECTION 3 CONDITIONS TO LOANS
3.1 Conditions to Loans........................................ 24
(A) Closing Deliveries................................ 24
(B) Security Interests................................ 24
(C) Closing Date Availability......................... 24
(D) Representations and Warranties.................... 24
(E) Fees.............................................. 25
(F) No Default........................................ 25
(G) Performance of Agreements......................... 25
(H) No Prohibition.................................... 25
(I) No Litigation..................................... 25
(J) Issuance of Preferred Stock....................... 25
(K) MedTox Acquisition................................ 25
SECTION 4 BORROWERS' REPRESENTATIONS AND WARRANTIES
4.1 Organization, Powers, Capitalization....................... 26
(A) Organization and Powers........................... 26
(B) Capitalization.................................... 26
4.2 Authorization of Borrowing, No Conflict................ ... 26
4.3 Financial Condition........................................ 27
4.4 Indebtedness and Liabilities............................... 27
4.5 Account Warranties......................................... 27
4.6 Names...................................................... 27
4.7 Locations; FEIN............................................ 27
4.8 Title to Properties; Liens................................. 27
4.9 Litigation; Adverse Facts.................................. 28
4.10 Payment of Taxes........................................... 28
4.11 Performance of Agreements.................................. 28
4.12 Employee Benefit Plans..................................... 28
4.13 Intellectual Property...................................... 28
4.14 Broker's Fees.............................................. 29
4.15 Environmental Compliance................................... 29
4.16 Solvency................................................... 29
4.17 Disclosure................................................. 29
4.18 Insurance.................................................. 29
4.19 Compliance with Laws....................................... 30
4.20 Bank Accounts.............................................. 30
ii
4.21 Subsidiaries............................................... 30
4.22 Employee Matters........................................ . 30
4.23 Governmental Regulation.....................................30
iii
SECTION 5 AFFIRMATIVE COVENANTS
5.1 Financial Statements and Other Reports..................... 31
(A) Monthly Financials................................ 31
(B) Quarterly Financials.............................. 31
(C) Year-End Financials............................... 31
(D) Accountants' Certification and Reports............ 32
(E) Compliance Certificate............................ 32
(F) Borrowing Base Certificates, Registers and
Journals.......................................... 32
(G) Management Report........................... ..... 33
(H) Appraisals........................................ 33
(I) Government Notices................................ 33
(J) Events of Default, etc............................ 34
(K) Trade Names....................................... 34
(L) Locations......................................... 34
(M) Bank Accounts..................................... 34
(N) Litigation........................................ 34
(O) Projections....................................... 34
(P) Preferred Stock and Indebtedness Notice........... 34
(Q) Other Information................................. 35
(R) Opening Balance Sheet............................. 35
5.2 Access to Accountants...................................... 35
5.3 Inspection................................................. 35
5.4 Collateral Records......................................... 35
5.5 Account Covenants; Verification............................ 35
5.6 Collection of Accounts and Payments........................ 36
5.7 Endorsement................................................ 36
5.8 Corporate Existence........................................ 36
5.9 Payment of Taxes........................................... 36
5.10 Maintenance of Properties; Insurance....................... 37
5.11 Compliance with Laws....................................... 37
5.12 Further Assurances......................................... 37
5.13 Collateral Locations....................................... 37
5.14 Bailees.................................................... 38
5.15 Use of Proceeds and Margin Security........................ 38
SECTION 6 FINANCIAL COVENANTS
6.1 Tangible Net Worth......................................... 38
6.2 Minimum EBITDA............................................. 39
