<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 13, 1995 (March 31, 1995)
Quest Medical, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Texas 0-10521 75-1646002
----- ------- ----------
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
</TABLE>
One Allentown Parkway, Allen, Texas 75002
-----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(214) 390-9800
Not Applicable
--------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 1995, pursuant to the terms of an Agreement for the
Purchase and Sale of All of the Issued Capital Stock of Neuromed, Inc. between
Quest Medical, Inc. ("Quest") and Mr. William Borkan dated February 10, 1995
(the "Agreement"), Quest acquired all of the issued and outstanding capital
stock of Neuromed, Inc. ("Neuromed"), all of which was held by Mr. Borkan and
his brother, Burt Borkan. The assets of Neuromed consist principally of
accounts receivable; inventory; equipment, furniture and other fixed assets;
and United States and foreign patents, trademarks and other intellectual
property. In addition, Neuromed leases approximately 18,000 square feet in an
office and manufacturing facility in Davie (Ft. Lauderdale), Florida.
In consideration for its purchase of the Neuromed capital stock, Quest
paid the Borkans $15.2 million in cash, and issued and delivered to the Borkans
833,333 shares of Quest common stock, par value $.05. Depending on Neuromed's
attainment of certain sales objectives (as set forth in Schedule 1.2 to the
Agreement), Quest may be required to pay the Borkans up to $3.0 million of
additional consideration in January 1996 and up to $3.0 million in January
1997. The contingent consideration will be paid one-half in cash and one-half
in Quest common stock (valued prior to issuance). Depending on the trading
price of Quest common stock at the time of issuance, however, the allocation
between cash and stock may vary at the time of payment. The determination of
the amount of consideration resulted from arms-length negotiations between
Quest and William Borkan, based on such factors as Neuromed's historical and
projected revenues and cash flow, Neuromed's current and potential customer
base and certain other financial and operating information of Neuromed. There
was no material relationship between Quest and the Borkans or any of their
respective affiliates or associates prior to the transaction. Financing for
the cash portion of the purchase consideration was provided by NationsBank of
Texas, N.A., through $15 million of senior debt financing. See Item 5 below.
In connection with the acquisition, Quest granted William Borkan
certain registration rights. During calendar 1996, Mr. Borkan may make a
single written request that Quest register his shares under Form S-3 and Rule
415 under the Securities Act of 1933. In addition, if Quest files a
registration statement to register its or another shareholder's sale of Quest
common stock (other than under a Form S-4, Form S-8 or other limited purpose
form), Mr. Borkan is entitled to include his shares in such offering, subject
to the managing underwriter's right to reduce the number of shares to be
included in the offering or to exclude such shares from the offering.
Under the Agreement, Quest also agreed that for three years following
the closing, and thereafter so long as William Borkan owns at least 5% of the
then issued and outstanding shares of Quest common stock, William Borkan will
be entitled to designate himself or another nominee for election as a member of
Quest's Board of Directors, and Quest will use its best efforts to cause Mr.
Borkan or his nominee to be so elected. It is expected that Mr. Borkan will be
nominated and considered for election as a director at Quest's next annual
meeting.
Quest and William Borkan also entered into a consulting agreement
whereby Mr. Borkan agreed to provide certain consulting services to Quest at
the rate of $1,000 per day. Quest is
<PAGE> 3
required to pay Mr. Borkan for a minimum of five days per month ($5,000) until
October 31, 1995, and two days per month ($2,000) thereafter until October 31,
1996.
The foregoing is a brief description of certain terms of the Agreement
and related agreements. Any description or disclosure made in this Current
Report on Form 8-K with respect to these agreements is qualified in its
entirety by reference to the Agreement, which is Exhibit 2.1 to this Form 8-K,
the Amendment Agreement dated March 17, 1995 between Quest Medical, Inc. and
Mr. William Borkan, which is Exhibit 2.2 to this Form 8-K, the Registration
Rights Agreement, which is attached to the Agreement as Exhibit B, and the
Consulting Agreement, which is attached to the Agreement as Exhibit D. Each of
the foregoing documents is specifically incorporated herein by reference.
Quest will furnish supplemental copies of any exhibits and schedules to these
agreements to the Securities and Exchange Commission upon request.
ITEM 5. OTHER EVENTS.
In connection with the acquisition of Neuromed, Inc., Quest entered
into the First Amended and Restated Credit Agreement dated March 31, 1995 with
NationsBank of Texas, N.A. (the "Loan Agreement"). The Loan Agreement provides
for $15 million in senior term financing, which was utilized to pay the cash
portion of the Neuromed purchase price. Amortization of the senior term debt
is $1,950,000 per year for the first and second years, $3,250,000 per year for
the third and fourth years, and $2,600,000 for the fifth year, with a
$2,000,000 balloon payment due at the end of the fifth year. The senior term
loan bears interest at prime plus 125 basis points, or at Quest's option, LIBOR
plus 300 basis points. The interest rate can be reduced based on Quest
achieving certain ratios of senior bank debt to EBITDA (earnings before
interest, taxes, depreciation and amortization). NationsBank also agreed to
expand Quest's existing $3 million working capital line of credit to $5
million.
The Loan Agreement contains restrictive covenants which impose
limitations on Quest and its subsidiaries with respect to, among other things:
(i) the creation or incurrence of liens, (ii) consolidations, mergers, sales,
leases or conveyances of assets, (iii) entering new industries or types of
business, (iv) the incurrence of additional indebtedness; or (v) making loans
or certain investments. In addition, the loan agreement restricts Quest from
declaring and paying cash dividends on its Common Stock in excess of 25% of the
prior year's net income or from repurchasing Quest capital stock in excess of
$1 million in any calendar year. The Loan Agreement also requires Quest to
satisfy certain financial tests and maintain certain financial ratios.
The Loan Agreement contains customary default provisions, including
defaults resulting from nonpayment of principal when due, nonpayment of
interest and fees, material misrepresentations, default in the performance of
any covenant, bankruptcy or insolvency, FDA bans, recalls or seizures involving
5% or more of gross sales revenue, and judgments. The Loan Agreement is
secured by certain of Quest's assets, including without limitation, accounts
receivable, inventory, equipment, furniture and other fixed assets, patents,
trademarks and other intangible property, and the Neuromed common stock, but
excluding marketable securities in
<PAGE> 4
excess of $2 million, and excluding the real property, building and equipment
financed in 1993 by MetLife Capital Corporation.
The foregoing is a brief description of certain terms of the Loan
Agreement and related agreements. Any description or disclosure made in this
Form 8-K with respect to the Loan Agreement is qualified in its entirety by
reference to the Loan Agreement, which is Exhibit 10.21 to this Form 8-K and
related agreements, which are Exhibits 10.22 through 10.30 to this Form 8-K.
The foregoing documents are specifically incorporated herein by reference.
Quest will furnish supplemental copies of any exhibits and schedules to these
agreements to the Securities and Exchange Commission upon request.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a. Financial Statements of Businesses Acquired. As of the date
this report on Form 8-K is filed, it is impracticable for Quest to provide the
financial statements of Neuromed required by Item 310(a) of Regulation S-B.
Quest expects that the required financial statements will be available and will
be filed by June 1, 1995, but in any event, such required financial statements
will be filed not later than 60 days after the date that this report on Form
8-K is filed.
b. Pro Forma Financial Information. As of the date this report
on Form 8-K is filed, it is impracticable for Quest to provide the pro forma
financial information of Neuromed required by Item 310(a) of Regulation S-B.
Quest expects that the required pro forma financial information will be
available and will be filed by June 1, 1995, but in any event, such required
pro forma financial information will be filed not later than 60 days after the
date that this report on Form 8-K is filed.
c. Exhibits:
2.1 Agreement for the Purchase and Sale of All of the
Issued Capital Stock of Neuromed, Inc. dated February
10, 1995, between Quest Medical, Inc. and Mr. William
Borkan(1)
2.2 Amendment Agreement dated March 17, 1995, between
Quest Medical, Inc. and Mr. William Borkan(1)
10.21 First Amended and Restated Credit Agreement dated as
of March 31, 1995 between Quest Medical, Inc. and
NationsBank of Texas, N.A.(2)
10.22 Promissory Note (Facility A Note) in the original
principal amount of $5 million dated March 31, 1995(2)
10.23 Promissory Note (Facility B. Note) in the original
principal amount of $15 million dated March 31, 1995(2)
<PAGE> 5
10.24 Security Agreement dated as of March 31, 1995 between
Quest Medical, Inc. and NationsBank of Texas, N.A.(2)
10.25 Security Agreement dated as of March 31, 1995 between
Neuromed, Inc. and NationsBank of Texas, N.A.(2)
10.26 Intellectual Property Security Agreement and
Assignment dated as of March 31, 1995 between Quest
Medical, Inc. and NationsBank of Texas, N.A.(2)
10.27 Intellectual Property Security Agreement and
Assignment dated as of March 31, 1995 between
Neuromed, Inc. and NationsBank of Texas, N.A.(2)
10.28 License Agreement dated as of March 31, 1995 between
Quest Medical, Inc. and NationsBank of Texas, N.A.(2)
10.29 License Agreement dated as of March 31, 1995 between
Neuromed, Inc. and NationsBank of Texas, N.A.(2)
10.30 Guaranty of Neuromed, Inc. in favor of NationsBank of
Texas, N.A. under the First Amended and Restated
Credit Agreement dated as of March 31, 1995(2)
_______________
(1)Filed as an Exhibit to Quest's Annual Report on Form 10-KSB for the year
ended December 31, 1994, and incorporated herein by reference.
(2)Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 13, 1995 QUEST MEDICAL, INC.
By: /s/ F. Robert Merrill III
------------------------------
F. Robert Merrill III
Chief Financial Officer
<PAGE> 6
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement for the Purchase and Sale of All of the Issued Capital Stock of Neuromed, Inc.
dated February 10, 1995, between Quest Medical, Inc. and Mr. William Borkan(1)
2.2 Amendment Agreement dated March 17, 1995, between Quest Medical, Inc. and Mr. William Borkan(1)
10.21 First Amended and Restated Credit Agreement dated as of March 31, 1995 between Quest
Medical, Inc. and NationsBank of Texas, N.A.(2)
10.22 Promissory Note (Facility A Note) in the original principal amount of $5 million
dated March 31, 1995(2)
10.23 Promissory Note (Facility B. Note) in the original principal amount of $15 million
dated March 31, 1995(2)
10.24 Security Agreement dated as of March 31, 1995 between Quest Medical, Inc. and NationsBank
of Texas, N.A.(2)
10.25 Security Agreement dated as of March 31, 1995 between Neuromed, Inc. and Nationsbank of Texas, N.A.(2)
10.26 Intellectual Property Security Agreement and Assignment dated as of March 31, 1995 between Quest
Medical, Inc. and NationsBank of Texas, N.A.(2)
10.27 Intellectual Property Security Agreement and Assignment dated as of March 31, 1995 between
Neuromed, Inc. and NationsBank of Texas, N.A(2)
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
10.28 License Agreement dated as of March 31, 1995 between Quest Medical, Inc. and NationsBank
of Texas, N.A.(2)
10.29 License Agreement dated as of March 31,1995 between Neuromed, Inc. and NationsBank of Texas, N.A.(2)
10.30 Guaranty of Neuromed, Inc. in favor of NationsBank of Texas, N.A. under the First Amended
and Restated Credit Agreement dated as of March 31, 1995(2)
</TABLE>
_______________
(1) Filed as an Exhibit to Quest's Annual Report on Form 10-KSB for the year
ended December 31, 1994, and incorporated herein by reference.
(2) Filed herewith.
<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
BETWEEN
QUEST MEDICAL, INC.
AND
NATIONSBANK OF TEXAS, N.A.
Dated as of March 31, 1995
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
BACKGROUND
<TABLE>
<S> <C> <C> <C>
ARTICLE I. DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting and Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE II. ADVANCES
2.1 Facility A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Facility B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Manner of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.4 Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.6 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.7 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.8 Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.9 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.10 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.11 Continuation and Conversion Elections . . . . . . . . . . . . . . . . . . . . . . . . 24
2.12 Maximum Amount of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.13 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.15 Capital Adequacy; Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE III. CONDITIONS PRECEDENT TO ADVANCES.
3.1 Conditions Precedent to Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Conditions Precedent to All Advances . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.3 Legal Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IV. AFFIRMATIVE COVENANTS
4.1 Books, Records and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.2 Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.3 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.5 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.6 Other Information and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.7 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.10 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.11 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.12 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.13 Indemnity by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V. NEGATIVE COVENANTS
5.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.3 New Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.4 Restricted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.5 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.6 Fixed Charges Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.7 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Total Liabilities to Worth Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.9 Current Maturities Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.10 Obligations Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.11 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.12 Eligible Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.13 Merger and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.14 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.15 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
6.1 Organization; Qualification; Authority . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.3 Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . . . . . . . . 39
6.4 Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.5 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.6 Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.7 Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.8 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.10 Regulation G, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.12 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.14 Sufficiency of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.15 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
6.16 Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.17 Consummation of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.18 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VII. DEFAULT
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.2 Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.3 Performance by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.4 Lender Not in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.5 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.6 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.7 Expenditures by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII. MISCELLANEOUS
8.1 Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.2 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.3 Articles, Sections, and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.4 Notices and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.5 Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.6 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.10 MANDATORY ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.11 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.12 Maximum Amount Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.14 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.15 Exceptions to Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.17 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
(iii)
<PAGE> 5
EXHIBITS
Exhibit A Facility A Note
Exhibit B Facility B Note
Exhibit C Security Agreement
Exhibit D Intellectual Property Security Agreement
Exhibit E License Agreement
Exhibit F Compliance Certificate
Exhibit G Guaranty Agreement
Exhibit H Borrowing Notice
Exhibit I Conversion or Continuation Notice
SCHEDULE
Schedule 1 Affiliates
Schedule 2 Allen Property
Schedule 3 Litigation
(iv)
<PAGE> 6
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
FIRST AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") dated
as of March 31, 1995, between QUEST MEDICAL, INC., a Texas corporation, having
its principal office at One Allentown Parkway, Allen, Texas 75002
("Borrower"), and NATIONSBANK OF TEXAS, N.A., a national banking association,
having its principal office at 901 Main Street, Dallas, Texas 75202 ("Lender").
BACKGROUND
Borrower and Lender have entered into the Credit Agreement dated as of
October 22, 1993 (as amended, the "Existing Credit Agreement") providing for a
line of credit in the maximum principal amount of $3,000,000 ("Existing
Facility B") and a line of credit in the maximum principal amount of $5,000,000
("Existing Facility C"). Borrower has requested that Lender restate Existing
Facility B and Existing Facility C as a single $5,000,000 line of credit
("Facility A") the proceeds of which will be used for working capital purposes
and to provide a $15,000,000 term facility ("Facility B") the proceeds of which
will be used to acquire all capital stock of Neuromed, Inc., a Florida
corporation.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration, receipt of which is
acknowledged by all parties hereto, the parties agree as follows:
AGREEMENT.
ARTICLE I. DEFINITIONS
1.1 Definitions. The terms defined in this Article I (except
as otherwise expressly provided in this Agreement) for all purposes shall have
the following meanings:
"Account" has the meaning assigned to such term in the UCC.
"Acquisition Agreement" means the Agreement for the Purchase and Sale
of All of the Issued Capital Stock of Neuromed, Inc. dated February 10, 1995,
between Borrower and Seller.
"Acquisition Documents" means all agreements and documents related to
the Acquisition Agreement.
"Additional Costs" has the meaning set forth in Section 2.9.
"Advance" means an advance by Lender to Borrower pursuant to Article
II, and refers to a Facility A Advance or Facility B Advance.
<PAGE> 7
"Affiliate" means any person that directly or indirectly through one
or more Persons Controls, or is Controlled By or Under Common Control with,
Borrower or a Person who Controls or is Controlled by, Borrower.
"Allen Property" means the real property described on Schedule 2,
together with all improvements and equipment located therein.
"Applicable Law" means the Laws of the United States of America
applicable to contracts made or performed in the State of Texas, including,
without limitation, 12 USC Sections 85 and 86 as amended to the date hereof
and as the same may be amended at any time and from time to time hereafter and
any other statute of the United States of America now or at any time hereafter
prescribing maximum rates of interest on loans and extensions of credit, and
the Laws of the State of Texas, including, without limitation, Articles
5069-l.04 and 5069-l.07 (a), Title 79, Revised Civil Statutes of Texas, 1925,
as amended at any time and from time to time hereafter and any other statute of
the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit ("Art. l.04").
"Applicable Margin" means (a) with respect to Prime Advances, 1.25%
per annum and (b) with respect to LIBOR Advances, 3.00% per annum.
Notwithstanding the foregoing, after completion of the first full fiscal
quarter after the Effective Date, effective on the date of receipt (if such
date is a Business Day or, if the date of receipt is not a Business Day,
effective on the next Business Day) by Lender from Borrower of a Compliance
Certificate delivered to Lender for any reason and demonstrating a change in
the Margin Ratio to an amount so that another Applicable Margin should be
applied pursuant to the table set forth below, the Applicable Margin for each
Type of Advance shall mean the respective amount set forth below opposite such
relevant Margin Ratio in Columns A and B below, until the first succeeding
Quarterly Date which is at least one Business Day after receipt by Lender from
Borrower of a Compliance Certificate, demonstrating a change in the Margin
Ratio to an amount so that another Applicable Margin shall be applied; provided
that the Applicable Margin shall never be a negative number.
<TABLE>
<CAPTION>
Column A Column B
Margin Ratio Prime Base Rate LIBOR Rate
------------ --------------- ----------
<S> <C> <C>
Greater than 2.75 to 1.00 1.25% 3.00%
Greater than or equal to 2.00 to 1.00 but less than 1.00% 2.50%
or equal to 2.75 to 1.00
Less than 2.00 to 1.00 0.50% 2.00%
</TABLE>
"Art. 1.04" has the meaning given to such term in the definition of
Applicable Law in Article I herein.
-2-
<PAGE> 8
"Borrowing" means a borrowing under Facility A or Facility B of the
same Type made on the same day.
"Borrowing Base" means, at the time in question, an amount equal to
the sum of (i) 80% of Eligible Accounts and (ii) 50% of Eligible Inventory.
"Broker Cash" means all cash maintained in and subject to a Brokerage
Account.
"Brokerage Account" means each account maintained for Borrower
pursuant to a written agreement between any other Person for the purpose of
securities, cash and other investment management, including but not limited to
accounts maintained with any Person who is a "dealer" subject to the Securities
Exchange Act of 1934 or the regulations related thereto.
"Business Days" means days other than (i) Saturdays, Sundays and other
legal holidays or (ii) days on which banking institutions are authorized or
obligated to close in Dallas, Texas or, with respect to any notice, payment or
calculation related to a LIBOR Advance, London, England.
"Capital Leases" means capital leases and subleases, as defined in the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 13, dated November 1976, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means that property of Borrower or any other Person in
which Lender shall have Liens to secure payment and performance of the
Obligation.
"Collateral Documents" means all security agreements, pledge
agreements and any other agreements or documents executed or delivered to
secure repayment of the Obligation or part thereof.
"Commitment Fee" has the meaning set forth inSection 2.5(a).
"Compliance Certificate" means a certificate, signed by a duly
authorized officer of Borrower, in the form of Exhibit F, appropriately
completed.
"Consequential Loss" means with respect to (a) Borrower's payment of
all or any portion of the then-outstanding principal amount of a LIBOR Advance
on a day other than the last day of the related Interest Period, including,
without limitation, payments made as a result of the acceleration of the
maturity of a Note pursuant to Section 6.2, and (b) any of the circumstances
specified in Section 2.9 on which a Consequential Loss may be incurred, any
loss, cost or expense incurred by Lender as a result of the timing of the
payment of the Advance or in liquidating, redepositing, redeploying or
reinvesting the principal amount so paid or affected by the timing of the
Advance or the circumstances described in Section 2.9, which amount shall be
-3-
<PAGE> 9
the sum of (i) the interest that, but for the payment or timing of Advance,
Lender would have earned in respect of that principal amount, reduced, if
Lender is able to redeposit, redeploy, or reinvest the principal amount, by the
interest earned by Lender as a result of redepositing, redeploying or
reinvesting the principal amount plus (ii) any expense or penalty incurred by
such Lender by reason of liquidating, redepositing, redeploying or reinvesting
the principal amount. Each determination by Lender of any Consequential Loss
is, in the absence of manifest error, conclusive and binding.
"Continue," "Continuation" and "Continued" each refer to the
continuation pursuant toSection 2.6 of a LIBOR Advance from one Interest Period
to the next Interest Period.
"Control" or "Controlled By" or "Under Common Control" mean
possession, direct or indirect, of power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by
contract or otherwise); provided that, in any event (i) any Person which
beneficially owns 20% or more (in number of votes) of the securities having
ordinary voting power for the election of directors of a corporation shall be
presumed to control such corporation, and (ii) no Person shall be deemed to be
an Affiliate of a corporation solely by reason of his being an officer or
director of such corporation.
"Conversion or Continuance Notice" has the meaning set forth in
Section 2.6.
"Current Assets" means the current assets of Borrower and its
Subsidiaries, determined in accordance with GAAP on a consolidated basis;
provided for purposes of any calculation of "Current Ratio" during the period
from the day after the Effective Date through June 30, 1995, "Current Assets"
shall not include the value of any property transferred from Borrower to Seller
pursuant to the Acquisition Documents.
"Current Liabilities" means the current liabilities of Borrower and
its Subsidiaries (including the current portion of all unpaid principal amount
of all Advances), determined in accordance with GAAP on a consolidated basis;
provided for purposes of any calculation of "Current Ratio" during the period
from the day after the Effective Date through June 30, 1995, "Current
Liabilities" shall not include the value of any property transferred from
Borrower to Seller pursuant to the Acquisition Documents.
"Current Maturities" means, for Borrower and its Subsidiaries,
determined in accordance with GAAP on a consolidated basis, scheduled principal
payments in respect of Term Debt, due within the twelve consecutive months
preceding the date of determination.
"Current Maturities Coverage Ratio" means the ratio of (i) Net
Earnings Available for Current Maturities to (ii) Current Maturities.
"Current Ratio" means the ratio of (i) Current Assets to (ii) Current
Liabilities.
-4-
<PAGE> 10
"Debt" means, with respect to any Person, all debt, obligations and
liabilities of such Person, including without limitation, (i) all "liabilities"
which would be reflected on a balance sheet of such Person, prepared in
accordance with GAAP, (ii) all obligations of such Person in respect of any
Guaranty, (iii) all obligations of such Person in respect of any Capital Lease,
(iv) all obligations, debt and liabilities secured by any Lien on any property
or assets of such Person and (v) all obligations of such Person in respect of
letters of credit, acceptances or similar obligations issued or created for the
account of such Person.
"Debt for Borrowed Money" means, as to any Person, at any date,
without duplication, (i) all obligations of such Person for borrowed money,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all obligations of such Person
in respect of any Guaranty, (v) all obligations of such Person in respect of
any Capital Lease, and (vi) all obligations, debt and liabilities secured by
any Lien on any property or assets of such Person.
"Debtor Relief Laws" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, fraudulent conveyance,
insolvency, reorganization or similar debtor relief Laws relating to the
enforcement of creditors' rights generally from time to time in effect.
"Default" means any of the events specified in Section 6.1, whether or
not there has been satisfied any requirement in connection with such event for
the giving of notice, or the lapse of time, or the happening of any further
condition, event or act.
"Device" has the meaning set forth in the FDA Act.
"Distribution" means, as to any Person, (i) any declaration or payment
of any distribution or dividend (other than a stock dividend) on, or the making
of any pro rata distribution, loan, advance, or investment to or in any holder
(in its capacity as a partner, shareholder or other equity holder) of, any
partnership interest or shares of capital stock or other equity interest of
such Person, or (ii) any purchase, redemption, or other acquisition or
retirement for value of any shares of partnership interest or capital stock or
other equity interest of such Person.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Drug" has the meaning set forth in the FDA Act.
"EBITDA" means, as of any date of determination, the sum of Borrower's
and its Subsidiaries' (a) pre-tax income or deficit, as the case may be
(excluding extraordinary items and income from the sale of assets other than in
the ordinary course of business), plus (b) cash interest expense paid;
amortization of Debt discounts; any payments or fees with respect to letters of
credit, bankers' acceptances or similar facilities; fees and expenses with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements, plus (c) consolidated depreciation and
amortization expense, all calculated on a
-5-
<PAGE> 11
consolidated basis in accordance with GAAP, plus (d) with respect to any
calculation including the period from March 31, 1995 through December 31, 1995,
research and development expense related to the myocardial protection system
developed by Borrower and for which Borrower has applied for the trademark
"MPS", and related Devices. For purposes of determining EBITDA, EBITDA shall
be (i) for the fiscal quarter ended on June 30, 1995, EBITDA for such quarter
multiplied by four, (ii) for the two fiscal quarters ended on September 30,
1995, EBITDA for such two quarters multiplied by two, (iii) for the three
fiscal quarters ended on December 31, 1995, EBITDA for such three quarters
multiplied by 1.3334 and (iv) for each fiscal quarter ended on and after March
31, 1996, EBITDA for the four fiscal quarters preceding the date of
calculation.
"Effective Date" means March 31, 1995.
"Eligible Accounts" means at the time of any determination thereof,
each Account as to which the following requirements have been fulfilled to the
satisfaction of Lender:
(i) Borrower or a Subsidiary of Borrower has
lawful and absolute title to such Account;
(ii) Such Account is a valid, legally enforceable
obligation of the Person who is obligated under such Account (the
"account debtor") for goods or services delivered or rendered to such
Person;
(iii) There has been excluded from such Account any
portion that is subject to any dispute, offset, counterclaim or other
claim or defense on the part of the account debtor or to any claim on
the part of the account debtor denying liability under such Account;
(iv) Borrower or a Subsidiary of Borrower has full
and unqualified right to assign and grant a security interest in such
Account to Lender as security for the Obligation;
(v) Such Account is payable in Dollars and is
evidenced by an invoice rendered to the account debtor and such
Account is not evidenced by any chattel paper, promissory note or
other instrument;
(vi) Such Account is subject to a fully perfected
first priority security interest in favor of Lender pursuant to the
Loan Papers, prior to the rights of, and enforceable as such against,
any other Person (including holders of a purchase money security
interest);
(vii) If the account debtor in respect of such
Account is either located outside the United States of America or
primarily conducts business in a jurisdiction outside the United
States of America, or if the goods or services sold giving rise to
such
-6-
<PAGE> 12
Account are to be delivered or performed outside of the United States
of America, (a) the account debtor is located in a province of the
Dominion of Canada in which all actions necessary to perfect a first
priority security interest in all Collateral in favor of Lender have
occurred, (b) the entire amount of the payment obligation represented
by such Account is secured by either (1) an irrevocable
Dollar-denominated commercial letter of credit issued or confirmed by
a financial institution (A) the short-term debt obligations of which
have the same or higher rating, as established by either Standard &
Poor's Corporation or Moody's Investors Service, Inc., as comparable
obligations of Lender, (B) the short-term obligations of the holding
company of such financial institution have the same or higher rating,
as established by Standard & Poor's Corporation or Moody's Investors
Service, Inc., as comparable obligations of NationsBank Corporation
(if either or both of such financial institution and Lender do not
have outstanding comparable short-term obligations or such obligations
are not rated), or (C) acceptable to Lender (if (1) either or both of
such financial institution and Lender and (2) either or both of the
holding company of such financial institution and NationsBank
Corporation do not have outstanding comparable short-term obligations
or such obligations are not rated), the proceeds of which letter of
credit have been assigned to Lender or which letter of credit shall
specifically provide that payment thereunder shall be made solely to
an account maintained by Borrower at Lender (which account and all
property on deposit therein has been assigned to Lender), or (2) a
receivables insurance policy issued by ExImBank or a private insurance
company acceptable to Lender and ExImBank, in either case, the
proceeds of which policy have been assigned to Lender;
(viii) Such Account is not subject to any Lien in
favor of any Person other than the Lien of Lender pursuant to the Loan
Papers;
(ix) Such Account has not been due and payable for
more than 90 days from the invoice date; and
(x) No account debtor in respect of such Account
is (a) any Tribunal, domestic or foreign; provided, for purposes of
determining "Eligible Account", "Tribunal" shall not include any
government or university, medical department of any government or
university or hospital associated with any government or university
located in the United States of America, (b) the subject of a
proceeding under any Debtor Relief Laws, or (c) the United States of
America or any state;
provided, that, unless Lender agrees otherwise, no Accounts payable by an
account debtor shall constitute Eligible Accounts if 10% or more of the
aggregate dollar amount of all Accounts owed to Borrower by such account debtor
have been due and payable for 91 days or more from their respective invoice
dates.
-7-
<PAGE> 13
"Eligible Asset Value" means, as at any time of determination, each
item of Eligible Assets valued at the lower of cost or market value, multiplied
by the percentage set forth below:
Lender Cash 100%
Eligible Broker Cash 95%
Eligible Government Securities 90%
Eligible State Securities 80%
Eligible Listed Debt 80%
Eligible Listed Securities 70%
"Eligible Assets" means Lender Cash, Eligible Broker Cash, Eligible
Government Securities, Eligible State Securities, Eligible Listed Debt and
Eligible Listed Securities.
"Eligible Broker Cash" means Broker Cash held in and subject to an
Eligible Brokerage Account.
"Eligible Brokerage Account" means each Brokerage Account in which
Lender has a perfected, first priority security interest and Lien in such
account, all property on deposit in such account, all documents related to such
account and all proceeds and products thereof.
"Eligible Government Securities" means Government Securities held in
and subject to an Eligible Brokerage Account.
"Eligible Inventory" means, at the time of any determination thereof,
each item of Inventory (excluding work-in-progress) valued at the lower of cost
or market value, as to which the following requirements have been fulfilled to
the satisfaction of Lender:
(i) Borrower or a Subsidiary of Borrower has
lawful and absolute title to such Inventory;
(ii) Such Inventory is subject to a fully
perfected first priority security interest in favor of Lender pursuant
to the Loan Papers, prior to the rights of, and enforceable as such
against, any other Person (including holders of a purchase money
security interest);
(iii) Such Inventory is (A) neither adulterated nor
misbranded, (B) not the subject of any pending or threatened
proceeding or action by FDA or other Tribunal seeking the recall,
seizure or condemnation or the prohibition of the sale, use or
distribution of such Inventory, (C) properly registered with FDA (if
such registration is required), (D) produced at an Establishment
registered with FDA (if such registration is required), (E) not
subject to any restriction on the distribution, sale or use by Lender
or any purchaser at any foreclosure sale or other realization on the
Collateral and (F) not a Drug;
-8-
<PAGE> 14
(iv) Such Inventory was produced in compliance
with the FDA Act and the Fair Labor Standards Act and related rules
and regulations;
(v) Such Inventory is located at 5000-A Oakes
Road, Fort Lauderdale, Florida, 2930-G and 2930-H Grace Lane, Costa
Mesa, California or One Allentown Parkway, Allen, Texas.
"Eligible Listed Debt" means Listed Debt held in and subject to an
Eligible Brokerage Account.
"Eligible Listed Securities" means Listed Securities held in and
subject to an Eligible Brokerage Account.
"Eligible State Securities" means State Securities held in and subject
to an Eligible Brokerage Account.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Establishment" has the meaning set forth in 21 CFR Section 807.3.
"Event of Default" means the occurrence of any of the events specified
in Section 7.1, provided there has been satisfied any requirement in connection
with such event for the giving of notice, or the lapse of time, or the
happening of any further condition, event or act.
"Excess Cash" means, for Borrower and its Subsidiaries, determined in
accordance with GAAP on a consolidated basis, (i) Net Income, plus depreciation
and amortization and other non-cash charges, plus (ii) extraordinary non-cash
charges, minus (iii) all payments of principal in respect of Term Debt, minus
(iv) Capital Expenditures paid during such period.
"ExImBank" means Export-Import Bank of the United States, an agency of
the United States of America, and any successor entity.
"Existing Credit Agreement" has the meaning specified in the
Background section.
"Facility A Advance" means an Advance described in Section 2.1 to be
made from time to time by Lender to Borrower.
"Facility A Commitment" means $5,000,000, as the same may be reduced
or terminated pursuant to Section 2.3.
