SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 9, 1998
MEDICAL DYNAMICS, INC.
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(Exact name of Registrant as specified in its charter)
Commission file number: 0-8632
Colorado 84-0631765
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
99 Inverness Drive East
Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 790-2990
not applicable
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former name or former address, if applicable
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Item 5: Other Events
On October 9, 1998, Medical Dynamics, Inc. ("MEDY") executed loan
agreements and other related documents with Norwest Business Credit, Inc.
("Norwest") of Denver, Colorado, to provide MEDY with a loan of up to $1,000,000
based primarily on MEDY's receivables and the receivables of its wholly-owned
subsidiary, Computer Age Dentist, Inc. ("CADI"). Interest on the amount borrowed
will initially be 3% over Norwest's announced "base rate," although the rate may
be reduced to 1% over Norwest's announced "base rate" depending on MEDY's
consolidated net income as reported in MEDY's audited financial statements.
Initially MEDY's accounts receivable permitted MEDY to draw approximately
$200,000 on this loan. Loan availability will increase to the extent MEDY's
revenues and accounts receivables (not including past-due accounts receivable)
increase. The agreement contains a provision, requiring MEDY to pay Norwest
$2,750 per month as minimum interest, as well as standard default and remedies
provisions. Unless terminated earlier, the loan is repayable in full and the
agreement will be terminated on October 9, 2001.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Not required.
(b) Pro Forma Financial Information
Not required.
(c) Exhibits
1. Loan Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MEDICAL DYNAMICS, INC.
October 30, 1998 By: /s/ Van A. Horsley
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Van A. Horsley, President
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CREDIT AND SECURITY AGREEMENT
BY AND AMONG
MEDICAL DYNAMICS, INC. AND
COMPUTER AGE DENTIST, INC.
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of: October 9, 1998
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CREDIT AND SECURITY AGREEMENT
Dated as of October 9, 1998
MEDICAL DYNAMICS, INC., a Colorado corporation, and COMPUTER AGE DENTIST,
INC., a California corporation (each a "Borrower"; collectively, the
"Borrowers"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), hereby agree as follows:
ARTICLE I
Definitions
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Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires the terms
defined in this Article have the meanings assigned to them in this article, and
include the plural as well as the singular; and all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP.
"Accounts" means all of the accounts of each Borrower, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to either Borrower
arising out of the sale or lease of goods or rendition of services by such
Borrower on an open account or deferred payment basis.
"Advance" means an advance to a Borrower by the Lender pursuant to
Section 2.1.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with a Borrower, including (without
limitation) any Subsidiary of a Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power
to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Availability" means with respect to MDI, the difference of (i) the
MDI Borrowing Base and (ii) the outstanding principal balance of the MDI
Note and, with respect to CAD, the difference of (i) the CAD Borrowing Base
and (ii) the outstanding principal balance of the CAD Note.
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"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Denver, Colorado.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota as its "base rate" or, if such bank ceases
to announce a rate so designated, any similar successor rate designated by
the Lender.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in a Borrower, determined in accordance with GAAP.
"CAD" means Computer Age Dentist, Inc.
"CAD Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, 80% of Eligible Accounts of CAD.
"CAD Note" means the promissory note of CAD payable to the order of
the Lender in substantially the form of Exhibit A-2 and any note or notes
issued in substitution therefor, as the same may hereafter be amended,
supplemented or restated from time to time.
"Capital Expenditures" for a period means any expenditure of money for
the purchase or construction of assets, or for improvements or additions
thereto, which are capitalized on a Borrower's balance sheet.
"Collateral" means each Borrower's Equipment, General Intangibles,
Inventory, Receivables, Investment Property, all sums on deposit in any
Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing;
(ii) proceeds of any and all of the foregoing; (iii) in the case of all
tangible goods, all accessions; (iv) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any tangible goods; and (v) all warehouse receipts, bills
of lading and other documents of title now or hereafter covering such
goods.
"Collateral Account" has the meaning given in Section 4.1(f).
"Collateral Account Agreement" means the Collateral Account Agreement
of even date herewith by and among each Borrower, Norwest Bank Colorado and
the Lender.
"Commitment" means the Lender's commitment to make Advances to or for
the account of either Borrower pursuant to Article II.
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"Credit Facilities" means the credit facilities being made available
to the Borrowers by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes of
determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means, with respect to the Advances, an annual rate
equal to three percent (3%) over the Floating Rate, which rate shall change
when and as the Floating Rate changes.
"EBITDA" for a period means, pretax earnings from continuing
operations before (i) Interest Expense, (ii) depreciation, depletion, and
amortization of tangible and intangible assets, (iii) special extraordinary
gains, (iv) minority interests, and (v) miscellaneous gains and losses, in
each case for such period, computed and calculated in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after the
invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, including
advance billings under software maintenance agreements, by a Borrower
to the customer;
(iv) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for
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which a Borrower has provided evidence satisfactory to the Lender that
(A) the Lender has a first priority perfected security interest and
(B) such Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the United
States or Canada which are not (A) backed by a bank letter of credit
naming the Lender as beneficiary or assigned to the Lender, in the
Lender's possession and acceptable to the Lender in all respects, in
its sole discretion, or (B) covered by a foreign receivables insurance
policy acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of either Borrower;
(viii) Accounts not subject to a duly perfected security interest
in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) That portion of the aggregate accounts of a single customer
that exceeds 15% of all aggregate Accounts;
(xii) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii) or
(ix) above; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"Environmental Law" has the meaning specified in Section 5.12.
"Equipment" means all of the equipment of each Borrower, as such term
is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
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equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by either Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus three percent (3%), which annual rate shall change when and as the
Base Rate changes, provided, however, that if (i) no Event of Default then
exists, and (ii) the Borrowers' consolidated audited financial statements
as of September 30th of any year demonstrate that the Borrowers'
consolidated Net Income, excluding extraordinary gains, equals or exceeds
the amounts set forth below, the Floating Rate shall be reduced as of
February 1st of the following year to the rate set forth opposite such
amount:
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Consolidated Net Income Rate
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Greater than zero but less than or 2.0%
equal to $250,000
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More than $250,000 or more but less 1.5%
than or equal to $500,000
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More than $500,000 1.0%
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"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"General Intangibles" means all of the general intangibles of each
Borrower, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use each Borrower's name,
and the goodwill of each Borrower's business.
"Hazardous Substances" has the meaning given in Section 5.12.