6.3 Ratio of Indebtedness to Tangible Net Worth................ 39
6.4 Capital Expenditure Limits................................. 40
iv
6.5 Fixed Charge Coverage...................................... 40
6.6 Interest Coverage.......................................... 40
SECTION 7 NEGATIVE COVENANTS
7.1 Indebtedness and Liabilities............................... 41
7.2 Guaranties................................................. 42
7.3 Transfers, Liens and Related Matters....................... 42
(A) Transfers......................................... 42
(B) Liens............................................. 42
(C) No Negative Pledges............................... 42
(D) No Restrictions on Subsidiary Distributions to
Borrowers......................................... 42
7.4 Investments and Loans...................................... 43
7.5 Restricted Junior Payments................................. 43
7.6 Restriction on Fundamental Changes......................... 43
7.7 Changes Relating to Preferred Stock........................ 44
7.8 Transactions with Affiliates............................... 44
7.9 Environmental Liabilities.................................. 44
7.10 Conduct of Business........................................ 44
7.11 Compliance with ERISA...................................... 44
7.12 Tax Consolidations......................................... 44
7.13 Subsidiaries............................................... 44
7.14 Fiscal Year................................................ 44
7.15 Press Release; Public Offering Materials................... 45
7.16 Bank Accounts.............................................. 45
SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 Event of Default........................................... 45
(A) Payment........................................... 45
(B) Default in Other Agreements....................... 45
(C) Breach of Certain Provisions...................... 45
(D) Breach of Warranty................................ 45
(E) Other Defaults Under Loan Documents............... 45
(F) Change in Control................................. 46
(G) Involuntary Bankruptcy; Appointment of
Receiver, etc..................................... 46
(H) Voluntary Bankruptcy; Appointment of
Receiver, etc..................................... 46
(I) Liens............................................. 46
(J) Judgment and Attachments.......................... 46
(K) Dissolution....................................... 47
(L) Solvency.......................................... 47
(M) Injunction........................................ 47
v
(N) Invalidity of Loan Documents...................... 47
(O) Failure of Security............................... 47
(P) Damage, Strike, Casualty.......................... 47
(Q) Licenses and Permits.............................. 47
(R) Forfeiture........................................ 47
8.2 Suspension of Commitments.................................. 48
8.3 Acceleration............................................... 48
8.4 Remedies................................................... 48
8.5 Appointment of Attorney-in-Fact............................ 49
8.6 Limitation on Duty of Lender with Respect to Collateral.... 49
8.7 Application of Proceeds.................................... 49
8.8 License of Intellectual Property........................... 50
8.9 Canadian Remedies.......................................... 50
8.10 Waivers, Non-Exclusive Remedies............................ 52
8.11 Judgment................................................... 52
SECTION 9 MISCELLANEOUS
9.1 Assignments and Participations..............................53
9.2 Set Off.................................................... 53
9.3 Expenses and Attorneys' Fees............................... 53
9.4 Indemnity.................................................. 54
9.5 Amendments and Waivers..................................... 55
9.6 Notices.................................................... 55
9.7 Survival of Warranties and Certain Agreements.............. 56
9.8 Indulgence Not Waiver...................................... 56
9.9 Marshaling; Payments Set Aside............................. 56
9.10 Entire Agreement........................................... 56
9.11 Independence of Covenants.................................. 56
9.12 Severability............................................... 56
9.13 Headings................................................... 57
9.14 APPLICABLE LAW............................................. 57
9.15 Successors and Assigns..................................... 57
9.16 No Fiduciary Relationship; Limitation of Liabilities....... 57
9.17 CONSENT TO JURISDICTION.................................... 57
9.18 WAIVER OF JURY TRIAL....................................... 58
