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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for the quarterly period ended September 30, 1997.
-------------------
Or
Transition Report pursuant to Section 13 or 15 (d) of the
- ----- Securities Exchange Act of 1934 for the transition period from
___________________ to ____________________.
Commission file number 0-20619
Matria Healthcare, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2205984
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, 12th Floor, Marietta, Georgia 30067
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 767-4500
- --------------------------------------------------------------------------------
(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
----- -----
The number of shares outstanding of the issuer's only class of Common Stock, $
.01 par value, as of November 4, 1997 was 36,704,081.
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PART I - FINANCIAL INFORMATION
MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
- ------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,469 6,930
Short-term investments 13,633 17,710
Trade accounts receivable, less allowances of $25,777
and $26,198 at September 30, 1997 and December 31,
1996, respectively 36,267 29,456
Inventories 943 867
Prepaid expenses and other current assets 2,404 1,628
-------- --------
Total current assets 57,716 56,591
Property and equipment, less accumulated depreciation of
$22,094 and $17,993 at September 30, 1997 and
December 31, 1996, respectively 12,868 15,220
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $55,261 and $29,804 at
September 30, 1997 and December 31, 1996, respectively 116,978 142,126
Intangible assets, less accumulated amortization of $4,222
and $2,222 at September 30, 1997 and December 31,
1996, respectively 4,491 5,973
Other assets 3,399 3,278
-------- --------
$195,452 223,188
======== ========
</TABLE>
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MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31,
- ------------------------------------ 1997 1996
------------- ------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt
and obligations under capital leases $ 1,661 2,521
Accounts payable, principally trade 5,388 6,486
Accrued liabilities 16,275 25,559
--------- ---------
Total current liabilities 23,324 34,566
Long-term debt and obligations under capital leases, excluding
current installments 1,946 2,499
Accrued pension cost 2,699 4,096
Other long-term liabilities 10,876 8,849
--------- ---------
Total liabilities 38,845 50,010
Shareholders' equity:
Preferred stock, $.01 par value, 50,000 shares
authorized; none issued -- --
Common stock, $.01 par value, 100,000 shares
authorized; 36,567 and 36,318 shares issued at
September 30, 1997 and December 31, 1996,
respectively 366 363
Additional paid-in capital 281,628 281,318
Accumulated deficit (121,851) (105,089)
Notes receivable and accrued interest from shareholder (3,536) (3,414)
--------- ---------
Total shareholders' equity 156,607 173,178
--------- ---------
$ 195,452 223,188
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 36,540 35,799 107,432 94,601
Cost of revenues 14,203 15,245 43,329 40,820
Selling and administrative expenses 16,746 16,815 48,946 49,968
Provision for doubtful accounts 1,656 2,054 4,823 5,608
Amortization of goodwill and other
intangibles 9,147 9,274 27,456 20,972
Restructuring expenses -- -- -- 15,025
-------- -------- -------- --------
41,752 43,388 124,554 132,393
-------- -------- -------- --------
Operating loss (5,212) (7,589) (17,122) (37,792)
Interest income, net 159 187 417 582
Other income (expense), net 155 58 (57) 209
-------- -------- -------- --------
Net loss $ (4,898) (7,344) (16,762) (37,001)
======== ======== ======== ========
Net loss per common share $ (.13) (.20) (.46) (1.19)
======== ======== ======== ========
Weighted average number of common shares 36,552 36,044 36,475 31,018
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(16,762) (37,001)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Restructuring expenses -- 15,025
Depreciation and amortization 31,558 24,559
Provision for doubtful accounts 4,823 5,608
Unrealized losses (gain) on short-term investments (17) 117
Sales of short-term investments 6,112 23,990
Purchase of short-term investments (2,018) (14,158)
Other -- 148
Changes in operating assets and liabilities, net of
effect of acquisitions:
Increase in accounts receivable (11,634) (382)
Decrease (increase) in prepaids and other current assets (852) 2,007
Decrease (increase) in other assets (948) 106
Increase (decrease) in accounts payable (1,098) 346
Decrease in other liabilities (1,032) (9,713)
Merger related payments (7,926) (12,891)
-------- --------
Net cash provided by (used in) operating activities 206 (2,239)
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,749) (3,531)
Disposition of property and equipment -- 621
Acquisition of businesses, net of cash acquired -- 2,378
-------- --------
Net cash used in investing activities (1,749) (532)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of debt 1,067 1,559
Principal repayments of debt and capital lease obligations (2,225) (3,180)
Proceeds from issuance of common stock 1,120 4,092
Purchase of treasury stock (880) --
-------- --------
Net cash provided by (used in) financing activities (918) 2,471
-------- --------
Decrease in cash and cash equivalents (2,461) (300)
Cash and cash equivalents at beginning of period 6,930 4,422
-------- --------
Cash and cash equivalents at end of period $ 4,469 4,122
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
1. General
The consolidated condensed financial statements as of September 30,
1997 and for the three and nine months ended September 30, 1997 and
1996 are unaudited. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for fair
presentation of the consolidated financial position and results of
operations for periods presented have been included. Certain
reclassifications of prior period information have been made to conform
to current year presentation. On March 8, 1996 Tokos Medical
Corporation (Delaware)("Tokos") and Healthdyne, Inc. ("Healthdyne")
merged with and into Matria Healthcare, Inc.("Matria" or the "Company")
(see Note 3 - Acquisitions). The merger was accounted for using the
purchase method of accounting with Tokos deemed to be the acquirer, and
accordingly, the financial statements include the results of operations
for Tokos only for the first two months of 1996 and for Tokos and
Healthdyne combined since such date. Effective June 1, 1996 the Company
also acquired National Reproductive Medical Centers, Inc. ("NRMC") (see
Note 3). The NRMC acquisition was accounted for using the purchase
method of accounting, and the results of operations of NRMC since June
1, 1996 are included in the consolidated operations of the Company. The
results for the three and nine month periods ended September 30, 1997
are not necessarily indicative of the results for the full year ending
December 31, 1997.
The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related
notes of the Company included in the Company's Form 10-K for the year
ended December 31, 1996.
2. Loss Per Share of Common Stock
The loss per common share is based on the weighted average number of
common shares outstanding. The inclusion of additional shares assuming
the exercise of stock options would have been antidilutive. The
computation of fully diluted net loss per share was antidilutive in
each of the periods presented; therefore, the amounts reported for
primary and fully diluted loss per share are the same.
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3. Acquisitions
On March 8, 1996, the Company completed a merger (the "Merger") with
Tokos and Healthdyne, national providers of specialized obstetrical
home healthcare and risk assessment services, following the approval of
the respective shareholders of each company. The Merger was accounted
for using the purchase method and Tokos has been deemed the acquirer
since Tokos shareholders received approximately 51% of the newly issued
shares. The purchase price of Healthdyne was $186.697 million, of which
$156.922 million was allocated to goodwill and other intangibles and is
being amortized on a straight-line basis over 5 years. The financial
position and results of operations of Tokos and Healthdyne were
consolidated effective March 1, 1996.
In March 1995 Healthdyne acquired a 15% ownership interest in NRMC, a
multi-site provider of infertility treatment services. Effective June
1, 1996 the Company purchased the remaining 85% ownership interest in
NRMC for $5.697 million in cash and 899,000 shares of Matria Common
Stock. The NRMC acquisition has been accounted for using the purchase
method of accounting. The purchase price was allocated based on
estimated fair values at the date of acquisition. The excess of
purchase price over the fair values of the net assets acquired was
$15.053 million and is being amortized on a straight-line basis over 5
years. Results of operations of NRMC have been included in the
consolidated results of operations of the Company since June 1, 1996.
4. During the third quarter of 1997, the Company entered into a three
year, $25 million secured credit agreement with a commercial bank.
Amounts outstanding under the agreement will bear interest, at the
Company's option, at (i) the reference rate of the Bank plus 0.50%, or
(ii) the LIBOR rate plus 2.75%. At September 30, 1997 there were no
borrowings outstanding under the credit agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL.
On March 8, 1996, Tokos and Healthdyne merged with and into the
Company, which had been created solely for the purpose of the Merger. The Merger
was accounted for using the purchase method of accounting, and Tokos was deemed
to be the acquirer since its shareholders received approximately 51% of the
newly issued shares of Matria's Common Stock.
In March 1995, Healthdyne acquired a 15% ownership interest in NRMC for
$1.250 million cash, and effective June 1, 1996 the Company acquired the
remaining 85%. The acquisition was accounted for using the purchase method of
accounting.
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The Company's present operations and future prospects may be influenced
by several factors, including developments in the healthcare industry,
third-party reimbursement policies and practices, and changes in regulatory
requirements or the manner in which such requirements are enforced. As a result
of the increasing cost of healthcare in the United States and overall efforts to
reduce or control government and corporate spending, government and third-party
payors are becoming increasingly focused on promoting cost-effective healthcare
services, and payors, in particular, have become more involved in decisions
regarding diagnosis and treatment to ensure that care is delivered in a
cost-effective manner.
A substantial portion of the Company's current revenues are derived
directly from third-party payors for services rendered to patients by the
Company. The financial performance of all healthcare companies, including the
Company, could be adversely affected by the financial condition of certain
governmental and private payors and by their continuing efforts to reduce
healthcare costs by lowering reimbursement rates, increasing medical reviews of
invoices for services and negotiating for reduced contract rates. The Company
and its predecessor companies responded to these developments by attempting to
emphasize cost-effective therapies and procedures, pre-qualifying insurance
coverage prior to the delivery of services and educating third-party payors on
the benefits of the Company's home therapies. Although reduction in the
reimbursement rates that the Company receives for services rendered could have
an adverse impact on operations, the Company is hopeful that the overall
cost-effective nature of treatment in the home (as compared to hospitalization),
coupled with the potential benefits to be derived from prenatal care, will be
recognized and encouraged by any new healthcare initiatives.
The trend within the healthcare industry to deliver quality healthcare
services in a more cost-effective manner had an impact on the Company's
predecessors and is expected to continue to have an impact on the Company.
Driven by employers and third-party payors, as well as by legislation and
regulation, prices for services provided to patients, in general, are being
reduced, cost-effective preventative health care is being stressed and
vertically integrated networks of care providers (some of whom are accepting the
insurance risk of providing care through capitation contracts with third-party
payors) are being established. The Company anticipates that this trend will
continue and is attempting to focus its efforts on services, some of which are
offered in conjunction with third-party payors, which it believes can benefit
from this new environment. There can be no assurance, however, that either
additional changes or presently unforeseen consequences from this trend may not
develop.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and related notes of the Company's Annual Report on Form
10-K for the year ended December 31, 1996 as filed with the Securities and
Exchange Commission. The results of the Company for the three and nine month
periods ended September 30, 1996 include the results of Healthdyne since March
1, 1996 and also include certain costs and expenses associated with the Merger.
The historical results of operations are not necessarily indicative of the
results that will be achieved by the Company during future periods.
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RESULTS OF OPERATIONS.
Revenues increased $741,000 or 2.1% and $12.831 million or 13.6% in the
three and nine month periods ended September 30, 1997, respectively, as compared
to the same periods in 1996. The decline in revenues experienced by Tokos
throughout 1995, which was primarily a result of decreases in preterm labor
management patient service days, continued into 1996; however, it was offset by
the additional Healthdyne revenues included in the Company's revenues from March
1, 1996 and by the additional NRMC revenues included in the Company's revenues
from June 1, 1996.
Additional revenues ($846,000 and $2,341,000, respectively, in the
three and nine month periods ended September 30, 1997) were also realized in
1997 from the marketing of the fetal fibronectin immunoassay, a new in vitro
diagnostic test ("fFN test") used as an aid in assessing the risk of preterm
delivery in women. Through a marketing agreement entered into by Tokos in 1991,
the Company was granted the right to market the fFN test in the United States,
Canada and Puerto Rico. The FDA approved this product in September 1995 and the
Company began marketing the fFN test in May 1996 as a means of predicting
whether preterm delivery was likely in women with symptoms associated with
preterm labor. In January 1997 the FDA expanded the marketing approval of the
fFN test to also include asymptomatic patients - women who do not have symptoms
of preterm labor. Litigation is currently ongoing between the other party to
the marketing agreement and the Company over the parties respective rights
under such agreement.
Cost of revenues as a percent of revenues for the three month period
ended September 30, 1997 declined to 38.9% from 42.6% in the same period in 1996
and declined to 40.3% from 43.1% for the nine month period ended September 30,
1997 and 1996, respectively. The reductions of cost of revenues as a percentage
of revenues of the preterm labor management business from 38.5% in the third
quarter of 1996 to 34.8% in the third quarter of 1997 and from 40.9% in the
first nine months of 1996 to 36.0% in 1997 were achieved primarily through the
consolidation of service sites and operating efficiencies arising from the
Merger. This reduction was partially offset by the inclusion of the results of
operations of NRMC in 1997, whose costs of revenues as a percentage of revenues
in the third quarter and nine months of 1997 were 60.5% and 64.7%, respectively.
Selling and administrative expenses decreased $69,000 to $16.746
million (45.8% of revenue) for the three month period ended September 30, 1997
compared with $16.815 million (47.0% of revenues) for the same period in 1996.
These costs decreased $1.022 million to $48.946 million (45.6% of revenue in the
nine months ended September 30, 1997) from $49.968 million (52.8% of revenues)
in the same period in 1996. The decreases are primarily due to synergies
achieved as a result of the Merger.
Excluding the amortization of the additional goodwill and other
intangibles associated with the Merger ($32.613 million per year for the first
three years and $29.946 million per year for two additional years thereafter),
the Company achieved annualized cost savings on a quarterly run rate basis
compared to the historical combined costs of Tokos and Healthdyne of
approximately $28.000 million by the end of 1996, primarily as a result of
reductions of patient services center expenses in overlapping geographic
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locations, elimination of duplicate facilities including corporate headquarters,
and synergies in staff and functional areas. Additional annualized cost savings
in excess of $7.000 million were achieved in the first nine months of 1997.
As a result of the Merger and the acquisition of NRMC, a large
percentage of the assets reflected on the Company's balance sheet are intangible
assets or goodwill (as opposed to tangible assets such as cash, accounts
receivable, inventory and equipment). At September 30, 1997, the Company's total
assets were $195.452 million, of which $121.469 million, or 62.1% of total
assets, were goodwill and intangibles. The amortization or any future write-down
of such goodwill and intangibles by the Company could have a material adverse
effect on the results of operations of the Company.
The Company provides for estimated uncollectible accounts as revenues
are recognized. The provision for doubtful accounts as a percentage of revenues
was approximately 5% for the three and nine month period ended September 30,
1997 and 6% for the same period during 1996. The provision is adjusted
periodically based upon the Company's quarterly evaluation of historical
collection experience, recoveries of amounts previously provided, industry
reimbursement trends and other relevant factors. Therefore, the provision rate
could vary on a quarterly basis. NRMC collects substantially all charges for
patient services at the time services are provided. Therefore, the provision for
doubtful accounts for NRMC is not significant.
In connection with the Merger, the Company incurred approximately
$15.025 million of restructuring costs which were charged to operations in the
nine month period ended September 30, 1996. Of these costs, approximately $4.100
million related to involuntary severance of employees, $2.500 million related to
the consolidation of facilities, $5.400 million related to the write-down of
software and equipment that became obsolete as a result of the adoption of new
systems, and $3.025 million related to other miscellaneous Merger related costs.
The Company did not record any federal or state income tax benefits in
1997 or 1996. The net tax operating loss carryforward of approximately $85.000
million will be available to offset future taxable income, if any.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30,1997 the Company had cash and short-term investments
of $18.102 million.
Net cash provided by operating activities was $206,000 for the nine
month period ended September 30,1997, compared with $2.239 million used by
operating activities for the same period in 1996. For the nine month period
ended September 30, 1997, cash flow from operating activities was reduced by
payments of approximately $8.000 million for Merger related costs. As of
September 30, 1997, the Company's accounts receivable days sales outstanding
increased to 89 days from 73 days as of December 31, 1996, primarily due to the
consolidation of the accounts receivable/collection process from two
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locations to one location and the conversion to a new computerized billing
system. The days sales outstanding are expected to return to the 70-75 day range
in the first half of 1998. During 1995, Tokos purchased certain physician-owned
companies for which it originally provided services and during 1995 and the
first quarter of 1996, Healthdyne purchased the minority interest of certain
affiliated partnerships. Notes issued in connection with these acquisitions have
a balance outstanding of $771,000 at September 30, 1997. The remaining balances
are to be paid at various times over the next four years.
The Company incurred substantial costs in connection with the Merger.
These costs include: (i) restructuring costs incurred by Tokos of approximately
$15.025 million, consisting of $4.100 million relating to severance costs of
terminated employees, $2.500 million of lease termination costs for duplicate
facilities, $5.400 million for the write-off of computer equipment and $3.025
million for other Merger-related expenses; (ii) additional liabilities incurred
by Healthdyne as a result of the Merger of approximately $9.350 million,
consisting of $9.200 million relating to severance costs of terminated employees
and $150,000 for patient service centers specifically identified to be closed;
and (iii) transaction costs of approximately $3.700 million, consisting of
$2.275 million for investment banking fees, $1.000 million for legal and
accounting fees and $425,000 for other costs such as document printing and
mailing and filing fees. As of September 30, 1997 the remaining liability for
these estimated costs was approximately $7.000 million.
Additionally, the Company may be required to make additional severance
payments of approximately $2.235 million in accordance with employment
agreements with certain officers of Tokos and Healthdyne, and may be required to
place in trust approximately $3.200 million under a retirement benefit awards
program for such officers.
The Company believes that its current cash balances, and expected cash
flows from operations and investing activities, will be sufficient to finance
its current operations and fund any expansion of NRMC's business for the
foreseeable future. In addition, the Company has entered into a credit agreement
with a leading national banking organization for a $25.000 million secured line
of credit that will be available for general corporate purposes. There were no
amounts outstanding under the credit agreement at September 30, 1997.
This Management's Discussion and Analysis contains forward-looking
statements including statements concerning possible changes in the healthcare
industry, expected synergies arising from the Merger, the effect of goodwill on
the Company's results of operations, capital expenditures to be made in the
future and the adequacy of the Company's sources of cash to finance its current
and future operations. These forward-looking statements involve a number of
risks and uncertainties. In addition to the factors discussed above, among other
factors that could cause actual results to differ materially are the following:
business conditions and growth in the home healthcare industry and the general
economy; competitive factors, such as the possible entry of large diversified
healthcare companies into the obstetrical home healthcare business; new
technologies and pricing pressures; changes in third-party reimbursement
policies and practices and regulatory requirements applicable to the Company's
business; the continued availability
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for sale of existing products and services; management decisions to pursue new
product lines or lines of business which involve additional costs, risks or
capital expenditures; and the risk factors listed from time to time in the
Company's SEC reports, including but not limited to, its Annual Report on Form
10-K for the year ended December 31, 1996.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company entered into a Loan and Security Agreement, dated as of
September 15, 1997 (the "Credit Agreement"), with BankAmerica Business
Credit, Inc. (the "Bank"). Under the Credit Agreement, the Bank has
agreed to extend revolving credit loans to the Company of up to
$25,000,000 until September 15, 2000. Proceeds of the loans are
available for working capital and other corporate purposes.
Revolving credit loans borrowed under the Credit Agreement bear
interest at either the Libor rate plus 2.75% or the Bank's reference
rate plus 0.50%.
Under the Credit Agreement, the Company has agreed to maintain certain
net worth, working capital and other financial ratio requirements and
has agreed, among other things, to certain restrictions on its
indebtedness for borrowed money, leases, capital expenditures,
disposition of assets and acquisitions. In addition, the Credit
Agreement contains provisions prohibiting the payment of dividends or
other distributions with respect to the Company's common stock.
Borrowings under the Credit Agreement will be secured by the assets of
the Company, including a pledge of the outstanding shares of common
stock of certain subsidiaries of the Company, and a guarantee by NRMC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(4.4) Loan and Security Agreement, dated September 15, 1997 between
BankAmerica Business Credit, Inc. and Matria Healthcare, Inc.
(27) Financial Data Schedule (For SEC Use Only)
(b) The Company has not filed any Reports on Form 8-K during the quarter
ended September 30, 1997.
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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.
Matria Healthcare, Inc.
