<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
__________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997 COMMISSION FILE NUMBER: 0-27242
__________________
PHYSIO-CONTROL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1673799
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11811 WILLOWS ROAD N.E.
REDMOND, WASHINGTON 98052
(Address of principal executive offices)
(425) 867-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
As of August 1, 1997, there were 17,256,145 shares of the Registrant's
Common Stock outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1
<PAGE>
_______________________________________________________________________________
FORM 10-Q
JUNE 30, 1997
Index Page
----- ----
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
- Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . 3
- Consolidated Statements of Operations for the three and
six months ended June 30, 1997 and 1996 . . . . . . . . . . . 4
- Consolidated Statements of Changes in Stockholders' Equity
for the three month periods ended March 31 and June 30,
1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
- Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . 6
- Notes to Consolidated Financial Statements. . . . . . . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .12
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . . .12
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .13
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,742 $3,336
Accounts receivable, net 41,285 38,869
Inventories 37,552 31,811
Prepaid income taxes 1,015 3,967
Prepaid expenses 2,520 1,401
------------------- ----------------
Total current assets 85,114 79,384
NONCURRENT ASSETS
Other assets 1,009 1,180
Deferred income taxes 2,175 2,175
Property, plant and equipment, net 15,120 13,123
------------------- ----------------
TOTAL ASSETS $103,418 $95,862
------------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $11,540 $9,260
Accrued liabilities 16,436 19,146
Deferred income taxes 494 494
------------------- ----------------
Total current liabilities 28,470 28,900
------------------- ----------------
NONCURRENT LIABILITIES
Long-term debt 21,694 21,031
Unfunded pension obligations 1,370 1,711
------------------- ----------------
Total noncurrent liabilities 23,064 22,742
------------------- ----------------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share, 5,000,000
shares authorized, no shares issued or outstanding
Common stock, voting, par value $0.01 per share, 40,000,000
shares authorized; 17,236,133 and 17,020,245 shares issued
and outstanding, respectively 173 170
Additional paid-in capital 27,993 25,707
Retained earnings 23,734 18,098
Equity adjustment from foreign currency translation (16) 245
------------------- ----------------
Total stockholders' equity 51,884 44,220
------------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,418 $95,862
________________________________________________________________________________________________________
</TABLE>
- --------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
_______________________________________________________________________________
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $45,011 $42,923 $85,738 $85,678
Cost of sales 21,959 20,715 41,805 42,147
--------- --------- --------- ---------
Gross profit 23,052 22,208 43,933 43,531
--------- --------- --------- --------
Research and development 4,894 4,569 10,131 9,207
Sales and marketing 10,331 8,668 19,185 16,815
General and administrative 2,600 2,451 4,614 5,141
--------- --------- --------- --------
Operating expense 17,825 15,688 33,930 31,163
--------- --------- --------- --------
Interest expense (401) (448) (860) (874)
Other expense, net (236) (182) (472) (458)
--------- --------- --------- --------
Other expense (637) (630) (1,332) (1,332)
--------- --------- --------- --------
Income before income tax 4,590 5,890 8,671 11,036
Income tax expense (1,607) (2,003) (3,035) (3,753)
--------- --------- --------- --------
NET INCOME $2,983 $3,887 $5,636 $7,283
--------- --------- --------- --------
Net earnings per common and
common equivalent share $0.17 $0.22 $0.31 $0.41
Weighted average number of common
and common equivalent shares outstanding 17,846,393 17,934,734 17,963,656 17,901,956
____________________________________________________________________________________________________________________________
</TABLE>
- --------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
_______________________________________________________________________________
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
ADDITIONAL FROM FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY
SHARES DOLLARS CAPITAL EARNINGS TRANSLATION TOTAL
------------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 17,020,245 $170 $25,707 $18,098 $245 $44,220
Issuance of common shares 46,791 1 915 916
Stock issued upon exercise
of options 87,405 1 407 408
Income tax benefit from
exercise of stock options 428 428
Net income 2,653 2,653
Equity adjustment from
foreign currency translation (324) (324)
------------- ---------- ---------- --------- ------------ ---------
BALANCE AT MARCH 31, 1997 17,154,441 172 27,457 20,751 (79) 48,301
Stock issued upon exercise
of options 81,692 1 217 218
Income tax benefit from
exercise of stock options 319 319
Net income 2,983 2,983
Equity adjustment from
foreign currency translation 63 63
------------- ---------- ---------- --------- ------------ ---------
BALANCE AT JUNE 30, 1997 17,236,133 $173 $27,993 $23,734 ($16) $51,884
______________________________________________________ __________ __________ _________ ____________ _________
</TABLE>
- --------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
_______________________________________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,636 $7,283
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation and amortization 1,136 630
Increase in receivables (2,416) (5,447)
Increase in inventories (5,741) (686)
Decrease in prepaid income taxes 2,952 2,637
Increase in prepaid expense and other assets (1,153) (1,181)
Increase (decrease) in accounts payable 2,280 (33)
Decrease in accrued and other liabilities (3,051) (5,625)
Increase in income taxes payable 189
---------- ---------
Net cash used in operating activities (357) (2,233)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,928) (3,754)
---------- ---------
Net cash used in investing activities (2,928) (3,754)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 1,542 182
Borrowings under revolving debt 27,679 35,924
Repayments of revolving debt (27,016) (29,791)
Income tax benefit from exercise of stock options 747
---------- ---------
Net cash provided by financing activities 2,952 6,315
---------- ---------
Effect of foreign currency translation (261) (119)
---------- ---------
Net (decrease) increase in cash and cash equivalents (594) 209
Cash and cash equivalents at beginning of period 3,336 4,575
---------- ---------
Cash and cash equivalents at end of period $2,742 $4,784
_____________________________________________________________________ _________
</TABLE>
- ---------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
_______________________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(dollars in thousands, except share and per share data)
(unaudited)
- -------------------------------------------------------------------------------
NOTE 1. GENERAL
The consolidated financial statements of Physio-Control International
Corporation (the "Company") at June 30, 1997 and for the three and six month
periods then ended are unaudited and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim period. The consolidated financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of operations for the three and
six month periods ended June 30, 1997 are not necessarily indicative of the
results for the entire fiscal year ending December 31, 1997.
During May 1997, the Company (previously a Delaware Corporation) was
re-incorporated in the State of Washington. Also in June 1997, a
wholly-owned subsidiary of the Company, Physio-Control Corporation ("PCC")
was re-incorporated in the State of Washington. These actions were approved
by the shareholders at the Annual Meeting held May 1, 1997. See Part II,
Item 4 included herein.
During July 1997, the Company formed a new wholly-owned subsidiary,
Physio-Control Manufacturing Corporation, ("PCMC") which was incorporated as
a Washington corporation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE
Net earnings per common and common equivalent share is computed using the
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock. Fully
diluted net earnings per common and common equivalent share is not materially
different from primary net earnings per common and common equivalent share and
is therefore not presented.
RECLASSIFICATIONS
Certain amounts in the prior periods have been reclassified to conform with the
current period presentation.
NOTE 3. INVENTORIES
Inventories consist of the following:
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
Finished products $21,467 $17,318
Purchased parts and assemblies in process 8,856 6,534
Service parts 9,273 10,453
------------- ------------------
39,596 34,305
Less inventory allowances (2,044) (2,494)
------------- ------------------
TOTAL INVENTORIES $37,552 $31,811
------------- ------------------
------------- ------------------
NOTE 4. BANK BORROWINGS
During June 1997, PCC refinanced its existing indebtedness and entered into a
new $30.0 million revolving bank credit facility
7
<PAGE>
("the Agreement") of which up to $5.0 million may be used for issuance of
standby letters of credit. The Agreement, which matures during May 2000,
replaced an existing $30.0 million revolving bank credit agreement which was
to expire during December 1998. Interest on advances under the Agreement bear
interest at the borrower's option, at either (i) the reference rate (the
higher of the lender's prime rate or federal funds rate plus 1%) (ii) LIBOR
plus 0.5% or (iii) quoted rate (rate quoted by lender and accepted by
borrower plus 0.5%). Such rates are subject to increase in the event that
the Company does not meet the fixed charge coverage ratio as defined in the
Agreement.
The Company is required to pay a commitment fee equal to 0.125% of the amount by
which the available credit exceeds the outstanding advances on a quarterly
basis. This rate is subject to increase in the event that the Company does not
meet the fixed charge coverage ratio as defined.
The revolving credit facility is secured by a first priority security interest
in and lien on all of the accounts receivable and inventories of PCC, (located
in the United States) and is guaranteed by the Company and PCMC. The Agreement
includes various affirmative and negative financial covenants which require,
among other things, that the Company maintain a certain fixed charge coverage
ratio, debt to net worth ratios, as well as a minimum tangible net worth, as
defined in the Agreement. As of June 30, 1997, the Company had $19.8 million
outstanding under the Agreement, including $0.6 million in letters of credit.
NOTE 5: COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is party to certain legal actions arising in the ordinary course
of its business. The Company's estimates of these exposures are based
primarily on historical claims experience. The Company expects settlements
related to these claims to be paid over the next several years. The majority
of the costs associated with defending and disposing of these suits are
covered by insurance.
On November 13, 1995, the Company initiated litigation in Washington State Court
against Heartstream, Inc. ("Heartstream"), a company formed to develop,
manufacture and market defibrillators, as well as certain individuals who were
formerly employed by the Company and who are founders of and employees of
Heartstream. The Company's claims are based on its belief that Heartstream and
such individuals have, among other things, misappropriated certain of the
Company's intellectual property and that such individuals have breached
contractual obligations to the Company. The Company received an answer to its
complaint from Heartstream and in its answer, Heartstream denies the Company's
claims and alleges certain counterclaims against the Company for, among other
things, monopolization of the industry and tortuous interference with business
opportunities. While the Company believes it has meritorious defenses against
the suit, the ultimate resolution of the matter could result in a loss of up to
$10 million. The parties are currently conducting discovery in this litigation
and a tentative trial date has been set for March 1998.
Additionally, during January 1997, Heartstream initiated litigation against
the Company in U.S. District Court for the Western District of Washington
alleging that the Company is infringing a Heartstream patent related to
product self-test features. The Company has filed an answer denying
Heartstream's claims and alleging certain counterclaims against Heartstream
for infringement of a Company self-test patent. Discovery is in the initial
stages in this litigation.
If the Company does not prevail in these litigations or otherwise successfully
resolve its claims, its ability to design and market certain future products may
be adversely affected. In addition, if a court were to find in favor of
Heartstream on its claims, the Company could be liable for significant damages.
In the opinion of management, the amount of ultimate liability with respect to
these actions will not materially affect the financial position of the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's future results may differ significantly from
the results discussed herein due to many factors, including, but not limited
to, product demand, the effect of general economic conditions, the impact of
competitive products and pricing, product development, commercialization and
technological difficulties, U.S. and foreign regulatory requirements, the
effects of accounting policies and financing requirements, and other such
risks and factors.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
The Company reported worldwide sales of $45.0 million during the second
quarter of 1997, reflecting an increase of $2.1 million or 5% from the
comparable 1996 quarter. International sales of $14.0 million were up 44%
from the comparable 1996 period, due in part to a Russian shipment totaling
$2.1 million. Domestic sales during the current quarter aggregated $31.0
million, down 7% from the comparable 1996 quarter. Worldwide equipment sales
of $29.3 million increased slightly from the comparable 1996 quarter due to
the large Russian shipment, partially offset by the decrease in domestic
equipment sales. Worldwide service revenue of $7.2 million increased 8% over
the comparable prior year period, and supplies (disposable and accessories)
revenue of $8.5 million increased 17% due to a strong demand for the
Company's disposable products, primarily QUIK-COMBO-TM- electrodes.
Domestic sales decreased $2.2 million from the comparable 1996 quarter mainly
due to lower sales in the out-of-hospital market, which had benefited from
strong 1996 sales driven by the introduction of LIFEPAK-Registered
Trademark-11 products. Notwithstanding, the Company shipped orders totaling
$1.9 million to Marquette Medical Systems as a result of the Companies'
recent alliance announced during the first quarter of 1997. Internationally,
sales increased 44% from the prior year quarter due to the $2.1 million
shipment discussed above as well as higher sales in the United Kingdom and
France.
During the second quarter of 1997, the Company reported worldwide product
orders of $36.8 million, up $4.5 million or 14% from the comparable 1996
quarter. The increase in product orders is attributed to continued strong
acceptance of the Company's automated external defibrillators (AEDs),
specifically the new LIFEPAK 500 defibrillator, in both the US and
international markets, as well as the $1.9 million shipments to Marquette
Medical Systems. Domestic and international product orders increased 12% and
17%, respectively, over the comparable 1996 quarter.
Gross profit of $23.1 million increased $0.8 million during the current
quarter from the $22.2 million reported during the comparable 1996 period.
As a percentage of sales, gross margin decreased to 51.2% from 51.7% during
the comparable 1996 quarter. The decrease in gross margin was driven
primarily by aggressive pricing in Europe partly offset by a more favorable
domestic product mix.
Research and development ("R&D") expenditures of $4.9 million increased 7%
during the current quarter from $4.6 million in the comparable 1996 period. As
a percentage of sales, R&D expenses remained essentially unchanged at 11%. R&D
expenditures increased over the prior year period due to the Company's
continuing commitment to develop new products as well as conduct ongoing
research for future products and technology.
Sales and marketing expenditures of $10.3 million increased 19% from the
comparable 1996 quarter. The increase resulted from enhanced sales and
marketing efforts worldwide as well as approximately $0.4 million in selling
expense associated with the Russian sale.
General and administrative expenditures of $2.6 million increased $0.1
million from the comparable 1996 quarter. Other expenses, consisting
primarily of interest expense, totaled $0.6 million and remained consistent
with the comparable 1996 quarter. Income tax expense of $1.6 million
reflected an increase in the Company's effective tax rate from 34% in the
comparable 1996 period to 35% during the current period. As a result of the
above factors, net income for the second quarter of 1997 was $3.0 million, a
decrease of $0.9 million from the comparable 1996 quarter.
9
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 The
Company reported worldwide sales of $85.7 million during the six month period
ended June 30, 1997, which were essentially unchanged from the comparable
1996 period. Domestic sales of $60.6 million were down $4.0 million, or 6%
from the prior year period. International sales of $25.1 million, however,
were up 19% or $4.0 million from the prior year period due in part to the
significant Russian shipment which included both equipment and accessory
products. Worldwide equipment sales of $55.4 million decreased 4% during the
current six month period while worldwide service and supplies revenue
totaling $30.3 million increased 9% from the $27.7 million reported in 1996.
The decrease in equipment sales from the prior six month period was due
primarily to lower demand in the domestic hospital market as well as a
decrease in LIFEPAK 11 defibrillator sales following the introduction of this
product during 1996. This decrease is partly offset by the success of the
LIFEPAK 500 products in the AED market. The increase in service and supplies
revenue was due primarily to strong sales of QUIK-COMBO electrodes, as well
as growth in the Company's installed base of customers.
During the six months ended June 30, 1997, worldwide product orders totaled
$73.9 million, an increase of $6.0 million or 9% over the comparable prior
year period. Domestic orders were up 6% while international orders increased
15% and included the 1997 Russian order and strong performance in the United
Kingdom.
Gross profit during the six months ended June 30, 1997 totaled $43.9 million,
an increase of $0.4 million or 1% from the comparable prior year period. As
a percentage of sales, gross profit increased from 50.8% in the prior year
period to 51.2% in the current six months, largely due to favorable domestic
product sales mix, partly offset by aggressive international pricing.
R&D expenses for the six months ended June 30, 1997 were $10.1 million, an
increase of $0.9 million or 10% over the comparable prior year period. As a
percentage of sales, R&D expenses increased slightly from 11% in the
comparable 1996 period to 12% during the current year period.
Sales and marketing expenditures of $19.2 million during the current six
month period increased $2.4 million, or 14% from the comparable 1996 period.
The increase was due to costs incurred for sales and marketing efforts aimed
at introducing the Company's new LIFEPAK 500 defibrillator during the first
quarter of 1997, as well as a continued commitment of resources at developing
the international marketplace and increasing international market share.
Selling and marketing expenses in the current six month period also include
$0.4 million in Russian selling expense as discussed above. As a percentage
of sales, sales and marketing expenses increased from 20% during the prior
year period to 22% during the current year period.
General and administrative expenditures of $4.6 million decreased 10%, or
$0.5 million, from the comparable prior year period mainly due to no
counterpart during 1997 to the 1996 bonus accrual. As a percentage of sales,
general and administrative expenses decreased from 6% during the comparable
prior year period to 5% during the current year period.
Other expenses, consisting primarily of interest expense, totaled $1.3
million, essentially unchanged from the prior year period.
Income tax expense of $3.0 million reflected an increase in the Company's
effective tax rate from 34% in the comparable 1996 period to 35% during the
current six month period.
As a result of the above factors, net income for the six month period ended
June 30, 1997 was $5.6 million, a decrease of $1.6 million, or 23% from the
comparable 1996 period.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity by its ability to generate cash
to fund operations. Significant factors in the management of liquidity are:
funds provided or used by operations, capital expenditures, levels of
accounts receivable, inventories, accounts payable, as well as adequate lines
of credit.
During the six months ended June 30, 1997, the Company used $0.4 million in cash
to finance operations. The use of working capital funds was attributed to
increased inventories as well as higher accounts receivables resulting from an
increased sales volume during the month of June 1997.
Cash used in investing activities during the six months ended June 30, 1997
totaled $2.9 million and related to capital expenditures. Consistent with
1996, the majority of current capital expenditures related to the final
stages of implementation of the Company's new computer business system, which
was completed during the first quarter of 1997. Additional capital
expenditures during the six month period ended June 30, 1997 related to
purchases of research and engineering equipment and tooling for new products.
The Company does not have any capital commitments outside the ordinary
course of business. The Company's principal working capital requirements are
financing accounts receivable and inventories. At June 30, 1997, the Company
had net working capital of $56.6 million, consisting of accounts receivable
of $41.3 million, inventories of $37.6 million, accounts payable of $11.5
million and accrued liabilities of $16.4 million.
During June 1997, PCC refinanced its existing indebtedness and entered into a
new $30.0 million revolving bank credit facility as discussed in Notes to
Consolidated Financial Statements, Part 1, Item 1, included herein. The
Agreement, which matures during May 2000 offers a lower cost of borrowing
with reduced interest rates and affords the Company greater flexibility in
cash management by consolidating the number of banking institutions at which
the Company consolidates cash balances. The Company is required to pay a
commitment fee equal to 0.125% of the amount by which the available credit
exceeds the outstanding advances on a quarterly basis. This rate is subject
to increase in the event that the Company does not meet the fixed charge
coverage ratio as defined in the Agreement.
The credit facility is secured by a first priority security interest in and lien
on all of the accounts receivable and inventories of PCC (located in the United
States) and is guaranteed by the Company and PCMC. The credit facility includes
various affirmative and negative financial covenants which require, among other
things, that the Company maintain a certain fixed charge coverage ratio, debt to
net worth ratios, as well as a minimum tangible net worth, as defined in the
Agreement. As of June 30, 1997 the Company had $19.8 million outstanding under
the Agreement, including $0.6 million in letters of credit.
In addition, the Company has subordinated notes payable to Eli Lilly and Company
totaling $2.5 million which originated in the acquisition of PCC and certain
foreign assets. Notes with a principal balance totaling $1.5 million mature on
January 31, 2001 and bear interest at LIBOR plus 3.25% . A note with a
principal balance of $1.0 million matures November 15, 1998 and bears interest
at LIBOR plus 3.0%.
The Company believes, based upon current levels of operations and anticipated
growth, that funds generated from operations and available borrowings under the
credit Agreement, will be sufficient over the next twelve months for the Company
to make anticipated capital expenditures and fund working capital requirements.
Approximately 29% of the Company's sales during the six months ended June 30,
1997 were to international customers and the Company expects that sales to
international customers will continue to represent a material portion of its
revenues. Certain of the Company's international receivables are denominated in
foreign currencies and exchange rate fluctuations impact the carrying
11
<PAGE>
value of these receivables. The Company has elected to hedge certain assets
denominated in foreign currencies with the purchase of forward contracts.
Historically, fluctuations in foreign currency exchange rates have not had a
material effect on the Company's results of operations and, with certain
hedging activities, the Company does not expect such fluctuations to be
material in the foreseeable future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the litigation reported in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
(See Note 5 of the Notes to Consolidated Financial Statements in Part I, Item 1,
above).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 1, 1997, the
following actions were taken:
<TABLE>
<S> <C> <C> <C> <C> <C>
1. Election of Nominated Class II Directors For: 15,159,873 Withheld: 302,610
---------- --------
2. Approval of Re-incorporation in Washington For: 12,804,440 Against: 1,685,783 Abstain: 972,260
---------- --------- -------
3. Adoption of an Amended & Restated 1997 For: 10,168,523 Against: 4,340,620 Abstain: 953,340
Stock and Incentive Plan ---------- --------- -------
4. Ratification of Price Waterhouse LLP For: 15,447,785 Against: 13,177 Abstain: 1,521
as Independent Auditors ---------- --------- -------
</TABLE>
No other matters were submitted to or actions taken by the Shareholders at
said Annual Meeting.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.2 Agreement and Plan of Merger
3.2(i) Articles of Incorporation
3.2(ii) Certificate of Merger
3.2(iii) Articles of Merger
10.16 Release Agreement, dated June 3, 1997, between Physio-Control International
Corporation, Physio-Control Corporation and Creditanstalt-Bankverein
10.17 Credit Agreement, dated June 3, 1997, by and among Physio-Control Corporation,
certain banks and Bank of America, National Trust and Savings Association,
as administrative agent
10.18 Commercial security agreement, dated June 3, 1997, between Physio-Control
Corporation and Bank of America, National Trust and Savings Association, as
administrative agent
10.19 Commercial Security Agreement, dated June 3, 1997, between Physio-Control
Manufacturing Corporation and Bank of America National Trust and Savings
Association, as administrative agent
10.20 Amended and Restated 1997 Stock and Incentive Plan (incorporated by reference to the Company's Annual
Proxy Statement filed with the Securities and Exchange Commission in April 1997.)
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized to sign on behalf of the registrant and
as the principal financial officer thereof.
Dated: August 14, 1997
PHYSIO-CONTROL INTERNATIONAL CORPORATION
By /s/ Joseph J. Caffarelli
--------------------------------------
Joseph J. Caffarelli
Executive Vice President and Chief
Financial Officer
13
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered
into as of the 20th day of May, 1997, in accordance with Section 252 of the
General Corporation Law of the State of Delaware, as amended, and RCW
23B.11.070, by and between New Physio Corporation, a Washington corporation
("Surviving Corporation"), and Physio-Control International Corporation, a
Delaware corporation ("Merging Corporation"). Surviving Corporation and
Merging Corporation are sometimes collectively referred to hereinafter as the
"Constituent Corporations."
RECITALS
A. The respective boards of directors of Merging Corporation and
Surviving Corporation have determined it in the best interest of each
respective Constituent Corporation to merge (the "Merger") Merging
Corporation with and into Surviving Corporation.
B. The board of directors of Merging Corporation recommended approval
of the Merger by the Merging Corporation shareholders and presented such
proposal to the shareholders at the 1997 annual meeting held on May 1, 1997,
and the shareholders approved such Merger at the meeting.