"Facility A Note" shall mean the promissory note of Borrower payable
to the order of Lender, in substantially the form of Exhibit A, and any and all
renewals, extensions, modifications and amendments thereof and substitutions
therefor.
-9-
<PAGE> 15
"Facility A Termination Date" means May 31, 1997, or such earlier date
that the Facility A Commitment is terminated.
"Facility B Advance" means an Advance described in Section 2.2 to be
made from time to time by Lender to Borrower.
"Facility B Commitment" means $15,000,000, as the same may be reduced
or terminated pursuant to Section 2.3.
"Facility B Note" shall mean the promissory note of Borrower payable
to the order of Lender, in substantially the form of Exhibit B, and any and all
renewals, extensions, modifications and amendments thereof and substitutions
therefor.
"Facility B Termination Date" means March 31, 2000, or such earlier
date that the Facility B Commitment is terminated.
"FDA" means the Food and Drug Administration and any successor.
"FDA Act" means the Federal Food, Drug and Cosmetic Act, 21 USC
Section 301, et seq, and all amendments and successors thereto.
"Financial Statements" means with respect to Borrower and its
Subsidiaries, consolidated and consolidating balance sheets, consolidated and
consolidating profit and loss statements, reconciliation of capital and surplus
(prepared as to fiscal quarters and fiscal years, only), and statements of cash
flow.
"Fixed Charges" means the sum of, for Borrower and its Subsidiaries,
determined in accordance with GAAP on a consolidated basis, (i) interest
expense (including interest expense pursuant to Capital Leases), plus (ii)
lease expense payable for Operating Leases. For purposes of determining Fixed
Charges, Fixed Charges shall be (i) for the fiscal quarter ended on June 30,
1995, Fixed Charges for such quarter multiplied by four, (ii) for the two
fiscal quarters ended on September 30, 1995, Fixed Charges for such two
quarters multiplied by two, (iii) for the three fiscal quarters ended on
December 31, 1995, Fixed Charges for such three quarters multiplied by 1.3334
and (iv) for each fiscal quarter ended on and after March 31, 1996, determined
for the four fiscal quarters preceding the date of calculation.
"Fixed Charges Coverage Ratio" means the ratio of Net Earnings
Available for Fixed Charges to Fixed Charges.
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board, which are applicable in the
circumstances as of the date in question, and the requirement that such
principles be applied on a consistent basis shall mean that the accounting
principles
-10-
<PAGE> 16
observed in a current period are comparable in all material respects to those
applied in a preceding period. Unless otherwise indicated herein, all
accounting terms will be defined according to GAAP.
"Government Securities" means direct obligations of the United States
of America or any agency thereof, or obligations fully guaranteed by the United
States of America or any agency thereof.
"Guaranty" of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Debt of any other Person in any manner, whether directly
or indirectly; except that "Guaranty" shall not include the endorsement by such
Person in the ordinary course of business of negotiable instruments or
documents for deposit or collection.
"Guaranty Agreement" means a Guaranty Agreement in the form of Exhibit
G.
"hereof", "hereto", "hereunder" and similar terms refer to this
Agreement and not to any particular section or provision of this Agreement.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, Lender is then permitted
to charge on the Obligation. If the maximum rate of interest which, under
Applicable Law, Lender is permitted to charge on the Obligation shall change
after the date hereof, the Highest Lawful Rate shall be automatically increased
or decreased, as the case may be, from time to time as of the effective time of
each change in the Highest Lawful Rate without notice to Borrower. For
purposes of determining the Highest Lawful Rate under the Applicable Law of the
State of Texas, the applicable rate ceiling shall be (i) the indicated rate
ceiling described in and computed in accordance with the provisions of Section
(a)(l) of Art. l.04; or (ii) provided notice is given as required in Section
(h)(1) of said Art. l.04, the quarterly ceiling computed pursuant to Section
(d) of said Art. l.04; provided, however, that at any time the indicated rate
ceiling, the annualized ceiling or the quarterly ceiling, as applicable, shall
be less than 18% per annum or more than 24% per annum, the provisions of
Sections (b)(1) and (2) of said Art. l.04 shall control for purposes of such
determination, as applicable.
"Indemnitee" has the meaning set forth in Section 4.13.
"Interest Payment Date" means the last day of each month during the
term of this Agreement, commencing with the first such day after the date
hereof.
"Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date the Advance is made or continued as a LIBOR Advance and
ending one, two, three or six months thereafter (as Borrower shall select);
provided, however, that:
-11-
<PAGE> 17
(i) Borrower may not select any Interest Period that ends
after any principal repayment date (including the Facility A
Termination Date and the Facility B Termination Date) unless, after
giving effect to such selection, the aggregate principal amount of
LIBOR Advances having Interest Periods that end on or prior to such
principal repayment date, shall be at least equal to the principal
amount of Advances due and payable on and prior to such date;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day;provided, however, that if such extension would cause the
last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day; and
(iii) no Interest Period for a Facility A Advance may
extend beyond the Facility A Termination Date and no Interest Period
for a Facility B Advance may extend beyond the Amortization Date for
such Advance.
"Inventory" has the meaning assigned to such term in the UCC.
"Investment" in any Person means any investment, whether by means of
share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guaranty of Debt of such Person or the
subordination of any claim against such Person to other Debt of such Person.
"Laws" means all statutes, laws, ordinances, regulations, orders,
writs, injunctions, or decrees of the United States, any state or commonwealth,
any municipality, any foreign country, any territory or possession, or any
Tribunal.
"Lender Cash" means all cash and deposits (time, demand, special and
other) in an account maintained at Lender and in which Lender has a perfected,
first priority security interest and Lien.
"Lending Office" means, with respect to Lender, its branch or
affiliate, (i) initially, the office of Lender, branch or affiliate identified
as such in Section 8.4(b), and (ii) subsequently, such other office of Lender,
branch or affiliate as Lender may designate to Borrower as the office from
which the Advances of Lender will be made and maintained and for the account of
which all payments of principal and interest on the Advances and the Commitment
Fee will thereafter be made. Lender may have more than one Lending Office for
the purpose of making Prime Advances and LIBOR Advances.
"LIBOR Advance" means an Advance bearing interest at the LIBOR Rate.
-12-
<PAGE> 18
"LIBOR Rate" means a simple per annum interest rate equal to the
lesser of (a) the Highest Lawful Rate, and (b) the sum of the LIBOR Rate Basis
plus the Applicable Margin. The LIBOR Rate shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums
assessed therefor by Lender, which are payable directly to Lender. Once
determined, the LIBOR Rate shall remain unchanged during the applicable
Interest Period.
"LIBOR Rate Basis" means, for any Interest Period, the interest rate
per annum (rounded upward to the nearest 1/16th of one percent) determined by
Lender at approximately 9:00 a.m., on the date which is two Business Days
before the first day of such Interest Period to be the offered quotations that
appear on the Reuter's Screen LIBO page for dollar deposits in the London
interbank market for a length of time approximately equal to the Interest
Period for the LIBOR Advance sought by Borrower. If at least two such offered
quotations appear on the Reuter's Screen LIBO page, the LIBOR Rate shall be the
arithmetic mean (rounded upward to the nearest 1/16th of one percent) of such
offered quotations, as determined by Lender. If the Reuter's Screen LIBO page
is not available or has been discontinued, the LIBOR Rate Basis shall be the
rate per annum that Lender determines to be the arithmetic mean (rounded as
aforesaid) of the per annum rates of interest at which deposits in dollars in
an amount approximately equal to the principal amount of, and for a length of
time approximately equal to the Interest Period for, the LIBOR Advance sought
by Borrower are offered to Lender in immediately available funds in the London
interbank market at 11:00 a.m., London time, on the date which is two Business
Days prior to the first day of an Interest Period.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give or not to give any
of the foregoing), any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement.
"Liquid Asset Value" means, as at any time of determination, each item
of Liquid Assets valued at the lower of cost or market value, multiplied by the
percentage set forth below:
Broker Cash 95%
Government Securities 90%
State Securities 80%
Listed Debt 80%
Listed Securities 70%
"Liquid Assets" means Broker Cash, Government Securities, State
Securities, Listed Debt and Listed Securities.
"Listed Debt" means any debt security (the issuer of which is a
corporation organized under the laws of any of the United States of America)
rated, at any date of determination, any one of the three highest ratings by
Standard & Poor's Corporation or Moody's Investors Service, Inc., each
regularly traded on the New York Stock Exchange or the American Stock Exchange.
-13-
<PAGE> 19
"Listed Securities" means any equity security regularly traded on the
New York Stock Exchange or the American Stock Exchange.
"Litigation" means any proceeding, claim, lawsuit and/or investigation
conducted or, to the knowledge of Borrower, threatened by or before any
Tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or
investigations under or pursuant to any environmental, occupational, safety and
health, antitrust, unfair competition, securities, Tax, or other Law, or under
or pursuant to any contract, agreement or other instrument.
"Loan Papers" means this Agreement, the Notes, any agreement securing
or assuring performance of the Obligation and all other agreements,
certificates and documents delivered by Borrower hereunder or any other Person
pursuant hereto.
"Margin Ratio" means the ratio, as at any date of determination, of
(i) (a) the sum of the aggregate unpaid principal of all outstanding Advances,
plus all accrued, unpaid interest on all Advances, plus all other Obligations,
minus (b) the Eligible Asset Value to (ii) EBITDA.
"Material Adverse Change or Effect" means any act or circumstance
which (i) would be material and adverse to the combined financial condition,
business operations or prospects of Borrower and its Subsidiaries or any other
Obligor, (ii) in any material manner whatsoever would adversely affect the
validity or enforceability of any of the Loan Papers or (iii) in any material
manner impairs the value of any material portion of the Collateral.
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, Lender is permitted to charge on the Obligation.
"NationsBank" means NationsBank of Texas, N.A., a national banking
association.
"Net Earnings Available for Current Maturities" means, for Borrower
and its Subsidiaries, determined in accordance with GAAP on a consolidated
basis, (i) Net Income, plus depreciation and amortization and other non-cash
charges, plus (ii) extraordinary non-cash charges, plus (iii) with respect to
any calculation including the period from March 31, 1995 through December 31,
1995, research and development expense related to the myocardial protection
system developed by Borrower and for which Borrower has applied for the
trademark "MPS", and related Devices. For purposes of determining Net Earnings
Available for Current Maturities, Net Earnings Available for Current Maturities
shall be (i) for the fiscal quarter ended on June 30, 1995, Net Earnings
Available for Current Maturities for such quarter multiplied by four, (ii) for
the two fiscal quarters ended on September 30, 1995, Net Earnings Available for
Current Maturities for such two quarters multiplied by two, (iii) for the three
fiscal quarters ended on December 31, 1995, Net Earnings Available for Current
Maturities for such three quarters multiplied by 1.3334 and (iv) for each
fiscal quarter ended on and after March 31, 1996, determined for the four
fiscal quarters preceding the date of calculation.
-14-
<PAGE> 20
"Net Earnings Available for Fixed Charges" means, for Borrower and its
Subsidiaries, determined in accordance with GAAP on a consolidated basis, (i)
Net Income before Taxes, plus (ii) interest expense (including interest expense
pursuant to Capital Leases), plus (iii) with respect to any calculation
including the period from March 31, 1995 through December 31, 1995, research
and development expense related to the myocardial protection system developed
by Borrower and for which Borrower has applied for the trademark "MPS", and
related Devices, plus (iv) lease expense pursuant to Operating Leases. For
purposes of determining Net Earnings Available for Fixed Charges, Net Earnings
Available for Fixed Charges shall be (i) for the fiscal quarter ended on June
30, 1995, Net Earnings Available for Fixed Charges for such quarter multiplied
by four, (ii) for the two fiscal quarters ended on September 30, 1995, Net
Earnings Available for Fixed Charges for such two quarters multiplied by two,
(iii) for the three fiscal quarters ended on December 31, 1995, Net Earnings
Available for Fixed Charges for such three quarters multiplied by 1.3334 and
(iv) for each fiscal quarter ended on and after March 31, 1996, determined for
the four fiscal quarters preceding the date of calculation.
"Net Income" means, for Borrower and its Subsidiaries, determined in
accordance with GAAP on a consolidated basis, net profit or loss.
"Net Worth" means, with respect to Borrower, shareholders' equity, as
shown on a balance sheet prepared in accordance with GAAP on a consolidated
basis.
"Neuromed" means Neuromed, Inc., a Florida corporation.
"Notes" means the Facility A Note and the Facility B Note.
"Obligations" means all present and future obligations, indebtedness
and liabilities, and all renewals and extensions of all or any part thereof, of
Borrower and each Obligor to Lender arising from, by virtue of, or pursuant to
this Agreement, any of the other Loan Papers and any and all renewals and
extensions thereof or any part thereof, or future amendments thereto, all
interest accruing on all or any part thereof and reasonable attorneys' fees
incurred by Lender for the administration, execution of waivers, amendments and
consents, and in connection with any restructuring, workouts or in the
enforcement or the collection of all or any part thereof, whether such
obligations, indebtedness and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several. Without limiting the
generality of the foregoing, "Obligations" includes all amounts would be owed
by Borrower, each other Obligor and any other Person (other than Lender) to
Lender under any Loan Paper, but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving Borrower, any other Obligor or any other Person (including
all such amounts which would become due or would be secured but for the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Borrower, any other Obligor or any other
Person under any Debtor Relief Law).
-15-
<PAGE> 21
"Obligor" means (i) Borrower, (ii) each other Person liable for
performance of any of the Obligations and (iii) each other Person the property
of which secures the performance of any of the Obligations.
"Operating Leases" means operating leases, as defined in the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 13,
dated November 1976, as amended.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Permitted Acquisition" means the acquisition by Borrower or a
Subsidiary of Borrower of (i) all of the outstanding equity interest of any
Person or (ii) all or a portion of the assets of any Person; provided, (a) the
board of directors of such Person has approved such acquisition and such
approval has not been revoked, and (b) such Person or the assets of such Person
the subject of the proposed acquisition are used in the research, development,
design, production or marketing of Devices; provided further, neither Borrower
nor any Subsidiary of Borrower may make any acquisition described in clause (i)
or (ii) during the period from the Effective Date through and including March
31, 1996 and neither Borrower nor any Subsidiary of Borrower may make any
acquisition described in clause (i) or (ii) during the period from April 1,
1996 through and including March 31, 1997 for any consideration other than
capital stock of Borrower or such Subsidiary of Borrower, respectively.
"Permitted Investments" means Government Securities, Listed Debt,
Listed Securities and State Securities;provided Investments in Listed
Securities shall not exceed 25% of the outstanding equity having voting rights
of any single issuer.
"Permitted Liens" means: (i) Liens granted to Lender to secure the
Obligation, (ii) Liens in assets of Borrower or a Subsidiary of Borrower which
assets are not required by the Loan Papers to be subject to a Lien in favor of
Lender, (iii) Liens in the Allen Property to the extent such Liens do not cover
or purport to cover any asset of Borrower which is subject to a Lien in favor
of Lender, (iv) pledges or deposits made to secure payment of worker's
compensation or occupational injury insurance (or to participate in any fund in
connection with worker's compensation or occupational injury insurance),
unemployment insurance, pensions or social security programs or to secure
performance of bids, tenders, contracts or leases, or to secure statutory
obligations, surety or appeal bonds, or indemnity, performance or similar bonds
in the ordinary course of business, (v) Liens imposed by mandatory provisions
of law such as for materialmen's, mechanics', warehousemen's and other like
Liens arising in the ordinary course of business, securing indebtedness whose
payment is not yet due or which are being contested in good faith and as to
which adequate cash reserves established in accordance with GAAP have been
provided, (vi) Liens for taxes, assessments and governmental charges or levies
imposed upon a Person or upon such Person's income or profits or property, if
the same are not yet due and payable or if the same are being contested in good
faith and as to which adequate cash reserves have been provided, (vii) Liens in
favor of MetLife Capital Corporation or its affiliates
-16-
<PAGE> 22
upon the Allen Property in existence and of record on the Effective Date,
provided such Liens do not secure Debt in excess of the amount of such Debt on
the Effective Date, as reduced by payments on and after the Effective Date,
(viii) Liens in Eligible Assets not required to be subject to a Lien in favor
of Lender pursuant to Section 5.12, or (ix) Liens to secure Borrower's or any
Subsidiary's of Borrower obligations under lease agreements related to the real
property and improvements located at 5000-A Oakes Drive, Fort Lauderdale,
Florida and 2930-G and 2930-H Grace Lane, Costa Mesa, California, or any
reasonably comparable lease agreements entered into as replacements for or
expansion of such lease agreements.
"Permitted Venture" means any Investment in any Person; provided, (i)
such Person has not conducted any operations (other than corporate, partnership
or joint venture organizational operations) prior to Borrower's Investment in
such Person, and (ii) such Person's sole business shall be the design,
development, manufacture and/or marketing of Devices.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an unincorporated
organization, and a government or any department, Tribunal, agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained by
Borrower for employees of Borrower covered by Title IV of ERISA, or subject to
the minimum funding standards under Section 412 of the Internal Revenue Code of
1986, as amended ("Code").
"Prime Advance" means an Advance bearing interest at the Prime Rate.
"Prime Base Rate" means the prime interest rate charged by NationsBank
as announced or published by NationsBank from time to time as its prime rate,
and which may not be the lowest interest rate charged by NationsBank.
"Prime Rate" means, with respect to each Prime Advance, a rate per
annum equal to the lesser of (a) the sum of (i) the Prime Base Rate, plus (ii)
the Applicable Margin and (b) the Highest Lawful Rate.
"Principal Office" means the principal office of Lender located at 901
Main Street, Dallas, Texas 75202.
"Quarterly Date" means March 31, June 30, September 30 and December 31.
"Refinancing Advance" means an Advance which is used to pay the
principal of an existing Advance at the end of its Interest Period and which,
after giving effect to such application, does not result in an increase in the
aggregate outstanding amount of Advances.
"Regulatory Modification" has the meaning set forth in Section 2.9.
"Reportable Event" has the meaning specified in Title IV of ERISA.
-17-
<PAGE> 23
"Rights" means rights, remedies, powers and privileges.
"Seller" means William Borkan.
"Solvent" means, with respect to a particular date, that on such date
(a) the fair value of the property of a Person is greater than the total amount
of liabilities, including, without limitation, contingent liabilities, of such
Person, (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (c) such Person
is able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business, (d) such Person does not intend to, or believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature, and (e) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
material liability.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll,
P.C., Dallas, Texas, Special Counsel to Lender, and each other attorney or law
firm representing Lender.
"State Securities" means direct obligations of any state or political
subdivision thereof, rated, at any date of determination, A-1 or P-1 by
Standard & Poor's Corporation or Moody's Investors Service, Inc.
"Subsidiary" of any Person means any corporation, limited liability
company, partnership, joint venture, trust or estate of which (or in which)
more than 50% of: (a) the outstanding capital stock having voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership or
joint venture, or (c) the beneficial interest of such trust or estate, is at
the time directly or indirectly owned by such Person, by such Person and one or
more of its Subsidiaries or by one or more of such Person's Subsidiaries.
"Taxes" means all taxes, assessments, fees or other charges from time
to time or at any time imposed by any Laws or by any Tribunal.
"Term Debt" means debt for borrowed money the original scheduled
maturity of the last installment of which was more than twelve months after the
date borrowed.
-18-
<PAGE> 24
"Total Liabilities" means all liabilities of Borrower which would be
classified as total liabilities on a balance sheet prepared in accordance with
GAAP on a consolidated basis.
"Tribunal" means any state, commonwealth, federal, foreign,
territorial, or other court or governmental department, commission, board,
bureau, agency or instrumentality.
"Type" refers to the distinction between Advances bearing interest at
the Prime Rate and LIBOR Rate.
"UCC" means the Uniform Commercial Code of Texas, as amended.
"Unrestricted Cash" means all cash, Government Securities, Listed
Debt, Listed Securities and State Securities owned by Borrower which are not
subject to any Lien.
1.2 Accounting and Other Terms. All accounting terms used in this
Agreement which are not otherwise defined herein shall be construed in
accordance with GAAP consistently applied on a consolidated basis for Borrower
and its Subsidiaries, unless otherwise expressly stated herein. If after the
Effective Date any change in GAAP applicable to Borrower or its Subsidiaries
results in a change in the manner of any calculation under the Loan Papers,
Borrower and Lender shall negotiate amendments to the Loan Papers to
accommodate such changes in GAAP. References herein to one gender shall be
deemed to include all other genders. Except where the context otherwise
requires, (a) definitions imparting the singular shall include the plural and
vice versa and (b) all references to time are deemed to refer to Dallas time.
ARTICLE II. ADVANCES
2.1 Facility A Advances. Lender agrees, upon the terms and
subject to the conditions of this Agreement, to make Facility A Advances to
Borrower from time to time from the Effective Date to the Facility A
Termination Date; provided, however, that immediately after giving effect to
each Facility A Advance pursuant to this Section 2.1, the aggregate principal
amount of the Facility A Advances shall at no time exceed the lesser of (a) the
Facility A Commitment and (b) the Borrowing Base.
2.2 Facility B Advances. Lender agrees, upon the terms and
subject to the conditions of this Agreement, to make Facility B Advances to
Borrower from time to time from the Effective Date to the Facility B
Termination Date; provided, however, that (i) immediately after giving effect
to each Facility B Advance pursuant to this Section 2.2, the aggregate
principal amount of the Facility B Advances shall at no time exceed the
Facility B Commitment and (ii) from and after the date of the initial Facility
B Advance, Borrower may borrow Facility B Advances only as Refinancing
Advances.
-19-
<PAGE> 25
2.3 Manner of Borrowing.
(a) Each Borrowing of Advances shall be made upon the written
notice of Borrower, received by Lender (i) not later than 12:00 noon three
Business Days prior to the date of the proposed Borrowing, in the case of LIBOR
Advances; and (ii) not later than 11:00 a.m. on the date of such Borrowing, in
the case of Prime Advances. Each such notice of a Borrowing (a "Borrowing
Notice") shall be by telecopy or telex, promptly confirmed by letter, in
substantially the form of Exhibit H specifying therein:
(i) the date of such proposed Borrowing, which shall be a
Business Day;
(ii) whether such Borrowing is requested to be made under
Facility A or Facility B;
(iii) the amount of such proposed Borrowing which, (A)
shall not exceed the unused portion of the Facility A Commitment or
Facility B Commitment, as appropriate, (B) shall not, in the case of
Facility A Advances, when added to the aggregate principal of
outstanding Facility A Advances, exceed the Borrowing Base, (C) shall,
in the case of a Borrowing of LIBOR Advances, be in an amount of not
less than $100,000 or an integral multiple of $100,000 in excess
thereof and (D) in the case of a Borrowing of Prime Advances, be in an
amount of not less than $50,000 or an integral multiple of $10,000 in
excess thereof;
(iv) the Type of Advances of which the Borrowing is to be
comprised; and
(v) if the Borrowing is to be comprised of LIBOR
Advances, the duration of the initial Interest Period applicable to
such Advances.
If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing comprised of LIBOR Advances, such Interest
Period shall be one month.
(b) Provided that all conditions precedent to the making of such
Advance have been satisfied, Lender shall on the date of such Advance (other
than a Refinancing Advance) deposit the funds so requested in the deposit
account no. 1291792407 of Borrower with Lender.
(c) After giving effect to any Borrowing, there shall not be more
than five different Interest Periods in effect.
(d) No Interest Period for a Borrowing under Facility A shall
extend beyond the Facility A Termination Date and no Interest Period for a
Borrowing under Facility B shall extend beyond the Facility B Termination Date.
(e) Borrower shall indemnify Lender against any Consequential Loss
incurred by Lender as a result of (i) any failure to fulfill, on or before the
date specified for the Advance,
-20-
<PAGE> 26
the conditions to the Advance set forth herein or (ii) Borrower's requesting
that an Advance not be made on the date specified in the Borrowing Notice.
2.4 Evidence of Indebtedness.
(a) Facility A Advances shall be evidenced by the Facility A Note
in the amount of the Facility A Commitment in effect on the Effective Date.
The Facility B Advances shall be evidenced by the Facility B Note in the amount
of the Facility B Commitment in effect on the Effective Date.
(b) Absent manifest error, Lender's records shall be prima facie
evidence as to amounts owed Lender under the Notes and this Agreement.
2.5 Fees.
(a) Facility A Commitment Fee. Subject to the provisions of
Section 8.12, Borrower shall pay to Lender a commitment fee ("Commitment Fee")
at the rate of 3/8% per annum on the average daily unused portion of the
Facility A Commitment. The Commitment Fee shall be payable in arrears (i) on
each Quarterly Date, commencing June 30, 1995 and (ii) on the Facility A
Termination Date.
(b) Origination Fee. Subject to the provisions of Section 8.12,
Borrower shall pay to Lender an origination fee of $62,500 with respect to the
Facility A Commitment and an origination fee of $187,500 with respect to the
Facility B Commitment ($25,000 of which has been received by Lender prior to
the Effective Date).
2.6 Prepayments.
(a) Borrower may, upon at least three Business Days prior written
notice to Lender stating the proposed date and aggregate principal amount of
the prepayment, prepay the outstanding principal amount of any Advances in
whole or in part, together with accrued interest to the date of such prepayment
on the principal amount prepaid without premium or penalty other than any
Consequential Loss; provided, however, that in the case of a prepayment of a
Prime Advance, the notice of prepayment may be given by telephone by 11:00 a.m.
on the date of prepayment. Each partial prepayment shall, in the case of LIBOR
Advances, be in an aggregate principal amount of not less than $100,000 or an
integral multiple of $100,000 in excess thereof and, in the case of Prime
Advances, be in an aggregate principal amount of not less than $50,000 or an
integral multiple of $10,000 in excess thereof. If any notice of prepayment is
given, the principal amount stated therein, together with accrued interest on
the amount prepaid and the amount, if any, due under Section 2.15, shall be due
and payable on the date specified in such notice.
(b) If at any time the aggregate principal of outstanding Facility
A Advances exceeds the lesser of (a) the Facility A Commitment and (b) the
Borrowing Base, Borrower shall
-21-
<PAGE> 27
immediately prepay Facility A Advances then outstanding in the aggregate amount
equal to such excess, together with accrued interest to the date of such
prepayment on the principal amount prepaid without premium or penalty other
than any Consequential Loss.
(c) Unless otherwise specified by Borrower, any prepayment of
Advances pursuant to this Section 2.6 shall be applied first to Prime Advances,
if any, then outstanding, and second to LIBOR Advances with the shortest
remaining Interest Periods outstanding.
(d) No prepayments of Facility A Advances made solely pursuant to
this Section 2.6 shall cause the Facility A Commitment to be reduced. Each
prepayment of Facility B Advances made pursuant to this Section 2.6 shall (i)
permanently reduce the Facility B Commitment by the amount of such prepayment
as of the date of such prepayment and (ii) be applied to outstanding principal
of Facility B Advances in the inverse order of maturity; provided, with respect
to each prepayment of outstanding principal in an aggregate amount of $500,000
or greater, such prepayment shall be applied to reduce the principal amount of
each remaining scheduled installment described in Section 2.7(a)(ii)(B) in an
amount equal to the gross amount of such principal prepayment divided by the
number of scheduled installments described in Section 2.7(a)(ii)(B) due after
the date of such prepayment.
2.7 Repayment.
(a) General. Borrower shall repay to Lender the outstanding
principal amount of (i) the Facility A Advances on the Facility A Termination
Date and (ii) the Facility B Advances on (A) the Facility B Termination Date
and (B) the last Business Day of each month during the period specified below
in the amount specified below:
Effective Date through and $162,500.00
including March 31, 1997
April 1, 1997 through and including $270,834.00
March 31, 1999
April 1, 1999 through and including $216,667.00
March 31, 2000
The Facility B Commitment shall permanently reduce by the amount of each
payment required by this Section 2.7(a) on the date due. The principal amount
of each LIBOR Advance is due and payable on the last day of the applicable
Interest Period, which principal payment may be made by means of a Refinancing
Advance (subject to the other provisions of this Agreement). On the date of a
reduction of the Facility B Commitment pursuant to this Section 2.7(a) and of
either Commitment pursuant to Section 2.8, the aggregate amount of the
applicable Advances outstanding on the date of reduction in excess of such
Commitment as reduced shall be due and payable, which principal payment may not
be made by means of a Refinancing Advance.
-22-
<PAGE> 28
(b) Excess Cash. On the first to occur of (i) March 31 of each
year (beginning March 31, 1996) and (ii) fifteen days after Borrower's receipt
of the opinion of its independent auditors with respect to its audited
Financial Statements (beginning with the receipt of Borrower's audited
Financial Statements for the fiscal year ended December 31, 1995), Borrower
shall pay to Lender an amount equal to 50% of Excess Cash for such fiscal year,
which shall be applied to prepay Facility B Advances in accordance with this
Section 2.7(b). In addition to principal required to be prepaid pursuant to
this Section 2.7(b), Borrower shall pay to Lender, with such prepayment,
accrued interest in respect of the principal prepaid without premium or penalty
other than any Consequential Loss. Unless otherwise specified by Borrower, any
prepayment of Facility B Advances pursuant to this Section 2.7(b) shall be
applied first to Prime Advances, if any, then outstanding under Facility B,
second to LIBOR Advances for which the date of prepayment is the last day of
the applicable Interest Period, if any, outstanding under Facility B and third
to LIBOR Advances with the shortest remaining Interest Periods outstanding
under Facility B. Each prepayment of Facility B Advances made pursuant to this
Section 2.7(b) shall permanently reduce the Facility B Commitment by the amount
of such prepayment as of the date of such prepayment. Each such prepayment
applied to prepay Facility B Advances shall be applied to prepay installments
of Facility B Advances, together with interest accrued thereon, in the inverse
order of maturities; provided, with respect to each prepayment of outstanding
principal in an aggregate amount of $500,000 or greater, such prepayment shall
be applied to reduce the principal amount of each remaining scheduled
installment described in Section 2.7(a)(ii)(B) in an amount equal to the gross
amount of such principal prepayment divided by the number of scheduled
installments described in Section 2.7(a)(ii)(B) due after the date of such
prepayment.
2.8 Reduction of Commitments. Borrower shall have the right at
any time and from time to time upon not less than three Business Days' notice
to Lender not later than 12:00 noon (if telephonic, to be confirmed by telex or
in writing on or before the date of reduction or termination), to terminate or
reduce the Facility A Commitment or Facility B Commitment, in whole or in part,
provided that each partial termination shall be in an aggregate amount which is
an integral multiple of $50,000. Once reduced or terminated, the Facility A
Commitment or Facility B Commitment (as appropriate) may not be increased or
reinstated. On the date of any such reduction, Borrower shall repay such
principal amount (together with accrued interest thereon and any Consequential
Loss) of outstanding Advances as may be necessary so that after such repayment,
the aggregate unpaid principal amount of Advances does not exceed the amount of
the Facility A Commitment or Facility B Commitment (as appropriate) as then
reduced.
2.9 Interest. Subject to Sections 2.10 and 8.12, Borrower shall
pay interest on the unpaid principal amount of each Advance from the date of
such Advance until such principal shall be paid in full, at the following rates
per annum:
(a) Prime Advances. Prime Advances shall bear interest
at a rate per annum equal to the Prime Rate as in effect from time to
time.
-23-
<PAGE> 29
(b) LIBOR Advances. LIBOR Advances shall bear interest
at the rate per annum equal to the LIBOR Rate applicable to such
Advance, which at no time shall exceed the Highest Lawful Rate.
(c) Payment Dates. Accrued and unpaid interest on Prime
Advances shall be paid in arrears on each Interest Payment Date and on
the Facility A Termination Date and the Facility B Termination Date,
as appropriate. Accrued and unpaid interest in respect of each LIBOR
Advance shall be paid on the last day of the appropriate Interest
Period and on the date of any prepayment or repayment of such Advance;
provided, however, that if any Interest Period for a LIBOR Advance
exceeds three months, interest shall also be paid on the date which
falls three months after the beginning of such Interest Period.
(d) Index. Reference to any particular index or
reference rate for determining any applicable interest rate under this
Agreement is for purposes of calculating the interest due and is not
intended as and shall not be construed as requiring Lender to actually
obtain its funds used to make any Advance at any particular index or
reference rate.