November 11, 1997 By: /s/ Donald R. Millard
----------------------------------------
Donald R. Millard
President and Chief Executive Officer
and Chief Financial Officer and
Treasurer (duly authorized and
principal financial officer)
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EXHIBIT 4.4
LOAN AND SECURITY AGREEMENT
Dated as of September 15, 1997
Between
BANKAMERICA BUSINESS CREDIT, INC.
as the Lender
and
MATRIA HEALTHCARE, INC.
as the Borrower
<PAGE> 2
<TABLE>
<S> <C> <C>
1. DEFINITIONS..............................................................................................1
1.1 Defined Terms.......................................................................................1
1.2 Accounting Terms...................................................................................24
1.3 Interpretive Provisions............................................................................24
2. LOANS...................................................................................................25
2.1 Total Facility.....................................................................................25
2.2 Revolving Loans....................................................................................25
2.3 Automated Clearing House Transfers and Overdrafts..................................................27
3. INTEREST AND OTHER CHARGES..............................................................................27
3.1 Interest...........................................................................................27
3.2 Conversion and Continuation Elections..............................................................28
3.3 Maximum Interest Rate..............................................................................30
3.4 Facility Fee.......................................................................................31
4. PAYMENTS AND PREPAYMENTS................................................................................31
4.1 Revolving Loans....................................................................................31
4.2 Place and Form of Payments; Extension of Time......................................................31
4.3 Application and Reversal of Payments...............................................................31
4.4 INDEMNITY FOR RETURNED PAYMENTS....................................................................31
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS..........................................................32
6. TAXES, YIELD PROTECTION AND ILLEGALITY .................................................................32
6.1 Taxes..............................................................................................32
6.2 Illegality.........................................................................................33
6.3 Increased Costs and Reduction of Return............................................................34
6.4 Funding Losses.....................................................................................35
6.5 Inability to Determine Rates.......................................................................35
6.6 Survival...........................................................................................36
6.7 Termination by the Borrower........................................................................36
7. COLLATERAL..............................................................................................36
7.1 Grant of Security Interest.........................................................................36
7.2 Perfection and Protection of Security Interest.....................................................38
7.3 Location of Collateral.............................................................................38
7.4 Title to, Liens on, and Sale and Use of Collateral.................................................39
7.5 [Reserved].........................................................................................39
7.6 Access and Examination.............................................................................39
7.7 Insurance..........................................................................................39
7.8 Collateral Reporting...............................................................................40
7.9 Accounts...........................................................................................41
</TABLE>
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<TABLE>
<S> <C> <C>
7.10 Collection of Accounts; Payments..................................................................43
7.11 [Reserved]........................................................................................44
7.12 Equipment.........................................................................................44
7.13 Material Contracts................................................................................44
7.14 Documents, Instruments, and Chattel Paper.........................................................45
7.15 Right to Cure.....................................................................................46
7.16 Power of Attorney.................................................................................46
7.17 Lender's Rights, Duties, and Liabilities..........................................................46
7.18 [Reserved]........................................................................................47
7.19 License for use of Software and Other Intellectual Property.......................................47
8. BOOKS AND RECORDS; FINANCIAL INFORMATION................................................................47
8.1 Books and Records.................................................................................47
8.2 Financial Information.............................................................................47
8.3 Notices to Lender.................................................................................50
9. GENERAL WARRANTIES AND REPRESENTATIONS..................................................................52
9.1 Authorization, Validity, and Enforceability of this Agreement and
the Loan Documents.............................................................................52
9.2 Validity and Priority of Security Interest........................................................52
9.3 Organization and Qualification....................................................................53
9.4 Corporate Name; Prior Transactions................................................................53
9.5 Subsidiaries and Affiliates.......................................................................53
9.6 Financial Statements and Plan.....................................................................54
9.7 [Reserved]........................................................................................54
9.8 Solvency..........................................................................................54
9.9 Debt..............................................................................................54
9.10 Distributions.....................................................................................54
9.11 Title to Property.................................................................................54
9.12 Adequate Assets...................................................................................55
9.13 Real Property; Leases.............................................................................55
9.14 Proprietary Rights................................................................................55
9.15 Trade Names and Terms of Sale.....................................................................55
9.16 Litigation........................................................................................55
9.17 Restrictive Agreements............................................................................56
9.18 Labor Disputes....................................................................................56
9.19 Environmental Laws................................................................................56
9.20 Health Care Laws..................................................................................58
9.21 No Violation of Law...............................................................................58
9.22 No Default........................................................................................58
9.23 ERISA Compliance..................................................................................59
9.24 Taxes.............................................................................................59
9.25 Use of Proceeds...................................................................................59
9.26 Private Offerings.................................................................................60
</TABLE>
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<TABLE>
<S> <C> <C>
9.27 Broker's Fees....................................................................................60
9.28 Government Regulation............................................................................60
9.29 No Material Adverse Change.......................................................................60
9.30 Disclosure.......................................................................................60
10. AFFIRMATIVE AND NEGATIVE COVENANTS......................................................................60
10.1 Taxes and Other Obligations......................................................................60
10.2 Corporate Existence and Good Standing............................................................61
10.3 Compliance with Law and Agreements...............................................................61
10.4 Maintenance of Property and Insurance............................................................61
10.5 Environmental Laws...............................................................................61
10.6 Health Care Laws.................................................................................62
10.7 ERISA............................................................................................62
10.8 Mergers, Consolidations or Sales.................................................................62
10.9 Distributions....................................................................................63
10.10 Transactions Affecting Collateral or Obligations.................................................63
10.11 Guaranties.......................................................................................63
10.12 Debt.............................................................................................63
10.13 Prepayment.......................................................................................63
10.14 Transactions with Affiliates.....................................................................63
10.15 Business Conducted...............................................................................64
10.16 Liens............................................................................................64
10.17 Sale and Leaseback Transactions..................................................................64
10.18 New Subsidiaries.................................................................................64
10.19 Restricted Investments...........................................................................64
10.20 Capital Expenditures.............................................................................65
10.21 Minimum Interest Coverage........................................................................65
10.22 Fixed Charge Coverage............................................................................65
10.23 Debt Ratio.......................................................................................66
10.24 Adjusted Tangible Net Worth......................................................................66
10.25 Further Assurances...............................................................................66
11. CONDITIONS PRECEDENT....................................................................................67
11.1 Conditions Precedent to Making of Initial Loans..................................................67
11.2 Conditions Precedent to Each Loan................................................................70
12. DEFAULT.................................................................................................70
12.1 Events of Default................................................................................70
13. REMEDIES................................................................................................73
14. TERM AND TERMINATION ...................................................................................75
</TABLE>
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<TABLE>
<S> <C> <C>
15. MISCELLANEOUS...........................................................................................76
15.1 Cumulative Remedies; No Prior Recourse to Collateral.............................................76
15.2 No Implied Waivers...............................................................................76
15.3 Severability.....................................................................................76
15.4 Governing Law....................................................................................76
15.5 Consent to Jurisdiction and Venue................................................................76
15.6 Waiver of Jury Trial.............................................................................77
15.7 Survival of Representations and Warranties.......................................................77
15.8 Other Security and Guaranties....................................................................77
15.9 Fees and Expenses................................................................................77
15.10 Notices..........................................................................................78
15.11 Indemnification..................................................................................79
15.12 Waiver of Notices................................................................................81
15.13 Binding Effect; Assignment.......................................................................81
15.14 Modification.....................................................................................81
15.15 Counterparts.....................................................................................81
15.16 Captions.........................................................................................81
15.17 Right of Set-Off.................................................................................82
15.18 Participating Lender's Security Interests........................................................82
||
Schedules
Schedule 7.3 Location of Collateral
Schedule 7.9 Government Offsets
Schedule 9.4 Corporate Name; Prior Transactions
Schedule 9.5 Subsidiaries and Affiliates
Schedule 9.9 Debt
Schedule 9.13 Real Property; Leases
Schedule 9.14 Proprietary Rights
Schedule 9.15 Trade Names
Schedule 9.16 Litigation
Schedule 9.18 Labor Disputes
Schedule 9.20 Health Care Laws
Exhibits
Exhibit A Financial Statements
Exhibit B Form of Account Debtor Notice
</TABLE>
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LOAN AND SECURITY AGREEMENT, dated as of September 15, 1997,
by and between BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, with
offices at 231 South LaSalle Street, 16th Floor, Chicago, Illinois 60697 (the
"Lender") and MATRIA HEALTHCARE, INC., a Delaware corporation, with offices at
1850 Parkway Place, Suite 1200, Marietta, Georgia 30067 (the "Borrower").
W I T N E S S E T H
WHEREAS, the Borrower has requested the Lender to make
available to the Borrower a revolving line of credit for loans in an amount not
to exceed twenty-five million dollars ($25,000,000), which extensions of credit
the Borrower shall use for its working capital needs and general business
purposes;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. As used herein:
"Account" means the Borrower's right to payment for a sale or
lease and delivery of goods or rendition of services, including without
limitation health care goods and services.
"Account Debtor" means each Person obligated in any way on or
in connection with an Account.
"Account Debtor Notice" means a notice to an Account Debtor
(other than a Government Account Debtor or a Self-Pay Account Debtor)
substantially in the form of Exhibit B.
"ACH Settlement Risk Reserve" means a reserve in the amount of
two million five hundred thousand dollars ($2,500,000) which the Lender from
time to time establishes with respect to ACH Transactions in the event that the
Availability hereunder decreases to an amount which is less than five million
dollars ($5,000,000); provided that amount of such two million five hundred
thousand dollar ($2,500,000) reserve shall be reduced (but not to below zero)
dollar-for-dollar by the amount of cash or cash equivalents of the Borrower held
in an account at the Bank.
"ACH Transactions" means all debts, liabilities, and
obligations now or hereafter owing from the Borrower to the Bank arising from or
related to cash management services
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<PAGE> 7
including the automatic clearing house transfer of funds by the Bank for the
account of the Borrower pursuant to agreement or overdrafts.
"Adjusted Cash Flow" means, with respect to any fiscal period
of the Borrower, the Borrower's net income after provision for income taxes for
such fiscal period, as determined in accordance with GAAP and reported on the
Financial Statements for such period less, without duplication, (a) all
Distributions permitted hereunder and made by the Borrower during such fiscal
period, (b) all regularly scheduled installments of Debt for borrowed money
which were actually paid by the Borrower during such fiscal period, and (c)
Capital Expenditures permitted hereunder and which were actually made by the
Borrower during such fiscal period determined in accordance with GAAP and
reported on the Financial Statements for such period; plus (i) the depreciation
expense deducted in determining net income for such fiscal period and (ii) other
non-cash expenses deducted in computing such net income.
"Adjusted Net Earnings from Operations" means, with respect to
any fiscal period of the Borrower and its consolidated Subsidiaries, the
Borrower's net income after provision for income taxes for such fiscal period,
as determined in accordance with GAAP and reported on the Financial Statements
for such period, excluding, without duplication, any and all of the following
included in such net income: (a) gain or loss arising from the sale of capital
assets; (b) gain arising from any write-up in the book value of any asset; (c)
earnings of any corporation, substantially all the assets of which have been
acquired by the Borrower in any manner, to the extent realized by such other
corporation prior to the date of acquisition; (d) earnings of any Person that is
not consolidated with the Borrower in accordance with GAAP, unless (and only to
the extent) such earnings shall actually have been received by the Borrower or a
consolidated Subsidiary in the form of distribution of cash or cash equivalents;
(e) earnings of any Person to which assets of the Borrower shall have been sold,
transferred or disposed of, or into which the Borrower shall have been merged,
or which has been a party with the Borrower to any consolidation or other form
of reorganization, prior to the date of such transaction; (f) gain arising from
the acquisition of debt or equity securities of the Borrower or from
cancellation or forgiveness of Debt; (g) amortization of goodwill and related
intangibles; and (h) gain or loss arising from extraordinary items, as
determined in accordance with GAAP, or from any other non-recurring transaction.
"Adjusted Tangible Assets" means all of the assets of the
Borrower or its consolidated Subsidiaries except: (a) deferred assets, other
than prepaid insurance and prepaid taxes; (b) patents, copyrights, trademarks,
trade names, franchises, goodwill, and other similar intangibles; (c) Restricted
Investments; (d) unamortized debt discount and expense; (e) assets of any such
Person constituting Intercompany Accounts; and (f) fixed assets to the extent of
any write-up in the book value thereof resulting solely from a revaluation
effective after the Closing Date.
"Adjusted Tangible Net Worth" means, at any date: (a) the book
value (after deducting related depreciation, obsolescence, amortization,
valuation, and other proper reserves as determined in accordance with GAAP) at
which the Adjusted Tangible Assets would be shown
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<PAGE> 8
on a balance sheet of the Borrower at such date prepared in accordance with
GAAP; less (b) the amount at which the Borrower's liabilities would be shown on
such balance sheet, including as liabilities all reserves for contingencies and
other potential liabilities which would be required to be shown on such balance
sheet.
"Affiliate" means: (a) a Person which, directly or indirectly,
controls, is controlled by or is under common control with, the Borrower; (b) a
Person which beneficially owns or holds, directly or indirectly, ten percent or
more of any class of voting stock of the Borrower (excluding mutual funds,
pension funds or similar institutional investors); (c) a Person in which ten
percent of any class of the voting stock is beneficially owned or held, directly
or indirectly, by the Borrower; or (d) a joint venture in which the Borrower is
a participant or in which the Borrower has made an investment. The term control
(including the terms "controlled by" and "under common control with"), means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Person in question.
"Anniversary Date" means each anniversary of the Closing Date.
"Approved Account" means an Account with respect to which the
Account Debtor (other than a Self-Pay Account Debtor) has specifically informed
the Borrower that the prescribed service is covered and payable by the Account
Debtor and/or the patient's policy and/or health care plan.
"Availability" means at any time the lesser of:
(a) The amount of twenty-five million dollars ($25,000,000)
(the "Maximum Revolving Credit Line"), or
(b) eighty-five percent (85%) of the Expected Net
Receivables;
provided, however, that at all times Availability shall be reduced by the sum
of:
(a) the unpaid balance of Revolving Loans at that time;
(b) the ACH Settlement Risk Reserve;
(c) the amount of cash received by the Borrower from Account
Debtors but not applied to Accounts;
(d) the Offset Reserve; and
(e) all other reserves which the Lender in its reasonable
discretion, based upon the Lender's customary credit and
collateral standards as modified from time to time, deems
necessary or desirable to maintain with respect to the
Borrower's account, including, without limitation, (x) any
3
<PAGE> 9
amounts which the Lender may be obligated to pay in the
future for the account of the Borrower, (y) in respect of
Liens for delinquent taxes of the Borrower if the aggregate
amount of such taxes exceeds one hundred thousand dollars
($100,000), or (z) in respect of accrued interest on the
Revolving Loans.
"Bank" means Bank of America National Trust and Savings
Association in San Francisco, California.
"Blocked Account Agreement" means an agreement with respect to
the Initial Payment Account among the Borrower, the Lender and the Initial
Payment Account Bank, as the same may be amended, amended and restated or
otherwise modified from time to time in accordance with its terms.
"Borrower" is defined in the preamble.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans by the Lender to the Borrower.
"Borrowing Base Certificate" means a certificate, in form and
substance reasonably satisfactory to the Lender, signed by the chief financial
officer of the Borrower.
"Business Day" means (a) any day that is not a Saturday,
Sunday, or a day on which banks in San Francisco, California, are required or
permitted to be closed, and (b) with respect to all notices, determinations,
fundings and payments in connection with the LIBOR Rate or LIBOR Rate Loans, any
day that is a Business Day pursuant to clause (a) above and that is also a day
on which trading is carried on by and between banks in the London interbank
market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Public Authority, or any other law, rule
or regulation, whether or not having the force of law, in each case, regarding
capital adequacy of the Lender or of any corporation controlling the Lender.
"Capital Expenditures" means, for any period, all payments due
during such period (whether or not paid) in respect of the cost of any fixed
asset or improvement, or replacement, substitution, or addition thereto, which
has a useful life of more than one year, including, without limitation, those
arising in connection with the direct or indirect acquisition of such assets by
way of increased product or service charges or offset items or in connection
with Capital Leases.
"Capital Lease" means any lease of Property by the Borrower
that, in accordance with GAAP, should be reflected as a capital lease on the
balance sheet of the Borrower.
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<PAGE> 10
"CHAMPUS" means the Civilian Health and Medical Program of the
Uniformed Services.
"CHAMPVA" means the Civilian Health and Medical Program of
Veterans Affairs.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such term in Section
7.1.
"Collections" means all cash, funds, checks, notes,
instruments and any other form of remittance tendered by an Account Debtor in
payment of an Account.
"Conditional Account" means an Account with respect to which
the Account Debtor (other than a Self-Pay Account Debtor) has informed the
Borrower that the prescribed service is covered by the Account Debtor and/or the
patient's policy and/or health care plan but that approval is dependent upon
medical necessity and/or medical review.
"Contaminant" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or other substance or material, the handling, release, or possession
of which is regulated to protect human health or the environment, or any
constituent of any such substance, material or waste.
"Contractual Rights" means, collectively, all of the
Borrower's rights and remedies under, and all moneys and claims for money due or
to become due to the Borrower under, any contracts or agreements and any and all
amendments, supplements, extensions, and renewals thereof including, without
limitation, all rights and claims of the Borrower now or hereafter existing: (a)
under any insurance, indemnities, warranties, and guarantees provided for or
arising out of or in connection with the foregoing contracts or agreements; (b)
for any damages arising out of or for breach or default under or in connection
with the foregoing contracts or agreements; (c) to all other amounts from time
to time paid or payable under or in connection with the foregoing contracts or
agreements; or (d) to exercise or enforce any and all covenants, remedies,
powers and privileges thereunder.
"Date of Service" means, with respect to an Account, a date on
which services or goods giving rise to such Account or any portion thereof were
rendered or provided.
"Debt" means, as applied to the Borrower at any time, (a) all
indebtedness, obligations or other liabilities of such Person (i) for borrowed
money or evidenced by debt securities, debentures, acceptances, notes or other
similar instruments, and any accrued interest, fees and charges relating
thereto; (ii) under profit payment agreements or similar agreements;
5
<PAGE> 11
(iii) with respect to letters of credit issued for such Person's account; (iv)
to pay the deferred purchase price of property or services, except unsecured
accounts payable and accrued expenses arising in the ordinary course of business
which in each case are less than 60 days past due; or (v) Capital Lease
obligations; (b) all indebtedness, obligations or other liabilities of such
Person or others secured by a Lien on any property of such Person, whether or
not such indebtedness, obligations or liabilities are assumed by such Person,
all as of such time; (c) all indebtedness, obligations or other liabilities of
such Person in respect of any foreign exchange contract or interest hedge
agreement, net of liabilities owed to such Person thereunder by the
counterparties thereon; (d) all capital stock of such Person subject (upon the
occurrence of any contingency or otherwise) to mandatory redemption prior to the
first anniversary of the Stated Termination Date; (e) all obligations and
liabilities under Guaranties; and (f) all other Obligations.
"Distribution" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of Property in respect
of capital stock of such corporation, other than distributions in capital stock
of the same class; or (b) the redemption or other acquisition by such
corporation of any capital stock of such corporation.
"DOL" means the United States Department of Labor or any
successor department or agency.
"Dollars" means United States Dollars.
"EBITDAR" means, with respect to the Borrower for any fiscal
period, the Adjusted Net Earnings from Operations for such fiscal period plus
all Interest Expense, federal and state income taxes, depreciation, amortization
and rental expense deducted from revenue in determining such Adjusted Net
Earnings from Operations.
"Effective Date" means the date on which the conditions set
forth in Section 11.1 have been satisfied, as evidenced by a notice from the
Lender to the Borrower which identifies such date as the Effective Date and
which states that the Effective Date has occurred.
"Eligible Accounts" means those Accounts which are not
ineligible as the basis for Revolving Loans, based on the following criteria and
on such other criteria as the Lender may from time to time establish in its
reasonable commercial discretion. Without intending to limit the Lender's
discretion to establish other criteria of eligibility, Eligible Accounts shall
not include any Account:
(a) with respect to which more than 150 days have elapsed
since the Invoice Date;
(b) with respect to which more than 120 and less than 151
days have elapsed since the Invoice Date therefor, but only to the extent that
the aggregate Net Amount of Eligible Accounts determined for all Accounts that
are between 121 and 150 days from Invoice Date exceeds two million dollars
($2,000,000);
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<PAGE> 12
(c) with respect to which any of the representations,
warranties, covenants, and agreements contained in this Agreement are not or
have ceased to be complete and correct or have been breached;
(d) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(e) which is not an Approved Account or a Conditional
Account;
(f) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: the filing by or
against the Account Debtor of a request or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other relief under the bankruptcy, insolvency, or similar laws of
the United States, any state or territory thereof, or any foreign jurisdiction,
now or hereafter in effect; the making of any general assignment by the Account
Debtor for the benefit of creditors; the appointment of a receiver or trustee
for the Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking possession by a
"custodian," as defined in the Federal Bankruptcy Code; the institution by or
against the Account Debtor of any other type of insolvency proceeding (under the
bankruptcy laws of the United States or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims against,
or winding up of affairs of, the Account Debtor; the sale, assignment, or
transfer of all or any material part of the assets of the Account Debtor; the
nonpayment generally by the Account Debtor of its debts as they become due; or
the cessation of the business of the Account Debtor as a going concern;
(g) owed by an Account Debtor which does not maintain a
place of business in the United States or is not licensed under the laws of the
United States or any state or commonwealth thereof;
(h) owed by an Account Debtor which is an Affiliate of the
Borrower;
(i) as to which either (x) the perfection, enforceability,
or validity of the Security Interest in such Account, or (y) the Lender's right
or ability to obtain direct payment to the Lender of the Proceeds of such
Account (other than, in the case of this clause (y), an Account payable by a
Government Account Debtor), is governed by any federal, state, or local
statutory requirements other than those of the UCC;
(j) which is evidenced by a promissory note or other
instrument or by chattel paper;
(k) if fifty percent (50%) or more of the aggregate dollar
amount of outstanding Accounts owed at such time by the Account Debtor to the
Borrower (excluding from
7
<PAGE> 13
such calculation Accounts pertaining to goods sold or leased, or services
rendered, prior to March 8, 1996) is classified as ineligible under the other
criteria set forth herein;
(l) with respect to which the Account Debtor is located in
any state requiring the filing of a notice of business activities report or
similar report in order to permit the Borrower to seek judicial enforcement in
such state of payment of such Account, unless the Borrower has qualified to do
business in such state or has filed a Notice of Business Activities Report or
equivalent report for the then current year;
(m) which arises out of a sale not made in the ordinary
course of the Borrower's business;
(n) with respect to which the goods giving rise to such
Account have not been shipped and delivered to and accepted by the applicable
patient or the services giving rise to such Account have not been performed by
the Borrower, and, if applicable, accepted by the applicable patient, or the
applicable patient revokes its acceptance of such goods or services;
(o) which is not subject to a first priority and perfected
security interest in favor of the Lender;
(p) if Lender believes in its reasonable credit judgment
that the prospect of collection of such Account is impaired or that the Account
may not be paid by reason of the Account Debtor's financial inability to pay;
(q) which arises under a healthcare capitation contract or
similar arrangement;
(r) to the extent such Account is a Self-Pay Account;
(s) as to which more than 35 days have elapsed since any
Date of Service and such Account was an Unbilled Account on such 35th day;
(t) which is an Unbilled Account and with respect to which
35 days or less have elapsed since any Date of Service not covered by an invoice
previously sent by the Borrower to the applicable Account Debtor, but only to
the extent that the aggregate Net Amount of Eligible Accounts, determined for
all Unbilled Accounts that are less than or equal to 35 days from any Date of
Service not covered by a previously issued invoice, exceeds two million dollars
($2,000,000);
(u) (i) which is owed by an Account Debtor (other than a
Government Account Debtor) that is rated less than "B" or the equivalent by
Moody's, S&P or A.M. Best, and (ii) the aggregate Net Amount of Eligible
Accounts owed by such Account Debtors exceeds one hundred thousand dollars
($100,000);
8
<PAGE> 14
(v) the records with respect to which are maintained in a
database used by either Tokos Medical or Healthdyne Maternity Management prior
to March 1996;
(w) owed by an Account Debtor (other than a Government
Account Debtor) which has not received an Account Debtor Notice;
(x) which represents a right of payment under a servicing
contract;
(y) which is owed by any Account Debtor other than a
Specified Account Debtor;
(z) unless such Account is denominated in Dollars;
(aa) (i) if the goods or services giving rise to such
Account were not authorized by a physician's prescription, or (ii) the Account
Debtor informs the Borrower (whether by EOB or otherwise) that such goods or
services were not medically necessary;
(ab) to the extent that the fees charged for the services or
goods constituting the basis for such Account exceed (x) to the Borrower's
knowledge, the usual, customary and reasonable fees charged by other medical
service providers in the Borrower's community for the same or similar services
or goods, or (y) limitations imposed by applicable law, regulation or contract;
or
(ac) which arises out of any joint venture to which the
Borrower is a party.
If any Account at any time ceases to be an Eligible Account by reason
of any of the foregoing exclusions or any failure to meet any other eligibility
criteria established by the Lender in the exercise of its reasonable discretion
based upon the Lender's customary credit and collateral standards, as modified
from time to time, then such Account shall promptly be excluded from the
calculation of Eligible Accounts.
"Environmental Laws" means all present and future federal,
state and local laws, rules, regulations, ordinances, programs, permits,
guidance, orders and consent decrees relating to human health, hazardous
substances, and environmental matters applicable to the Borrower's business and
facilities (whether or not owned by it). Such laws and regulations include but
are not limited to the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901 et seq., as amended; the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended; the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq., as amended; the Clean Water Act, 33
U.S.C. ss. 466 et seq., as amended; the Clean Air Act, 42 U.S.C. ss. 7401 et
seq., as amended; state and federal lien and environmental cleanup programs; and
U.S. Department of Transportation regulations.
9
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"Environmental Lien" means a Lien in favor of any Public
Authority for (a) any liability under any Environmental Laws, or (b) damages
arising from, or costs incurred by such Public Authority in response to, a
Release or threatened Release of a Contaminant into the environment.
"EOB" means the explanation of benefits, remittance advice or
other record that is provided by an Account Debtor explaining how it determined
the amount it shall or shall not pay with respect to an Account of which it is
the Account Debtor.