C. The Constituent Corporations now desire the Merger to be effected
pursuant to the terms and conditions of this Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which hereby are acknowledged, the parties hereto agree as follows:
1. GENERAL.
1.1 THE MERGER. On the Effective Date (as herein defined) of the
Merger, Merging Corporation shall be merged with and into Surviving Corporation
and the separate existence of Merging Corporation shall cease and Surviving
Corporation shall survive such Merger.
1.2 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation of Surviving Corporation as in effect immediately prior to the
Effective Date shall be the Articles of
<PAGE>
Incorporation of the Surviving Corporation, except that Article I of the
Articles of Incorporation of Surviving Corporation hereby is amended and
restated as follows:
The name of the corporation is Physio-Control International Corporation.
The By-laws of Surviving Corporation as in effect immediately prior to the
Effective Date shall be the By-laws of the surviving corporation.
1.3 DIRECTORS AND OFFICERS. The directors of Merging Corporation in
office on the Effective Date shall become the directors of the surviving
corporation, until their successors shall have been elected and qualified. The
officers of Merging Corporation in office on the Effective Date shall become the
officers of the surviving corporation, until their successors shall have been
elected and qualified.
1.4 PROPERTY AND LIABILITIES OF CONSTITUENT CORPORATIONS. On the
Effective Date, the separate existence of Merging Corporation shall cease and
Merging Corporation shall be merged into the surviving corporation. The
Surviving Corporation, from and after the Effective Date, shall possess all the
rights, privileges, powers and franchises of whatsoever nature and description,
of a public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
all rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of and debts due to
either of the Constituent Corporations on whatever account as , well for stock
subscriptions as all other things in action or belonging to each of the
Constituent Corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all other interests
shall be thereafter as effectually the property of the surviving corporation as
they were of the several and respective Constituent Corporations and the title
to any real estate vested by deed or otherwise in either of the Constituent
Corporations shall not revert or be in any way impaired by reason of the Merger.
All rights of creditors and all liens upon the property of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations thenceforth shall attach to the surviving
corporation, and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it. Any claim
existing or action or proceeding, whether civil, criminal or administrative
pending by or against either Constituent Corporation may be prosecuted to
judgment or decree as if the Merger had not taken place, or the surviving
corporation may be substituted in such action or proceeding.
1.5 FURTHER ASSURANCES. Merging Corporation agrees that, at any
time, or from time to time, as and when requested by the Surviving Corporation,
or by its successors and assigns, it will execute and deliver, or cause to be
executed and delivered in its name by its last acting officers, or by the
corresponding officers of the Surviving Corporation, all such conveyances,
assignments, transfers, deeds or other instruments, and will take or cause to be
taken such further or other action as the Surviving Corporation, its successors
or assigns may deem necessary or desirable in order to evidence the transfer,
vesting or devolution of any
-2-
<PAGE>
property, right, privilege or franchise or to vest or perfect in or confirm
to the Surviving Corporation, its successors and assigns, title to and
possession of all the property, rights, privileges, powers, franchises and
interests referred to in this Section 1 herein and otherwise to carry out the
intent and purposes hereof.
1.6 SHAREHOLDER APPROVAL. In order for the Merger to be effective, a
majority of the shareholders of the Merging Corporation entitled to vote thereon
must approve the Merger ("Shareholder Approval") at the 1997 Annual Meeting,
which Shareholder Approval was received on May 1, 1997.
1.7 EFFECTIVE DATE. With receipt of Shareholder Approval as provided
in Section 1.6 above, this Merger Agreement shall become effective at 4:59 p.m.
Pacific time on the later of (a) the day on which an executed counterpart of a
Certificate of Ownership and Merger is filed with the Secretary of State of the
State of Delaware in the manner required by the General Corporation Law of the
State of Delaware and (b) the day on which an executed counterpart of Articles
of Merger containing this Merger Agreement are filed with the Secretary of State
of Washington in the manner required by the Washington Business Corporation Act
or (c) a later specified effective date as set forth in the Articles of Merger
so filed with the Secretaries of State (the "Effective Date").
2. CAPITAL STOCK OF THE SURVIVING CORPORATION.
2.1 MERGING CORPORATION SHARES. Each share of the Common Stock of
Merging Corporation issued and outstanding immediately prior to the Effective
Date, upon the Effective Date, by virtue of the Merger and without any action on
the part of the holder thereof, shall be converted into one validly issued,
fully paid and non-assessable share of Common Stock of Surviving Corporation.
2.2 SURVIVING CORPORATION SHARES. On the Effective Date, by virtue
of the Merger and without any action on the part of the holder thereof, each
share of Common Stock of Surviving Corporation outstanding immediately prior
thereto shall be canceled and returned to the status of authorized but unissued
shares.
2.3 EXCHANGE OF STOCK CERTIFICATES. On and after the Effective Date,
the shareholders of Merging Corporation may surrender to Surviving Corporation
the certificate or certificates which represent shares of capital stock of
Merging Corporation to an agent designated by Surviving Corporation, and shall
thereupon be entitled to receive such number of shares of capital stock of
Surviving Corporation in accordance with this Section 2.
2.4 STOCK OPTIONS AND EXCHANGE RIGHTS. Pursuant to the provisions of
the Delaware General Corporation Law and the Washington Business Corporation
Act, Surviving Corporation shall (a) assume Merging Corporation's 1997 Amended
and Restated Stock and Incentive Agreement (the "1997 Plan"), Physio-Control
International Corporation Employee
-3-
<PAGE>
Share Purchase Plan (the "ESPP") and all obligations thereunder and stock
options issued pursuant thereto, and (b) reserve for issuance upon the
exercise of outstanding and future stock options granted pursuant to the 1997
Plan, and reserve for issuance shares subject to purchase under the ESPP, the
number of shares of Common Stock as set forth in each plan.
3. MISCELLANEOUS.
3.1 COUNTERPARTS. This Merger Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall constitute one Merger Agreement.
IN WITNESS WHEREOF, the Constituent Corporations have executed this Merger
Agreement as of the date and year first above written.
MERGING CORPORATION:
Physio-Control International Corporation,
a Delaware corporation
/s/ V. Marc Droppert
By______________________________________
V. Marc Droppert
Secretary
SURVIVING CORPORATION:
New Physio Corporation,
a Washington corporation
/s/ V. Marc Droppert
By______________________________________
V. Marc Droppert
Secretary
-4-
<PAGE>
ARTICLES OF INCORPORATION
OF
NEW PHYSIO CORPORATION
ARTICLE I - NAME
The name of the corporation is New Physio Corporation (hereinafter referred
to as the "Corporation").
ARTICLE II - REGISTERED AGENT AND OFFICE
The address of the registered office of the Corporation in the State of
Washington is 5000 Columbia Seafirst Center, 701 Fifth Avenue, Seattle,
Washington 98104-7078 and the name of the registered agent of the Corporation at
such address is PTSGE Corp.
ARTICLE III - PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Washington Business
Corporation Act, as amended from time to time (the "Act").
ARTICLE IV - CAPITAL STOCK
SECTION A. AUTHORIZED CAPITAL. The maximum number of shares of stock that
the Corporation is authorized to have outstanding at any one time is 45,000,000
shares consisting of 40,000,000 shares of Common Stock, par value $.01 per share
(the "Common Stock") and 5,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock").
SECTION B. COMMON STOCK. Except as otherwise provided by the Act, by
these Articles of Incorporation and subject to the rights of holders of any
series of Preferred Stock, the holders of record of Common Stock shall share
ratably in all dividends payable in cash, stock or otherwise and other
distributions, whether in respect of liquidation or dissolution (voluntary or
involuntary) or otherwise and, are subject to all the powers, privileges,
preferences and priorities of any series of Preferred Stock as provided herein
or in any resolution or resolutions adopted by the board of directors pursuant
to authority expressly vested in it by the provisions of Section C of this
ARTICLE IV.
(a) The Common Stock shall not be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the same of
the Corporation's capital stock.
<PAGE>
(b) No holder of Common Stock shall have any preemptive,
subscription, redemption, conversion or sinking fund with respect to the Common
Stock, or to any obligations convertible (directly or indirectly) into stock of
the Corporation whether now or hereafter authorized.
(c) Except as otherwise provided by the Act, by these Articles of
Incorporation and subject to the rights of holders of any series of Preferred
Stock, all of the voting power of the shareholders of the Corporation shall be
vested in the holders of the Common Stock, and each holder of Common Stock shall
have one vote for each share held by such holder on all matters voted upon by
the shareholders of the Corporation.
SECTION C. PREFERRED STOCK. Authority is hereby expressly vested in the
board of directors of the Corporation, subject to the provisions of this ARTICLE
IV and to the limitations prescribed by law, to authorize the issuance from time
to time of one or more series of Preferred Stock. The authority of the board of
directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a 70% of the total number of the directors then in
office.
(a) The designation of such series;
(b) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes or series of the
Corporation's capital stock, and whether such dividends shall be cumulative or
non-cumulative;
(c) Whether the shares of such series shall be subject to redemption
for cash, property or , including securities of any other corporation, by the
Corporation or upon the happening of a specified event, and, if made subject to
any such redemption, the times or events, prices, rates, adjustments and other
terms and conditions of such redemptions;
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the Corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series Of the same class of the Corporation's capital stock,
and, if provision be made for conversion or exchange, the times or events,
prices, rates, adjustments and other terms and conditions of such conversions or
exchanges;
(f) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(g) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
<PAGE>
(h) The provisions as to voting, optional and/or other special rights
and preferences, if any, including, without limitation, the right to elect one
or more directors.
ARTICLE V - EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI - BY-LAWS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal the by-laws of the Corporation by the
affirmative vote of 70% of the total number of directors then in office. Any
alteration or repeal of the by-laws of the Corporation by the shareholders of
the Corporation shall require the affirmative vote of at least 66 2/3% of the
voting power of the then outstanding shares of capital stock of the Corporation
entitled to vote on such alteration or repeal, subject to ARTICLE IX hereof.
ARTICLE VII - SHAREHOLDERS AND DIRECTORS
SECTION A. SHAREHOLDER ACTION. Election of directors need not be by
written ballot unless the by-laws of the Corporation so provide. Subject to the
rights of any series of Preferred Stock, (i) any action required or permitted to
be taken by the shareholders of the Corporation must be effected at an annual or
special meeting of shareholders of the Corporation, (ii) special meetings of
shareholders of the Corporation may be called only by either the board of
directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of directors then in office or by the chief
executive officer of the Corporation, and (iii) advance notice of shareholder
nominations of persons for election to the board of directors of the Corporation
and of business to be brought before any annual meeting of the shareholders by
the shareholders of the Corporation shall be given in the manner provided in the
by-laws of the Corporation. shareholders of the Corporation shall not have
cumulative voting rights.
SECTION B. NUMBER OF DIRECTORS AND TERM OF OFFICE. Subject to any rights
of the holders of any series of Preferred Stock to elect additional directors
under specified circumstances, the number of directors which shall constitute
the Board of Directors of the Corporation shall be such number as shall from
time to time be fixed by resolution adopted by the affirmative vote of 70% of
the total number of directors then in office. The directors of the Corporation
shall be divided into three classes: Class I, Class II and Class III.
Membership in such class shall be as nearly equal in number as possible. The
term of office of the initial Class I directors shall expire at the annual
election of directors by the stockholders of the Corporation in 1996, the term
of office of the initial Class II directors shall expire at the annual election
of directors by the stockholders of the Corporation in 1997, and the term of
office of the initial Class III directors shall expire at the annual election of
directors by the stockholders of the Corporation in 1998, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified, subject, however, to prior death, resignation, retirement,
disqualification or removal
<PAGE>
from office for cause. At each succeeding annual election of directors by
the stockholders of the Corporation beginning in 1996, the directors chosen
to succeed those whose terms then expire shall be identified as being of the
same class as the directors they succeed and shall be elected for a term
expiring at the third succeeding annual election of directors by the
stockholders of the Corporation, or thereafter when their respective
successors in each case are elected by the stockholders and qualified. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director.
SECTION C. REMOVAL AND RESIGNATION. A director may be removed by the
shareholders only at a special meeting called for the purpose of removing the
director and the meeting notice shall state that the purpose, or one of the
purposes, of the meeting is removal of the director. A director may be removed
from office with cause only if the number of votes cast to remove the director
by holders of outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors exceeds the number of votes cast not
to remove the director; provided, however, that if a director is elected by the
holders of one or more authorized classes or series of capital stock,, such
director or directors so elected may be removed without cause only by the vote
of the holders of the outstanding shares of that class or series entitled to
vote. Any director may resign at any time upon written notice to the board of
directors, its chairperson, the president or secretary of the Corporation.
SECTION D. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to any
rights of the holders of any series of Preferred Stock to fill such newly
created directorships or vacancies, any newly created directorships resulting
from any increase in the authorized number of directors and any vacancies in the
board of directors resulting from death, resignation, disqualification, removal
or other cause shall, unless otherwise provided by law or by resolution approved
by the affirmative vote of 70% of the total number of directors then in office,
be filled only by resolution approved by the affirmative vote of 70% of the
total number of directors then in office, and any director so chosen shall hold
office until the next election of the class for which such director shall have
been chosen, and until his successor shall have been duly elected and qualified,
unless he shall resign, die, become disqualified or be removed for cause.
<PAGE>
ARTICLE VIII - GENERAL PROVISIONS
SECTION A. DIVIDENDS. The board of directors shall have authority from
time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said board may deem to be in the interest of the
Corporation; and said board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the shareholders of the Corporation.
SECTION B. ISSUANCE OF STOCK. The shares of all classes of stock of the
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the board of directors of the
Corporation. At any time, or from time to time, the Corporation may grant
rights, options or warrants to purchase from the Corporation any shares of its
stock of any class or classes to run for such period of time, for such
consideration, upon such terms and conditions, and in such form as the board of
directors may determine. When the Corporation has received such consideration
and the board of directors has made a good faith determination that such
consideration is adequate, the shares issued therefor are fully paid and
nonassessable.
SECTION C. INSPECTION OF BOOKS AND RECORDS. Shareholders of the
Corporation have the right to inspect and copy certain accounts, books and
records of the Corporation at the times and places and under the conditions
specified in the Act.
SECTION D. LOCATION OF MEETINGS, BOOKS, AND RECORDS. Except as otherwise
provided in the by-laws, the shareholders of the Corporation and the board of
directors may hold their meetings inside or outside of the State of Washington.
ARTICLE IX - AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereinafter prescribed herein and by the Act or other laws of the State of
Washington, and all rights conferred upon shareholders herein are granted
subject to this reservation. These Articles of Incorporation shall not be
altered, amended or repealed and no provision inconsistent therewith shall be
adopted without the affirmative vote of the holders of at least 66 2/3% of the
voting power of the then outstanding shares of capital stock of each voting
group as specified in the Act entitled to vote on such alteration, amendment or
repeal, as a separate voting group.
ARTICLE X - LIMITATION OF DIRECTOR LIABILITY
(a) To the fullest extent permitted by the Act as it now exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment
<PAGE>
permits the Corporation to provide broader indemnification rights than
permitted prior thereto), and except as otherwise provided in the
Corporation's by-laws, no director of the Corporation shall not be personally
liable to the Corporation or its shareholders for monetary damages for
conduct as a director, except for:
(i) Acts or omissions involving intentional misconduct by the
director or a knowing violation of law by the director;
(ii) Conduct violating Section 23B.08.310 of the Act (which involves
certain distributions by the corporation);
(iii) Any transaction from which the director will personally
receive a benefit in money, property, or services to which the director is
not legally entitled.
(b) Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE XI - INDEMNIFICATION
SECTION A. DEFINITIONS. As used in this Article:
(a) "Agent" means an individual who is or was an agent of the
Corporation or an individual who, while an agent of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. "Agent"
includes, unless the context requires otherwise, the spouse, heirs, estate and
personal representative of an agent.
(b) "Corporation" means the Corporation, its Subsidiaries, and any
domestic or foreign predecessor entity which, in a merger or other transaction,
ceased to exist.
(c) "Director" means an individual who is or was a Director of the
Corporation or an individual who, while a Director of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, limited liability
company, partnership, joint venture, trust, employee benefit plan or other
enterprise. "Director" includes, unless the context requires otherwise, the
spouse, heirs, estate and personal representative of a Director.
(d) "Employee" means an individual who is or was an employee of the
Corporation or an individual, while an employee of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, limited liability
company, partnership, joint venture, trust, employee benefit plan, or other
enterprise. "Employee" includes, unless the context requires otherwise, the
spouse, heirs, estate, and personal representative of an employee.
<PAGE>
(e) "Expenses" include counsel fees.
(f) "Indemnitee" means an individual made a party to a proceeding
because the individual is or was a Director, Officer, Employee, or Agent of the
Corporation, and who possesses indemnification rights pursuant to these Articles
or other corporate action. "Indemnitee" includes, unless the context requires
otherwise, the spouse, heirs, estate, and personal representative of such
individuals.
(g) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax with respect to an employee benefit plan,
or reasonable Expenses incurred with respect to a proceeding.
(h) "Officer" means an individual who is or was an officer of the
Corporation (regardless of whether or not such individual was also a Director)
or an individual who, while an officer of the Corporation, is or was serving at
the Corporation's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, limited liability company,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
"Officer" includes, unless the context requires otherwise, the spouse, heirs,
estate and personal representative of an officer.
(i) "Party" includes an individual who was, is, or is threatened to
be named a defendant, respondent or witness in a proceeding.
(j) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, derivative, criminal, administrative, or
investigative, and whether formal or informal.
(k) "Subsidiary" means any corporation or other entity that is wholly
owned by the Corporation, directly or indirectly, and any other entities that
are specifically designated as "Subsidiaries" for purposes of this Article by
the Board of Directors.
SECTION B. INDEMNIFICATION RIGHTS OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify its Directors and Officers to the full extent not
prohibited by applicable law now or hereafter in force against liability arising
out of a Proceeding to which such individual was made a Party because the
individual is or was a Director or an Officer. However, such indemnity shall
not apply on account of:
(a) Acts or omissions of a Director or Officer finally adjudged to be
intentional misconduct or a knowing violation of law;
(b) Conduct of a Director or Officer finally adjudged to be in
violation of Section 23B.08.310 of the Act relating to distributions by the
Corporation; or
<PAGE>
(c) Any transaction with respect to which it was finally adjudged
that such Director or Officer personally received a benefit in money, property,
or services to which the Director or Officer was not legally entitled.
Subject to the foregoing, it is specifically intended that Proceedings covered
by indemnification shall include Proceedings brought by the Corporation
(including derivative actions), Proceedings by government entities and
governmental officials, or other third party actions.
SECTION C. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, by action of its Board of Directors from time to time,
provide indemnification and pay Expenses in advance of the final disposition of
a Proceeding to Employees and Agents of the Corporation who are not also
Directors, in each case to the same extent as to a Director with respect to the
indemnification and advancement of Expenses pursuant to rights granted under, or
provided by, the Act or otherwise.
SECTION D. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled to
indemnification by the Corporation for some or a portion of Expenses,
liabilities, or losses actually and reasonably incurred by Indemnitee in an
investigation, defense, appeal or settlement but not, however, for the total
amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the
portion of such Expenses, liabilities or losses to which Indemnitee is entitled.
SECTION E. PROCEDURE FOR SEEKING INDEMNIFICATION AND/OR ADVANCEMENT OF
EXPENSES. The following procedures shall apply in the absence of (or at the
option of the Indemnitee, in lieu thereof), specific procedures otherwise
applicable to an Indemnitee pursuant to a contract, trust agreement, or general
or specific action of the Board of Directors:
SECTION E.1. NOTIFICATION AND DEFENSE OF CLAIM. Indemnitee shall
promptly notify the Corporation in writing of any proceeding for which
indemnification could be sought under this Article. In addition,
Indemnitee shall give the Corporation such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
With respect to any such proceeding as to which Indemnitee has notified the
Corporation:
(a) The Corporation will be entitled to participate therein at its
own expense; and
(b) Except as otherwise provided below, to the extent that it may
wish, the Corporation, jointly with any other indemnifying party
similarly notified, will be entitled to assume the defense
thereof, with counsel satisfactory to Indemnitee. Indemnitee's
consent to such counsel may not be unreasonably withheld.
After notice from the Corporation to Indemnitee of its election to
assume the defense, the Corporation will not be liable to Indemnitee under
this Article for any legal
<PAGE>
or other Expenses subsequently incurred by Indemnitee in connection with
such defense. However, Indemnitee shall continue to have the right to
employ its counsel in such proceeding, at Indemnitee's expense; and if:
(i) The employment of counsel by Indemnitee has been authorized
by the Corporation;
(ii) Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Corporation and
Indemnitee in the conduct of such defense; or
(iii) The Corporation shall not in fact have employed counsel
to assume the defense of such proceeding,
the fees and Expenses of Indemnitee's counsel shall be at the expense of
the Corporation.
The Corporation shall not be entitled to assume the defense of any
proceeding brought by or on behalf of the Corporation or as to which
Indemnitee shall reasonably have made the conclusion that a conflict of
interest may exist between the Corporation and the Indemnitee in the
conduct of the defense.
SECTION E.2. INFORMATION TO BE SUBMITTED AND METHOD OF DETERMINATION
AND AUTHORIZATION OF INDEMNIFICATION. For the purpose of pursuing rights
to indemnification under this Article, the Indemnitee shall submit to the
Board a sworn statement requesting indemnification and reasonable evidence
of all amounts for which such indemnification is requested (together, the
sworn statement and the evidence constitute an "Indemnification
Statement").
Submission of an Indemnification Statement to the Board shall create a
presumption that the Indemnitee is entitled to indemnification hereunder,
and the Corporation shall, within sixty (60) calendar days thereafter, make
the payments requested in the Indemnification Statement to or for the
benefit of the Indemnitee, unless: (1) within such sixty (60) calendar
day period it shall be determined by the Corporation that the Indemnitee is
not entitled to indemnification under this Article; (2) such determination
shall be based upon clear and convincing evidence (sufficient to rebut the
foregoing presumption); and (3) the Indemnitee shall receive notice in
writing of such determination, which notice shall disclose with
particularity the evidence upon which the determination is based.
The foregoing determination may be made: (1) by the Board of Directors
by majority vote of a quorum of Directors who are not at the time parties
to the proceedings; (2) if a quorum cannot be obtained, by majority vote of
a committee duly designated by the Board of Directors (in which
designation, Directors who are parties may participate) consisting solely
of two (2) or more Directors not at the time parties to the proceeding;
<PAGE>
(3) by special legal counsel; or (4) by the shareholders as provided by
Section 23B.08.550 of the Act.
Any determination that the Indemnitee is not entitled to
indemnification, and any failure to make the payments requested in the
Indemnification Statement, shall be subject to judicial review by any court
of competent jurisdiction.
SECTION E.3 SPECIAL PROCEDURE REGARDING ADVANCE FOR EXPENSES. An
Indemnitee seeking payment of Expenses in advance of a final disposition of
the proceeding must furnish the Corporation, as part of the Indemnification
Statement:
(a) A written affirmation of the Indemnitee's good faith belief
that the Indemnitee has met the standard of conduct required
to be eligible for indemnification; and
(b) A written undertaking, constituting an unlimited general
obligation of the Indemnitee, to repay the advance if it is
ultimately determined that the Indemnitee did not meet the
required standard of conduct.