2.10 Default Interest. During the continuation of any Event of
Default, Borrower shall pay, on demand, interest (after as well as before
judgment to the extent permitted by Law) on the principal amount of all
Advances outstanding and on all other Obligations due and unpaid hereunder for
each Advance equal to the lesser of the (a) the Highest Lawful Rate and (b) a
rate per annum which is determined by increasing the greatest applicable
interest rate for each Type of Advance (whether or not in effect) 3.00% per
annum for the principal amount of the Advances outstanding and at a rate per
annum equal to the greatest Prime Base Rate (whether or not in effect) plus
3.00% for any other Obligation due hereunder.
2.11 Continuation and Conversion Elections.
(a) Borrower may upon irrevocable written notice to Lender and
subject to the terms of this Agreement:
(i) elect to convert, on any Business Day, all or any
portion of outstanding Prime Advances (in an aggregate amount not less
than $100,000 or an integral multiple of $100,000 in excess thereof)
into LIBOR Advances; or
(ii) elect to convert, at the end of any Interest Period
therefor, all or any portion of outstanding LIBOR Advances comprised
in the same Borrowing (in an aggregate amount not less than $50,000 or
an integral multiple of $10,000 in excess thereof), into Prime
Advances; or
(iii) elect to continue, at the end of any Interest Period
therefor, any LIBOR Advances;
-24-
<PAGE> 30
provided, however, that if the aggregate amount of outstanding LIBOR
Advances comprised in the same Borrowing shall have been reduced as a result of
any payment, prepayment or conversion of part thereof to an amount less than
$100,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Prime Advances at the end of each respective Interest Period.
(b) Borrower shall deliver a notice of conversion or continuation
(a "Conversion or Continuation Notice"), in substantially the form of Exhibit
I, to Lender not later than (i) 12:00 noon three Business Days prior to the
proposed date of conversion or continuation, if the Advances or any portion
thereof are to be converted into or continued as LIBOR Advances; and (ii) 10:00
a.m. on the Business Day of the proposed conversion, if the Advances or any
portion thereof are to be converted into Prime Advances.
Each such Conversion or Continuation Notice shall be by telecopy or
telex, promptly confirmed by letter, specifying therein:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Advances to be converted or
continued;
(iii) the nature of the proposed conversion or
continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to
LIBOR Advances, Borrower shall have failed to select a new Interest Period to
be applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, Borrower shall be deemed to have elected to convert
such LIBOR Advances into Prime Advances effective as of the expiration date of
such current Interest Period.
(d) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or continuation of any
Advances, there shall not be outstanding Advances with more than five different
Interest Periods.
2.12 Maximum Amount of Interest. In no event shall any interest
rate charged hereunder exceed the Highest Lawful Rate. If the amount of
interest payable for the account of Lender on any Interest Payment Date in
respect of the immediately preceding interest computation period would exceed
the Maximum Amount, the amount of interest payable on such Interest Payment
Date shall be automatically reduced to the Maximum Amount. If the amount of
interest payable for the account of Lender in respect of any interest
computation period is reduced pursuant to the immediately preceding sentence
and the amount of interest payable for its account in respect of any subsequent
interest computation period would be less than the Maximum Amount, then the
amount of interest payable for its account in respect of such subsequent
interest computation period shall be automatically increased to such Maximum
-25-
<PAGE> 31
Amount; provided that at no time shall the aggregate amount by which interest
paid for the account of Lender has been increased pursuant to this sentence
exceed the aggregate amount by which interest paid for its account has
theretofore been reduced pursuant to the immediately preceding sentence.
2.13 Computations. Subject to the provisions of Section 8.12 of
this Agreement, interest on all Advances as well as computation of the
Commitment Fee, shall be calculated on the basis of actual days elapsed, but
computed as if each year consisted of 360 days. All LIBOR Advances shall bear
interest from and including the first day of the applicable Interest Period to
(but not including) the last day of such Interest Period. All Prime Advances
shall bear interest from and including each Interest Payment Date to (but not
including) the next Interest Payment Date.
2.14 Taxes. All payments made by Borrower under this Agreement
shall be made free and clear of and without deduction for or on account of any
present or future income, stamp or other Taxes (excluding, however, Taxes
imposed on the overall net income of Lender or any franchise Taxes).
2.15 Capital Adequacy; Increased Costs.
(a) If Lender shall have determined that any change after the
Effective Date in any applicable Law or guideline regarding capital adequacy,
capital maintenance or similar requirements against loan commitments made by
Lender (including any such applicable Law or guideline which may be adopted
before the date of this Agreement but which requirements are phased in over a
period of time), or any change therein, or any change in the interpretation or
administration thereof by any Tribunal, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
Lender (or any Lending Office of Lender) or any corporation controlling Lender
with any request or directive regarding capital adequacy, capital maintenance
or similar requirements against loan commitments, whether or not having the
force of law (each such adoptions or modification and each interpretation or
administration being herein called a "Regulatory Modification"), has or would
have the effect of increasing the cost of Lender with respect to this Agreement
as a result of reducing the rate of return on Lender's or such corporation's
capital as a consequence of its obligations hereunder ("Additional Costs") to a
level below that which Lender or such corporation could have achieved but for
such adoption, change or compliance (taking into consideration Lender's or such
corporation's policies with respect to such capital impositions) by an amount
deemed by Lender to be material, then from time to time, Borrower shall pay to
Lender such Additional Costs as will compensate Lender for such reduction. No
failure by Lender to immediately demand payment of Additional Costs payable
hereunder shall constitute a waiver of Lender's right to demand payment of such
Additional Costs at any subsequent time. Determinations by Lender for purposes
of this Section 2.15 shall be presumed correct, provided that such
determinations are made reasonably and in good faith. Nothing contained herein
shall be construed or so operate as to require Borrower to pay any interest,
fees, costs or charges greater than as permitted by Applicable Law.
-26-
<PAGE> 32
(b) If, after the date hereof, any Tribunal, central bank or other
comparable authority, shall at any time impose, modify or deem applicable any
reserve (including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, Lender,
or shall impose on Lender other conditions affecting a LIBOR Advance, the
Notes, or its obligation to make a LIBOR Advance; and the result of any of the
foregoing is to increase the cost to Lender of making or maintaining LIBOR
Advances, or to reduce the amount of any sum received or receivable by Lender
under this Agreement or under the Notes by an amount deemed by Lender to be
material, then, within five days after demand by Lender, Borrower shall pay to
Lender the additional amount or amounts as will compensate Lender for the
increased cost or reduction. A certificate of Lender claiming compensation
under this Section 2.15 and setting forth in reasonable detail the calculation
of the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. If Lender demands compensation
under this Section 2.15, Borrower may at any time, upon at least five Business
Days' prior notice to Lender either (i) repay in full the then outstanding
principal amount of LIBOR Advances, together with accrued interest thereon, or
(ii) convert such LIBOR Advances to Prime Advances in accordance with the
provisions of this Agreement; provided, however, that Borrower shall be liable
for any Consequential Loss arising pursuant to such actions.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for Lender to perform its obligations hereunder to
make LIBOR Advances or to continue to fund or maintain LIBOR Advances
hereunder, then, on notice thereof and demand therefor by Lender to Borrower,
(i) each LIBOR Advance will automatically, upon such demand, convert into a
Prime Advance and (ii) the obligation of Lender to make, or to convert into or
Continue Advances as, LIBOR Advances shall be suspended until Lender notifies
Borrower that Lender has determined that the circumstances causing such
suspension no longer exist.
(d) Upon the occurrence and during the continuance of any Default
or Event of Default, (i) each LIBOR Advance will automatically, on the last day
of the then existing Interest Period therefor, convert into a Prime Advance and
(ii) the obligation of Lender to make, or to convert into or Continue Advance
as, LIBOR Advances shall be suspended.
(e) Failure on the part of Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.15 with
respect to any period shall not constitute a waiver of Lender's right to demand
compensation with respect to such period or any other period.
(f) The obligations of Borrower under this Section 2.15 shall
survive any termination of this Agreement; provided that at no time may Lender
demand any compensation under Sections 2.15(a) or (b) for any amount with
respect to any period prior to the date which is six months prior to the date
of the notice or certificate delivered by Lender pursuant to either Section
2.15(a) or (b); provided further that Lender shall not demand any compensation
under
-27-
<PAGE> 33
Section 2.15(a) or (b) except in accordance with Lender's normal policies for
administering loans with similar provisions.
(g) Determinations by Lender for purposes of this Section 2.15
shall be conclusive, absent manifest error. Any certificate delivered to
Borrower by Lender pursuant to this Section 2.15 shall include in reasonable
detail the basis for Lender's demand for additional compensation.
ARTICLE III. CONDITIONS PRECEDENT TO ADVANCES.
3.1 Conditions Precedent to Advances. The obligation of Lender
to make the first Advance to be made by it hereunder is subject to the
satisfaction of the following conditions:
(a) Laws. The making of both the Facility A Commitment and the
Facility B Commitment shall not contravene any Law applicable to Lender.
(b) No Default. (i) No Material Adverse Change, as determined by
Lender, shall have occurred and be continuing since December 31, 1994, (ii) no
circumstance or event shall have occurred and be continuing since December 31,
1994 that is or could reasonably be expected to, as determined by Lender, be
material and adverse to the financial condition, business operations, prospects
or property of Neuromed, and (iii) there shall not be a Default or Event of
Default existing.
(c) Representations and Warranties. The representations and
warranties in Article VI and the other Loan Papers shall be true and correct in
all material respects.
(d) Certificate. Borrower shall have delivered to Lender an
officer's certificate for each Obligor, executed by authorized officers of such
Obligor, dated the Effective Date, certifying (A) that attached thereto is a
copy of its certificate or articles of incorporation certified by the Secretary
of State (or other appropriate officer) of the jurisdiction of its
incorporation, which is true and complete, and in full force and effect,
without amendment except as shown, (B) that attached thereto is a copy of its
bylaws, which is true and complete, and in full force and effect, without
amendment except as shown, (C) that attached thereto is a copy of the
resolutions of the board of directors of such Obligor authorizing execution,
delivery and performance of this Agreement and all other Loan Papers and the
Acquisition Documents, which are true and complete, are in full force and
effect, were duly adopted, have not been amended, modified, or revoked, and
constitute all resolutions of such Obligor adopted with respect to this loan
transaction and the Acquisition, (D) that attached thereto are certificates of
good standing and certificates of existence for such Obligor issued not more
than ten days prior to the Effective Date, issued by the appropriate officer of
the jurisdiction of organization of such Obligor and of each jurisdiction in
which the nature of such Obligor's business or properties require such
qualification, (E) with respect to Borrower, that the pledged interests in
Neuromed have been issued and are outstanding and a description of the
ownership of the pledged interests in
-28-
<PAGE> 34
Neuromed, (F) with respect to each Obligor other than Borrower, a description
of the ownership of all authorized, issued and outstanding equity interests of
such Obligor and (G) to the incumbency, name, and signature of each officer
authorized to sign this Agreement and any other Loan Paper and the Acquisition
Documents on its behalf. Lender may conclusively rely on each certificate
delivered pursuant to this Section 3.1(d) until it receives notice from
Borrower in writing to the contrary.
(e) Proceedings. All corporate proceedings of each Obligor taken
in connection with the transactions contemplated by this Agreement, the
Acquisition Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender and Special Counsel; and Lender
shall have received, as of the Effective Date, copies of all documents or other
evidence which Lender or Special Counsel may reasonably request in connection
with said transactions.
(f) Loan Papers. Each Obligor shall have delivered to Lender the
Loan Papers to be executed by such Obligor, dated as of the Effective Date,
appropriately completed.
(g) Acquisition.
(i) All terms of the Acquisition and the Acquisition
Documents shall be acceptable to Lender in its sole discretion, and
the Acquisition shall have been consummated in accordance with the
terms, provisions and conditions of the Acquisition Agreement, without
amendments, consents or waivers with respect thereto (except with the
express written consent of Lender).
(ii) Lender shall have completed all due diligence related
to the Acquisition deemed necessary in its sole discretion, and all
such information revealed in connection with such due diligence shall
be acceptable to Lender in its sole discretion.
(h) Documents. Borrower shall have delivered to Lender the
following (in the number of counterpart requested by Lender), all in form and
substance satisfactory to Lender:
(i) Copies of all opinions rendered by any counsel in
connection with the Acquisition and the Acquisition Documents,
together with letters authorizing Lender to rely thereon.
(ii) A copy of all Acquisition Documents, all in form and
substance satisfactory to Lender, certified by an officer of Borrower
to be true and complete.
(iii) Evidence satisfactory to Lender of the completion of
all transactions related to the Acquisition.
(iv) Evidence reasonably satisfactory to Lender that on
the date of the initial Advance: (A) the FDA and each other Tribunal,
the consent of which is necessary, has consented to the Acquisition;
(B) all representations and warranties in the Acquisition
-29-
<PAGE> 35
Documents are true and correct, and (C) all intellectual property
intended to be vested in Neuromed is owned of record by Neuromed.
(v) The undrawn letter of credit issued by Lender for the
account of Borrower and the benefit of Seller, letter of credit number
145407 in the original face amount of $1,500,000.
(vi) The results of UCC and other Lien searches against
the assets of each Obligor and Seller, and evidence satisfactory to
Lender that all Liens in favor of any Person against assets of Seller,
Neuromed and any Obligor shall have been released and any credit
facility related to any of the above shall have been terminated.
(vii) Evidence satisfactory to Lender of the perfection and
priority of the Liens in the Collateral.
(viii) If requested by Lender, reasonable evidence that any
Obligor is the rightful owner and has good title to its Collateral
(including Collateral acquired pursuant to the Acquisition), as
applicable.
(ix) A certificate computed after giving effect to the
Initial Advance, but demonstrating compliance on the Effective Date
with all financial ratios described in Sections 5.7, 5.8, 5.11 and
5.12 (determined on a pro forma basis as of the Effective Date, based
on the unaudited financial statements of Borrower and Neuromed as of
February 28, 1995).
(x) Copies of insurance binders or certificates covering
the assets of each Obligor indicating Lender as a loss payee.
(xi) Payment of all fees (including attorneys' fees
incurred by Lender.
(xii) Copies of all documentation relating to debt owed by
Borrower and each other Obligor to any Person, including without
limitation, all credit agreements, notes, collateral documents, bonds,
instruments and other documentation in connection with any extension
of credit.
(xiii) Certificates for all of the outstanding capital stock
of each Subsidiary of Borrower and stop transfer letters in favor of
Lender.
(xiv) Stock and other powers for all shares of the
outstanding capital stock of each Subsidiary of Borrower.
(i) Financial Condition Certificate. Lender shall have received a
certificate of Borrower to the effect that: (i) the fair and saleable value of
the assets, after giving effect to this Agreement, the Notes and the other Loan
Papers of Borrower will exceed amounts that will be
-30-
<PAGE> 36
required to be paid by Borrower on or in respect of its existing debts
(including contingent liabilities) as they mature; (ii) Borrower will not have
unreasonably small capital to carry out its business as now conducted or as
proposed to be conducted, and (iii) Borrower has not incurred debts beyond its
ability to pay such debts as they mature.
(j) Opinion of Counsel. Lender shall have received an opinion of
Fulbright & Jaworski L.L.P. acceptable to Lender and Special Counsel.
(k) Further Documents. As of the Effective Date, Lender shall
have received, in form and substance satisfactory to Lender and Special
Counsel, such other documents and instruments as Lender may reasonably require
to evidence the status, organization or authority of Borrower, and to evidence
payment of the Obligation.
3.2 Conditions Precedent to All Advances. Lender shall not be
obligated to make any Advance, if (a) there is in existence at such time a
Default under Section 4.2, 5.5, 5.6, 5.9, 5.10 or 5.12; (b) an Event of Default
has occurred and is continuing; (c) if any representations and warranties
contained in Article VI of this Agreement shall be false or untrue in any
material respect on the date of such Advance, as if made on such date except
for representations and warranties that are by their express terms limited to a
specific date; or (d) any Subsidiary of Borrower has not executed and delivered
to Lender a Guaranty Agreement. Each request by Borrower for an Advance shall
constitute a representation by Borrower that it is in compliance with the
provisions of this Section 3.2.
3.3 Legal Details. All documents executed or submitted pursuant
hereto by Borrower shall be satisfactory in form and substance to Lender and
Special Counsel. Lender and Special Counsel shall receive all information, and
such counterpart originals or certified or other copies of and such materials,
as Lender or Special Counsel may reasonably request. All legal matters
incident to the transactions contemplated by this Agreement (including, without
limitation, matters arising from time to time as a result of changes occurring
with respect to any Laws) shall be satisfactory to Special Counsel.
ARTICLE IV. AFFIRMATIVE COVENANTS
From the date hereof, and so long as this Agreement is in effect and
until final payment in full of the Obligation and the performance of all other
obligations of Borrower under this Agreement and the other Loan Papers,
Borrower agrees and covenants that it shall, and shall cause each Subsidiary of
Borrower to, observe, perform, comply and fulfill each and every covenant, term
and provision set forth below:
4.1 Books, Records and Properties. Borrower shall, and shall
cause each Subsidiary of Borrower to, maintain its books and records in
accordance with GAAP. Borrower during normal business hours and after
reasonable notice by Lender shall, and shall cause each Subsidiary of Borrower
to, permit any of Lender's agents or representatives to have access to
-31-
<PAGE> 37
and examine its books and records, including statements and schedules with
respect to the Collateral, and to copy and make abstracts therefrom, and to
inspect any of the properties of Borrower and each Subsidiaries of Borrower to,
at any time(s) hereafter during normal business hours; provided, that any such
access or inspection shall not disrupt Borrower's operations.
4.2 Financial Statements and Reports. Borrower shall furnish or
cause to be furnished to Lender the following Financial Statements and reports:
(a) Accounting Period Statements. As soon as practicable after
the end of each fiscal quarter of Borrower and in any event within 45 days
after the end of each fiscal quarter of Borrower, copies of Financial
Statements as of the end of such quarter, all in reasonable detail and
certified as complete and correct in all material respects, subject to changes
resulting from year-end adjustment, by a financial officer of Borrower or any
other Person acceptable to Lender;
(b) Annual Statements. As soon as practicable after the end of
each fiscal year of Borrower and in any event within 90 days thereafter,
copies of annual Financial Statements, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by an unqualified opinion of independent certified
public accountants approved by Borrower's board of directors, which opinion
shall state that the Financial Statements have been prepared in accordance with
GAAP, that their examination has been made in accordance with generally
accepted auditing standards and that said financial statements present fairly
the consolidated financial position of Borrower and its Subsidiaries and their
results of operations;
(c) Compliance Certificate and related reports. Within 45 days
after the end of each month;
(i) The Compliance Certificate for the last day of such
month;
(ii) A schedule showing for such month an aging of
Accounts of Borrower in categories of current, 30 days past due, 60
days past due and 91 or more days past due; and
(iii) A schedule showing for such month Accounts payable by
each account debtor of which 10% or more of the aggregate dollar
amount of all Accounts owed to Borrower by such account debtor have
been due and payable for 91 days or more from their respective invoice
dates;
(d) Contingent Liabilities Report. Promptly upon becoming aware,
written notice of any actual or potential contingent liabilities, including
Litigation, against Borrower or any Subsidiary of Borrower involving liability
in an amount which must be disclosed in either Borrower's financial statements
or filings with the Securities and Exchange Commission.
-32-
<PAGE> 38
(e) FDA Reports. Promptly upon receipt from FDA, a copy of each
inspection report received from FDA and responses from and to FDA.
(f) SEC Filings. As soon as filed with the Securities and
Exchange Commission, copies of each of Borrower's forms 10- Q, 10-K and 8-K.
(g) Payment Report. Not later than 15 days prior to making any
payment or other transfer of property to Seller (other than any payment on the
Effective Date) pursuant to any Acquisition Document, Borrower shall deliver
the written certification of any authorized officer of Borrower stating (i)
whether a Default or Event of Default then exists or will exist after giving
effect to such payment or transfer and (ii) the Eligible Asset Value, the
Facility A Commitment, the Borrowing Base and the aggregate amount of
outstanding Facility A Advances, after giving effect to such payment or
transfer (together with detailed calculations of such determination).
4.3 Maintenance of Existence. Borrower shall cause to be done all
things necessary to preserve and keep in full force and effect Borrower's and
each of Borrower's Subsidiaries' existence as a corporation; provided, (a) any
Subsidiary of Borrower may merge with and into Borrower if Borrower is the
surviving entity and (b) any Subsidiary of Borrower may merge with and into
another Subsidiary of Borrower.
4.4 Insurance. Borrower shall maintain, and shall cause each
Subsidiary of Borrower to, in force with financially sound and reputable
insurers, the insurance policies required pursuant to the Loan Papers in
accordance with the provisions thereof and such other policies with respect to
its respective property and business against such casualties and contingencies
(including fire, worker's compensation or occupational injury insurance,
business interruption and public liability) and in such amounts as is customary
in the lines of business of comparable size and financial strength, with a loss
payee endorsement for casualty insurance in favor of Lender and noncancelable
without 30 days prior notice to Lender. Borrower shall supply evidence of such
insurance to Lender.
4.5 Compliance with Applicable Laws. Borrower shall, and shall
cause each Subsidiary of Borrower to, comply with the requirements of all
applicable Laws and orders (including but not limited to the FDA Act, ERISA and
environmental laws) of Tribunals or other governmental authorizations necessary
to the ownership of Borrower's and each of Subsidiary's of Borrower properties
or to the conduct of its business if the result of failure to so comply would
have a Material Adverse Effect.
4.6 Other Information and Documents. Borrower shall, and shall
cause each Subsidiary of Borrower to, promptly deliver to Lender such
information, certificates and documents in addition to those herein mentioned
as Lender may from time to time reasonably request.
-33-
<PAGE> 39
4.7 Default. Borrower shall report to Lender immediately any
Default or Event of Default, and any notice of any claimed default under any
other Debt agreement, specifying the default and steps taken or to be taken to
cure.
4.8 Taxes. Borrower shall pay any stamp, loan, transaction or
similar taxes that may be imposed on this Agreement, the Advances hereunder,
the Notes, or any of the transactions hereunder, and shall pay, and shall cause
each Subsidiary of Borrower to, all income, ad valorem, and other taxes of
Borrower or such Subsidiary before they become delinquent except taxes being
contested by appropriate means and in good faith and the levy and execution of
which have been stayed and continued to be stayed. Any such taxes must be paid
before their nonpayment causes a Lien (other than a Permitted Lien) to be filed
on any of the Collateral.
4.9 Further Assurances. Borrower will, and will cause each other
Obligor to, on request of Lender, promptly correct any defect, error or
omission which may be discovered in the contents of any of the Loan Papers or
in the execution or acknowledgment thereof, and will execute, acknowledge and
deliver such further instruments and do such further acts as may be necessary
or as may be requested by Lender to carry out more effectively the purposes of
this Agreement and the Loan Papers and to subject to the Liens any of
Borrower's or any other Obligor's properties, rights or interests covered or
intended to be covered thereby, and to perfect and maintain all Liens at any
time securing all or any part of the debt hereunder.
4.10 Filings. Borrower will pay all expenses incurred in
connection with the filing of any of the Loan Papers and every other instrument
in addition or supplemental to any thereof that shall be required by Law in
order to perfect and maintain the validity and effectiveness of Liens at any
time securing all or any part of the debt hereunder.
4.11 Maintenance. Borrower will, and shall cause each Subsidiary
of Borrower to, maintain all of Borrower's and such Subsidiary's material
property in good condition and repair (wear and tear excepted) and make all
necessary replacements thereof, and preserve and maintain all material leases,
licenses, privileges, franchises, certificates and the like used in the
operation of Borrower's and such Subsidiary's business (other than with respect
to any such lease, license, privilege, franchise and certificate which the
Board of Directors of Borrower or such Subsidiary of Borrower has determined
that the expiration or termination of which is in the best interest of Borrower
or such Subsidiary of Borrower, respectively).
4.12 ERISA Compliance. Borrower shall, and shall cause each
Subsidiary of Borrower to, (a) at all times, make prompt payment of all
contributions required under all Plans and required to meet the minimum funding
standard set forth in ERISA with respect to its Plans, (b) notify Lender
immediately of any fact, including, but not limited to, any Reportable Event
arising in connection with any of its Plans, which might constitute grounds for
termination thereof by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer such Plan, together
with a statement, if requested by Lender as to the reason therefor and the
action, if any, proposed to be taken with respect thereto, and (c) furnish
-34-
<PAGE> 40
to Lender, upon its request, such additional information concerning any of its
Plans as may be reasonably requested.
4.13 Indemnity by Borrower. Borrower shall indemnify, save, and
hold harmless Lender and its shareholders, directors, officers, agents,
attorneys, and employees (collectively, the "Indemnitees") from and against:
(a) any and all claims, demands, actions, or causes of action that are asserted
by any Person other than Borrower, its shareholders, directors, officers,
agents, attorneys, and employees against any Indemnitee if the claim, demand,
action or cause of action relates to the Obligations, the use of proceeds of
any Advance, or the relationship of Borrower and Lender under this Agreement or
any transaction contemplated pursuant to this Agreement or any other Loan
Paper, (b) any proceeding or any administrative, investigative or arbitration
proceeding by or before any Tribunal or arbitral directly or indirectly related
to (i) a claim, demand, action or cause of action described in clause (a) above
or (ii) any claim, demand, proceeding, action or cause of action involving
Borrower or any Affiliate (including any shareholder) of Borrower in which any
Indemnitee incurs costs and expenses as a result of any requirement that such
Indemnitee testify or produce records therein (other than as a result of any
Litigation commenced by an Indemnitee or Borrower in which such Indemnitee is
not a prevailing party), and (c) any and all liabilities, losses, costs, or
expenses (including attorneys' fees and disbursements) that any Indemnitee
suffers or incurs as a result of any of the foregoing (other than as a result
of any Litigation commenced by an Indemnitee or Borrower in which such
Indemnitee is not the prevailing party); provided, however, that Borrower shall
not have any obligation under this Section 4.13 to a particular Indemnitee or
with respect to any of the foregoing arising out of the negligence or willful
misconduct of such Indemnitee. If any claim, demand, action or cause of action
is asserted against any Indemnitee, such Indemnitee shall promptly notify
Borrower, but the failure to so promptly notify Borrower shall not affect
Borrower's obligations under this Section 4.13 except to the extent such
failure materially impairs Borrower's ability to defend any such claim, demand,
action or cause of action. Any obligation or liability of Borrower to any
Indemnitee under this Section 4.13 shall survive the expiration or termination
of this Agreement and the repayment of the Obligation.
ARTICLE V. NEGATIVE COVENANTS
From the date hereof and so long as this Agreement is in effect and
until final payment in full of the Obligation, and the performance of all other
obligations of Borrower under this Agreement and the other Loan Papers,
Borrower agrees and covenants that it shall, and shall cause each of its
Subsidiaries to, observe, perform, comply and fulfill each and every covenant,
term and provision set forth below:
5.1 Liens. Borrower shall not, and shall not permit any
Subsidiary of Borrower to, grant, permit or suffer to exist any Lien on any of
its property or assets, except (a) Permitted Liens, and (b) Liens granted under
the Loan Papers.
-35-
<PAGE> 41
5.2 Transfer of Assets. Borrower shall not, and shall not permit
any Subsidiary of Borrower to, sell, lease, transfer, or otherwise dispose of
assets of Borrower or such Subsidiary, except (a) payments of business expenses
of Borrower or such Subsidiary in the ordinary course of business, (b)
Inventory and Investments in the ordinary course of business and for full and
fair consideration, (c) assets which Borrower or such Subsidiary determines in
good faith are worthless or obsolete, (d) assets not subject to a Lien or
license in favor of Lender the value of which, individually and in the
aggregate, does not exceed 5% of the gross revenue of Borrower and its
Subsidiaries (determined on or consolidated basis) during the preceding fiscal
year from operations, (e) the sale of Investments permitted pursuant to Section
3.5 of the Security Agreement of Borrower or (f) in connection with Investments
permitted pursuant to Section 5.4.
5.3 New Industry. Borrower shall not, and shall not permit any
Subsidiary of Borrower to, enter any industry or type of business which is not
directly related to the research, design, development, manufacture and/or
marketing of Devices.
5.4 Restricted Investments. Borrower shall not make or have
outstanding any Investments, except for Permitted Investments, Permitted
Acquisitions and Permitted Ventures.
5.5 Transactions with Affiliates. Borrower shall not, and shall
not permit any Subsidiary of Borrower to, enter into any transaction with any
Affiliate, except in the ordinary course of the business of Borrower or such
Subsidiary, and on fair and reasonable terms no less favorable to Borrower or
such Subsidiary than it would obtain in a comparable arm's length transaction
with a Person not an Affiliate.
5.6 Fixed Charges Coverage Ratio. Borrower shall not permit the
Fixed Charges Coverage Ratio to be less than as indicated below, as at the end
of each fiscal quarter ending during the period indicated:
March 31, 1995 through September 30, 1996 1.50 to 1.00
December 31, 1996 through September 30, 1997 2.50 to 1.00
December 31, 1997 and thereafter 3.00 to 1.00
5.7 Current Ratio. Borrower shall not permit the Current Ratio to
be less than as indicated below, as at the end of each fiscal quarter ending on
the date or during the period indicated:
Effective Date 1.75 to 1.00
June 30, 1995 through September 30, 1996 1.30 to 1.00
December 31, 1996 through September 30, 1997 1.40 to 1.00
December 31, 1997 and thereafter 1.60 to 1.00
5.8 Total Liabilities to Worth Ratio. Borrower shall not permit
the ratio of Total Liabilities to Net Worth to be greater than as indicated
below, as at the end of each fiscal quarter ending on the date or during the
period indicated:
-36-
<PAGE> 42
Effective Date through September 30, 1996 1.25 to 1.00
December 31, 1996 through September 30, 1998 1.00 to 1.00
December 31, 1998 and thereafter 0.75 to 1.00
5.9 Current Maturities Coverage Ratio. Borrower shall not permit
the Current Maturities Coverage Ratio to be less than as indicated below, as at
the end of each fiscal quarter ending during the period indicated:
March 31, 1995 through September 30, 1996 1.50 to 1.00
December 31, 1996 through September 30, 1997 1.75 to 1.00
December 31, 1997 through September 30, 1998 2.00 to 1.00
December 31, 1998 and thereafter 2.50 to 1.00
5.10 Obligations Ratio. Borrower shall not permit the ratio of (a)
the sum of the aggregate unpaid principal of all outstanding Advances, plus all
accrued, unpaid interest on all Advances, plus all other Obligations to (b)
EBITDA, to be greater than 3.50 to 1.00 as at the end of each fiscal quarter.
5.11 Capital Expenditures. Borrower shall not permit the aggregate
amount of Capital Expenditures incurred or paid during the calendar year
indicated below to exceed the amounts indicated below for such year:
1995 $1,200,000
1996 $1,000,000
1997 $ 700,000
1998 $ 700,000
1999 $ 700,000
5.12 Eligible Asset Value. Borrower shall not permit the Eligible
Asset Value to be less than $2,000,000 at any time.
5.13 Merger and Consolidation. Borrower shall not, and shall not
permit any Subsidiary of Borrower to, merge or consolidate with any other
Person or allow any other Person to merge or consolidate with it; provided, (a)
Borrower may merge or consolidate with any other Person if (i) Borrower is the
surviving entity and (ii) such merger or consolidation is the result of (A) a
Permitted Acquisition or (B) any other Investment, so long as no Default or
Event of Default exists prior to or after giving effect to such Investment and
(b) each Subsidiary of Borrower may merge with and into either Borrower or any
other Subsidiary of Borrower if Borrower or another Subsidiary of Borrower is
the surviving entity, as appropriate, and no Default or Event of Default exists
prior to or after giving effect thereto.
5.14 Debt. Borrower shall not, and shall not permit any Subsidiary
of Borrower to, create, incur, assume, become or be liable in any manner in
respect of, or suffer to exist, any Debt for Borrowed Money, except (a) Debt
under the Loan Papers, (b) obligations in respect
-37-
<PAGE> 43
of trade payables (i) incurred by Borrower or a Subsidiary of Borrower in the
ordinary course of business and (ii) acquired or assumed by Borrower or a
Subsidiary of Borrower pursuant to a Permitted Acquisition, (c) Debt the
proceeds of which was used solely for the acquisition and construction of the
Allen Property not in excess of the amount of such Debt on the Effective Date,
as reduced by payments on and after the Effective Date, and (d) other Debt of
Borrower and each of its Subsidiaries not to exceed in the aggregate $250,000.