"Interest Expense" means, for a fiscal year-to-date period, the
Borrower's total gross interest expense during such period (excluding
interest income), and shall in any event include, without limitation, (i)
interest expensed (whether or not paid) on all Debt, (ii) the amortization
of debt discounts, (iii) the amortization of all fees payable in connection
with the incurrence of Debt to the extent included in interest expense, and
(iv) the portion of any capitalized lease obligation allocable to interest
expense.
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"Inventory" means all of the inventory of each Borrower, as such term
is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the investment property of each
Borrower, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Loan Documents" means this Agreement, the Notes and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among each
Borrower, Norwest Bank Colorado and, the Lender, of even date herewith.
"MDI" means Medical Dynamics, Inc.
"MDI Note" means the promissory note of CAD payable to the order of
the Lender in substantially the form of Exhibit A-1 and any note or notes
issued in substitution therefor, as the same may hereafter be amended,
supplemented or restated from time to time.
"MDI Borrowing Base" means, at any time the lesser of:
(c) the Maximum Line; or
(d) subject to change from time to time in the Lender's sole
discretion, 80% of Eligible Accounts of MDI.
"Maturity Date" means October 9, 2001
"Maximum Line" means $1,000,000 unless said amount is reduced pursuant
to Section 2.8, in which event it means the amount to which said amount is
reduced.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"Net Income" means pre-tax net income from continuing operations, as
determined in accordance with GAAP.
"Norwest Bank Colorado" means Norwest Bank Colorado, National
Association.
"Norwest Bank Minnesota" means Norwest Bank Minnesota, National
Association.
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"Note" means the CAD Note or the MDI Note, and "Notes" means the CAD
Note and the MDI Note.
"Obligations" of each Borrower means each and every debt, liability
and obligation of every type and description which such Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of such Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness
of such Borrower arising under this Agreement, any Note of such Borrower or
any other loan or credit agreement or guaranty between such Borrower and
the Lender, whether now in effect or hereafter entered into.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by either Borrower in favor of the Lender of
even date herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained by
either Borrower for such Borrower's employees and covered by Title IV of
ERISA.
"Premises" means all premises where either Borrower conducts its
business and has any rights of possession, including (without limitation)
the premises legally described in Exhibit C attached hereto.
"Receivables" means each and every right of the Borrower of each
Borrower to the payment of money, whether such right to payment now exists
or hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a rendering
of services, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement, whether
such right to payment is created, generated or earned by such Borrower or
by some other person who subsequently transfers such person's interest to
such Borrower, whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be evidenced, together
with all other rights and interests (including all liens and security
interests) which such Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such
payment or against any property of such account debtor or other obligor;
all including but not limited to all present and future accounts, contract
rights, loans and obligations receivable, chattel papers, bonds, notes and
other debt instruments, tax refunds and rights to payment in the nature of
General Intangibles.
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"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Security Documents" means this Agreement, any Collateral Account
Agreement, any Lockbox Agreement, the Patent and Trademark Security
Agreement and any other document delivered to the Lender from time to time
to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by either Borrower, by either Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date that either Borrower terminates the Credit Facilities, or (iii)
the date the Lender demands payment of the Obligations after an Event of
Default pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
Section 1.2 Cross References. All references in this Agreement to Articles,
Sections and subsections, shall be to Articles, Sections and subsections of this
Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facilities
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Section 2.1 Advances. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make advances to the Borrower from time to time
from the date all of the conditions set forth in Section 4.1 are satisfied (the
"Funding Date") to the Termination Date, to make Advances (i) to the Borrowers
in a total aggregate amount at any time outstanding not to exceed the Maximum
Line and (ii) to each Borrower in an aggregate amount at any time outstanding
not to exceed such Borrower's Borrowing Base. MDI's obligation to pay Advances
shall be evidenced by the MDI Note and CAD's obligation to pay Advances shall be
evidenced by the CAD Note, and each such obligation shall be secured by the
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Collateral as provided in Article III. Within the limits set forth in this
Section 2.1, each Borrower may borrow, prepay pursuant to Section 2.6 and
reborrow. The Borrowers agree to comply with the following procedures in
requesting Advances under this Section 2.1:
(a) A Borrower shall make each request for an Advance to the Lender
before 11:00 a.m. (Denver time) of the day of the requested Advance.
Requests may be made in writing or by telephone, specifying the date of the
requested Advance and the amount thereof. Each request shall be by (i) any
officer of such Borrower; or (ii) any person designated as such Borrower's
agent by any officer of such Borrower in a writing delivered to the Lender;
or (iii) any person whom the Lender reasonably believes to be an officer of
such Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Advance by
crediting the same to such Borrower's demand deposit account maintained
with Norwest Bank Colorado unless the Lender and such Borrower shall agree
in writing to another manner of disbursement. Upon the Lender's request,
the Borrower requesting the Advance shall promptly confirm each telephonic
request for an Advance by executing and delivering an appropriate
confirmation certificate to the Lender. Each Borrower shall repay all
Advances made to such Borrower even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in fact
authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower
requesting the Advance that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.
Section 2.2 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury.
(a) Notes. Except as set forth in Sections 2.2(b) and 2.2(c), the
outstanding principal balances of each Note shall bear interest at the
Floating Rate. Interest accruing on the Notes shall be due and payable in
arrears on the first day of each month.
(b) Minimum Interest Charge. Notwithstanding the interest payable
pursuant to Section 2.2(a), the Borrowers jointly and severally agree to
pay to the Lender interest of not less than $2,750 per calendar month (the
"Minimum Interest Charge") during the term of this Agreement, and the
Borrowers shall pay any deficiency between the Minimum Interest Charge and
the amount of interest otherwise calculated under Sections 2.2(a) and
2.2(c) on the date and in the manner provided in Section 2.4.
(c) Default Interest Rate. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
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(d) Participations. If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under , along with
all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its pro rata share of such fees, charges and other
amounts due under this Agreement.
(e) Usury. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between either Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other charges made under
any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in
excess shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so that the
total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrowers and
the Lender. This provision shall never be superseded or waived and shall
control every other provision of the Loan Documents and all agreements
between either Borrower and the Lender, or their successors and assigns.
Section 2.3 Fees
(a) Origination Fee. The Borrowers hereby jointly and severally agree
to pay the Lender a fully earned and non-refundable origination fee of
$15,000, of which $10,000 shall be due and payable upon the execution of
this Agreement and the remaining $5,000 shall be due and payable on October
9, 1999.