"Equipment" means all of the Borrower's now owned and
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including, without
limitation, data processing hardware and software, motor vehicles, aircraft,
dies, tools, jigs, and office equipment, as well as all of such types of
property leased by the Borrower and all of the Borrower's rights and interests
with respect thereto under such leases (including, without limitation, options
to purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the
foregoing, and all manuals, drawings, instructions, warranties and rights with
respect thereto; wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a controlled group or under common control
with the Borrower within the meaning of Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions relating to
Section 412 of the Code).
"ERISA Event" means, with respect to the Borrower, any ERISA
Affiliate or any Pension Plan, the occurrence of any of the following: (a) a
Reportable Event; (b) a withdrawal by a substantial employer (as defined in
Section 4001(a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a cessation
of operations which is treated as a withdrawal under Section 4062(e) of ERISA;
(d) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a
Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under Section 4242 of ERISA; (f) the filing of a notice of intent
to terminate a Pension Plan under 4041 of ERISA; (g) the treatment of an
amendment of a Pension Plan as a termination under 4041 of ERISA; (h) the
termination of a Multiemployer Plan under Section 4041A of ERISA; (i) the
commencement of proceedings by the PBGC to terminate a Pension Plan under 4042
of ERISA; (j) an event or condition which could reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan; or (k) the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
10
<PAGE> 16
"Event" means any event or condition which, with notice, the
passage of time, the happening of any other condition or event, or any
combination thereof, would constitute an Event of Default.
"Event of Default" has the meaning specified in Section 12.1.
"Expected Net Receivables" means the amount of the Net Amount
of Eligible Accounts reasonably expected by the Lender to be collected within
180 days from Date of Service.
"Facility Fee" has the meaning specified in Section 3.4.
"Financial Statements" means, according to the context in
which it is used, the financial statements contained in the Borrower's Form 10-Q
for the quarterly period ended June 30, 1997, which Form 10-Q is attached hereto
as Exhibit A, any financial statements required to be given to the Lender
pursuant to Sections 8.2(a), (b) or (c), or any combination thereof.
"Fiscal Year" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower shall end on
December 31, 1997.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means at any particular time generally accepted
accounting principles as in effect at such time.
"Government Account Debtor" means the United States of
America, any state, any political subdivision of a state and any agency or
instrumentality of the United States of America or any state, political
subdivision or fiscal intermediary thereof that is obligated to make any
payments under Medicare or Medicaid or with respect to Accounts representing
amounts owing under any other program established by federal or state law that
provides for payments for healthcare goods or services to be made to providers
thereof (including CHAMPUS and CHAMPVA).
"Government Offset" means any amount determined by a
Government Account Debtor, or any agent or governmental agency acting on behalf
of a Government Account Debtor or governmental agency, to constitute an
overpayment made to the Borrower with respect to an Account and that is to be
paid to such Government Account Debtor by the Borrower or is to be offset
against amounts then due to the Borrower from such Government Account Debtor,
including any amounts determined by HCFA or any agent acting on behalf thereof.
"Guarantor" means National Reproductive Medical Centers, Inc.,
a Delaware corporation.
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<PAGE> 17
"Guaranty" by any Person means all obligations of such Person
which in any manner directly or indirectly guarantee or assure, or in effect
guarantee or assure, the payment or performance of any indebtedness, dividend or
other obligation of any other Person (the "guaranteed obligations"), or to
assure or in effect assure the holder of the guaranteed obligations against loss
in respect thereof, including, without limitation, any such obligations incurred
through an agreement, contingent or otherwise: (a) to purchase the guaranteed
obligations or any Property constituting security therefor; (b) to advance or
supply funds for the purchase or payment of the guaranteed obligations or to
maintain a working capital or other balance sheet condition; or (c) to lease
Property or to purchase any debt or equity securities or other Property or
services.
"HCFA" means the Health Care Financing Administration or any
successor thereto.
"Health Care Laws" means any and all federal, state and local
laws and regulations governing the licensure, certification, good standing,
accreditation and approval of the provision of health care goods and services
provided by Borrower and its Subsidiaries, including but not limited to laws and
regulations relating to licensure of operation, certificates of need,
certificates of operations, insurance, fraud and abuse, kickbacks, false claims,
physician self-referral arrangements, Medicaid, the federal Food, Drug &
Cosmetic Act (FDCA) and the Food and Drug Administration.
"Initial Payment Account" means the first Payment Account
established pursuant to this Agreement.
"Initial Payment Account Bank" means the bank holding the
Initial Payment Account.
"Intercompany Accounts" means all assets and liabilities,
however arising, which are due to the Borrower from, which are due from the
Borrower to, or which otherwise arise from any transaction by the Borrower with,
any Affiliate.
"Interest Expense" means, with respect to the Borrower and its
Subsidiaries for any period, the consolidated gross interest expense of the
Borrower and its Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Funding Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, or three months thereafter as selected by the
Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided, however, that:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business
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<PAGE> 18
Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate
Loan that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the
Stated Termination Date or any renewal term.
"Inventory" means all of the Borrower's now owned and
hereafter acquired inventory, goods and merchandise, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work-in-process, finished goods, returned goods, and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
and such other personal property, and all documents of title or other documents
representing them.
"Invoice Date" means, with respect to an Account, the date on
which the Borrower first submitted a claim to the Account Debtor (other than a
Self-Pay Account Debtor) with regard to such Account.
"IRS" means the Internal Revenue Service or any successor
agency.
"Latest Plan" means: (a) on the Closing Date and thereafter
until the Lender receives new projections pursuant to Section 8.2(f), the
"Matria 1997 Business/Performance Plan As Prepared for Board of Directors
December 1996", a true, complete and correct copy of which was provided by the
Borrower to the Lender prior to the Closing Date; and (b) thereafter, the
business plan most recently received by the Lender pursuant to Section 8.2(f).
"Lender" is defined in the preamble.
"LIBOR Interest Payment Date" means, with respect to a LIBOR
Rate Loan, the last day of each Interest Period applicable to such Loan.
"LIBOR Interest Rate Determination Date" means each date of
calculating the LIBOR Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Rate Loan shall be the second Business Day prior to the first day of
the related Interest Period for such LIBOR Rate Loan.
"LIBOR Rate" means, for any Interest Period, with respect to
LIBOR Rate Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the
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<PAGE> 19
next 1/16 of 1%) notified to the Lender by Bank as the rate of interest at which
United States Dollar deposits in the approximate amount of the Loan to be made
or continued as, or converted into, a LIBOR Rate Loan and having a maturity
comparable to such Interest Period would be offered by Bank's applicable lending
office to major banks in the London interbank market at their request at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
"LIBOR Rate Loans" means a Revolving Loan during any period in
which it bears interest based on the LIBOR Rate.
"Lien" means any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give or file, any financing
statement perfecting a security interest under the UCC or comparable law of any
jurisdiction), regardless of whether any of the foregoing is consensual or
arises by operation of law or otherwise is non-consensual.
"Loans" means, collectively, all loans and advances provided
for in Section 2.
"Loan Documents" means this Agreement, the Pledge Agreement,
each Subsidiary Guaranty, the Blocked Account Agreement, the Account Debtor
Notices, the Borrowing Base Certificates, and all other agreements, instruments,
and documents heretofore, now or hereafter evidencing, securing, guaranteeing or
otherwise relating to the Obligations, the Collateral, the Security Interest, or
any other aspect of the transactions contemplated by this Agreement.
"Material Adverse Effect" means a material adverse effect on
the Collateral, the repayment of the Obligations, the Lender's rights under the
Loan Documents, or the Borrower's Property, business, operations or condition
(financial or otherwise).
"Maximum Rate" has the meaning specified in Section 3.3.
"Maximum Revolving Credit Line" has the meaning specified in
clause (a) of the definition of Availability.
"Medicaid" means the medical assistance program established by
Title XIX of the Social Security Act.
"Medicaid Account" means an Account representing a claim
payable under Medicaid.
"Medicare" means the health insurance program established by
Title XVIII of the Social Security Act.
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<PAGE> 20
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate makes,
is making, made, or was at any time during the current year or the immediately
preceding six (6) years obligated to make contributions.
"Net Amount of Eligible Accounts" means the gross amount of
Eligible Accounts less sales, excise or similar taxes, and less discounts,
claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed in respect of such Eligible Accounts
(including without limitation discounts, claims and allowances based on any fee
schedule, discount formula, cost-based reimbursement or other adjustment or
limitation required by the related Account Debtors) and disregarding interest,
if any, payable by the related Account Debtors.
"Notice of Borrowing" has the meaning specified in Section
2.2(b).
"Notice of Conversion/Continuation" has the meaning specified
in Section 3.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations (monetary or otherwise), covenants, duties, and Debt
owing by the Borrower to the Lender, whether or not arising under this
Agreement, whether or not evidenced by any note, or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct
or indirect (including, without limitation, those acquired by assignment from
others, and any participation by the Lender in the Borrower's debts owing to
others) absolute or contingent, due or to become due, primary or secondary, as
principal or guarantor, and including, without limitation, all interest,
charges, expenses, fees, attorneys' fees, filing fees and any other sums
chargeable to the Borrower hereunder, under another Loan Document, or under any
other agreement or instrument with the Lender. "Obligations" includes, without
limitation, all debts, liabilities and obligations now or hereafter owing from
the Borrower to the Lender arising from or related to ACH Transactions pursuant
to the indemnity provided in Section 2.3 hereof.
"Offset Reserve" means, with respect to all Accounts and
Account Debtors (other than a Self-Pay Account Debtors), the result (but not
less than zero) of (a) the sum of the amounts which such Account Debtors have
requested or directed the Borrower to pay, or as to which any such Account
Debtors have notified the Borrower that such Account Debtors shall withhold,
setoff or recoup from the Borrower, in respect of actual or alleged overpayments
by any such Account Debtor in respect of any Account, plus (b) the aggregate
amount which the Borrower is indebted to such Account Debtors arising from the
fact that an Account Debtor, in addition to being an Account Debtor, has an
additional relationship with the Borrower (e.g., the Borrower is a tenant or
customer of the Person that is an Account Debtor), minus (c) the amount paid by
the Borrower to Account Debtors described in clause (a) as a refund of the
overpayments contemplated by clause (a); provided that clauses (a) and (b) shall
apply only if
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<PAGE> 21
the aggregate amount at issue relating to any Account Debtor exceeds one hundred
thousand dollars ($100,000) or if the aggregate amount at issue relating to all
Account Debtors exceeds two hundred thousand dollars ($200,000).
"Other Taxes" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"Participating Lender" means any Person who shall have been
granted the right by the Lender to participate in the Loans and who shall have
entered into a participation agreement in form and substance satisfactory to the
Lender.
"Payment Account" means each blocked bank account or bank
account associated with a lock box, established pursuant to Section 7.10, to
which the funds of the Borrower (including, without limitation, Proceeds of
Accounts and other Collateral) are deposited or credited, and which is
maintained in the name of the Lender or the Borrower, as the Lender may
determine, on terms and with a bank acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which the Borrower or an ERISA
Affiliate sponsors, maintains, or to which it makes, is making, or is obligated
to make contributions or, in the case of a Multiemployer Plan, has made
contributions at any time during the current year or the immediately preceding
six (6) plan years.
"Permitted Liens" means:
(a) Liens for taxes not yet delinquent or Liens for taxes
being contested in good faith by appropriate proceedings diligently
pursued, provided that a reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor on the
applicable Financial Statements and that a stay of enforcement of any
such Lien is in effect;
(b) Liens in favor of the Lender;
(c) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of business of
the Borrower and not in connection with the borrowing of money, for
sums not yet delinquent or which are being contested in good faith and
by proper proceedings diligently pursued, provided that a reserve or
other appropriate provision, if any, required by GAAP shall have been
made therefor on the applicable Financial Statements and a stay of
enforcement of any such Lien is in effect;
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<PAGE> 22
(d) consensual Liens granted in the ordinary course of the
Borrower's business, in favor of (1) landlords covering goods located
on premises leased by the Borrower (and covering no Property other than
such goods) and securing payment of obligations under leases between
such landlords and the Borrower, but only if such consensual Liens in
favor of landlords (A) existed on the Closing Date, (B) arise under a
lease pursuant to which the aggregate lease payments during any year do
not exceed one hundred thousand dollars ($100,000), or (C) were
consented to in writing by the Lender after the Closing Date, (2)
warehousemen covering goods located at warehouse locations of the
Borrower (and covering no Property other than such goods) and securing
payment of obligations under warehouse agreements between such
warehousemen and the Borrower, (3) carriers covering goods in transit
(and no Property other than such goods) and securing transportation
charges owed by the Borrower to such carriers, and (4) mechanics
covering goods in the possession of such mechanics (and covering no
Property other than such goods) securing obligations, relating to the
repair of such goods, owed by the Borrower to such mechanics; provided,
however, that, without the prior written consent of the Lender, the
Borrower shall not execute or deliver any Uniform Commercial Code
financing statements, or permit any Uniform Commercial Code financing
statements to be filed or remain on file in any public filing office,
in connection with the Liens permitted by this clause (d);
(e) Liens arising from cash deposits in connection with
workers' compensation or other unemployment insurance incurred in the
ordinary course of the Borrower's business;
(f) Liens created by deposits of cash to secure performance of
bids, tenders, leases (to the extent permitted under this Agreement),
or trade contracts, incurred in the ordinary course of business of the
Borrower and not in connection with the borrowing of money;
(g) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which has not yet expired,
or in respect of which the Borrower is in good faith prosecuting an
appeal or proceeding for a review, and in respect of which a stay of
execution pending such appeal or proceeding for review has been
secured;
(h) purchase money security interests in equipment and liens
of lessors under Capital Leases to the extent that the acquisition or
lease of the underlying asset was permitted under Section 10.11, the
security interest or lien only encumbers the asset purchased or leased,
and so long as the security interest or lien only secures the purchase
price of the asset;
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<PAGE> 23
(i) the right of a Government Account Debtor to make payment
to the Borrower rather than the Lender absent circumstances (e.g., a
court order) contemplated by applicable law;
(j) Liens on assets of any Subsidiary acquired after the
Closing Date if (x) such Liens were in place prior to the date of such
acquisition and (y) such Liens are of the type described in the other
clauses of this definition of Permitted Liens; and
(k) the rights of patients to use and maintain possession of
equipment obtained by such patients from the Borrower in the ordinary
course of business.
"Permitted Stock Repurchase" means a repurchase by the
Borrower of capital stock issued by the Borrower if all of the following
conditions are satisfied immediately before and after giving effect to such
repurchase: (i) the aggregate amount of stock repurchases by the Borrower since
the Closing Date does not exceed ten million dollars ($10,000,000) or such other
amount as the Lender shall have agreed to in writing; (ii) the Availability is
not less than five million dollars ($5,000,000); and (iii) no Event or Event of
Default exists.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, limited
liability company association, corporation, Public Authority, or any other
entity.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower or an ERISA Affiliate sponsors or maintains or
to which the Borrower or an ERISA Affiliate makes, is making, or is obligated to
make contributions and includes any Pension Plan.
"Pledge Agreement" has the meaning specified in Section 11.1.
"Premises" means the land identified by addresses on Schedule
9.13 together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which the Borrower
has any interests on the Closing Date.
"Proceeds" means all products and proceeds of any Collateral,
and all proceeds of such proceeds and products, including, without limitation,
all Collections, cash and credit balances, all payments under any indemnity,
warranty, or guaranty payable with respect to any Collateral, all awards for
taking by eminent domain, all proceeds of fire or other insurance, and all money
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<PAGE> 24
and other Property obtained as a result of any claims against third parties or
any legal action or proceeding with respect to Collateral.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Proprietary Rights" means all of the Borrower's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights set forth on Schedule 9.14, and all other rights under
any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all rights
to sue for past, present, and future infringement of any of the foregoing;
inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals, and operating standards; goodwill;
customer and other lists in whatever form maintained; and trade secret rights,
copyright rights, rights in works of authorship, and contract rights relating to
computer software programs, in whatever form created or maintained.
"Public Authority" means the government of any country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or any department, agency, public corporation or other
instrumentality of any of the foregoing.
"Receivables" means all of the Borrower's now owned and
hereafter arising or acquired: Accounts (whether or not earned by performance),
including without limitation Accounts owed to the Borrower by any of its
Subsidiaries or Affiliates, together with all interest, late charges, penalties,
collection fees, and other sums which shall be due and payable in connection
with any Account; proceeds of any letters of credit naming the Borrower as
beneficiary; contract rights, chattel paper, instruments, documents, investment
property, general intangibles (including without limitation choses in action,
causes of action, tax refunds, tax refund claims, and Reversions and other
amounts payable to the Borrower from or with respect to any Plan), interests in
or claims under any policy of insurance, and all forms of obligations owing to
the Borrower (including, without limitation, in respect of loans, advances, and
extensions of credit by the Borrower to its Subsidiaries and Affiliates);
guarantees and other security for any of the foregoing; goods represented by or
the sale, lease or delivery of which gave rise to any of the foregoing;
merchandise returned to or repossessed by the Borrower and rights of stoppage in
transit, replevin, and reclamation; and other rights or remedies of an unpaid
vendor, lienor, or secured party.
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"Records" means books, documents, EOBs, instruments, files and
other records (including without limitation computer programs, tapes and disks)
that evidence an Account or are otherwise necessary or desirable to collect an
Account.
"Reference Rate" means the rate of interest publicly announced
from time to time by the Bank as its reference rate. It is a rate set by the
Bank based upon various factors including the Bank's costs and desired return,
general economic conditions, and other factors, and is used as a reference point
for pricing some loans. However, the Bank may price loans at, above, or below
such announced rate. Any changes in the Reference Rate shall take effect on the
day specified in the public announcement of such change.
"Reference Rate Loans" means a Revolving Loan during any
period in which it bears interest based on the Reference Rate.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Requirement of Law" means any law (statutory or common),
treaty, rule or regulation or determination of an arbitrator or of a Public
Authority.
"Restricted Investment" means any acquisition of Property by
the Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of stock, debt security, or other
indebtedness or obligation, or the purchase or acquisition of any other
Property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (i) fixed assets to be used in the business of
the Borrower or any of its Subsidiaries, so long as the acquisition costs
thereof constitute Capital Expenditures permitted hereunder; (ii) goods held for
sale or lease or to be used in the rendition of services by the Borrower and its
Subsidiaries, in each case in the ordinary course of business; (iii) Permitted
Cash Equivalents (as defined below); and (iv) Permitted Bonds and Notes (as
defined below); provided, however, that the Borrower shall diversity its
investments in Permitted Cash Equivalents and Permitted Bonds and Notes such
that not more than 10% of the
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<PAGE> 26
market value of the total amount of all Permitted Cash Equivalents and Permitted
Bonds and Notes will be invested in any one issue, and not more than 10% of the
market value of the total amount of all Permitted Cash Equivalents and Permitted
Bonds and Notes will be invested in any one Person (other than obligations of
the United States government).
For purposes of the foregoing, "Permitted Cash Equivalents"
shall mean:
(a) commercial paper with a maturity of 270 days or less and
rated A1 or better by S&P or P1 or better by Moody's;
(b) U.S. certificates of deposit and time deposits in each
case from any bank with total assets in excess of five billion dollars;
(c) Eurodollar certificates of deposit and Eurodollar time
deposits in each case from any bank which is organized under U.S.
federal or state law and which has total assets in excess of
twenty-five billion dollars;
(d) tax-exempt or taxable put paper fully supported by
direct-pay letters of credit issued by banks having senior debt rated
A- or better by S&P or A3 or better by Moody's;
(e) tax-exempt or taxable commercial paper fully supported by
direct-pay letters of credit issued by banks having senior debt rated
A- or better by S&P or A3 or better by Moody's;
(f) tax-exempt or taxable notes with a maturity of one year or
less issued by Persons rated A- or better by S&P or A3 or better by
Moody's;
(g) tax-exempt or taxable money market funds rated MIG-1 or
MIG-2; and
(h) tax-exempt or taxable bonds with a maturity of one year or
less issued by Persons rated A- or better by S&P or A3 or better by
Moody's.
For purposes of the foregoing, "Permitted Bonds and Notes" shall mean:
(1) tax-exempt or taxable bonds issued by any Person rated BBB or
better by S&P or Baa or better by Moody's; and
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<PAGE> 27
(2) tax-exempt or taxable notes issued by any Person rated A- or better
by S&P or A3 or better by Moody's.
"Reversions" means any funds which may become due to the
Borrower in connection with the termination of any Plan or other employee
benefit plan.
"Revolving Loans" has the meaning specified in Section 2.2.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"Security Interest" means collectively the Liens granted to
the Lender in the Collateral pursuant to this Agreement, the other Loan
Documents, or any other agreement or instrument.
"Self-Pay Account" means (i) the "co-pay" or "deductible"
portion of an Account payable by a Self-Pay Account Debtor, or (ii) the entire
Account when the entire amount is payable by a Self-Pay Account Debtor.
"Self-Pay Account Debtor" means an individual "natural"
person.
"Solvent" means when used with respect to any Person that at
the time of determination:
(i) the assets of such Person, at a fair valuation, are in
excess of the total amount of its debts (including, without limitation,
contingent liabilities); and
(ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become
absolute and matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments)
as they mature; and
(iv) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
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<PAGE> 28
"Specified Account Debtor" means an Account Debtor designated
as such in writing by the Lender to the Borrower (so long as the Lender shall
not have given a subsequent notice to the effect that such Account Debtor is no
longer a Specified Account Debtor).
"Specified New Subsidiary" means a joint venture to which the
Borrower is a party, or any Subsidiary that is not wholly owned by the Borrower,
in each case which is engaged in a business relating to the Borrower's business
as such business is conducted as of the Closing Date, so long as during the term
of this Agreement the aggregate amount of the Borrower's Restricted Investments
(a) in respect of any single such joint venture or Subsidiary does not exceed
fifty thousand dollars ($50,000) and (b) in respect of all such joint ventures
or Subsidiaries does not exceed one million dollars ($1,000,000) (it being
understood that compliance with the foregoing clauses (a) and (b) shall be
measured by reference to the actual amount of such Restricted Investments made
by the Borrower without giving effect to any appreciation or depreciation in the
value of such Restricted Investments, whether realized or unrealized).
"Stated Termination Date" has the meaning specified in Section
14.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof. Unless
the context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Borrower.
"Subsidiary Guaranty" has the meaning specified in Section
11.1.
"Taxes" means any and all present or future taxes,
assessments, levies, imposts, impositions, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of the Lender,
such taxes (including income taxes or franchise taxes) as are imposed on or
measured by the Lender's net income by the jurisdiction (or any political
subdivision thereof) under the laws of which the Lender is organized or
maintains a lending office.
"Termination Fee" has the meaning set forth in Section 14.
"Tokos Medical" means Tokos Medical Corporation (Delaware), a
Delaware corporation, which merged into the Borrower in 1996.
"Total Facility" has the meaning specified in Section 2.1.
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"UCC" means the Uniform Commercial Code (or any successor
statute) of the State of New York or of any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests.
"Unbilled Account" means an Account as to which the Borrower
has not submitted to the related Account Debtor (other than a Self-Pay Account
Debtor) all necessary claim forms, other documentation and information required
in order for such Account Debtor to make payment of such Account.
"Unused Line Fee" has the meaning specified in Section 3.1(c).