5.15 Distributions.
(a) Dividends. Borrower shall not declare, pay, make or become
liable for any Distribution, provided that so long as no Default or Event of
Default exists, Borrower may (i) declare and pay dividends on Borrower's
capital stock in an aggregate amount not to exceed in any calendar year 25% of
the prior fiscal year's Net Income (determined on a non-cumulative basis);
provided, further, prior to the declaration of each such dividend, Borrower
shall deliver to Lender not later than fifteen Business Days prior to the
proposed declaration date a certificate of the chief financial officer of
Borrower stating that (A) no Default or Event of Default exists or will result
from the declaration or payment or such dividend, and (B) attached to such
certificate are calculations of Sections 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12
and 5.14, calculated on a pro forma basis as at the date twelve months after
the date of payment of the proposed dividend, (ii) enter into transactions
permitted by Section 5.12(b) and (iii) make payments to Seller in accordance
with the Acquisition Agreement; provided further (c) that no Distribution
otherwise permitted by this Section 5.12 shall be made prior to receipt by
Lender of (i) the audited financial statements of Borrower for the fiscal year
to which such proposed Distribution is attributable and (ii) the payment
required by Section 2.7(b).
(b) Treasury Stock. Borrower shall not declare, pay, make or
become liable for any Distribution, provided that so long as no Default or
Event of Default exists, Borrower may (i) acquire for cash Borrower's capital
stock in an aggregate amount not to exceed $1,000,000 in any calendar year;
provided, further, not later than seven days after each such acquisition of any
of Borrower's capital stock, Borrower shall deliver to Lender a certificate of
the chief financial officer of Borrower stating that (A) no Default or Event of
Default exists or will result from the declaration or payment or such dividend,
(B) attached to such certificate are calculations demonstrating that before and
after giving effect to each acquisition of Borrower's capital stock, Eligible
Asset Value equals or exceeds $5,000,000 in the aggregate and (ii) enter into
transactions permitted by Section 5.12(a); provided further (c) that no
Distribution otherwise permitted by this Section 5.12 shall be made prior to
receipt by Lender of (i) the audited financial statements of Borrower for the
fiscal year to which such proposed Distribution is attributable and (ii) the
payment required by Section 2.7(b).
-38-
<PAGE> 44
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
6.1 Organization; Qualification; Authority. Borrower and each
Subsidiary of Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the state indicated on Schedule 1. Borrower
and each Subsidiary of Borrower has the power to own its properties and to
carry on its businesses as now being conducted. The Board of Directors of
Borrower has duly authorized the execution, delivery and performance of the
Loan Papers to be executed by Borrower. No consent of the shareholders of
Borrower is required as a prerequisite to the validity and enforceability of
any Loan Papers or any other document contemplated hereby. Borrower has full
legal right and corporate power, and authority to execute, deliver, and perform
its obligations under the Loan Papers to be executed and delivered by it.
6.2 Financial Statements. The audited financial statements for
the fiscal year ended December 31, 1994 and the unaudited financial statements
for the most recent fiscal quarter (including any related schedules and/or
notes) are true and correct in all material respects (subject, as to interim
statements, to charges resulting from audits and year-end adjustments) have
been prepared in accordance with GAAP (except, as to interim statements, for
notes and year-end adjustments) consistently followed throughout the periods
specified, and fairly present in accordance with GAAP the financial condition
and results of operations of Borrower as at the dates thereof and for the
periods indicated. There has been no material adverse change in the business,
condition or operations (financial or otherwise) of Borrower since December 31,
1994.
6.3 Conflicting Agreements and Other Matters. Neither Borrower
nor any Subsidiary of Borrower is a party to any contract or agreement or
subject to any restriction which materially and adversely affects the ability
of Borrower to perform its obligations under the Loan Papers. Neither the
execution nor delivery of this Agreement, the Notes, or the other Loan Papers,
nor fulfillment of nor compliance with the terms and provisions of this
Agreement, the Notes or the other Loan Papers will conflict with, or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, or result in any violation of, or result in the creation of any Lien
(except for Liens created by the Loan Papers) upon any of the properties or
assets of Borrower or any Subsidiary of Borrower pursuant to the articles of
incorporation of Borrower or such Subsidiary, any award of any arbitrator or
any agreement, instrument, order, judgment, decree, statute, law, rule or
regulation to which Borrower or such Subsidiary is subject. Neither Borrower
nor any Subsidiary of Borrower is a party to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness of Borrower or
such Subsidiary, any agreement relating thereto or any other contract or
agreement which limits the amount of, or otherwise imposes restrictions on the
incurring of, Debt of Borrower of the type to be evidenced by the Notes.
6.4 Governmental Consent. Neither the nature of Borrower or any
Subsidiary of Borrower, its businesses or properties, nor any relationship
between Borrower, any Subsidiary
-39-
<PAGE> 45
of Borrower and any other Person, nor any circumstance in connection with the
execution, delivery and performance of this Agreement, the Loan Papers or the
Notes is such as to require any authorization, consent, approval, exemption of
other action by or notice to or filing with any court or Tribunal (other than
routine filings and recordings to perfect Liens) in connection with the
execution and delivery of this Agreement, the Notes, the other Loan Papers, or
fulfillment of or compliance with the terms and provisions hereof, of the Notes
or of the other Loan Papers.
6.5 Enforceability. This Agreement is, the other Loan Papers are
and the Notes when delivered will be legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their terms, except as
limited by Debtor Relief Laws.
6.6 Actions Pending. Other than as described on Schedule 3, there
is no Litigation pending or, to the knowledge of Borrower, threatened against
Borrower or any Subsidiary of Borrower, or any properties or rights of Borrower
or any Subsidiary of Borrower, by or before any court, arbitrator or Tribunal
which may reasonably be expected to result in any Material Adverse Effect.
There is no Litigation pending or, to the knowledge of Borrower, threatened
against Borrower or any Subsidiary of Borrower which purports to affect the
validity or enforceability of this Agreement, either Note or any of the other
Loan Papers.
6.7 Outstanding Debt. Neither Borrower nor any Subsidiary of
Borrower has any outstanding Debt except (a) as described on the balance sheet
of Borrower for the fiscal year ended December 31, 1994, (b) as described in
the balance sheet of Neuromed for the fiscal year ended October 31, 1994, (c)
trade payables incurred in the ordinary course of business and (d) Debt for
Borrowed Money owed to Lender. There exists no default under the provisions of
any instrument evidencing such Debt or of any material agreement relating
thereto.
6.8 Title to Properties. Borrower and each Subsidiary of Borrower
has good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other material
properties and assets used in the operations of its business, subject to no
Lien of any kind except Liens permitted by Section 5.1. All leases necessary
in any material respect for the conduct of the respective businesses of
Borrower are valid and subsisting and are in full force and effect.
6.9 Taxes. Borrower and each Subsidiary of Borrower has paid all
taxes and assessments owed by it to the extent that such taxes and assessments
have become due, except such taxes as are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP.
6.10 Regulation G, etc. Neither Borrower nor any Subsidiary of
Borrower owns or has any present intention of acquiring any "margin stock" as
defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System (herein called "margin stock"). None of the proceeds of
any Advance will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any margin stock
or for the purpose of maintaining, reducing or retiring any indebtedness which
was originally
-40-
<PAGE> 46
incurred to purchase or carry any stock that is currently a margin stock or for
any other purpose which might constitute this transaction a "purpose credit"
within the meaning of such Regulation G. Neither Borrower nor any agent
acting on its behalf has taken or will take any action which might cause this
Agreement or the Notes to violate Regulation G, Regulation T, Regulation X or
any other regulation of the Board of Governors of the Federal Reserve System or
to violate the Securities Exchange Act of 1934, as amended, in each case as in
effect now or as the same may hereafter be in effect.
6.11 ERISA. No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived,
exists with respect to any Plan. No liability to the PBGC has been or is
expected by Borrower or any Subsidiary of Borrower to be incurred with respect
to any Plan by Borrower or any Subsidiary of Borrower which is or would be
materially adverse to Borrower or any Subsidiary of Borrower. Neither Borrower
nor any Subsidiary of Borrower has incurred or presently expects to incur any
withdrawal liability under Title IV of ERISA with respect to any Multiemployer
Plan which is or would be materially adverse to Borrower.
6.12 Disclosure. Neither this Agreement or any other document,
certificate or statement furnished, or to be furnished, to Lender by or on
behalf of Borrower or any other Obligor in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading in any material respect.
6.13 Environmental Matters. Borrower, each Subsidiary of Borrower,
the plants and sites each owns, and to the best of Borrower's knowledge after
due inquiry of the owners of leased property the plants and sites which each
leases have complied with all federal, state, local and regional statutes,
ordinances, orders, judgments, rulings and regulations relating to any matters
of pollution or of environmental regulation or control except, in any such
case, where such failure to comply would not result in a Material Adverse
Effect. Without limiting the generality of the preceding sentence, neither
Borrower nor any Subsidiary of Borrower has received notice of and does not
have actual knowledge of any actual or claimed or asserted failure so to comply
which alone or together with any other such failure is material and would
result in a Material Adverse Effect. During periods of use, ownership,
occupancy or operation by Borrower and each Subsidiary of Borrower, none of
Borrower, any Subsidiary of Borrower, or their respective plants or sites have
managed, generated, released or disposed of, any hazardous wastes, hazardous
substances, hazardous materials, toxic substances or toxic pollutants, as those
terms are used or defined in the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Hazardous Materials Transportation Act, the Toxic Substance Control Act, the
Clean Air Act and the Clean Water Act, in material violation of or in a manner
which would result in liability under such statutes or any regulations
promulgated pursuant thereto or any other applicable law, except where such
noncompliance or liability would not result in a Material Adverse Effect.
-41-
<PAGE> 47
6.14 Sufficiency of Capital. Borrower and each Subsidiary of
Borrower are, and after consummation of this Agreement and after giving effect
to the Obligation incurred and Liens created by Borrower and each Subsidiary of
Borrower in connection herewith will be, Solvent.
6.15 Affiliates. No Affiliate of Borrower exists, except as
identified on Schedule 1.
6.16 Acquisition Agreement. Each representation and warranty of
Borrower contained in the Acquisition Agreement was true and correct when made,
is now true and correct, and is incorporated herein by this reference. The
Acquisition Agreement is in full force and effect and has not been modified or
amended. No default exists under any Acquisition Document. Borrower has
provided, or caused to be provided, to Lender complete and correct copies of
the Acquisition Agreement and the other Acquisition Documents, all as amended,
together with all exhibits and schedules thereto.
6.17 Consummation of Acquisition. As of the date of the initial
advance, (a) the acquisition contemplated by the Acquisition Agreement has been
consummated substantially in accordance with such agreement, and (b) all
material consents for such consummation required by Law, order or decree or any
other material agreement, to which Neuromed, Seller or Borrower is a party or
is bound, have been obtained or waived pursuant to a written agreement
consented to by Lender.
6.18 Certain Fees. No broker's, finder's, management fee or other
fee or commission will be payable by Borrower with respect to the making of
commitments or Advances hereunder (other than to Lender hereunder) or the
consummation of the transactions described in the Acquisition Documents (other
than to The GulfStar Group, Inc.). Borrower hereby agrees to indemnify and
hold harmless Lender from and against any claims, demand, liability,
proceedings, costs or expenses asserted with respect to or arising in
connection with any such fees or commissions.
ARTICLE VII. DEFAULT
7.1 Events of Default. The term "Event of Default" as used
herein, means the occurrence and continuance of any one or more of the
following events (including the passage of time, if any, specified therefor):
(a) Borrower shall fail to pay any amount, whether principal,
interest or other amounts, payable hereunder or under the Notes when due and
such failure shall continue for three days from the date due; or
(b) (i) Any representation or warranty made by Borrower or any
other Obligor under or in connection with any Loan Paper shall prove to have
been incorrect in any material respect when made or (ii) (A) a breach of any
representation or warranty made by Seller under or in connection with any
Acquisition Document is discovered, (B) Lender makes a determination that
-42-
<PAGE> 48
such breach has caused or will cause a Material Adverse Change or Effect and
gives notice thereof to Borrower, and (C) such breach has not already been
cured or paid for by Seller, or, alternatively, Borrower or Seller does not
cure such breach or the situation giving rise thereto to the complete
satisfaction of Lender within 30 days after receipt of such notice from Lender;
or
(c) Borrower shall fail to perform or observe any term, covenant
or agreement contained in Sections 5.6, 5.7, 5.8, 5.9 or 5.10 and such failure
shall continue for two consecutive months or any other provision of Article V
of this Agreement; or
(d) Borrower or any other Obligor shall fail to perform or observe
any term, covenant or agreement contained in any Loan Paper on its part to be
performed or observed, other than described in Section 7.1(a), (b), or (c), and
such default has continued for a period of 30 days; or
(e) Borrower, any Subsidiary of Borrower or any other Obligor
shall fail to pay any Debt (other than under the Loan Papers) which is, singly
or in the aggregate, in an amount equal to or greater than $100,000, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other default under any agreement or
instrument relating to any such Debt, or any other event, shall occur and shall
continue after the applicable grace or cure period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; or
(f) Borrower, any Subsidiary of Borrower or any other Obligor
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against Borrower, any Subsidiary of Borrower or any other Obligor seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any Debtor Relief Laws, or seeking the entry of an order
for relief or the appointment of a receiver, trustee, or other similar official
for it or for any substantial part of its property; or Borrower, any Subsidiary
of Borrower or any other Obligor shall take any action to authorize any of the
actions set forth above in this Section 7.1(f); or
(g) Any judgment or order for the payment of money in excess of
10% of Unrestricted Cash (calculated as at the date of entry of the judgment or
order) shall be rendered against Borrower, any Subsidiary of Borrower or any
other Obligor and either (i) enforcement proceedings shall have been commenced
by any creditor upon such judgment or order or (ii) there shall be any period
of 30 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
-43-
<PAGE> 49
(h) Lender for any reason shall cease to have a valid and
perfected first priority security interest in any material portion (as
reasonably determined by Lender) of the Collateral purported to be covered
thereby; or
(i) FDA or any Tribunal shall issue any order resulting in the
banning, recall or seizure of any Device of Borrower or any Subsidiary of
Borrower the sales of which Device constituted 5% or more of gross sales
revenue of Borrower (determined on a consolidated basis) for the twelve months
preceding the date; or
(j) Any Inventory of Borrower or any Subsidiary of Borrower
produced in the United States of America is not produced in compliance with the
Fair Labor Standards Act and such failure results in the banning, recall or
seizure of Inventory constituting 5.00% or more of the value (valued at the
greater of market or book value without giving effect to such ban, recall or
seizure or any other write down is the value of such Inventory) of all
Inventory of Borrower or such Subsidiary, respectively; or
(k) Any material provision of the Loan Papers shall at any time
for any reason cease to be valid and binding on Borrower or any other Obligor
or shall be declared to be null and void, or the validity or enforceability
thereof shall be contested by Borrower or any other Obligor, or a proceeding
shall be commenced by any Tribunal having jurisdiction over Borrower, any other
Obligor or any Collateral, seeking to establish the invalidity or
unenforceability thereof and such proceeding (if commenced by a Person other
than Borrower or any other Obligor) shall remain undismissed or unstayed for a
period of 30 days, or Borrower or any other Obligor shall deny that it has any
or further liability or obligation thereunder; or
(l) Either (i) Lender does not receive the certificate required by
Section 4.2(g), or (ii) any certificate received by Lender pursuant to Section
4.2(g) discloses that (A) a Default or Event of Default then exists or will
exist after giving effect to the payment or transfer of property described in
such certificate or (B) the sum of (I) the Liquid Asset Value and (II) the
difference between (1) the lesser of the Borrowing Base and the Facility A
Commitment and (2) the aggregate amount of outstanding Facility A Advances,
will be less than $1,500,000 after giving effect to such payment or transfer;
or
(m) The occurrence of a default or event of default (howsoever
designated) contained in any other Loan Paper and such default or event of
default shall continue beyond any applicable grace or cure period.
7.2 Remedies Upon Default. If an Event of Default specified in
Section 7.1(f) shall occur and be continuing, the aggregate unpaid principal
balance of and accrued interest on the Obligation shall thereupon become due
and payable and the Facility A Commitment and the Facility B Commitment shall
immediately terminate concurrently therewith, without any action by Lender and
without diligence, presentment, demand, protest, notice of protest or intent to
accelerate, or notice of any other kind, all of which are hereby expressly
waived. Should any
-44-
<PAGE> 50
other Event of Default occur and be continuing, Lender may do any one or more
of the following:
(a) Acceleration. Declare the entire unpaid balance of the
Obligation, or any part thereof, immediately due and payable, whereupon it
shall be due and payable without any action by Lender and without diligence,
presentment, demand, protest, notice of protest or intent to accelerate or
notice of any other kind, all of which are hereby expressly waived.
(b) Termination. Terminate the Facility A Commitment and the
Facility B Commitment.
(c) Judgment. Reduce any claim to judgment.
(d) Rights. Exercise any and all Rights afforded by the Laws of
the State of Texas or any other jurisdiction, including, but not limited to,
the UCC, or by any other Loan Papers, or by Law or equity, or otherwise.
(e) Offset. Exercise the Rights of offset and/or banker's Lien
against the interest of Borrower and each other Obligor in and to every account
and other property of Borrower and each other Obligor which is in the
possession of Lender, to the extent of the full amount of the Obligation.
7.3 Performance by Lender. Should any covenant, duty or agreement
of Borrower fail to be performed in all material respects in accordance with
the terms of this Agreement or the Collateral Documents, Lender may, at its
option, perform, or attempt to perform, such covenant, duty or agreement on
behalf of Borrower. In such event, Borrower shall, at the request of Lender,
promptly pay any amount expended by Lender in such performance or attempted
performance to Lender at Lender's Principal Office, together with interest
thereon at the lesser of (a) the Prime Rate plus 3% and (b) the Highest Lawful
Rate from the date of such expenditure by Lender until paid. Notwithstanding
the foregoing, it is expressly understood that Lender shall not have any
liability or responsibility for the performance of any duties of Borrower
hereunder.
7.4 Lender Not in Control. None of the covenants or other
provisions contained in this Agreement shall, or shall be deemed to, give
Lender the Rights or power to exercise control over the affairs management of
Borrower, the power of Lender being limited to the Right to exercise the
remedies provided in this Article VII; provided that, if Lender becomes the
owner of any interest in Borrower, whether through foreclosure or otherwise,
Lender shall be entitled to exercise such legal Rights as it may have by being
an owner of such interest in Borrower.
7.5 Waivers. The acceptance by Lender at any time and from time
to time of part payment on the Obligation shall not be deemed to be a waiver of
any Event of Default or Default then existing. No waiver by Lender of any
particular Event of Default or Default shall be deemed to be a waiver of any
Event of Default or Default other than said particular Event
-45-
<PAGE> 51
of Default or Default. No delay or omission by Lender in exercising any Right
under any Loan Papers shall impair such Right or be construed as a waiver
thereof or an acquiescence therein, nor shall any single or partial exercise of
any such Right preclude other or further exercise thereof, or the exercise of
any other Right under the Loan Papers or otherwise.
7.6 Cumulative Rights. All Rights available to Lender under the
Loan Papers shall be cumulative of and in addition to all other Rights granted
to Lender at Law or in equity, whether or not the Obligation be due and payable
and whether or not Lender shall have instituted any suit for collection or
other action in connection with any Loan Paper.
7.7 Expenditures by Lender. Any sums, including reasonable
attorneys' fees, spent by Lender pursuant to the exercise of any Right provided
in this Article VII shall become part of the Obligation and shall bear interest
at a rate per annum equal to the lesser of (a) the Prime Rate plus 3% and (b)
the Highest Lawful Rate from the date spent until the date repaid by Borrower.
ARTICLE VIII. MISCELLANEOUS
8.1 Money. Unless stipulated otherwise, all references herein to
"Dollars", "money", "payments", or other similar financial or monetary terms,
are references to currency of the United States of America.
8.2 Headings. The headings, captions and arrangements used in
this Agreement and the other Loan Papers are, unless specified otherwise, for
convenience only and shall not be deemed to limit, amplify or modify the terms
of any Loan Paper, nor affect the meaning thereof.
8.3 Articles, Sections, and Exhibits. All references to
"Article", "Sections", "subparagraphs" or "subsections" contained herein are,
unless specifically indicated otherwise, references to articles, sections,
subparagraphs and subsections of this Agreement. All references to "Exhibits"
and "Schedules" contained herein are references to exhibits and schedules
attached hereto, all of which are made a part hereof for all purposes, the same
as if set forth herein verbatim. If any exhibit or schedule attached hereto
which is to be executed and delivered contains blanks or is otherwise required
to be updated from time to time, it shall be completed correctly and in
accordance with the terms and provisions contained and as contemplated herein
prior to, at the time of or after the execution and delivery thereof.
8.4 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials
(including all Information) to be given or delivered pursuant to this Agreement
shall, except in those cases where giving notice by telephone is expressly
permitted, be given or delivered in writing. All written notices,
communications and materials shall be sent by registered or certified mail,
postage prepaid, return receipt requested, by telecopier, or delivered by hand.
In the event of
-46-
<PAGE> 52
a discrepancy between any telephonic notice and any written confirmation
thereof, such written confirmation shall be deemed the effective notice except
to the extent Lender or Borrower has acted in reliance on such telephonic
notice.
(b) Addresses. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall be given or delivered at
the following respective addresses and telecopier and telephone numbers and to
the attention of the following individuals or departments:
(i) if to Borrower, to it at:
Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002
Telephone No: (214) 390-9800
Telecopier No: (214) 390-9687
Attention: F. Robert Merrill III
(ii) if to Lender, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telephone No: (214) 508-1389
Telecopier No: (214) 508-3139
Attention: Commercial Banking
or at such other address, telecopier or telephone number or to the attention of
such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to
be given or delivered to Lender or Borrower pursuant to this Agreement shall be
effective or deemed delivered or furnished (i) if sent by certified mail,
return receipt requested, on the fifth Business Day after such notice,
communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication or
material is transmitted to the appropriate number determined as above provided
in this Section 8.4 and the appropriate receipt is received or acknowledged,
(iii) if sent by hand delivery or overnight courier, when
-47-
<PAGE> 53
left at the address of the addressee addressed as above provided and the
appropriate receipt is received or acknowledged, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices
of a change of address, telecopier or telephone number or individual or
department to whose attention notices, communications and materials are to be
given or delivered shall not be effective until received.
8.5 Place of Payment. All sums payable to Lender hereunder shall
be paid to Lender at either Lender's Principal Office or at a branch of Lender
within Dallas or Collin Counties, Texas, not later than noon, Dallas time, on
the date due, in immediately available funds. If any payment falls due on
other than a Business Day, then such due date shall be extended to the next
succeeding Business Day, and such amount shall be payable in respect to such
extension.
8.6 Survival of Agreements. All covenants, agreements,
representations and warranties made herein shall survive the execution and the
delivery of this Agreement, the Notes and the other Loan Papers.
8.7 Parties in Interest. All covenants and agreements contained
in the Loan Papers shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto, except that Borrower may not
assign its rights hereunder without the prior written consent of Lender.
8.8 Expenses. Borrower agrees (a) to pay all out-of-pocket
expenses of Lender in connection with the negotiation and preparation of this
Agreement, including exhibits and amendments, consents and waivers to any of
the other Loan Papers as may from time to time hereafter be requested or
required, and the reasonable fees and expenses of Special Counsel from time to
time in connection with the negotiation, preparation and execution of the Loan
Papers, and (b) to pay or reimburse Lender for all reasonable costs and
expenses, including reasonable fees and expenses of counsel to Lender, incurred
in connection with the enforcement or preservation of any rights under or the
collection of any amounts due pursuant to any of the Loan Papers. The
obligations of Borrower under this Section 8.8 shall survive any termination of
this Agreement.
8.9 Governing Law. This Agreement and all other Loan Papers shall
be deemed contracts made under the Laws of Texas and shall be construed and
enforced in accordance with and governed by the Laws of Texas, except to the
extent federal Laws govern the validity, construction, enforcement and
interpretation of all or any part of the Loan Papers. Without excluding any
other jurisdiction, Borrower agrees that the courts of Texas will have
jurisdiction over proceedings in connection herewith. Borrower and Lender
hereby agree that the provisions of Art. 5069-15.01 et seq. of the Revised
Civil Statutes of Texas, 1925, as amended, shall not apply to this Agreement
and the Notes.
-48-
<PAGE> 54
8.10 MANDATORY ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN
OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION
AND MEDIATION SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas,
Texas and administered by JAMS who will appoint an arbitrator; if JAMS is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty days.
(c) Reservations of Rights. Nothing in this Agreement or any
other Loan Paper shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers contained
in this Agreement; or (ii) be a waiver by Lender of the protection afforded to
it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii)
limit the right of Lender hereto (A) to exercise self help remedies such as
(but not limited to) setoff, or (B) to foreclose against any real or personal
property collateral, or (C) to obtain from a court provisional or ancillary
remedies such as (but not limited to) injunctive relief or the appointment of a
receiver. Lender may exercise such self help rights, foreclose upon such
property, or obtain such provisional or ancillary remedies before, during or
after the pendency of any arbitration proceeding brought pursuant to this
Agreement. At Lender's option, foreclosure under a deed of trust or mortgage
may be accomplished by any of the following: the exercise of a power of sale
under the deed of trust or mortgage, or by judicial sale under the deed of
trust or mortgage, or by judicial foreclosure. Neither this exercise of self
help remedies nor the institution or maintenance of an action for foreclosure
or provisional or ancillary remedies shall constitute a waiver of the right of
any party, including the claimant in any such action, to arbitrate the merits
of the controversy or claim occasioning resort to such remedies.
8.11 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
BORROWER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT,
-49-
<PAGE> 55
EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER
LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE
TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
8.12 Maximum Amount Limitation. It is not the intention of any of
the parties to this Agreement to make an agreement violative of the Laws of any
applicable jurisdiction relating to usury. Regardless of any provision in this
Agreement, the Notes or any other Loan Paper, Lender shall never be entitled to
receive, collect or apply, as interest on the Obligation, any amount in excess
of the Maximum Amount. If Lender ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such; and
if principal is paid in full, any remaining excess shall be paid to Borrower.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Amount, Borrower and Lender shall, to the
maximum extent permitted under Applicable Laws, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (b)
exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligation so that the interest
rate is uniform throughout the entire term of the Obligation; provided that if
the Obligation is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds the Maximum Amount, Lender shall refund to
Borrower the amount of such excess or credit the amount of such excess against
the total principal amount owing, and, in such event, Lender shall not be
subject to any penalties provided by any Laws for contracting for, charging or
receiving interest in excess of the Maximum Amount. This Section 8.12 shall
control every other provision of all agreements among the parties to this
Agreement pertaining to the transactions contemplated by or contained in the
Notes and the other Loan Papers.
8.13 Severability. If any provision of this Agreement or any other
Loan Paper is held to be illegal, invalid or unenforceable under present or
future Laws during the term thereof, such provision shall be fully severable,
the appropriate agreement or instrument shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
thereof, and the remaining provisions thereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance therefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision there shall be added automatically as a part
of such agreement or instrument a provision as similar in terms to the illegal,
invalid or unenforceable provision as may be possible and legal, valid and
enforceable.
8.14 Amendment. The provisions of this Agreement and each other
Loan Paper may not be amended, modified or waived except by the written
agreement of Borrower and Lender. This Agreement embodies the entire agreement
among the parties, supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof, and may be amended only as provided
above.
-50-
<PAGE> 56
8.15 Exceptions to Covenants. Borrower shall not be deemed to be
permitted to take any action or fail to take any action which is permitted as
an exception to any of the covenants contained herein or which is within the
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.
8.16 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, but in making proof of this Agreement, it shall not be necessary to
produce or account for more than one such counterpart.
8.17 ENTIRE AGREEMENT. THIS AGREEMENT AND THE LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY (A) EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES, OR (B) THE COMMITMENT LETTER, DATED MARCH 7, 1995 FROM LENDER TO
BORROWER (ALL THE TERMS AND CONDITIONS OF WHICH ARE SUPERSEDED BY THE LOAN
PAPERS). THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
QUEST MEDICAL, INC.
By: /s/ F. Robert Merrill III
-------------------------------------
F. Robert Merrill III, Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Jay C. Henry
-------------------------------------
Jay C. Henry, Vice President
-51-
<PAGE> 57
"EXHIBITS F, H AND I OMMITTED"
"SCHEDULES OMITTED"
"EXHIBITS A,B,C,D,E AND G ARE FILED AS
EXHIBITS 10.22 - 10.30 TO THIS FORM 8-K"
<PAGE> 1
PROMISSORY NOTE
(Facility A Note)
$5,000,000.00 Dallas, Texas March 31, 1995
QUEST MEDICAL, INC., a Texas corporation, with its principal office
located at One Allentown Parkway, Allen, Texas 75002 ("Borrower"), for value
received, promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("Lender"), at its Dallas Banking Center at 901 Main Street, Dallas, Texas
75202, in immediately available funds and in lawful money of the United States
of America, the principal sum of Five Million and 00/100 Dollars
($5,000,000.00), or such lesser sum as shall be due and payable from time to
time hereunder, on May 31, 1997, or sooner, as provided in the Credit Agreement
referred to below. Borrower promises to pay interest on the unpaid principal
amount of the Facility A Advances (as defined in the Credit Agreement) from the
date made until such principal amount is paid in full, at such interest rates,
and payable at such times, as are specified in the Credit Agreement.
For the purposes of this Note, the following terms have the respective
meanings assigned to them below:
"Applicable Law" means the laws of the United States of
America applicable to contracts made or performed in the State of
Texas, including, without limitation, 12 USC 86, as amended to the
date hereof and as the same may be amended at any time and from time
to time hereafter and any other statute of the United States of
America now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 1.04, Title 79,
Revised Civil Statutes of Texas, 1925, as the same may be amended at
any time and from time to time hereafter ("Article 1.04") and any
other statute of the State of Texas now or at any time hereafter
prescribing maximum rates of interest on loans and extensions of
credit provided that pursuant to Article 5069-15.10(b), Title 79,
Revised Civil Statues, 1925, as amended, Borrower agrees that the
provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas,
1925, as amended, shall not apply to this Note.
"Highest Lawful Rate" means at the particular time in question
the maximum rate of interest which, under Applicable Law, Lender is
then permitted to charge on the obligation hereunder. If the maximum
rate of interest which, under Applicable Law, Lender is permitted to
charge on the obligation hereunder shall change after the date hereof,
the Highest Lawful Rate shall be automatically increased or decreased,
as the case may be, from time to time as of the effective time of each
change in the Highest Lawful Rate without notice to Borrower. For
purposes of determining the Highest Lawful Rate under the Applicable
Law of the State of Texas, the applicable rate ceiling shall be (i)
the indicated rate ceiling described in and computed in accordance
with the provisions of Section (a)(1) of Article 1.04, Title 79,
Revised Civil Statues of Texas 1925, as amended, or (ii) if the
parties subsequently contract as allowed by Applicable Law, the
quarterly ceiling or the annualized ceiling computed pursuant to
Section (d) of
<PAGE> 2
said Article 1.04; provided, however, that if at any time the
indicated rate ceiling, the quarterly ceiling or the annualized
ceiling, as applicable, shall be less than 18% per annum or more than
24% per annum, the provisions of Sections (b)(1) and (2) of said
Article 1.04 shall control for purposes of such determination, as
applicable.
Notwithstanding the foregoing and all other provisions of this Note
and any documents and instruments executed in connection with this Note, in no
event shall the interest payable hereon, whether before or after maturity,
exceed the Highest Lawful Rate of interest which, under Applicable Law, Lender
is permitted to charge to Borrower.