(b) Audit Fees. The Borrowers hereby jointly and severally agree to
pay the Lender, on demand, audit fees in connection with any audits or
inspections conducted by the Lender of any Collateral or the operations or
business of either Borrower at the rates established from time to time by
the Lender as its audit fees (which fees are currently $60 per hour per
auditor), together with all actual out-of-pocket costs and expenses
incurred in conducting any such audit or inspection.
Section 2.4 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
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Section 2.5 Capital Adequacy. If any Related Lender determines at any time
that its Return has been reduced as a result of any Rule Change, the Borrowers
jointly and severally agree to pay such Related Lender the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Return", for any period, means the return as determined by such
Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital
Adequacy Rules then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to
the extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender, any
parent corporation of the Lender and any assignee of any interest of the
Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to either Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, each Borrower may prepay the Advances in whole at any time or from time
to time in part. The Borrowers may terminate this Agreement or reduce the
Maximum Line at any time if they (i) give the Lender at least 30 days' prior
written notice and (ii) pay the Lender the prepayment, termination or line
reduction fees in accordance with Section 2.7. If the Borrowers reduce the
Maximum Line to zero, all Obligations shall be immediately due and payable. Upon
termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrowers are entitled by law.
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Section 2.7 Termination, Line Reduction and Prepayment Fees; Waiver of
Termination, Prepayment and Line Reduction Fees.
(a) Termination and Line Reduction Fees. If the Credit Facilities are
terminated for any reason as of a date other than the Maturity Date, or the
Borrowers reduce the Maximum Line, the Borrowers agree jointly and
severally to pay to the Lender a fee in an amount equal to a percentage of
the Maximum Line (or the reduction, as the case may be) as follows: (i) 3
percent (3%) if the termination or reduction occurs on or before the first
anniversary of the Funding Date; (ii) two percent (2%) if the termination
or reduction occurs after the first anniversary of the Funding Date but on
or before the second anniversary of the Funding Date; and (iii) one percent
(1%) if the termination or reduction occurs after the second anniversary of
the Funding Date.
(b) Waiver of Termination, Line Reduction and Prepayment Fees. The
Borrowers will not be required to pay the termination, line reduction and
prepayment fees otherwise due under this Section 2.7 if such termination,
line reduction or prepayment is made because of increased cash flow
generated from the Borrower's operations or refinancing by an affiliate of
the Lender.
Section 2.8 Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Advances shall at any time exceed such
Borrower's Borrowing Base, such Borrower shall immediately prepay the Advances
to the extent necessary to eliminate such excess. Any payment received by the
Lender under this Section 2.8 or under Section 2.6 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.9 Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations two (2)
Banking Days after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for two (2) additional days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrowers hereby authorize the Lender, in its discretion at any time or from
time to time without the Borrowers' request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make an Advance in an amount equal to
the portion of the Obligations from time to time due and payable.
Section 2.10 Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
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Section 2.11 Use of Proceeds. The Borrowers shall use the proceeds of
Advances for ordinary working capital purposes.
Section 2.12 Liability Records. The Lender may maintain from time to time,
at its discretion, liability records as to each Borrower's Obligations. All
entries made on any such record shall be presumed correct until such Borrower
establishes the contrary. Upon the Lender's demand, each Borrower will admit and
certify in writing the exact principal balance of such Borrower's Obligations
that such Borrower then asserts to be outstanding. Any billing statement or
accounting rendered by the Lender shall be conclusive and fully binding on the
applicable Borrower unless such Borrower gives the Lender specific written
notice of exception within 30 days after receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. Each Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of such Borrower's Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The Lender
may at any time (whether or not a Default Period then exists) notify any account
debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to the Lender for security and shall be
paid directly to the Lender. The Borrowers will join in giving such notice if
the Lender so requests. At any time after either Borrower or the Lender gives
such notice to an account debtor or other obligor, the Lender may, but need not,
in the Lender's name or in such Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as such Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
such Borrower's mail to any address designated by the Lender, otherwise
intercept such Borrower's mail, and receive, open and dispose of such Borrower's
mail, applying all Collateral as permitted under this Agreement and holding all
other mail for such Borrower's account or forwarding such mail to the Borrower's
last known address.
Section 3.3 Assignment of Insurance. As additional security for the payment
and performance of the Obligations, each Borrower hereby assigns to the Lender
any and all monies (including, without limitation, proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of such Borrower with respect to, any and all policies of insurance now or at
any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and such Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in such Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
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Section 3.4 Occupancy.
(a) Each Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises of such Borrower at any time during a
Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations
and termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, of a Borrower, such Borrower shall reimburse the Lender
promptly for the full amount thereof. In addition, such Borrower will pay,
or reimburse the Lender for, all taxes, fees, duties, imposts, charges and
expenses at any time incurred by or imposed upon the Lender by reason of
the execution, delivery, existence, recordation, performance or enforcement
of this Agreement or the provisions of this Section 3.4.
Section 3.5 License. Without limiting the generality of the Patent and
Trademark Security Agreement, each Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of such Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by each
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtors:
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, CO 80111
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Federal Tax Identification No. 84-0631765
Computer Age Dentist, Inc.
99 Inverness Drive East
Englewood, CO 80111
Federal Tax Identification No. 95-4445531
Name and address of Secured Party:
Norwest Business Credit, Inc.
1740 Broadway
Denver, CO 80274-8625
Section 3.7 Setoff. Each Borrower agrees that the Lender may at any time or
from time to time, at its sole discretion and without demand and without notice
to anyone, setoff any liability owed to either Borrower by the Lender, whether
or not due, against any Obligation of such Borrower, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to either Borrower, whether or not due, and apply the
same to the payment of said participating interest, as fully as if such Person
had lent directly to such Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial Advances. The Lender's
obligation to make the initial Advances hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrowers.
(b) The MDI Note, properly executed by MDI and the CAD Note, properly
executed by CAD.
(c) A true and correct copy of any and all leases pursuant to which
either Borrower is leasing its Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) A true and correct copy of any and all agreements pursuant to
which either Borrower's property is in the possession of any Person other
than such Borrower, together with, in the case of any goods held by such
Person for resale, (i) a consignee's acknowledgment and waiver of liens,
(ii) UCC financing statements sufficient to protect such Borrower's and the
Lender's interests in such goods, and (iii) UCC searches showing that no
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other secured party has filed a financing statement against such Person and
covering property similar to such Borrower's other than such Borrower, or
if there exists any such secured party, evidence that each such secured
party has received notice from such Borrower and the Lender sufficient to
protect such Borrower's and the Lender's interests in such Borrower's goods
from any claim by such secured party.