1.2 Accounting Terms. Any accounting term used in this
Agreement shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
1.3 Interpretive Provisions. (a) All other undefined terms
contained in this Agreement shall, unless the context indicates otherwise, have
the meanings provided for by the UCC to the extent the same are used or defined
therein.
(b) Wherever appropriate in the context, terms used herein in
the singular also include the plural, and vice versa, and each masculine,
feminine, or neuter pronoun shall also include the other genders.
(c) The words "hereof," "herein," "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and Subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(d) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including," the words "to" and "until" each mean "to but excluding"
and the word "through" means "to and including."
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(e) Unless specified herein, references herein to times of day
are to New York City time.
(f) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(g) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with its terms.
(h) This Agreement and the other Loan Documents are the result
of negotiations among, and have been reviewed by counsel to, each of the parties
hereto and thereto and are the products of all parties. Accordingly, they shall
not be construed against the Lender merely because of the Lender's involvement
in their preparation.
2. LOANS.
2.1 Total Facility. Subject to all of the terms and conditions
of this Agreement, the Lender shall make available a total credit facility of up
to twenty-five million dollars ($25,000,000) (the "Total Facility") for the
Borrower's use from time to time during the term of this Agreement. The Total
Facility shall be comprised of a revolving line of credit up to the limits of
the Availability, consisting of Revolving Loans as described in Section 2.2.
2.2 Revolving Loans.
(a) The Lender shall, upon the Borrower's request from time to
time, make revolving loans (the "Revolving Loans") to the Borrower up to the
limits of the Availability. The Lender, in its discretion, may elect to make
Revolving Loans in excess of the Availability on one or more occasions, but if
it does so, the Lender shall not be deemed thereby to have changed the limits of
the Availability or to be obligated to exceed the limits of the Availability on
any other occasion. If the unpaid balance of the Revolving Loans exceeds the
Availability (with Availability determined for this purpose without subtracting
the outstanding amount of the Revolving Loans) then the Lender may refuse to
make or otherwise restrict Revolving Loans on such terms as the Lender
determines
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until such excess has been eliminated. The Lender shall charge all Revolving
Loans and other Obligations to a loan account of the Borrower maintained with
the Lender (and all references in this Agreement to the Borrower's "loan
account" shall be references to such account). All fees, commissions, costs,
expenses, and other charges under or pursuant to the Loan Documents, and all
payments made and out-of-pocket expenses incurred by the Lender pursuant to the
Loan Documents, shall be charged as Revolving Loans to the Borrower's loan
account as of the date due from the Borrower or the date paid or incurred by the
Lender, as the case may be.
(b) Procedure for Borrowing.
(i) Each Borrowing shall be made upon
the Borrower's irrevocable written (or, as provided below, telephonic) notice
("Notice of Borrowing") delivered to the Lender which notice must be received by
the Lender not later than (1) 11:00 a.m., New York City time, three Business
Days prior to the requested Funding Date in the case of LIBOR Rate Loans and (2)
11:00 a.m., New York City time, on the requested Funding Date in the case of
Reference Rate Loans, specifying:
(A) the amount of the Borrowing
which, in the case of LIBOR Rate Loans, shall be in an amount not less than two
million five hundred thousand dollars ($2,500,000) and in an integral multiple
of five hundred thousand dollars ($500,000) in excess thereof;
(B) the requested Funding Date,
which shall be a Business Day;
(C) whether the Revolving Loans
requested are to be Reference Rate Loans or LIBOR Rate Loans; and
(D) the duration of the
Interest Period if the requested Revolving Loans are to be LIBOR Rate Loans. If
the Notice of Borrowing fails to specify the duration of the Interest Period
for any Borrowing comprised of LIBOR Rate Loans, such Interest Period shall be
one month; provided, however, that with respect to the Borrowings to be made on
the Closing Date, such Borrowings shall consist of Reference Rate Loans only.
(ii) After giving effect to any
Borrowing, there may not be more than three different Interest Periods in
effect.
(iii) With respect to any request for
Loans, in lieu of delivering the above-described Notice of Borrowing in writing
the Borrower may give the Lender an irrevocable telephonic notice of such
request by the
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required time, with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice, but the Lender shall be entitled to rely on
the telephonic notice in making such Loans. Each oral request for a Loan shall
be conclusively presumed to be made by a person authorized by the Borrower to do
so, and the crediting of a Revolving Loan to the Borrower's deposit account at
the Bank, shall conclusively establish the obligation of the Borrower to repay
such Loan as provided herein. No such oral request shall direct the Lender to
make a payment other than to the Borrower's disbursement account at the Bank,
and the Lender agrees that it shall not honor any such request.
2.3 Automated Clearing House Transfers and Overdrafts. The
Borrower may request and the Lender may, in its sole and absolute discretion,
arrange for the Borrower to obtain from the Bank ACH Transactions. The Borrower
agrees to indemnify and hold the Lender harmless from any and all obligations
now or hereafter owing by the Lender to the Bank arising from or related to such
ACH Transactions pursuant to the indemnity referred to in clause (c) below. The
Borrower agrees to pay the Bank all amounts owing to the Bank pursuant to ACH
Transactions. In the event the Borrower shall not have paid to the Bank such
amounts, the Lender shall pay such amounts to the Bank and such amounts when
paid by the Lender shall constitute a Revolving Loan which shall be deemed to
have been requested by the Borrower. The Borrower acknowledges and agrees that
the obtaining of ACH Transactions from the Bank (a) is in the sole and absolute
discretion of the Bank, (b) is subject to all rules and regulations of the Bank,
and (c) is due to the Bank relying on the indemnity of the Lender to the Bank
with respect to obligations of the Borrower to the Bank in connection with the
ACH Transactions.
3. INTEREST AND OTHER CHARGES.
3.1 Interest.
(a) All Obligations shall bear interest on the
unpaid principal amount thereof from the date made until paid in full in cash at
a rate determined by reference to the Reference Rate or the LIBOR Rate and
Sections 3.1(a)(i) or (ii), as applicable, but not to exceed the Maximum Rate.
Subject to the provisions of Section 3.2, any of the Loans may be converted
into, or continued as, Reference Rate Loans or LIBOR Rate Loans in the manner
provided in Section 3.2. If at any time Loans are outstanding with respect to
which notice has not been delivered to Lender in accordance with the terms of
this Agreement specifying the basis for determining the interest rate applicable
thereto, then those Loans shall be Reference Rate Loans and shall bear interest
at a rate determined by reference to the Reference Rate until notice to the
contrary has been given to the Lender and such notice has become effective.
Except as otherwise provided herein, the Obligations shall bear interest as
follows:
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(i) For all Obligations, other than LIBOR Rate
Loans, then at a fluctuating per annum rate equal to one-half of one percent
(0.50%)(the "Reference Rate Margin") plus the Reference Rate; and
(ii) If the Loans are LIBOR Rate Loans,
then at a per annum rate equal to two and three-quarters percent (2.75%)(the
"LIBOR Margin") plus the LIBOR Rate determined for the applicable Interest
Period.
Each change in the Reference Rate shall be reflected in the interest
rate described in clause (i) above as of the effective date of such change. All
interest charges shall be computed on the basis of a year of three hundred sixty
(360) days and actual days elapsed. All interest shall be payable to Lender on
the first day of each month hereafter.
(b) If any Event of Default occurs, then, from the
date such Event of Default occurs until it is cured or waived , or if not cured
or waived until all Obligations are paid and performed in full, then upon the
election of the Lender the Borrower shall pay interest on the unpaid principal
balances of the Revolving Loans at a per annum rate two percent (2%) greater
than the rate of interest otherwise specified herein.
(c) Unused Line Fee. For every month during the term
of this Agreement, the Borrower shall pay the Lender a fee (the "Unused Line
Fee") in an amount equal to one-half of one percent (0.50%) per annum,
multiplied by the average daily amount by which the Maximum Revolving Credit
Line exceeds the average daily outstanding amount of Revolving Loans during such
month, with the outstanding amount of Revolving Loans calculated for this
purpose by applying payments immediately upon receipt; provided that (i) no
Unused Line Fee shall be payable prior to the month in which the Unused Line Fee
Commencement Date (defined below) occurs and (ii) the Unused Line Fee for such
month shall be payable for the number of days in such month from and after the
Unused Line Fee Commencement Date. "Unused Line Fee Commencement Date" means the
earlier to occur of (i) the Effective Date and (ii) October 15, 1997. Such a
fee, if any, shall be calculated on the basis of a year of three hundred sixty
(360) days and actual days elapsed, and shall be payable to the Lender on the
first day of each month and on the termination of this Agreement, in each case,
with respect to the prior month or portion thereof.
3.2 Conversion and Continuation Elections.
(a) The Borrower may, upon irrevocable written
(or, as provided below, telephonic) notice to the Lender in accordance with
subsection 3.2(b) or 3.2(c):
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(i) elect, as of any Business Day, in the
case of Reference Rate Loans to convert any such Loans (or any part
thereof in an amount not less than two million five hundred thousand
dollars ($2,500,000), or that is in an integral multiple of five
hundred thousand dollars ($500,000) in excess thereof) into LIBOR Rate
Loans; or
(ii) elect, as of the last day of the
applicable Interest Period, to continue any LIBOR Rate Loans having
Interest Periods expiring on such day (or any part thereof in an amount
not less than two million five hundred thousand dollars ($2,500,000),
or that is in an integral multiple of five hundred thousand dollars
($500,000) in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than two million five hundred thousand dollars
($2,500,000), such LIBOR Rate Loans shall automatically convert into Reference
Rate Loans, and on and after such date the right of the Borrower to continue
such Loans as, and convert such Loans into, LIBOR Rate Loans, as the case may
be, shall terminate.
(b) The Borrower shall deliver a written notice
of conversion or continuation ("Notice of Conversion/Continuation") to be
received by the Lender not later than 11:00 a.m., New York City time, at least
three Business Days in advance of the date of conversion or continuation, if the
Loans are to be converted into or continued as LIBOR Rate Loans and specifying:
(A) the proposed Conversion/Continuation
Date;
(B) the aggregate amount of Loans to be
converted or continued;
(C) the type of Loans resulting from the
proposed conversion or continuation; and
(D) the duration of the requested
Interest Period.
(c) With respect to any request to continue or
convert Loans, in lieu of delivering the above-described Notice of
Conversion/Continuation in writing the Borrower may give the Lender an
irrevocable telephonic notice of such request by the required time, with such
telephonic notice to be confirmed in writing within 24 hours of the giving of
such notice, but the Lender shall be entitled to rely on the telephonic notice
in converting or continuing such Loans and each such telephonic notice of such
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request shall be conclusively presumed to be made by a person authorized by the
Borrower to do so, and the conversion or continuation of such Loan shall
conclusively establish the obligations of the Borrower with respect thereto.
(d) If upon the expiration of any Interest
Period applicable to LIBOR Rate Loans, the Borrower has failed to select timely
a new Interest Period to be applicable to LIBOR Rate Loans or if any Event or
Event of Default then exists, the Borrower shall be deemed to have elected to
convert such LIBOR Rate Loans into Reference Rate Loans effective as of the
expiration date of such Interest Period.
(e) During the existence of an Event, the Lender
shall have the right to decline to permit a Loan to be converted into or
continued as a LIBOR Rate Loan. During the existence of an Event of Default, the
Borrower may not elect to have a Loan converted into or continued as a LIBOR
Rate Loan.
(f) After giving effect to any conversion or
continuation of Loans, there may not be more than three different Interest
Periods in effect.
3.3 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would, but for
this Section 3.3, have been paid or accrued if the interest rates otherwise set
forth in this Agreement had at all times been in effect, then the Borrower
shall, to the extent permitted by applicable law, pay the Lender, an amount
equal to the excess of (a) the lesser of (i) the amount of interest which would
have been charged if the Maximum Rate had, at all times, been in effect or (ii)
the amount of interest which would have accrued had the interest rates otherwise
set forth in this Agreement, at all times, been in effect over (b) the amount of
interest actually paid or accrued under this Agreement. In the event that a
court determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received on
account of, and shall automatically be applied to reduce, the Obligations other
than interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall refund to the Borrower such excess.
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3.4 Facility Fee. The Borrower shall pay the Lender on the
Closing Date a facility fee in the amount of two hundred fifty thousand dollars
($250,000) (the "Facility Fee"), less fifty thousand dollars ($50,000)
previously paid as a commitment fee by the Borrower in respect thereof pursuant
to the letter agreement dated June 4, 1997 between the Borrower and the Lender.
4. PAYMENTS AND PREPAYMENTS.
4.1 Revolving Loans. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition, and
without limiting the generality of the foregoing, the Borrower shall pay to the
Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability at such time (determined
for this purpose as if the amount of the Revolving Loans were zero).
4.2 Place and Form of Payments; Extension of Time. All
payments of principal, interest, premium, and other sums due to the Lender shall
be made at the Lender's address set forth in Section 15.10. Except for Proceeds
received directly by the Lender, all such payments shall be made in immediately
available funds. If any payment of principal, interest, premium, or other sum to
be made hereunder becomes due and payable on a day other than a Business Day,
the due date of such payment shall be extended to the next succeeding Business
Day and interest thereon shall be payable at the applicable interest rate during
such extension.
4.3 Application and Reversal of Payments. The Lender shall
determine in its sole discretion the order and manner in which Proceeds of
Collateral and other payments that the Lender receives are applied to the
Revolving Loans, interest thereon, and the other Obligations, and the Borrower
hereby irrevocably waives the right to direct the application of any payment or
Proceeds. The Lender shall have the continuing and exclusive right to apply and
reverse and reapply any and all such Proceeds and payments to any portion of the
Obligations.
4.4 INDEMNITY FOR RETURNED PAYMENTS. IF AFTER RECEIPT OF ANY
PAYMENT WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS,
THE LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE, DETERMINED
TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE OBLIGATIONS OR PART THEREOF
INTENDED TO BE SATISFIED
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SHALL BE REVIVED AND CONTINUE AND THIS AGREEMENT SHALL CONTINUE IN FULL FORCE AS
IF SUCH PAYMENT HAD NOT BEEN RECEIVED BY THE LENDER AND THE BORROWER SHALL BE
LIABLE TO PAY TO THE LENDER AND HEREBY DOES INDEMNIFY THE LENDER AND HOLD THE
LENDER HARMLESS FOR THE AMOUNT OF SUCH PAYMENT SURRENDERED. The provisions of
this Section 4.4 shall be and remain effective notwithstanding any contrary
action which may have been taken by the Lender in reliance upon such payment,
and any such contrary action so taken shall be without prejudice to the Lender's
rights under this Agreement and shall be deemed to have been conditioned upon
such payment having become final and irrevocable. The provisions of this Section
4.4 shall survive the termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. The Borrower agrees
that the Lender's books and records showing the Obligations and the transactions
pursuant to this Agreement and the other Loan Documents shall be admissible in
any action or proceeding arising therefrom, and absent manifest error shall
constitute prima facie proof thereof, irrespective of whether any Obligation is
also evidenced by a promissory note or other instrument. The Lender shall
provide to the Borrower a monthly statement of Loans, payments, and other
transactions pursuant to this Agreement. Such statement absent manifest error
shall be deemed correct, accurate, and binding on the Borrower and as an account
stated (except for reversals and reapplications of payments made as provided in
Section 4.3 and corrections of errors discovered by the Lender), unless the
Borrower notifies the Lender in writing to the contrary within sixty (60) days
after such statement is rendered. In the event a timely written notice of
objections is given by the Borrower, only the items to which exception is
expressly made shall be considered to be disputed by the Borrower.
6. TAXES, YIELD PROTECTION AND ILLEGALITY
6.1 Taxes.
(a) Any and all payments by the Borrower to the
Lender under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for any Taxes. In addition, the
Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold
harmless the Lender for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section) paid by the Lender and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this
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indemnification shall be made within 30 days after the date the Lender makes
written demand therefor.
(c) If the Borrower shall be required by law to
deduct or withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to Lender, then:
(i) the sum payable shall be increased
as necessary so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums payable
under this Section) the Lender receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(ii) the Borrower shall make such
deductions and withholdings;
(iii) the Borrower shall pay the full
amount deducted or withheld to the relevant taxing authority or other authority
in accordance with applicable law; and
(iv) the Borrower shall also pay to the
Lender at the time interest is paid, all additional amounts which the Lender
specifies as necessary to preserve the after tax yield the Lender would have
received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the
Borrower of Taxes or Other Taxes, the Borrower shall furnish the Lender the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment reasonably satisfactory to the Lender.
(e) If the Lender shall receive any refund or credit in
respect of any taxes paid by the Borrower under this Section 6.1, the Lender
shall promptly pay to the Borrower the Borrower's share of such refund or
credit.
6.2 Illegality.
(a) If the Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Public Authority has asserted that
it is unlawful, for the Lender or its applicable lending office to make LIBOR
Rate Loans, then, on notice thereof by the Lender to the Borrower, any
obligation of the Lender to make LIBOR Rate Loans shall be suspended until the
Lender notifies the Borrower that the circumstances giving rise to such
determination no longer exist.
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(b) If the Lender determines that it is unlawful to maintain
any LIBOR Rate Loan, the Borrower shall, upon its receipt of notice of such fact
and demand from the Lender, prepay in full such LIBOR Rate Loans then
outstanding, together with interest accrued thereon and amounts required under
Section 6.4, either on the last day of the Interest Period thereof, if the
Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or
immediately, if the Lender may not lawfully continue to maintain such LIBOR Rate
Loan. If the Borrower is required to so prepay any LIBOR Rate Loan, then
concurrently with such prepayment, the Borrower shall borrow from the Lender, in
the amount of such repayment, a Reference Rate Loan.
6.3 Increased Costs and Reduction of Return.
(a) If the Lender determines that, due to either (i) the
introduction of or any change in the interpretation of any law or regulation
after the date hereof or (ii) the compliance by the Lender with any guideline or
request made after the date hereof from any central bank or other Public
Authority (whether or not having the force of law), it being understood that all
of the foregoing shall include any regulations issued from time to time by the
Board of Governors of the Federal Reserve for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"), there shall be any increase in the cost to the
Lender of agreeing to make or making, funding or maintaining any LIBOR Rate
Loans, then the Borrower shall be liable for, and, within 30 days following
demand by the Lender from time to time to the Borrower (each such demand to be
accompanied by a certificate from the Lender (i) setting forth in reasonable
detail the amount then payable to the Lender pursuant to this clause (a) and
(ii) stating that the Lender is generally charging such amounts to other
customers similarly situated with the Borrower, which certificate shall be
conclusive and binding on the Borrower in the absence of manifest error), the
Borrower shall pay to the Lender additional amounts as are sufficient to
compensate the Lender for such increased cost; provided, however, that the
Borrower shall not be liable under this clause (a) for any increased cost
arising more than 120 days prior to the date a related certificate of the Lender
is delivered under this clause (a).
(b) If the Lender shall have determined that (i) the
introduction after the date hereof of any Capital Adequacy Regulation, (ii) any
change after the date hereof in any Capital Adequacy Regulation, (iii) any
change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Public Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Lender or
any corporation controlling the Lender with any Capital Adequacy Regulation,
affects or would affect the amount of capital, reserves, or special deposits
required or expected to
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be maintained by the Lender or any corporation controlling the Lender and
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy and such Lender's desired return on capital)
determines that the amount of such capital, reserves, or special deposits is
increased as a consequence of its loans, credits or obligations under this
Agreement, then the Borrower shall be liable for, and, within 30 days following
demand of the Lender from time to time to the Borrower (each such demand to be
accompanied by a certificate from the Lender (i) setting forth in reasonable
detail the amount then payable to the Lender pursuant to this clause (b) and
(ii) stating that the Lender is generally charging such amounts to other
customers similarly situated with the Borrower, which certificate shall be
conclusive and binding on the Borrower in the absence of manifest error), the
Borrower shall pay to the Lender additional amounts sufficient to compensate the
Lender for such increase; provided, however, that the Borrower shall not be
liable under this clause (b) for any increase arising more than 120 days prior
to the date a related certificate of the Lender is delivered under this clause
(b). Notwithstanding the foregoing, all such amounts shall be subject to the
provisions of Section 3.3. For purposes of this clause (b), "Capital Adequacy
Regulation" shall include any regulations issued from time to time by the Board
of Governors of the Federal Reserve for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities").
6.4 Funding Losses. The Borrower shall reimburse the Lender
and hold the Lender harmless from any loss or expense which the Lender may
sustain or incur as a consequence of:
(a) the failure of the Borrower to make on a
timely basis any payment of principal of any LIBOR Rate Loan;
(b) the failure of the Borrower to borrow,
continue or convert a Loan after the Borrower has given (or is deemed to have
given) a Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the prepayment or other payment (including
after acceleration thereof) of an LIBOR Rate Loan on a day that is not the last
day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained.
6.5 Inability to Determine Rates. If the Lender determines
that for any reason adequate and reasonable means do not exist for determining
the
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LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR
Rate Loan, or that the LIBOR Rate for any requested Interest Period with respect
to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to
the Lender of funding such Loan, the Lender shall promptly so notify the
Borrower. Thereafter, the obligation of the Lender to make or maintain LIBOR
Rate Loans hereunder shall be suspended until the Lender revokes such notice in
writing. Upon receipt of such notice, the Borrower may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted by it. If the
Borrower does not revoke such Notice, the Lender shall make, convert or continue
the Loans, as proposed by the Borrower, in the amount specified in the
applicable notice submitted by the Borrower, but such Loans shall be made,
converted or continued as Reference Rate Loans instead of LIBOR Rate Loans.
6.6 Survival. The agreements and obligations of the Borrower
in this Section 6 shall survive the payment of all other Obligations.
6.7 Termination by the Borrower. If the Lender makes a demand
for payment pursuant to Section 6.1 or Section 6.3, and if the circumstances
giving rise to such demand are specific to the Lender (as opposed to generally
applicable to financial institutions similarly situated to the Lender) or
otherwise arise from the Lender's failure to comply with applicable laws, rules
or regulations, then the Borrower may, at any time within ninety (90) days after
receipt of such demand, request that the Lender withdraw such demand. If the
Lender does not withdraw its demand within forty-five (45) days after the
Borrower's request for such withdrawal, then the Borrower may terminate this
Agreement pursuant to Section 14(b) within ninety (90) days after such
forty-fifth (45th) day and no Termination Fee shall be payable in respect of
such termination, but the Borrower shall remain liable for all of its
Obligations (other than payment of such Termination Fee), including the payments
required under Section 6.1 and Section 6.3.
7. COLLATERAL.
7.1 Grant of Security Interest.
(a) As security for the payment and performance of
all of the Obligations, the Borrower hereby grants to the Lender a continuing
security interest in, lien on, and assignment of: (i) all Receivables,
Inventory, Equipment, Contractual Rights, Proprietary Rights, each Payment
Account (including without limitation the Initial Payment Account), and
Proceeds, wherever located and whether now existing or hereafter arising or
acquired; (ii) all moneys, securities and other property and the Proceeds
thereof, now or hereafter held or received by, or in transit to, the Lender from
or for the Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, including,
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without limitation, all of the Borrower's deposit accounts, credits, and
balances with the Lender and all claims of the Borrower against the Lender at
any time existing; (iii) all of Borrower's deposit accounts with any financial
institutions with which Borrower maintains deposits; and (iv) all books, Records
and other Property relating to or referring to any of the foregoing, including,
without limitation, all books, records, ledger cards, data processing records,
computer software and other property and general intangibles at any time
evidencing or relating to the Receivables, Inventory, Equipment, Contractual
Rights, Proprietary Rights, Proceeds, and other property referred to above (all
of the foregoing, and all other property in which the Lender may at any time be
granted a Lien, being herein collectively referred to as the "Collateral"). The
Lender shall have all of the rights of a secured party with respect to the
Collateral under the UCC and other applicable laws.