All agreements between Borrower and Lender, or any subsequent holder
of this Note, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity of this Note or otherwise,
shall the amount paid or agreed to be paid to the holder of this Note for the
use, forbearance, or detention of the funds advanced pursuant to this Note or
for the performance or payment of any covenant or obligation contained herein
or in any other document evidencing, securing or pertaining to this Note,
exceed the maximum amount permissible under Applicable Law. If from any
circumstance whatsoever fulfillment of any provision hereof or of any such
other document, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by Applicable Law, then
ipso facto, the obligation to be fulfilled shall be reduced to the limit of
such validity, and if from any circumstance the holder hereof shall ever
receive anything of value deemed excess interest by Applicable Law, an amount
equal to any such excess interest shall be applied to the reduction of the
principal amount owing under this Note, and not to the payment of interest, or
if such excess interest exceeds the unpaid principal balance of this Note, such
excess interest shall be refunded to Borrower. All sums paid or agreed to be
paid to any holder of this Note for the use, forbearance or detention of any
funds advanced pursuant to this Note shall, to the extent permitted by
Applicable Law, be amortized, prorated, allocated and spread throughout the
full term of this Note until payment in full so that the rate of interest on
account of the indebtedness evidenced by this Note is uniform throughout the
term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Borrower and any
holder of this Note.
This Note is issued pursuant to the First Amended and Restated Credit
Agreement between Borrower and Lender dated as of March 31, 1995 (such
agreement, together with all amendments and restatements, the "Credit
Agreement"), to which reference is made for a statement of the rights and
obligations of Lender and the duties and obligations of Borrower in relation
thereto; but neither this reference to the Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
Borrower to pay unpaid principal of and interest on this Note when due. The
Credit Agreement among other things, contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified. If a breach of or default under
the Credit Agreement or any other Loan Paper (as defined in the Credit
Agreement) shall occur, unpaid principal of
-2-
<PAGE> 3
and interest on this Note may be declared due and payable without notice, at
the option of the holder of this Note, in the manner and with the effect
provided thereunder. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default
or event of default.
If this Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys' fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment for payment, protest, notice of
protest, notice of acceleration of and notice of intention to accelerate the
maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO
NATIONAL BANKS. THE BOOKS AND RECORDS OF LENDER SHALL CONSTITUTE PRIMA FACIE
EVIDENCE OF ALL SUMS DUE LENDER HEREUNDER.
QUEST MEDICAL, INC.
By:_____________________________________
F. Robert Merrill III, Vice President
-3-
<PAGE> 4
N O T I C E O F F I N A L A G R E E M E N T
THIS NOTE AND THE OTHER WRITTEN LOAN PAPERS EXECUTED CONTEMPORANEOUSLY WITH
THIS NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER REPRESENTS THAT IT TODAY RECEIVED A COPY OF THIS NOTICE.
Borrower Lender
QUEST MEDICAL, INC. NATIONSBANK OF TEXAS, N.A.
By:___________________________ By:______________________________
F. Robert Merrill III, Vice President Jay C. Henry, Vice President
-4-
<PAGE> 1
PROMISSORY NOTE
(Facility B Note)
$15,000,000.00 Dallas, Texas March 31, 1995
QUEST MEDICAL, INC., a Texas corporation, with its principal office
located at One Allentown Parkway, Allen, Texas 75002 ("Borrower"), for value
received, promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("Lender"), at its Dallas Banking Center at 901 Main Street, Dallas, Texas
75202, in immediately available funds and in lawful money of the United States
of America, the principal sum of Fifteen Million and 00/100 Dollars
($15,000,000.00), or such lesser sum as shall be due and payable from time to
time hereunder, on March 31, 2000, or sooner, as provided in the Credit
Agreement referred to below. Borrower promises to pay interest on the unpaid
principal amount of the Facility B Advances (as defined in the Credit
Agreement) from the date made until such principal amount is paid in full, at
such interest rates, and payable at such times, as are specified in the Credit
Agreement.
For the purposes of this Note, the following terms have the respective
meanings assigned to them below:
"Applicable Law" means the laws of the United States of
America applicable to contracts made or performed in the State of
Texas, including, without limitation, 12 USC 86, as amended to the
date hereof and as the same may be amended at any time and from time
to time hereafter and any other statute of the United States of
America now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 1.04, Title 79,
Revised Civil Statutes of Texas, 1925, as the same may be amended at
any time and from time to time hereafter ("Article 1.04") and any
other statute of the State of Texas now or at any time hereafter
prescribing maximum rates of interest on loans and extensions of
credit provided that pursuant to Article 5069-15.10(b), Title 79,
Revised Civil Statues, 1925, as amended, Borrower agrees that the
provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas,
1925, as amended, shall not apply to this Note.
"Highest Lawful Rate" means at the particular time in question
the maximum rate of interest which, under Applicable Law, Lender is
then permitted to charge on the obligation hereunder. If the maximum
rate of interest which, under Applicable Law, Lender is permitted to
charge on the obligation hereunder shall change after the date hereof,
the Highest Lawful Rate shall be automatically increased or decreased,
as the case may be, from time to time as of the effective time of each
change in the Highest Lawful Rate without notice to Borrower. For
purposes of determining the Highest Lawful Rate under the Applicable
Law of the State of Texas, the applicable rate ceiling shall be (i)
the indicated rate ceiling described in and computed in accordance
with the provisions of Section (a)(1) of Article 1.04, Title 79,
Revised Civil Statues of Texas 1925, as amended, or (ii) if the
parties subsequently contract as allowed by Applicable Law, the
quarterly ceiling or the annualized ceiling computed pursuant to
Section (d) of
<PAGE> 2
said Article 1.04;provided, however, that if at any time the indicated
rate ceiling, the quarterly ceiling or the annualized ceiling, as
applicable, shall be less than 18% per annum or more than 24% per
annum, the provisions of Sections (b)(1) and (2) of said Article 1.04
shall control for purposes of such determination, as applicable.
Notwithstanding the foregoing and all other provisions of this Note
and any documents and instruments executed in connection with this Note, in no
event shall the interest payable hereon, whether before or after maturity,
exceed the Highest Lawful Rate of interest which, under Applicable Law, Lender
is permitted to charge to Borrower.
All agreements between Borrower and Lender, or any subsequent holder
of this Note, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity of this Note or otherwise,
shall the amount paid or agreed to be paid to the holder of this Note for the
use, forbearance, or detention of the funds advanced pursuant to this Note or
for the performance or payment of any covenant or obligation contained herein
or in any other document evidencing, securing or pertaining to this Note,
exceed the maximum amount permissible under Applicable Law. If from any
circumstance whatsoever fulfillment of any provision hereof or of any such
other document, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by Applicable Law, then
ipso facto, the obligation to be fulfilled shall be reduced to the limit of
such validity, and if from any circumstance the holder hereof shall ever
receive anything of value deemed excess interest by Applicable Law, an amount
equal to any such excess interest shall be applied to the reduction of the
principal amount owing under this Note, and not to the payment of interest, or
if such excess interest exceeds the unpaid principal balance of this Note, such
excess interest shall be refunded to Borrower. All sums paid or agreed to be
paid to any holder of this Note for the use, forbearance or detention of any
funds advanced pursuant to this Note shall, to the extent permitted by
Applicable Law, be amortized, prorated, allocated and spread throughout the
full term of this Note until payment in full so that the rate of interest on
account of the indebtedness evidenced by this Note is uniform throughout the
term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Borrower and any
holder of this Note.
This Note is issued pursuant to the First Amended and Restated Credit
Agreement between Borrower and Lender dated as of March 31, 1995 (such
agreement, together with all amendments and restatements, the "Credit
Agreement"), to which reference is made for a statement of the rights and
obligations of Lender and the duties and obligations of Borrower in relation
thereto; but neither this reference to the Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
Borrower to pay unpaid principal of and interest on this Note when due. The
Credit Agreement among other things, contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified. If a breach of or default under
the Credit Agreement or any other Loan Paper (as defined in the Credit
Agreement) shall occur, unpaid principal of
-2-
<PAGE> 3
and interest on this Note may be declared due and payable without notice, at
the option of the holder of this Note, in the manner and with the effect
provided thereunder. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default
or event of default.
If this Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys' fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment for payment, protest, notice of
protest, notice of acceleration of and notice of intention to accelerate the
maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO
NATIONAL BANKS. THE BOOKS AND RECORDS OF LENDER SHALL CONSTITUTE PRIMA FACIE
EVIDENCE OF ALL SUMS DUE LENDER HEREUNDER.
QUEST MEDICAL, INC.
By: ______________________________________
F. Robert Merrill III, Vice President
-3-
<PAGE> 4
N O T I C E O F F I N A L A G R E E M E N T
THIS NOTE AND THE OTHER WRITTEN LOAN PAPERS EXECUTED CONTEMPORANEOUSLY WITH
THIS NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER REPRESENTS THAT IT TODAY RECEIVED A COPY OF THIS NOTICE.
Borrower Lender
QUEST MEDICAL, INC. NATIONSBANK OF TEXAS, N.A.
By:_____________________________________ By:________________________________
F. Robert Merrill III, Vice President Jay C. Henry, Vice President
-4-
<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
SECURITY AGREEMENT
dated as of March 31, 1995
Between
QUEST MEDICAL, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Secured Party
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. GRANT
1.1 Assignment and Grant of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Description of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Debtor Remains Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Delivery of Security Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III. COVENANTS
3.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Equipment, Fixtures and Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Place of Perfection; Records; Collection of Receivables, Chattel Paper and Instruments . . 11
3.5 Transfers and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Brokerage Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Rights to Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Right of Secured Party to Notify Issuers . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Secured Party Appointed Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV. RIGHTS AND POWERS OF SECURED PARTY
4.1 Secured Party May Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Secured Party's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Further Approvals Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Modifications; Amendments; Schedules; Etc. . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Continuing Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.4 MANDATORY ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.5 GOVERNING LAW; TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 Secured Party's Right to Use Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
5.8 No Interference, Compensation or Expense . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Waivers of Rights Inhibiting Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.10 Notices and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Manner of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.12 Loan Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.13 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.15 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.16 Prior Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
- ii -
<PAGE> 4
SCHEDULES:
Schedule 1 - Inventory Locations
Schedule 2 - Required Consents
Schedule 3 - Bank Accounts
Schedule 4 - Insurance
Schedule 5 - Vendor Agreements
Schedule 6 - Excluded Equipment and Furnishings
Schedule 7 - Brokerage Agreements
Schedule 8 - Filing Locations
Schedule 9 - Permits
Schedule 10 - Acquisition Documents
- iii -
<PAGE> 5
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of March 31, 1995 (this "Agreement"),
made by Quest Medical, Inc., a Texas corporation ("Debtor"), in favor of
NationsBank of Texas, N.A., a national banking association ("Secured Party").
BACKGROUND.
(1) Secured Party and Debtor have entered into the Credit
Agreement dated as of October 22, 1993 (as amended, the "Existing Credit
Agreement"), the Security Agreement dated May 28, 1993 ("Facility A Security
Agreement"), the Security Agreement dated as of October 22, 1993 ("Existing
Security Agreement") and related agreements.
(2) Secured Party and Debtor have entered into the First Amended
and Restated Credit Agreement dated as of March 31, 1995 (such agreement,
together with all amendments and restatements thereof, the "Credit Agreement")
which restates in its entirety the Existing Credit Agreement.
(3) It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.2.
(4) It is a condition precedent to the effectiveness of the Credit
Agreement that Debtor shall have executed and delivered this Security
Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to induce Secured Party to make the
Advances under the Credit Agreement, Debtor hereby agrees with Secured Party as
follows:
ARTICLE I. GRANT
1.1 Assignment and Grant of Security. Subject to the last
paragraph of this Section 1.1, Debtor hereby assigns and pledges to Secured
Party and hereby grants to Secured Party a security interest in, the entire
right, title and interest of Debtor, in and to the following assets of Debtor,
whether now owned or hereafter acquired ("Collateral"):
(a) all inventory in all of its forms, wherever located, now or
hereafter existing, including, but not limited to, (i) all raw materials and
work in process therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof, (ii) goods in which Debtor
has an interest in mass or a joint or other interest or right of any kind
(including,
<PAGE> 6
without limitation, goods in which Debtor has an interest or right as
consignee), and (iii) goods which are returned to or repossessed by Debtor, and
all accessions thereto and products thereof and documents therefor (any and all
such inventory, accessions, products and documents being the "Inventory");
(b) other than equipment described in the last paragraph of this
Section 1.1, all equipment (as defined in the Uniform Commercial Code) and
(whether or not included in such definition), all vehicles, machinery,
chattels, tools, parts, furniture, furnishings and supplies, of every nature,
wherever located, all additions, accessories and improvements thereto and
substitutions therefor and all accessories, parts and equipment which may be
attached to or which are necessary for the operation and use of such personal
property, together with all accessions thereto, and all rights under or arising
out of present or future contracts relating to the foregoing ("Equipment");
(c) all property so related to particular real estate that an
interest in it arises under the real estate law of the jurisdiction in which
such Collateral is located, including all equipment, fixtures and articles of
personal property now or hereafter attached to or used in or about any building
or buildings now erected or hereafter to be erected on any real property now or
hereafter owned or leased by Debtor (the "Property"), which are necessary to
the complete and comfortable use and occupancy of such building or buildings
for the purposes for which they were or are to be erected; all materials to be
delivered to the Property and used or to be used in connection with the
construction of any building to be constructed on the Property, including, but
not limited to, all masonry, siding, roof shingles, flooring, doors, windows,
tile, shutters, stoves, ovens, awnings, screens, cabinets, shades, blinds,
carpets, draperies, furniture, furnishings, plumbing, heating, air
conditioning, lighting, ventilating, refrigerating, cooking, laundry and
incinerating equipment and all fixtures and appurtenances thereto, and such
other goods and chattels and personal property as are ever used or furnished in
operating such buildings or the activities conducted therein, and all building
materials and equipment now or hereafter delivered to the Property and intended
to be installed thereon ("Fixtures");
(d) all general intangibles (as defined in the Uniform Commercial
Code), and (whether or not included in such definition) all contract rights
other than Receivables; all inventions, processes, production methods,
proprietary information and know-how; and all licenses or other agreements
granted to Debtor with respect to any of the foregoing; all information,
customer lists, advertising lists, advertising contracts, identification of
suppliers, data, plans, blueprints, specifications, designs, drawings, recorded
knowledge, surveys, engineering reports, test reports, manuals, materials
standards, processing standards, performance standards, telephone numbers and
telephone listings, catalogs, books, records, computer and automatic machinery
software and programs, and the like pertaining to operations by or the business
of Debtor; all field accounting information and all media in which or on which
any of the information or knowledge or data or records may be recorded or
stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data; all licenses, consents, permits,
variances, certifications and approvals of all Tribunals now or hereafter held
by Debtor pertaining to operations or business now or hereafter
2
<PAGE> 7
conducted; all rights to receive return of deposits and trust payments; all
rights to payment under letters of credit and similar agreements; all tax
refunds (including, without limitation, all federal and state income tax
refunds and benefits of net operating loss carry forwards); and all causes of
action, rights, claims and warranties now or hereafter owned or acquired by
Debtor ("General Intangibles");
(e) all of the following, to the extent that not included in
"General Intangibles": trade secrets, all know-how, inventions, processes,
methods, information, data, plans, blueprints, specifications, designs,
drawings, engineering reports, test reports, materials standards, processing
standards and performance standards, and all computer and automatic machinery
software and programs directly related thereto, and all licenses or other
agreements to which Debtor is a party with respect to any of the foregoing
("Trade Secrets");
(f) all instruments and letters of credit (each as defined in the
Uniform Commercial Code), and (whether or not included in such definitions) all
promissory notes, drafts, bills of exchange and trade acceptances
("Instruments");
(g) all writings which evidence both a monetary obligation and a
security interest in or a lease of specific goods ("Chattel Paper");
(h) all documents, warehouse receipts, bills of lading, including,
without limitation, documents of title (as defined in the Uniform Commercial
Code) or other receipts covering, evidencing or representing any property
described in this Section 1.1 ("Documents");
(i) all accounts, contract rights, Chattel Paper, Documents,
Instruments, deposit accounts, General Intangibles, tax refunds and other
obligations of any kind owing to Debtor, now or hereafter existing, arising out
of or in connection with the sale or lease of goods or the rendering of
services, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, Chattel Paper, Documents, Instruments, deposit
accounts, General Intangibles, tax refunds or obligations (any and all such
accounts, contract rights, Chattel Paper, Documents, Instruments, deposit
accounts, General Intangibles, tax refunds and obligations being the
"Receivables");
(j) all licenses, permits and other similar rights now or
hereafter owned by Debtor (including but not limited to all licenses, permits
and similar rights issued by the FDA) and necessary to the operation of its
business, including but not limited to all licenses, permits and other rights
listed on Schedule 9;
(k) all agreements and accounts of Debtor described on Schedule 7,
all interest in any security subject to such agreement or account (including
but not limited to all interest in any equity or debt security, option,
warrant, put, call, futures agreements, commodity agreements, margin accounts,
short positions and partnership interests), all property subject to or
maintained in each such account or pursuant to such agreement, each deposit
account (time, demand or other) in which any proceeds of or income from the
foregoing may be on deposit, all cash
3
<PAGE> 8
maintained with each Person pursuant to any such agreement or account, all
general intangibles consisting of the foregoing and each agreement, document or
Instrument governing or evidencing any of the foregoing and all amendments and
restatements thereof, and all claims of Debtor against any Person with respect
to any of the foregoing (all of the foregoing being herein collectively called
the "Brokerage Agreements");
(l) all rights, claims and benefits of Debtor against any Person
arising out of, relating to or in connection with any property described in
this Section 1.1 purchased by Debtor, including, without limitation, any such
rights, claims or benefits against any Person storing or transporting any
property described in this Section 1.1;
(m) the balance of every deposit account of Debtor under control
of Secured Party and each of its Affiliates and any other claim of Debtor
against Secured Party, now or hereafter existing, liquidated or unliquidated,
and all money, Instruments, securities, Documents, Chattel Paper, credits,
claims, demands, income, and any other property, rights and interests of Debtor
which at any time shall come into the possession or custody or under the
control of Secured Party or any of its agents, affiliates or correspondents,
for any purpose, and the proceeds of any thereof (Secured Party shall be deemed
to have possession of any of the Collateral in transit to or set apart for it
or any of its agents, affiliates or correspondents. The holder of any
participation in the Obligations shall have a right of setoff with respect to
any obligation of such holder to Debtor to satisfy the Obligations);
(n) all Acquisition Documents;
(o) all agreements with vendors and other distributors of
Inventory, including but not limited to those described in Schedule 5;
(p) all insurance policies and bonds and claims and payments
thereunder;
(q) all property similar to the above hereafter acquired by
Debtor; and
(r) all accessions to, substitutions for and replacements,
proceeds and products of any and all of the foregoing Collateral (including,
without limitation, proceeds which constitute property of the types described
in this Section 1.1) and, to the extent not otherwise included, all (i)
payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral and (ii)
cash.
Nothing in this Section 1.1 or otherwise in any Loan Paper is intended
as a grant of a security interest in any of the following property of Debtor:
(i) heating, ventilation or air conditioning systems now or
hereafter located on the Allen Property,
4
<PAGE> 9
(ii) the furniture and equipment described on Schedule 6, whether
now owned or hereafter acquired, and all accessions to,
substitutions for and replacements, proceeds and products of
such office furniture and equipment, and
(iii) the computer systems described on Schedule 6, whether now
owned or hereafter acquired, and all accessions to,
substitutions for and replacements, proceeds and products of
such computer systems.
The assets described in clauses (i) through (iii) of this paragraph shall not
constitute Collateral for purposes of this Agreement. Secured Party agrees
that, upon request of Debtor, it will execute and deliver to Debtor and MetLife
Capital Corporation or its affiliates (collectively, "MetLife") any documents
reasonably requested by Debtor or MetLife to evidence that Secured Party does
not have a security interest in the assets described in clauses (i) through
(iii) of this paragraph.
1.2 Description of Obligations. This Agreement creates a first
priority security interest securing the payment and performance of the
Obligations, including, but not limited to any and all obligations now or
hereafter existing of Debtor and each other Obligor under the Credit Agreement
and other Loan Papers, including any extensions, modifications, substitutions,
amendments and renewals thereof, whether for principal, interest, fees,
premium, expenses, indemnification or otherwise (all such obligations of Debtor
and each other Obligor being the "Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by Debtor and each
other Obligor to Secured Party under any Loan Paper, but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Debtor or any other Person
(including all after, or that would have secured but for, the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding of Debtor or any other Obligor).
1.3 Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of the Rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this
Agreement, nor shall Secured Party be obligated to perform any of the
obligations or duties of Debtor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
1.4 Delivery of Security Collateral. All certificates or
instruments representing or evidencing the Collateral and which are issued in
the name of Debtor shall be delivered to and held by or on behalf of Secured
Party pursuant hereto and shall be in suitable form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in
5
<PAGE> 10
blank, all in form and substance satisfactory to Secured Party. If an Event of
Default exists, Secured Party shall have the right, at any time during such
time in its discretion and without notice to Debtor, to (a) require the
issuance in the name of Debtor and delivery to Secured Party of certificates or
instruments evidencing the interest owned by Debtor in the issuer of such
certificate or instrument (if the security is subject to a Brokerage Agreement
and the Brokerage Agreement permits such issuance) and (b) transfer to or to
register in the name of Secured Party or any of its nominees any or all of the
Collateral. In addition, Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties. Debtor represents and
warrants, with respect to itself and the Collateral, as follows:
(a) All of the Equipment, Fixtures and Inventory pledged by Debtor
hereunder is located at the places specified on Schedule 1 hereto (as
supplemented from time to time by Debtor by written notice to Secured Party) or
Inventory in transit to a place specified on Schedule 1 hereto (as supplemented
from time to time by Debtor by written notice to Secured Party) or Inventory in
transit (i) for sale to a third-party purchaser that upon such sale will become
the obligor under a Receivable and (ii) pursuant to a sale in the ordinary
course of Debtor's business. The chief place of business and chief executive
office of Debtor and the office where Debtor keeps all of its records
concerning the Receivables, are located at One Allentown Parkway, Allen, Texas
75002. All Chattel Paper, promissory notes or other instruments evidencing the
Receivables have been delivered and pledged to Secured Party duly endorsed and
accompanied by such duly executed instruments of transfer or assignment as are
necessary for such pledge, to be held as pledged collateral. Debtor has
possession and control of the Equipment and Inventory pledged by it hereunder.
The record owner of the real estate upon which the Equipment, Fixtures and
Inventory are located are indicated on Schedule 1.
(b) Debtor is the legal and beneficial owner of the Collateral
pledged by it free and clear of any Lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement and Permitted Liens. No effective financing statement or other
similar document used to perfect and preserve a security interest under the
Laws of any jurisdiction covering all or any part of the Collateral is on file
in any recording office, except (i) such as may have been filed in favor of
Secured Party relating to this Agreement and (ii) financing statements for
which Debtor will provide to Secured Party on the Closing Date proper original
executed termination statements. As of the date hereof, Debtor (including any
corporate or partnership predecessor) has no trade names and has not existed or
operated under any name other than "Quest Medical, Inc.," since March 31, 1985.
(c) This Agreement and the pledge of the Collateral pursuant
hereto creates a valid and, upon filing of financing statements in the Uniform
Commercial Code records described on
6
<PAGE> 11
Schedule 8, perfected first priority security interest in the Collateral (other
than deposit accounts in financial institutions which are not Secured Party or
subject to a Broker Agreement), securing the payment of the Obligations, and
all filings and other actions necessary or desirable to perfect and protect
such security interest and such priority have been duly taken (or will be
taken).
(d) Except as described on Schedule 2, no consent of any other
Person and no authorization, approval or other action by, and no notice to or
filing with, any Tribunal is required (i) for the pledge by Debtor of the
Collateral pledged by it hereunder, for the grant by Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Debtor, (ii) for the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment and security interest) or (iii) for the
exercise by Secured Party of the Rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement.
(e) Schedule 3 is a complete and correct list of all deposit
accounts (demand, time, special or other) maintained by or in which Debtor has
an interest and correctly describes the financial institution in which such
account is maintained (including the specific branch), the address and ABA
number of such institution, the officer of such institution having primary
responsibility for Debtor's accounts, the account number and type (as
supplemented from time to time by Debtor by written notice to Secured Party).
(f) Debtor possesses all licenses and Permits, including but not
limited to all applicable certificates of occupancy, licenses and Permits, and
all health and sanitation permits, required for the operations of its business.
Schedule 9 is a complete and correct description of all of such licenses and
Permits.
(g) Schedule 4 is a complete and correct list of all insurance
policies for which Debtor is an insured or for which Debtor is a loss payee.
(h) Schedule 5 is a complete and correct list of all agreements
with each Person related to the resale and distribution of Inventory for each
Person who, during the preceding fiscal year, sold or distributed $25,000 or
more of Debtor's Inventory.
(i) Schedule 10 is a complete and correct list of all Acquisition
Documents, together with all modifications thereto.
(j) All Inventory of Debtor produced by Debtor in the United
States of America has been produced in compliance with the Fair Labor Standards
Act.
(k) Debtor's federal taxpayer identification number is 75-1646002.
(l) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
7
<PAGE> 12
ARTICLE III. COVENANTS
3.1 Further Assurances. (a) Debtor agrees that, where any
agreement intended to be Collateral existing as of the date hereof or hereafter
to which Debtor is a party contains any restriction prohibiting Debtor from
granting any security interest under this Agreement, Debtor will use its best
efforts to obtain the necessary consent to or waiver of such restriction from
any Person so as to enable Debtor to effectively grant to Secured Party such
security interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of
Debtor, Debtor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary or
desirable, or that Secured Party may reasonably request, in order to perfect
and protect any pledge, assignment or security interest granted or purported to
be granted hereby, and the priority thereof, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, upon written
request by Secured Party, Debtor will: (i) mark conspicuously each Chattel
Paper included in Receivables, and, at the request of Secured Party, each of
its records pertaining to the Collateral with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED MARCH 31, 1995 (AS THE SAME MAY BE MODIFIED
OR RESTATED) MADE BY QUEST MEDICAL, INC., IN FAVOR OF NATIONSBANK OF
TEXAS, N.A.
or such other legend, in form and substance satisfactory to and as specified by
Secured Party, indicating that such Chattel Paper or Collateral is subject to
the pledge, assignment and security interest granted hereby; (ii) if any
Collateral shall be evidenced by a promissory note or other Instrument or be
Chattel Paper, deliver and pledge to Secured Party hereunder such note,
Instrument or Chattel Paper duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to Secured Party; and (iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, or as Secured Party may request, in order to
perfect and preserve the pledge, assignment and security interest granted (and
the priority thereof) or purported to be granted hereby.
(c) Debtor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of Debtor where permitted
by Law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Law.
(d) Debtor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
(including information in connection with the
8
<PAGE> 13
protection, preservation, maintenance or enforcement of the security interest)
and such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail; provided, if no Default or Event
of Default exists, Secured Party will not make more than one request in any six
month period.
(e) Debtor shall not establish or maintain any deposit or similar
bank account not listed on Schedule 3 unless Secured Party receives prior
written notice thereof, Debtor executes and delivers to Secured Party
assignments of such account in such form as Secured Party may request and the
financial institution in which such account will be maintained delivers to
Secured Party acknowledgments of the assignment of such account in form and
substance satisfactory to Secured Party.
(f) In addition to such other information as shall be specifically
provided for herein, Debtor shall, if a Default or an Event of Default exists,
furnish to Secured Party such other information with respect to the Collateral
as Secured Party may reasonably request from time to time in connection with
the Collateral, including, without limitation, all documents and things in
Debtor's possession, or subject to its demand for possession, related to the
production and sale by Debtor, or any subsidiary, licensee or subcontractor
thereof, of products or services sold by or under the authority of Debtor,
including by way of example, without limiting the interest granted by this
Agreement: (i) all lists and ancillary documents which identify and describe
any of Debtor's customers, advertisers, or those of its Subsidiaries or
licensees, for products sold or services rendered, including without
limitation, such existing lists and ancillary documents which contain each
customer's full name and address, the identity of the Person or Persons having
the principal responsibility on each customer's behalf for ordering products or
services of the kind supplied by Debtor, the credit, payment, discount,
delivery and other sale terms applicable to such customer, together with
detailed information setting forth the total purchases and the patterns of such
purchases; (ii) all product and service specification documents and production
and quality of services sold; (iii) all documents which reveal the names and
addresses of all sources of supply, and all terms of purchase and delivery, for
all materials and components used in the production of products or provision of
services sold; and (iv) all documents constituting or concerning the then
current or proposed advertising and promotion by Debtor or its subsidiaries,
licensees or subcontractors of products or services sold, including, by way of
example and not in limitation, all documents which reveal the media used or to
be used and the cost for all such advertising conducted within the described
period or planned for such products or services. In connection with its
enforcement of the security interest, Secured Party may use such information or
transfer it to any assignee or sublicensee permitted hereunder for such
assignee's or sublicensee's use.
3.2 Equipment, Fixtures and Inventory.
(a) Debtor shall keep the Equipment, Fixtures and Inventory
pledged by it hereunder (other than Inventory sold in the ordinary course of
business) at the places therefor specified in Section 2.1(a) or, upon thirty
days' prior written notice to Secured Party, at such other places
9
<PAGE> 14
in such jurisdiction where all action required by Section 3.1 shall have been
taken with respect to the Equipment, Fixtures and Inventory.
(b) Debtor shall cause the Equipment and Fixtures pledged by it
hereunder to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and shall
forthwith, or in the case of any loss or damage to any of the Equipment and
Fixtures as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end (if, pursuant to Section
3.3, Secured Party releases to Debtor insurance payments in respect of the loss
or damage). Debtor shall promptly furnish to Secured Party a statement
respecting any loss or damage which singly equals or exceeds $25,000 to any of
the Equipment and Fixtures pledged by it hereunder.
(c) Debtor shall pay promptly when due or before penalty all
property and other taxes, assessments and governmental charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Collateral pledged by it hereunder, except such taxes as
are being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, except where the
failure to file such returns, pay such taxes or establish such reserves does
not involve unpaid or allegedly unpaid amounts, in aggregate, in excess of
$50,000. Debtor shall comply with, and shall cause its licensees to comply
with, all requirements of the FDA Act and the Fair Labor Standards Act.
3.3 Insurance. Debtor shall, at its own expense, maintain
insurance with respect to the Collateral in accordance with the terms set forth
in Section 4.4 of the Credit Agreement. Debtor further covenants and agrees to
keep the Collateral which is Equipment, Fixtures and Inventory and other
tangible personal property insured in such amounts, against such risks and with
such insurers as Secured Party may reasonably require. All such policies of
insurance shall be written for the benefit of Secured Party and Debtor, as
their interests may appear, and shall provide for at least thirty Business
Days' prior written notice of cancellation to Secured Party. Debtor shall
promptly furnish to Secured Party evidence of such insurance in form and
content satisfactory to Secured Party. If Debtor fails to perform or observe
any applicable covenants as to insurance on any of such Collateral, Secured
Party may at its own option obtain insurance on only Secured Party's interest
in such Collateral, any premium thereby paid by Secured Party to become part of
the Obligations, bear interest prior to the existence of an Event of Default,
at the then applicable Prime Base Rate, and during the existence of an Event of
Default, at the lesser of (a) the Prime Base Rate, plus 3% and (b) the Highest
Lawful Rate. In the event Secured Party maintains such substitute insurance,
the additional premium for such insurance shall be due on demand and payable by
Debtor to Secured Party in accordance with any notice delivered to Debtor by
Secured Party. Debtor hereby grants Secured Party a security interest in any
refunds of unearned premiums in connection with any cancellation, adjustment or
termination of any policy of insurance required by Secured Party and in all
proceeds of such insurance and hereby appoints Secured Party its
attorney-in-fact to endorse any check or draft that may be payable to Debtor in
order to collect such refunds or proceeds. Any such sums collected by Secured
Party shall be credited, except to the extent applied to the purchase by
10
<PAGE> 15
Secured Party of similar insurance, to any amounts then owing on the
Obligations in accordance with the Credit Agreement. If no Default under
Section 4.2, 5.5, 5.6, 5.9, 5.10 or 5.12 of the Credit Agreement or an Event of
Default exists, Lender shall deliver to Debtor all insurance payments in
respect of any covered loss and any refund of any premium or other payment;
provided Debtor uses the payment in respect of an insured loss to acquire a
replacement asset of similar value.