(e) An acknowledgment and agreement from each licensor in favor of the
Lender, together with a true, correct and complete copy of all license
agreements.
(f) Separate Collateral Account Agreements, properly executed by each
Borrower and Norwest Bank Colorado pursuant to which each Borrower and such
bank establish a depository account (the "Collateral Account") in the name
of and under the sole and exclusive control of the Lender, from which such
bank agrees to transfer finally collected funds to the Lender for
application to such Borrower's Obligations.
(g) Separate Lockbox Agreements, properly executed by each Borrower
and Norwest Bank Colorado.
(h) The Patent and Trademark Security Agreement, properly executed by
the Borrower.
(i) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against
either Borrower, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against
either Borrower except those financing statements and assignments of
patents, trademarks or copyrights relating to Permitted Liens or to liens
held by Persons who have agreed in writing that upon receipt of proceeds of
the Advances, they will deliver UCC releases and/or terminations and
releases of such assignments of patents, trademarks or copyrights
satisfactory to the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(j) Separate certificates of each Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of such Borrower's directors
and, if required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) such Borrower's articles of
incorporation and bylaws, and (iii) the signatures of such Borrower's
officers or agents authorized to execute and deliver the Loan Documents and
other instruments, agreements and certificates, including Advance requests,
on such Borrower's behalf.
(k) Current certificates issued by the Secretary of State of Colorado,
in the case of MDI, and California, in the case of CAD, certifying that
each Borrower is in compliance with all applicable organizational
requirements of such Borrower's state of incorporation.
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(l) Evidence that each Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(m) A certificate of an officer of each Borrower confirming, in his
personal capacity, the representations and warranties set forth in Article
V.
(n) Separate support agreements in favor of the Lender, properly
executed by Van A. Horsley and Edward Boggs, each in his personal capacity.
(o) An opinion of counsel to the Borrowers, addressed to the Lender.
(p) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(q) Evidence that, immediately after the initial Advances and taking
into account the contemplated uses of the proceeds of such Advances,
Availability will exceed $350,000, in the aggregate.
(r) Evidence acceptable to the Lender in its sole discretion that each
Borrower has paid all taxes, including taxes on real property, due and
owing on or before the date hereof.
(s) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.3 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
9.6, including all legal expenses incurred through the date of this
Agreement.
(t) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances. The Lender's obligation
to make each Advance shall be subject to the further conditions precedent that
on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance which constitutes a Default or an Event of Default.
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ARTICLE V
Representations and Warranties
------------------------------
The Borrowers hereby jointly and severally represent and warrant to the
Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number. MDI is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Colorado and CDI is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and each
Borrower is duly licensed or qualified to transact business in all jurisdictions
where the character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification necessary. Each
Borrower has all requisite power and authority, corporate or otherwise, to
conduct its business, to own its properties and to execute and deliver, and to
perform all of its obligations under, the Loan Documents. During its existence,
each Borrower has done business solely under the names set forth in Schedule 5.1
hereto. Each Borrower's chief executive office and principal place of business
is located at the address set forth in Schedule 5.1 hereto, and all of each
Borrower's records relating to its business or the Collateral are kept at that
location. All Inventory and Equipment is located at that location or at one of
the other locations set forth in Schedule 5.1 hereto. Each Borrower's tax
identification number is correctly set forth in Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by each Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of either Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
either Borrower or of either Borrower's articles of incorporation or bylaws;
(iv) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other material agreement, lease or instrument to
which either Borrower is a party or by which it or its properties may be bound
or affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by either
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrowers executing the same, the other Loan Documents will
constitute the legal, valid and binding obligations of the Borrowers executing
the same, enforceable against such Borrower in accordance with their respective
terms.
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Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4 hereto, the
Borrowers have no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrowers have
heretofore furnished to the Lender its audited financial statements for its
fiscal year ended September 30, 1997 and its unaudited financial statements for
the fiscal year-to-date period ended August 31, 1998 and those statements fairly
present each Borrower's financial condition on the dates thereof and the results
of such Borrower's operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in either Borrower's business, properties or condition (financial or
otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings pending
or, to the Borrowers' knowledge, threatened against or affecting either Borrower
or any of its Affiliates or the properties of either Borrower or any of their
Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to such Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of either
Borrower or any of their Affiliates.
Section 5.7 Regulation U. Neither Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 5.8 Taxes. Each Borrower and its Affiliates have paid or caused to
be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. Each Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of such Borrower or any Affiliate, as the case may be, are required to
be filed, and such Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9 Titles and Liens. Each Borrower has good and absolute title to
all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming either Borrower as debtor is on
file in any office except to perfect only Permitted Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior to
the date hereof, neither Borrower nor any of their Affiliates maintains or has
maintained any Plan. Neither Borrower nor any Affiliate has received any notice
or has any knowledge to the effect that it is not in full compliance with any of
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the requirements of ERISA. No Reportable Event or other fact or circumstance
which may have an adverse effect on the Plan's tax qualified status exists in
connection with any Plan. Neither Borrower nor any of their Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 Default. Each Borrower is in compliance with all provisions of
all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on such Borrower's financial condition,
properties or operations.
Section 5.12 Environmental Matters
(a) Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrowers' best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either of the Borrowers or the
Lender under common law of any jurisdiction or under any Environmental Law,
and no Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
(c) To the Borrowers' best knowledge, neither Borrower has disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(d) There are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or either Borrower,
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alleging liability under, violation of, or noncompliance with any
Environmental Law or any license, permit or other authorization issued
pursuant thereto. To the Borrowers' best knowledge, no such matter is
threatened or impending.
(e) To the Borrowers' best knowledge, each Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in such Borrower's possession
and are in full force and effect. No permit required under any
Environmental Law is scheduled to expire within 12 months and there is no
threat that any such permit will be withdrawn, terminated, limited or
materially changed.
(f) To the Borrowers' best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrowers have delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or either Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of a Borrower in connection with such
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. Each Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the account debtor or other obligor named
therein or in the Borrowers' records pertaining thereto as being obligated to
pay such obligation.