Upon satisfaction of the foregoing, the Indemnitee shall have a
contractual right to the payment of such Expenses.
SECTION E.4 SETTLEMENT. The Corporation is not liable to indemnify
Indemnitee for any amounts paid in settlement of any proceeding without the
Corporation's written consent. The Corporation shall not settle any
proceeding in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Corporation
nor Indemnitee may unreasonably withhold its consent to a proposed
settlement.
SECTION F. CONTRACT AND RELATED RIGHTS.
SECTION F.1 CONTRACT RIGHTS. The right of an Indemnitee to
indemnification and advancement of Expenses is a contract right upon which
the Indemnitee shall be presumed to have relied in determining to serve or
to continue to serve in his or her capacity with the Corporation. Such
right shall continue as long as the Indemnitee shall be subject to any
possible proceeding. Any amendment to or repeal of this Article shall not
adversely affect any right or protection of an Indemnitee with respect to
any acts or omissions of such Indemnitee occurring prior to such amendment
or repeal.
SECTION F.2 OPTIONAL INSURANCE, CONTRACTS, AND FUNDING. The
Corporation may:
(a) Maintain insurance, at its expense, to protect itself and
any Indemnitee against any liability, whether or not the
Corporation
<PAGE>
would have power to indemnify the individual against the
same liability under Section 23B.08.510 or .520 of the Act;
(b) Enter into contracts with any Indemnitee in furtherance of
this Article and consistent with the Act; and
(c) Create a trust fund, grant a security interest, or use other
means (including without limitation a letter of credit) to
ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Article.
SECTION F.3 SEVERABILITY. If any provision or application of this
Article shall be invalid or unenforceable, the remainder of this Article
and its remaining applications shall not be affected thereby, and shall
continue in full force and effect.
SECTION F.4 RIGHT OF INDEMNITEE TO BRING SUIT. If (1) a claim
under this Article for indemnification is not paid in full by the
Corporation within sixty (60) calendar days after an Indemnification
Statement has been received by the Corporation; or (2) a claim under this
Article for advancement of Expenses is not paid in full by the Corporation
within twenty (20) calendar days after a written claim has been received by
the Corporation, then the Indemnitee may, but need not, at any time
thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. To the extent successful in whole or in part, the Indemnitee
shall be entitled to also be paid the expense (to be proportionately
prorated if the Indemnitee is only partially successful) of prosecuting
such claim. Neither (1) the failure of the Corporation (including its
Board of Directors, its shareholders, or independent legal counsel) to have
made a determination prior to the commencement of such proceeding that
indemnification or reimbursement or advancement of Expenses to the
Indemnitee is proper in the circumstances; nor (2) an actual determination
by the Corporation (including its Board of Directors, its shareholders, or
independent legal counsel) that the Indemnitee is not entitled to
indemnification or to the reimbursement or advancement of Expenses, shall
be a defense to the proceeding or create a presumption that the Indemnitee
is not so entitled.
SECTION F.5 NONEXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of Expenses incurred in defending a Proceeding in advance
of its final disposition granted in this Article shall not be exclusive of
any other right which any Indemnitee may have or hereafter acquire under
the Act, any statute, provision of this Article or the Bylaws, agreement,
vote of shareholders or disinterested directors, or otherwise. The
Corporation shall have the express right to grant additional indemnity
without seeking further approval or satisfaction by the shareholders. All
applicable indemnity provisions and any applicable law shall be interpreted
and applied so as to provide an Indemnitee with the broadest but
nonduplicative indemnity to which he or she is entitled.
<PAGE>
SECTION G. CONTRIBUTION. If the indemnification provided in Section B
of this Article is not available to be paid to Indemnitee for any reason other
than those set forth in subparagraphs (a), (b), and (c) of Section B of this
Article (for example, because indemnification is held to be against public
policy even though otherwise permitted under Section B) then in respect of any
proceeding in which the Corporation is jointly liable with Indemnitee (or would
be if joined in such proceeding), the Corporation shall contribute to the amount
of loss paid or payable by Indemnitee in such proportion as is appropriate to
reflect:
The relative benefits received by the Corporation on the one hand
and the Indemnitee on the other hand from the transaction from
which such proceeding arose, and
The relative fault of the Corporation on the one hand and the
Indemnitee on the other hand in connection with the events which
resulted in such loss, as well as any other relevant equitable
consideration.
The relative benefits received by and fault of the Corporation on the one
hand and the Indemnitee on the other shall be determined by a court of competent
jurisdiction (which may be the same court in which the proceeding took place)
with reference to, among other things, the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent the circumstances
resulting in such loss. The Corporation agrees that it would not be just and
equitable if a contribution pursuant to this Article was determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
SECTION H. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms of
these Articles to indemnify or advance Expenses to Indemnitee with respect to
any proceeding.
SECTION H.1 CLAIMS INITIATED BY INDEMNITEE. Initiated or brought
voluntarily by Indemnitee and not by way of defense, but such
indemnification or advancement of Expenses may be provided by the
Corporation in specific cases if the Board of Directors finds it to be
appropriate. Notwithstanding the foregoing, the Corporation shall provide
indemnification including the advancement of Expenses with respect to
Proceedings brought to establish or enforce a right to indemnification
under these Articles or any other statute or law or as otherwise required
under the statute.
SECTION H.2 LACK OF GOOD FAITH. Instituted by Indemnitee to
enforce or interpret this Article, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous.
SECTION H.3 INSURED CLAIMS. For which any of the Expenses or
liabilities for indemnification is being sought have been paid directly to
Indemnitee by an insurance carrier under a policy of officers' and
directors' liability insurance maintained by the Corporation.
<PAGE>
SECTION H.4 PROHIBITED BY LAW. If the Corporation is prohibited by
the Act or other applicable law as then in effect from paying such
indemnification and/or advancement of Expenses. For example, the
Corporation and Indemnitee acknowledge that the Securities and Exchange
Commission ("SEC") has taken the position that indemnification is not
possible for liabilities arising under certain federal securities laws.
Indemnitee understands and acknowledges that the Corporation has undertaken
or may be required in the future to undertake with the SEC to submit the
question of indemnification to a court in certain circumstances for a
determination of the Corporation's right to indemnify Indemnitee.
SECTION I. SUCCESSORS AND ASSIGNS. All obligations of the Corporation
to indemnify any Director or Officer shall be binding upon all successors and
assigns of the Corporation (including any transferee of all or substantially all
of its assets and any successor by merger or otherwise by operation of law).
The Corporation shall not effect any sale of substantially all of its assets,
merger, consolidation, or other reorganization, in which it is not the surviving
entity, unless the surviving entity agrees in writing to assume all such
obligations of the Corporation.
<PAGE>
ARTICLE XII - DIRECTORS
The number of directors of this Corporation shall be fixed in the manner
specified by the by-laws of this Corporation. The first directors of the
Corporation are seven (7) in number and their names and addresses are:
Richard O. Martin
11811 Willows Road Northeast
Redmond, WA 98052
Stephen G. Pagliuca
11811 Willows Road Northeast
Redmond, WA 98052
Robert C. Gay
11811 Willows Road Northeast
Redmond, WA 98052
Robert M. Guezuraga
11811 Willows Road Northeast
Redmond, WA 98052
John J. O'Malley
11811 Willows Road Northeast
Redmond, WA 98052
Ronald W. Dollens
11811 Willows Road Northeast
Redmond, WA 98052
Robert A. Sandler
11811 Willows Road Northeast
Redmond, WA 98052
The first directors shall serve until the first annual meeting of the
shareholders and until their successors are elected and qualified.
ARTICLE XIII - INCORPORATOR
The name and address of the incorporator is:
V. Marc Droppert 11811 Willlows Road Northeast
Redmond, WA 98052
The undersigned incorporator has signed these Articles of Incorporation as
duplicate signed originals on May 20, 1997.
/s/ V. Marc Droppert
-------------------------------------
V. Marc Droppert
Incorporator
<PAGE>
CONSENT TO SERVE AS REGISTERED AGENT
PTSGE Corp hereby consents to serve as Registered Agent in the State of
Washington for New Phyio Corporation. I understand that as agent for the
corporation, it will be my responsibility to receive service of process in
the name of the corporation; to forward all mail to the corporation; and to
immediately notify the Office of the Secretary of State in the event of my
resignation, or of any changes in the registered office of the corporation
for which I am agent.
May 20,1997 PTSGE Corp
By: /s/ Robert Vallelunga
----------------------------
Robert Vallelunga
<PAGE>
CERTIFICATE OF MERGER
OF
A DELAWARE CORPORATION
INTO A
FOREIGN CORPORATION
(UNDER SECTION 252 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
NEW PHYSIO CORPORATION hereby certifies that:
1. The name and state of incorporation of each of the constituent
corporations are:
(a) Physio-Control International Corporation, a Delaware
corporation; and
(b) New Physio Corporation, a Washington corporation.
2. An agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by Physio-Control International
Corporation and New Physio Corporation in accordance with the provisions of
subsection (c) of Section 252 of the General Corporation Law of the State
of Delaware.
3. The name of the surviving corporation is New Physio Corporation
4. The certificate of incorporation of New Physio Corporation shall
be the certificate of incorporation of the surviving corporation.
5. The surviving corporation is a corporation of the State of
Washington.
6. The executed agreement and plan of merger is on file at the
principal place of business of New Physio Corporation at 11811 Willows Road
N.E., Redmond WA 98052.
7. A copy of the agreement and plan of merger will be furnished by
New Physio Corporation, on request and without cost, to any stockholder of
Physio-Control International Corporation or New Physio Corporation.
8. New Physio Corporation hereby agrees that it may be served with
process in Delaware in any proceeding for enforcement of any obligation of
Physio-Control International Corporation, as well as for enforcement of any
obligation of New Physio Corporation arising from the merger, including any
suit or other proceeding
<PAGE>
to enforce the right of any stockholders as determined in appraisal
proceedings pursuant to 8 DEL.C. Section 262 and New Physio Corporation
hereby irrevocably appoints the Secretary of State of the State of Delaware
as its agent to accept service of process in any such suit or other
proceedings and a copy of such process shall be mailed by the Secretary of
State to New Physio Corporation at the following address: 11811 Willows Road
N.E., Redmond WA 98052.
IN WITNESS WHEREOF, New Physio Corporation has caused this
certificate to be signed by V. Marc Droppert, its authorized officer, on the
20th day of May, 1997.
NEW PHYSIO CORPORATION
/s/ V. Marc Droppert
By______________________________
V. Marc Droppert
Secretary
<PAGE>
ARTICLES OF MERGER
OF
PHYSIO-CONTROL INTERNATIONAL CORPORATION
WITH AND INTO
NEW PHYSIO CORPORATION
Pursuant to Section 23B.11.050 of the Washington Business Corporation Act
(the "ACT"), New Physio Corporation, a Washington corporation (the "SURVIVING
CORPORATION"), submits these Articles of Merger for filing:
1. The Agreement and Plan of Merger is attached hereto and made a
part as though fully set forth herein.
2. The approval of the shareholders of Physio-Control International
Corporation, a Delaware corporation, was obtained pursuant to Section 252
of the General Corporation Law of the State of Delaware. The approval of
the shareholders of Surviving Corporation was obtained pursuant to
Section 23B.11.030 of the WBCA.
3. The Effective Date, as provided in the Agreement and Plan of
Merger, for such Merger shall be May 30, 1997.
Dated: May 20, 1997.
NEW PHYSIO CORPORATION
a Washington Corporation
/s/ V. Marc Droppert
By______________________________
V. Marc Droppert
Secretary
<PAGE>
Exhibit 10.16
CREDITANSTALT-BANKVEREIN
TWO GREENWICH PLAZA
GREENWICH, CONNECTICUT 06836-1300
June 3, 1997
Physio-Control International Corporation
Physio-Control Corporation
11811 Willows Road N.E.
Redmond, WA 98073-9706
RELEASE AGREEMENT
-----------------
Gentlemen:
Physio-Control International Corporation, a Delaware corporation
("Parent"), and Physio-Control corporation, a Delaware corporation
("Borrower"), have entered into financing arrangements with
Creditanstalt-Bankverein, a bank organized under the laws of the Republic of
Austria ("Creditanstalt"), as set forth in the Amended and Restated Credit
Agreement dated as of December 15, 1995 (as the same has been amended and
supplemented, the "Loan Agreement"), between the borrower and Creditanstalt,
and the other Loan Documents (as defined in the Loan Agreement) (all of the
foregoing, together with the Loan Agreement, collectively, the "Existing
Agreements") pursuant to which Creditanstalt has made loans and advances to
Borrower (the "Loans") and Creditanstalt has issued the letters of credit
listed on EXHIBIT A hereto for the account of borrower (collectively, the
"Creditanstalt Letters of Credit").
1. RELEASES.
(a) Subject to the terms and conditions contained herein
(including but not limited to Section 5), Creditanstalt hereby releases,
discharges and acquits each of Parent and Borrower from any and all
liabilities and obligations they may have to Creditanstalt arising out of the
Existing Agreements. Anything to the contrary in this Agreement
notwithstanding, any provision of any Existing Agreement that by the terms of
the Existing Agreements survives the termination thereof shall not be
affected by this Agreement.
(b) Creditanstalt hereby terminates and releases any and all
security interests in, liens and mortgages upon, and pledges of, all
properties and assets of Borrower, its subsidiaries and Parent (whether
personal, real or mixed, tangible or intangible) heretofore granted, pledged,
assigned to,
<PAGE>
or otherwise claimed by, Creditanstalt, pursuant to the Loan
Agreement and the other Existing Agreements.
(c) Subject to the terms and conditions contained herein,
each of Borrower and Parent, for and in consideration of the release above,
hereby releases, discharges and acquits Creditanstalt and its successors and
assigns from all liabilities and obligations to Borrower and Parent and their
respective successors and assigns arising out of the Existing Agreements.
2. INDEMNIFICATION FOR RETURNED ITEMS.
Notwithstanding anything to the contrary contained in Section
1 above, Borrower agrees to indemnify Creditanstalt from and hold
Creditanstalt harmless against all loss, cost, damage or expense which
Creditanstalt may suffer or incur as a result of any non-payment, claim,
refund or dishonor of any checks or other items which have been credited by
Creditanstalt to the account of Borrower in calculating the amount payable to
Creditanstalt on the date hereof pursuant to Section 5(c) of this Agreement,
together with any reasonable expenses or other reasonable and customary
charges incident thereto.
3. DELIVERIES BY CREDITANSTALT.
Creditanstalt agrees to deliver to Borrower, at the expense of
Borrower, following the effectiveness hereof, the originals of:
(a) the promissory note or notes, if any, previously executed
and delivered to Creditanstalt by Borrower duly marked "paid in full";
(b) Uniform Commercial Code releases and/or terminations in
form acceptable for recording covering financing statements which have been
filed by Creditanstalt against Borrower or Parent;
(c) trademark and patent releases or reassignments,
reassigning, without representations and warranties, to Borrower and/or
releasing the security interest of Creditanstalt in all trademarks, patents
and related assets heretofore assigned by Borrower to Creditanstalt pursuant
to the Existing Agreements;
(d) discharges or satisfactions of any mortgages or deeds of
trust or similar real property instruments previously executed and delivered
by Borrower or Parent in favor of Creditanstalt in form acceptable for
recording; and
(e) any stock certificates and executed stock powers related
thereto previously delivered to Creditanstalt by Borrower or Parent.
<PAGE>
4. TERMINATION OF LOCKBOXES. Creditanstalt agrees to send
written notification, upon request and at the expense of Borrower, to any
bank or institution with which Creditanstalt has blocked accounts, lockbox
accounts or other arrangements for the receipt or transfer to Creditanstalt
of remittances or proceeds from customers of Borrower, to the effect that all
such arrangements with Creditanstalt are terminated, and to the extent any
such arrangements are in effect with Creditanstalt, such arrangements are
hereby terminated.
5. CONDITIONS PRECEDENT. The effectiveness of this Agreement,
and of any termination statements or other similar release instruments
delivered by Creditanstalt hereunder, are subject to and conditioned upon the
receipt by Creditanstalt of:
(a) an original of this Agreement, duly executed by the
parties hereto;
(b) the original of each Letter of Credit, marked 'CANCELED';
and
(c) payment, in immediately available funds, of
$22,414,500.16 not later than 2:00 p.m. New York City time on June 4, 1997
plus $4,385.00 per day for each additional day thereafter that such payment
has not been made prior to such time.
6. FURTHER ASSURANCES. Creditanstalt further agrees to furnish,
at Borrower's expense, additional releases and/or termination statements and
such other and further documents, instruments and agreements as may be
reasonably requested by Borrower, in order to effect and evidence more fully
the matters covered hereby.
7. COSTS AND EXPENSES. Borrower and Parent agree to pay all
costs and expenses, including without limitation, reasonable attorneys fees,
in connection with the preparation, execution, delivery, filing, recording
and administration of this Release Agreement and the performance of any other
acts required to effect the release of any security granted to the
undersigned under the Existing Agreements. In addition, Parent and Borrower
agree to pay any and all stamp and other taxes and fees payable or determined
to be payable in connection with the execution and delivery, filing or
recording of this Release Agreement and the other instruments and documents
to be delivered hereunder, and agree to save the undersigned harmless from
and against any and all liabilities with respect to or resulting from any
delay in paying or omitting to pay such taxes or fees.
8. GOVERNING LAW. This Agreement shall be construed in
accordance with and be governed by the laws of the State of
<PAGE>
New York (without giving effect to the conflict of law principles thereof).
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original hereof and
submissible into evidence and all of which together shall be deemed to be a
single instrument.
Very truly yours,
CREDITANSTALT-BANKVEREIN
By: _________________________
Name: Clifford L. Wells
Title: Vice President
By: _________________________
Name: Lisa D. Bruno
Title: Asst. V. President
ACKNOWLEDGED AND AGREED:
PHYSIO-CONTROL INTERNATIONAL CORPORATION
By: _________________________ By: __________________________
Name: Richard O. Martin Name: Joseph J.Caffarelli
Title: Chairman and Chief Title: Executive Vice
Executive Officer President/Chief
Financial Officer
<PAGE>
EXHIBIT A
CREDITANSTALT LETTERS OF CREDIT
-------------------------------
Irrevocable Standby Letter of Credit No. 10099
Face Amount: $500,000.00
<PAGE>
CREDIT AGREEMENT
BETWEEN
PHYSIO-CONTROL CORPORATION
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
AS AGENT
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
AND
MELLON BANK, N.A.
AS BANKS
DATED JUNE 3, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 ADJUSTED LIBOR RATE . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 AGENT'S RELATED PARTIES . . . . . . . . . . . . . . . . . . . . . . 1
1.4 ASSESSMENT RATE . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 AVAILABLE AMOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 BASE RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 BASE RATE ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 BASE RATE MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 BUSINESS DAY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 COMMENCEMENT DATE . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 CREDIT LIMIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16 EXCHANGE RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.17 FED FUNDS RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18 FEE MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19 FIXED CHARGE COVERAGE RATIO . . . . . . . . . . . . . . . . . . . . 3
1.20 FIXED RATE MARGIN . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22 HAZARDOUS SUBSTANCES. . . . . . . . . . . . . . . . . . . . . . . . 3
1.23 INTEREST PAYMENT DATES. . . . . . . . . . . . . . . . . . . . . . . 3
1.24 INTEREST PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25 ISSUANCE FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26 L/C AGREEMENT(S). . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.27 LETTER(S) OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . 3
1.28 LIBOR RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.29 LIBOR RATE ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30 LOAN DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31 LONDON BANKING DAY. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 MAJORITY BANKS. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33 MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34 MATERIAL SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . 4
1.35 MULTICURRENCY ADVANCES. . . . . . . . . . . . . . . . . . . . . . . 4
1.36 MULTICURRENCY RATE. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.37 OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.38 PERSON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.39 PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.40 PRO RATA SHARE(S) . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.41 QUOTED RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.42 REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.43 REFERENCE RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.44 RESERVE ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . 5
1.45 REVOLVING LOAN. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.46 SUBORDINATED DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.47 SWING LINE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.48 SWING LINE ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . 6
1.49 TANGIBLE NET WORTH. . . . . . . . . . . . . . . . . . . . . . . . . 6
1.50 TERMINATION DATE. . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2
REVOLVING LOAN . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 REVOLVING LOAN FACILITY . . . . . . . . . . . . . . . . . . . . . . 6
2.2 PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 PROCEDURE FOR BASE RATE ADVANCES. . . . . . . . . . . . . . . . . . 7
2.4 PROCEDURE FOR LIBOR RATE ADVANCES . . . . . . . . . . . . . . . . . 7
2.5 PROCEDURE FOR MULTICURRENCY ADVANCES. . . . . . . . . . . . . . . . 7
2.6 BANK FUNDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 COMMITMENT FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3
LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 ISSUANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 YIELD INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4
SWING LINE . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 DESCRIPTION OF FACILITY . . . . . . . . . . . . . . . . . . . . . . 9
4.2 PROCEDURE FOR SWING LINE ADVANCES . . . . . . . . . . . . . . . . . 9
ARTICLE 5
RISK PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 6
COLLATERAL SECURITY. . . . . . . . . . . . . . . . . . . . . . . 10
6.1 COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 COLLATERAL AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 FINANCING STATEMENTS AND OTHER DOCUMENTS. . . . . . . . . . . . . . 10
6.4 COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT . . . . . . . . . . . . . . 10
6.6 NEGATIVE PLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 7
GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 8
INTEREST RATE OPTIONS. . . . . . . . . . . . . . . . . . . . . . 11
8.1 INTEREST RATES AND PAYMENT DATE . . . . . . . . . . . . . . . . . . 11
8.2 OPTION RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 11
8.3 PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 REVERSION TO BASE RATE. . . . . . . . . . . . . . . . . . . . . . . 11
8.5 INABILITY TO PARTICIPATE IN MARKET. . . . . . . . . . . . . . . . . 11
8.6 COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.7 BASIS OF QUOTES . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 9
CONDITIONS OF LENDING. . . . . . . . . . . . . . . . . . . . . . 12
9.1 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2 DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.3 REFINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4 LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.5 GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.6 PROOF OF INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 12
9.7 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 12
9.8 MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . 12
9.9 COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-i-
<PAGE>
ARTICLE 10
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 13
10.1 EXISTENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.2 ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.3 NO LEGAL BAR . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.4 LIENS AND ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . . 13
10.5 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.6 PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.7 EMPLOYEE BENEFIT PLAN. . . . . . . . . . . . . . . . . . . . . . . 13
10.8 MISREPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . 13
10.9 NO DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.10 NO BURDENSOME RESTRICTIONS . . . . . . . . . . . . . . . . . . . . 14
10.11 HAZARDOUS SUBSTANCES . . . . . . . . . . . . . . . . . . . . . . . 14
10.12 MATERIAL SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . 14
10.13 MARGIN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.14 MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 11
AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 14
11.1 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.2 FIXED CHARGE COVERAGE RATIO. . . . . . . . . . . . . . . . . . . . 14
11.3 TANGIBLE NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . 14
11.4 DEBT RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.5 FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 15
11.6 MAINTENANCE OF EXISTENCE . . . . . . . . . . . . . . . . . . . . . 15
11.7 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . 16
11.8 ACCESS TO PREMISES AND RECORDS . . . . . . . . . . . . . . . . . . 16
11.9 NOTICE OF EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.10 PAYMENT OF DEBTS AND TAXES . . . . . . . . . . . . . . . . . . . . 16
11.11 FDA CONSENT DECREE . . . . . . . . . . . . . . . . . . . . . . . . 16
11.12 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.13 HAZARDOUS SUBSTANCES . . . . . . . . . . . . . . . . . . . . . . . 17
11.14 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 12
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 17
12.1 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.2 LIENS AND ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . . 18
12.3 DISPOSITION OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . 18
12.4 MERGERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.5 CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . . 18
12.6 WAGE AND HOUR LAWS . . . . . . . . . . . . . . . . . . . . . . . . 18
12.7 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.8 DISSOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.9 BUSINESS ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . 18
12.10 DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.11 PERMISSIBLE LOANS AND INVESTMENTS. . . . . . . . . . . . . . . . . 19
ARTICLE 13
AGENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.1 APPOINTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.2 SUCCESSOR AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.3 DUTIES OF AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.4 DELEGATION OF DUTIES . . . . . . . . . . . . . . . . . . . . . . . 20
13.5 EXCULPATORY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 20
13.6 RELIANCE BY AGENT. . . . . . . . . . . . . . . . . . . . . . . . . 20
13.7 INSTRUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.8 NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . 20
13.9 REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.10 INDEPENDENT CREDIT REVIEW. . . . . . . . . . . . . . . . . . . . . 21
13.11 INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.12 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.13 SEPARATION OF CAPACITIES . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 14
EVENTS AND CONSEQUENCES OF DEFAULT . . . . . . . . . . . . . . . 22
14.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . 22
14.2 REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 23
14.3 DEFAULT INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 15
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 24
15.1 MANNER OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . 24
15.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15.3 DOCUMENTATION AND ADMINISTRATION EXPENSES. . . . . . . . . . . . . 25
15.4 COLLECTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . 26
15.5 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.6 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.7 MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.9 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBITS:
Exhibit 1 -- Prepayment Fee Exhibit
Exhibit 2 -- Borrowing Notice
Exhibit 3 -- Form of Participation Certificate
Exhibit 4 -- Form of Guarantor CFO Certificate
Exhibit 5 -- Form of Subsidiary's Certificate
Schedule 10.5 - List of Pending Litigation
Schedule 10.12 - List of Material Subsidiaries
Schedule 12.1(b) - Disclosure List of Existing Debt
Schedule 12.2(a) - Disclosure List of Existing Liens
-ii-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made between Physio-Control
Corporation, a Delaware corporation ("Borrower"), and Bank of America
National Trust and Savings Association, doing business as Seafirst Bank, a
national banking association, as agent ("Agent"), and the following financial
institutions that are individually called a "Bank" and collectively called
the "Banks," including their respective successors and/or assigns: Bank of
America National Trust and Savings Association, doing business as Seafirst
Bank (in its capacity as a Bank, "Seafirst"), and Mellon Bank, N.A.