(b) As additional security for the Obligations, the
Borrower shall simultaneously herewith execute and deliver to the Lender the
Pledge Agreement in order to grant to the Lender a continuing and perfected
security interest in the stock of all Subsidiaries.
(c) All Obligations shall constitute a single loan
secured by the Collateral. The Lender may, in its sole discretion, (i) exchange,
waive, or release any of the Collateral, (ii) apply Collateral and direct the
order or manner of sale thereof as the Lender may determine, and (iii) settle,
compromise, collect, or otherwise liquidate any Collateral in any manner, all
without affecting the Obligations or the Lender's right to take any other action
with respect to any other Collateral.
(d) Notwithstanding the foregoing, but subject to
the next sentence, nothing contained hereunder constitutes or shall be deemed
to constitute the grant of a security interest in favor of the Lender with
respect to the Borrower's interest in any license pursuant to which the
Borrower is a licensee or in any lease pursuant to which the Borrower is a
lessee or any agreement pursuant to which the Borrower markets the product of
any Person which is not an Account Debtor. The immediately preceding sentence
shall apply if and only to the extent that: (i) the granting of such a security
interest by the Borrower to the Lender is prohibited by the written agreement,
document or instrument creating or evidencing such license, lease, or marketing
agreement, and (ii) the prohibition described in clause (i) shall be
enforceable under applicable law (the Borrower's interest in such licenses,
leases and marketing agreements being hereinafter referred to as "Excluded
Property"). Excluded Property shall not, however, include any portion of the
Borrower's interest in a license or lease or marketing agreement which is
subject to an agreement, document or instrument prohibiting the grant of a
security interest in less than all of such license or lease or marketing
agreement, to the extent such portion is not subject to such prohibition.
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7.2 Perfection and Protection of Security Interest. The
Borrower shall, at its expense, perform all reasonable steps requested by the
Lender at any time to perfect, maintain, protect, and enforce the Security
Interest including, without limitation: (a) executing and filing financing or
continuation statements, and amendments thereof, in form and substance
satisfactory to the Lender; (b) upon request by the Lender, delivering to the
Lender the original certificates of title for motor vehicles with the Security
Interest properly endorsed thereon; (c) delivering to the Lender the originals
of all instruments, documents, and chattel paper, and all other Collateral of
which the Lender determines it should have physical possession in order to
perfect and protect the Security Interest therein, duly endorsed or assigned to
the Lender without restriction; (d) delivering to the Lender warehouse receipts
covering any portion of the Collateral located in warehouses and for which
warehouse receipts are issued; (e) placing notations on the Borrower's books of
account to disclose the Security Interest; (f) executing and delivering to the
Lender a security agreement relating to the Reversions in form and substance
satisfactory to the Lender; (g) delivering to the Lender all letters of credit
on which the Borrower is named beneficiary; and (h) taking such other steps as
are reasonably deemed necessary by the Lender to maintain the Security Interest.
To the extent permitted by applicable law, the Lender may file, without the
Borrower's signature, one or more financing statements disclosing the Security
Interest. The Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Borrower's agents or
processors, then the Borrower shall notify the Lender thereof and shall notify
such Person of the Security Interest in such Collateral and, upon the Lender's
request, if an Event of Default has occurred and is continuing, instruct such
Person to hold all such Collateral for the Lender's account subject to the
Lender's instructions. If at any time any Collateral is located on any Premises
that are not owned by the Borrower, then the Borrower shall use reasonable
efforts to obtain written waivers, in form and substance satisfactory to the
Lender, of all present and future Liens to which the owner or lessor or any
mortgagee of such Premises may be entitled to assert against the Collateral.
From time to time, the Borrower shall, upon Lender's request, execute and
deliver confirmatory written instruments pledging to the Lender the Collateral,
but the Borrower's failure to do so shall not affect or limit the Security
Interest or the Lender's other rights in and to the Collateral. So long as this
Agreement is in effect and until all Obligations have been fully satisfied, the
Security Interest shall continue in full force and effect in all Collateral
(whether or not deemed eligible for the purpose of calculating the Availability
or as the basis for any advance, loan, extension of credit, or other financial
accommodation).
7.3 Location of Collateral. The Borrower represents and
warrants to the Lender that as of the Closing Date: (a) Schedule 7.3 hereto is a
correct and complete list of the Borrower's chief executive office, the location
of its books and records, the locations of the Collateral (other than equipment
located
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at a patient's premises), and the locations of all of its other places of
business and (b) Schedule 7.3 correctly identifies any of such facilities and
locations that are not owned by the Borrower and sets forth the names of the
owners and lessors or sub-lessors of, and, to the best of the Borrower's
knowledge, the holders of any mortgages on, such facilities and locations. The
Borrower covenants and agrees that it shall not maintain any Collateral at any
location other than those listed on Schedule 7.3, and it shall not otherwise
change or add to any of such locations, unless it gives the Lender at least 30
days prior written notice thereof and executes any and all financing statements
and other documents that the Lender requests in connection therewith.
7.4 Title to, Liens on, and Sale and Use of Collateral. The
Borrower represents and warrants to the Lender that: (a) all Collateral is and
shall continue to be owned by the Borrower free and clear of all Liens
whatsoever, except for the Security Interest and other Permitted Liens; (b) the
Security Interest shall not be subject to any prior Lien except for the Liens
described in (c), (e) and (g) of the definition of Permitted Liens; (c) the
Borrower shall use, store, and maintain the Collateral with all reasonable care
and shall use the Collateral for lawful purposes only; and (d) the Borrower
shall not, without the Lender's prior written approval, sell, lease, or dispose
of or permit the sale or disposition of the Collateral or any portion thereof,
except for sales of Inventory in the ordinary course of business and as
permitted by Section 7.12. The inclusion of Proceeds in the Collateral shall not
be deemed the Lender's consent to any sale or other disposition of the
Collateral except as expressly permitted herein.
7.5 [Reserved].
7.6 Access and Examination. The Lender may at all reasonable
times have access to, examine, audit, make extracts from and inspect the
Borrower's records, files, and books of account and the Collateral and may
discuss the Borrower's affairs with the Borrower's officers and management. The
Borrower shall deliver to the Lender any instrument necessary for the Lender to
obtain records from any service bureau maintaining records for the Borrower. The
Lender may, at any time when an Event of Default exists and at the Borrower's
expense, make copies of all of the Borrower's books and records, or require the
Borrower to deliver such copies to the Lender. The Lender may, without expense
to the Lender, use such of the Borrower's personnel, supplies, and Premises as
may be reasonably necessary for maintaining or enforcing the Security Interest.
The Lender shall have the right, at any time, in Lender's name or in the name of
a nominee of the Lender, to verify the validity, amount or any other matter
relating to the Accounts, by mail, telephone, or otherwise.
7.7 Insurance. The Borrower shall insure the Collateral
against loss or damage by fire with extended coverage, theft, burglary,
pilferage, loss in transit, and such other hazards as the Lender shall specify,
in amounts, under
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policies and by insurers rated "A-VII" or better by A.M. Best. The Borrower
shall cause the Lender to be named in each such policy as secured party and loss
payee or additional insured, in a manner acceptable to the Lender. Each policy
of insurance shall contain (i) a clause or endorsement requiring the insurer to
give not less than thirty (30) days' prior written notice to the Lender in the
event of cancellation of the policy for any reason other than for failure to pay
premiums when due, and requiring the insurer to give not less than ten (10)
days' prior written notice to the Lender in the event of cancellation of the
policy for failure to pay premiums when due, and (ii) a clause or endorsement
stating that the interest of the Lender shall not be impaired or invalidated by
any act or neglect of the Borrower or the owner of any premises where Collateral
is located nor by the occupation of such premises for purposes more hazardous
than are permitted by such policy. The Borrower shall also pay all premiums for
such insurance when due, and shall deliver to the Lender certificates of
insurance and, if requested, photocopies of the policies. If the Borrower fails
to pay such fees or to procure such insurance or the premiums therefor when due,
the Lender may (but shall not be required to) do so and charge the costs thereof
to the Borrower's loan account as a Revolving Loan. The Borrower shall promptly
notify the Lender of each instance of any loss, damage, or destruction to the
Collateral in excess of fifty thousand dollars ($50,000) or arising from its
use, whether or not covered by insurance. The Borrower shall apply all insurance
proceeds to the reduction of the Obligations; provided that, prior to the
occurrence of an Event of Default, at the Borrower's option, the Borrower may
use such proceeds, or any part thereof, to replace, repair, restore or rebuild
the Collateral in a diligent and expeditious manner with materials and
workmanship of substantially the same quality as existed before the loss, damage
or destruction. Following the occurrence and during the continuance of an Event
of Default, the Lender shall have the right but not the obligation to collect
all insurance proceeds directly.
7.8 Collateral Reporting. The Borrower shall provide the
Lender with the following documents and information at the following times in
form agreed upon by the Borrower and the Lender prior to the Closing Date or in
such other form as is reasonably satisfactory to the Lender: (a) on a weekly
basis, a schedule of collections of accounts receivable, and a schedule of
Accounts created since the last such schedule; (b) upon request by the Lender, a
schedule of remittance advices no later than five Business Days following the
end of the week; (c) upon request by the Lender, copies of invoices, credit
memos, shipping and delivery documents; (d) monthly agings of accounts
receivable to be delivered no later than the 15th day of each month respecting
the immediately preceding month; (e) monthly agings of accounts payable no later
than the 15th day of the following month; (f) upon request, copies of purchase
orders, invoices, and delivery documents for Inventory and Equipment acquired by
the Borrower; (g) such other reports as to the Collateral (including without
limitation reports as to Equipment and Inventory) as the Lender shall reasonably
request from time to time; and (h) certificates of an officer of the Borrower
certifying as to the foregoing.
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If (x) an Event of Default has occurred, or (y) Loans outstanding
exceed 60% of Availability (assuming no Loans are outstanding), or (z)
Availability is less than four million dollars ($4,000,000), then, upon request
from the Lender, the Borrower shall provide the information specified in clause
(a) of this Section 7.8 on a daily basis and the Lender shall have the right to
retain the services of a collateral monitoring company (at the Borrower's
expense) to aid in providing and assessing any and all reports relating to
Accounts and collections as may be designated by the Lender from time to time.
If any of the Borrower's records or reports of the Collateral are prepared by an
accounting service or other agent, the Borrower hereby authorizes such service
or agent to deliver such records, reports, and related documents to the Lender.
7.9 Accounts.
(a) The Borrower hereby represents and warrants to the
Lender and agrees with the Lender that: (i) each existing Account represents,
and each future Account shall represent, a bona fide sale or lease and delivery
of goods by the Borrower, or rendition of services by the Borrower, in the
ordinary course of the Borrower's business; (ii) each existing Account is, and
each future Account shall be, at the time any such Account arose and at the time
any such Account is billed, for a liquidated amount payable by the Account
Debtor thereon on the terms set forth in the invoice therefor or in the schedule
thereof delivered to the Lender, without offset, deduction, defense, or
counterclaim, other than discounts required by law or contract, and corrections
of billing errors, in the ordinary course of the Borrower's business; (iii) no
payment shall be received with respect to any Account, and no credit, discount,
extension, or agreement therefor shall be granted on any Account, except as
reported to the Lender in accordance with this Agreement; (iv) each copy of an
invoice delivered to the Lender by the Borrower shall be a genuine copy of the
original invoice sent to the Account Debtor named therein; (v) all goods
described in any invoice representing a sale of goods shall have been delivered
to the Account Debtor and all services of the Borrower described in any invoice
shall have been performed; (vi) each of the Accounts and the related contracts
is in full force and effect and represents and constitutes a legal, valid and
binding obligation of the related Account Debtor, enforceable against such
Account Debtor in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity; (vii) if the fees charged for the services or goods
constituting the basis for any Account were subject to limitations imposed by
contracts for reimbursement from the related Account Debtor, each such Account
for which the fees are so restricted has been clearly identified to the Lender
as being subject to such restriction; (viii) promptly following notice from an
Account Debtor as to an earlier overpayment by such Account Debtor to the
Borrower, the Borrower has made all payments to such Account Debtor which are
necessary to prevent such Account Debtor from offsetting such overpayment
against any amount which such Account Debtor owes
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on the Accounts; (ix) no direction of the Borrower or any other Person is in
effect directing Account Debtors (A) to remit payments in respect of the
Accounts (except Accounts generated by Tokos Medical prior to March 8, 1996)
other than to a lock box covered by the Blocked Account Agreement or (B) to
remit EOBs in respect of the Accounts to any Person or address other than to the
Borrower at its chief executive office listed in Schedule 7.3; and (x) each
Government Offset to which the Borrower has been subject with the five years
prior to the date of this Agreement is listed in Schedule 7.9. As of the date of
each Borrowing, the Borrower is unaware of any potential Government Offset that
has not been disclosed by the Borrower to the Lender in writing prior to that
date. Except as set forth on Schedule 7.9, all of the Medicaid audit reports of
the Borrower required to be filed for all reporting periods have been filed with
the applicable state agency, or other HCFA-designated agents or agents of such
state agency.
(b) The Borrower shall not re-date any invoice or
sale or make sales on extended dating or extend or modify any Account (other
than to correct billing errors in the ordinary course of the Borrower's
business). If the Borrower becomes aware of any matter that could adversely
affect any Account Debtor (other than a Self-Pay Account Debtor), including
information regarding the Account Debtor's creditworthiness, the Borrower shall
promptly so advise the Lender.
(c) The Borrower shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Account (other than a Self-Pay Account) without the
Lender's written consent. If the Lender consents to the acceptance of any such
note or other instrument, it shall be considered as evidence of the Account and
not payment thereof, and the Borrower shall promptly deliver such note or
instrument to the Lender appropriately endorsed. Regardless of the form of
presentment, demand, notice of dishonor, protest, and notice of protest with
respect thereto, the Borrower shall remain liable thereon until such note or
instrument is paid in full.
(d) The Borrower shall notify the Lender promptly of
all disputes and claims (other than as to discounts required by law or contract,
and corrections of billing errors, in the ordinary course of the Borrower's
business) with Persons which are Account Debtors, involving in excess of
twenty-five thousand dollars ($25,000) for any single dispute or claim and in
excess of one hundred thousand dollars ($100,000) for all such disputes and
claims, whether any such Person is acting in its capacity as an Account Debtor
or in its individual capacity (e.g., as a landlord or supplier of the Borrower),
and all alleged or asserted Government Offsets and settle or adjust them at no
expense to the Lender. No discount, credit or allowance shall be granted to any
Account Debtor (other than in respect of Self-Pay Accounts) without the Lender's
consent, except for: (i) discounts required by law or contract, and corrections
of billing errors,
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in the ordinary course of the Borrower's business; and (ii) any other discount
which does not exceed ten thousand dollars ($10,000), provided that the
aggregate amount of discounts permitted pursuant to this clause (ii) during any
calendar year shall not exceed one hundred thousand dollars ($100,000). The
Lender may at all times following the occurrence and during the continuance of
an Event of Default hereunder settle or adjust disputes and claims directly with
customers or Account Debtors for amounts and upon terms which the Lender
considers advisable and, in all cases, the Lender shall credit the Borrower's
loan account with only the net amounts received by the Lender in payment of any
Accounts.
7.10 Collection of Accounts; Payments.
(a) Until the Lender notifies the Borrower to the
contrary, the Borrower shall make collection of all Accounts and other
Collateral for the Lender, shall receive all payments as the Lender's trustee,
and shall immediately deliver all payments to the Lender in their original form
duly endorsed in blank or deposit them into a Payment Account, as the Lender may
direct. If the Lender requests, the Borrower shall establish a lock-box service
for collections of Accounts at a bank mutually acceptable to the Lender and the
Borrower and pursuant to documentation satisfactory to the Lender. If such
lock-box service is established, the Borrower shall instruct all Account Debtors
to make all payments directly to the address established for such service. If,
notwithstanding such instructions, the Borrower receives any Proceeds of
Accounts, it shall receive such payments as the Lender's trustee, and shall
immediately deliver such payments to the Lender in their original form duly
endorsed in blank or deposit them into a Payment Account, as the Lender may
direct. Unless the Lender otherwise directs, the Initial Payment Account shall
be the only Payment Account for purposes of this Agreement. All collections
received in any such lock box or Payment Account or directly by the Borrower or
the Lender, and all funds in any Payment Account or other account to which such
collections are deposited, shall be the sole property of the Lender and subject
to the Lender's sole control. The Lender or the Lender's designee may, at any
time after the occurrence and during the continuance of an Event of Default,
notify Account Debtors that the Accounts have been assigned to the Lender and of
the Security Interest therein, and may collect them directly and charge the
collection costs and expenses to the Borrower's loan account as a Revolving
Loan. At the Lender's request, the Borrower shall execute and deliver to the
Lender such documents as the Lender shall require to grant the Lender access to
any post office box in which collections of Accounts are received.
(b) At any time following the earliest to occur of
(i) the delivery of the first Notice of Borrowing under this Agreement, (ii) an
Event or Event of Default, or (iii) Availability becoming less than four million
dollars ($4,000,000), the Lender shall have the right to instruct the Initial
Payment Account Bank to remit, by automatic standing wire transfer, on each
Business
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Day, all available amounts in the Initial Payment Account to the Lender (and
such amounts shall be applied in accordance with Section 4.3).
(c) All payments received by the Lender on account of
Accounts or as Proceeds of other Collateral shall be the Lender's sole property
and subject to the Lender's sole control. If such payments are received by the
Lender at or prior to 2:00 p.m., New York City time, on any Business Day, such
payments shall be credited to the Borrower's loan account (conditional upon
final collection) on such Business Day. If such payments are received by the
Lender after 2:00 p.m., New York City time, on any Business Day, such payments
shall be credited to the Borrower's loan account (conditional upon final
collection) on the next Business Day.
(d) In the event the Borrower repays all of the
Obligations upon the termination of this Agreement, other than through the
Lender's receipt of payments on account of Accounts or Proceeds of other
Collateral, such payment shall be credited (conditional upon final collection)
to the Borrower's loan account in accordance with Section 7.10(c).
7.11 [Reserved]
7.12 Equipment. The Borrower represents and warrants to
the Lender that all of the Equipment is and shall be used or held for use in the
Borrower's business and is and shall be fit for such purposes during the
remainder of its useful life. The Borrower shall keep and maintain the Equipment
in good operating condition and repair (ordinary wear and tear excepted) and
shall make all necessary replacements thereof. The Borrower shall promptly
inform the Lender of any material additions to or deletions from the Equipment.
7.13 Material Contracts. The Borrower shall fully perform
all of its obligations under each of the contracts and agreements to which it is
a party and shall enforce all of its rights and remedies thereunder, in each
case, as it deems appropriate in its business judgment; provided, however, the
Borrower shall not take any action or fail to take any action with respect to
any such contract or agreement that would cause the termination of any Material
Contract. As used in this Section 7.13, "Material Contract" means any contract
or agreement to which the Borrower is a party if such contract or agreement
involves amounts paid or payable to or by the Borrower in excess of one hundred
thousand dollars ($100,000) during any calendar year. Without limiting the
generality of the foregoing, the Borrower shall take all action necessary or
appropriate to permit, and shall not take any action which would have any
adverse effect upon, the full enforcement of all indemnification rights under
any Material Contract. The Borrower shall not, without the Lender's prior
written consent, modify, amend, supplement, compromise, satisfy, release, or
discharge any Material Contract, the Contractual Rights relating to any Material
Contract, any collateral securing the same, or the identity of any Person liable
directly or
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indirectly with respect thereto. The Borrower shall notify the Lender in
writing, promptly after it becomes aware thereof, of any event or fact which
could reasonably be expected to give rise to a claim by it for indemnification
under any Material Contract and shall diligently pursue such right and report to
the Lender on all further developments with respect thereto. The Borrower shall
remit directly to the Lender, for application to the Obligations in such order
as the Lender determines, all amounts received by the Borrower as
indemnification or otherwise pursuant to any contract or agreement relating to
Contractual Rights. If the Borrower shall fail after the Lender's demand to
diligently pursue any right under any contract or agreement relating to
Contractual Rights, or if an Event of Default exists, then the Lender may
directly enforce such right in its own or the Borrower's name and may enter into
such settlements or other agreements with respect thereto as the Lender
determines. All amounts thereby recovered by the Lender, after deducting
Lender's costs and expenses in connection therewith, shall be applied to the
Obligations in such order as the Lender determines. In any suit, proceeding or
action brought by the Lender under any contract or agreement relating to a
Contractual Right for any sum owing thereunder or to enforce any provision
thereof, the Borrower shall indemnify and hold the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment, or reduction of liability whatsoever of the obligor
thereunder arising out of a breach by the Borrower of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing from the Borrower to or in favor of such obligor or its successors. All
such obligations of the Borrower shall be and remain enforceable only against
the Borrower and shall not be enforceable against the Lender. Notwithstanding
any provision hereof to the contrary, the Borrower shall at all times remain
liable to observe and perform all of its duties and obligations under each
contract or agreement relating to Contractual Rights and the Lender's exercise
of any of its rights with respect to the Collateral shall not release the
Borrower from any of such duties and obligations. The Lender shall not be
obligated to perform or fulfill any of the Borrower's duties or obligations
under any contract or agreement relating to Contractual Rights or to make any
payment thereunder or to make any inquiry as to the nature or sufficiency of any
payment or Property received by it thereunder or the sufficiency of performance
by any party thereunder, or to present or file any claim, or to take any action
to collect or enforce any performance or payment of any amounts due.
7.14 Documents, Instruments, and Chattel Paper. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments, and
chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and shall be complete, valid, and
genuine; and (b) all goods evidenced by such documents, instruments, and chattel
paper are and shall be owned by the Borrower free and clear of all Liens other
than Permitted Liens.
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7.15 Right to Cure. The Lender may, in its sole discretion and
at any time, pay any amount or do any act required of the Borrower hereunder to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
Security Interest, which the Borrower fails to pay or do, including, without
limitation, payment of any judgment against the Borrower, any insurance premium,
any warehouse charge, any finishing or processing charge, any landlord's claim,
and any other obligation giving rise to any Lien upon or with respect to the
Collateral. All payments that the Lender makes under this Section 7.15 and all
reasonable out-of-pocket costs and expenses that the Lender pays or incurs in
connection with any action taken by it hereunder shall be charged to the
Borrower's loan account as a Revolving Loan. Any payment made or other action
taken by the Lender under this Section 7.15 shall be without prejudice to any
right to assert an Event of Default hereunder.