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ARTICLE VI
Borrowers' Affirmative Covenants
--------------------------------
So long as either Borrower's Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrowers jointly and severally agree to
comply with the following requirements, unless the Lender shall otherwise
consent in writing:
Section 6.1 Reporting Requirements. The Borrowers will deliver, or cause to
be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrowers, the Borrowers' audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrowers and acceptable to the Lender, which
annual financial statements shall include the consolidated and
consolidating balance sheets of the Borrowers as at the end of such fiscal
year and the related statements of the Borrowers' income, retained earnings
and cash flows for the fiscal year then ended, prepared on a consolidating
and consolidated basis, all in reasonable detail and prepared in accordance
with GAAP, together with (i) copies of all management letters prepared by
such accountants; (ii) a report signed by such accountants stating that in
making the investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Default or Event of
Default hereunder and all relevant facts in reasonable detail to evidence,
and the computations as to, whether or not the Borrowers are in compliance
with the requirements set forth in Sections 6.12, 6.13, and 7.10; and (iii)
a certificate of each Borrower's chief financial officer stating that such
financial statements have been prepared in accordance with GAAP and whether
or not such officer has knowledge of the occurrence of any Default or Event
of Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
(b) as soon as available and in any event within 30 days after the end
of each month, an unaudited internal balance sheet and statements of income
and retained earnings of each Borrower as at the end of and for such month
and for the year to date period then ended, prepared on a consolidating and
consolidated basis in reasonable detail, all prepared in accordance with
GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of each Borrower's chief financial officer, substantially in
the form of Exhibit B hereto stating (i) that such financial statements
have been prepared in accordance with GAAP, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts
with respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrowers are in
compliance with the requirements set forth in Sections 6.12, 6.13, and
7.10;
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(c) immediately, proof of shipment on any invoice of either Borrower
in an amount greater than $2,000;
(d) weekly, sales assignment and cash collection reports and any other
accounts receivable adjustment registers of each Borrower;
(e) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of each Borrower's accounts receivable and
its accounts payable, and a calculation of each Borrower's Accounts,
Eligible Accounts, as at the end of such month or shorter time period;
(f) on the first day of each fiscal year of each Borrower, the
projected balance sheets and income statements for each month of such year,
each in reasonable detail, representing each Borrower's good faith
projections and certified by each Borrower's chief financial officer as
being the most accurate projections available and identical to the
projections used by each Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(g) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting either Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of $20,000;
(h) as promptly as practicable (but in any event not later than five
business days) after an officer of either Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of such Borrower of the steps being taken by such
Borrower to cure the effect of such breach, default or event;
(i) as soon as possible and in any event within 30 days after either
Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of such Borrower's chief financial
officer setting forth details as to such Reportable Event and the action
which such Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation;
(j) as soon as possible, and in any event within 10 days after either
Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, the statement of such Borrower's chief financial officer setting
forth details as to such failure and the action which such Borrower
proposes to take with respect thereto, together with a copy of any notice
of such failure required to be provided to the Pension Benefit Guaranty
Corporation;
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(k) promptly upon knowledge thereof, notice of (i) any disputes or
claims by a customer of either Borrower exceeding $5,000 individually or
$10,000 in the aggregate during any fiscal year; (ii) credit memos; (iii)
any goods returned to or recovered by a Borrower; and (iv) any change in
the persons constituting either Borrower's officers and directors;
(l) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such
other collateral or the prospect of payment thereof;
(m) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which either Borrower shall have
sent to its stockholders;
(n) promptly after the sending or filing thereof, copies of all
regular and periodic reports which either Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of either Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect such Borrower's business or its
financial condition;
(m) promptly after the issuance thereof, copies of all press releases
issued by either Borrower; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination. Each Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to such Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of such Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to such Borrower, and to discuss such
Borrower's affairs with any of its directors, officers, employees or agents.
Each Borrower will permit the Lender, or its employees, accountants, attorneys
or agents, to examine and inspect any Collateral, other collateral covered by
the Security Documents or any other property of such Borrower at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from time
to time send or require each Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
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Section 6.4 Compliance with Laws
(a) Each Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, each Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. Each Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of such Borrower; provided, that such Borrower shall not be required
to pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6 Maintenance of Properties
(a) Each Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent either Borrower
from discontinuing the operation and maintenance of any of its properties
if such discontinuance is, in the Lender's judgment, desirable in the
conduct of such Borrower's business and not disadvantageous in any material
respect to the Lender.
(b) Each Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
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(c) Each Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
Section 6.7 Insurance. Each Borrower will obtain and at all times maintain
insurance with insurers believed by such Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which such Borrower operates.
Without limiting the generality of the foregoing, each Borrower will at all
times keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 Preservation of Existence. Each Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender, each
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by such Borrower.
Section 6.10 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, either Borrower receives any payments on Receivables, such
Borrower shall deposit such payments into the applicable Collateral
Account. Until so deposited, such Borrower shall hold all such payments in
trust for and as the property of the Lender and shall not commingle such
payments with any of its other funds or property.
(b) Amounts deposited in the Collateral Accounts shall not bear
interest and shall not be subject to withdrawal by Borrowers, except after
full payment and discharge of all Obligations.
(c) All deposits in the Collateral Accounts shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing two (2)
Banking Days for collection plus two (2) Banking Days for processing, apply
deposited funds in each Collateral Account to the payment of the applicable
Obligations, in any order or manner of application satisfactory to the
Lender, by transferring such funds to the Lender's general account.
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(d) All items deposited in the Collateral Accounts shall be subject to
final payment. If any such item is returned uncollected, the applicable
Borrower will immediately pay the Lender, or, for items deposited in a
Collateral Account, the bank maintaining such account, the amount of that
item, or such bank at its discretion may charge any uncollected item to
such Borrower's commercial account or other account. Each Borrower shall be
liable as an endorser on all items deposited in the applicable Collateral
Account, whether or not in fact endorsed by such Borrower.
Section 6.11 Performance by the Lender. If either Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives such Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of such Borrower (or, at the Lender's option,
in the Lender's name) and may, but need not, take any and all other actions
which the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and such Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the highest
rate of interest then applicable to the Advances made pursuant to Section
2.1(a). To facilitate the Lender's performance or observance of such covenants
of the Borrowers, each Borrower hereby irrevocably appoints the Lender, or the
Lender's delegate, acting alone, as such Borrower's attorney in fact (which
appointment is coupled with an interest) with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file in
the name and on behalf of such Borrower any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed,
delivered or endorsed by such Borrower under this Section 6.11.