("Mellon"). For mutual consideration, the parties agree as follows:
ARTICLE 1
DEFINITIONS
All terms defined below shall have the meaning indicated. All references
in this Agreement to:
(a) "dollars" or "$" shall mean U.S. dollars;
(b) "Article," "Section," or "Subsection" shall mean articles,
sections, and subsections of this Agreement, unless otherwise indicated;
(c) all interest and fees payable on a per annum basis with regard to
this Agreement shall be calculated on the basis of the actual number of
days elapsed over a year of 360 days, unless otherwise specified;
(d) terms defined in the Washington version of the Uniform Commercial
Code, R.C.W. Section 62A.9-101, ET SEQ. ("UCC"), and not otherwise defined
in this Agreement, shall have the meaning given in the UCC; and
(e) an accounting term not otherwise defined in this Agreement shall
have the meaning assigned to it under GAAP.
1.1 ADJUSTED LIBOR RATE shall mean for any day that per annum rate equal
to the sum of (a) the Fixed Rate Margin, (b) the Assessment Rate, and (c) the
quotient of (i) the LIBOR Rate as determined for such day, divided by (ii)
the Reserve Adjustment. The Adjusted LIBOR Rate shall change with any change
in the LIBOR Rate on the first day of each Interest Period and on the
effective date of any change in the Assessment Rate or Reserve Adjustment.
1.2 ADVANCES shall mean Base Rate Advances, LIBOR Rate Advances, Swing
Line Advances, and Multicurrency Advances. No Advance shall constitute a
"payment order" under R.C.W. Section 62A.4A-103.
1.3 AGENT'S RELATED PARTIES shall mean Agent, its affiliates, and all
officers, directors and employees of Agent and such affiliates.
1.4 ASSESSMENT RATE shall mean as of any day the minimum annual
percentage rate established by the Federal Deposit Insurance Corporation (or
any successor) for the assessment due from members of the Bank Insurance Fund
(or any successor) in effect for the assessment period during which said day
occurs based on deposits maintained at such members' offices located outside
of the United States. In the event of a retroactive reduction in the
Assessment Rate after a commencement of any Interest Period, Agent shall not
retroactively adjust as to such Interest Period any interest rate calculated
using the Assessment Rate.
-1-
<PAGE>
1.5 AVAILABLE AMOUNT shall mean at any time the amount of the Credit
Limit, minus the unpaid principal balance of the Revolving Loan, minus the
aggregate outstanding principal amount of all Letters of Credit, minus the
sum of the U.S. dollar equivalent of the outstanding balance of all
Multicurrency Advances, based on the Exchange Rate for each such Advance.
1.6 BASE RATE shall mean (a) the greater of the Reference Rate or the
Fed Funds Rate, plus (b) the Base Rate Margin.
1.7 BASE RATE ADVANCES shall mean those portions of principal of the
Revolving Loan accruing interest at the Base Rate.
1.8 BASE RATE MARGIN shall have the meaning given in Section 1.33.
1.9 BUSINESS DAY shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks in Seattle, Washington, or Pittsburgh,
Pennsylvania, are authorized or required by law to close.
1.10 COLLATERAL shall have the meaning given in Section 6.1.
1.11 COMMENCEMENT DATE shall mean the first day of any Interest Period as
requested by Borrower.
1.12 CREDIT LIMIT shall mean $25,000,000.
1.13 DEBT shall mean all consolidated obligations, on a GAAP basis,
included in the liability section of a balance sheet of Guarantor, together
with, regardless of whether such items would otherwise not be shown on the
liability side of a balance sheet:
(a) all obligations guaranteed or assumed by Guarantor or any
subsidiary, directly or indirectly in any manner, or endorsed (other than
for collection and deposit in the ordinary course of business) or
discounted by Guarantor or any subsidiary with recourse, including all
indebtedness guaranteed by Guarantor or any subsidiary through any
agreement, contingent or otherwise;
(b) all obligations for the payment of money or other property
pursuant to capital leases under which Guarantor or any of its subsidiaries
is leasing real or personal property; and
(c) all obligations of any partnership or joint venture of which
Guarantor or any of its subsidiaries is a member, if Guarantor or any such
subsidiary is legally liable for such obligations.
1.14 DEFAULT shall have the meaning given in Section 14.1.
1.15 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.16 EXCHANGE RATE shall mean the rate of exchange actually obtained by
Agent for a given currency in funding a Multicurrency Advance in such
currency.
1.17 FED FUNDS RATE shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to (a) 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
for such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of San Francisco or, if such rate
is not so published for any day which is a Business Day, the average of the
quotations for such day on transactions received by Agent from three federal
funds brokers of recognized standing selected by Agent; plus (b) 0.5%.
-2-
<PAGE>
1.18 FEE MARGIN shall have the meaning given in Section 1.33.
1.19 FIXED CHARGE COVERAGE RATIO shall mean, as to Guarantor on a
consolidated basis, the ratio of:
(a) earnings before interest expense, taxes, depreciation, and
amortization, minus capital expenditures (excluding, through fiscal quarter
ending September 30, 1997, $4,900,000 in capital expenditures consisting of
soft costs of a major computer system upgrade carried out in 1996); to
(b) (i) interest expense, plus (ii) the current portion of long-term
Debt (excluding the Obligations), plus (iii) 20% of the outstanding
principal amount of all Obligations.
1.20 FIXED RATE MARGIN shall have the meaning given in Section 1.33.
1.21 GUARANTOR shall mean Physio-Control International Corporation, a
Washington corporation.
1.22 HAZARDOUS SUBSTANCES shall mean any substance or material defined or
designated as hazardous or toxic wastes, a hazardous or toxic material, a
hazardous, toxic, or radioactive substance, or other similar term by any
applicable federal, state, or local statute, regulation, or ordinance now or
hereafter in effect.
1.23 INTEREST PAYMENT DATES shall mean (a) for Multicurrency Advances,
the last day of its Interest Period; (b) for Base Rate Advances, the last
Business Day of each month; (c) for LIBOR Rate Advances, the last day of each
Interest Period (PROVIDED, that if the Interest Period is longer than three
months, the end of the third month of the Interest Period shall also be an
Interest Payment Date); and (d) in each case, upon maturity, including upon
maturity by acceleration.
1.24 INTEREST PERIOD shall mean the period commencing on the date of any
Advance, or Multicurrency Advance, or of any conversion to an Adjusted LIBOR
Rate and ending on any date thereafter as selected by Borrower. Interest
Periods for Multicurrency Advances may be one week or one, two, three, or six
months, and Interest Periods for LIBOR Rate Advances shall be subject to the
restrictions of Section 8.2. If any Interest Period would end on a day which
is not a Business Day, the Interest Period shall be extended to the next
succeeding Business Day, unless the next succeeding Business Day falls in the
next month, in which case the Interest Period shall be shortened to the
preceding Business Day.
1.25 ISSUANCE FEE shall have the meaning assigned to it in Section 3.2.
1.26 L/C AGREEMENT(S) shall have the meaning assigned to it in Article 3.
1.27 LETTER(S) OF CREDIT shall have the meaning assigned to it in Article
3.
1.28 LIBOR RATE shall mean for any Interest Period that per annum rate
equal to the arithmetic mean (rounded to the nearest hundred-thousandth of a
percentage point) of the offered rates for U.S. Dollar deposits for a period
equal to the Interest Period appearing on the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page on such
service as may replace said page or, if none, on such other available service
which displays two or more London interbank offered rates of major banks for
U.S. Dollar deposits) as of 11:00 a.m., London time, on the day which is two
London Banking Days prior to the first day of the Interest Period. If there
is no period equal to the Interest Period on the display, the LIBOR Rate
shall be determined by straight-line interpolation to the nearest month (or
week or day if expressed in weeks or days) corresponding to the Interest
Period between the two nearest neighboring periods on the display.
-3-
<PAGE>
1.29 LIBOR RATE ADVANCES shall mean those portions of principal of the
Revolving Loan accruing interest at the Adjusted LIBOR Rate.
1.30 LOAN DOCUMENTS shall mean collectively this Agreement, the L/C
Agreements, each guaranty of the Obligations, and all other security
agreements, documents, instruments, and other agreements now or later
executed in connection with this Agreement.
1.31 LONDON BANKING DAY shall mean any Business Day other than a day on
which commercial banks in London, England, are authorized or required by law
to close.
1.32 MAJORITY BANKS shall mean Banks holding 67% of the Pro Rata Shares.
1.33 MARGIN shall mean (a) as to Base Rate Advances the "Base Rate
Margin" as determined by the following chart; (b) as to LIBOR Rate Advances,
Swing Line Advances, Multicurrency Advances, and the calculation of Letter of
Credit Issuance Fees, the "Fixed Rate Margin" as determined by the following
chart; and (c) as to the calculation of the commitment fee under Section 2.7,
the "Fee Margin" as determined by the following chart:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fixed Charge Base Rate Margin Fixed Rate Margin Fee Margin
Coverage Ratio*
- --------------------------------------------------------------------------------
GREATER THAN
OR EQUAL TO 2.75 to 1 -0- 0.50% 0.125%
- --------------------------------------------------------------------------------
GREATER THAN
OR EQUAL TO 2.50 to 1 -0- 0.625% 0.125%
- --------------------------------------------------------------------------------
GREATER THAN
OR EQUAL TO 2.25 to 1 -0- 0.75% 0.125%
- --------------------------------------------------------------------------------
GREATER THAN
OR EQUAL TO 2.00 to 1 -0- 1.0% 0.125%
- --------------------------------------------------------------------------------
GREATER THAN
OR EQUAL TO 1.75 to 1 -0- 2.00% 0.25%
- --------------------------------------------------------------------------------
LESS THAN 1.75 to 1 2.0% 3.00% 0.50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* AS DETERMINED BASED ON THE MOST RECENTLY DELIVERED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENT OF GUARANTOR.
Upon receipt of a quarterly financial statement showing a decrease or
increase in Fixed Charge Coverage Ratio which places Borrower in a new
pricing category, all Advances, commitment fees, and Letter of Credit
issuance fees shall begin being calculated at the higher or lower margin, as
the case may be, for the period beginning on the date 30 days after the end
of the quarter reported on in such statement.
1.34 MATERIAL SUBSIDIARY shall mean Physio-Control Manufacturing
Corporation, and each other direct or indirect subsidiary of Guarantor which
has assets in excess of 10% of Guarantor's total consolidated assets, or
annual net income in excess of 10% of Guarantor's consolidated annual net
income.
1.35 MULTICURRENCY ADVANCES shall have the meaning given in Subsection
2.5.
1.36 MULTICURRENCY RATE shall mean for each Multicurrency Advance (i) the
per annum rate for the currency advanced, calculated on the basis of actual
number of days elapsed over a year of 365/366 days as to Canadian Dollars and
British Pounds Sterling, and on the basis of actual number of days elapsed
over a year of 360 days as to all other currencies, determined by Agent to be
the applicable borrowing rate for such currency in an amount and for the
Interest Period of the Multicurrency Advance requested, as determined between
6:30 a.m. and 7:00 a.m., Seattle time, on the day which is (a) two Business
Days prior to the date of such Advance as to all currencies other
-4-
<PAGE>
than Canadian Dollars, and (b) one Business Day prior to the date of such
Advance as to Canadian Dollars; which rate shall be a rate within 0.125% of
the index rate appearing on the display designated as "Page 3740" and "Page
3750" on the Telerate Service for such currency between 6:30 a.m. and 7:00
a.m., Seattle time, on the same date; plus (ii) the Fixed Rate Margin.
1.37 OBLIGATIONS shall mean Borrower's obligation to repay all Advances,
with interest, the L/C Agreements, Borrower's obligation to reimburse Banks
for all amounts drawn under the Letters of Credit, and all fees, costs,
expenses, and indemnifications due to Agent and/or Banks under this Agreement.
1.38 PERSON shall mean any individual, partnership, corporation, business
trust, unincorporated organization, joint venture, or any governmental
entity, department, agency, or political subdivision.
1.39 PLAN shall mean any employee benefit plan or other plan maintained
for Borrower's employees and covered by Title IV of ERISA, excluding any plan
created or operated by or for any labor union.
1.40 PRO RATA SHARE(S) shall mean 50% as to Seafirst and 50% as to
Mellon; or if any assignments are made by a Bank pursuant to Section 15.6,
then such different percentages resulting from any such assignment; PROVIDED
that, (1) after the occurrence and during the continuance of a Default, and
(2) with regard to Sections 1.32, 6.2, 13.7, 13.12, and 14.2:
- - Mellon's Pro Rata Share shall be the percentage arrived at by dividing:
(a) the sum of (i) 50% of the sum of all outstanding Base Rate
Advances, LIBOR Rate Advances, and Multicurrency Advances (based on U.S.
Dollar equivalent determined as of the date of Advance) plus (ii) 50% of
the sum of the combined face amount of all outstanding Letters of Credit
plus the aggregate of all unreimbursed Letter of Credit draws, to
(b) the combined outstanding principal balance of all Obligations
(including issued but undrawn Letters of Credit); and
- - Seafirst's Pro Rata Share shall be 100% minus Mellon's Pro Rata Share.
1.41 QUOTED RATE shall mean that per annum fixed rate quoted by Seafirst
and accepted by Borrower as the applicable rate for a Swing Line Advance
commencing on the date of advance and continuing until the next Business Day,
plus an interest rate spread equal to the Fixed Rate Margin.
1.42 REAL PROPERTY shall mean any real property owned or leased by
Borrower or any of its subsidiaries ("Subject Property"), or any adjacent
real property affected by any Hazardous Substances stored or used in, on,
under, over, or about any such Subject Property.
1.43 REFERENCE RATE shall mean the rate of interest publicly announced
from time to time by Agent in San Francisco, California, as its "Reference
Rate." The Reference Rate is set based on various factors, including Agent's
costs and desired return, general economic conditions, and other factors, and
is used as a reference point for pricing some loans. Agent may price loans
to its customers at, above, or below the Reference Rate. Any change in the
Reference Rate shall take effect at the opening of business on the day
specified in the public announcement of a change in the Reference Rate.
1.44 RESERVE ADJUSTMENT shall mean as of any day the remainder of one
minus that percentage (expressed as a decimal) which is the highest of any
such percentages established by the Board of Governors of the Federal Reserve
System (or any successor) for required reserves (including any emergency,
marginal, or supplemental reserve requirement) regardless of the aggregate
amount of deposits with said member bank and without benefit of any possible
credit, proration, exemptions,
-5-
<PAGE>
or offsets for time deposits established at offices of member banks located
outside of the United States or for eurocurrency liabilities, if any.
1.45 REVOLVING LOAN shall have the meaning given in Section 2.1.
1.46 SUBORDINATED DEBT shall mean consolidated Debt of Guarantor to third
parties, the repayment of which is subordinated to Banks, in form
satisfactory to Banks.
1.47 SWING LINE shall have the meaning given in Section 4.1.
1.48 SWING LINE ADVANCES shall mean the disbursement of loan proceeds
under the Swing Line.
1.49 TANGIBLE NET WORTH shall mean the excess of total consolidated
assets over total consolidated liabilities, excluding, however, from the
determination of total assets (a) all assets which should be classified as
intangible assets (such as goodwill, patents, trademarks, copyrights,
franchises, and deferred charges, including unamortized debt discount and
research and development costs), (b) cash held in a sinking or other similar
fund established for the purpose of redemption or other retirement of capital
stock, (c) to the extent not already deducted from total assets, reserves for
depreciation, depletion, obsolescence, or amortization of properties and
other reserves or appropriations of retained earnings which have been or
should be established in connection with Guarantor's business, and (d) any
revaluation or other write-up in book value of assets subsequent to the
fiscal year of Guarantor last ended at the date Tangible Net Worth is being
measured.
1.50 TERMINATION DATE shall mean May 31, 2000, or such earlier date upon
which the commitments to make Advances, and issue Letters of Credit is
terminated pursuant to Subsection 14.2(a); PROVIDED, that the Termination
Date may be extended on May 31, 1998, to May 31, 2001, and on May 31, 1999,
to May 31, 2002, upon the mutual written consent of Borrower, Agent, and all
Banks, which any one or more of them may withhold in their sole discretion.
ARTICLE 2
REVOLVING LOAN
2.1 REVOLVING LOAN FACILITY. Subject to the terms and conditions of
this Agreement and to the extent of its Pro Rata Share of the Credit Limit,
each Bank shall make Advances (other than Swing Line Advances) to Borrower
from time to time, until the Termination Date ("Revolving Loan"), with the
aggregate principal amount at any one time outstanding not to exceed the
Credit Limit less the aggregate outstanding principal amount of all Letters
of Credit. Borrower may use the Revolving Loan by borrowing, prepaying and
reborrowing the amounts available under the Revolving Loan, in whole or in
part; PROVIDED that Borrower shall fully and finally pay off the Revolving
Loan on the Termination Date. Each borrowing by Borrower under this Agreement
shall constitute a representation and warranty by Borrower as of the date of
each such borrowing that the conditions precedent contained in Sections 9.7
through 9.9 of this Agreement have been satisfied.
2.2 PAYMENTS. Except as set forth below as to Multicurrency Advances,
Borrower shall repay all Advances, with interest, which shall accrue and be
paid as provided in Article 8. All Advances shall be repaid on or before the
Termination Date. Each of the Banks shall note on its internal records each
Advance made by it, each payment of principal and/or interest received by it,
and any interest rate conversions. As to Multicurrency Advances:
(a) INTEREST. Each Multicurrency Advance shall bear interest from
the date of Advance until the end of its respective Interest Period at the
Multicurrency Rate determined by Agent for such Advance pursuant to Section
1.35. All interest accrued on each such Advance shall be due and payable
in full on each Interest Payment Date applicable to such Advance.
-6-
<PAGE>
(b) PRINCIPAL. Borrower shall repay in full the outstanding
principal balance of each Multicurrency Advance, in the currency advanced,
on the last day of its Interest Period. Such repayment may be effected
either (i) by making payment to Agent in immediately available funds
pursuant to Subsection 15.1(b), or (ii) by obtaining, subject to
satisfaction of all conditions precedent, an Advance, pursuant to the
procedures of Section 2.5, in the same currency and at least the same
amount as the maturing Multicurrency Advance (but in any case not to exceed
the Available Amounts), with instructions to Agent to apply the proceeds of
such new Advance to the maturing Advance before disbursing the balance (if
any) to Borrower. Agent and Banks shall have no liability for, nor bear
any of the risk of, intra-day fluctuations in foreign exchange rates.
Multicurrency Advances may not be prepaid prior to the end of their
respective Interest Periods.
2.3 PROCEDURE FOR BASE RATE ADVANCES. In accordance with all terms and
conditions of this Agreement, Borrower may borrow at the Base Rate under the
Revolving Loan on any Business Day. Borrower shall give Agent irrevocable
notice (written or oral) specifying the amount to be borrowed on or before
9:30 a.m., Seattle time, on the day that a Base Rate Advance is requested;
all Base Rate Advances shall be discretionary to the extent notification by
Borrower is given subsequent to that time. Agent shall advise each Bank by
10:30 a.m., Seattle time, of a request for a Base Rate Advance, and each Bank
shall make available to Agent its respective Pro Rata Share of such requested
Base Rate Advance no later than 12:00 noon, Seattle time, on the same day.
Agent shall make such funds available to Borrower on the same Business Day.
Whether or not any Bank fails to fund its Pro Rata Share of a Base Rate
Advance, each Bank shall only be obligated to disburse to Agent such Bank's
Pro Rata Share of such requested Base Rate Advance.
2.4 PROCEDURE FOR LIBOR RATE ADVANCES. In accordance with all terms and
conditions of this Agreement, Borrower may borrow at the Adjusted LIBOR Rate
under the Revolving Loan on any Commencement Date. Borrower shall, on any
London Banking Day two London Banking Days before such Commencement Date, no
later than 9:30 a.m., Seattle time, request Agent to give an Adjusted LIBOR
Rate quote for a specified loan amount and Interest Period. Agent will then
quote to Borrower the available Adjusted LIBOR Rate. Borrower shall have 60
minutes from the time of the quote to elect an Adjusted LIBOR Rate by giving
Agent irrevocable notice of such election, of which election Agent will
promptly notify Banks. On the Commencement Date, each Bank shall make
available to Agent its respective Pro Rata Share of such requested LIBOR Rate
Advance no later than 12:00 noon, Seattle time, on the specified borrowing
date. Whether or not any Bank fails to fund its Pro Rata Share of a LIBOR
Rate Advance, each Bank shall only be obligated to disburse to Agent such
Bank's Pro Rata Share of such requested LIBOR Rate Advance. At the time that
Agent is informed by any Bank of any change in the Assessment Rate or Reserve
Adjustment, Agent shall notify Borrower of the change and of the impact on
any LIBOR Rate Advances then outstanding.