9.19 Construction............................................... 58
9.20 Counterparts; Effectiveness................................ 58
9.21 No Duty.................................................... 58
9.22 Confidentiality............................................ 58
vi
EXHIBITS
A Borrowing Base Certificate
B Compliance Certificate
SCHEDULES
1.1(A) Other Liens
1.1(B) Pro Forma
3.1(A) List of Closing Documents
4.1(B) Capitalization of Loan Parties
4.6 Trade Names (Present and Past Five Years)
4.7 Location of Principal Place of Business, Books
and Records and Collateral
4.13 Intellectual Property
4.14 Brokers Fees
4.20 Bank Accounts
4.21 Subsidiaries
4.22 Employee Matters
7.1 Existing Indebtedness
vii
EXHIBIT B
[FORM OF COMPLIANCE CERTIFICATE]
_________________, 19___
Heller Business Credit
500 West Monroe Street
Chicago, Illinois 60661
Re: Compliance Certificate for EDITEK and Subsidiaries
Ladies and Gentlemen:
This certificate is given in accordance with subsection 5.1(E) of that
certain Loan and Security Agreement dated as of January ___, 1996 by and between
EDITEK, Inc., Psychiatric Diagnostic Laboratories of America, Inc. and
DiAgnostix, Inc. ("Borrowers") and Heller Financial, Inc. (as the same may be
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"). Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Loan Agreement. I hereby certify that:
(a) I am the [Chief Executive Officer] [Chief Financial Officer]
of Editek;
(b) The enclosed consolidated and consolidating balance sheets,
income statements and cash flow statements of Borrowers and
their respective Subsidiaries fairly present the consolidated
and consolidating financial condition of Borrowers and their
respective Subsidiaries as of the dates indicated, and I have
reviewed such statements in preparing this certificate;
(c) I have reviewed the terms of the Loan Agreement and have made,
or caused to be made under my supervision, a review in
reasonable detail of the transactions and financial condition
of Borrowers during the accounting period covered by the
enclosed financial statements;
(d) The examination in paragraph (c) did not disclose and I have
no knowledge of the existence of any condition or event that
constitutes a Default or an Event of Default as of the date of
this certificate except as set forth below.
Described below (or in a separate attachment hereto) are the
exceptions, if any, to paragraph (d), listing in detail, the
nature of the condition or event, the period during
which it has existed and the action which Borrowers have
taken, are taking or propose to take with respect to each
such condition or event:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
(e) Except as disclosed in paragraph (d) above, Borrowers are in
compliance with the financial covenants contained in Section 6
of the Loan Agreement, as detailed in the worksheet attached
as Schedule I.
The foregoing certifications and the financial statements delivered
with this Certificate in support hereof are made and delivered this _____ day of
_____________, 19___.
Name:
Title:
SCHEDULE I
COVENANT COMPLIANCE WORKSHEET
Based upon financial statements dated: _________________________, 19___
1. TANGIBLE NET WORTH (ss.6.1)
(A) Net Worth $
less (B) Intangible Assets (including patents, $
trademarks and trade names)
plus (C) Patents, Trademarks and Trade Names $
(up to $2,000,000)
less (D) prepaid expenses $
less (E) Affiliate obligations $
less (F) loans to officers, stockholders
or employees $
TANGIBLE NET WORTH (A - B - C - D - E) $
Required TANGIBLE NET WORTH $
COMPLIANCE
YES NO
2. EBITDA (ss.6.2) - Editek and diAGnostix
(A) net income $
plus (B) to the extent included in the calculation of net $
income, income and franchise taxes paid or accrued
plus (C) to the extent included in the calculation of net $
income, Interest Expense, net of interest
income, paid or accrued
plus (D) to the extent included in the calculation of net $
income, amortization and depreciation
plus (E) to the extent included in the calculation of net $
income, other non-cash charges (excluding
accruals for cash expenses made in the ordinary
course of business)
less (F) to the extent included in the calculation of net $
income, the income of any Person in which
a Borrower has an ownership interest unless such
income is received by a Borrower in a cash distribution
less (G) to the extent included in the calculation of net $
income, gains or losses from sales or other dispositions
of assets, other than gains or losses from sales
or other dispositions of Inventories in the normal
course of business
less (H) to the extent included in the calculation of net $
income, other extraordinary or non-recurring
gains, but not net of extraordinary or
non-recurring "cash" losses
EBITDA (A + B + C + D + E - F - G - H) $