Section 6.12 Minimum Book Net Worth. The Borrowers will maintain, during
each period described below, consolidated Book Net Worth plus the aggregate
amount of any convertible indebtedness which is outstanding on the date hereof
as set forth on Schedule 7.2 hereof, determined as at the end of each month, at
an amount not less than the amount set forth opposite such period:
Period Minimum Book Net Worth
------ ----------------------
September 1, 1998 through November 30, 1998 $5,000,000
December 1, 1998 through February 28, 1999 $4,650,000
March 1, 1999 through May 30, 1999 $4,300,000
June 1, 1999 through June 30, 1999, and each
month thereafter $4,400,000
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Section 6.13 Minimum EBITDA. The Borrowers will achieve during each period
described below, consolidated EBITDA, of not less than the amount set forth
opposite such period (amounts in [ ] indicate a negative number):
Period Minimum EBITDA
------ --------------
Three months ended September 30, 1998 $[850,000]
Three months ended December 31, 1998 $[150,000]
Three months ended March 31, 1999 $[100,000]
Three months ended June 30, 1999 $ 250,000
Three months ended September 30, 1999
and each calendar quarter thereafter $ 150,000
Section 6.14 New Covenants. On or before November 1, 1999, the Borrowers
and the Lender shall negotiate in good faith as to new covenant levels for
Sections 6.12, 6.13 and 7.10 for periods after such date, provided, however, if
the Borrowers and Lender are unable to agree on such new covenant levels, the
Lender may establish the new covenant levels in its sole discretion, and the
failure of the Borrowers to meet the new covenant levels shall be an Event of
Default hereunder.
Section 6.15 Year 2000 Compliance Program. (a) Each Borrower will (i)
conduct a detailed inventory and assessment of all of its computer hardware and
software systems and imbedded chip technology (AInformation System@) and of its
business and operations that could be adversely affected by its failure to be
Year 2000 Compliant on a timely basis; (ii) develop, fund, and implement a
project plan to make its Information Systems Year 2000 Compliant, and complete
implementation of the plan and the remediation and testing of its information
Systems no later than March 31, 1999; and (iii) initiate a process to determine
whether its material suppliers, vendors, and customers have taken meaningful
steps to become Year 2000 Compliant on a timely basis, and develop and implement
a feasible contingency plan to ensure the uninterrupted and unimpaired operation
of its business in the event of the failure of the systems of such third parties
or of its own Information Systems no later than March 31, 1999. For purposes of
this covenant, AYear 2000 Compliant@ means that the Borrower's Information
Systems that are material to its operations and financial condition will be able
to properly process date sensitive functions before, on, and after December 31,
1999.
(b) Each Borrower will provide to the Lender promptly upon receipt, copies
of any reports or management letters relating to its Year 2000 compliance
project and contingency plans, either prepared internally, by outside
consultants or by its accountants, and will provide such other information
relating to its Year 2000 compliance efforts, and deliver any such
certifications by its officers relating thereto as the Lender in its sole
discretion may deem appropriate.
ARTICLE VII
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Negative Covenants
------------------
So long as the Obligations shall remain unpaid, or the Credit Facilities
shall remain outstanding, the Borrowers jointly and severally agree that,
without the Lender's prior written consent:
Section 7.1 Liens. Neither Borrower will create, incur or suffer to exist
any mortgage, deed of trust, pledge, lien, security interest, assignment or
transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrowers' property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrowers' business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of either Borrower not exceeding the lesser of cost
or fair market value thereof and so long as no Default Period is then in
existence and none would exist immediately after such acquisition.
Section 7.2 Indebtedness. Neither Borrower will incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money or letters of credit issued on such
Borrower's behalf, or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of such Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
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Section 7.3 Guaranties. Neither Borrower will assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by such Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries
(a) Neither Borrower will purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued
by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the officers and employees of
both Borrowers not exceeding at any one time an aggregate of $5,000;
and
(iii) advances in the form of progress payments, prepaid rent not
exceeding one month or security deposits.
(b) Neither Borrower will create or permit to exist any Subsidiary,
other than the Subsidiar(y)(ies) in existence on the date hereof and listed
in Schedule 5.4.
Section 7.5 Dividends. Except as set forth below, neither Borrower will
declare or pay any dividends (other than dividends payable solely in stock of
such Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations.
Neither Borrower will sell, lease, assign, transfer or otherwise dispose of (i)
the stock of any Subsidiary, (ii) all or a substantial part of its assets, or
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(iii) any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to any other Person other than the sale of Inventory in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. Neither Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. Neither Borrower
will consolidate with or merge into any Person, or permit any other Person to
merge into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. Neither Borrower will enter into any
arrangement, directly or indirectly, with any other Person whereby such Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which such Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. Neither Borrower will
engage in any line of business materially different from that presently engaged
in by such Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrowers will not incur or contract
to incur unfinanced Capital Expenditures of more than $200,000 in the aggregate
during the Borrowers' fiscal year 1999, and zero thereafter.
Section 7.11 Accounting. Neither Borrower will adopt any material change in
accounting principles other than as required by GAAP. Neither Borrower will
adopt, permit or consent to any change in its fiscal year.
Section 7.12 Descounts, etc. Neither Borrower will, after notice from the
Lender, grant any discount, credit or allowance to any customer of such Borrower
or accept any return of goods sold, or at any time (whether before or after
notice from the Lender) modify, amend, subordinate, cancel or terminate the
obligation of any account debtor or other obligor of such Borrower.
Section 7.13 Defined Benefit Pension Plans. Neither Borrower will adopt,
create, assume or become a party to any defined benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. Neither Borrower will permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon such Borrower.
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Section 7.15 Place of Business; Name. Neither Borrower will transfer its
chief executive office or principal place of business, or move, relocate, close
or sell any business location. Neither Borrower will permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. Neither Borrower will change
its name.
Section 7.16 Organizational Documents; S Corporation Status. Neither
Borrower will amend its certificate of incorporation, articles of incorporation
or bylaws. Neither Borrower will become an S Corporation within the meaning of
the Internal Revenue Code of 1986, as amended.
Section 7.17 Salaries. Neither Borrower will pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or
increase the salary, bonus, commissions, consultant fees or other compensation
of any director, officer or consultant, or any member of their families, by more
than 10% in any one year, either individually or for all such persons in the
aggregate, or pay any such increase from any source other than profits earned in
the year of payment.