2.5 PROCEDURE FOR MULTICURRENCY ADVANCES. Borrower may request an
Advance in British Pounds Sterling, Canadian Dollars, French Francs, German
Marks, Italian Lire, Dutch Guilders, Swedish Kroner, or Spanish Pesetas (each
a "Multicurrency Advance"), up to the U.S. Dollar equivalent of the lesser of
(a) U.S.$5,000,000, or (b) the Available Amounts, as determined by the
Exchange Rate for each such currency, as determined on the date the interest
rate for such Advance is determined, by delivering its borrowing notice to
Agent, in the form of Exhibit 2 attached, on or before 9:30 a.m., Seattle
time, on a London Banking Day at least three Business Days prior to the date
the Multicurrency Advance is to be made. Such notice shall specify the
currency, principal amount, and Interest Period requested. Agent shall
advise each Bank of a request for a Multicurrency Advance by 10:30 a.m.,
Seattle time, three Business Days prior to the date the Multicurrency Advance
is to be made. Each Bank shall make available to Agent its Pro Rata Share of
such requested Multicurrency Advance to the account in the bank and country
specified to each Bank by Agent, on the date the Advance is to be made.
Multicurrency Advances shall be credited on the date of Advance to the
account specified by Borrower. Each Multicurrency Advance shall be in a
minimum amount equivalent to U.S.$500,000.
-7-
<PAGE>
2.6 BANK FUNDING. Agent shall have no obligation to fund any portion of
an Advance which has not been funded by such time by the applicable Bank.
If, however, a Bank does not fund its Pro Rata Share of a Multicurrency
Advance in a timely manner, and Agent funds such Advance to Borrower before
having received funding from such Bank, such Bank shall reimburse Agent for
any overdraft charges and interest incurred by Agent on account of such late
or failed funding.
2.7 COMMITMENT FEES. On the first Business Day of each April, July,
October, and January, beginning July 1, 1997, Borrower shall pay:
(A) to Agent for the account of Banks, in arrears, to be applied in
accordance with their respective Pro Rata Shares, a commitment fee equal to
the Fee Margin multiplied by the difference between (a) $25,000,000, and
(b) the sum of (i) the daily outstanding principal balance of the Revolving
Loan (with Multicurrency Advances to be valued as the U.S. Dollar
equivalent of such Multicurrency Advances, based on the Exchange Rate for
each such Advance); and (ii) the daily aggregate outstanding principal
amount of all Letters of Credit; and
(B) to Seafirst for its sole account, in arrears, a commitment fee
equal to the Fee Margin multiplied by the difference between
(a) $5,000,000, and (b) the daily outstanding principal balance of the
Swing Line.
ARTICLE 3
LETTERS OF CREDIT
3.1 ISSUANCE. Upon Borrower's execution of Seafirst's then-standard
form Application and Agreement for Standby Credit ("L/C Agreement(s)"),
Seafirst shall issue on Borrower's behalf standby letters of credit ("Letters
of Credit") until the Termination Date, up to the Available Amount, in
amounts not to exceed $5,000,000 in the aggregate, and with tenors not to
extend beyond the Termination Date. If there is a draw under a Letter of
Credit, Borrower shall on demand immediately reimburse Seafirst for the
amount of the draw, together with interest on the amount drawn, from the date
of draw until paid, at a floating rate equal to the Base Rate plus 3% per
annum. Seafirst shall in addition have all rights provided in the L/C
Agreement executed with respect to such Letter of Credit. Any default in the
L/C Agreement shall be a Default.
3.2 FEES. Borrower shall pay to Seafirst in advance, for the account of
Banks, upon issuance of each Letter of Credit, a nonreimbursable Issuance Fee
equal to the greater of (a) a percentage per annum equal to the Fixed Rate
Margin (as determined on the date of issuance) on the face amount of the
Letter of Credit, or (b) $250. Borrower shall additionally, on demand, pay
the following administrative fees to Seafirst for its own account (i.e., not
for the account of the other Banks):
(A) a fee of $100 for each Letter of Credit which is required to be
issued on the same Business Day as application is made for such Letter of
Credit by Borrower;
(B) a fee of $50 for each Letter of Credit, the application for which
does not have a form of letter of credit attached thereto, or where such form
needs substantial re-working prior to its issuance;
(C) a fee of $100 for each Letter of Credit to be confirmed, advised, or
guaranteed by banks which are not a correspondent bank of Seafirst or with
which Seafirst does not have other standing relationships (in each case as
such categorization is reasonably determined by Seafirst);
(D) reimbursement to Seafirst of all fees and charges charged to
Seafirst by any advising or confirming bank with regard to any Letter of
Credit;
-8-
<PAGE>
plus additional transaction fees according to Seafirst's then-outstanding
standard fee schedule, as delivered to Borrower, on all drafts, transfers,
extensions, and other transactions in regard to the Letters of Credit, and
reimburse Seafirst for all out-of-pocket costs, legal fees, and expenses.
3.3 YIELD INDEMNITY. If any law or regulation imposes or increases any
reserve, special deposit, or similar requirement against letters of credit
issued by Seafirst or subjects Seafirst or any Bank to any tax, charge, fee,
deduction, or withholding of any kind in regard to the Letters of Credit,
Borrower shall promptly on demand indemnify Seafirst or such Bank for any
such increased costs, taxes, or charges. Seafirst or such Bank, as the case
may be, shall provide documentation to Borrower of any such increased costs,
taxes, or charges.
ARTICLE 4
SWING LINE
4.1 DESCRIPTION OF FACILITY. Seafirst shall make Swing Line Advances to
Borrower, PROVIDED that (a) the aggregate amount of all outstanding Swing
Line Advances shall not exceed $5,000,000, and (b) each Swing Line Advance
shall mature and be repaid on the earlier of (i) the next Business Day after
the date such Swing Line Advance is advanced or (ii) the Termination Date
(the "Swing Line"). Each Swing Line Advance shall bear interest at the
Quoted Rate (or Base Rate, whichever is lower) as determined on the date the
Swing Line Advance is disbursed to or for the benefit of Borrower, with all
principal and accrued interest to be repaid on the next Business Day;
PROVIDED, however, that Borrower may elect to pay all accrued interest on
Swing Line Advances quarterly, on the last Business Day of each March, June,
September, and December, in which case the Fixed Rate Margin shall be
increased by 4 basis points (0.04%) for all Swing Line Advances.
4.2 PROCEDURE FOR SWING LINE ADVANCES. In accordance with all terms and
conditions of this Agreement, Borrower may borrow at the Quoted Rate (or Base
Rate, whichever is lower) under the Swing Line on any Business Day. Borrower
shall give Agent irrevocable notice (written or oral) specifying the amount
to be borrowed on or before 3:30 p.m., Seattle time, on the day that a Swing
Line Advance is requested; all Swing Line Advances shall be discretionary to
the extent notification by Borrower is given subsequent to that time. Agent
shall advise Seafirst of a request for a Swing Line Advance, and Seafirst
shall make available to Borrower its Swing Line Advance by the end of the
same Business Day.
ARTICLE 5
RISK PARTICIPATION
Mellon agrees for the benefit of Seafirst that it hereby purchases a risk
participation in the Letters of Credit and any unreimbursed Letter of Credit
draws equal to Mellon's Pro Rata Share of the outstanding balance of Letters
of Credit plus the aggregate unreimbursed Letter of Credit draws. Upon the
occurrence of a Default, Mellon shall fund to Seafirst, pursuant to this risk
participation, Mellon's Pro Rata Share of the aggregate unreimbursed Letter
of Credit draws. Mellon shall have no interest in any principal, interest,
fees, or expenses due to Seafirst with regard to the Swing Line. Prior to
its funding under this Article, Mellon shall have no interest in any
principal, interest, fees, or expenses due to Seafirst with regard to Letters
of Credit, except (a) those accruing after the date such participation is
funded, (b) those fees payable under Subsection 2.7, and (c) as to Issuance
Fees, Mellon's Pro Rata Share of the amount of such fees. Mellon's purchase
of such participations shall be evidenced by a certificate in the form of
Exhibit 3 attached.
-9-
<PAGE>
ARTICLE 6
COLLATERAL SECURITY
6.1 COLLATERAL. As security for the prompt satisfaction of all
Obligations, Borrower hereby grants to Agent, as agent for Banks, a lien
upon, and a security interest in, all of the following as described below
wherever the same shall be located, whether now owned or hereafter acquired,
together with all replacements therefor and proceeds (including, but without
limitation, insurance proceeds) and products thereof, all of which shall be
of first-lien priority: all of Borrower's accounts, all of Borrower's
inventory located in the United States, and all proceeds thereof (together
the "Collateral").
6.2 COLLATERAL AGENT. To the extent required by this Agreement, Agent
shall perfect all Collateral in its own name as agent for each Bank,
according to its respective Pro Rata Share, and such agency shall be
disclosed on any UCC filings. Agent shall only be required to perfect upon
those portions of the Collateral which can be perfected by the filing of a
UCC1 financing statement.
6.3 FINANCING STATEMENTS AND OTHER DOCUMENTS.
Borrower shall:
(a) Join with Agent in executing such UCC financing statements
(including amendments thereto and continuation statements thereof) and
other documents, in form satisfactory to Agent and as Agent may reasonably
specify, in order to perfect, or continue the perfection of, the rights of
Banks in the Collateral, with the priority of security interest required by
this Agreement;
(b) Pay, or reimburse Agent for paying, all costs and taxes of filing
or recording the same in such public offices as Agent may reasonably
designate;
(c) Except as provided in Subsection (d), take such other steps as
Agent may reasonably direct, including the noting of the Agent's lien on
the Collateral and on any certificates of title therefor, as is necessary
to perfect to Agent's satisfaction the interest of Agent, as agent for the
Banks, in the Collateral; and
(d) Upon a Default and notice from Agent, deliver to Agent all
Collateral which is deliverable.
6.4 COSTS. If a Default has occurred and is continuing, Banks, upon
unanimous agreement, shall have the right, but not the obligation, to pay
taxes, assessments, charges, claims, liens or encumbrances and to cause
compliance with all applicable governmental requirements if Banks, upon
unanimous consent, consider it necessary to protect their security or the
prospects of repayment of the Obligations. Such payments and expenses are
repayable on demand with interest at a floating rate equal to the Base Rate
plus 3% per annum.
6.5 AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. Borrower hereby
irrevocably constitutes and appoints Agent and any officer or agent thereof,
with full power of substitution, effective upon the occurrence of and during
the continuation of a Default, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of Borrower and
in the name of Borrower or in its own name, from time to time in accordance
with this Agreement, for the purposes of exercising its rights as a secured
creditor pursuant to this Agreement, to take any and all appropriate action
and to execute any or all documents and instruments that may be necessary or
desirable to accomplish such purposes.
6.6 NEGATIVE PLEDGE. So long as any amount is payable by Borrower under
this Agreement, or any Bank is committed to make Advances or issue Letters of
Credit under this Agreement, Borrower
-10-
<PAGE>
shall not allow any property of Borrower, Guarantor, or any Material
Subsidiary, whether real or personal, tangible or intangible, to be
transferred or encumbered, or to have any lien placed upon such property,
except (a) sales of inventory in the ordinary course of business, (b)
patents, or intellectual or proprietary property, (c) to secure the
Obligations, or (d) as otherwise expressly permitted by Sections 12.2 or 12.3.
ARTICLE 7
GUARANTIES
The Obligations shall be absolutely and unconditionally guaranteed by
Guarantor and every Material Subsidiary of Guarantor, jointly and severally,
in form satisfactory to Banks. Borrower authorizes Agent to release to any
present or future guarantor all information Agent possesses concerning
Borrower or any loans, credits, or other financial accommodations made to
Borrower by Agent or Banks.
ARTICLE 8
INTEREST RATE OPTIONS
8.1 INTEREST RATES AND PAYMENT DATE. The Revolving Loan shall bear
interest from the date of Advance on the unpaid principal balance outstanding
from time to time at the Base Rate or Adjusted LIBOR Rate as selected by
Borrower, and all accrued interest shall be payable in arrears on each
Interest Payment Date.
8.2 OPTION RESTRICTIONS. Each Interest Period for LIBOR Rate Advances
shall be one week or one, two, three, or six months. In no event shall the
Interest Period extend beyond the Termination Date. The minimum amount of a
LIBOR Rate Advance shall be $500,000, with additional increments of $100,000
each permitted.
8.3 PREPAYMENTS. Borrower may prepay any Base Rate Advance on any
Business Day without premium or penalty. If Borrower prepays all or any
portion of a LIBOR Rate Advance prior to the end of an Interest Period, there
shall be due at the time of any such prepayment the Prepayment Fee,
determined in accordance with Form 51-6325, which shall be attached as
Exhibit 1 to this Agreement, and any such prepayment may only be made if in
the amount of $100,000 or more.
8.4 REVERSION TO BASE RATE. The Revolving Loan shall bear interest at
the Base Rate unless an Adjusted LIBOR Rate is specifically selected. At the
termination of any Interest Period, each LIBOR Rate Advance shall revert to a
Base Rate Advance unless Borrower directs otherwise pursuant to Section 2.4.
8.5 INABILITY TO PARTICIPATE IN MARKET. If Agent or any Bank in good
faith cannot participate in the Eurodollar market for legal or practical
reasons, the Adjusted LIBOR Rate shall cease to be an interest rate option.
Agent or such Bank shall notify Borrower if and when it again becomes legal
or practical to participate in the Eurodollar market, at which time the
Adjusted LIBOR Rate shall resume being an interest rate option.
8.6 COSTS. Borrower shall, as to LIBOR Rate Advances, reimburse Agent,
for the account of Banks, for all costs, taxes, and expenses, and defend and
hold Banks harmless for any liabilities, which Banks may incur as a
consequence of any changes in the cost of participating in, or in the laws or
regulations affecting, the Eurodollar market, including any additional
reserve requirements, except to the extent such costs are already calculated
into the Adjusted LIBOR Rate. This covenant shall survive this Agreement and
the repayment of the Revolving Loan. Banks shall provide documentation to
Borrower detailing the basis for any charges made pursuant to this Section.
-11-
<PAGE>
8.7 BASIS OF QUOTES. Borrower acknowledges that Agent or Banks may or
may not in any particular case actually match-fund a LIBOR Rate Advance.
Whether the mechanism for setting a particular rate in fact represents the
actual cost to Banks for any particular dollar or Eurodollar deposit or any
LIBOR Rate Advance will depend upon how such Bank actually chooses to fund
the LIBOR Rate Advance, or any foreign exchange contract. By electing an
Adjusted LIBOR Rate, Borrower waives any right to object to Agent's means of
calculating the Adjusted LIBOR Rate quote accepted by Borrower.
ARTICLE 9
CONDITIONS OF LENDING
Banks' obligation to make the initial Advance or Swing Line Advance or
issue any Letter of Credit is subject to the conditions precedent listed in
Sections 9.1 through 9.6, and their obligation to make subsequent Advances
and Swing Line Advances, and to issue subsequent Letters of Credit, is
subject to the conditions precedent listed in Sections 9.7 through 9.9,
unless waived by all Banks in writing:
9.1 AUTHORIZATION. Borrower shall have delivered to Agent a certified
copy of the resolution of Borrower's board of directors authorizing the
transactions contemplated by this Agreement and the execution, delivery, and
performance of all Loan Documents, together with appropriate certificates of
incumbency. Each corporate guarantor shall have delivered to Agent a
certified copy of a resolution of such guarantor's board of directors,
satisfactory in form to Agent, authorizing its guaranty.
9.2 DOCUMENTATION. Borrower shall have executed and delivered to Agent
all documents to reflect the existence of the Obligations and to perfect, as
a first lien, the security interests granted to Banks.
9.3 REFINANCE. Borrower shall have repaid, or shall have provided Agent
with instructions sufficient to repay, from Advances and/or Swing Line
Advances, all indebtedness owing to Creditanstalt-Bankverein, and all
agreements and security interests relating to such facility shall have been
terminated or released.
9.4 LEGAL OPINION. Borrower shall have provided to each Bank a legal
opinion of Borrower's legal counsel (which may be provided by Borrower's
in-house legal counsel) that the Agreement and all other Loan Documents are
duly authorized, valid, and binding obligations of Borrower and/or Guarantor,
as the case may be, and attesting to the truth of the representations made in
Sections 10.1 through 10.5.
9.5 GUARANTIES. Guarantor and each other entity required to provide a
guaranty of the Obligations pursuant to the terms of this Agreement shall
have executed and delivered its guaranty to Agent, and each such guaranty
shall remain in full force and effect.
9.6 PROOF OF INSURANCE. Proof of insurance as required by Section 11.12
shall have been provided to Agent.
9.7 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Borrower or Guarantor in the Loan Documents and in any certificate,
document, or financial statement furnished at any time shall continue to be
true and correct, except to the extent that such representations and
warranties expressly relate to an earlier date.
9.8 MATERIAL ADVERSE CHANGE. No material adverse change has occurred in
Borrower or Guarantor's business, property, or financial condition since the
end of Guarantor's 1996 fiscal year, as reported in Guarantor's audited
financial statements, and at the time of each Advance, or issuance of each
Letter of Credit.
-12-
<PAGE>
9.9 COMPLIANCE. No Default or other event which, upon notice or lapse
of time or both would constitute a Default, shall have occurred and be
continuing, or shall exist after giving effect to the Advance or the issuance
of a Letter of Credit to be made.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
To induce Banks to enter into this Agreement, Borrower represents,
warrants, and covenants to Agent and Banks as follows:
10.1 EXISTENCE. Borrower is in good standing as a corporation under the
laws of the state of Delaware, has the power, authority, and legal right to
own and operate its property or lease the property it operates and to conduct
its current business; and is qualified to do business and is in good standing
in all other jurisdictions where the ownership, lease, or operation of its
property or the conduct of its business requires such qualification.
10.2 ENFORCEABILITY. The Loan Documents, when executed and delivered by
Borrower, shall be enforceable against Borrower in accordance with their
respective terms.
10.3 NO LEGAL BAR. The execution, delivery, and performance by Borrower
of the Loan Documents, and the use of the loan proceeds, shall not violate
any existing law or regulation applicable to Borrower; any ruling applicable
to Borrower of any court, arbitrator, or governmental agency or body of any
kind; Borrower's organizational documents; any security issued by Borrower;
or any mortgage, indenture, lease, contract, undertaking, or other agreement
to which Borrower is a party or by which Borrower or any of its property may
be bound.
10.4 LIENS AND ENCUMBRANCES. As of this date, Borrower and each Material
Subsidiary has good and marketable title to its property free and clear of
all security interests, liens, encumbrances, or rights of others, except as
disclosed in writing to Banks on attached Schedule 12.2(a), and except for
taxes which are not yet delinquent and for conditions, restrictions,
easements, and rights of way of record which do not materially affect the use
of any of Borrower's property.
10.5 LITIGATION. Except as disclosed in writing to Banks on attached
Schedule 10.5, there is no threatened (to Borrower's knowledge) or pending
litigation, investigation, arbitration, or administrative action which may
materially adversely affect Borrower's business, property, operations, or
financial condition.
10.6 PAYMENT OF TAXES. Borrower has filed or caused to be filed all tax
returns when required to be filed; and has, to the best of its knowledge,
paid all taxes, assessments, fees, licenses, excise taxes, franchise taxes,
governmental liens, penalties, and other charges levied or assessed against
Borrower or any of its property imposed on it by any governmental authority,
agency, or instrumentality that are due and payable (other than those returns
or payments of which the amount, enforceability, or validity are contested in
good faith by appropriate proceedings and with respect to which adequate
reserves in conformity with GAAP are provided on Borrower's books).
10.7 EMPLOYEE BENEFIT PLAN. Borrower is, to the best of its knowledge,
in material compliance with the provisions of ERISA and the regulations and
published interpretations thereunder. Borrower has not engaged in any acts
or omissions which would make Borrower liable to the Plan, to any of its
participants, or to the Internal Revenue Service, under ERISA.
10.8 MISREPRESENTATIONS. No information, exhibits, data, or reports
furnished by Borrower or Guarantor or delivered to Agent or Banks in
connection with Borrower's application for credit misstates any material
fact, or omits any fact necessary to make such information, exhibits, data,
or reports not misleading.
-13-
<PAGE>
10.9 NO DEFAULT. Borrower is not in default in any Loan Document, or in
any material contract, agreement, or instrument to which it is a party.
10.10 NO BURDENSOME RESTRICTIONS. No contract or other instrument to
which Borrower is a party, or order, award, or decree of any court,
arbitrator, or governmental agency, materially impairs Borrower's ability to
repay the Obligations.
10.11 HAZARDOUS SUBSTANCES. To the best of Borrower's knowledge after
due and diligent inquiry, no hazardous or toxic waste or substances are being
stored on any Real Property, other than in accordance with all applicable
environmental laws and regulations, or as disclosed in writing to Banks at
the closing of this Agreement; nor have any such waste or substances been
stored or used in, on, under, over, or about the Real Property prior to or
during Borrower's or any subsidiary's ownership, possession, or control of
any of such Real Property, other than in accordance with all applicable
environmental laws and regulations or as disclosed in writing to Banks at the
closing of this Agreement. Borrower agrees to provide written notice to
Agent immediately upon Borrower becoming aware that the Real Property is
being or has been contaminated with hazardous or toxic waste or substances.
Borrower will not cause nor permit any activities on the Real Property which
directly or indirectly would be likely to result in the Real Property or any
other property becoming contaminated with hazardous or toxic waste or
substances.
10.12 MATERIAL SUBSIDIARIES. As of the date of this Agreement no
Material Subsidiaries exist other than as listed on attached Schedule 10.12.
10.13 MARGIN STOCK. Borrower is not engaged, nor shall it engage,
principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" margin stock
under Regulation U of the Board of Governors of the Federal Reserve System.
Borrower shall not use any part of the proceeds of any Advance for any
purpose which violates or is inconsistent with the provisions of Regulation
G, T, U, or X of such Board of Governors, as the same may be amended,
supplemented, or modified from time to time.
10.14 MATERIAL ADVERSE CHANGE. As of each request for an Advance or for
issuance of a Letter of Credit, that no material adverse change has occurred
in Borrower's or Guarantor's business, property, or financial condition since
the end of Guarantor's 1996 fiscal year, as reported in Guarantor's audited
financial statements, and at the time of such Advance, or at the time of
issuance of such Letter of Credit.
ARTICLE 11
AFFIRMATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability exists
under the Loan Documents, Borrower shall, as to Sections 11.1, and 11.6
through 11.14 (and shall take any action necessary to assure that each
Material Subsidiary shall); and Guarantor shall, as to Sections 11.2 through
11.14:
11.1 USE OF PROCEEDS. Use the proceeds of the Revolving Loan and Swing
Line for working capital, for acquisitions permitted under this Agreement,
and to refinance obligations owing prior to the execution of this Agreement
to Creditanstalt-Bankverein.