less Registration Payments $
= EBITDA - Registration Payments $
Required EBITDA - Registration Payments $
COMPLIANCE
YES NO
3. EBITDA (ss.6.2) - PDLA
(A) net income $
plus (B) to the extent included in the calculation of net $
income, income and franchise taxes paid or accrued
plus (C) to the extent included in the calculation of net $
income, Interest Expense, net of interest
income, paid or accrued
plus (D) to the extent included in the calculation of net $
income, amortization and depreciation
plus (E) to the extent included in the calculation of net $
income, other non-cash charges (excluding
accruals for cash expenses made in the ordinary
course of business)
less (F) to the extent included in the calculation of net $
income, the income of any Person in which
a Borrower has an ownership interest unless such
income is received by a Borrower in a cash distribution
less (G) to the extent included in the calculation of net $
income, gains or losses from sales or other dispositions
of assets, other than gains or losses from sales
or other dispositions of Inventories in the normal
course of business
less (H) to the extent included in the calculation of net $
income, other extraordinary or non-recurring
gains, but not net of extraordinary or
non-recurring "cash" losses
EBITDA (A + B + C + D + E - F - G - H) $
less Registration Payments $
= EBITDA - Registration Payments $
Required EBITDA - Registration Payments $
COMPLIANCE
YES NO
4. EBITDA (ss.6.2) - Consolidated
(A) net income $
plus (B) to the extent included in the calculation of net $
income, income and franchise taxes paid or accrued
plus (C) to the extent included in the calculation of net $
income, Interest Expense, net of interest
income, paid or accrued
plus (D) to the extent included in the calculation of net $
income, amortization and depreciation
plus (E) to the extent included in the calculation of net $
income, other non-cash charges (excluding
accruals for cash expenses made in the ordinary
course of business)
less (F) to the extent included in the calculation of net $
income, the income of any Person in which
a Borrower has an ownership interest unless such
income is received by a Borrower in a cash distribution
less (G) to the extent included in the calculation of net $
income, gains or losses from sales or other dispositions
of assets, other than gains or losses from sales
or other dispositions of Inventories in the normal
course of business
less (H) to the extent included in the calculation of net $
income, other extraordinary or non-recurring
gains, but not net of extraordinary or
non-recurring "cash" losses
EBITDA (A + B + C + D + E - F - G - H) $
less Registration Payments $
= EBITDA - Registration Payments $
Required EBITDA - Registration Payments $
COMPLIANCE
YES NO
5. RATIO OF INDEBTEDNESS TO TANGIBLE NET WORTH (ss.6.3)
(A) Indebtedness $
(B) Tangible Net Worth $
INDEBTEDNESS TO TANGIBLE NET WORTH (A / B :1)
Required INDEBTEDNESS TO TANGIBLE NET WORTH
COMPLIANCE
YES NO
6. CAPITAL EXPENDITURES (ss.6.5)
Capital Expenditures (excluding trade-ins and excluding Capital
Expenditures in respect of replacement assets to the extent funded with
casualty insurance proceeds)
for Fiscal Year ended _______________, 19___ $
CAPITAL EXPENDITURE Limit: $
COMPLIANCE
YES NO
5. FIXED CHARGE COVERAGE (ss.6.6)
(A) Sum of:
(i) EBITDA for Period $
less (ii) Capital Expenditures $
less (iii) Registration Payments $
= Operating Cash Flow $
(B) Fixed Charges for Period $
FIXED CHARGE COVERAGE (A / B)
Required FIXED CHARGE COVERAGE
COMPLIANCE
YES NO
5. INTEREST COVERAGE (ss.6.7)
(C) Sum of:
(i) EBITDA for Period $
less (ii) Capital Expenditures $
less (iii) Registration Payments $
= Operating Cash Flow $
(D) Interest Expenses for Period $
INTEREST COVERAGE (A / B)
Required INTEREST COVERAGE
COMPLIANCE
YES NO
Schedule 1.1(A)
Permitted Liens
Debtor Secured Party Jurisdiction Collateral
MedTox Hewlett-Packard Minnesota See item 1
MedTox Hewlett-Packard Minnesota See item 2
MedTox Hewlett-Packard Minnesota See item 3
MedTox Hewlett-Packard Minnesota See item 6
MedTox SYVA Co. Minnesota See item 7
MedTox SYVA Co. Minnesota See item 8
MedTox Hewlett-Packard Minnesota See item 9
Psychiatric First Wisconsin National New Jersey See item 12
Diagnostic Bank of Milwaukee
Laboratories First Wisconsin National New Jersey See item 13
Princeton Bank of Milwaukee
Diagnostic
Laboratories
Editek Graybar Financial Services Alamance See item 14
County
Psychiatric SYVA Co. New Jersey See item 20
Diagnostic Lab
Psychiatric SYVA Co. New Jersey See item 21
Diagnostic Lab
Editek Graybar Financial Services North Carolina See item 26
Schedule 1.1(B)
Pro Forma
Attached is a copy of the unaudited consolidated balance sheet
of Borrowers after giving effect to the MedTox Acquisition.