Section 7.18 Change in Ownership. CAD will not issue or sell any of its
stock so as to change the percentage of voting and non-voting stock owned by
each of CAD'S shareholders, and CAD will not permit or suffer to occur the sale,
transfer, assignment, pledge or other disposition of any or all of its issued
and outstanding shares.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of the Obligations of either Borrower when
they become due and payable;
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by either Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of either Borrower contained in this Agreement;
(d) Either Borrower shall be or become insolvent, or admit in writing
its or his inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or either Borrower shall apply for
or consent to the appointment of any receiver, trustee, or similar officer
for it or for all or any substantial part of its property; or such
receiver, trustee or similar officer shall be appointed without the
application or consent of either Borrower; or either Borrower shall
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institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against either Borrower; or any
judgment, writ, warrant of attachment or execution or similar process shall
be issued or levied against a substantial part of the property of either
Borrower;
(e) A petition shall be filed by or against either Borrower under the
United States Bankruptcy Code naming either Borrower;
(f) Any representation or warranty made by either Borrower in this
Agreement, or by either Borrower (or any of their officers) in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in connection
with this Agreement shall prove to have been incorrect in any material
respect when deemed to be effective;
(g) The rendering against either Borrower of a final judgment, decree
or order for the payment of money in excess of $20,000 and the continuance
of such judgment, decree or order unsatisfied and in effect for any period
of 30 consecutive days without a stay of execution;
(h) A default under any bond, debenture, note or other evidence of
indebtedness of either Borrower owed to any Person other than the Lender,
or under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(i) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to either Borrower by
the Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Plan or to appoint a trustee to administer any Plan; or either Borrower
shall have filed for a distress termination of any Plan under Title IV of
ERISA; or the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a
lien on either Borrower's assets in favor of the Plan;
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(j) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of either Borrower
hereunder or under any note;
(k) Either Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(l) Either Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for
which it shall have set aside on its books adequate reserves therefor) or
notice of any state or federal tax liens shall be filed or issued;
(m) Default in the payment of any amount owed by either Borrower to
the Lender other than any indebtedness arising hereunder;
(n) Any event or circumstance with respect to either Borrower shall
occur such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by either
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur.
(o) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 Rights and Remedies. During any Default Period, the Lender may
exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrowers, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrowers, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment, notice
of dishonor, protest or further notice of any kind, all of which the
Borrowers hereby expressly waives;
(c) the Lender may, without notice to the Borrowers and without
further action, apply any and all money owing by the Lender to either
Borrower to the payment of the Obligations of either Borrower;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which each Borrower
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hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith, the
Borrowers will on demand assemble the Collateral and make it available to
the Lender at a place to be designated by the Lender which is reasonably
convenient to both parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, each Borrower's Obligations
shall be immediately due and payable automatically without presentment, demand,
protest or notice of any kind.
Section 8.3 Certain Notices. If notice to either Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by
either Borrower therefrom or any release of a Security Interest shall be
effective unless the same shall be in writing and signed by the Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No notice to or demand on either Borrower
in any case shall entitle the Borrowers to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
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If to the Borrowers:
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, CO 80111
Telecopier: (303) 799-1378
Attention: Van A. Horsley
Computer Age Dentist, Inc.
99 Inverness Drive East
Englewood, CO 80111
Telecopier: (303) 799-1378
Attention: Van A. Horsley
If to the Lender:
Norwest Business Credit, Inc.
1740 Broadway
Denver, CO 80274-8625
Telecopier: (303) 863-4904
Attention: Colette Taylor
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrowers will from time to time execute
and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrowers execute,
deliver or endorse any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrowers are entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
36
<PAGE>
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the
Borrowers may have against prior parties, to realize on the Collateral at all or
in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.6 Costs and Expenses. The Borrowers jointly and severally agree
to pay on demand all costs and expenses, including (without limitation)
attorneys' fees, incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents, and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including without
limitation all such costs, expenses and fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses pursuant to
Section 9.7, the Borrowers jointly and severally agree to indemnify, defend and
hold harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution
and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether
or not such Indemnitee shall be designated a party thereto, which may
be imposed on, incurred by or asserted against any such Indemnitee, in
any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrowers, or counsel designated by the Borrowers and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrowers' sole costs and
37
<PAGE>
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrowers shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrowers' obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrowers' other obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrowers and the Lender and their respective successors and assigns,
except that neither Borrower shall have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrowers and
their Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrowers and their Affiliates, and
each Borrower waives any right of confidentiality it may have with respect to
such exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
Section 9.12 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Colorado. Each party hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
38
<PAGE>
located in the State of Colorado in connection with any controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of City and County of Denver, Colorado, or
the United States District Court, District of Colorado; and (iv) agrees that a
final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST BUSINESS CREDIT, INC. MEDICAL DYNAMICS, INC.
By _________________________________ By _____________________________
Colette Taylor Van A. Horsley
Its Commercial Banking Officer Its President
COMPUTER AGE DENTIST, INC.
By _____________________________
Van A. Horsley
Its Vice-President
39
<PAGE>
Table of Exhibits and Schedules
Exhibit A-1 Form of MDI Note
Exhibit A-2 Form of CAD Note
Exhibit B Compliance Certificate
Exhibit C Premises
--------------------
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A-1 to Credit and Security Agreement
REVOLVING NOTE
$1,000,000 Denver, Colorado
October 9, 1998
For value received, the undersigned, MEDICAL DYNAMICS, INC., a Colorado
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in
Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of One Million Dollars
($1,000,000) or, if less, the aggregate unpaid principal amount of all Advances
made by the Lender to the Borrower under the Credit Agreement (defined below)
together with interest on the principal amount hereunder remaining unpaid from
time to time, computed on the basis of the actual number of days elapsed and a
360-day year, from the date hereof until this Note is fully paid at the rate
from time to time in effect under the Credit and Security Agreement of even date
herewith (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") by and among the Lender, the Borrower and
Computer Age Dentist, Inc. The principal hereof and interest accruing thereon
shall be due and payable as provided in the Credit Agreement. This Note may be
prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
MDI Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
MEDICAL DYNAMICS, INC.
By ___________________________________
Van A. Horsley
Its President
A-1
<PAGE>
Exhibit A-2 to Credit and Security Agreement
REVOLVING NOTE
$1,000,000 Denver, Colorado
October 9, 1998
For value received, the undersigned, COMPUTER AGE DENTIST, a California
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in
Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of One Million Dollars
($1,000,000) or, if less, the aggregate unpaid principal amount of all Advances
made by the Lender to the Borrower under the Credit Agreement (defined below)
together with interest on the principal amount hereunder remaining unpaid from
time to time, computed on the basis of the actual number of days elapsed and a
360-day year, from the date hereof until this Note is fully paid at the rate
from time to time in effect under the Credit and Security Agreement of even date
herewith (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") by and among the Lender and the Borrower
and Medical Dynamics, Inc. The principal hereof and interest accruing thereon
shall be due and payable as provided in the Credit Agreement. This Note may be
prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
CAD Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
COMPUTER AGE DENTIST, INC.