3.4 Place of Perfection; Records; Collection of Receivables,
Chattel Paper and Instruments.
(a) Debtor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all Chattel Paper, at the location therefor
specified in Section 2.1(a) or at such other location in the State of Texas as
Debtor shall have given written notice thereof to Secured Party no later than
30 days prior to the moving thereto. Debtor shall deliver to Secured Party all
original Brokerage Agreements to be held by Secured Party as collateral.
Debtor will hold and preserve such records and Chattel Paper and will permit
representatives of Secured Party at any time during normal business hours to
inspect and make abstracts from and copies of such records and Chattel Paper.
Debtor shall deliver to Secured Party all Instruments to be held by Secured
Party as collateral.
(b) Except as otherwise provided in this Section 3.4(b), Debtor
shall continue to collect, at its own expense, all amounts due or to become due
Debtor under the Receivables, Chattel Paper and Instruments. In connection
with such collections, Debtor may take (and, at Secured Party's direction,
shall take) such action as Debtor or Secured Party may deem reasonably
necessary or advisable to enforce collection of the Receivables, Chattel Paper
and Instruments; provided, however, that Secured Party shall have the right (if
an Event of Default exists) (without notice to Debtor) to notify the account
debtors or obligors under any Receivables, Chattel Paper and Instruments of the
assignment of such Receivables, Chattel Paper and Instruments to Secured Party
and to direct such account debtors or obligors to make payment of all amounts
due or to become due to Debtor thereunder directly to Secured Party and, at the
expense of Debtor, to enforce collection of any such Receivables, Chattel Paper
and Instruments, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Debtor might have done.
All amounts and proceeds (including Instruments) received by Debtor in respect
of the Receivables, Chattel Paper and Instruments shall be received in trust
for the benefit of Secured Party hereunder, shall be segregated from other
funds of Debtor and shall be forthwith paid over to Secured Party in the same
form as so received (with any necessary indorsement) to be held as cash
collateral and either (A) released to Debtor so long as no Default under
Section 4.2, 5.5, 5.6, 5.9, 5.10 or 5.12 of the Credit Agreement or Event of
Default exists or (B) if any Default under Section 4.2, 5.5, 5.6, 5.9, 5.10 or
5.12 of the Credit Agreement or Event of Default exists, applied as provided
herein. Debtor shall not adjust, settle or compromise the amount or payment of
any Receivable, Chattel Paper or Instrument, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon
except in accordance with Debtor's historical operating procedure.
11
<PAGE> 16
3.5 Transfers and Other Liens. Debtor shall not (i) sell, assign
(by operation of Law or otherwise) or otherwise dispose of, or grant any option
with respect to, any of the Collateral, except as permitted under the Credit
Agreement and this Agreement, or (ii) create or permit to exist any Lien,
security interest, option or other charge or encumbrance upon or with respect
to any of the Collateral, except for the security interest under this Agreement
(and except as provided for in the Credit Agreement). Debtor may sell
Inventory in the ordinary course of business. Debtor may sell investments
subject to a Brokerage Agreement in which Secured Party has a security
interest; provided, that the proceeds of such sale are subject to a Brokerage
Agreement in which Secured Party has a perfected, first priority security
interest in favor of Secured Party and such sale is in the ordinary course of
Debtor's investment portfolio management. Debtor shall not permit any
amendment, restatement or termination of any Brokerage Agreement without the
prior written consent of Secured Party.
3.6 Brokerage Agreements.
(a) Debtor shall, if any of the shares, securities, moneys or
property previously held by a Person other than Debtor pursuant to a Brokerage
Agreement are received by Debtor, forthwith transfer and deliver to Secured
Party such shares, securities, moneys or property so received by Debtor
(together with the certificates for any such shares and securities duly
endorsed in blank or accompanied by undated stock powers duly executed in
blank), all of which thereafter shall be held by Secured Party, pursuant to the
terms of this Agreement, as part of the Collateral; provided, that if no Event
of Default exists, Debtor may receive cash distributions and dividends (not
consisting of a distribution of or return of capital) declared and paid with
respect to any securities.
(b) (i) For the better perfection of Secured Party's
Rights in and to the Brokerage Agreements or any part thereof and to
facilitate implementation of such Rights, Debtor shall, insofar as
possible, if an Event of Default exists and upon the request of
Secured Party (if Secured Party deems such action necessary to the
perfection or priority of the Liens in the Collateral), cause the
Brokerage Agreements to be transferred, registered or otherwise put
into the name or names of such nominee or nominees of Secured Party as
Secured Party shall from time to time direct.
(ii) So long as no Event of Default exists (and
after any Event of Default until, by notice to Debtor, Secured Party
elects while the Event of Default is continuing to exercise the right
to vote or consent), Debtor shall retain the right to exercise all
voting, consensual and other power of ownership pertaining to the
Brokerage Agreements owned by it for all purposes not inconsistent
with the terms of this Agreement or any other Loan Paper; and Secured
Party shall execute and deliver to Debtor or cause to be executed and
delivered to Debtor all such proxies, powers of attorney, dividend and
other orders, and all such instruments, without recourse, as Debtor
may reasonably request for the purpose of enabling Debtor to exercise
the rights and powers which it is entitled to exercise pursuant to
this Section 3.6.
12
<PAGE> 17
(iii) If any Event of Default exists, and whether
or not Secured Party exercises any available Right to declare any
Obligations due and payable or seeks or pursues any other relief or
remedy available under applicable Laws or under any agreement relating
to such Obligations, all distributions and dividends on any securities
and payments and distributions in respect of each Brokerage Agreement
shall be paid directly to Secured Party and retained by it as part of
the Collateral subject to the terms of this Agreement, and, if Secured
Party shall so request, Debtor agrees to execute and deliver to
Secured Party appropriate additional dividend, distribution and other
orders and documents to that end.
3.7 Rights to Dividends and Distributions. With respect to any
certificates, bonds, or other instruments or securities (including but not
limited to any certificate or participation issued in any proceeding under any
Debtor Relief Law) constituting a part of the Collateral, Secured Party shall
have authority if an Event of Default exists, without notice to Debtor, either
to have the same registered in Secured Party's name or in the name of a
nominee, and, with or without such registration, to demand of the issuer
thereof, and to receive and receipt for, any and all distributions (including
any stock or similar dividend or distribution) payable in respect thereof,
whether they be ordinary or extraordinary. Except for any property maintained
in a Brokerage Account, if Debtor shall become entitled to receive or shall
receive any interest in or certificate (including, without limitation, any
interest in or certificate representing a distribution in connection with any
reclassification, increase, or reduction of capital, or issued in connection
with any reorganization), or any option or rights arising from or relating to
any of the Collateral, whether as an addition to, in substitution of, as a
conversion of, or in exchange for any of the Collateral, or otherwise, Debtor
agrees to accept the same as Secured Party's agent and to hold the same in
trust on behalf of and for the benefit of Secured Party, and to deliver the
same immediately to Secured Party in the exact form received, with appropriate
undated stock or similar powers, duly executed in blank, to be held by Secured
Party, subject to the terms hereof, as Collateral. Unless an Event of Default
is in existence, Debtor shall be entitled to receive all cash dividends paid in
respect of any of the Collateral (subject to the restrictions of any other Loan
Paper).
3.8 Right of Secured Party to Notify Issuers. If an Event of
Default exists and at such other times as Secured Party is entitled to receive
dividends or distributions and other property in respect of or consisting of
Instruments and securities, Secured Party may notify each party to a Brokerage
Agreement and issuers of the Instruments and securities to make payments of all
dividends and distributions directly to Secured Party and Secured Party may
take control of all proceeds of any Instruments and securities. Until Secured
Party elects to exercise such Rights, during the continuance of an Event of
Default, Debtor, as agent of Secured Party, shall collect and segregate all
dividends and distributions and other amounts paid or distributed with respect
to the Instruments and securities.
3.9 Secured Party Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Secured Party Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which
13
<PAGE> 18
Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation (provided that the actions listed
in each clause below other than the obtainment of insurance may only be taken
or exercised if an Event of Default exists):
(a) to obtain and adjust insurance required to be paid to Secured
Party pursuant to Section 3.3,
(b) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
Instruments, documents and Chattel Paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce compliance with the
terms and conditions of any Collateral or the rights of Secured Party with
respect to any of the Collateral. DEBTOR HEREBY IRREVOCABLY GRANTS TO SECURED
PARTY DEBTOR'S PROXY (EXERCISABLE IF AN EVENT OF DEFAULT EXISTS) TO VOTE ANY
SECURITIES COLLATERAL AND APPOINTS SECURED PARTY DEBTOR'S ATTORNEY-IN-FACT TO
PERFORM ALL OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF
SECURED PARTY'S RIGHTS HEREUNDER. THE PROXY AND EACH POWER OF ATTORNEY HEREIN
GRANTED, AND EACH STOCK POWER AND SIMILAR POWER NOW OR THEREAFTER GRANTED
(INCLUDING ANY EVIDENCED BY A SEPARATE WRITING), ARE COUPLED WITH AN INTEREST
AND ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF SECURED PARTY
4.1 Secured Party May Perform. If Debtor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Debtor under Section 4.5.
4.2 Secured Party's Duties. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it or any Secured Party to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral, as to ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not Secured Party has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to
14
<PAGE> 19
any reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which Secured Party accords its own property. Except as provided in this
Section 4.2, Secured Party shall not have any duty or liability to protect or
preserve any Collateral or to preserve rights pertaining thereto. Nothing
contained in this Agreement shall be construed as requiring or obligating
Secured Party, and Secured Party shall not be required or obligated, to (a)
present or file any claim or notice or take any action, with respect to any
Collateral or in connection therewith or (b) notify Debtor of any decline in
the value of any Collateral.
4.3 Remedies. If any Event of Default exists:
(a) Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code in effect in the State of Texas at that time
(the "UCC") (whether or not the Uniform Commercial Code applies to the affected
Collateral), and also may (i) require Debtor to, and Debtor hereby agrees that
it will at its expense and upon request of Secured Party forthwith, assemble
all or part of the Collateral as directed by Secured Party and make it
available to Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties at public or private sale, at any of
Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Secured Party may deem commercially
reasonable. Debtor agrees that, to the extent notice of sale shall be required
by Law, ten days' notice to Debtor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(b) All cash proceeds received by Secured Party upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other
realization upon Collateral, including reasonable attorneys' fees and
disbursements;
Second: To the payment of the Obligations in such order and in such
manner consistent with applicable Laws as Secured Party in its
discretion shall decide (with Debtor remaining liable for any
deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to
Debtor or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with
any Collateral shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of
15
<PAGE> 20
Debtor and shall be forthwith paid over to Secured Party in the same form as so
received (with any necessary indorsement).
(d) Because of the FDA Act, the Securities Act of 1933, as amended
("Securities Act") and other Laws, including without limitation state blue sky
Laws, or contractual restrictions or agreements imposed by any licensor or
licensee of certain Rights, there may be legal restrictions or limitations
affecting Secured Party in any attempts to dispose of the Collateral and the
enforcement of its Rights hereunder. For these reasons, Secured Party is
hereby authorized by Debtor, but not obligated, if any Event of Default exists,
to sell or otherwise dispose of any of the Collateral at private sale, subject
to an investment letter, or in any other manner which will be in compliance
with the FDA Act, will not require the Collateral, or any part thereof, to be
registered in accordance with the Securities Act, and the rules and regulations
promulgated under the foregoing, and each other Law applicable to the
Collateral. Secured Party is also hereby authorized by Debtor, but not
obligated, to take such actions, give such notices, obtain such consents, and
do such other things as Secured Party may deem required or appropriate under
the FDA Act, Securities Act or other Laws or contractual restrictions or
agreements in the event of a sale or disposition of any Collateral. Debtor
clearly understands that Secured Party may in its discretion approach a
restricted number of potential purchasers and that a sale under such
circumstances may yield a lower price for the Collateral than would otherwise
be obtainable if same were registered and sold in the open market. No sale so
made in good faith by Secured Party shall be deemed to be not "commercially
reasonable" because so made. Debtor agrees that in the event Secured Party
shall, if an Event of Default exists, sell the Collateral or any portion
thereof at any private sale or sales, Secured Party shall have the right to
rely upon the advice and opinion of appraisers and other Persons, which
appraisers and other Persons are acceptable to Secured Party, as to the best
price reasonably obtainable upon such a private sale thereof. In the absence
of fraud, such reliance shall be conclusive evidence that Secured Party handled
such matter in a commercially reasonable manner under applicable Law.
4.4 Further Approvals Required.
(a) In connection with the exercise by Secured Party of its Rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Tribunals and other
Persons to a transfer or assignment of Collateral, including, without
limitation, the FDA.
(b) Debtor hereby agrees, if an Event of Default exists, to
execute, deliver, and file, and hereby appoints (to the extent permitted under
applicable Law) Secured Party as its attorney-in-fact, if an Event of Default
exists, to execute, deliver, and file on Debtor's behalf and in Debtor's name,
all applications, certificates, filings, instruments, and other documents
(including without limitation any application for an assignment or transfer of
control or ownership) that may be necessary or appropriate, in Secured Party's
opinion, to obtain such consents, waivers, or approvals. Debtor further agrees
to use its best efforts to obtain the foregoing consents, waivers, and
approvals, including receipt of consents, waivers, and approvals under
applicable
16
<PAGE> 21
agreements prior to a Default or Event of Default. Debtor acknowledges that
there is no adequate remedy at Law for failure by it to comply with the
provisions of this Section 4.4(b) and that such failure would not be adequately
compensable in damages, and therefore agrees that this Section 4.4(b) may be
specifically enforced.
4.5 INDEMNITY AND EXPENSES. (A) DEBTOR AGREES TO INDEMNIFY
SECURED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES
(INCLUDING REASONABLE ATTORNEYS' FEES) GROWING OUT OF OR RESULTING FROM THIS
AGREEMENT (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS AGREEMENT),
EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING FROM SECURED PARTY'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(b) Debtor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Secured Party hereunder or (iv) the failure by Debtor to
perform or observe any of the provisions hereof. Any payments so made shall be
a part of the Obligation, shall be payable upon demand, and shall bear interest
(i) if no Event of Default exists, at the Prime Base Rate, and (ii) if an Event
of Default exists, at the lesser of (A) the Prime Base Rate plus 3% and (B) the
Highest Lawful Rate.
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights. All Rights of Secured Party under the Loan
Papers are cumulative of each other and of every other Right which Secured
Party may otherwise have at Law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligations. The exercise of one or more Rights shall not
prejudice or impair the concurrent or subsequent exercise of other Rights.
5.2 Modifications; Amendments; Schedules; Etc. No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
Debtor here from, shall in any event be effective unless the same shall be in
writing and signed by Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Upon any change in any material information disclosed on any schedule,
Debtor shall promptly prepare and deliver to Secured Party a replacement
schedule, indicating its effective date, in form and substance satisfactory to
Secured Party and amendments to and additional financing statements as Secured
Party may require to preserve and perfect a first priority security interest in
the Collateral.
17
<PAGE> 22
5.3 Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the
expiration or termination of the obligations of Secured Party to extend credit
to Debtor, (b) be binding upon Debtor, its successors and assigns, and (c)
inure to the benefit of, and be enforceable by, Secured Party and its
successors, transferees and assigns. Upon any such termination, Secured Party
will, at Debtor's expense, execute and deliver to Debtor such documents as such
Debtor shall reasonably request to evidence such termination.
5.4 MANDATORY ARBITRATION. (A) ANY CONTROVERSY OR CLAIM BETWEEN
OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION
AND MEDIATION SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas,
Texas and administered by JAMS who will appoint an arbitrator; if JAMS is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty days.
(c) Reservations of Rights. Nothing in this Agreement or any
other Loan Paper shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers contained
in this Agreement; or (ii) be a waiver by Secured Party of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state
law; or (iii) limit the right of Secured Party hereto (A) to exercise self help
remedies such as (but not limited to) setoff, or (B) to foreclose against any
real or personal property collateral, or (C) to obtain from a court provisional
or ancillary remedies such as (but not limited to) injunctive relief or the
appointment of a receiver. Secured Party may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. At Secured Party's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the
18
<PAGE> 23
following: the exercise of a power of sale under the deed of trust or
mortgage, or by judicial sale under the deed of trust or mortgage, or by
judicial foreclosure. Neither this exercise of self help remedies nor the
institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
5.5 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED
HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED
HEREIN AS THEREIN DEFINED.
5.6 WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
5.7 Secured Party's Right to Use Agents. Secured Party may
exercise its Rights under this Agreement through an agent or other designee.
5.8 No Interference, Compensation or Expense. Secured Party may
exercise its Rights under this Agreement without payment of any rent, license
fee or compensation of any kind to Debtor.
5.9 Waivers of Rights Inhibiting Enforcement. Debtor waives (a)
any claim that, as to any part of the Collateral, a public sale, should the
Secured Party elect so to proceed, is, in and of itself, not a commercially
reasonable method of sale for such Collateral, (b) except as otherwise provided
in this Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR
JUDICIAL HEARING IN CONNECTION WITH SECURED PARTY'S DISPOSITION OF ANY OF THE
COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT
REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER
THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL
OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER
REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF SECURED PARTY'S RIGHTS
HEREUNDER and (c) all rights of redemption, appraisal or valuation.
19
<PAGE> 24
5.10 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials
to be given or delivered pursuant to this Agreement shall, except in those
cases where giving notice by telephone is expressly permitted, be given or
delivered in writing. All written notices, communications and materials shall
be sent by registered or certified mail, postage prepaid, return receipt
requested, by telecopier, or delivered by hand. In the event of a discrepancy
between any telephonic notice and any written confirmation thereof, such
written confirmation shall be deemed the effective notice except to the extent
Secured Party or Debtor has acted in reliance on such telephonic notice.
(b) Addresses. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall be given or delivered at
the following respective addresses and telecopier and telephone numbers and to
the attention of the following individuals or departments:
(i) if to Debtor, to it at:
Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002
Telecopier No.: (214) 390-9687
Telephone No.: (214) 390-9800
Attention: F. Robert Merrill III
(ii) if to Secured Party, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telecopier No.: (214) 508-3139
Telephone No.: (214) 508-1389
Attention: Commercial Banking
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to
be given or delivered to Secured Party or Debtor pursuant to this Agreement
shall be effective or deemed
20
<PAGE> 25
delivered or furnished (i) if sent by certified mail, return receipt requested,
on the fifth Business Day after such notice, communication or material is
deposited in the mail, addressed as above provided, (ii) if sent by telecopier,
when such notice, communication or material is transmitted to the appropriate
number determined as above provided in this Section 5.10 and the appropriate
receipt is received or otherwise acknowledged, (iii) if sent by hand delivery
or overnight courier, when left at the address of the addressee addressed as
above provided, and (iv) if given by telephone, when communicated to the
individual or any member of the department specified as the individual or
department to whose attention notices, communications and materials are to be
given or delivered except that notices of a change of address, telecopier or
telephone number or individual or department to whose attention notices,
communications and materials are to be given or delivered shall not be
effective until received.
5.11 Successors and Assigns. All of the provisions of this
Agreement shall be binding and inure to the benefit of the parties thereto and
their respective successors and assigns.
5.12 Loan Paper. This Agreement is a Loan Paper executed pursuant
to the Credit Agreement and shall (unless otherwise expressly indicated herein)
be construed, administered and applied in accordance with the terms and
provisions thereof.
5.13 Definitions. Capitalized terms not otherwise defined herein
have the meaning specified in the Credit Agreement and, to the extent of any
conflict, terms as defined in the Credit Agreement shall control (provided,
that a more expansive or explanatory definition shall not be deemed a
conflict).
5.14 Severability. If any provision of any Loan Paper is held to
be illegal, invalid, or unenforceable under present or future Laws during the
term thereof, such provision shall be fully severable, the appropriate Loan
Paper shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of such
Loan Paper a legal, valid, and enforceable provision as similar in terms to the
illegal, invalid, or unenforceable provision as may be possible.
5.15 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any
Loan Paper, any instrument delivered in connection therewith or any assignment
or transfer thereof;
(b) any exercise, non-exercise, or waiver by Secured Party of any
Right, remedy, power or privilege under or in respect of, or any release of any
guaranty, any collateral or the Collateral or any part thereof provided
pursuant to, this Agreement or any Loan Paper;
21
<PAGE> 26
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any Loan Paper or any assignment or
transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor, or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
5.16 Prior Security Agreements. This Agreements restates in their
entirety each of the Facility A Security Agreement and the Existing Security
Agreement.
5.17 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this
Agreement to be duly executed and delivered as of the date first above written.
DEBTOR:
QUEST MEDICAL, INC.
By: ______________________________________
F. Robert Merrill III, Vice President
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A.
By: ______________________________________
Jay C. Henry, Vice President
22
<PAGE> 27
"SCHEDULES OMITTED"
<PAGE> 1
_______________________________________________________________________________
_______________________________________________________________________________
SECURITY AGREEMENT
dated as of March 31, 1995
Between
NEUROMED, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Secured Party
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. GRANT
1.1 Assignment and Grant of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Description of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Debtor Remains Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Delivery of Security Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. COVENANTS
3.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Equipment, Fixtures and Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Place of Perfection; Records; Collection of Receivables, Chattel Paper and Instruments . . . . 10
3.5 Transfers and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Brokerage Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Rights to Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Right of Secured Party to Notify Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Secured Party Appointed Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV. RIGHTS AND POWERS OF SECURED PARTY
4.1 Secured Party May Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Secured Party's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Further Approvals Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Debtor Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Modifications; Amendments; Schedules; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Continuing Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.4 MANDATORY ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.5 GOVERNING LAW; TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.6 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 Secured Party's Right to Use Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.8 No Interference, Compensation or Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Waivers of Rights Inhibiting Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.10 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.11 Notices and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Manner of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.12 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.13 Loan Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.14 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.16 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
- ii -
<PAGE> 4
SCHEDULES:
Schedule 1 - Inventory Locations
Schedule 2 - Required Consents
Schedule 3 - Bank Accounts
Schedule 4 - Insurance
Schedule 5 - Vendor Agreements
Schedule 6 - Filing Locations
Schedule 7 - Permits
- iii -
<PAGE> 5
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of March 31, 1995 (this "Agreement"),
made by Neuromed, Inc., a Florida corporation ("Debtor"), in favor of
NationsBank of Texas, N.A., a national banking association ("Secured Party").
BACKGROUND.
(1) Secured Party and Quest Medical, Inc., a Texas corporation
("Borrower"), have entered into the Credit Agreement dated as of October 22,
1993 (as amended, the "Existing Credit Agreement"), the Security Agreement
dated May 28, 1993 ("Facility A Security Agreement"), the Security Agreement
dated as of October 22, 1993 ("Existing Security Agreement") and related
agreements.
(2) Secured Party and Borrower have entered into the First Amended
and Restated Credit Agreement dated as of March 31, 1995 (such agreement,
together with all amendments and restatements thereof, the "Credit Agreement")
which restates in its entirety the Existing Credit Agreement. A portion of the
proceeds of advances under the Credit Agreement will be used to acquire all of
the capital stock of Debtor.
(3) It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.2.
(4) It is a condition precedent to the effectiveness of the Credit
Agreement that Debtor shall have executed and delivered this Security
Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to induce Secured Party to make the
Advances under the Credit Agreement, Debtor hereby agrees with Secured Party as
follows:
ARTICLE I. GRANT
1.1 Assignment and Grant of Security. Subject to the last
paragraph of this Section 1.1, Debtor hereby assigns and pledges to Secured
Party and hereby grants to Secured Party a security interest in, the entire
right, title and interest of Debtor, in and to the following assets of Debtor,
whether now owned or hereafter acquired ("Collateral"):
(a) all inventory in all of its forms, wherever located, now or
hereafter existing, including, but not limited to, (i) all raw materials and
work in process therefor, finished goods
<PAGE> 6
thereof, and materials used or consumed in the manufacture or production
thereof, (ii) goods in which Debtor has an interest in mass or a joint or other
interest or right of any kind (including, without limitation, goods in which
Debtor has an interest or right as consignee), and (iii) goods which are
returned to or repossessed by Debtor, and all accessions thereto and products
thereof and documents therefor (any and all such inventory, accessions,
products and documents being the "Inventory");
(b) all equipment (as defined in the Uniform Commercial Code) and
(whether or not included in such definition), all vehicles, machinery,
chattels, tools, parts, furniture, furnishings and supplies, of every nature,
wherever located, all additions, accessories and improvements thereto and
substitutions therefor and all accessories, parts and equipment which may be
attached to or which are necessary for the operation and use of such personal
property, together with all accessions thereto, and all rights under or arising
out of present or future contracts relating to the foregoing ("Equipment");
(c) all property so related to particular real estate that an
interest in it arises under the real estate law of the jurisdiction in which
such Collateral is located, including all equipment, fixtures and articles of
personal property now or hereafter attached to or used in or about any building
or buildings now erected or hereafter to be erected on any real property now or
hereafter owned or leased by Debtor (the "Property"), which are necessary to
the complete and comfortable use and occupancy of such building or buildings
for the purposes for which they were or are to be erected; all materials to be
delivered to the Property and used or to be used in connection with the
construction of any building to be constructed on the Property, including, but
not limited to, all masonry, siding, roof shingles, flooring, doors, windows,
tile, shutters, stoves, ovens, awnings, screens, cabinets, shades, blinds,
carpets, draperies, furniture, furnishings, plumbing, heating, air
conditioning, lighting, ventilating, refrigerating, cooking, laundry and
incinerating equipment and all fixtures and appurtenances thereto, and such
other goods and chattels and personal property as are ever used or furnished in
operating such buildings or the activities conducted therein, and all building
materials and equipment now or hereafter delivered to the Property and intended
to be installed thereon ("Fixtures");
(d) all general intangibles (as defined in the Uniform Commercial
Code), and (whether or not included in such definition) all contract rights
other than Receivables; all inventions, processes, production methods,
proprietary information and know-how; and all licenses or other agreements
granted to Debtor with respect to any of the foregoing; all information,
customer lists, advertising lists, advertising contracts, identification of
suppliers, data, plans, blueprints, specifications, designs, drawings, recorded
knowledge, surveys, engineering reports, test reports, manuals, materials
standards, processing standards, performance standards, telephone numbers and
telephone listings, catalogs, books, records, computer and automatic machinery
software and programs, and the like pertaining to operations by or the business
of Debtor; all field accounting information and all media in which or on which
any of the information or knowledge or data or records may be recorded or
stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data; all licenses, consents, permits,
variances, certifications and approvals of all
2
<PAGE> 7
Tribunals now or hereafter held by Debtor pertaining to operations or business
now or hereafter conducted; all rights to receive return of deposits and trust
payments; all rights to payment under letters of credit and similar agreements;
all tax refunds (including, without limitation, all federal and state income
tax refunds and benefits of net operating loss carry forwards); and all causes
of action, rights, claims and warranties now or hereafter owned or acquired by
Debtor ("General Intangibles");
(e) all of the following, to the extent that not included in
"General Intangibles": trade secrets, all know-how, inventions, processes,
methods, information, data, plans, blueprints, specifications, designs,
drawings, engineering reports, test reports, materials standards, processing
standards and performance standards, and all computer and automatic machinery
software and programs directly related thereto, and all licenses or other
agreements to which Debtor is a party with respect to any of the foregoing
("Trade Secrets");
(f) all instruments and letters of credit (each as defined in the
Uniform Commercial Code), and (whether or not included in such definitions) all
promissory notes, drafts, bills of exchange and trade acceptances
("Instruments");
(g) all writings which evidence both a monetary obligation and a
security interest in or a lease of specific goods ("Chattel Paper");
(h) all documents, warehouse receipts, bills of lading, including,
without limitation, documents of title (as defined in the Uniform Commercial
Code) or other receipts covering, evidencing or representing any property
described in this Section 1.1 ("Documents");
(i) all accounts, contract rights, Chattel Paper, Documents,
Instruments and letters of credit, deposit accounts, general intangibles, tax
refunds and other obligations of any kind owing to Debtor, now or hereafter
existing, arising out of or in connection with the sale or lease of goods or
the rendering of services, and all rights now or hereafter existing in and to
all security agreements, leases, and other contracts securing or otherwise
relating to any such accounts, contract rights, Chattel Paper, Documents,
Instruments, deposit accounts, General Intangibles or obligations (any and all
such accounts, contract rights, Chattel Paper, Documents, Instruments, deposit
accounts, General Intangibles and obligations being the "Receivables");
(j) all licenses, permits and other similar rights now or
hereafter owned by Debtor (including but not limited to all licenses, permits
and similar rights issued by the FDA) and necessary to the operation of its
business, including but not limited to all licenses, permits and other rights
listed on Schedule 9;
(k) all rights, claims and benefits of Debtor against any Person
arising out of, relating to or in connection with any property described in
this Section 1.1 purchased by Debtor, including, without limitation, any such
rights, claims or benefits against any Person storing or transporting any
property described in this Section 1.1;
3
<PAGE> 8
(l) the balance of every deposit account of Debtor under control
of Secured Party and each of its Affiliates and any other claim of Debtor
against Secured Party, now or hereafter existing, liquidated or unliquidated,
and all money, Instruments, securities, Documents, Chattel Paper, credits,
claims, demands, income, and any other property, rights and interests of Debtor
which at any time shall come into the possession or custody or under the
control of Secured Party or any of its agents, affiliates or correspondents,
for any purpose, and the proceeds of any thereof (Secured Party shall be deemed
to have possession of any of the Collateral in transit to or set apart for it
or any of its agents, affiliates or correspondents. The holder of any
participation in the Obligations shall have a right of setoff with respect to
any obligation of such holder to Debtor to satisfy the Obligations);
(m) all agreements with vendors and other distributors of
Inventory, including but not limited to those described in Schedule 5;
(n) all insurance policies and bonds and claims and payments
thereunder;
(o) all property similar to the above hereafter acquired by Debtor;
and
(p) all accessions to, substitutions for and replacements,
proceeds and products of any and all of the foregoing Collateral (including,
without limitation, proceeds which constitute property of the types described
in this Section 1.1) and, to the extent not otherwise included, all (i)
payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral and (ii)
cash.
1.2 Description of Obligations. This Agreement creates a first
priority security interest securing the payment and performance of the
Obligations, including, but not limited to any and all obligations now or
hereafter existing of Debtor, Borrower and each other Obligor under the Credit
Agreement and other Loan Papers, including any extensions, modifications,
substitutions, amendments and renewals thereof, whether for principal,
interest, fees, premium, expenses, indemnification or otherwise (all such
obligations of Debtor and each other Obligor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts which constitute part of the Obligations and would be owed by
Debtor and each other Obligor to Secured Party under any Loan Paper, but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving Debtor or any other
Person (including all after, or that would have secured but for, the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Debtor or any other Obligor).
1.3 Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of the Rights hereunder shall not release Debtor from any of its duties or
obligations under the
4
<PAGE> 9
contracts and agreements included in the Collateral, and (c) Secured Party
shall not have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Secured Party
be obligated to perform any of the obligations or duties of Debtor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
1.4 Delivery of Security Collateral. All certificates or
instruments representing or evidencing the Collateral and which are issued in
the name of Debtor shall be delivered to and held by or on behalf of Secured
Party pursuant hereto and shall be in suitable form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to Secured Party. If an Event
of Default exists, Secured Party shall have the right, at any time during such
time in its discretion and without notice to Debtor, to (a) require the
issuance in the name of Debtor and delivery to Secured Party of certificates or
instruments evidencing the interest owned by Debtor in the issuer of such
certificate or instrument (if the security is subject to a Brokerage Agreement
and the Brokerage Agreement permits such issuance) and (b) transfer to or to
register in the name of Secured Party or any of its nominees any or all of the
Collateral. In addition, Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties. Debtor represents and
warrants, with respect to itself and the Collateral, as follows:
(a) All of the Equipment, Fixtures and Inventory pledged by Debtor
hereunder is located at the places specified on Schedule 1 hereto (as
supplemented from time to time by Debtor by written notice to Secured Party) or
Inventory in transit to a place specified on Schedule 1 hereto (as supplemented
from time to time by Debtor by written notice to Secured Party) or Inventory in
transit (i) for sale to a third-party purchaser that upon such sale will become
the obligor under a Receivable and (ii) pursuant to a sale in the ordinary
course of Debtor's business. The chief place of business and chief executive
office of Debtor and the office where Debtor keeps all of its records
concerning the Receivables, are located at One Allentown Parkway, Allen, Texas
75002. All Chattel Paper, promissory notes or other instruments evidencing the
Receivables have been delivered and pledged to Secured Party duly endorsed and
accompanied by such duly executed instruments of transfer or assignment as are
necessary for such pledge, to be held as pledged collateral. Debtor has
possession and control of the Equipment and Inventory pledged by it hereunder.