7.16 Power of Attorney. The Borrower hereby appoints the
Lender and the Lender's designees as the Borrower's attorney, subject to the
provisions of applicable law, with power: (a) to endorse the Borrower's name on
any checks, notes, acceptances, money orders, or other forms of payment or
security that come into the Lender's possession; (b) to sign the Borrower's name
on any invoice, bill of lading, or other document of title relating to any
Collateral, on drafts against customers, on assignments of Accounts, on notices
of assignment, financing statements and other public records, on verifications
of Accounts and on notices to Account Debtors and to file any such financing
statements by electronic means with or without a signature as authorized or
required by applicable law or filing procedure; (c) to notify the post office
authorities, when an Event of Default exists, to change the address for delivery
of the Borrower's mail to an address designated by the Lender and to receive,
open and dispose of all mail addressed to the Borrower; (d) to send requests for
verification of Accounts to Account Debtors; and (e) to do all things necessary
to carry out this Agreement. The Borrower ratifies and approves all acts of such
attorney. Neither the Lender nor the attorney shall be liable for any acts or
omissions or for any error of judgment or mistake of fact or law. This power,
being coupled with an interest, is irrevocable until this Agreement has been
terminated and the Obligations have been fully satisfied.
7.17 Lender's Rights, Duties, and Liabilities. The Borrower
assumes all responsibility and liability arising from or relating to the use,
sale, or other disposition of the Collateral. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the Security
Interest or to collect or realize upon the Collateral, nor shall loss of or
damage to the Collateral release the Borrower from any of the Obligations.
Following the occurrence of and during the continuation of an Event of Default,
the Lender may (but shall not be required to), without notice to or consent from
the Borrower, sue upon or otherwise collect, extend the time for payment of,
modify or amend the terms of, compromise or settle for cash, credit, or
otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to
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take any other action with respect to the Collateral, any security therefor, any
agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of the Borrower for the
Obligations or under this Agreement or any other agreement now or hereafter
existing between the Lender and the Borrower.
7.18 [Reserved]
7.19 License for use of Software and Other Intellectual
Property. The Borrower hereby grants the Lender a non-exclusive, royalty-free
license (with the right to sublicense) to use, without payment or royalty of any
kind, all computer software programs, tapes, disks, data bases, processes and
materials used by the Borrower in connection with its business or in connection
with the Collateral, which license shall be irrevocable so long as any of the
Obligations remain outstanding or this Agreement is in effect; provided that
should the consent of any licensor of the Borrower to such grant of the license
described herein be required, the Borrower hereby agrees that, upon the request
of the Lender, the Borrower shall use its best efforts to obtain the consent of
such third-party licensor and, in the absence of obtaining such consent, shall,
upon request of the Lender, download all information contained in such licensed
computer software programs, tapes, disks, data bases, processes and materials in
a format which is accessible by the Lender or otherwise print out such
information.
8. BOOKS AND RECORDS; FINANCIAL INFORMATION;
NOTICES.
8.1 Books and Records. The Borrower shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with GAAP
consistent with those applied in the preparation of the Financial Statements.
The Borrower shall, by means of appropriate entries, reflect in such accounts
and in all Financial Statements proper liabilities and reserves for all taxes
and proper provision for depreciation and amortization of Property and bad
debts, all in accordance with GAAP. The Borrower shall maintain at all times
books and records pertaining to the Collateral in such detail, form, and scope
as the Lender shall reasonably require, including without limitation, records
of: (a) all payments received and all credits and extensions granted with
respect to the Accounts; (b) the return, rejection, repossession, stoppage in
transit, loss, damage, or destruction of any Inventory; and (c) all other
dealings affecting the Collateral.
8.2 Financial Information. The Borrower shall promptly
furnish to the Lender or its agents all such financial information as the Lender
shall reasonably request, and notify its auditors and accountants that the
Lender is authorized to obtain such information directly from them. Without
limiting the
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foregoing, the Borrower and its Subsidiaries shall furnish to the Lender, in
such detail as the Lender shall request, the following:
(a) As soon as available, but in any event not later
than 105 days after the close of each Fiscal Year, a copy of the Borrower's
annual report on Form 10-K filed with the Securities and Exchange Commission or,
if the Borrower is no longer required to file an annual report on Form 10-K with
the Securities and Exchange Commission, consolidated and consolidating audited
balance sheets, and statements of operation, and stockholders equity and cash
flows for the Borrower and its consolidated Subsidiaries for such Fiscal Year,
and the accompanying notes thereto, setting forth in each case in comparative
form figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the Borrower
and its consolidated Subsidiaries as at the date thereof and for the Fiscal Year
then ended, and prepared in accordance with GAAP. Such statements shall be
examined in accordance with generally accepted auditing standards and
accompanied by a report thereon unqualified as to scope by independent certified
public accountants selected by the Borrower and reasonably satisfactory to the
Lender.
(b) As soon as available, but in any event not later
than 50 days after the close of each fiscal quarter other than the fourth
quarter of a Fiscal Year, a copy of the Borrower's quarterly report on Form 10-Q
filed with the Securities and Exchange Commission or, if the Borrower is no
longer required to file quarterly reports on Form 10-Q with the Securities and
Exchange Commission, consolidated and consolidating unaudited condensed balance
sheets of the Borrower and its consolidated Subsidiaries as at the end of such
quarter, and consolidated and consolidating unaudited condensed statements of
income and cash flows for the Borrower and its consolidated Subsidiaries for
such quarter and for the period from the beginning of the Fiscal Year to the end
of such quarter, together with the accompanying notes, if any, thereto, all in
reasonable detail fairly presenting the financial position and results of
operation of the Borrower and its consolidated Subsidiaries as at the date
thereof and for such periods, prepared in accordance with GAAP consistent with
the audited Financial Statements required pursuant to Section 8.2(a). Such
statements shall be certified to be fairly stated in all material respects by
the chief financial or accounting officer of the Borrower, subject to normal
year-end adjustments.
(c) As soon as available, but in any event not later
than 30 days after the end of each month, consolidated and consolidating
unaudited balance sheets of the Borrower and its consolidated Subsidiaries as at
the end of such month, and consolidated and consolidating unaudited statements
of income and expenses for the Borrower and its consolidated Subsidiaries for
such month and for the period from the beginning of the Fiscal Year to the end
of such
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month, all in reasonable detail, fairly presenting the financial position and
results of operation of the Borrower and its consolidated Subsidiaries as at the
date thereof and for such periods, and prepared in accordance with GAAP
consistent with the audited Financial Statements required pursuant to Section
8.2(a). Such statements shall be certified to be correct by the chief financial
or accounting officer of the Borrower, subject to normal year-end adjustments.
(d) With each of the audited Financial Statements
delivered pursuant to Section 8.2(a), a certificate of the independent certified
public accountants that examined such statements to the effect that they have
reviewed and are familiar with the Loan Documents and that, in examining such
Financial Statements, they did not become aware of any fact or condition which
then constituted an Event or Event of Default under Sections 10.20 through
10.24, except for those, if any, described in reasonable detail in such
certificate.
(e) With each of the annual audited and quarterly
unaudited Financial Statements delivered pursuant to Sections 8.2(a) and 8.2(b),
a certificate of the chief executive or chief financial officer of the Borrower
(i) setting forth in reasonable detail the calculations required to establish
that the Borrower was in compliance with its covenants set forth in Sections
10.20 through 10.24 during the period covered in such Financial Statements, and
(ii) stating that, except as explained in reasonable detail in such certificate,
(A) all of the representations and warranties of the Borrower contained in this
Agreement and the other Loan Documents are correct and complete as at the date
of such certificate as if made at such time, (B) no Event or Event of Default
then exists or existed during the period covered by such Financial Statements
and (iii) describing and analyzing in reasonable detail all material trends,
changes and developments in such Financial Statements. If such certificate
discloses that a representation or warranty is not correct or complete, or that
a covenant has not been complied with, or that an Event or Event of Default
existed or exists, such certificate shall set forth what action the Borrower has
taken or proposes to take with respect thereto.
(f) No sooner than 90 days prior to the beginning
of, and not later than January 30 of, each Fiscal Year, consolidated and
consolidating projected balance sheets, statements of income and expense, and
statements of cash flow for the Borrower and its Subsidiaries on a consolidated
basis as at the end of and for each month of such Fiscal Year.
(g) Within 50 days after the end of each fiscal
quarter, a report of the Capital Expenditures of the Borrower and its
Subsidiaries for such quarter and, if the Borrower is no longer required to file
quarterly reports on Form 10-Q with the Securities and Exchange Commission, a
statement of cash flow for the Borrower and its Subsidiaries for the period from
the beginning of the then current Fiscal Year to the end of such quarter,
prepared in accordance
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with GAAP consistent with the audited Financial Statements required pursuant to
Section 8.2(a).
(h) Promptly after their preparation, copies of any
and all proxy statements, financial statements, and reports which the Borrower
makes available to its stockholders.
(i) Promptly after the filing of any regular,
periodic or special reports (other than those delivered pursuant to a different
clause of this Section 8.2), registration statement, prospectus or any amendment
to any of the foregoing by the Borrower or any of its Subsidiaries with the
Securities and Exchange Commission, copies of each such report, registration
statement, prospectus or amendment.
(j) Promptly following the request of the Lender,
a copy of each annual report or other filing or notice filed with respect to
each Plan of the Borrower or any ERISA Affiliate with the PBGC, DOL, or IRS.
(k) Such additional information as the Lender may
from time to time reasonably request regarding the financial and business
affairs of the Borrower or any Subsidiary, including, without limitation,
projections of future operations on both a consolidated and consolidating basis.
8.3 Notices to Lender. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after becoming aware of the
existence of any Event or Event of Default.
(b) Immediately after becoming aware that the holder
of any capital stock of the Borrower or of any Debt in excess of one million
dollars ($1,000,000) has given notice or taken any action with respect to a
claimed default.
(c) Immediately after becoming aware of any material
adverse change in the Borrower's Property, business, operations, or condition
(financial or otherwise).
(d) Immediately after becoming aware of any pending
or threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Public Authority, or any actual or
potential Government Offset, which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
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(e) Immediately after becoming aware of any pending
or threatened strike, work stoppage, material unfair labor practice claim, or
other material labor dispute affecting the Borrower or any of its Subsidiaries.
(f) Immediately after becoming aware of any
violation of any law, statute, regulation, or ordinance of a Public Authority
applicable to Borrower, any Subsidiary, or their respective Properties which may
have a Material Adverse Effect.
(g) Immediately after becoming aware of any
violation by the Borrower of Environmental Laws (which violation could
reasonably be expected to have a Material Adverse Effect) or immediately upon
receipt of any notice that a Public Authority has asserted that the Borrower is
not in compliance with Environmental Laws or that its compliance is being
investigated.
(h) Thirty (30) days prior to the Borrower changing
its name or the address of its chief executive office or the address of any of
its other places of business.
(i) Immediately after becoming aware of any ERISA
Event, accompanied by any materials required to be filed with the PBGC with
respect thereto; immediately after the Borrower's receipt of any notice
concerning the imposition of any withdrawal liability under Section 4042 of
ERISA with respect to a Plan; immediately upon the establishment of any Pension
Plan not existing at the Closing Date or the commencement of contributions by
the Borrower to any Pension Plan to which the Borrower was not contributing at
the Closing Date; and immediately upon becoming aware of any other event or
condition regarding a Plan or the Borrower's or an ERISA Affiliate's compliance
with ERISA, which may materially and adversely affect the Borrower's business,
operation, or condition (financial or otherwise).
(j) Immediately upon becoming aware of any delinquent
taxes which, individually or in the aggregate, exceed one hundred thousand
dollars ($100,000).
Each notice given under this Section 8.3 shall describe the
subject matter thereof in reasonable detail and shall set forth the action that
the Borrower has taken or proposes to take with respect thereto.
The foregoing shall not limit the Borrower's obligation to
give other notices under this Agreement, including without limitation its
obligation to notify the Lender in accordance with Section 7.9(d) as to disputes
and claims and alleged or asserted Government Offsets.
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9. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower continuously warrants and represents to the
Lender, at all times during the term of this Agreement and until all Obligations
have been satisfied, that, except as hereafter disclosed to and accepted by the
Lender in writing:
9.1 Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents. The Borrower has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest. The
Borrower has taken all necessary corporate action (including, without
limitation, obtaining approval of its stockholders) to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents. No
consent, approval, or authorization of, or declaration or filing with, any
Public Authority, and no consent of any other Person, is required in connection
with the Borrower's execution, delivery, and performance of this Agreement and
the other Loan Documents, except for those already duly obtained. This Agreement
and the other Loan Documents have been duly executed and delivered by the
Borrower and constitute the legal, valid and binding obligations of the
Borrower, enforceable against it in accordance with their respective terms
without defense, setoff, or counterclaim, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity. The Borrower's execution, delivery, and performance of this Agreement
and the other Loan Documents do not and shall not conflict with, or constitute a
violation or breach of, or constitute a default under, or result in the creation
or imposition of any Lien upon the Property of the Borrower or any of its
Subsidiaries (except as contemplated by this Agreement and the other Loan
Documents) by reason of the terms of (a) any mortgage, lease, agreement, or
instrument to which the Borrower or any of its Subsidiaries is a party or which
is binding upon it, (b) any judgment, law, statute, rule or governmental
regulation applicable to the Borrower or any of its Subsidiaries, or (c) the
certificate or articles of incorporation or bylaws of the Borrower or any of its
Subsidiaries.
9.2 Validity and Priority of Security Interest. The provisions
of this Agreement, and the other Loan Documents create legal and valid Liens on
all the Collateral in the Lender's favor, and when all proper filings,
recordings, and other actions necessary to perfect such Liens have been made or
taken, such Liens shall constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral except for
the Permitted Liens identified in Section 7.4 and enforceable against the
Borrower and all third parties, it being understood that the Borrower makes no
representation and warranty as to the ability of the Lender (absent a court
order) to collect amounts
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directly from Government Account Debtors in respect of Accounts owing by such
Government Account Debtors.
9.3 Organization and Qualification. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the State of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in the States of California, Georgia, and
all other jurisdictions in which the failure to be so qualified and in good
standing could reasonably be expected to result in a Material Adverse Effect;
and (c) has all requisite power and authority to conduct its business and to own
its Property.
9.4 Corporate Name; Prior Transactions. The Borrower has not,
during the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired all
or substantially all of the assets of any Person, or acquired any of its
Property out of the ordinary course of business, except as set forth on Schedule
9.4.
9.5 Subsidiaries and Affiliates. Schedule 9.5 is a correct and
complete list as of the Closing Date of the name and relationship to the
Borrower of each and all of the Borrower's Subsidiaries and other Affiliates.
Since the Closing Date, the Borrower has notified the Lender as to the name and
relationship to the Borrower of any other Person which became a Subsidiary or
other Affiliate of the Borrower after the Closing Date. The Borrower and/or the
applicable Subsidiary of the Borrower is the only record and beneficial owner of
all of the shares of capital stock or other ownership interests of each of the
Subsidiaries, in each case as listed on Schedule 9.5 or as specified in such
notification. There are no proxies, irrevocable or otherwise, with respect to
such shares or ownership interests, and no equity securities of any of such
Subsidiaries are or may become required to be issued by reason of any options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of or ownership interests in any such
Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any such Subsidiary is or may become bound to issue
additional shares of its capital stock, securities convertible into or
exchangeable for such shares, or any other ownership interests. All of such
shares or ownership interests so owned by the Borrower are owned by the Borrower
free and clear of any Liens other than Permitted Liens. Each Subsidiary is (a)
duly incorporated and organized and validly existing in good standing under the
laws of its state of incorporation set forth on Schedule 9.5, and (b) qualified
to do business as a foreign corporation and in good standing in the states set
forth opposite its name on Schedule 9.5, which are the only states in which the
failure to be so qualified would result in a Material Adverse Effect.
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9.6 Financial Statements and Plan.
(a) The Borrower has delivered to the Lender the
audited consolidated balance sheet and related consolidated statements of
operations, cash flows, and changes in stockholders equity for the Borrower and
its Subsidiaries as of December 31, 1996 and for the Fiscal Year then ended,
accompanied by the report thereon of the Borrower's independent certified public
accountants, KPMG Peat Marwick LLP. The Borrower has also delivered to the
Lender the Borrower's Form 10-Q for the quarterly period ended June 30, 1997,
which contains unaudited financial statements and is attached hereto as Exhibit
A. All such financial statements have been prepared in accordance with GAAP and
present accurately and fairly the Borrower's financial position as at the dates
thereof and its results of operations for the periods then ended.
(b) The Latest Plan represents the Borrower's best
estimate of the Borrower's future financial performance for the periods set
forth therein. The Latest Plan has been prepared on the basis of the assumptions
set forth therein, which the Borrower believes are fair and reasonable in light
of current and reasonably foreseeable business conditions.
9.7 [Reserved]
9.8 Solvency. The Borrower is Solvent prior to and after
giving effect to the making of each Revolving Loan.
9.9 Debt. The Borrower has no Debt, except (a) the
Obligations, (b) Debt set forth in the most recent Financial Statements
delivered to the Lender, or the notes thereto, (c) trade payables and other
contractual obligations arising in the ordinary course of business since the
date of such Financial Statements, (d) Debt incurred since the date of such
Financial Statements to finance Capital Expenditures permitted hereby, (e) other
Debt listed in Schedule 9.9, and (f) Debt otherwise permitted under Section
10.12.
9.10 Distributions. Since December 31, 1996, no Distribution
has been declared, paid, or made upon or in respect of any capital stock or
other securities of the Borrower.
9.11 Title to Property. Except for Property which the Borrower
leases, and except as a result of the existence of Permitted Liens, the Borrower
has good and marketable title in fee simple to the Premises and good,
indefeasible, and merchantable title to all of its other Property including,
without limitation, the assets reflected on the most recent Financial Statements
delivered to the Lender, except as disposed of since the date thereof in the
ordinary course of business.
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9.12 Adequate Assets. The Borrower possesses adequate assets
for the conduct of its business.
9.13 Real Property; Leases. Schedule 9.13 contains a correct
and complete list, as of the Closing Date, of all real property owned by the
Borrower, all leases and subleases of real or personal property by the Borrower
as lessee or sublessee, and all leases and subleases of real or personal
property by the Borrower as lessor or sublessor. Since the Closing Date, the
Borrower has notified the Lender as to all other real property acquired by the
Borrower, and all leases and subleases of real property (and all leases or
subleases of personal property involving payments by the Borrower during any
Fiscal Year in excess of ten thousand dollars ($10,000), entered into by the
Borrower after the Closing Date. Each of such leases and subleases is valid and
enforceable in accordance with its terms and is in full force and effect except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
by principles of equity and no default by any party to any such lease or
sublease exists.
9.14 Proprietary Rights. Schedule 9.14 contains a correct and
complete list, as of the Closing Date, of all the Borrower's Proprietary Rights.
Since the Closing Date, the Borrower has notified the Lender as to all other
Proprietary Rights of which the Borrower became the owner after the Closing
Date. None of the Proprietary Rights are subject to any licensing agreement or
similar arrangement except as set forth on Schedule 9.14 or in such
notification. None of the Proprietary Rights infringe on or conflict with any
other Person's Property and no other Person's Property infringes on or conflicts
with the Proprietary Rights. The Proprietary Rights described on Schedule 9.14
or in such notification constitute all of the Property of such type necessary to
the current and anticipated future conduct of the Borrower's business.
9.15 Trade Names and Terms of Sale. All trade names or styles
under which the Borrower shall sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on Schedule
9.15. The Borrower bills each Account Debtor having outstanding Accounts at
least once each calendar month. The Borrower does not redate any invoice after
such invoice has been sent to an Account Debtor.
9.16 Litigation. Except as set forth on Schedule 9.16, there
is no pending or, to the best of the Borrower's knowledge, threatened action,
suit, proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, which could reasonably be
expected to result in a Material Adverse Effect.
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9.17 Restrictive Agreements. The Borrower is not a party to
any contract or agreement, and is not subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents, or which could otherwise reasonably be expected to result in a
Material Adverse Effect.
9.18 Labor Disputes. As of the Closing Date, except as set
forth on Schedule 9.18: (a) there is no collective bargaining agreement or other
labor contract covering employees of the Borrower or any of its Subsidiaries;
(b) no such collective bargaining agreement or other labor contract is scheduled
to expire during the term of this Agreement; (c) no union or other labor
organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of the Borrower or any of its Subsidiaries or for
any similar purpose; and (d) there is no pending or, to the best of the
Borrower's knowledge, threatened strike, work stoppage, material unfair labor
practice claim, or other material labor dispute against or affecting the
Borrower, or any of its Subsidiaries or their respective employees. Since the
Closing Date, the Borrower has notified the Lender as to any matters covered by
clause (a), (b), (c) or (d) of the previous sentence which first arose or
existed after the Closing Date.
9.19 Environmental Laws.
(a) The Borrower and its Subsidiaries have complied
in all material respects with all Environmental Laws applicable to its Premises
and business, and neither the Borrower nor any Subsidiary nor any of its present
Premises or operations, nor its past property or operations, is subject to any
enforcement order from or liability agreement with any Public Authority or
private Person respecting (i) compliance with or violation of any Environmental
Law or (ii) any potential liabilities and costs or remedial action arising from
the Release or threatened Release of a Contaminant.
(b) The Borrower and its Subsidiaries have obtained
all permits necessary for their current operations under Environmental Laws, and
all such permits are valid and the Borrower and its Subsidiaries are in
compliance with all terms and conditions of such permits.
(c) Neither the Borrower nor any of its
Subsidiaries, nor, to the best of the Borrower's knowledge, any of its
predecessors in interest, has in violation of applicable law stored, treated or
disposed of any Contaminant on any Premises, as defined pursuant to 40 CFR Part
261 or any equivalent Environmental Law.
(d) Neither the Borrower nor any of its Subsidiaries
has received any summons, complaint, order or similar written notice that it is
not
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currently in compliance with, or that any Public Authority is investigating its
compliance with, any Environmental Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Contaminant.
(e) None of the present or past operations of the
Borrower and its Subsidiaries is the subject of any investigation by any Public
Authority evaluating whether any remedial action is needed to respond to a
Release or threatened Release of a Contaminant.
(f) To the best of the Borrower's knowledge there is
not now, nor has there ever been on or in the Premises:
(i) any underground storage tanks or surface
impoundments,
(ii) any asbestos-containing material, or
(iii) any polychlorinated biphenyls (PCB's)
used in hydraulic oils, electrical transformers or other equipment.
(g) Neither the Borrower nor any of its Subsidiaries
has filed any notice under any applicable requirement of Environmental Law
reporting a spill or accidental and unpermitted release or discharge of a
Contaminant into the environment.
(h) Neither the Borrower nor any of its Subsidiaries
has entered into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of its property) imposing
material obligations or liabilities on the Borrower or any of its Subsidiaries
with respect to any remedial action in response to the Release of a Contaminant
or environmentally related claim.
(i) None of the products manufactured, distributed
or sold by the Borrower or any of its Subsidiaries contains asbestos-containing
material.
(j) No Environmental Lien has attached to any
Premises of the Borrower or any of its Subsidiaries.
9.20 Health Care Laws. Except as otherwise disclosed on
Schedule 9.20:
(a) Each of the Borrower and its Subsidiaries have
complied in all material respects with all Health Care Laws applicable to its
business, and neither the Borrower nor any Subsidiary nor any of its present
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operations, nor its past operations, is subject to any action, order from or
agreement respecting (i) compliance with any Health Care Law or (ii) any
potential liabilities under Health Care Laws.