11.2 FIXED CHARGE COVERAGE RATIO. Maintain a Fixed Charge Coverage
Ratio, measured quarterly for the four quarters then ending, of not less than
1.75 to 1.
11.3 TANGIBLE NET WORTH. Maintain a Tangible Net Worth of not less than
$37,500,000, increasing each fiscal quarter, beginning quarter ending March
31, 1997, by an amount equal to 90%
-14-
<PAGE>
of net income for the quarter then ending, without adjustment downward for
quarters in which a net loss is incurred.
11.4 DEBT RATIO. Maintain a ratio of (a) Debt minus Subordinated Debt to
(b) the sum of Tangible Net Worth plus Subordinated Debt, of not more than
1.5 to 1.
11.5 FINANCIAL INFORMATION. Maintain a standard system of accounting in
accordance with GAAP and furnish to each Bank the following:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and, in any
event, within 45 days after the end of each fiscal quarter except the last
fiscal quarter of each fiscal year, a copy of the consolidated statement of
income and retained earnings of Guarantor for the quarter and for the
current fiscal year through such quarter, and for each such quarter a copy
of the consolidated balance sheet, consolidated statement of shareholders'
equity, and consolidated statement of cash flow of Guarantor as of the end
of such quarter, and for the current fiscal year through such quarter,
setting forth, in each case, in comparative form, figures for the
corresponding period of the preceding fiscal year, all in reasonable detail
and satisfactory in scope to each Bank, prepared under the supervision of
the chief financial officer of Guarantor, and in form and substance
satisfactory to each Bank;
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and, in any
event, within 90 days after the end of each fiscal year, a copy of the
consolidated balance sheet, consolidated statement of income and retained
earnings, consolidated statement of shareholders' equity, and consolidated
statement of cash flow of Guarantor for such year, setting forth in each
case, in comparative form, corresponding figures from the preceding annual
statements, each audited by independent certified public accountants of
recognized standing selected by Guarantor and satisfactory to each Bank
certifying that such statement is complete and correct, fairly presents
without qualification the consolidated financial condition of Guarantor for
such period, is prepared in accordance with GAAP, and has been audited in
conformity with generally accepted auditing standards;
(c) CONSOLIDATING STATEMENTS. If Guarantor or Borrower shall create
or acquire any Material Subsidiary, Guarantor shall thereafter also provide
to each Bank consolidating annual and quarterly financial statements as to
each Material Subsidiary, including Borrower;
(d) PROJECTIONS. By December 31 of each year, an update of
Guarantor's three-year financial projections;
(e) OTHER CERTIFICATES. Together with the delivery of the financial
statements required by Subsections 11.5(a) and 11.5(b), a certificate of
the chief financial officer of Guarantor, in the form of Exhibit 4
attached, together with the calculations made to determine compliance with
Sections 11.2 through 11.5; and
(f) ADDITIONAL FINANCIAL INFORMATION. As soon as available and, in
any event, within ten days after request, such other data, information, or
documentation as any Bank may reasonably request.
11.6 MAINTENANCE OF EXISTENCE. Preserve and maintain its existence,
powers, and privileges in the jurisdiction of its formation, and qualify and
remain qualified in each jurisdiction in which its presence is necessary or
desirable in view of its business, operations, or ownership of its property.
Borrower and Guarantor shall also maintain and preserve all of its respective
property which is necessary or useful in the proper course of its business,
in good working order and condition, ordinary wear and tear excepted.
-15-
<PAGE>
11.7 BOOKS AND RECORDS. Keep accurate and complete books, accounts, and
records in which complete entries shall be made in accordance with GAAP,
reflecting all financial transactions of Borrower or Guarantor, as the case
may be.
11.8 ACCESS TO PREMISES AND RECORDS. At all reasonable times and as
often as Agent or Banks may reasonably request, permit any authorized
representative designated by Agent or Banks to have access to the premises,
property, and financial records of Borrower or Guarantor, as the case may be,
including all records relating to the finances, operations (other than
relating to research and development, or any trade secrets), and procedures
of Borrower or Guarantor, as the case may be, and to make copies of or
abstracts from such records.
11.9 NOTICE OF EVENTS. Furnish Banks prompt written notice of:
(a) PROCEEDINGS. Any proceeding instituted by or against Borrower or
Guarantor, as the case may be, in any court or before any commission or
regulatory body, or any proceeding threatened against it in writing by any
governmental agency which if adversely determined would have a material
adverse effect on Borrower's or Guarantor's business, property, or
financial condition, or where the amount involved is $500,000 or more and
not covered by insurance;
(b) MATERIAL DEVELOPMENT. Any material development in any such
proceeding referred to in Subsection 11.9(a);
(c) MATERIAL SUBSIDIARIES. Creation or acquisition of any Material
Subsidiary;
(d) DEFAULTS. Any accident, event, or condition which is or, with
notice or lapse of time or both, would constitute a Default, or a default
under any other material agreement to which Borrower or Guarantor, as the
case may be, is a party, along with a statement describing actions being
taken to remedy such default;
(e) ADVERSE EFFECT. Any other action, event, or condition of any
nature which could result in a material adverse effect on the business,
property, or financial condition of Borrower or Guarantor, as the case may
be; and
(f) CONSENT DECREE. Any violation of the Consent Decree described in
Section 11.11.
11.10 PAYMENT OF DEBTS AND TAXES. Pay all Debt and perform all
obligations promptly and in accordance with their terms, and pay and
discharge promptly all taxes, assessments, and governmental charges or levies
imposed upon Guarantor, on a consolidated basis, its property, or revenues
prior to the date on which penalties attach thereto, as well as all lawful
claims for labor, material, supplies, or otherwise which, if unpaid, might
become a lien or charge upon the property of Guarantor, Borrower, or any
Material Subsidiary. Guarantor, Borrower, and the Material Subsidiaries shall
not, however, be required to pay or discharge any such tax, assessment,
charge, levy, or claim so long as its enforceability, amount, or validity is
contested in good faith by appropriate proceedings, and adequate reserves are
maintained.
11.11 FDA CONSENT DECREE. Remain in compliance at all times with the
Consent Decree dated July 24, 1992, entered into between the U.S. Food and
Drug Administration ("FDA") and Borrower with respect to a civil complaint
filed by the FDA for alleged violations of "good manufacturing practices" and
FDA medical device reporting regulations.
11.12 INSURANCE. Maintain commercially adequate levels of coverage with
financially sound and reputable insurers, including, without limitation:
-16-
<PAGE>
(a) PROPERTY INSURANCE. Insurance on all property of a character
usually insured by organizations engaged in the same or similar type of
business as Borrower or Guarantor, as the case may be, against all risks,
casualties, and losses through extended coverage or otherwise and of the
kind customarily insured against by such organizations, with such policy or
policies covering tangible collateral to name Agent as loss payee, as its
interests may appear;
(b) LIABILITY INSURANCE. Public liability insurance against tort
claims which may be asserted against Borrower or Guarantor, as the case may
be; and
(c) ADDITIONAL INSURANCE. Such other insurance as may be required by
law.
11.13 HAZARDOUS SUBSTANCES. Promptly comply, at Borrower's expense, with
all statutes, regulations, and ordinances which apply to Borrower or the Real
Property, and with all orders, decrees, or judgments of governmental
authorities or courts having jurisdiction which Borrower is bound by,
relating to the use, collection storage, treatment, control, removal, or
cleanup of hazardous or toxic waste or substances in, on, under, over, or
about the Real Property or in, on, under, over, or about any adjacent
property that becomes contaminated with hazardous or toxic waste or
substances as a result of construction, operations, or other activities on,
or the contamination of, the Real Property. Borrower shall defend, protect,
hold harmless, and indemnify Agent, Banks, and their affiliates, and their
successors and assigns, and their shareholders, directors, officers,
employees, attorneys, and agents, from and against any and all claims,
demands, penalties, fees, liens, damages, losses, expenses, and liabilities
arising out of or in any way connected with any alleged or actual past or
future presence on or under the Real Property of any hazardous or toxic waste
or substances from any cause whatsoever; it being intended that Borrower
shall be strictly and absolutely liable to Agent and Banks without regard to
any fault by Borrower.
11.14 COMPLIANCE WITH LAWS. Comply in all material respects with all
laws and regulations applicable to Borrower or Guarantor, as the case may be,
and its respective business activities.
ARTICLE 12
NEGATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability shall
exist under the Loan Documents, neither Borrower nor Guarantor nor any
Material Subsidiary shall:
12.1 DEBT. Create, incur, assume, permit to exist, or otherwise become
committed for any Debt except any:
(a) UNSECURED TRADE CREDIT. Unsecured, short-term Debt arising from
current operations by purchasing on credit goods, services, supplies, or
merchandise and not constituting borrowings;
(b) EXISTING OBLIGATIONS. Debt in existence as of the date of this
Agreement and disclosed to Banks in Schedule 12.1(b) attached hereto, and
all renewals, modifications, and extensions thereof;
(c) NEGOTIABLE INSTRUMENTS. Endorsements on negotiable instruments
for deposit or collection in the ordinary course of business;
(d) AFFILIATES. Guaranties by Guarantor or any Material Subsidiary
of the Obligations;
(e) PERFORMANCE BONDS. Performance bonds as required in the ordinary
course of Borrower's business; and
-17-
<PAGE>
(f) OTHER INDEBTEDNESS. Debt which in the aggregate does not exceed
$500,000 outstanding at any one time.
12.2 LIENS AND ENCUMBRANCES. Create, incur, or assume, or agree to
create, incur, or assume any lien, whether consensual or nonconsensual, on
any of its property, or to enter into any lease with respect to any of its
property except:
(a) EXISTING LIENS. Liens in existence as of the date of this
Agreement and disclosed to Banks in Schedule 12.2(a) attached hereto;
(b) PURCHASE MONEY. Purchase money security interests on equipment
acquired by Borrower through the financing which is secured by such lien;
(c) TAX LIENS. Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, and for which adequate
reserves are maintained; and
(d) INCIDENTAL LIENS. Other liens incidental to the conduct of
Borrower's business or the ownership of its property which are not incurred
in connection with the borrowing of money or the obtaining of credit, and
which do not in the aggregate materially impair the value or use of
property.
12.3 DISPOSITION OF ASSETS. Sell, transfer, lease, or otherwise assign
or dispose of more than five percent (5%) of its assets, outside the ordinary
course of business (PROVIDED, that assets held less than 60 days shall be
deemed sales in the ordinary course of business), in any one fiscal year;
PROVIDED, that Borrower may transfer a substantial portion of its business to
a wholly-owned subsidiary if (a) such subsidiary fulfills the requirements
for Material Subsidiaries to guaranty the Obligations, (b) such subsidiary
grants to Banks, to secure its guaranty, a first-lien security interest in
all of such subsidiary's accounts and inventory, and all proceeds thereof,
providing to Agent all documents and instruments necessary to create and
perfect such security interests, and (c) such subsidiary shall execute and
deliver to Agent the certificate in the form of Exhibit 5 attached.
12.4 MERGERS. Become a party to any merger, consolidation, or like
corporate change, other than where Borrower is the surviving entity of a
merger and no other provision of this Agreement is thereby violated; or make
any substantial transfer or contribution to, or material investment in,
stock, shares, or licenses of any Person, other than acquisitions or joint
ventures involving an investment of no more than $2,000,000 in the aggregate
in any one fiscal year.
12.5 CAPITAL STRUCTURE. Purchase, retire, or redeem any of its capital
stock or otherwise effect any change in Borrower's capital structure, other
than stock purchased pursuant to 401(k) plans.
12.6 WAGE AND HOUR LAWS. Engage in any material violation of the
federal Fair Labor Standards Act or any comparable state wage and hour law.
12.7 ERISA. Engage in any act or omission which would make Borrower
materially liable under ERISA to the Plan, to any of its participants, or to
the Internal Revenue Service.
12.8 DISSOLUTION. Adopt any agreement or resolution for dissolving,
terminating, or substantially altering Borrower's present business activities.
12.9 BUSINESS ACTIVITIES. Engage or enter into any activity which is
unusual to Borrower's existing business.
12.10 DIVIDENDS. Declare or pay any dividend.
-18-
<PAGE>
12.11 PERMISSIBLE LOANS AND INVESTMENTS. Make any loan or advance to any
Person otherwise than in the ordinary course of business, or make any
investment outside the ordinary course of Borrower's or Guarantor's business,
except:
(a) CERTIFICATES OF DEPOSIT. Investments in certificates of deposit
maturing within one year from the date of acquisition from any one or more
of the top 100 United States commercial banks, as rated by dollar value of
assets;
(b) MONEY MARKET. Money market mutual funds, bankers' acceptances,
eurodollar investments, repurchase agreements, and other short-term money
market investments acceptable to Agent;
(c) COMMERCIAL PAPER. Prime commercial paper with ratings of A-1/P-1
or better by Moody's or Standard & Poor (or equivalent rating if such
rating systems change) with maturities of less than one year; and
(d) U. S. GOVERNMENT PAPER. Obligations issued or guaranteed by the
United States Government or its agencies with maturities of less than one
year.
ARTICLE 13
AGENCY
13.1 APPOINTMENT. The Banks irrevocably designate and appoint Agent as
their agent under this Agreement, and irrevocably authorize Agent, as their
agent, to take such action on their behalf under the provisions of this
Agreement and to exercise all such powers as are expressly delegated to Agent
by the terms of this Agreement, together with such other powers as are
reasonably incidental thereto. No implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist against Agent. Notwithstanding any provision to
the contrary in this Agreement, Agent shall have no implied duties or
responsibilities to take any action, except such action as it is expressly
required to take under the express terms of this Agreement, and shall have no
fiduciary relationship with any of the Banks as to any matter not expressly
provided for by the Loan Documents including, without limitation, enforcement
or collection of the Obligations. Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain
from acting upon the consent and instructions of Majority Banks. Any company
into which Agent may be merged or converted or with which it may be
consolidated, or any company resulting from any merger, conversion, or
consolidation to which it shall be a party, or any company to which Agent may
sell or transfer all or substantially all of its agency relationships, shall
be the successor to Agent without any further action by Banks or Borrower and
without the execution or filing of any paper.
13.2 SUCCESSOR AGENT. Agent may resign as Agent upon 30 days' notice to
Banks. Upon Agent's resignation as agent under this Agreement, Banks, upon
consent of Majority Banks, shall appoint from among the Banks a successor
agent for the Banks. If no successor agent is appointed prior to the
effective date of the resignation of Agent, Agent may appoint, after
consulting with Banks, a successor agent, and Agent shall remain in place
until a new agent accepts such appointment. Upon the acceptance of its
appointment as successor agent hereunder, (a) such successor agent shall
succeed to all the rights, powers, and duties of the retiring Agent, (b) the
term "Agent" shall mean such successor agent, and (c) the retiring Agent's
appointment, powers, and duties as Agent shall be terminated. After any
retiring Agent's resignation hereunder as Agent, the provisions of this
Agreement shall inure to such retiring Agent's benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
13.3 DUTIES OF AGENT. Agent shall service the Revolving Loan, the Swing
Line, and the Letter of Credit Facility in accordance with its usual practice
in connection with similar credits. In servicing and collecting the
Revolving Loan, the Swing Line, and the Letter of Credit Facility and in
carrying out
-19-
<PAGE>
the terms and provisions of the Loan Documents, Agent shall not be liable to
any of the Banks for any error of judgment, or for any action taken or
omitted to be taken by it, except for gross negligence or willful misconduct.
13.4 DELEGATION OF DUTIES. Agent may execute any of its duties under
this Agreement by or through agents or attorneys-in-fact and shall be
entitled to rely upon advice of counsel concerning all matters pertaining to
such duties. Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact selected by it with reasonable care or any
action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel.
13.5 EXCULPATORY PROVISIONS. Agent's Related Parties shall not be
responsible or otherwise liable to any of Banks in any manner for:
(a) ACTIONS. Any action lawfully taken or omitted to be taken by it
or by such other persons or entities under or in connection with this
Agreement or any other Loan Document, except for its or their own gross
negligence or willful misconduct;
(b) BORROWER STATEMENTS. Any recital, statement, representation, or
warranty made by Borrower or any officer thereof contained in this
Agreement or any other Loan Document, or in any certificate, report,
statement, or other document relating to this Agreement or any other Loan
Document;
(c) ENFORCEABILITY. The validity, effectiveness, genuineness,
enforceability, or sufficiency of this Agreement or any other Loan
Document, the financial condition of Borrower, or any failure of Borrower
to perform its obligations under this Agreement or any other Loan Document;
(d) FAILURE TO PERFECT. Inability to perfect any Collateral to the
extent required by this Agreement where such inability is due to Borrower's
failure to act or take such steps as Agent may direct; or
(e) INVESTIGATION. Ascertaining or inquiring as to the observance of
or Borrower's performance under any Loan Document, or inspecting the
property, books, or records of Borrower.
13.6 RELIANCE BY AGENT. Agent's Related Parties shall be entitled to
rely, and shall be fully protected in relying upon, any note, writing,
resolution, notice, consent, certificate, message, statement, order, or other
document or conversation believed to have been authorized, genuine or
correct, or signed, sent, or made by the proper Person, or upon advice and
statements of counsel (including, without limitation, legal counsel to Agent
or Borrower, and independent accountants and other experts selected by Agent).
13.7 INSTRUCTIONS. Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document as Agent
deems appropriate, unless it shall first receive the consent of Majority
Banks or shall first be indemnified to its satisfaction by all Banks, in
accordance with their respective Pro Rata Share, against all liabilities and
expenses which may be incurred by it or by reason of taking or continuing to
take any such action. Agent shall in all cases be fully protected in acting
or in refraining from acting under this Agreement or any other Loan Document
in accordance with the consent of Majority Banks, where required, and such
request and any action taken or not taken to act pursuant thereto shall be
binding upon all of the Banks and all future holders of any interest in the
Obligations.
13.8 NOTICE OF DEFAULT. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default unless Agent has actual knowledge or
has received notice from one or more of the Banks or Borrower referring to
this Agreement, describing such Default and stating in substance
-20-
<PAGE>
that such notice is a "notice of default." In the event Agent receives such
a notice or has actual knowledge of any Default, Agent shall give notice
thereof to all of the Banks.
13.9 REPRESENTATIONS. None of Agent's Related Parties have made any
representation or warranty to Banks, and no action taken by Agent after the
date of this Agreement, including any review of Borrower's affairs, shall be
deemed to constitute any representation or warranty by Agent to any of the
Banks.
13.10 INDEPENDENT CREDIT REVIEW. Each Bank represents to Agent that it
has, independently and without reliance upon Agent, and based upon such
financial statements, documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, property,
operations, and financial condition of Borrower and Guarantor and made its
own decision to enter into this Agreement. Each of the Banks also represents
that it shall, independently and without reliance upon Agent, and based upon
such financial statements, documents, and information as it shall deem
appropriate at the time, continue to make its own credit analysis,
appraisals, and decisions in taking or not taking action under this
Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, property, operations, and financial condition of
Borrower. For purposes of determining compliance with the conditions
specified in Article 9, each Bank that has executed this Agreement shall be
deemed to have consented to, approved, or accepted, or to be satisfied with,
each document or other matter either sent by Agent to such Bank for consent,
approval, acceptance, or satisfaction, or required under said Article to be
consented to or approved by or acceptable or satisfactory to such Bank,
unless such Bank promptly provides Agent with notice to the contrary.
13.11 INFORMATION. Agent shall have no obligation, duty, or
responsibility, either initially or on a continuing basis, to provide Banks
with any credit or other information concerning the business, property,
operations, or financial condition of Borrower or Guarantor which may come
into possession of any of Agent's Related Parties. Although Agent may
furnish to Banks, upon request, copies of documents Agent has received
pursuant to this Agreement, Agent assumes no responsibility as to the
authenticity, validity, or enforceability of any such documents.
13.12 INDEMNITY. The Banks shall indemnify Agent, according to their
respective Pro Rata Share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, suits, judgments,
reasonable costs and expenses, taxes, and disbursements of any kind or nature
whatsoever (except to the extent they arise from Agent's gross negligence or
willful misconduct) which may at any time be imposed on, incurred by, or
asserted against any of Agent's Related Parties or in any way relating to or
arising out of this Agreement, any other Loan Document, or any document
contemplated by or referred to therein, any transaction contemplated thereby,
or any action taken or omitted by Agent under or in connection with any of
the foregoing. Without limiting the foregoing, each Bank shall reimburse
Agent, in accordance with such Bank's Pro Rata Share, for any costs or
expenses incurred by Agent subsequent to the closing of this Agreement,
including outside or in-house legal fees, which (a) are required to be
reimbursed to Agent by Borrower under any of the Loan Documents, but are not
so reimbursed, or (b) arise out of action taken by Agent at the unanimous
consent of Banks in accordance with this Agreement. This subsection shall
survive the final payment of the Obligations and payment of all other amounts
due under this Agreement or the other Loan Documents.
13.13 SEPARATION OF CAPACITIES. In its capacity as a lender that is one
of the Banks, Seafirst shall have the same rights and powers hereunder as the
other Banks and may exercise the same as though it were not Agent. The term
"Bank(s)" shall include Seafirst, in its individual capacity as a lender and
not as an agent, unless the context otherwise indicates. This Agreement
shall not restrict in any way any Bank's ability to enter into other credit
or banking facilities with Borrower or Guarantor, so long as such facility
(a) does not violate any other provision of this Agreement and (b) is not
secured by any of the Collateral; and the other Bank or Banks hereunder shall
not have any rights or obligations as to any such facilities not provided by
such Bank or Banks.