The record owner of the real estate upon which the Equipment, Fixtures and
Inventory are located are indicated on Schedule 1.
(b) Debtor is the legal and beneficial owner of the Collateral
pledged by it free and clear of any Lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement and Permitted Liens. No effective financing
5
<PAGE> 10
statement or other similar document used to perfect and preserve a security
interest under the Laws of any jurisdiction covering all or any part of the
Collateral is on file in any recording office, except (i) such as may have been
filed in favor of Secured Party relating to this Agreement and (ii) financing
statements for which Debtor will provide to Secured Party on the Closing Date
proper original executed termination statements. As of the date hereof, Debtor
(including any corporate or partnership predecessor) has no trade names and has
not existed or operated under any name other than "Neuromed, Inc.," since March
31, 1985.
(c) This Agreement and the pledge of the Collateral pursuant
hereto creates a valid and, upon filing of financing statements in the Uniform
Commercial Code records described on Schedule 6, perfected first priority
security interest in the Collateral (other than deposit accounts in financial
institutions which are not Secured Party or subject to a Broker Agreement),
securing the payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interest and such
priority have been duly taken (or will be taken).
(d) Except as described on Schedule 2, no consent of any other
Person and no authorization, approval or other action by, and no notice to or
filing with, any Tribunal is required (i) for the pledge by Debtor of the
Collateral pledged by it hereunder, for the grant by Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Debtor, (ii) for the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment and security interest) or (iii) for the
exercise by Secured Party of the Rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement.
(e) Schedule 3 is a complete and correct list of all deposit
accounts (demand, time, special or other) maintained by or in which Debtor has
an interest and correctly describes the financial institution in which such
account is maintained (including the specific branch), the address and ABA
number of such institution, the officer of such institution having primary
responsibility for Debtor's accounts, the account number and type (as
supplemented from time to time by Debtor by written notice to Secured Party).
(f) Debtor possesses all licenses and Permits, including but not
limited to all applicable certificates of occupancy, licenses and Permits, and
all health and sanitation permits, required for the operations of its business.
Schedule 7 is a complete and correct description of all of such licenses and
Permits.
(g) Schedule 4 is a complete and correct list of all insurance
policies for which Debtor is an insured or for which Debtor is a loss payee.
(h) Schedule 5 is a complete and correct list of all agreements
with each Person related to the resale and distribution of Inventory for each
Person who, during the preceding fiscal year, sold or distributed $25,000 or
more of Debtor's Inventory.
6
<PAGE> 11
(i) Schedule 10 is a complete and correct list of all Acquisition
Documents, together with all modifications thereto.
(j) All Inventory of Debtor produced by Debtor in the United
States of America has been produced in compliance with the Fair Labor Standards
Act.
(k) Debtor's federal taxpayer identification number is 59-2071994.
(l) The value of the consideration received and to be received by
Debtor is reasonably worth at least as much as the liability and obligation of
Debtor hereunder, and such liability and obligation may reasonably be expected
to benefit Debtor directly or indirectly; Debtor is familiar with, and has
independently reviewed books and records regarding, the financial condition of
Borrower or any other Obligor and is familiar with the value of any and all
collateral intended to be created as security for the payment of the
Obligation; however, Debtor is not relying on such financial condition or the
collateral as an inducement to enter into this Agreement; and none of Secured
Party or any other Person has made any representation, warranty or statement to
Debtor in order to induce Debtor to execute this Agreement.
(m) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
ARTICLE III. COVENANTS
3.1 Further Assurances. (a) Debtor agrees that, where any
agreement intended to be Collateral existing as of the date hereof or hereafter
to which Debtor is a party contains any restriction prohibiting Debtor from
granting any security interest under this Agreement, Debtor will use its best
efforts to obtain the necessary consent to or waiver of such restriction from
any Person so as to enable Debtor to effectively grant to Secured Party such
security interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of
Debtor, Debtor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary or
desirable, or that Secured Party may reasonably request, in order to perfect
and protect any pledge, assignment or security interest granted or purported to
be granted hereby, and the priority thereof, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, upon written
request by Secured Party, Debtor will: (i) mark conspicuously each Chattel
Paper included in Receivables, and, at the request of Secured Party, each of
its records pertaining to the Collateral with the following legend:
7
<PAGE> 12
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED MARCH 31, 1995 (AS THE SAME MAY BE MODIFIED
OR RESTATED) MADE BY NEUROMED, INC., IN FAVOR OF NATIONSBANK OF TEXAS,
N.A.
or such other legend, in form and substance satisfactory to and as specified by
Secured Party, indicating that such Chattel Paper or Collateral is subject to
the pledge, assignment and security interest granted hereby; (ii) if any
Collateral shall be evidenced by a promissory note or other Instrument or be
Chattel Paper, deliver and pledge to Secured Party hereunder such note,
Instrument or Chattel Paper duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to Secured Party; and (iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, or as Secured Party may request, in order to
perfect and preserve the pledge, assignment and security interest granted (and
the priority thereof) or purported to be granted hereby.
(c) Debtor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of Debtor where permitted
by Law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Law.
(d) Debtor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
(including information in connection with the protection, preservation,
maintenance or enforcement of the security interest) and such other reports in
connection with the Collateral as Secured Party may reasonably request, all in
reasonable detail; provided, if no Default or Event of Default exists, Secured
Party will not make more than one request in any six month period.
(e) Debtor shall not establish or maintain any deposit or similar
bank account not listed on Schedule 3 unless Secured Party receives prior
written notice thereof, Debtor executes and delivers to Secured Party
assignments of such account in such form as Secured Party may request and the
financial institution in which such account will be maintained delivers to
Secured Party acknowledgments of the assignment of such account in form and
substance satisfactory to Secured Party.
(f) In addition to such other information as shall be specifically
provided for herein, Debtor shall, if a Default or an Event of Default exists,
furnish to Secured Party such other information with respect to the Collateral
as Secured Party may reasonably request from time to time in connection with
the Collateral, including, without limitation, all documents and things in
Debtor's possession, or subject to its demand for possession, related to the
production and sale by Debtor, or any subsidiary, licensee or subcontractor
thereof, of products or services sold by or under the authority of Debtor,
including by way of example, without limiting the interest granted by this
Agreement: (i) all lists and ancillary documents which identify and describe
any
8
<PAGE> 13
of Debtor's customers, advertisers, or those of its Subsidiaries or licensees,
for products sold or services rendered, including without limitation, such
existing lists and ancillary documents which contain each customer's full name
and address, the identity of the Person or Persons having the principal
responsibility on each customer's behalf for ordering products or services of
the kind supplied by Debtor, the credit, payment, discount, delivery and other
sale terms applicable to such customer, together with detailed information
setting forth the total purchases and the patterns of such purchases; (ii) all
product and service specification documents and production and quality of
services sold; (iii) all documents which reveal the names and addresses of all
sources of supply, and all terms of purchase and delivery, for all materials
and components used in the production of products or provision of services
sold; and (iv) all documents constituting or concerning the then current or
proposed advertising and promotion by Debtor or its subsidiaries, licensees or
subcontractors of products or services sold, including, by way of example and
not in limitation, all documents which reveal the media used or to be used and
the cost for all such advertising conducted within the described period or
planned for such products or services. In connection with its enforcement of
the security interest, Secured Party may use such information or transfer it to
any assignee or sublicensee permitted hereunder for such assignee's or
sublicensee's use.
3.2 Equipment, Fixtures and Inventory.
(a) Debtor shall keep the Equipment, Fixtures and Inventory
pledged by it hereunder (other than Inventory sold in the ordinary course of
business) at the places therefor specified in Section 2.1(a) or, upon thirty
days' prior written notice to Secured Party, at such other places in such
jurisdiction where all action required by Section 3.1 shall have been taken
with respect to the Equipment, Fixtures and Inventory.
(b) Debtor shall cause the Equipment and Fixtures pledged by it
hereunder to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and shall
forthwith, or in the case of any loss or damage to any of the Equipment and
Fixtures as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end (if, pursuant to Section
3.3, Secured Party releases to Debtor insurance payments in respect of the loss
or damage). Debtor shall promptly furnish to Secured Party a statement
respecting any loss or damage which singly equals or exceeds $25,000 to any of
the Equipment and Fixtures pledged by it hereunder.
(c) Debtor shall pay promptly when due or before penalty all
property and other taxes, assessments and governmental charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Collateral pledged by it hereunder, except such taxes as
are being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, except where the
failure to file such returns, pay such taxes or establish such reserves does
not involve unpaid or allegedly unpaid amounts, in aggregate, in excess of
$50,000. Debtor shall comply with, and shall cause its licensees to comply
with, all requirements of the FDA Act and the Fair Labor Standards Act.
9
<PAGE> 14
3.3 Insurance. Debtor shall, at its own expense, maintain
insurance with respect to the Collateral in accordance with the terms set forth
in Section 4.4 of the Credit Agreement. Debtor further covenants and agrees to
keep the Collateral which is Equipment, Fixtures and Inventory and other
tangible personal property insured in such amounts, against such risks and with
such insurers as Secured Party may reasonably require. All such policies of
insurance shall be written for the benefit of Secured Party and Debtor, as
their interests may appear, and shall provide for at least thirty Business
Days' prior written notice of cancellation to Secured Party. Debtor shall
promptly furnish to Secured Party evidence of such insurance in form and
content satisfactory to Secured Party. If Debtor fails to perform or observe
any applicable covenants as to insurance on any of such Collateral, Secured
Party may at its own option obtain insurance on only Secured Party's interest
in such Collateral, any premium thereby paid by Secured Party to become part of
the Obligations, bear interest prior to the existence of an Event of Default,
at the then applicable Prime Base Rate, and during the existence of an Event of
Default, at the lesser of (a) the Prime Base Rate, plus 3% and (b) the Highest
Lawful Rate. In the event Secured Party maintains such substitute insurance,
the additional premium for such insurance shall be due on demand and payable by
Debtor to Secured Party in accordance with any notice delivered to Debtor by
Secured Party. Debtor hereby grants Secured Party a security interest in any
refunds of unearned premiums in connection with any cancellation, adjustment or
termination of any policy of insurance required by Secured Party and in all
proceeds of such insurance and hereby appoints Secured Party its
attorney-in-fact to endorse any check or draft that may be payable to Debtor in
order to collect such refunds or proceeds. Any such sums collected by Secured
Party shall be credited, except to the extent applied to the purchase by
Secured Party of similar insurance, to any amounts then owing on the
Obligations in accordance with the Credit Agreement. If no Default under
Section 4.2, 5.5, 5.6, 5.9, 5.10 or 5.12 of the Credit Agreement or an Event of
Default exists, Lender shall deliver to Debtor all insurance payments in
respect of any covered loss and any refund of any premium or other payment;
provided Debtor uses the payment in respect of an insured loss to acquire a
replacement asset of similar value.
3.4 Place of Perfection; Records; Collection of Receivables,
Chattel Paper and Instruments.
(a) Debtor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Receivables, and the originals of all Chattel Paper, at the location therefor
specified in Section 2.1(a) or at such other location in the State of Texas as
Debtor shall have given written notice thereof to Secured Party no later than
30 days prior to the moving thereto. Debtor shall deliver to Secured Party all
original Brokerage Agreements to be held by Secured Party as collateral.
Debtor will hold and preserve such records and Chattel Paper and will permit
representatives of Secured Party at any time during normal business hours to
inspect and make abstracts from and copies of such records and Chattel Paper.
Debtor shall deliver to Secured Party all Instruments to be held by Secured
Party as collateral.
10
<PAGE> 15
(b) Except as otherwise provided in this Section 3.4(b), Debtor
shall continue to collect, at its own expense, all amounts due or to become due
Debtor under the Receivables, Chattel Paper and Instruments. In connection
with such collections, Debtor may take (and, at Secured Party's direction,
shall take) such action as Debtor or Secured Party may deem reasonably
necessary or advisable to enforce collection of the Receivables, Chattel Paper
and Instruments; provided, however, that Secured Party shall have the right (if
an Event of Default exists) (without notice to Debtor) to notify the account
debtors or obligors under any Receivables, Chattel Paper and Instruments of the
assignment of such Receivables, Chattel Paper and Instruments to Secured Party
and to direct such account debtors or obligors to make payment of all amounts
due or to become due to Debtor thereunder directly to Secured Party and, at the
expense of Debtor, to enforce collection of any such Receivables, Chattel Paper
and Instruments, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Debtor might have done.
All amounts and proceeds (including Instruments) received by Debtor in respect
of the Receivables, Chattel Paper and Instruments shall be received in trust
for the benefit of Secured Party hereunder, shall be segregated from other
funds of Debtor and shall be forthwith paid over to Secured Party in the same
form as so received (with any necessary indorsement) to be held as cash
collateral and either (A) released to Debtor so long as no Default under
Section 4.2, 5.5, 5.6, 5.9, 5.10 or 5.12 of the Credit Agreement or Event of
Default exists or (B) if any Default under Section 4.2, 5.5, 5.6, 5.9, 5.10 or
5.12 of the Credit Agreement or Event of Default exists, applied as provided
herein. Debtor shall not adjust, settle or compromise the amount or payment of
any Receivable, Chattel Paper or Instrument, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon
except in accordance with Debtor's historical operating procedure.
3.5 Transfers and Other Liens. Debtor shall not (i) sell, assign
(by operation of Law or otherwise) or otherwise dispose of, or grant any option
with respect to, any of the Collateral, except as permitted under the Credit
Agreement and this Agreement, or (ii) create or permit to exist any Lien,
security interest, option or other charge or encumbrance upon or with respect
to any of the Collateral, except for the security interest under this Agreement
(and except as provided for in the Credit Agreement). Debtor may sell
Inventory in the ordinary course of business. Debtor may sell investments
subject to a Brokerage Agreement in which Secured Party has a security
interest; provided, that the proceeds of such sale are subject to a Brokerage
Agreement in which Secured Party has a perfected, first priority security
interest in favor of Secured Party and such sale is in the ordinary course of
Debtor's investment portfolio management. Debtor shall not permit any
amendment, restatement or termination of any Brokerage Agreement without the
prior written consent of Secured Party.
3.6 Brokerage Agreements.
(a) Debtor shall, if any of the shares, securities, moneys or
property previously held by a Person other than Debtor pursuant to a Brokerage
Agreement are received by Debtor, forthwith transfer and deliver to Secured
Party such shares, securities, moneys or property so received by Debtor
(together with the certificates for any such shares and securities duly
endorsed in blank or accompanied by undated stock powers duly executed in
blank), all of which
11
<PAGE> 16
thereafter shall be held by Secured Party, pursuant to the terms of this
Agreement, as part of the Collateral; provided, that if no Event of Default
exists, Debtor may receive cash distributions and dividends (not consisting of
a distribution of or return of capital) declared and paid with respect to any
securities.
(b) (i) For the better perfection of Secured Party's
Rights in and to the Brokerage Agreements or any part thereof and to
facilitate implementation of such Rights, Debtor shall, insofar as
possible, if an Event of Default exists and upon the request of
Secured Party (if Secured Party deems such action necessary to the
perfection or priority of the Liens in the Collateral), cause the
Brokerage Agreements to be transferred, registered or otherwise put
into the name or names of such nominee or nominees of Secured Party as
Secured Party shall from time to time direct.
(ii) So long as no Event of Default exists (and
after any Event of Default until, by notice to Debtor, Secured Party
elects while the Event of Default is continuing to exercise the right
to vote or consent), Debtor shall retain the right to exercise all
voting, consensual and other power of ownership pertaining to the
Brokerage Agreements owned by it for all purposes not inconsistent
with the terms of this Agreement or any other Loan Paper; and Secured
Party shall execute and deliver to Debtor or cause to be executed and
delivered to Debtor all such proxies, powers of attorney, dividend and
other orders, and all such instruments, without recourse, as Debtor
may reasonably request for the purpose of enabling Debtor to exercise
the rights and powers which it is entitled to exercise pursuant to
this Section 3.6.
(iii) If any Event of Default exists, and whether
or not Secured Party exercises any available Right to declare any
Obligations due and payable or seeks or pursues any other relief or
remedy available under applicable Laws or under any agreement relating
to such Obligations, all distributions and dividends on any securities
and payments and distributions in respect of each Brokerage Agreement
shall be paid directly to Secured Party and retained by it as part of
the Collateral subject to the terms of this Agreement, and, if Secured
Party shall so request, Debtor agrees to execute and deliver to
Secured Party appropriate additional dividend, distribution and other
orders and documents to that end.
3.7 Rights to Dividends and Distributions. With respect to any
certificates, bonds, or other instruments or securities (including but not
limited to any certificate or participation issued in any proceeding under any
Debtor Relief Law) constituting a part of the Collateral, Secured Party shall
have authority if an Event of Default exists, without notice to Debtor, either
to have the same registered in Secured Party's name or in the name of a
nominee, and, with or without such registration, to demand of the issuer
thereof, and to receive and receipt for, any and all distributions (including
any stock or similar dividend or distribution) payable in respect thereof,
whether they be ordinary or extraordinary. Except for any property maintained
in a Brokerage Account, if Debtor shall become entitled to receive or shall
receive any interest in or certificate (including, without limitation, any
interest in or certificate representing a
12
<PAGE> 17
distribution in connection with any reclassification, increase, or reduction of
capital, or issued in connection with any reorganization), or any option or
rights arising from or relating to any of the Collateral, whether as an
addition to, in substitution of, as a conversion of, or in exchange for any of
the Collateral, or otherwise, Debtor agrees to accept the same as Secured
Party's agent and to hold the same in trust on behalf of and for the benefit of
Secured Party, and to deliver the same immediately to Secured Party in the
exact form received, with appropriate undated stock or similar powers, duly
executed in blank, to be held by Secured Party, subject to the terms hereof, as
Collateral. Unless an Event of Default is in existence, Debtor shall be
entitled to receive all cash dividends paid in respect of any of the Collateral
(subject to the restrictions of any other Loan Paper).
3.8 Right of Secured Party to Notify Issuers. If an Event of
Default exists and at such other times as Secured Party is entitled to receive
dividends or distributions and other property in respect of or consisting of
Instruments and securities, Secured Party may notify each party to a Brokerage
Agreement and issuers of the Instruments and securities to make payments of all
dividends and distributions directly to Secured Party and Secured Party may
take control of all proceeds of any Instruments and securities. Until Secured
Party elects to exercise such Rights, during the continuance of an Event of
Default, Debtor, as agent of Secured Party, shall collect and segregate all
dividends and distributions and other amounts paid or distributed with respect
to the Instruments and securities.
3.9 Secured Party Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Secured Party Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation (provided that the actions listed in each clause
below other than the obtainment of insurance may only be taken or exercised if
an Event of Default exists):
(a) to obtain and adjust insurance required to be paid to Secured
Party pursuant to Section 3.3,
(b) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other
Instruments, documents and Chattel Paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce compliance with the
terms and conditions of any Collateral or the rights of Secured Party with
respect to any of the Collateral. DEBTOR HEREBY IRREVOCABLY GRANTS TO SECURED
PARTY DEBTOR'S PROXY (EXERCISABLE IF AN EVENT OF DEFAULT EXISTS) TO VOTE ANY
SECURITIES COLLATERAL AND APPOINTS
13
<PAGE> 18
SECURED PARTY DEBTOR'S ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS OF DEBTOR
UNDER THIS AGREEMENT AND TO EXERCISE ALL OF SECURED PARTY'S RIGHTS HEREUNDER.
THE PROXY AND EACH POWER OF ATTORNEY HEREIN GRANTED, AND EACH STOCK POWER AND
SIMILAR POWER NOW OR THEREAFTER GRANTED (INCLUDING ANY EVIDENCED BY A SEPARATE
WRITING), ARE COUPLED WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL
PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF SECURED PARTY
4.1 Secured Party May Perform. If Debtor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Debtor under Section 4.5.
4.2 Secured Party's Duties. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it or any Secured Party to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral, as to ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not Secured Party has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which Secured Party accords its own property. Except as provided in this
Section 4.2, Secured Party shall not have any duty or liability to protect or
preserve any Collateral or to preserve rights pertaining thereto. Nothing
contained in this Agreement shall be construed as requiring or obligating
Secured Party, and Secured Party shall not be required or obligated, to (a)
present or file any claim or notice or take any action, with respect to any
Collateral or in connection therewith or (b) notify Debtor of any decline in
the value of any Collateral.
4.3 Remedies. If any Event of Default exists:
(a) Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code in effect in the State of Texas at that time
(the "UCC") (whether or not the Uniform Commercial Code applies to the affected
Collateral), and also may (i) require Debtor to, and Debtor hereby agrees that
it will at its expense and upon request of Secured Party forthwith, assemble
all or part of the Collateral as directed by Secured Party and make it
available to Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties at public or private sale, at any of
Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such
14
<PAGE> 19
other terms as Secured Party may deem commercially reasonable. Debtor agrees
that, to the extent notice of sale shall be required by Law, ten days' notice
to Debtor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) All cash proceeds received by Secured Party upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other
realization upon Collateral, including reasonable attorneys' fees and
disbursements;
Second: To the payment of the Obligations in such order and in such
manner consistent with applicable Laws as Secured Party in its
discretion shall decide (with Debtor remaining liable for any
deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to
Debtor or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with
any Collateral shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Secured Party in the same form as so received (with any necessary
indorsement).
(d) Because of the FDA Act, the Securities Act of 1933, as amended
("Securities Act") and other Laws, including without limitation state blue sky
Laws, or contractual restrictions or agreements imposed by any licensor or
licensee of certain Rights, there may be legal restrictions or limitations
affecting Secured Party in any attempts to dispose of the Collateral and the
enforcement of its Rights hereunder. For these reasons, Secured Party is
hereby authorized by Debtor, but not obligated, if any Event of Default exists,
to sell or otherwise dispose of any of the Collateral at private sale, subject
to an investment letter, or in any other manner which will be in compliance
with the FDA Act, will not require the Collateral, or any part thereof, to be
registered in accordance with the Securities Act, and the rules and regulations
promulgated under the foregoing, and each other Law applicable to the
Collateral. Secured Party is also hereby authorized by Debtor, but not
obligated, to take such actions, give such notices, obtain such consents, and
do such other things as Secured Party may deem required or appropriate under
the FDA Act, Securities Act or other Laws or contractual restrictions or
agreements in the event of a sale or disposition of any Collateral. Debtor
clearly understands that Secured Party may in its discretion approach a
restricted number of potential purchasers and that a sale under such
circumstances may yield a lower price for the Collateral than would otherwise
be obtainable if same were registered and sold in the open market. No
15
<PAGE> 20
sale so made in good faith by Secured Party shall be deemed to be not
"commercially reasonable" because so made. Debtor agrees that in the event
Secured Party shall, if an Event of Default exists, sell the Collateral or any
portion thereof at any private sale or sales, Secured Party shall have the
right to rely upon the advice and opinion of appraisers and other Persons,
which appraisers and other Persons are acceptable to Secured Party, as to the
best price reasonably obtainable upon such a private sale thereof. In the
absence of fraud, such reliance shall be conclusive evidence that Secured Party
handled such matter in a commercially reasonable manner under applicable Law.
4.4 Further Approvals Required.
(a) In connection with the exercise by Secured Party of its Rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Tribunals and other
Persons to a transfer or assignment of Collateral, including, without
limitation, the FDA.
(b) Debtor hereby agrees, if an Event of Default exists, to
execute, deliver, and file, and hereby appoints (to the extent permitted under
applicable Law) Secured Party as its attorney-in-fact, if an Event of Default
exists, to execute, deliver, and file on Debtor's behalf and in Debtor's name,
all applications, certificates, filings, instruments, and other documents
(including without limitation any application for an assignment or transfer of
control or ownership) that may be necessary or appropriate, in Secured Party's
opinion, to obtain such consents, waivers, or approvals. Debtor further agrees
to use its best efforts to obtain the foregoing consents, waivers, and
approvals, including receipt of consents, waivers, and approvals under
applicable agreements prior to a Default or Event of Default. Debtor
acknowledges that there is no adequate remedy at Law for failure by it to
comply with the provisions of this Section 4.4(b) and that such failure would
not be adequately compensable in damages, and therefore agrees that this
Section 4.4(b) may be specifically enforced.
4.5 INDEMNITY AND EXPENSES. (a) DEBTOR AGREES TO INDEMNIFY
SECURED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES
(INCLUDING REASONABLE ATTORNEYS' FEES) GROWING OUT OF OR RESULTING FROM THIS
AGREEMENT (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS AGREEMENT),
EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING FROM SECURED PARTY'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(b) Debtor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Secured Party hereunder or (iv) the failure by Debtor to
perform or observe any of the provisions hereof. Any payments so made shall be
a part of the Obligation, shall be payable
16
<PAGE> 21
upon demand, and shall bear interest (i) if no Event of Default exists, at the
Prime Base Rate, and (ii) if an Event of Default exists, at the lesser of (A)
the Prime Base Rate plus 3% and (B) the Highest Lawful Rate.
4.6 Debtor Insolvency. Should Debtor become insolvent, fail to
pay its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely
affect the rights of Secured Party granted hereunder, then, the Obligations
shall be, as between Debtor and Secured Party, a fully matured, due, and
payable obligation (without regard to whether Borrower is then in default under
the Credit Agreement or whether any part of the Obligations is then due and
owing by Borrower to Secured Party), and Secured Party shall have all of the
remedies and rights provided herein all as though an Event of Default existed.
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights. All Rights of Secured Party under the Loan
Papers are cumulative of each other and of every other Right which Secured
Party may otherwise have at Law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligations. The exercise of one or more Rights shall not
prejudice or impair the concurrent or subsequent exercise of other Rights.
5.2 Modifications; Amendments; Schedules; Etc. No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
Debtor here from, shall in any event be effective unless the same shall be in
writing and signed by Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Upon any change in any material information disclosed on any schedule,
Debtor shall promptly prepare and deliver to Secured Party a replacement
schedule, indicating its effective date, in form and substance satisfactory to
Secured Party and amendments to and additional financing statements as Secured
Party may require to preserve and perfect a first priority security interest in
the Collateral.
5.3 Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the
expiration or termination of the obligations of Secured Party to extend credit
to Debtor, (b) be binding upon Debtor, its successors and assigns, and (c)
inure to the benefit of, and be enforceable by, Secured Party and its
successors, transferees and assigns. Upon any such termination, Secured Party
will, at Debtor's expense, execute and deliver to Debtor such documents as such
Debtor shall reasonably request to evidence such termination.
5.4 MANDATORY ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN
OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED
17
<PAGE> 22
TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENTS
OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,
SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF
PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL
ARBITRATION AND MEDIATION SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET
FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL
CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas,
Texas and administered by JAMS who will appoint an arbitrator; if JAMS is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty days.
(c) Reservations of Rights. Nothing in this Agreement or any
other Loan Paper shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers contained
in this Agreement; or (ii) be a waiver by Secured Party of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state
law; or (iii) limit the right of Secured Party hereto (A) to exercise self help
remedies such as (but not limited to) setoff, or (B) to foreclose against any
real or personal property collateral, or (C) to obtain from a court provisional
or ancillary remedies such as (but not limited to) injunctive relief or the
appointment of a receiver. Secured Party may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. At Secured Party's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by judicial
sale under the deed of trust or mortgage, or by judicial foreclosure. Neither
this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
5.5 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF
18
<PAGE> 23
ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED HEREIN OR IN THE CREDIT
AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED HEREIN AS THEREIN
DEFINED.
5.6 WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
5.7 Secured Party's Right to Use Agents. Secured Party may
exercise its Rights under this Agreement through an agent or other designee.
5.8 No Interference, Compensation or Expense. Secured Party may
exercise its Rights under this Agreement without payment of any rent, license
fee or compensation of any kind to Debtor.
5.9 Waivers of Rights Inhibiting Enforcement. Debtor waives (a)
any claim that, as to any part of the Collateral, a public sale, should the
Secured Party elect so to proceed, is, in and of itself, not a commercially
reasonable method of sale for such Collateral, (b) except as otherwise provided
in this Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR
JUDICIAL HEARING IN CONNECTION WITH SECURED PARTY'S DISPOSITION OF ANY OF THE
COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT
REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER
THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL
OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER
REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF SECURED PARTY'S RIGHTS
HEREUNDER and (c) all rights of redemption, appraisal or valuation.
5.10 Waiver of Subrogation. Debtor shall not assert, enforce, or
otherwise exercise (a) any right of subrogation to any of the rights or Liens
of Secured Party or any other beneficiary against Borrower or any other Obligor
on the Obligations or any collateral or other security, or (b) any right of
recourse, reimbursement, contribution, indemnification, or similar right
against Borrower or any other Obligor on all or any part of the Obligations,
and Debtor hereby waives any and all of the foregoing rights and the benefit
of, and any right to participate in, any collateral or other security given to
Secured Party or any other beneficiary to secure payment of the Obligations.
The provisions of this Section 5.10 shall survive the termination of this
Agreement, and any satisfaction and discharge of Borrower and each other
Obligor by virtue of any payment, court order, or Law. Debtor hereby waives
all rights by which it might be entitled to require suit on an accrued right of
action in respect of any of the Obligations or require suit against Borrower,
any other Obligor or others, whether arising pursuant to Section
19
<PAGE> 24
34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of
the Texas Civil Practice and Remedies Code, as amended, or Rule 31 of the Texas
Rules of Civil Procedure, as amended, or otherwise.
5.11 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials
to be given or delivered pursuant to this Agreement shall, except in those
cases where giving notice by telephone is expressly permitted, be given or
delivered in writing. All written notices, communications and materials shall
be sent by registered or certified mail, postage prepaid, return receipt
requested, by telecopier, or delivered by hand. In the event of a discrepancy
between any telephonic notice and any written confirmation thereof, such
written confirmation shall be deemed the effective notice except to the extent
Secured Party or Debtor has acted in reliance on such telephonic notice.
(b) Addresses. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall be given or delivered at
the following respective addresses and telecopier and telephone numbers and to
the attention of the following individuals or departments:
(i) if to Debtor, to it at:
Neuromed, Inc.
One Allentown Parkway
Allen, Texas 75002
Telecopier No.: (214) 390-9687
Telephone No.: (214) 390-9800
Attention: F. Robert Merrill III
(ii) if to Secured Party, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telecopier No.: (214) 508-3139
Telephone No.: (214) 508-1389
Attention: Commercial Banking
20
<PAGE> 25
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to
be given or delivered to Secured Party or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by certified
mail, return receipt requested, on the fifth Business Day after such notice,
communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication or
material is transmitted to the appropriate number determined as above provided
in this Section 5.11 and the appropriate receipt is received or otherwise
acknowledged, (iii) if sent by hand delivery or overnight courier, when left at
the address of the addressee addressed as above provided, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices
of a change of address, telecopier or telephone number or individual or
department to whose attention notices, communications and materials are to be
given or delivered shall not be effective until received.
5.12 Successors and Assigns. All of the provisions of this
Agreement shall be binding and inure to the benefit of the parties thereto and
their respective successors and assigns.
5.13 Loan Paper. This Agreement is a Loan Paper executed pursuant
to the Credit Agreement and shall (unless otherwise expressly indicated herein)
be construed, administered and applied in accordance with the terms and
provisions thereof.
5.14 Definitions. Capitalized terms not otherwise defined herein
have the meaning specified in the Credit Agreement and, to the extent of any
conflict, terms as defined in the Credit Agreement shall control (provided,
that a more expansive or explanatory definition shall not be deemed a
conflict).