(b) The Borrower and its Subsidiaries have obtained
all licenses, permits, accreditations, certifications and approvals necessary
for their current operations under Health Care Laws, and all such licenses,
permits, accreditations, certifications and approvals are in good standing, and
the Borrower and its Subsidiaries are in compliance with all terms and
conditions thereof.
(c) Neither the Borrower nor any of its Subsidiaries
has received any summons, complaint, subpoena, order or other notice that it is
not currently in compliance with any Health Care Laws or that it is or may be
liable to any other Person under or in connection with any Health Care Laws.
(d) None of the present or past operations of the
Borrower and its Subsidiaries is the subject of any investigation by any Public
Authority concerning alleged or potential violations of Health Care Laws.
(e) Neither the Borrower nor any of its Subsidiaries
has entered into any negotiations or settlement agreements with any Person which
impose or could impose material obligations or liabilities on the Borrower or
any of its Subsidiaries with respect to any Health Care Law.
9.21 No Violation of Law. The Borrower is not in violation of
any law, statute, regulation, ordinance, judgment, order, or decree applicable
to it which violation could reasonably be expected to result in a Material
Adverse Effect.
9.22 No Default. The Borrower is not in default with respect
to any note, indenture, loan agreement, mortgage, lease, deed, or other
agreement to which the Borrower is a party or bound, which default could
reasonably be expected to result in a Material Adverse Effect.
9.23 ERISA Compliance.
(a) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
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for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge
of Borrower, threatened claims, actions or lawsuits, or action by any Public
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a material adverse effect on the Borrower's business or
operations. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a material adverse effect on the
Borrower's business or operations.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any unfunded liability; (iii)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v)
neither the Borrower nor any ERISA Affiliate has engaged in a transaction that
could subject any Person to Section 4069 or 4212(c) of ERISA.
9.24 Taxes. The Borrower and its Subsidiaries have filed all
tax returns and other reports required to be filed and have paid all Taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable, except
for those Taxes, assessments, fees and other governmental charges which are
being contested in good faith by appropriate proceedings diligently pursued.
9.25 Use of Proceeds. None of the transactions contemplated in
this Agreement or any other Loan Document (including, without limitation, the
use of proceeds from the Loans) shall violate or result in the violation of any
law, rule or regulation, including Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"), 12 CFR, Chapter II. Borrower does not own or
intend to carry or purchase any "margin stock" within the meaning of said
Regulation U or G. The Borrower may purchase its own capital stock in Permitted
Stock Repurchases. Except as permitted by Section 10.19, the Borrower has not
used proceeds of the Loans to invest in any Restricted Investments.
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9.26 Private Offerings. Borrower has not, directly or
indirectly, offered the Loans for sale to, or solicited offers to buy part
thereof from, or otherwise approached or negotiated with respect thereto with
any prospective purchaser other than Lender. Borrower hereby agrees that neither
it nor anyone acting on its behalf has offered or shall offer the Loans or any
part thereof or any similar securities for issue or sale to or solicit any offer
to acquire any of the same from anyone so as to bring the issuance thereof
within the provisions of Section 5 of the Securities Act of 1933, as amended.
9.27 Broker's Fees. No Person is entitled to any brokerage or
finder's fee with respect to the transactions described in this Agreement.
9.28 Government Regulation. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940,
or any other Requirement of Law that limits its ability to incur indebtedness or
its ability to enter into or consummate the transactions contemplated in this
Agreement and the other Loan Documents.
9.29 No Material Adverse Change. No material adverse change
has occurred in the Borrower's Property, business, operations, or conditions
(financial or otherwise) since the date of the Financial Statements delivered to
the Lender.
9.30 Disclosure. Neither this Agreement nor any document or
statement furnished to the Lender by or on behalf of the Borrower hereunder
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. The Borrower covenants that,
so long as any of the Obligations remain outstanding or this Agreement is in
effect:
10.1 Taxes and Other Obligations. The Borrower and each of its
Subsidiaries shall: (a) file when due all tax returns and other reports which it
is required to file, pay, or provide for the payment, when due, of all Taxes,
fees, assessments and other governmental charges against it or upon its
Property, income, and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
shall provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all Debt owed by it and
perform and discharge in a timely manner all other obligations undertaken by it;
provided, however, that the Borrower and its Subsidiaries need not pay any tax,
fee,
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assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued.
10.2 Corporate Existence and Good Standing. The Borrower and
each Guarantor shall maintain its corporate existence and its qualification and
good standing in all states necessary to conduct its business and own its
Property, except where the failure to remain qualified and in good standing
could not reasonably be expected to result in a Material Adverse Effect, and
shall obtain and maintain all material licenses, permits, franchises and
governmental authorizations necessary to conduct its business and own its
Property.
10.3 Compliance with Law and Agreements. The Borrower and each
of its Subsidiaries shall comply in all material respects with the terms and
provisions of each judgment, law, statute, rule, and governmental regulation
applicable to it and each contract, mortgage, lien, lease, indenture, order,
instrument, agreement, or document to which it is a party or by which it is
bound.
10.4 Maintenance of Property and Insurance. The Borrower and
each of its Subsidiaries shall: (a) maintain all of its Property necessary and
useful in its business in good operating condition and repair, ordinary wear and
tear excepted; and (b) in addition to the insurance required by Section 7.7,
maintain with financially sound and reputable insurers such other insurance with
respect to its Property and business against casualties and contingencies of
such types (including, without limitation, business interruption, environmental
liability, public liability, product liability, and larceny, embezzlement or
other criminal misappropriation) and in such amounts as is customary for Persons
of established reputation engaged in the same or a similar business and
similarly situated, naming the Lender, at its request, as additional insured
under each such policy.
10.5 Environmental Laws. The Borrower shall conduct its
business in full compliance with all Environmental Laws applicable to it,
including, without limitation, those relating to the Borrower's generation,
handling, use, storage, and disposal of contaminants. The Borrower shall take
prompt and appropriate action to respond to and remediate any non-compliance
with Environmental Laws, and shall regularly report to the Lender on such
response and remediation. Without limiting the generality of the foregoing,
whenever the Borrower gives notice to the Lender pursuant to Section 8.3(g) the
Borrower shall, at the Lender's request and the Borrower's expense: (a) cause an
independent environmental engineer acceptable to the Lender and Borrower to
conduct such tests of the site where the Borrower's noncompliance or alleged
non-compliance with Environmental Laws has occurred and prepare and deliver to
the Lender a report setting forth the results of such tests, a proposed plan for
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responding to any environmental problems described therein, and an estimate of
the costs thereof; and (b) provide to the Lender a supplemental report of such
engineer whenever the scope of the environmental problems, or the Borrower's
response thereto or the estimated costs thereof, shall change.
10.6 Health Care Laws. Each of the Borrower and its
Subsidiaries shall conduct its business in all material respects in compliance
with all Health Care Laws applicable to it. The Borrower and its Subsidiaries
shall take prompt and appropriate action to respond to and remediate any
non-compliance with any Health Care Law and shall promptly report to the Lender
on any such non-compliance and any such response and remediation.
10.7 ERISA. The Borrower shall cause each Plan, which has been
designated to be so, to be qualified within the meaning of Section 401(a) of the
Code and to be administered in all respects in compliance with Section 401(a) of
the Code. The Borrower shall cause each Plan to be administered in all respect
in compliance with ERISA.
10.8 Mergers, Consolidations or Sales. Neither the Borrower
nor any of its Subsidiaries shall enter into any transaction of merger,
reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise
dispose of all or any part of its Property, or wind up, liquidate or dissolve,
or acquire or purchase any Person or substantially all of the assets of any
Person or agree to do any of the foregoing, except: (i) sales of Inventory in
the ordinary course of its business; (ii) sales of Equipment permitted under
Section 7.12; (iii) the sale of Specialized Clinical Services, Inc., a
California corporation, and the sale of Specialized Clinical Services, Inc., a
Delaware corporation, provided, however, that the Borrower shall not incur any
payment obligations in connection with such sales (other than (A) in respect of
customary indemnification obligations and (B) up to twenty-five thousand dollars
($25,000) in the aggregate for such sales, in respect of items pertaining to
payroll and vacation time); and (iv) any Subsidiary may merge with any other
Subsidiary or with the Borrower (provided that (x) the Lender shall have
received at least thirty (30) days' prior written notice of such merger, (y) the
Borrower and such Subsidiary shall have taken such steps as the Lender may deem
necessary or appropriate in connection therewith, including under Section 7.2,
and (z) in the case of any merger of a Subsidiary into the Borrower, the
Borrower shall be the surviving entity).
10.9 Distributions. Neither the Borrower nor any of its
Subsidiaries shall directly or indirectly declare or make, or incur any
liability to make, any Distribution, except Distributions to the Borrower by a
Subsidiary wholly owned by the Borrower, and except that any Subsidiary that is
not wholly owned by the Borrower may make pro-rata distributions to any minority
owner.
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10.10 Transactions Affecting Collateral or Obligations.
Neither the Borrower nor any of its Subsidiaries shall enter into any
transaction which materially and adversely affects the Collateral or the
Borrower's ability to repay the Obligations.
10.11 Guaranties. Neither the Borrower nor any of its
Subsidiaries shall make, issue, or become liable on any Guaranty, except
Guaranties in favor of the Lender and endorsements of instruments for deposit,
and except for Guaranties of Debt otherwise expressly permitted hereunder.
10.12 Debt. Neither the Borrower nor any of its Subsidiaries
shall incur or maintain any Debt, other than: (a) the Obligations; (b) trade
payables and contractual obligations to suppliers and customers incurred in the
ordinary course of business;(c) other Debt existing on the Closing Date and
reflected (x) in the financial statements contained in the Borrower's Form 10-Q
for the quarterly period ending June 30, 1997, which Form 10-Q is attached as
Exhibit A, or (y) in Schedule 9.9; (d) accruals required in connection with any
Plan; and (e) other unsecured Debt in an aggregate amount not to exceed five
million dollars ($5,000,000) at any one time outstanding.
10.13 Prepayment. Neither the Borrower nor any of its
Subsidiaries shall voluntarily prepay any Debt for borrowed money, except the
Obligations in accordance with their terms.
10.14 Transactions with Affiliates. Except as set forth below,
neither the Borrower nor any of its Subsidiaries shall: (a) sell, transfer,
distribute, or pay any money or Property to any Affiliate, (b) lend or advance
money or Property to any Affiliate, (c) invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness or any Property
of any Affiliate, or (d) become liable on any Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate. Notwithstanding the foregoing,
if no Event of Default has occurred and is continuing, the Borrower and its
Subsidiaries may engage in transactions with Affiliates in the ordinary course
of business in amounts and upon terms fully disclosed to the Lender and no less
favorable to the Borrower and its Subsidiaries than would obtain in a comparable
arm's length transaction with a third party who is not an Affiliate.
10.15 Business Conducted. The Borrower and its Subsidiaries
shall not engage, directly or indirectly, in any line of business other than the
businesses in which the Borrower and its Subsidiaries are engaged on the Closing
Date.
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10.16 Liens. Neither the Borrower nor any of its Subsidiaries
shall create, incur, assume, or permit to exist any Lien on any Property now
owned or hereafter acquired by any of them, except Permitted Liens.
10.17 Sale and Leaseback Transactions. Neither the Borrower
nor any of its Subsidiaries shall, directly or indirectly, enter into any
arrangement with any Person providing for the Borrower or a Subsidiary to lease
or rent Property that the Borrower or a Subsidiary has or shall sell or
otherwise transfer to such Person.
10.18 New Subsidiaries. The Borrower shall not, directly or
indirectly, organize or acquire any Subsidiary other than those listed on
Schedule 9.5, and other than a Specified New Subsidiary, without the prior
written consent of the Lender, which consent shall be withheld unless the
conditions contemplated by the next sentence have been satisfied.
Notwithstanding any other provision of this Agreement, the Borrower shall not,
directly or indirectly, organize or acquire any Subsidiary (other than a
Specified New Subsidiary) after the Closing Date unless such Subsidiary shall
have signed a secured guaranty of the Obligations in favor of the Lender, which
guaranty shall be in form and substance satisfactory to the Lender, and such
Subsidiary shall have provided to the Lender, at the Lender's request,
certificates, opinions, UCC financing statements and other items with respect to
such Subsidiary and such guaranty of the type contemplated by Section 11.1.
10.19 Restricted Investments. Neither the Borrower nor any of
its Subsidiaries shall make any Restricted Investment; provided, however, that
the Borrower and its consolidated Subsidiaries may make (a) a Restricted
Investment in Diabetes Management Services, Inc., a South Carolina corporation,
and (b) additional Restricted Investments (including in respect of Specified New
Subsidiaries), in an aggregate amount with respect to clause (a) and clause (b)
not to exceed two million dollars ($2,000,000) for any single transaction or
series of related transactions during the term of this Agreement and, to the
extent that such Restricted Investments represent the purchase price for a
business which is related to the business in which the Borrower is engaged as of
the Closing Date, the aggregate amount of such Restricted Investments permitted
by clause (a) and clause (b) may equal up to four million dollars ($4,000,000)
during the term of this Agreement (it being understood that compliance with the
foregoing clauses (a) and (b) shall be measured by reference to the actual
amount of such Restricted Investments made by the Borrower and its consolidated
Subsidiaries, without giving effect to any appreciation or depreciation in the
value of such Restricted Investments, whether realized or unrealized); provided
further that the Borrower may repurchase its capital stock in Permitted Stock
Repurchases. This Section 10.19 shall not limit the effect of Section 10.18.
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10.20 Capital Expenditures. Neither the Borrower nor any of
its Subsidiaries shall make or incur any Capital Expenditure if, after giving
effect thereto, the aggregate amount of all Capital Expenditures by the Borrower
and its Subsidiaries in any Fiscal Year would exceed three million five hundred
thousand dollars ($3,500,000).
10.21 Minimum Interest Coverage. As of the last day of each
fiscal quarter of the Borrower, the Borrower shall maintain a ratio of (a)
Adjusted Net Earnings from Operations for the four fiscal quarters ending on
such last day plus Interest Expense for such four fiscal quarters to (b)
Interest Expense for such four fiscal quarters, of not less than the following
ratios during the following periods:
<TABLE>
<CAPTION>
FOUR QUARTER MINIMUM
PERIOD ENDED RATIO
<S> <C>
September 30, 1997 3.50
December 31, 1997 3.50
March 31, 1998 3.50
June 30, 1998 4.25
September 30, 1998 4.25
December 31, 1998 4.25
March 31, 1999 4.25
The last day of any fiscal quarter thereafter 5.00.
</TABLE>
10.22 Fixed Charge Coverage. As of the last day of each fiscal
quarter of the Borrower, the Borrower shall maintain a ratio of (a) EBITDAR for
the four fiscal quarters ending on such last day specified below to (b) the sum
of (i) Interest Expense for such four fiscal quarters, (ii) principal payments
which the Borrower was required to make on Debt for borrowed money during such
four fiscal quarters, which Debt had an original term of at least one year,
(iii) rental expense for such four fiscal quarters and (iv) Capital Expenditures
during such four fiscal quarters, of not less than the following ratios during
the following periods:
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<TABLE>
<CAPTION>
FOUR QUARTER MINIMUM
PERIOD ENDED RATIO
<S> <C>
September 30, 1997 1.25
December 31, 1997 1.25
March 31, 1998 1.25
June 30, 1998 1.40
September 30, 1998 1.40
December 31, 1998 1.40
March 31, 1999 1.40
The last day of any fiscal quarter thereafter 1.50.
</TABLE>
10.23 Debt Ratio. As of the last day of each fiscal quarter of
the Borrower, the Borrower shall not permit the ratio of Debt to Adjusted
Tangible Net Worth to exceed the following amounts during the following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date - December 31, 1997 0.9
January 1, 1998 - December 31, 1998 0.8
January 1, 1999 and thereafter 0.7;
</TABLE>
provided, however, that for purposes of this Section 10.23, any Permitted Stock
Repurchase made by the Borrower after the Closing Date shall be deemed not to
have reduced Adjusted Tangible Net Worth.
10.24 Adjusted Tangible Net Worth. As of the last day of each
fiscal quarter of the Borrower, the Borrower shall maintain Adjusted Tangible
Net Worth of not less than the result of (a) thirty million dollars
($30,000,000) less (b) the amount of Permitted Stock Repurchases made by the
Borrower after the Closing Date.
10.25 Further Assurances. The Borrower shall execute and
deliver, or cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender may,
from time to time, request to carry out the terms and conditions of this
Agreement and the other Loan Documents.
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11. CONDITIONS PRECEDENT. The Lender shall not be obligated to
make the initial Loans, unless the following conditions precedent have been
satisfied in a manner satisfactory to Lender:
11.1 Conditions Precedent to Making of Initial Loans.
(a) Representations and Warranties; Covenants. The
Borrower's representations and warranties contained in this Agreement and the
other Loan Documents shall be true, correct and complete; the Borrower shall
have performed and complied with all covenants, agreements, and conditions
contained herein and in the other Loan Documents which are required to have been
performed or complied with.
(b) Secretary's Certificate. The Lender shall have
received a certificate of the Secretary or Assistant Secretary of the Borrower
certifying (i) the Certificate of Incorporation referred to in Section 11.1(c),
(ii) the By-Laws of the Borrower, (iii) a copy of the resolutions of the board
of directors of the Borrower approving this Agreement and the other Loan
Documents and the transactions contemplated hereby and thereby and (iv) the
names and true signatures of the officers of the Borrower authorized to sign the
Loan Documents (on which certificate the Lender conclusively may rely until such
time as the Lender receives a revised certificate meeting the requirements
hereof).
(c) Certificate of Incorporation. The Lender shall
have received the Articles of Incorporation of the Borrower certified by the
Secretary of State of Delaware.
(d) Good Standing Certificates. The Lender shall
have received good standing certificates of the Borrower issued by the Secretary
of State of California and the Secretary of State of Georgia.
(e) Legal Opinions. The Lender shall have received
a legal opinion from Troutman Sanders LLP, counsel to the Borrower and the
Guarantors, in form and substance satisfactory to the Lender and its counsel.
(f) UCC Matters. The Lender shall have received:
(x) Acknowledgment copies of UCC financing
statements filed on or before the date hereof, or other similar instruments or
documents, as may be necessary or, in the opinion of the Lender, desirable under
the UCC or any comparable law of all appropriate jurisdictions to perfect the
Lender's interests in the Collateral.
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(y) A search report provided in writing
by a Person acceptable to the Lender listing all effective UCC financing
statements that name the Borrower as debtor and that are filed in the
jurisdictions in which filings were made pursuant to clause (x) and in such
other jurisdictions as the Lender reasonably may request, together with copies
of such financing statements and searches of applicable Federal and state court
and agency dockets and lien records showing any judgment, tax and ERISA liens
affecting the Collateral or the Borrower or any Subsidiary.
(z) One or more UCC financing statements
signed by the Borrower and each secured party, if any, that has a Lien on the
Collateral (or on any Property of a Subsidiary) that are necessary or, in the
opinion of the Lender, desirable under the UCC or any comparable law of all
appropriate jurisdictions to terminate such Lien, together with, if applicable,
signed payoff letters from such secured party.
(g) Pledge Agreement. The Lender shall have received a pledge
agreement, in form and substance satisfactory to the Lender (the "Pledge
Agreement"), executed by the Borrower together with all certificates
representing the stock pledged thereunder and appropriate stock powers executed
in blank.
(h) Subsidiary Guaranty. The Lender shall have received a
secured guaranty, in form and substance satisfactory to the Lender (the
"Subsidiary Guaranty"), executed by the Guarantor.
(i) Financial Statements and Business Plan. The Lender shall
have received the Borrower's audited financial statements for Fiscal Year 1996,
and the Borrower's business plan for Fiscal Year 1997 and projections for Fiscal
Years 1998 and 1999, in each case in form and substance satisfactory to the
Lender.
(j) Litigation. Except as set forth on Schedule 9.16, there
shall exist no action, suit, investigation, litigation, or proceeding pending or
threatened in any court or before any arbitrator or governmental instrumentality
that in the Lender's reasonable judgment could reasonably be expected to have a
Material Adverse Effect. The Lender shall be satisfied with the prospects of the
Borrower's outstanding litigation and the terms and conditions of any
settlements.
(k) Corporate Structure. The Lender shall be satisfied with
the Borrower's corporate structure and ownership of Accounts and other assets.
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(l) Initial Payment Account; Blocked Account Agreement. The
Initial Payment Account shall have been established, and the Lender shall have
received the Blocked Account Agreement.
(m) Facility Fee. The Borrower shall have paid in full the
Facility Fee.
(n) Payment of Fees and Expenses. The Borrower shall have
paid, to the extent invoiced, all reasonable fees and expenses of the Lender's
outside counsel, Mayer, Brown & Platt and all other reasonable fees and expenses
of the Lender incurred in connection with any of the Loan Documents and the
transactions contemplated thereby (including the allocated costs of in-house
counsel).
(o) Required Approvals. The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender determines is required in connection with the
transactions contemplated by this Agreement.
(p) No Material Adverse Change. There shall have occurred no
material adverse change in the Borrower's business, operations, profits,
prospects, or financial condition or in the Collateral since June 30, 1997, and
the Borrower shall have met, as of the Closing Date, the Latest Plan, and the
Lender shall have received a certificate of the Borrower's chief executive
officer to such effect.
(q) Proceedings. All proceedings to be taken in connection
with the transactions contemplated by this Agreement, all exhibits and schedules
to this Agreement, and all documents contemplated in connection with this
Agreement, shall be satisfactory in form and substance to the Lender and its
counsel.
(r) Excess Availability. After taking into account the initial
Loan and with all obligations of the Borrower being current, there shall be
remaining Availability of at least ten million dollars ($10,000,000) calculated
prior to the making of such Loan.
(s) Specified Account Debtors. The Borrower shall have
delivered a proposed initial list of Specified Account Debtors to the Lender,
and the Lender shall have indicated in writing to the Borrower which Account
Debtors on such list shall not constitute Specified Account Debtors, and such
list, as so edited by the Lender, shall constitute the initial list of Specified
Account Debtors.
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(t) Account Debtor Notices. The Lender shall have received
evidence that Account Debtor Notices, signed by the Borrower, have been sent by
certified mail, return receipt requested, to all of the Account Debtors,
including the Specified Account Debtors referred to in clause (s), other than
any Government Account Debtors or Self-Pay Account Debtors.
(u) Delivery of Documents. The Borrower shall have delivered,
or caused to be delivered, to the Lender such other certifications, documents,
landlord waivers, instruments and agreements as the Lender shall request in
connection herewith, duly executed by all parties thereto other than the Lender,
and in form and substance satisfactory to the Lender and its counsel.
(v) Effective Date. The Lender shall have sent the Borrower
the notice referred to in the definition of Effective Date.
11.2 Conditions Precedent to Each Loan. The obligation of the Lender to
make each Loan shall be subject to the conditions precedent that:
(a) on the date of any such Loan the following statements
shall be true, and the acceptance by the Borrower of any extension of credit
shall be deemed to be a statement to the effect that (i) the representations and
warranties contained in this Agreement and the other Loan Documents are correct
in all material respects on and as of the date of such Loan as though made on
and as of such date, except to the extent the Lender has been notified by the
Borrower that any representation or warranty is not correct and the Lender has
explicitly waived in writing compliance with such representation or warranty and
(ii) no Event or Event of Default has occurred and is continuing, or would
result from such Loan; and
(b) the Lender shall have received a Borrowing Base
Certificate by 9:00 a.m., New York City time, on the date on which such Loan is
made.