Schedule 3.1(A)
List of Closing Documents
Schedule 4.1(B)
I. Capitalization of Borrowers and Affiliates
A. Editek, Inc.
The authorized capital stock of Editek, Inc. consists of
31,000,000 shares of which 30,000,000 are designated common
stock, $0.15 par value and 1,000,000 are designated preferred
stock, $1.00 par value. As of the Closing, 10,440,083 shares of
common stock and 240 shares of preferred stock are outstanding.
B. diAGnostix, Inc.
The authorized capital stock of diAGnostix, Inc. consists of
7,500,000 shares of common stock, $0.01 par value, of which 1,000
shares are issued and outstanding and are owned by Editek, Inc.
C. Princeton Diagnostic Laboratories of America, Inc.
The authorized capital stock of Princeton Diagnostic Laboratories
of America, Inc. consists of 7,500,000 shares of common stock,
$0.01 par value, of which 500 shares are issued and outstanding
and are owned by Editek, Inc.
D. Psychiatric Diagnostic Laboratories of America, Inc.
The authorized capital stock of Psychiatric Diagnostic
Laboratories of America, Inc. consists of 256,000 shares of which
250,000 shares are designated common stock, $0.004 par value and
6,000 shares are designated preferred stock, no par value. As of
the closing, 500 shares of common stock are issued and
outstanding and are owned by Princeton Diagnostic Laboratories of
America, Inc. No shares of preferred stock are outstanding.
E. National Consortium For A Drug-Free Workplace, Inc.
The authorized capital stock of National Consortium For A
Drug-Free Workplace, Inc. consists of 100 shares of common stock,
$0.01 par value, of which 50 shares are issued and outstanding
and are owned by Princeton Diagnostics Laboratories of America,
Inc.
II. Outstanding Conversion Rights, Options, Warrants for Purchase of
Capital Stock of Borrowers and Affiliates
A. EDITEK, Inc.
Outstanding options to purchase an aggregate of 449,406 shares of
Common Stock pursuant to awards under the EDITEK, Inc. 1983
Incentive Stock Option Plan.
Outstanding options to purchase an aggregate of 47,864 shares of
Common Stock pursuant to awards under the EDITEK, Inc. Amended
and Restated Stock Option Plan for Non-Employee Directors.
Outstanding option to purchase 7,760 shares of Common Stock
pursuant to Stock Option Agreement dated January 14, 1993 between
EDITEK, Inc. and Mark D. Dibner.
Outstanding subscriptions to purchase an aggregate of 5,446
shares of Common Stock pursuant to awards under the EDITEK, Inc.
Qualified Employee Stock Purchase Plan.
Outstanding options to purchase an aggregate of 33,333 shares of
Common Stock pursuant to nonqualified stock option agreements
between EDITEK, Inc. and James D. Skinner.