By _________________________________
Van A. Horsley
Its Vice-President
A-2
<PAGE>
Exhibit B to Credit and Security Agreement
Compliance Certificate
----------------------
To: Colette Taylor
Norwest Business Credit, Inc.
Date: __________________, 199___
Subject: Medical Dynamics, Inc. and Computer Age Dentist, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of October 9,
1998 (the "Credit Agreement"), attached are the financial statements of Medical
Dynamics, Inc. and Computer Age Dentist, Inc. (collectively, the "Borrowers") as
of and for ________________, _____ (the "Reporting Date") and the year-to-date
period then ended (the "Current Financials"). All terms used in this certificate
have the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and fairly present the Borrowers'
financial condition and the results of its operations as of the date thereof.
Events of Default. (Check one):
------------------
[ ] The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto
is a statement of the facts with respect to thereto.
[ ] I hereby certify to the Lender as follows:
[ ] The Reporting Date does not mark the end of one of the Borrowers'
fiscal quarters, hence I am completing only paragraph __ below.
[ ] The Reporting Date marks the end of one of the Borrowers' fiscal
quarters, hence I am completing all paragraphs below except
paragraph __.
[ ] The Reporting Date marks the end of the Borrowers' fiscal year,
hence I am completing all paragraphs below.
B-1
<PAGE>
Financial Covenants. I further hereby certify as follows:
--------------------
1. Minimum Book Net Worth. Pursuant to Section 6.12 the Credit
Agreement, as of the Reporting Date, the Borrowers' Book Net Worth was
$____________ which G satisfies G does not satisfy the requirement that
such amount be not less than $_____________ on the Reporting Date as set
forth in table below:
Period Minimum Book Net Worth
------ ----------------------
September 1, 1998 through November 30, 1998 $5,000,000
December 1, 1998 through February 28, 1999 $4,650,000
March 1, 1999 through May 30, 1999 $4,300,000
June 1, 1999 through June 30, 1999 and each month $4,400,000
thereafter
2. Minimum EBITDA. Pursuant to Section 6.13 of the Credit Agreement,
the Borrower's EBITDA for the ________ period ending on the Reporting Date,
was $____________, which G satisfies G does not satisfy the requirement
that such amount be not less than $_____________ during such period as set
forth in table below:
Period Minimum EBITDA
------ --------------
Three months ended September 30, 1998 $[850,000]
Three months ended December 31, 1998 $[150,000]
Three months ended March 31, 1999 $[100,000]
Three months ended June 30, 1999 $ 250,000
Three months ended September 30, 1999
and each calendar quarter thereafter $ 150,000
3. Capital Expenditures. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrowers have expended or contracted to expend during the _____________
year ended ______________, 199___, for Capital Expenditures,
$__________________ in the aggregate and at most $______________ in any one
transaction, which G satisfies G does not satisfy the requirement that such
expenditures not exceed $200,000 in the aggregate during the Borrowers'
fiscal year 1999, and zero thereafter.
4. Salaries. As of the Reporting Date, the Borrower G is G is not in
compliance with Section 7.17 of the Credit Agreement concerning salaries.
Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP.
B-2
<PAGE>
MEDICAL DYNAMICS, INC.
By:
------------------------------------
Its Chief Financial Officer
COMPUTER AGE DENTIST, INC.
By:
-------------------------------------
Its Chief Financial Officer
B-3
<PAGE>
Exhibit C to Credit and Security Agreement
Premises
--------
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
99 Inverness Drive East
Englewood, CO 80111
C-1
<PAGE>
Schedule 5.1 to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business,
and Locations of Collateral
Trade Names
-----------
None
Chief Executive Office/Principal Place of Business
--------------------------------------------------
99 Inverness Drive East
Englewood, CO 80111
Other Inventory and Equipment Locations
---------------------------------------
11300 W. Olympic Blvd., Suite 600
Los Angeles, California
30903 West Ten Mile
Farmington Hills, Michigan
1555 Williams Drive, Suite 110
Marietta, Georgia 30062
S-1
<PAGE>
Schedule 5.4 to Credit and Security Agreement
Subsidiaries
------------
MDI
---
CAD
MedPacific Corporation
CAD
---
None
S-2
<PAGE>
Schedule 7.1 to Credit and Security Agreement
Permitted Liens
---------------
Borrower Creditor Collateral Jurisdiction Filing Date Filing No.
- -------- -------- ---------- ------------ ----------- ----------
CAD Affiliated Certain California 6/16/98 9817060032
Capital Corp. equipment SOS
S-3
<PAGE>
<TABLE>
<CAPTION>
Schedule 7.2 to Credit and Security Agreement
Permitted Indebtedness and Guaranties
-------------------------------------
Other Indebtedness
------------------
Debtor Creditor Principal Amount Maturity Date Monthly Payment Collateral
- ------ -------- ---------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
MDI ADG Inc. $231,250 04/01/03 See Note None
MDI Marcotte's $268,750 04/01/03 See Note None
MDI Marcotte's Rent $40,600 04/01/99 See Note None
MDI Dan Richmond $150,000 10/23/98 None None
MDI Chae Kim $150,000 10/23/98 None None
MDI Jim DeVicco $100,000 10/23/98 None None
MDI USBank $50,000 Letter Demand None Certificate of
of Credit Deposit
CAD Affiliated Capital Corp. $82,248.24 06/27/00 $4,797.46 None
CAD Wells Fargo Bank, N.A. $50,000 Line of Demand 2% of monthly None
Credit outstandings
</TABLE>
<TABLE>
<CAPTION>
Convertible Indebtedness
------------------------
Debtor Creditor Principal Amount Maturity Date Monthly Payment Collateral
- ------ -------- ---------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
MDI The Tail Wind Fund, Ltd. $550,000 10/31/00 None None
MDI The Tail Wind Fund, Ltd. $1,100,000 07/31/03 None None
Guaranties
----------
Primary Obligor Amount and Description of Beneficiary of Guaranty
--------------- ------------------------- -----------------------
Obligation Guaranteed
---------------------
None
S-4
</TABLE>