12. DEFAULT.
12.1 Events of Default. It shall constitute an event of default ("Event
of Default") if any one or more of the following shall occur for any reason:
(a) (i) failure to make payment of principal on any Loan when
due, or (ii) failure to make payment of interest, fees or any other Obligation
when due (and, in the case of this clause (ii), such failure shall continue for
a period of five (5) days after the earlier to occur of (x) the date on which
the
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Borrower discovers, or reasonably should have discovered, any such failure and
(y) the date on which the Lender notifies the Borrower of any such failure);
(b) any representation or warranty made or deemed
made by the Borrower in this Agreement, any of the other Loan Documents, any
Financial Statement, or any certificate furnished by the Borrower or any
Subsidiary at any time to the Lender shall prove to be untrue in any material
respect as of the date when made, deemed made, or furnished;
(c) the Borrower shall (i) fail to comply with any of
the covenants set forth in any of Sections 7.1 through 7.19, 8.1, 8.2, 8.3,
10.6, or 10.8 through 10.24, or (ii) fail to comply with any of the covenants
set forth in any of Sections 10.1, 10.2, 10.3, 10.4(b), 10.5, 10.7, or 10.25 (if
such failure specified this clause (ii) shall have existed for more than ten
(10) days after the earlier to occur of (x) the date that the Borrower
discovers, or reasonably should have discovered, any such failure and (y) the
date on which the Lender notifies the Borrower of any such failure); provided,
however, that to the extent that any covenant in Section 8.2 or 8.3 specifies
the number of days within which the Borrower must comply with any reporting
requirement therein, such failure shall have existed for the number of days
specified in such covenant, plus three (3) days;
(d) default shall occur in the observance or
performance by the Borrower of any of the other covenants and agreements
contained in this Agreement, the other Loan Documents, or any other agreement
entered into at any time to which the Borrower and the Lender are party and such
default shall continue for a period of thirty (30) days after the earlier to
occur of (i) the date on which the Lender notifies the Borrower of any such
default and (ii) the date on which the Borrower discovers, or reasonably should
have discovered, any such default, or if any such Loan Document or agreement
shall terminate (other than in accordance with its terms or with the written
consent of the Lender) or become void or unenforceable without the written
consent of the Lender;
(e) default shall occur by the Borrower in the
payment of any principal or interest on any indebtedness for borrowed money
(other than the Obligations) in an aggregate amount in excess of one million
dollars ($1,000,000) beyond any period of grace or cure provided with respect
thereto;
(f) the Borrower or any Subsidiary shall: (i) file
a voluntary petition in bankruptcy or file a voluntary petition or an answer or
otherwise commence any action or proceeding seeking reorganization, arrangement
or readjustment of its debts or for any other relief under the Federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing, or consent to, approve of, or
acquiesce in,
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any such petition, action or proceeding; (ii) apply for or acquiesce in the
appointment of a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for it or for all or any part of its Property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due;
(g) an involuntary petition shall be filed or an
action or proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any Subsidiary's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing, and sixty
(60) days shall pass from the date of such filing or commencement;
(h) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for the Borrower or any Subsidiary or for
all or any part of their Property shall be appointed involuntarily; or a warrant
of attachment, execution or similar process shall be issued against any part of
the Property of the Borrower or any Subsidiary;
(i) the Borrower or any Guarantor shall file a
certificate of dissolution under applicable state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced against it any action
or proceeding for dissolution, winding-up or liquidation, or shall take any
corporate action in furtherance thereof;
(j) all or any material part of the Property of the
Borrower shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of the Borrower shall be
assumed by any Public Authority or any court of competent jurisdiction at the
instance of any Public Authority, except where contested in good faith by proper
proceedings diligently pursued where a stay of enforcement is in effect;
(k) any Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in the Subsidiary Guaranty;
or the Subsidiary Guaranty is for any reason partially (including with respect
to future advances) or wholly revoked or invalidated, or otherwise ceases to be
in full force and effect; or any Guarantor, or any other Person by, through or
on behalf of any Guarantor, contests in any manner the validity or
enforceability of the Subsidiary Guaranty or denies that such Guarantor has any
further liability or obligation thereunder;
(l) the Pledge Agreement shall cease to be in full
force and effect; or the Borrower, or any Person by, through or on behalf of the
Borrower, shall contest the validity or enforceability of the Pledge Agreement.
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(m) one or more final judgments for the payment of
money aggregating in excess of five hundred thousand dollars ($500,000) shall be
rendered against the Borrower or any Subsidiary and the Borrower or such
Subsidiary shall fail to discharge the same within thirty (30) days from the
date of notice of entry thereof or to appeal therefrom, provided that such a
judgment shall not constitute an Event of Default if it is covered by insurance
and the insurer has confirmed in writing to the Borrower within such thirty (30)
day period that (except as contemplated by the next proviso) such insurer shall
cover all of the costs, expenses, liabilities and obligations (including legal
fees and bonding requirements) of the Borrower or such Subsidiary relating to
such judgment and appeal, provided, however, that no Event of Default shall be
deemed to occur pursuant to this clause (m) if the aggregate costs, expenses,
liabilities and obligations (including legal fees and bonding requirements) of
the Borrower and its Subsidiaries relating to all such judgments and appeals,
after giving effect to such insurance, are less than or equal to five hundred
thousand dollars ($500,000);
(n) any loss, theft, damage or destruction of any
item or items of Collateral occurs which: (i) materially and adversely affects
the operation of the Borrower's business or (ii) is material in amount and is
not adequately covered by insurance;
(o) any event or condition shall occur or exist with
respect to a Plan that could, in the Lender's reasonable judgment, subject the
Borrower or any Subsidiary to any tax, penalty or liability under ERISA, the
Code or otherwise which in the aggregate is material in relation to the
business, operations, Property or financial or other condition of the Borrower;
or
(p) there occurs any material adverse change in the
Borrower's Property, business, operations, or condition (financial or
otherwise).
13. REMEDIES.
(a) If an Event of Default has occurred and is continuing, the
Lender may, without notice to or demand on the Borrower, do one or more of the
following at any time or times and in any order: (i) reduce the Availability or
one or more of the elements thereof; (ii) restrict the amount of or refuse to
make Revolving Loans; (iii) terminate this Agreement; (iv) declare any or all
Obligations to be immediately due and payable (provided, however, that upon the
occurrence of any Event of Default described in Sections 12.1(f), 12.1(g),
12.1(h) or 12.1(i), all Obligations shall automatically become immediately due
and payable); and (v) pursue its other rights and remedies under the Loan
Documents and applicable law.
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(b) If an Event of Default has occurred and is continuing: (i)
the Lender shall have, in addition to all other rights, the rights and remedies
of a secured party under the UCC; (ii) the Lender may, at any time, take
possession of the Collateral and keep it on the Borrower's Premises, at no cost
to the Lender, or remove any part of it to such other place or places as the
Lender may desire, or the Borrower shall, upon the Lender's demand, at the
Borrower's cost, assemble the Collateral and make it available to the Lender at
a place reasonably convenient to the Lender; and (iii) the Lender may sell and
deliver any Collateral at public or private sales, for cash, upon credit or
otherwise, at such prices and upon such terms as the Lender deems advisable, in
its sole discretion, and may, if the Lender deems it reasonable, postpone or
adjourn any sale of the Collateral by an announcement at the time and place of
sale or of such postponed or adjourned sale without giving a new notice of sale.
Without in any way requiring notice to be given in the following manner, the
Borrower agrees that any notice by the Lender of sale, disposition or other
intended action hereunder or in connection herewith, whether required by the UCC
or otherwise, shall constitute reasonable notice to the Borrower if such notice
is mailed by registered or certified mail, return receipt requested, postage
prepaid, or is delivered personally against receipt, at least ten (10) days
prior to such action to the Borrower's address specified in or pursuant to
Section 15.11. If any Collateral is sold on terms other than payment in full at
the time of sale, no credit shall be given against the Obligations until the
Lender receives payment, and if the buyer defaults in payment, the Lender may
resell the Collateral without further notice to the Borrower. In the event the
Lender seeks to take possession of all or any portion of the Collateral by
judicial process, the Borrower irrevocably waives: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Lender retain
possession and not dispose of any Collateral until after trial or final
judgment. The Borrower agrees that the Lender has no obligation to preserve
rights to the Collateral or marshal any Collateral for the benefit of any
Person. The Lender is hereby granted a license or other right to use, without
charge, the Borrower's labels, patents, copyrights, name, trade secrets, trade
names, trademarks, and advertising matter, or any similar property, in
completing production of, advertising or selling any Collateral, and the
Borrower's rights under all licenses and all franchise agreements shall inure to
the Lender's benefit. The proceeds of sale shall be applied first to all
expenses of sale, including attorney's fees, and second, in whatever order the
Lender elects, to all Obligations. The Lender shall return any excess to the
Borrower or such other Person as shall be legally entitled thereto and the
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives
(i) all rights to notice and hearing prior to the exercise by the Lender of the
Lender's
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rights to repossess the Collateral without judicial process or to replevy,
attach or levy upon the Collateral without notice or hearing, and (ii) all
rights of set-off and counterclaim against Lender.
14. TERM AND TERMINATION.
(a) This Agreement shall terminate on the third anniversary of
the Closing Date (the "Stated Termination Date") unless earlier terminated or
automatically extended as provided in this Section. This Agreement shall
automatically be renewed on the Stated Termination Date and at the end of any
renewal term for successive one-year terms, unless this Agreement is terminated
as provided below. The Lender and the Borrower shall have the right to terminate
this Agreement, without premium or penalty, on the Stated Termination Date or at
the end of any renewal term by giving the other written notice not less than
sixty (60) days prior to the end of such term by registered or certified mail.
(b) The Borrower may also terminate this Agreement at any time
prior to the Stated Termination Date or during any renewal term if all of the
following conditions have been satisfied: (i) it gives the Lender at least
thirty (30) days' prior written notice of termination; (ii) it pays and performs
all Obligations on or prior to the effective date of termination; and (iii) it
pays the Lender, on or prior to the effective date of termination, and in
addition to any other prepayment premium required hereunder and the fees
required by Section 6.4, a termination fee (the "Termination Fee") equal to (x)
three hundred seventy-five thousand dollars ($375,000) if such termination is
made on or prior to the first Anniversary Date, and (y) one hundred twenty-five
thousand dollars ($125,000) if such termination is after the first Anniversary
Date but prior to the second Anniversary Date; provided, however, that the
Borrower shall not be obligated to pay the Termination Fee if (A) the conditions
set forth in Section 6.7 have been satisfied, (B) the conditions set forth in
Section 15.13 have been satisfied, or (C) the reason for termination of this
Agreement is that Bank of America National Trust and Savings Association (or any
Affiliate thereof) has provided a revolving loan facility to the Borrower which
completely refinances the credit facility provided for in this Agreement.
(c) The Lender may also terminate this Agreement without
notice while an Event of Default exists.
(d) Upon the effective date of termination of this Agreement
for any reason whatsoever, all Obligations shall become immediately due and
payable.
(e) Notwithstanding the termination of this Agreement, until
all Obligations are paid and performed in full, the Lender shall retain all its
rights and remedies hereunder (including, without limitation, in all then
existing and after-arising Collateral).
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15. MISCELLANEOUS.
15.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration in this Agreement of the Lender's rights and remedies is not
intended to be exclusive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies that the Lender may
have under the UCC or other applicable law. The Lender shall have the right, in
its sole discretion, to determine which rights and remedies are to be exercised
and in which order. The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against the Borrower to collect the
Obligations without any prior recourse to the Collateral.
15.2 No Implied Waivers. No act, failure or delay by the
Lender shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
15.3 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement or such other
Loan Document.
15.4 Governing Law. This Agreement shall be deemed to have
been made in the State of New York and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
15.5 Consent to Jurisdiction and Venue. The Borrower agrees
that, in addition to any other courts that may have jurisdiction under
applicable laws, any action or proceeding to enforce or arising out of this
Agreement or any of the other Loan Documents may be commenced in the courts of
the State of New York, or in the United States District Court for the Southern
District of New York, and the Borrower consents and submits in advance to such
jurisdiction and agrees that venue shall be proper in such courts on any such
matter. The choice of forum set forth in this section shall not be deemed to
preclude the enforcement of any judgment obtained in such forum, or the taking
of any action under this Agreement to enforce the same, in any appropriate
jurisdiction.
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15.6 Waiver of Jury Trial. THE BORROWER HEREBY WAIVES TRIAL BY
JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY LITIGATION
IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM
OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE LENDER. THE BORROWER
CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
15.7 Survival of Representations and Warranties. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents until the later of
(a) the termination of this Agreement (b) and payment and performance in full of
all of the Obligations.
15.8 Other Security and Guaranties. The Lender may, without
notice or demand and without affecting the Obligations, from time to time: (a)
take from any Person and hold collateral (other than the Collateral) for the
payment of all or any part of the Obligations and exchange, enforce or release
such collateral or any part thereof; and (b) accept and hold any endorsement or
guaranty of payment of all or any part of the Obligations and release or
substitute any such endorser or guarantor, or any Person who has given any Lien
in any other collateral as security for the payment of all or any part of the
Obligations, or any other Person in any way obligated to pay all or any part of
the Obligations.
15.9 Fees and Expenses. The Borrower shall pay to the Lender
on demand all costs and expenses that the Lender pays or incurs in connection
with the negotiation, preparation, consummation, administration, enforcement,
and termination of this Agreement and the other Loan Documents, including,
without limitation: (a) attorneys' and paralegals' fees and disbursements of
counsel to the Lender (including, without limitation, a reasonable estimate of
the allocable cost of in-house counsel and staff), it being understood that such
fees and disbursements in respect of the negotiation, preparation, consummation
and administration of this Agreement shall be reasonable; (b) costs and expenses
including attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with the Loan Documents and the transactions contemplated
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thereby, it being understood that such fees and disbursements shall be
reasonable; (c) costs and expenses of lien and title searches and title
insurance; (d) Taxes, fees and other charges for recording the mortgages, filing
financing statements and continuations, and other actions to perfect, protect,
and continue the Security Interest; (e) sums paid or incurred to pay any amount
or take any action required of the Borrower under the Loan Documents that the
Borrower fails to pay or take; (f) costs of appraisals, inspections, and
verifications of the Collateral, including, without limitation, travel, lodging,
meals, and other expenses together with an allocated charge per day for each
auditor employed by the Lender for inspections of the Collateral and the
Borrower's operations (such charge per day to be specified from time to time by
the Lender; as of the Closing Date, such charge was $750 per day); (g) costs and
expenses of forwarding loan proceeds, collecting checks and other items of
payment, and establishing and maintaining Payment Accounts and lock boxes; (h)
costs and expenses of preserving and protecting the Collateral (including
without limitation costs and expenses relating to Sections 7.16 and 7.17); and
(i) costs and expenses including attorneys' and paralegals' fees and
disbursements (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff) paid or incurred to obtain payment
of the Obligations, enforce the Security Interest, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of the Loan Documents
(including without limitation costs and expenses relating to Sections 7.16 and
7.17), or to defend any claims made or threatened against the Lender arising out
of the transactions contemplated hereby (including without limitation,
preparations for and consultations concerning any such matters). The foregoing
shall not be construed to limit any other provisions of the Loan Documents
regarding costs and expenses to be paid by the Borrower. All of the foregoing
costs and expenses shall be charged to the Borrower's loan account as Revolving
Loans.
15.10 Notices. Except as otherwise expressly provided herein,
all notices, demands, and requests that either party is required or elects to
give to the other shall be in writing, shall be delivered personally against
receipt, or sent by recognized overnight courier services, or mailed by
registered or certified mail, return receipt requested, postage prepaid, and
shall be addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
231 South LaSalle Street, 16th Floor
Chicago, Illinois 60697
Attention: Pamela M. Turner
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with a copy to: BankAmerica Business Credit, Inc.
Legal Department
335 Madison Avenue
New York, New York 10017
Attention: Girolamo M. Saccone
If to the Borrower: Matria Healthcare, Inc.
1850 Parkway Place
Suite 1200
Marietta, Georgia 30067
Attention: Vice President - Finance
with a copy to: Troutman Sanders LLP
NationsBank Plaza, Suite 5200
600 Peachtree Street
Atlanta, Georgia 30080
Attention: James L. Smith III, Esq.
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail.
15.11 Indemnification.
(A) THE BORROWER HEREBY INDEMNIFIES, DEFENDS AND HOLDS THE
LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, DEFICIENCIES,
JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY
OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING OUT OF OR BY REASON
OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS (WHETHER BASED ON ANY
FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR REGULATIONS, INCLUDING,
WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR COMMERCIAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITY, OR ON CONTRACT OR OTHERWISE)
COMMENCED OR THREATENED, WHICH ARISE OUT OF OR ARE IN ANY WAY BASED UPON THE
NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR
PROCEEDING RELATED TO ANY OF THE TRANSACTIONS
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CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO ACT, EVENT OR TRANSACTION RELATED OR
ATTENDANT THERETO, INCLUDING, WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT,
COURT COSTS, AND THE FEES AND EXPENSES OF COUNSEL REASONABLY INCURRED IN
CONNECTION WITH ANY SUCH LITIGATION, INVESTIGATION, CLAIM OR PROCEEDING AND
FURTHER INCLUDING, WITHOUT LIMITATION, ALL LOSSES, DAMAGES (INCLUDING
CONSEQUENTIAL DAMAGES), EXPENSES OR LIABILITIES SUSTAINED BY THE LENDER IN
CONNECTION WITH ANY ENVIRONMENTAL INSPECTION, MONITORING, SAMPLING, OR CLEANUP
OF THE ENCUMBERED REAL ESTATE REQUIRED OR MANDATED BY ANY ENVIRONMENTAL LAW;
PROVIDED, HOWEVER, THAT THE BORROWER SHALL NOT INDEMNIFY THE LENDER, ITS
DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL FROM SUCH DAMAGES RESULTING
FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(b) The Borrower hereby indemnifies, defends and holds
harmless the Lender from any loss or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a Hazardous Substance.
This indemnity shall apply whether the Hazardous Substance is on, under or about
the Borrower's property or operations or property leased to the Borrower. The
indemnity includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Lender, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous Substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum or
natural gas.
(c) Without limiting the foregoing, if, by reason of any suit
or proceeding of any kind, nature, or description against the Borrower, or by
the Borrower or any other party against the Lender, which in the Lender's sole
discretion makes it advisable for the Lender to seek counsel for protection and
preservation of its liens and security assets, or to defend its own interest,
such expenses and counsel fees shall be allowed to the Lender. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section 15.11 may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
indemnified matters incurred by the Lender. The indemnity contained in this
Section 15.11
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shall survive the payment of the Obligations and the termination of this
Agreement. All of the foregoing costs and expenses shall be part of the
Obligations and secured by the Collateral.
15.12 Waiver of Notices. Unless otherwise expressly provided
herein, the Borrower waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on the Borrower
which the Lender may elect to give shall entitle the Borrower to any or further
notice or demand in the same, similar or other circumstances.
15.13 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any assignee of the
Obligations or any part thereof. The Lender shall notify the Borrower of any
assignment of Obligations made by the Lender. If the Borrower notifies the
Lender within fifteen (15) days after receiving such notification that it
objects to such assignment, then the Borrower may terminate this Agreement in
accordance with Section 14(b), provided that no Termination Fee shall be payable
in connection with such termination if such termination occurs within ninety
(90) days after the date of the notification sent by the Lender to the Borrower
pursuant to the immediately preceding sentence.
15.14 Modification. This Agreement is intended by the Borrower
and the Lender to be the final, complete, and exclusive expression of the
agreement between them. This Agreement supersedes any and all prior oral or
written agreements relating to the subject matter hereof and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no oral agreements between the parties. No
modification, rescission, waiver, release, or amendment of any provision of this
Agreement (including the Schedules and Exhibits hereto) shall be made, except by
a written agreement signed by the Borrower and a duly authorized officer of the
Lender.
15.15 Counterparts. This Agreement may be executed in any
number of counterparts, and by the Lender and the Borrower in separate
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement.
15.16 Captions. The captions contained in this Agreement
(including without limitation the table of contents and the schedules hereto)
are
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for convenience only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.
15.17 Right of Set-Off. Whenever an Event of Default exists,
the Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Lender or any affiliate of the
Lender to or for the credit or the account of the Borrower against any and all
of the Obligations, whether or not then due and payable. The Lender agrees
promptly to notify the Borrower after any such set-off and application made by
the Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
15.18 Participating Lender's Security Interests. The Lender
may, without notice to or consent by the Borrower, grant one or more
participations in the Loans to Participating Lenders. If a Participating Lender
shall at any time with the Borrower's knowledge participate with the Lender in
the Loans, the Borrower hereby grants to such Participating Lender, and the
Lender and such Participating Lender shall have and are hereby given, a
continuing lien on and security interest in any money, securities and other
property of the Borrower in the custody or possession of the Participating
Lender, including the right of setoff, to the extent of the Participating
Lender's participation in the Obligations, and such Participating Lender shall
be deemed to have the same right of setoff to the extent of Participating
Lender's participation in the Obligations under this Agreement as it would have
if it were a direct lender.
[SIGNATURES FOLLOW]
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IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date first above written.
MATRIA HEALTHCARE, INC.
By:
-------------------------------
Senior Vice President - Finance
BANKAMERICA BUSINESS
CREDIT, INC.
By:
-------------------------------
Vice President
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EXHIBIT A
to Loan and Security Agreement
FINANCIAL STATEMENTS
<PAGE> 90
EXHIBIT B
to Loan and Security Agreement
FORM OF ACCOUNT DEBTOR NOTICE
[Letterhead of Matria]
_____________, 19__
CERTIFIED MAIL;
RETURN RECEIPT REQUESTED
[Name and address of Account Debtor]
To Whom It May Concern:
This is to notify you that we have granted a continuing security
interest to BankAmerica Business Credit, Inc. in all receivables and other
amounts, whether now existing or arising in the future, with respect to which
you are obligated to pay us and which you will be obligated in the future to pay
us.
Such security interest will continue in effect until such time as
BankAmerica Business Credit, Inc. otherwise notifies you in writing.
Very truly yours,
MATRIA HEALTHCARE, INC.
By:
--------------------------------
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MATRIA HEALTHCARE INC. FOR THE PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,469
<SECURITIES> 13,633
<RECEIVABLES> 62,044
<ALLOWANCES> (25,777)
<INVENTORY> 943
<CURRENT-ASSETS> 57,716
<PP&E> 34,962
<DEPRECIATION> (22,094)
<TOTAL-ASSETS> 195,452
<CURRENT-LIABILITIES> 23,324
<BONDS> 0
0
0
<COMMON> 366
<OTHER-SE> 156,241
<TOTAL-LIABILITY-AND-EQUITY> 195,452
<SALES> 0
<TOTAL-REVENUES> 107,432
<CGS> 0
<TOTAL-COSTS> (43,329)
<OTHER-EXPENSES> (76,459)
<LOSS-PROVISION> (4,823)
<INTEREST-EXPENSE> 417
<INCOME-PRETAX> (16,762)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,762)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