Outstanding options to purchase an aggregate of 721,289 shares of
Common Stock pursuant to awards under the EDITEK, Inc. Amended
and Restated Equity Compensation Plan.
Stock Purchase Warrants to purchase an aggregate of 473,229
shares of Common Stock.
B. diAGnostix, Inc.
None.
C. Princeton Diagnostic Laboratories of America, Inc.
None.
D. Psychiatric Diagnostic Laboratories of America, Inc.
None.
E. National Consortium For A Drug-Free Workplace, Inc.
None.
Schedule 4.6
Trade Names (Present and Past Five Years)
NONE
Schedule 4.7
Location of Principal Place of Business, Books
and Records and Collateral
A. Editek, Inc.
Corporate headquarters, research and development, operations and
administrative functions are located in the NOVA building at 1238
Anthony Road, Burlington, North Carolina 27215.
Editek also leases laboratory space and land for its Granite Hall
Laboratory Animal Facility in Warrenton, North Carolina. The
address for the facility is Route 1, Box 110-S, Warrenton, North
Carolina 27589.
B. Princeton Diagnostic Laboratories of America, Inc.
Corporate headquarters are located at the NOVA building at 1238
Anthony Road, Burlington, North Carolina 27215.
C. Psychiatric Diagnostic Laboratories of America, Inc.
Laboratory testing facility including administrative functions
are located at 100 Corporate Court, South Plainfield, New Jersey
07080.
The leases assumed by Psychiatric Diagnostic Laboratories of
America, Inc., pursuant to the MedTox acquisition are as follows:
Location Description
402 West County Road D Primary laboratory location
St. Paul, Minnesota 55112 and administrative
offices
8600 West Catalpa Avenue Facility empty
Chicago, Illinois 60656
109 West Dudleytown Road Service center, local client
Bloomfield, Connecticut 06002 service and courier service
6160 Variel Avenue Subleased premises to
Woodland Hills, California 91367 TOXWORX Laboratories
Schedule 4.7
(continued)
D. diAGnostix, Inc.
Warehouse and administrative functions located at 5730 Coopers
Avenue, Unit #27, Mississauga, Ontario Canada L4Z 2E9.
E. National Consortium For A Drug-Free Workplace, Inc.
Administrative facilities located at 100 Corporate Court, South
Plainfield, New Jersey 07080.
Schedule 4.13
Intellectual Property
A. The following patents are owned by Editek. The other Borrowers
do not own any patents.
Patent
Jurisdiction Patent Name Number Issue Date
U.S. Rapid Radioimmunoassay 4,399,229 08/16/83
Product and Method of Making
and Using Same
U.S. Rotary Fluid Manipulator 4,938,927 07/03/90
U.S. Rotary Fluid Manipulator 5,141,875 08/25/92
U.S. Test Kit For Determining The 4,900,663 02/13/90
Presence of Organic Materials
and Method of Utilizing Same
U.S. Test Kit For Determining The 5,240,844 08/31/93
Presence of Organic Materials
and Method of Utilizing Same
U.S. Suspension Liquid Separator 4,696,797 09/29/87
U.S. Multi-Layered Test Card For 5,202,268 04/13/93
The Determination of Substances
In Liquids
U.S. Devise For Analysis For 5,435,970 07/25/95
Constituents In Biological Fluids
U.S. Animal Cage and Method 4,593,650 06/10/86
U.S. Method For Preserving Plated 4,709,819 12/01/87
Media and Products
Australia Test Kit - Original 594,942 09/13/85
Australia Test Kit - Bi-Directional Flow 608,956 03/14/88
Continuation
Australia Suspension Liquid Separator 586,849 04/15/85
Belgium Test Kit - Original 904,484 03/25/86
Patent
Jurisdiction Patent Name Number Issue Date
Belgium Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
Belgium Suspension Liquid Separator Pending Pending
Canada Test Kit - Original 1,258,626 08/22/89