-21-
<PAGE>
ARTICLE 14
EVENTS AND CONSEQUENCES OF DEFAULT
14.1 EVENTS OF DEFAULT. Any of the following events shall constitute a
default by Borrower under the terms of this Agreement, the L/C Agreements,
and all other Loan Documents ("Default"):
(a) NONPAYMENT. Any payment of principal or reimbursement of a draw
on a Letter of Credit is not made on the date when due, or any other
payment or reimbursement due or demanded under this Agreement or any Loan
Document is not made within five days of the date when due;
(b) BREACH OF WARRANTY. Any material representation or warranty made
or deemed made in connection with this Agreement or any other Loan
Document, or any certificate, notice, or report furnished pursuant hereto,
is determined by any Bank to be false in any respect when made;
(c) FAILURE TO PERFORM. Any other term, covenant, or agreement
contained in any Loan Document is not performed or satisfied, and, if
remediable, such failure continues unremedied for 30 days after written
notice thereof has been given to Borrower by Agent;
(d) DEFAULTS ON OTHER OBLIGATIONS. There exists a default by
Borrower, Guarantor, or any Material Subsidiary in the performance of any
other agreement or obligation for the payment of borrowed money, for the
deferred purchase price of property or services, or for the payment of rent
under any lease, whether by acceleration or otherwise, which would permit
such obligation to be declared due and payable prior to its stated
maturity, with any such occurrence to be a Default immediately if the
obligation concerned exceeds $500,000 or, if such occurrence is with regard
to an obligation of $500,000 or less, if such default continues for 30 days
after Borrower, Guarantor, or such Material Subsidiary, as the case may be,
receives written notice thereof from the creditor so affected;
(e) GUARANTIES. Any Guarantor or any Material Subsidiary revokes or
attempts to revoke such guaranty, whether with respect to future
transactions or outstanding Obligations, or otherwise breaches the terms
and conditions of such guaranty, or violates any promise made pursuant to
this Agreement, or any such guaranty is ruled to be invalid or
unenforceable by any court of competent jurisdiction;
(f) CHANGE OF CONTROL. Any Person (including any affiliated group of
individuals and/or entities) shall acquire 25% or more of the outstanding
voting stock of Guarantor; or Guarantor shall cease to own 100% of the
outstanding voting stock of Borrower;
(g) AFFILIATES. Any Material Subsidiary shall violate any of the
covenants made by it in a certificate in the form of Exhibit 5 attached
hereto, or any representation or warranty made or deemed made by it in such
certificate is determined by any Bank to be false in any material respect
when made, or any of the representations and warranties made by Guarantor
in the addendum to this Agreement is determined by any Bank to be false in
any material respect when made;
(h) LOSS, DESTRUCTION, OR CONDEMNATION OF PROPERTY. A portion of
Borrower's, Guarantor's, or any Material Subsidiary's property is affected
by any uninsured loss, damage, destruction, theft, sale, or encumbrance
other than created herein or is condemned, seized, or appropriated, the
effect of which materially impairs Borrower's, Guarantor's, or such
Material Subsidiary's financial condition or its ability to pay its debts
as they come due;
-22-
<PAGE>
(i) ATTACHMENT PROCEEDINGS AND INSOLVENCY. Borrower, Guarantor, or
any Material Subsidiary, or any of Borrower's, Guarantor's, or any such
Material Subsidiary's property is affected by any:
(I) Judgment lien, execution, attachment, garnishment, general
assignment for the benefit of creditors, sequestration, or forfeiture,
to the extent Borrower's, Guarantor's, or such Material Subsidiary's
financial condition or its ability to pay its debts as they come due
is thereby materially impaired; or
(II) Proceeding under the laws of any jurisdiction relating to
receivership, insolvency, or bankruptcy, whether brought voluntarily
or involuntarily by or against Borrower, Guarantor, or any Material
Subsidiary, including, without limitation, any reorganization of
assets, deferment or arrangement of debts, or any similar proceeding,
and, if such proceeding is involuntarily brought against Borrower,
Guarantor, or such Material Subsidiary, it is not dismissed within 60
days;
(j) JUDGMENTS. Final judgment on claims not covered by insurance
which, together with other outstanding final judgments against Borrower,
Guarantor, or any Material Subsidiary, exceeds $500,000, is rendered
against Borrower, Guarantor, or any Material Subsidiary and is not
discharged, vacated, or reversed, or its execution stayed pending appeal,
within 60 days after entry, or is not discharged within 60 days after the
expiration of such stay; or
(k) GOVERNMENT APPROVALS. Any governmental approval, registration,
or filing with any governmental authority, now or later required in
connection with the performance by Borrower of its obligations under the
Loan Documents, is revoked, withdrawn, or withheld, or fails to remain in
full force and effect, except Borrower shall have 60 days after notice of
any such event to take whatever action is necessary to obtain all necessary
approvals, registrations, and filings.
14.2 REMEDIES UPON DEFAULT. If any Default occurs under Subsection
14.1(i), the Banks' commitment to make Advances and Seafirst's commitment to
make Swing Line Advances and issue new Letters of Credit shall immediately
and automatically terminate (but Agent shall have no liability to any other
Bank for, and any risk participations shall be effective as to, any Advances
made by Agent or Letters of Credit issued by Seafirst prior to Agent
receiving actual notice of such occurrence, absent Agent's willful misconduct
or gross negligence), and all Obligations, including all accrued interest,
shall immediately and automatically become due and payable, without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower, and Agent may immediately, upon receiving
notice of such an occurrence, exercise any or all of the following remedies
for Default; and if any other Default occurs and is continuing, Agent, upon
direction of Majority Banks, shall, by notice from Agent to Borrower:
(a) TERMINATE COMMITMENTS. Terminate Banks' commitment to make
Advances and Seafirst's commitment to make Swing Line Advances and issue
new Letters of Credit;
(b) SUSPEND COMMITMENTS. Refuse to make further Advances or Swing
Line Advances or issue new Letters of Credit until any Default has been
cured;
(c) ACCELERATE. Declare all Obligations, including all accrued
interest, to be immediately due and payable without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived by
Borrower;
(d) COLLATERAL. Proceed to realize on any or all Collateral by any
available means; and/or
(e) ALL REMEDIES. Pursue any other available legal and equitable
remedies.
-23-
<PAGE>
In addition, each Bank shall have the right to set off against, or place an
administrative freeze upon, deposit accounts of Borrower at such Bank any
amounts owing under the Obligations, including amounts in excess of such
Bank's Pro Rata Share of the outstanding balance of the Obligations. Any
such amounts, and any other amounts received by any Bank on account of the
Obligations, other than from Agent, shall be delivered to Agent to be
distributed to each Bank in accordance with its respective Pro Rata Share;
PROVIDED, however, that if all or any portion of such payment turned over
from a Bank to Agent and distributed to each Bank is thereafter recovered by
Borrower from such Bank, each Bank shall, in accordance with its respective
Pro Rata Share, reimburse such other Bank for the amount so recovered. All
of Banks' and Agent's rights and remedies in all Loan Documents shall be
cumulative and can be exercised separately or concurrently. Borrower shall
have no liability to any Bank with respect to any sum that Agent receives in
accordance with this Agreement and fails to distribute to such Bank as
required by this Agreement.
14.3 DEFAULT INTEREST. Upon Default, whether or not acceleration has
occurred, all outstanding Advances shall, upon direction by Majority Banks to
Agent, accrue interest at a floating rate per annum of 3.0% above the Base
Rate, as it may vary from time to time.
ARTICLE 15
MISCELLANEOUS
15.1 MANNER OF PAYMENTS.
(a) PAYMENTS ON NONBUSINESS DAYS. Whenever any event is to occur or
any payment is to be made under any Loan Document on any day other than a
Business Day, such event shall occur or such payment shall be made on the
next succeeding Business Day and such extension of time shall be included
in computation of interest in connection with any such payment.
(b) PAYMENTS. All payments and prepayments to be made by Borrower
shall be made to Agent when due, at Agent's office as may be designated by
Agent, without offsets or counterclaims for any amounts claimed by Borrower
to be due from Agent or Banks, in the currency advanced, and in immediately
available funds.
(c) TIMING OF PAYMENTS. All payments and prepayments to be made by
Borrower shall be made to Banks care of Agent, no later than 12:00 noon on
the date when due (with payments received after 12:00 noon to be deemed
received on the following Business Day), at Agent's office as may be
designated by Agent, without offsets or counterclaims for any amounts
claimed by Borrower to be due from any Bank, in the currency which was
advanced to Borrower and in immediately available funds. Notwithstanding
the foregoing, payments due under the Swing Line may be made until 3:30
p.m.
(d) APPLICATION OF PAYMENTS. All payments made by Borrower shall be
applied first against fees, expenses, and indemnities due; second, against
interest due; and third, against principal, with Agent having the
obligation, after a Default which is continuing, to apply any payments or
collections received against the Obligations owing to the Banks in
accordance with their respective Pro Rata Shares. Except for payments made
by Borrower to Agent for fees and indemnities due Agent, or payments made
with regard to Swing Line Advances or Letters of Credit in which no Bank
has been called upon to purchase a participation pursuant to Article 5, all
payments made by Borrower shall be deemed to be made to Agent, as agent for
Banks in accordance with each Bank's Pro Rata Share, and shall be
distributed by Agent to Banks according to their respective Pro Rata Share;
PROVIDED, that while Agent will make a good faith effort to make such
remittances on the same Business Day as received, if payments are received
from Borrower after 12:00 noon, and if it is not practicable for Agent to
make same-day remittances to the Banks, then Agent shall not be obligated
to remit funds to the Banks
-24-
<PAGE>
until the next Business Day, along with interest at the Fed Funds Rate.
Any such payments which are received by a Bank shall be delivered
immediately by such Bank to Agent for distribution to Banks in accordance
with this subsection.
(e) RECORDING OF PAYMENTS. Agent is authorized to record on a
schedule or computer-generated statement the date and amount of each
Advance and Swing Line Advance, all conversions between interest rate
options, and all payments of principal and interest. All such schedules or
statements shall constitute PRIMA FACIE evidence of the accuracy of the
information so recorded.
(f) ANTICIPATORY PAYMENTS. Agent shall have the right (but not the
obligation), if it reasonably anticipates receipt of payment from Borrower
but has not actually received such payment, to forward payment to each Bank
of its respective Pro Rata Share; PROVIDED, that if Borrower fails within
one Business Day to make such payment, each Bank shall, immediately upon
the demand of Agent, return such funds to Agent.
(g) PAYMENTS PURSUANT TO ADVANCES. If an Advance is repaid by means
of a new Advance in a like amount, Agent shall credit such new Advance
directly to repayment of the maturing Advance, and no funds shall be
transferred to or from Banks.
(h) MULTICURRENCY ADVANCES. If a Multicurrency Advance is not repaid
on the date when due, Borrower shall indemnify Agent and all Banks for all
costs, expenses, and interest incurred by Agent and each such Bank in
covering any foreign exchange contracts and hedges entered into by such
parties with regard to such Multicurrency Advance.
15.2 NOTICES. Agent may make Advances and conversions between interest
rates, and Seafirst shall make Swing Line Advances, based on telephonic,
telex, and oral requests made by any Person whom Agent in good faith believes
to be authorized to act on behalf of Borrower. All other notices, demands,
and other communications to be given pursuant to any of the Loan Documents
shall be in writing and shall be deemed received the earlier of when actually
received, or two days after being mailed, postage prepaid and addressed as
follows, or as later designated in writing:
AGENT: BORROWER:
SEAFIRST BANK PHYSIO-CONTROL CORPORATION
Seafirst Agency Services 11811 Willows Road Northeast
701 Fifth Avenue, 16th Floor Redmond, WA 98073-9706
Seattle, WA 98104 Attention: Joseph J. Caffarelli
Attention: Ken Puro
BANKS:
SEAFIRST BANK MELLON BANK, N.A.
Metropolitan Wholesale, Team 1 Western Region
701 Fifth Avenue, 13th Floor 400 South Hope Street, 5th Floor
Seattle, Washington 98104 Los Angeles, California 90071-2806
Attention: Michael Collum Attention: Susan A. Dalton
15.3 DOCUMENTATION AND ADMINISTRATION EXPENSES. Borrower shall pay,
reimburse, and indemnify Agent and Banks for all of Agent's and Banks'
reasonable costs and expenses, including, without limitation, all accounting,
appraisal, and report preparation fees or expenses, all attorneys' fees
(including the allocated cost of in-house counsel), legal expenses, and
recording or filing fees, incurred in connection with the negotiation,
preparation, execution, and administration of this Agreement and
-25-
<PAGE>
all other Loan Documents, and all amendments, supplements, or modifications
thereto, and the perfection of all security interests, liens, or encumbrances
that may be granted to Banks; PROVIDED, that Borrower shall pay no more than
$3,000 in legal fees for the initial documentation of the facilities
evidenced by this Agreement. Borrower acknowledges that any legal counsel
retained or employed by Agent or Banks acts solely on the Agent's and Banks'
behalf and not on Borrower's behalf, despite Borrower's obligation to
reimburse Agent and Banks for the cost of such legal counsel, and that
Borrower has had sufficient opportunity to seek the advice of its own legal
counsel with regard to this Agreement.
15.4 COLLECTION EXPENSES. The nonprevailing party shall, upon demand by
the prevailing party, reimburse the prevailing party for all of its costs,
expenses, and reasonable attorneys' fees (including the allocated cost of
in-house counsel) incurred in connection with any controversy or claim
between said parties relating to this Agreement or any of the other Loan
Documents, or to an alleged tort arising out of the transactions evidenced by
this Agreement, including those incurred in any action, bankruptcy
proceeding, arbitration or other alternative dispute resolution proceeding,
or appeal, or in the course of exercising any judicial or nonjudicial
remedies.
15.5 WAIVER. No failure to exercise and no delay in exercising, on the
part of Agent or Banks, any right, power, or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege hereunder preclude any other or further exercise
thereof, or the exercise of any other right, power, or privilege. Further,
no waiver or indulgence by Agent or Banks of any Default shall constitute a
waiver of Agent's and Banks' right to declare a subsequent similar failure or
event to be a Default.
15.6 ASSIGNMENT. This Agreement is made expressly for the sole benefit
of Borrower and for the protection of Agent and Banks and their respective
successors and assigns. The rights of Borrower hereunder shall not be
assignable by operation of law or otherwise, without the prior written
consent of Agent and Banks. Upon any assignment, the assigning Bank shall
pay Agent an assignment fee of $2,500. Either Bank may at any time sell,
assign, grant participations in, or otherwise transfer to any other financial
institution (a "Participant") all or any part of its obligations under the
Letters of Credit and its rights under this Agreement and the Loan Documents,
with assignments only to be made with the consent of Borrower, which shall
not be unreasonably withheld. Participations may be sold without the consent
of Borrower, PROVIDED that any voting rights of such participants shall be
limited to matters of principal amount, interest rates, fees, payment dates,
release of any Collateral or any guarantors, and extensions of the
Termination Date or other maturities. Banks acknowledge and agree that any
such disposition will not alter or affect such Bank's direct obligations
under this Agreement and under the Letters of Credit and its participation
therein. Borrower acknowledges that any such Participant will become an
owner PRO RATA of the Obligations, and Borrower waives any right it may have
to setoff the Obligations against any claims or counterclaims it may have
against the Bank selling such participation. Assignments by Banks, as opposed
to participations, must be in minimum amounts of $5,000,000, and may only be
made with the prior written consent of Borrower and Agent. It is the
intention of the parties that Borrower's obligation to pay or reimburse
expenses will not be increased because of an assignment or the creation or
transfer of a participation interest. Notwithstanding anything in this
Agreement to the contrary, Borrower shall not be required to pay or reimburse
Agent or Banks for any fees, costs, or expenses, including attorneys' fees,
relating to the creation or transfer of any assignment or participation
interest. Neither shall Borrower be required to pay or reimburse Agent or
Banks for any documentation and administration expenses incurred by an
assignee or Participant except to the extent that such expenses are in lieu
of, and not in addition to, expenses incurred by Seafirst or Mellon.
15.7 MERGER. The rights and obligations set forth in this Agreement
shall not merge into or be extinguished by any of the Loan Documents, but
shall continue and remain valid and enforceable. This Agreement and the
other Loan Documents constitute Agent's and Banks' entire agreement with
Borrower with regard to the Revolving Loan, the Swing Line, and the Letters
of Credit, and supersede all prior writings and oral negotiations. No oral
or written representation, covenant, commitment,
-26-
<PAGE>
waiver, or promise of either Agent, any Bank or Borrower shall have any
effect, whether made before or after the date of this Agreement, unless
contained in this Agreement or another Loan Document, or in an amendment
complying with Section 15.8. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
15.8 AMENDMENTS. Any amendment or waiver of, or consent to any
departure by Borrower from any provision of, this Agreement or any other Loan
Document shall be in writing signed by each party to be bound thereby, and
shall be effective only in the specific instance and for the specific purpose
for which given. Banks authorize Agent (i) to make the following amendments
only upon the prior written consent of all Banks:
(a) increase the Credit Limit or the maximum amounts permitted for
the Swing Line or issuance of Letters of Credit;
(b) extend the Termination Date;
(c) release any guaranty of the Obligations, or release any
Collateral;
(d) reduce the principal, interest, or interest rate on the Revolving
Loan or Swing Line, or the issuance fees charged with regard to Letters of
Credit, or fees otherwise accruing under this Agreement, from that
otherwise required under this Agreement; or
(e) postpone the date fixed for payment of any principal, interest,
or fees;
and (ii) to waive, change, or release Borrower from any affirmative or
negative covenant under this Agreement only upon the prior written consent of
Majority Banks. Seafirst shall not make Swing Line Advances after the
occurrence of and during the continuance of a Default without the consent of
all Banks.
15.9 CONSTRUCTION. Each term of this Agreement and each Loan Document
shall be binding to the extent permitted by law and shall be governed by the
laws of the State of Washington, excluding its conflict of laws rules. If
one or more of the provisions of this Agreement should be invalid, illegal,
or unenforceable in any respect, the remaining provisions of this Agreement
shall remain effective and enforceable. If there is a conflict among the
provisions of any Loan Documents, the provisions of this Agreement shall be
controlling. The captions and organization of this Agreement are for
convenience only, and shall not be construed to affect any provision of this
Agreement.
15.10 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures to such counterparts were upon the same instrument. This
Agreement shall become effective when Agent shall have received counterparts
of the Agreement signed by all of the parties to the Agreement.
-27-
<PAGE>
DATED June 3, 1997.
BORROWER: AGENT:
PHYSIO-CONTROL CORPORATION SEAFIRST BANK
By By
-------------------------------- ------------------------------
Title Title
----------------------------- ---------------------------
By
--------------------------------
Title
-----------------------------
BANKS:
SEAFIRST BANK MELLON BANK, N.A.
By By
-------------------------------- ------------------------------
Title Title
----------------------------- ---------------------------
CONSENT OF GUARANTOR
The undersigned Guarantor acknowledges receipt of a copy of the above
Agreement, consents to its contents, and agrees to comply with the covenants
of Sections 11.2 through 11.14 thereof. By submitting each of the financial
statements required by Subsection 11.5(a) and 11.5(b), Guarantor is deemed to
represent and warrant that: (a) such statement is complete and correct and
fairly presents the consolidated financial condition of Guarantor as of the
date of such statement; (b) such statement discloses all liabilities of
Guarantor that are required to be reflected or reserved against under GAAP,
whether liquidated or unliquidated, fixed or contingent; and (c) such
statement has been prepared in accordance with GAAP. As of the date of
execution of this Agreement, there has been no adverse change in Guarantor's
financial condition since preparation of the last such financial statements
delivered to Banks which would materially impair Guarantor's ability to honor
Guarantor's guaranty of the Obligations. Guarantor hereby adopts and
repeats, as to Guarantor, all representations and warranties made by Borrower
as to Borrower in Article 10 of the above Agreement.
-28-
<PAGE>
DATED June 3, 1997.
GUARANTOR:
PHYSIO-CONTROL INTERNATIONAL
CORPORATION
By
--------------------------------
Title
-----------------------------
By
--------------------------------
Title
-----------------------------
-29-
<PAGE>
EXHIBIT 1 TO CREDIT AGREEMENT
PREPAYMENT FEES
If the principal balance of this note is prepaid in whole or in part,
whether by voluntary prepayment, operation of law, acceleration or otherwise,
a prepayment fee, in addition to any interest earned, will be immediately
payable to the holder of this note.
The amount of the prepayment fee depends on the following:
(1) The amount by which interest reference rates as defined below have changed
between the time the loan is prepaid and either a) the time the loan was
made for fixed rate loans, or b) the time the interest rate last changed
(repriced) for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on reverse).
(3) The amount of principal prepaid.
If the proceeds from a CD or time deposit pledged to secure the loan are used
to prepay the loan resulting in payment of an early withdrawal penalty for
the CD, a prepayment fee will not also be charged under the loan.
DEFINITION OF PREPAYMENT REFERENCE RATE FOR VARIABLE RATE LOANS
The "Prepayment Reference Rate" used to represent interest rate levels for
variable rate loans shall be the index rate used to determine the rate on
this loan having maturities equivalent to the remaining period to interest
rate change date (repricing) of this loan rounded upward to the nearest
month. The "Initial Prepayment Reference Rate" shall be the Prepayment
Reference Rate at the time of last repricing and a new Initial Prepayment
Reference Rate shall be assigned at each subsequent repricing. The "Final
Prepayment Reference Rate" shall be the Prepayment Reference Rate at the time
of prepayment.
DEFINITION OF PREPAYMENT REFERENCE RATE FOR FIXED RATE LOANS
The "Prepayment Reference Rate" used to represent interest rate levels on
fixed rate loans shall be the bond equivalent yield of the average U.S.
Treasury rate having maturities equivalent to the remaining period to
maturity of this loan rounded upward to the nearest month. The "Initial
Prepayment Reference Rate" shall be the Prepayment Reference Rate at the time
the loan was made. The "Final Prepayment Reference Rate" shall be the
Prepayment Reference Rate at time of prepayment.
The Prepayment Reference Rate shall be interpolated from the yields as
displayed on Page 119 of the Dow Jones Telerate Service (or such other page
or service as may replace that page or service for the purpose of displaying
rates comparable to said U.S. Treasury rates) on the day the loan was made
(Initial Prepayment Reference Rate) or the day of prepayment (Final
Prepayment Reference Rate).
CALCULATION OF PREPAYMENT FEE
If the Initial Prepayment Reference Rate is less than or equal to the Final
Prepayment Reference Rate, there is no prepayment fee.
If the Initial Prepayment Reference Rate is greater than the Final Prepayment
Reference Rate, the prepayment fee shall be equal to the difference between the
Initial and Final Prepayment Reference Rates (expressed as a decimal),
multiplied by the appropriate factor from the Prepayment Fee Factor Schedule,
multiplied by the principal amount of the loan being prepaid.
<PAGE>
EXAMPLE OF PREPAYMENT FEE CALCULATION
VARIABLE RATE LOAN: A non-amortizing 6-month LIBOR based loan with principal
of $250,000 is fully prepaid with 3 months remaining until next interest rate
change date (repricing). An Initial Prepayment Reference Rate of 7.0% was
assigned to the loan at last repricing. The Final Prepayment Reference Rate
(as determined by the 3-month LIBOR index) is 6.5%. Rates therefore have
dropped 0.5% since last repricing and a prepayment fee applies. A prepayment
fee factor of 0.31 is determined from Table 3 below and the prepayment fee is
computed as follows:
Prepayment Fee = (0.07 - 0.065) x (0.31) x ($250,000) = $387.50
FIXED RATE LOAN: An amortizing loan with remaining principal of $250,000 is
fully prepaid with 24 months remaining until maturity. An Initial Prepayment
Reference Rate of 9.0% was assigned to the loan when the loan was made. The
Final Prepayment Reference Rate (as determined by the current 24-month U.S.
Treasury rate on Page 119 of Telerate) is 7.5%. Rates therefore have dropped
1.5% since the loan was made and a prepayment fee applies. A prepayment fee
factor of 1.3 is determined from Table 1 below and the prepayment fee is
computed as follows:
Prepayment Fee = (0.09 - 0.075) x (1.3) x ($250,000) = $4,875
PREPAYMENT FEE FACTOR SCHEDULE
TABLE I: FULLY AMORTIZING LOANS
<TABLE>
<CAPTION>
Proportion of Remaining
Principal Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------------------------------------------------
90-100% 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1
60-89% 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0
30-59% 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24.4
0-29% 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
</TABLE>
TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS
<TABLE>
<CAPTION>
Proportion of Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
90-100% 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0
60-89% 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1
30-59% 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2
0-29% 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
</TABLE>
TABLE III: NONAMORTIZING (INTEREST ONLY) LOANS
<TABLE>
<CAPTION>
Proportion of Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-100% 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
</TABLE>
(1) For the remaining period to maturity/repricing between any two
maturities/repricings shown in the above schedules, interpolate between the
corresponding factors to the closest month.