Canada Test Kit - Bi-Directional Flow Pending Pending
Continuation
Canada Suspension Liquid Separator 1,271,709 07/17/90
Canada Multi-Layered Test Card Pending Pending
France Test Kit - Original 2,587,488 04/03/86
France Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
France Suspension Liquid Separator 904,484 03/25/86
France Multi-Layered Test Card Pending Pending
Germany Test Kit - Original 3,606,124 02/26/86
Germany Test Kit - Bi-Directional Flow 689 19 103 03/13/89
Continuation
Germany Suspension Liquid Separator Pending Pending
Germany Multi-Layered Test Card Pending Pending
G. Britain Test Kit - Original 2,180,645 12/28/89
G. Britain Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
G. Britain Suspension Liquid Separator 2,181,662 06/21/89
G. Britain Multi-Layered Test Card Pending Pending
Holland Test Kit - Original Pending Pending
Holland Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
Holland Suspension Liquid Separator Pending Pending
Holland Multi-Layered Test Card Pending Pending
Italy Test Kit - Original 1,190,191 02/16/88
Patent
Jurisdiction Patent Name Number Issue Date
Italy Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
Italy Suspension Liquid Separator 1,190,204 02/16/88
Italy Multi-Layered Test Card Pending Pending
Japan Test Kit - Original Pending Pending
Japan Test Kit - Bi-Directional Flow Pending Pending
Continuation
Japan Suspension Liquid Separator 1916522 03/23/95
Japan Multi-Layered Test Card Pending Pending
Sweden Test Kit - Original 86,004,546 04/08/93
Sweden Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
Sweden Suspension Liquid Separator 86,000,197 04/15/85
Sweden Multi-Layered Test Card Pending Pending
Switzerland Test Kit - Original 671,467 02/27/86
Switzerland Test Kit - Bi-Directional Flow 0 333 286 03/13/89
Continuation
Switzerland Suspension Liquid Separator 671,343 02/15/86
Luxembourg Multi-Layered Test Card Pending Pending
Schedule 4.13
(continued)
B. The following trademarks are owned by Editek:
Trade Mark Registration Number Registration Date
EDITEK 1,879,044 02/14/95
BIOMAN 363,506 11/10/89
LOGO 1,374,423 12/10/85
QUIK-CARD 1,387,168 03/25/86
EZ-SCREEN 1,412,788 10/14/86
DAIRISCREEN 1,629,710 01/01/91
DAIRYSCREEN 1,629,709 01/01/91
VERDICT 1,771,281 05/18/93
PREDICT 1,877,141 01/31/95
RECON 1,847,306 07/26/94
EZ-QUANT 1,917,508 09/12/95
B. The following trademarks are owned by Princeton.
Trade Mark Registration Number Registration Date
PDLA 1,477,191 02/16/88
C. The following trademarks are owned by PDLA. The other Borrowers
do not own any trademarks.
Trade Mark Registration Number Registration Date
MEDTOX 1,542,034 05/30/89
Schedule 4.14
Broker's Fees
Pursuant to the issuance of the Convertible Preferred Stock, Shoreline
Pacific, The Institutional Division of Financial West Group, will be
paid 6% of the gross proceeds in cash and will be issued warrants to
purchase shares of common stock of Editek, Inc., having a fair market
value and aggregate exercise price equal to 8% of the gross proceeds.
Interstate Johnson Lane will be paid a commission of $122,000 at the closing.
Schedule 4.20
Bank Accounts
Psychiatric Diagnostic Laboratories of America, Inc.
First Fidelity - New Jersey
Account Number: 508-006533-1 (operating account)
Account Number: 508-005627-1 (payroll account)
Account Number: 3000397418 (blocked account)
Norwest - M.N.
Account Number: 3973656691 (operating account)
Account Number: 3973656552 (payroll account)
Account Number: 3973656616 (blocked account)
Editek, Inc.
First Union National Bank of N.C.
Account Number: 2000000009889 (payroll account)
Account Number: 2000000009892 (operating account)
Account Number: 2000000706674 (money market account)
Account Number: 2000000706645 (flexible benefits account)
Account Number: 2000000034825 (401(k) account)
Account Number: 2000000734905 (blocked account)
diAGnostix, Inc.
The Toronto-Dominion Bank
Account Number: 0566 7302749 (operating account)
Account Number: 0566 0314541 (payroll account)
Princeton Diagnostic Laboratories of America, Inc. and National
Consortium For A Drug- Free Workplace, Inc. do not have any bank
accounts.
Schedule 4.21
Subsidiaries
Editek, Inc. owns all of the issued and outstanding stock of: (i)
Princeton Diagnostic Laboratories of America, Inc., a Delaware
corporation; and (ii) diAGnostix, Inc., a Delaware corporation.
Princeton Diagnostic Laboratories of America, Inc., in turn, owns all of
the issued and outstanding stock of: (i) Psychiatric Diagnostic
Laboratories of America, Inc., a Delaware corporation; and (ii) National
Consortium For A Drug-Free Workplace, Inc., a Delaware corporation.
National Consortium For A Drug-Free Workplace, Inc. has no assets.
Schedule 4.22
Employee Matters
A. Employment and Other Contracts
1. Editek, Inc.
a. Employment Agreement with James Skinner, dated on
or about January 25, 1996;
b. Employment Agreement with Peter Heath, dated on or
about January 25, 1996;
c. Employment Agreement with Michael Terretti, dated
on or about January 25, 1996; and
d. Severance Agreement with James S. Arrington, dated
on or about January 25, 1996.
2. Princeton Diagnostic Laboratories of America, Inc.
NONE
3. Psychiatric Diagnostic Laboratories of America, Inc.
a. Letter dated February 15, 1995 regarding the
employment of Dr. Lawrence J. Felice;
b. Employment Agreement with Harry G. McCoy, dated on
or about January 25, 1996;
c. Employment Agreement with D. Gary Hemphill, dated
on or about January 25, 1996;
d. Employment Agreement with Jennifer S. Collins,
dated on or about January 25, 1996;
e. Employment Agreement with Jacquelyn L. Heytens,
dated January 25, 1996;
f. Employment Agreement with Susan E. Puskas, dated
on or about January 25, 1996;
g. Employment Agreement with Barbara S. Mayer, dated
on or about January 25, 1996; and
Schedule 4.22
(continued)
h. Employment Agreement with Gregory A. Lowery, dated
on or about January 25, 1996.
4. diAGnostix, Inc.
NONE
5. National Consortium For A Drug-Free Workplace, Inc.
NONE
Schedule 7.1
Existing Indebtedness
Editek, Inc.
North Carolina Biotechnology $ 62,834.75
Center (NCBC) Promissory Note
due August 15, 1996
Novamann International, Final 14,497.85
payment due for purchase of
Bioman Products, Inc.
Dr. Samuel C. Powell, 90 Day 100,000.00
Note due March 17, 1996
(Unsecured loan made by Dr.
Powell to provide operating funds
prior to recently completed private
placement)
First Union National Bank of NC, 15,700.00 (est)
Promissory Note secured by
1996 Ford Pickup Truck, Serial #
1FTEF15Y3TLA11649
$193,032.60
Psychiatric Diagnostic Laboratories of America, Inc.
Norwest Loan #031597 $407,853.27 (to be paid at 1/29/96 closing)
Norwest Loan #033095 437,463.95 (to be paid at 1/29/96 closing)
Norwest Equipment Loans 368,906.20 (to be paid at 1/29/96 closing)
$1,214,223.42
__________
$1,407,256.02
Schedule 7.1
(continued)
Princeton Diagnostic Laboratories of America, Inc.
NONE
diAGnostix, Inc.
NONE
National Consortium For A Drug Free Work Place, Inc.
NONE