The holder of this note is not required to actually reinvest the prepaid
principal in any U.S. Government Treasury Obligations, or otherwise prove its
actual loss, as a condition to receiving a prepayment fee as calculated above.
<PAGE>
EXHIBIT 2 TO CREDIT AGREEMENT
FORM OF MULTICURRENCY BORROWING NOTICE
To: Seafirst Agency Services
701 Fifth Ave., 16th Floor
Seattle, Washington 98104
Attention:
-----------------------
Phone: (206) 358-0078
Fax: (206) 358-0971
BORROWING INSTRUCTIONS:
Date of Borrowing:
----------------------------
Specify New Advance or Rollover:
----------------------------
Currency Type:
----------------------------
Amount requested (in applicable currency):
----------------------------
Interest Period:
----------------------------
WIRE INSTRUCTIONS:
Bank Name:
----------------------------
Swift Code:
----------------------------
Account Name:
----------------------------
Account Number:
----------------------------
Attention:
----------------------------
Phone Number:
----------------------------
Borrower hereby represents and warrants to Banks that as of the date
hereof (a) the statements set forth in Article 10 of the Credit Agreement
dated June 3, 1997, among Physio-Control Corporation, Bank of America
National Trust and Savings Association, doing business as Seafirst Bank as
Agent, and Bank of America National Trust and Savings Association, doing
business as Seafirst Bank, and Mellon Bank, N.A., as Banks (the "Credit
Agreement") are true and correct; and (b) no Default (as defined in the
Credit Agreement) has occurred and is continuing or will result from
disbursement of the requested Advance.
DATED: .
--------------------------------------
PHYSIO-CONTROL CORPORATION
By
--------------------------------
Title
-----------------------------
<PAGE>
EXHIBIT 3 TO CREDIT AGREEMENT
FORM OF PARTICIPATION CERTIFICATE
$ Date:
---------------------- ---------------------
Bank of America National Trust and Savings Association, a national
banking association, doing business as Seafirst Bank (the "Issuing Bank"),
for and in consideration of the mutual covenants and agreements of the
Issuing Bank and Mellon Bank, N.A. (the "Participating Bank") set forth in
that certain Credit Agreement dated June 3, 1997 ("Credit Agreement") among
Physio-Control Corporation ("Borrower"), the Issuing Bank, and the
Participating Bank, hereby assigns to Participating Bank a 50% interest (the
"Participation Interest") in all of its rights and obligations under the
following letters of credit issued by the Issuing Bank for the account of
Borrower, including all rights of the Issuing Bank relating thereto under the
Credit Agreement and any L/C Agreement:
---------------------------------------------------------------------------
Such Participation Interest is equal to $ .
----------------------------------
All capitalized terms used in this certificate and not otherwise defined
shall have the meaning given in the Credit Agreement.
The Participation Interest granted hereby and the respective rights and
duties of the Issuing Bank and the Participating Bank are governed by the
terms of the Credit Agreement referred to above.
Dated as of the date first set forth above.
SEAFIRST BANK
By
--------------------------
Title
-----------------------
<PAGE>
EXHIBIT 4 TO CREDIT AGREEMENT
[Form of Certificate to be sent with financial reports]
[Date]
Seafirst Bank
Seafirst Agency Services
701 Fifth Avenue, 16th Floor
Seattle, WA 98104
Attention: Ken Puro
Re: Certificate of Chief Financial Officer
Ladies and Gentlemen:
With respect to that certain Credit Agreement between Physio-Control
Corporation ("Borrower") and Physio-Control International Corporation
("Guarantor"), Bank of America National Trust and Savings Association, doing
business as Seafirst Bank as Agent, and Bank of America National Trust and
Savings Association, doing business as Seafirst Bank, and Mellon Bank, N.A.,
as Banks, dated June 3, 1997 (the "Credit Agreement"), we hereby represent to
you the following (capitalized terms used in this certificate shall have the
same meaning as in the Credit Agreement):
1. Enclosed are financial statements dated as of _________________________
required by Section 11.5 of the Credit Agreement.
2. As of the date of such financial statements, Guarantor's Tangible Net Worth
is $________________________.
3. As of the date of such financial statements, Guarantor's ratio of Debt to
Tangible Net Worth is ________________________.
4. As of the date of such financial statements, Guarantor's Fixed Charge
Coverage Ratio is ________________________.
5. As of the date of such financial statements, the following entities
constitute all of Guarantor's Material Subsidiaries:______________________
__________________________________________________________________________.
6. Such financial statements are complete and correct, fairly present, without
qualification, the financial condition of Guarantor for such period, and
are prepared in accordance with GAAP.
7. No Default exists, nor any event which, with lapse of time or upon the
giving of notice, would constitute a Default under the Credit Agreement.
Sincerely,
PHYSIO-CONTROL INTERNATIONAL CORPORATION
By
------------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT 5 TO CREDIT AGREEMENT
FORM OF SUBSIDIARY'S CERTIFICATE
The undersigned corporation, which is a corporation organized under the
laws of the state of _________________________________ (the "Company"), and
which is a "Material Subsidiary" as such term is defined in the Credit
Agreement dated June 3, 1997 ("Credit Agreement"), among Physio-Control
Corporation ("Borrower"), Bank of America National Trust and Savings
Association, doing business as Seafirst Bank, a national banking association,
as agent ("Agent"), and Seafirst Bank and Mellon Bank, N.A. as "Banks," makes
this certificate with respect to the Credit Agreement. Terms defined in the
Credit Agreement have the same meaning when used in this certificate. The
Company acknowledges that it is a Material Subsidiary, and hereby adopts and
repeats, as to itself and as of the date of this certificate, all
representations and warranties made by Borrower as to Borrower in Article 10
of the Credit Agreement; and agrees to comply with, as to the Company, all
the covenants made by Borrower as to Borrower in Articles 11 and 12 of the
Credit Agreement.
DATED , 199 .
------------------------- ----
COMPANY:
----------------------------
By
--------------------------
Title
-----------------------
<PAGE>
Exhibit 10.18
[SEAFIRST BANK LOGO]
BORROWER: PHYSIO-CONTROL CORPORATION LENDER: "LENDER"
11811 WILLOWS ROAD N.E. C/0 CLSC-W
REDMOND, WA 98052 800 FIFTH AVE (FAB-13)
SEATTLE, WA 98104
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN PHYSIO-CONTROL
CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND "LENDER" (REFERRED TO BELOW
AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this AGREEMENT. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
GRANTOR. The word "Grantor" means PHYSIO-CONTROL CORPORATION, ITS
SUCCESSORS AND ASSIGNS.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental
regulation, court decree, or order to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are reasonably
requested by Lender to perfect and continue Lender's security interest in
the Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the Collateral,
and Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby appoints
Lender as its irrevocable attorney-in-fact for the purpose of executing
any documents necessary to perfect or to continue the security
interest granted in this Agreement. Lender may at any time, and without
further authorization from Granter, file a carbon, photographic or
other reproduction of any financing statement or of this Agreement for
use as a financing statement. Grantor will reimburse Lender for all
expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor promptly will
notify Lender before any change in Grantor's name including any change
to the assumed business names of Grantor. THIS IS A CONTINUING SECURITY
AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF
THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME
GRANTOR MAY NOT BE INDEBTED TO LENDER.
<PAGE>
PAGE 2
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of preparation
and execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact
obligated as they appear to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all real property being rented or
leased by Grantor; (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where Collateral is
or may be located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Washington, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall
not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest provided for in
this Agreement, without the prior written consent of Lender. This
includes security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute
consent by Lender to any sales or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands
of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists
of inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such list, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession,
loss or damage of or to any Collateral involving Collateral exceeding
$500,000.00 in the aggregate, of any request for credit or adjustment
or of any other dispute arising with respect to the Collateral involving
Collateral exceeding $500,000.00 in the aggregate, and generally of all
happenings and events affecting the Collateral or the value or the
amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is
in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender' sole opinion. If the Collateral is
subjected to a lien which is not discharged within (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to provide
for the discharge of the lien plus any interest, costs, attorneys' fees
or other charges that could accrue as a result of foreclosure or sale
of the Collateral. In any contest Grantor shall defend itself and Lender
and shall satisfy any final adverse judgment before enforcement against
the Collateral. Grantor shall name Lender as an additional obligee under
any surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest
in good faith any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate appeals, so
long as Lenders's interest in the Collateral, in Lenders' opinion, is not
jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a
lien on the Collateral other than in compliance with applicable laws
and regulations, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of
any hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L No.
99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations, adopted pursuant to any of the foregoing.
The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating
the Collateral for hazardous wastes and substances. Grantor hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims and losses resulting from a breach of
this provision of this Agreement. This obligation to indemnify shall
survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least forty five (45) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in the
Collateral.
<PAGE>
PAGE 3
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral exceeding $500,000 in the
aggregate. Lender may make proof of loss if Grantor fails to do so
within fifteen (15) days of the casualty. All proceeds of any insurance
on the Collateral, including accrued proceeds thereon, shall be held by
Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor for the
proceeds for the reasonable cost of repair or restoration. If Lender
does not consent to repair or replacement for the Collateral, Lender shall
retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and
which Grantor has not committed to the repair or restoration of the
Collateral shall be used to prepay the Indebtedness.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have
an independent appraiser satisfactory to Lender determine, as applicable,
the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and
may use it in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession and beneficial
use shall not apply to any Collateral where possession of the Collateral by
Lender is required by law to perfect Lender's security interest in such
Collateral. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral
if Lender takes such action for the purpose as Grantor shall request or as
Lender, in Lender's sole discretion, shall deem appropriate under the
circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the
Indebtedness from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses shall become a part of the
Indebtedness and at Lender's option, will (a) be payable on demand, (b) be
added to the balance of the Indebtedness and be apportioned among and be
payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the
Indebtedness or (c) be treated as a balloon payment which will be due and
payable at the Indebtedness' maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event
of Default.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Washington Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon
the property of Grantor to take possession of and remove the Collateral.
If the Collateral contains other goods not covered by this Agreement at
the time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized
market, Lender will give Grantor reasonable notice of the time after
which any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable notice shall be
met if such notice is given at least ten (10) days before the time of
the sale or disposition. All expenses relating to the disposition of the
Collateral, including without limitation the
<PAGE>
PAGE 4
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
expenses of retaking, holding, insuring, preparing for sale and selling
the Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment of
a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenue therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance
policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise,
adjust, sue for, foreclose, or realize on the Collateral as Lender may
determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any
address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency even
if the transaction described in this subsection is a sale of accounts or
chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial
Code, as may be amended from time to time. In addition, Lender shall
have and may exercise any or all other rights and remedies it may have
available at law, in equity or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in the is Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts
situated in King County, the State of Washington. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Washington.
ATTORNEY'S FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expense, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expense of such
enforcement. Costs and expense include Lender's attorneys' fees and
legal expense whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (and including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Grantor also shall pay all
court costs and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change it address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there
is more than one Grantor, notice to any Grantor will constitute notice
to all Grantors. For notice purposes, Grantor will keep Lender informed
at all times of Grantor's current address(es). Grantor will give Lender
prior written notice of any change of either Grantor's legal structure or
of any change of Grantor's chief executive office, or if Grantor has no
place of business, Grantor's residence, and change of records location.
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become
due, owing or payable from the Collateral; (b) to execute, sign and
endorse any and all claims, instruments, receipts, checks, drafts or
warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and, in the
place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take
any action or institute or take part in any proceedings, either in its
own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power
is given as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full force and
effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdication finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other repsecces shall remain valid
and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with
<PAGE>
PAGE 5
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
that provision or any other provision of this Agreement. No prior waiver
by Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any Grantor's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent of subsequent
instances where such consent is required and all cases such consent may
be granted or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waivers, disclaims and
relinquishes all claims against such other person which Borrower has
or would otherwise have by virtue of payment of the Indebtedness or
any part thereof, specifically including but not limited to all rights
of indemnity, contribution or exoneration.
ADDITIONAL PROVISION. "LENDER" means (a) as to the granting clause of this
Agreement, Bank of America National Trust and Savings Association, doing
business as Seafirst Bank ("Seafirst"), as agent for itself and Mellon Bank,
N.A. ""Mellon"), and means (b) as to all other provisions of this Agreement
both Bank of America National Trust and Savings Association, doing business
as Seafirst Bank, and Mellon Bank, N.A., and their respective successors and
assigns. "INDEBTEDNESS" shall mean all the "Obligations", as such term is
defined in the Credit Agreement dated as of June 3, 1997 (including all
amendments thereto and restatements thereof, the "Credit Agreement"), between
Borrower and Lender, including all renewals, modifications, and extensions
thereof and all obligations of Grantor under this Agreement. Grantor
acknowledges and agrees that all rights, powers, and privileges for either
Seafirst or Mellon, in their respective individual capacities as Banks,
may be exercised by Seafirst in its capacity as agent for the Banks; and the
Grantor is neither permitted nor required to inquire as to Seafirst's
authority to act for the Banks when its it purporting to act in its capacity
as Agent. This provision does not hinder in any way each Bank's right to
demand performance in its individual capacity. "COLLATERAL" shall have the
meaning given to such term in the Credit Agreement. "EVENTS OF DEFAULT" shall
mean each of the events which constitutes a "Default" under the terms of the
Credit Agreement.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED JUNE 3, 1997.
GRANTOR:
PHYSIO-CONTROL CORPORATION
By: Richard O. Martin, Chairman & CEO
---------------------------------
J.J. Caffarelli, Exec. V.P./CFO
---------------------------------
<PAGE>
Exhibit 10.19
[SEAFIRST BANK LOGO]
BORROWER: PHYSIO-CONTROL CORPORATION LENDER: "LENDER"
11811 WILLOWS ROAD N.E. C/0 CLSC-W
REDMOND, WA 98052 800 FIFTH AVE (FAB-13)
SEATTLE, WA 98104
GRANTOR: PHYSIO-CONTROL MANUFACTURING CORPORATION
11811 WILLOWS ROAD N.E.
REDMOND, WA 98052
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN PHYSIO-CONTROL
CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND "LENDER" (REFERRED TO BELOW
AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this AGREEMENT. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
GRANTOR. The word "Grantor" means PHYSIO-CONTROL CORPORATION, ITS
SUCCESSORS AND ASSIGNS.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental
regulation, court decree, or order to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are reasonably
requested by Lender to perfect and continue Lender's security interest in
the Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the Collateral,
and Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby appoints
Lender as its irrevocable attorney-in-fact for the purpose of executing
any documents necessary to perfect or to continue the security
interest granted in this Agreement. Lender may at any time, and without
further authorization from Granter, file a carbon, photographic or
other reproduction of any financing statement or of this Agreement for
use as a financing statement. Grantor will reimburse Lender for all
expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor promptly will
notify Lender before any change in Grantor's name including any change
to the assumed business names of Grantor. THIS IS A CONTINUING SECURITY
AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF
THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME
GRANTOR MAY NOT BE INDEBTED TO LENDER.
<PAGE>
PAGE 2
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of preparation
and execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact
obligated as they appear to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all real property being rented or
leased by Grantor; (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where Collateral is
or may be located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Washington, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall
not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest provided for in
this Agreement, without the prior written consent of Lender. This
includes security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute
consent by Lender to any sales or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands
of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists
of inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such list, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession,
loss or damage of or to any Collateral involving Collateral exceeding
$500,000.00 in the aggregate, of any request for credit or adjustment
or of any other dispute arising with respect to the Collateral involving
Collateral exceeding $500,000.00 in the aggregate, and generally of all
happenings and events affecting the Collateral or the value or the
amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is
in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender' sole opinion. If the Collateral is
subjected to a lien which is not discharged within (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to provide
for the discharge of the lien plus any interest, costs, attorneys' fees
or other charges that could accrue as a result of foreclosure or sale
of the Collateral. In any contest Grantor shall defend itself and Lender
and shall satisfy any final adverse judgment before enforcement against
the Collateral. Grantor shall name Lender as an additional obligee under
any surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest
in good faith any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate appeals, so
long as Lenders's interest in the Collateral, in Lenders' opinion, is not
jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a
lien on the Collateral other than in compliance with applicable laws
and regulations, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of
any hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L No.
99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations, adopted pursuant to any of the foregoing.
The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating
the Collateral for hazardous wastes and substances. Grantor hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims and losses resulting from a breach of
this provision of this Agreement. This obligation to indemnify shall
survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least forty five (45) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in the
Collateral.
<PAGE>
PAGE 3
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral exceeding $500,000 in the
aggregate. Lender may make proof of loss if Grantor fails to do so
within fifteen (15) days of the casualty. All proceeds of any insurance
on the Collateral, including accrued proceeds thereon, shall be held by
Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor for the
proceeds for the reasonable cost of repair or restoration. If Lender
does not consent to repair or replacement for the Collateral, Lender shall
retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and
which Grantor has not committed to the repair or restoration of the
Collateral shall be used to prepay the Indebtedness.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have
an independent appraiser satisfactory to Lender determine, as applicable,
the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and
may use it in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession and beneficial
use shall not apply to any Collateral where possession of the Collateral by
Lender is required by law to perfect Lender's security interest in such
Collateral. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral
if Lender takes such action for the purpose as Grantor shall request or as
Lender, in Lender's sole discretion, shall deem appropriate under the
circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the
Indebtedness from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses shall become a part of the
Indebtedness and at Lender's option, will (a) be payable on demand, (b) be
added to the balance of the Indebtedness and be apportioned among and be
payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the
Indebtedness or (c) be treated as a balloon payment which will be due and
payable at the Indebtedness' maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event
of Default.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Washington Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon
the property of Grantor to take possession of and remove the Collateral.
If the Collateral contains other goods not covered by this Agreement at
the time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized
market, Lender will give Grantor reasonable notice of the time after
which any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable notice shall be
met if such notice is given at least ten (10) days before the time of
the sale or disposition. All expenses relating to the disposition of the
Collateral, including without limitation the
<PAGE>
PAGE 4
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
expenses of retaking, holding, insuring, preparing for sale and selling
the Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment of
a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenue therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance
policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise,
adjust, sue for, foreclose, or realize on the Collateral as Lender may
determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any
address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency even
if the transaction described in this subsection is a sale of accounts or
chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial
Code, as may be amended from time to time. In addition, Lender shall
have and may exercise any or all other rights and remedies it may have
available at law, in equity or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in the is Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts
situated in King County, the State of Washington. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Washington.
ATTORNEY'S FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expense, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expense of such
enforcement. Costs and expense include Lender's attorneys' fees and
legal expense whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (and including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Grantor also shall pay all
court costs and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change it address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there
is more than one Grantor, notice to any Grantor will constitute notice
to all Grantors. For notice purposes, Grantor will keep Lender informed
at all times of Grantor's current address(es). Grantor will give Lender
prior written notice of any change of either Grantor's legal structure or
of any change of Grantor's chief executive office, or if Grantor has no
place of business, Grantor's residence, and change of records location.
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become
due, owing or payable from the Collateral; (b) to execute, sign and
endorse any and all claims, instruments, receipts, checks, drafts or
warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and, in the
place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take
any action or institute or take part in any proceedings, either in its
own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power
is given as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full force and
effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdication finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other repsecces shall remain valid
and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with
<PAGE>
PAGE 5
COMMERCIAL SECURITY AGREEMENT
(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
that provision or any other provision of this Agreement. No prior waiver
by Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any Grantor's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent of subsequent
instances where such consent is required and all cases such consent may
be granted or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waivers, disclaims and
relinquishes all claims against such other person which Borrower has
or would otherwise have by virtue of payment of the Indebtedness or
any part thereof, specifically including but not limited to all rights
of indemnity, contribution or exoneration.
ADDITIONAL PROVISION. "LENDER" means (a) as to the granting clause of this
Agreement, Bank of America National Trust and Savings Association, doing
business as Seafirst Bank ("Seafirst"), as agent for itself and Mellon Bank,
N.A. ""Mellon"), and means (b) as to all other provisions of this Agreement
both Bank of America National Trust and Savings Association, doing business
as Seafirst Bank, and Mellon Bank, N.A., and their respective successors and
assigns. "INDEBTEDNESS" shall mean all the "Obligations", as such term is
defined in the Credit Agreement dated as of June 3, 1997 (including all
amendments thereto and restatements thereof, the "Credit Agreement"), between
Borrower and Lender, including all renewals, modifications, and extensions
thereof and all obligations of Grantor under this Agreement. Grantor
acknowledges and agrees that all rights, powers, and privileges for either
Seafirst or Mellon, in their respective individual capacities as Banks,
may be exercised by Seafirst in its capacity as agent for the Banks; and the
Grantor is neither permitted nor required to inquire as to Seafirst's
authority to act for the Banks when its it purporting to act in its capacity
as Agent. This provision does not hinder in any way each Bank's right to
demand performance in its individual capacity. "COLLATERAL" shall have the
meaning given to such term in the Credit Agreement. "EVENTS OF DEFAULT" shall
mean each of the events which constitutes a "Default" under the terms of the
Credit Agreement.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED JUNE 3, 1997.
BORRWER:
PHYSIO-CONTROL CORPORATION
By: V Marc Droppert
---------------------------------
J.J. Caffarelli, Exec. V.P./CFO
---------------------------------
GRANTOR:
PHYSIO-CONTROL MANUFACTURING CORPORATION
By: V. Marc Droppert
---------------------------------
By: J.J. Caffarelli, Exec. V.P./CFO
---------------------------------
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES OF PHYSIO-CONTROL INTERNATIONAL CORPORATION
----------------------------------------------------------------
The following is a list of the entities that are wholly owned
subsidiaries of Physio-Control International Corporation, a Washington
corporation. If indented, the entity is a wholly owned subsidiary of the
entity under which it is listed unless otherwise noted, The entities listed
below all do business under the name "Physio-Control".
Jurisdiction of
Name of Organization Organization
-------------------- ----------------
Physio-Control Corporation Washington
Physio-Control International Sales Corporation Barbados
Physio-Control GmbH Germany
Physio-Control Netherlands Services B.V. Netherlands
Physio-Control s.r.o. The Czech Republic
Corporation Physio-Controle Canada Canada
Physio-Control UK Limited United Kingdom
Physio-Control Hungaria Kft. Hungary
Physio-Control Poland, Sp.zo.o. Poland
Physio-Control Italia, s.r.l.(1) Italy
Physio-Control Medizintechnik Handels, Austria
GmbH
Physio-Control Manufacturing Corporation Washington
__________________________
1 Two percent of the outstanding common stock is owned by Physio-Control
Netherlands Services B.V.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,742
<SECURITIES> 0
<RECEIVABLES> 42,037
<ALLOWANCES> 752
<INVENTORY> 37,552
<CURRENT-ASSETS> 85,114
<PP&E> 17,931
<DEPRECIATION> 2,811
<TOTAL-ASSETS> 103,418
<CURRENT-LIABILITIES> 28,470
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 51,711
<TOTAL-LIABILITY-AND-EQUITY> 103,418
<SALES> 85,738
<TOTAL-REVENUES> 85,738
<CGS> 41,805
<TOTAL-COSTS> 41,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 860
<INCOME-PRETAX> 8,671
<INCOME-TAX> 3,035
<INCOME-CONTINUING> 5,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,636
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0
</TABLE>