5.15 Severability. If any provision of any Loan Paper is held to
be illegal, invalid, or unenforceable under present or future Laws during the
term thereof, such provision shall be fully severable, the appropriate Loan
Paper shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of such
Loan Paper a legal, valid, and enforceable provision as similar in terms to the
illegal, invalid, or unenforceable provision as may be possible.
5.16 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
21
<PAGE> 26
(a) any amendment or modification or addition or supplement to any
Loan Paper, any instrument delivered in connection therewith or any assignment
or transfer thereof;
(b) any exercise, non-exercise, or waiver by Secured Party of any
Right, remedy, power or privilege under or in respect of, or any release of any
guaranty, any collateral or the Collateral or any part thereof provided
pursuant to, this Agreement or any Loan Paper;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any Loan Paper or any assignment or
transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor, or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
5.17 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this
Agreement to be duly executed and delivered as of the date first above written.
DEBTOR:
NEUROMED, INC.
By:___________________________________________
F. Robert Merrill III, Vice President
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A.
By:___________________________________________
Jay C. Henry, Vice President
22
<PAGE> 27
"SCHEDULES OMITTED"
<PAGE> 1
_______________________________________________________________________________
_______________________________________________________________________________
INTELLECTUAL PROPERTY SECURITY AGREEMENT AND ASSIGNMENT
dated as of March 31, 1995
Between
QUEST MEDICAL, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Secured Party
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. ASSIGNMENT AND GRANT OF SECURITY INTEREST
1.1 Assignment and Grant of Security Interest . . . . . . . . . . . . . . . . . . 1
1.2 Security for Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Validity and Priority of Security Interest . . . . . . . . . . . . . . . . . . 2
1.4 Maintenance of Status of Security Interest, Collateral and Rights . . . . . . 2
(a) Required Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Protection of Collateral . . . . . . . . . . . . . . . . . . . . . . 2
(c) Authorized Action . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) State Registrations . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Debtor Remains Obligated; Secured Party Not Obligated . . . . . . . . . . . . 3
1.6 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Security Interest Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Organization; Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Authorization; Enforceability; Required Consents; Absence of Conflicts . . . . 4
2.3 Accuracy of Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Rights of Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 State Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Other Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. COVENANTS
3.1 Certain Matters Relating to Preservation of Status of Security Interest . . . 5
(a) Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Change of Name, Identity, etc. . . . . . . . . . . . . . . . . . . . 5
3.2 Preservation of Existence and Preservation of Enforceability . . . . . . . . . 5
3.3 Requested Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 No Disposition of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Additional Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. EVENT OF DEFAULT
4.1 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Power of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Enforcement by Secured Party . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
(d) Other Loan Papers; Laws . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Sale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V. INTERPRETATION
5.1 Definitional Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Certain Terms Defined by Reference . . . . . . . . . . . . . . . . . 8
(b) Other Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . 11
5.2 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI. MISCELLANEOUS
6.1 Expenses of Debtor's Agreements and Duties . . . . . . . . . . . . . . . . . . 12
6.2 Secured Party's Right to Perform on Debtor's Behalf . . . . . . . . . . . . . 12
6.3 Secured Party's Right to Use Agents . . . . . . . . . . . . . . . . . . . . . 12
6.4 No Interference, Compensation or Expense . . . . . . . . . . . . . . . . . . . 12
6.5 Limitation of Secured Party's Obligations With Respect to Collateral . . . . . 12
6.6 Rights of Secured Party under UCC and Applicable Law . . . . . . . . . . . . . 13
6.7 Waivers of Rights Inhibiting Enforcement . . . . . . . . . . . . . . . . . . . 13
6.8 Notices and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Manner of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Designation of Notice . . . . . . . . . . . . . . . . . . . . . . . . 14
6.9 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.11 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.12 MANDATORY ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.13 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.15 Consent to Jurisdiction; Waiver of Immunities . . . . . . . . . . . . . . . . 16
6.16 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.18 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.19 Loan Papers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.20 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.21 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
- ii -
<PAGE> 4
INTELLECTUAL PROPERTY SECURITY AGREEMENT
AND ASSIGNMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT AND ASSIGNMENT, dated as of
March 31, 1995, between Quest Medical, Inc., a Texas corporation ("Debtor"),
and NationsBank of Texas, N.A., a national banking association ("Secured
Party").
BACKGROUND.
(1) Secured Party and Debtor have entered into the First Amended
and Restated Credit Agreement dated as of March 31, 1995 (such agreement,
together with all amendments and restatements thereof, being the "Credit
Agreement").
(2) It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.2.
(3) It is a condition precedent to the effectiveness of the Credit
Agreement that Debtor shall have executed and delivered this Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to induce Secured Party to make Advances
under the Credit Agreement, Debtor hereby agrees with Secured Party as follows:
ARTICLE I. ASSIGNMENT AND GRANT OF SECURITY INTEREST
1.1 Assignment and Grant of Security Interest. Debtor hereby
assigns, pledges and grants to Secured Party a security interest in the entire
right, title and interest of Debtor in and to the Collateral. Debtor is
assigning the marks in the above identified applications as part of the entire
business or portion thereof to which the marks pertain as required by 15 U.S.C.
Section 1060.
1.2 Security for Obligations. This Agreement creates a first
priority security interest securing the payment and performance of any and all
obligations now or hereafter existing of Debtor and each other Obligor under
the Credit Agreement and the other Loan Papers, including any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, expenses, indemnification or otherwise (all such
obligations of Debtor and each other Obligor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment,
of all amounts which constitute part of the Obligations and would be owed by
Debtor or any other Obligor to Secured Party under any Loan
<PAGE> 5
Papers, but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
Debtor or any other Obligor (including all interest accruing after, or that
would have accrued but for, the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding of Debtor or
any other Obligor).
1.3 Validity and Priority of Security Interest. Debtor agrees
that the Security Interest shall at all times be valid, perfected, continuing
and binding and enforceable against Debtor and all other Persons, in accordance
with the terms hereof, as security for the Obligations, and that the Collateral
shall not at any time be subject to any Lien, except as provided in the Loan
Papers.
1.4 Maintenance of Status of Security Interest, Collateral and
Rights.
(a) Required Action. Debtor shall take all action that may be
necessary or that Secured Party may reasonably request, so as at all times (i)
to maintain the validity, perfection, enforceability and priority of the
Security Interest in the Collateral in conformity with the requirements of
Section 1.3, and (ii) to protect and preserve, and to enable the exercise or
enforcement of, the rights of Secured Party hereunder, including (A)
immediately discharging all Liens, (B) executing and delivering the notice in
the form of Schedule 1.04(a)(ii)(B)-A, (C) executing and delivering the notice
in the form of Schedule 1.04(a)(ii)(B)-B, (D) executing and delivering the
notice in the form of Schedule 1.04(a)(ii)(B)-C and (E) executing and
delivering financing or continuation statements, instruments of pledge, notices
and instructions in each case in form and substance reasonably satisfactory to
Secured Party.
(b) Protection of Collateral. Debtor shall protect, preserve,
renew and maintain, in each case in a manner consistent with reasonably
responsible business and legal practices all rights of Debtor in the
Collateral, including the duty to prosecute and/or defend against any and all
suits concerning infringement or dilution of the Collateral, any suits against
Debtor asserting the invalidity of the Collateral and any suits claiming injury
to the goodwill associated with any of the Collateral. Any expenses incurred
in protecting, preserving, renewing and maintaining the Collateral shall be
borne by Debtor. To the maximum extent permitted by Laws, if a Default or
Event of Default exists, Secured Party shall have the right, without taking
title to any Collateral, to bring suit to enforce any or all Collateral or its
Security Interest in any or all of the Collateral, in which event Debtor shall,
at the request of Secured Party, do any and all lawful acts and execute any and
all proper documents required by Secured Party in aid of such enforcement. All
costs, expenses and other moneys advanced by Secured Party in connection with
the foregoing shall, whether or not there are then outstanding any amounts
under the Credit Agreement, be treated as Obligations, but the making of any
advances by Secured Party shall not relieve Debtor of any default hereunder.
(c) Authorized Action. Secured Party is hereby authorized to file
one or more financing or continuation statements or amendments thereto and
instruments of pledge, notices and instructions without the signature of or in
the name of Debtor. A carbon, photographic or
- 2 -
<PAGE> 6
other reproduction of this Agreement or of any financing statement filed in
connection with this Agreement shall be sufficient as a financing statement.
(d) State Registrations. Debtor shall renew or maintain, as
specified in any applicable Law and shall make any filings necessary to renew
or maintain each registration described in Section 2.6.
1.5 Debtor Remains Obligated; Secured Party Not Obligated. The
grant by Debtor to Secured Party of the Security Interest shall not relieve
Debtor from the performance of any term, covenant, condition or agreement on
its part to be performed or observed (including by virtue of the exercise by
Secured Party of any of its Rights hereunder), or from any liability to any
Person, under or in respect of any of the Collateral or impose any obligation
on Secured Party or impose any liability on Secured Party for any act or
omission on the part of Debtor relative thereto.
1.6 Termination.
(a) In the event that (i) the License Agreement shall have been
terminated pursuant to a written termination by Secured Party delivered to
Debtor, and (ii) the Obligations shall have been finally paid in full, and all
commitments by Secured Party to extend credit shall have been terminated and
Secured Party shall have delivered to Debtor a written termination agreement,
then this Agreement shall also terminate and be of no further force and effect
(except as provided in Section 1.6(b)).
(b) Debtor agrees that, if at any time all or any part of any
payment theretofore applied by Secured Party to any of the Obligations is or
must be rescinded or returned by any Person for any reason whatsoever
(including the insolvency, bankruptcy or reorganization of Debtor or any other
Person), such Obligations shall, for the purposes of this Agreement, to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by Secured Party, and
the Security Interest granted hereunder shall continue to be effective or be
reinstated, as the case may be, as to such Obligations, all as though such
application by Secured Party had not been made.
1.7 Security Interest Absolute. All Rights of Secured Party and
the Security Interest granted to Secured Party hereunder, and all obligations
of Debtor hereunder, shall, to the extent permitted by Laws, be absolute and
unconditional, irrespective of
(a) any lack of validity or enforceability of any Loan Papers;
(b) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations or any
other amendment to or waiver of or any consent to departure from any Loan
Papers;
- 3 -
<PAGE> 7
(c) any exchange, release or non-perfection of any collateral
(including the Collateral or any part thereof), or any release of or amendment
to or waiver of or consent to departure from any guaranty, for all or any of
the Obligations; or
(d) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, Debtor, any other Obligor or any other
Person.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants as follows:
2.1 Organization; Power. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of Texas and has the
corporate power and authority to own its property and to carry on its business
as now being and hereafter proposed to be conducted.
2.2 Authorization; Enforceability; Required Consents; Absence of
Conflicts. Debtor has the power, and has taken all necessary action (including
any necessary corporate action) to authorize it, to execute, deliver and
perform in accordance with its terms this Agreement and to execute and deliver
all financing statements and other filings contemplated hereby. This Agreement
has been duly executed and delivered by Debtor and is the legal, valid and
binding obligation of Debtor, enforceable in accordance with its terms. The
execution, delivery and performance in accordance with its terms by Debtor of
this Agreement does not and (absent any change in any Law) will not (a) require
any Governmental Approval or any other consent or approval, including any
consent or approval of any partner of Debtor, other than those Governmental
Approvals, consents and approvals listed on Schedule 2.02 hereto which have
been duly obtained and remain in full force and effect, or (b) violate or
conflict with, result in a breach of, constitute a default under, or result in
or require the creation of any Lien (other than the Security Interest) upon any
assets of Debtor under any such contract or agreement or applicable Laws.
2.3 Accuracy of Questionnaire. The Questionnaire is, as of the
date hereof, complete and correct in all respects.
2.4 Rights of Debtor. Debtor is the legal and beneficial owner of
the Collateral free and clear of any Lien or other charge or encumbrance,
including, without limitation, pledges, assignments, licenses, shop rights and
covenants by Debtor not to sue any Person, except for the security interests
and assignment created by this Agreement. No effective financing statement or
other instrument similar in effect naming Debtor as "debtor" covering all or
any part of the Collateral is on file in any recording office, except such as
may have been filed in favor of Secured Party relating to this Agreement.
2.5 Perfection. This Agreement will create in favor of Secured
Party valid and perfected security interests in the Collateral upon making the
filing of Schedules 1.04(a)(ii)(B)-
- 4 -
<PAGE> 8
A,-B and-C and the financing statements described on Schedule 2.02 and such
security interests will be a first priority security interest.
2.6 State Registrations. Schedule 2.06 lists each and all
registrations and applications of Debtor with the applicable authority of each
indicated state with respect to any Trademarks, Goodwill, Patents, Copyrights
and Trade Secrets.
2.7 Other Property. On the date hereof, Debtor has no interest in
any Copyrights, which are registered or subject to any application for
registration and Debtor does not believe, after appropriate review of all
relevant facts and circumstances, that any registration or filing with respect
to any interest Debtor may have in any property which may constitute Copyrights
is necessary to the operation of Debtor's existing and anticipated business.
ARTICLE III. COVENANTS
3.1 Certain Matters Relating to Preservation of Status of
Security Interest.
(a) Chief Executive Office. Debtor shall maintain its chief
executive office and the office where the books and records relating to the
Collateral are kept only at One Allentown Parkway, Allen, Texas 75002.
(b) Change of Name, Identity, etc. Debtor shall not change its
name without (i) giving Secured Party thirty days' prior written notice thereof
and (ii) performing all acts required by Secured Party to preserve the Liens
herein granted and the priority and perfection thereof.
3.2 Preservation of Existence and Preservation of Enforceability.
Debtor shall, so long as any of the Obligations remain outstanding, (a)
preserve and maintain its corporate existence and (b) take all action and
obtain all consents and Government Approvals required so that its obligations
under this Agreement will at all times be legal, valid and binding and
enforceable in accordance with its terms.
3.3 Requested Information. In addition to such other Information
as shall be specifically provided for herein, Debtor shall furnish to Secured
Party such other Information with respect to the Collateral as Secured Party
may reasonably request from time to time in connection with the Collateral, or
the protection, preservation, maintenance or enforcement of the Security
Interest or the Collateral including, without limitation, all documents and
things in Debtor's possession, or subject to its demand for possession, related
to the production and sale by Debtor, or any subsidiary, licensee or
subcontractor thereof, of products or services sold by or under the authority
of Debtor in connection with the Collateral, including by way of example,
without limiting the interest granted by this Agreement: (i) all lists and
ancillary documents which identify and describe any of Debtor's customers, or
licensees, for products sold or services rendered under or in connection with
the Collateral, including without limitation, such existing lists and ancillary
documents which contain each customer's full name and address, the
- 5 -
<PAGE> 9
full name and address of all of its warehouses and branches, the identity of
the Person or Persons having the principal responsibility on each customer's
behalf for ordering products or services of the kind supplied by Debtor, the
credit, payment, discount, delivery and other sale terms applicable to such
customer, together with detailed information setting forth the total purchases,
by brand, product, style and size, and the patterns of such purchases; (ii) all
product and service specification documents and production and quality of
services sold under or in connection with the Collateral; (iii) all documents
which reveal the names and addresses of all sources of supply, and all terms of
purchase and delivery, for all materials and components used in the production
or products or provision of services, sold under or in connection with the
Collateral; and (iv) all documents constituting or concerning the then current
or proposed advertising and promotion by Debtor, licensees or subcontractors of
products or services sold under or in connection with the Collateral,
including, by way of example and not in limitation, all documents which reveal
the media used or to be used and the cost for all such advertising conducted
within the described period or planned for such products or services. In
connection with its enforcement of the Security Interest, Secured Party may use
such Information or transfer it to any assignee or sublicensee permitted
hereunder for such assignee's or sublicensee's use.
3.4 No Disposition of Collateral. Debtor shall not sell, transfer
or otherwise dispose of any of the Collateral or any interest therein, or grant
any license thereunder except for and as permitted by the License Agreement.
3.5 Additional Property. Prior to the application for, use or
acquisition or any interest in any property which is within the definition of
"Collateral" or modification, reformulation or other alteration to any such
interest (and, with respect to Collateral with respect to which Debtor's sole
interest is as a licensee, if allowed by the applicable license agreement),
Debtor shall execute and deliver to Secured Party all documents and instruments
Secured Party may require to grant to Secured Party a perfected first priority
Lien therein and to subject to all of such interest to this Agreement,
including but not limited to any new, supplementary or additional filings in
the form of Schedule 1.04(a)(ii)(B)-A,-B,or -C. Debtor shall execute and
deliver to Secured Party such license agreements and amendments thereto as
Secured Party may require.
ARTICLE IV. EVENT OF DEFAULT
Upon the occurrence and during the continuance of an Event of Default:
4.1 Application of Proceeds. All cash proceeds received by
Secured Party upon any sale of, collection of, or other realization upon, all
or any part of the Collateral shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other realization
upon Collateral, including attorneys' fees and disbursements;
- 6 -
<PAGE> 10
Second: To the payment of the Obligations as provided in the Credit
Agreement (with Debtor remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to the
payment to Debtor or other Person entitled thereto.
4.2 Remedies.
(a) Power of Sale. Secured Party (i) may sell the Collateral at
public or private sale, at any of its offices or elsewhere, for cash (including
for this purpose, should Secured Party be the successful purchaser at any such
sale, the cancellation of any of the Obligations) or on credit or for future
delivery, and at such price or prices and upon such other terms as it may deem
commercially reasonable, (ii) shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given, and (iii) may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned; provided, however,
that, if any item of the Collateral constituting a Trademark is assigned or
sold, rather than licensed, it shall be assigned or sold only as an entirety.
Secured Party may be the purchaser at any sale of the Collateral and may pay
all or any part of the purchase price thereof by canceling part or all of the
Obligations. To the fullest extent permitted by applicable Law, Debtor hereby
waives the right to object to the manner of sufficiency of advertising,
refurbishing of the Collateral, or solicitation of bids in connection with any
sales or other disposition of the Collateral. Debtor hereby expressly waives
and releases, to the fullest extent permitted by applicable Law, any right of
redemption on the part of Debtor. If any notification of intended disposition
of any of the Collateral is required by law, such notification, if mailed,
shall be deemed reasonably and properly given if mailed at least ten days
before such disposition, postage prepaid, addressed to Debtor either at the
address shown below, or at any other address of Debtor appearing on the records
of Secured Party.
(b) Receiver. Secured Party may obtain the appointment of a
receiver of the Collateral.
(c) Enforcement by Secured Party. Secured Party may without
notice to Debtor (except that if no Event of Default exists Secured Party shall
give at least 10 days' notice) and at such time or times as Secured Party in
its sole discretion may determine, exercise any or all of Debtor's rights in,
to and under, or in any way connected with or related to, any or all of the
Collateral, including (i) enforcing the performance of, and exercising any or
all of Debtor's rights with respect to the Collateral, in each case by legal
proceedings or otherwise and (ii) settling, adjusting, compromising, extending,
renewing, discharging and releasing any or all of, and any legal proceedings
brought with respect to any or all of, Debtor's rights with respect to the
Collateral.
(d) Other Loan Papers; Laws. Secured Party may exercise any other
right or remedy available under any other Loan Paper or Laws.
- 7 -
<PAGE> 11
(e) Sale Restrictions. Debtor agrees that, in any sale of any of
the Collateral, Secured Party is authorized to comply with any limitation or
restriction in connection with such sale as counsel may advise Secured Party is
necessary in order to avoid any violation of applicable Law (including
compliance with such procedures as may restrict the number of prospective
bidders or purchasers, require that such prospective bidders and purchasers
have certain qualifications, and restrict such prospective bidders and
purchasers to Persons who will represent and agree that they are purchasing for
their own account or investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchase by any governmental or regulatory authority or
official, and Debtor further agrees that such compliance shall not result in
such sale being considered or deemed not to have been made in a commercially
reasonable manner, nor shall Secured Party be liable or accountable to Debtor
for any discount allowed by reason of the fact that such Collateral was sold in
compliance with any such limitation or restriction.
4.3 INDEMNITY AND EXPENSES.
(a) DEBTOR AGREES TO INDEMNIFY (WHICH SHALL BE PAYABLE FROM TIME
TO TIME ON DEMAND) SECURED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES
AND LIABILITIES GROWING OUT OF OR RESULTING FROM THIS AGREEMENT (INCLUDING
ENFORCEMENT OF THIS AGREEMENT), EXPRESSLY INCLUDING SUCH CLAIMS, LOSSES, OR
LIABILITIES ARISING OUT OF NEGLIGENCE OF SECURED PARTY, EXCEPT CLAIMS, LOSSES
OR LIABILITIES RESULTING FROM SECURED PARTY'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(b) Debtor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and disbursements of
its counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Secured Party hereunder, or (iv) the failure by Debtor to
perform or observe any of the provisions hereof.
ARTICLE V. INTERPRETATION
5.1 Definitional Provision.
(a) Certain Terms Defined by Reference. The terms "collateral",
"inventory", "rights", and "security interest" shall have the meanings ascribed
thereto in the UCC, or, when capitalized, the meanings specified in subsection
(b) below.
(b) Other Defined Terms. For purposes of this Agreement:
- 8 -
<PAGE> 12
"Agreement" means this Agreement, including all schedules, annexes and
exhibits hereto.
"Bankruptcy Code" means 11 U.S.C. Sections 101-1330 (1995), as
amended, or any successor statute.
"Collateral" means Debtor's rights, title and interests (whatever they
may be), in each of the following, in each case whether now or hereafter
existing or now owned or hereafter acquired by Debtor and whether or not the
same is subject to Article 9 of the UCC, and wherever the same may be located:
(i) the Trademarks and Goodwill;
(ii) the Copyrights;
(iii) the Patents;
(iv) the Trade Secrets;
(v) each state registration and application listed on
Schedule 2.06
(vi) any renewal, reissue, re-examination certificate,
extension or the like with respect to the Trademarks, Patents,
Copyrights and Trade Secrets (as applicable);
(vii) all rights to use the Trademarks as trade names or
assumed names in all aspects of its business; and
(viii) all proceeds and products of the foregoing together
with any license in favor of or from Debtor of any of the foregoing in
whatever form. The inclusion of "proceeds" of Collateral in the
definition of "Collateral" shall not be deemed a consent by Secured
Party to any sale or other disposition of any Collateral not otherwise
specifically permitted by the terms hereof.
"Copyright" means any copyright, copyright registration and
applications for such registration, including but not limited to the copyrights
listed on Annex C-1 attached hereto, all subject matter related to such
copyrights, in any and all forms, and all copyrights and applications for
copyrights related to such copyrights, including those copyrights and
applications listed in Annex C-2 attached hereto.
"Credit Agreement" is defined in the Background.
"Event of Default" means (i) those events described as a "Default" or
an "Event of Default" in the Credit Agreement, or (ii) the Rejection of the
License Agreement.
- 9 -
<PAGE> 13
"Goodwill" means the goodwill of the businesses connected with the use
of (or associated with) and symbolized by the Trademarks, but not any other
goodwill.
"Governmental Approval" means any authorization, consent, approval,
license or exemption of, registration or filing with, or report or notice to,
any Tribunal.
"Information" means data, certificates, reports, statements (including
financial statements), documents and other information in form (including
electronic media) acceptable to Secured Party.
"License Agreement" means the License Agreement dated March 31, 1995
between Debtor and Secured Party, including any renewal, extension,
modification or restatement thereof.
"Lien" means, with respect to any property or asset (or any income or
profits therefrom) of any Person (in each case whether the same is consensual
or nonconsensual or arises by contract, operation of law, legal process or
otherwise) (i) any mortgage, lien, pledge, attachment, levy, priority or other
security interest or encumbrance of any kind thereupon or in respect thereof
and (ii) any arrangement, express or implied, under which the same is
subordinated, transferred, sequestered or otherwise identified so as to subject
the same, or make the same available for, the payment or performance of any
obligation in priority to the payment of the ordinary, unsecured creditors of
such Person.
"Loan Papers" means the Credit Agreement and each agreement,
certificate and other documents delivered to any Person pursuant to the Credit
Agreement.
"Obligations" is defined inSection 1.2.
"Patents" means all patents, all inventions and subject matter related
to such patents, in any and all forms, and all patents and applications for
patents related to such patents, including but not limited to the patents
listed on Annex A-1 attached hereto, all inventions and all subject matter
related to such patents, in any and all forms, and all patents and applications
for patents related to such patents, including those patents and applications
listed on Annex A-2 attached hereto.
"Person" means an individual, firm, corporation, partnership,
association, joint venture, trust or any other entity or organization or
Tribunal.
"Questionnaire" means the Questionnaire in the form attached hereto as
Schedule 5.01 executed and delivered by Debtor to Secured Party in connection
with this Agreement.
"Rejection" means, with respect to the License Agreement in respect of
any item of Collateral, the entry of an order in any proceeding authorizing the
rejection by Debtor (or a trustee for Debtor or Debtor as debtor-in-possession)
of the License Agreement or any analogous event in any proceeding under the
laws of any jurisdiction; provided, however, that nothing
- 10 -
<PAGE> 14
contained in this Agreement shall be deemed to be an acknowledgment or an
agreement by any party hereto that the License Agreement may be rejected under
any Debtor Relief Law or subject to any analogous event under any similar law
of any jurisdiction other than the United States.
"Security Interest" means the continuing security interest of Secured
Party and assignment to Secured Party in the Collateral intended to be effected
by the terms of this Agreement or any financing and continuation statements or
other filings contemplated hereby.
"Trade Secrets" means those general intangibles (sometimes known as
"trade secrets").
"Trademarks" means all trademarks, all designs and logotypes related
to such trademarks, in any and all forms, and all trademark registrations and
applications for registration related to such trademarks, including but not
limited to the trademarks listed on Annex B-1 attached hereto, all designs and
logotypes related to such trademarks, in any and all forms, and all trademark
registrations and applications for registration related to such trademarks,
including those registrations and applications listed on Annex B-2 attached
hereto.
"UCC" means Chapter 9 of the Texas Business and Commerce Code as in
effect from time to time in the State of Texas.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to any Person shall be deemed to include such Person's
successors and assigns, (B) to any applicable Law referred to herein
shall be deemed references to such applicable Law as the same may have
been or may be amended or supplemented from time to time and (C) to
this Agreement or other agreement defined or referred to herein shall
be deemed a reference to this Agreement or other agreement as the
terms thereof may have been or may be amended, supplemented, waived or
otherwise modified from time to time.
(ii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, the masculine gender includes the
feminine, and the singular number includes the plural, and vice versa.
(iii) Except as otherwise indicated, any reference herein
to the "Collateral", the "Obligations" or any other collective or
plural term shall be deemed to be a reference to each and every item
included within the category described by such collective or plural
term, so that a reference to the "Collateral" or the "Obligations"
shall be deemed a reference to any or all of the Collateral or the
Obligations, as the case may be.
(iv) Capitalized Terms not otherwise defined herein have
the meaning specified in the Credit Agreement, and, to the extent of
any conflict, terms as defined in the Credit Agreement shall control
provided, that a more expansive or explanatory definition shall not be
deemed a conflict).
- 11 -
<PAGE> 15
5.2 Power of Attorney. Each power of attorney, license and other
authorization in favor of Secured Party or any other Person granted by or
pursuant to this Agreement shall be deemed to be irrevocable and coupled with
an interest.
ARTICLE VI. MISCELLANEOUS
6.1 Expenses of Debtor's Agreements and Duties. Secured Party
shall not be liable for the costs and expenses of Debtor arising out of
Debtor's performance or observance of the terms, conditions, covenants and
agreements to be observed or performed by Debtor under this Agreement.
6.2 Secured Party's Right to Perform on Debtor's Behalf. If
Debtor shall fail to observe or perform any of the terms, conditions, covenants
and agreements to be observed or performed by it under this Agreement, Secured
Party may (but shall not be obligated to) do the same or cause it to be done or
performed or observed, either in its name or in the name and on behalf of
Debtor, and in the event that Debtor shall have failed to observe or perform
any of the terms, conditions, covenants and agreements to be observed or
performed by it under this Agreement, then Debtor hereby authorizes Secured
Party to do so, and Debtor hereby appoints Secured Party, and any other Person
Secured Party may designate, as Debtor's attorney-in-fact to do, or cause to be
done, in the name, place and stead of Debtor in any way in which Debtor itself
could do, or cause to be done, any or all things necessary to observe or
perform the terms, conditions, covenants and agreements to be observed or
performed by Debtor under this Agreement. In addition, Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact to execute and
deliver in Debtor's name and stead to any purchaser at any sale held under
Section 4.2 any and all documents and instruments of assignment, transfer and
conveyance necessary or appropriate to transfer to such purchaser the
Collateral sold at such sale.
6.3 Secured Party's Right to Use Agents. Secured Party may
exercise its rights under this Agreement through an agent or other designee.
6.4 No Interference, Compensation or Expense. Secured Party may
exercise its rights under this Agreement (a) without resistance or interference
by Debtor and (b) without payment of any rent, license fee or compensation of
any kind to Debtor.
6.5 Limitation of Secured Party's Obligations With Respect to
Collateral.
(a) Except as provided in the License Agreement, Secured Party
shall not have any duty or liability to protect or preserve any Collateral or
to preserve rights pertaining thereto.
(b) Nothing contained in this Agreement shall be construed as
requiring or obligating Secured Party, and Secured Party shall not be required
or obligated, to (i) present or file any claim or notice or take any action,
with respect to any Collateral or in connection therewith or (ii) notify Debtor
of any decline in the value of any Collateral.
- 12 -
<PAGE> 16
6.6 Rights of Secured Party under UCC and Applicable Law. Secured
Party shall have, with respect to the Collateral, in addition to all of its
rights under this Agreement, (a) the rights of a secured party under the UCC,
whether or not the UCC would otherwise apply to the collateral in question, and
(b) the rights of a secured party under all other applicable Laws.
6.7 Waivers of Rights Inhibiting Enforcement. Debtor waives (a)
any claim that, as to any part of the Collateral, a public sale, should Secured
Party elect so to proceed, is, in and of itself, not a commercially reasonable
method of sale for such Collateral, (b) except as otherwise provided in this
Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL
HEARING IN CONNECTION WITH SECURED PARTY'S DISPOSITION OF ANY OF THE COLLATERAL
INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL OTHER
REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH
RESPECT TO THE ENFORCEMENT OF SECURED PARTY'S RIGHTS HEREUNDER and (c) all
rights of redemption, appraisement or valuation.
6.8 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials
(including all Information) to be given or delivered pursuant to this Agreement
shall, except in those cases where giving notice by telephone is expressly
permitted, be given or delivered in writing. All written notices,
communications and materials shall be sent by registered or certified mail,
postage prepaid, return receipt requested, by telecopier, or delivered by hand.
In the event of a discrepancy between any telephonic notice and any written
confirmation thereof, such written confirmation shall be deemed the effective
notice except to the extent Secured Party or Debtor has acted in reliance on
such telephonic notice.
(b) Addresses. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall be given or delivered at
the following respective addresses and telecopier and telephone numbers and to
the attention of the following individuals or departments:
(i) if to Debtor, to it at:
Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002
Telephone No: (214) 390-9800
Telecopier No: (214) 390-9687
Attention: F. Robert Merrill III
- 13 -
<PAGE> 17
(ii) if to Secured Party, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telephone No: (214) 508-1389
Telecopier No: (214) 508-3139
Attention: Commercial Banking
or at such other address, telecopier or telephone number or to the attention of
such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to
be given or delivered to Secured Party or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by mail, on the
fifth Business Day after such notice, communication or material is deposited in
the mail, addressed as above provided, (ii) if sent by telecopier, when such
notice, communication or material is transmitted to the appropriate number
determined as above provided in this Section 6.8 and the appropriate receipt is
received or acknowledged, (iii) if sent by hand delivery or overnight courier,
when left at the address of the addressee addressed as above provided and the
appropriate receipt is received or acknowledged, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices
of a change of address, telecopier or telephone number or individual or
department to whose attention notices, communications and materials are to be
given or delivered shall not be effective until received.
(d) Designation of Notice. No notice shall be effective under
Section 3.1(a) or (b) unless it is specifically designated and, in the case of
a notice under Section 3.1(a), "Notice of Change of Executive Office and Books
and Records."
6.9 Rights and Remedies Cumulative. Each of Secured Party's
rights and remedies under this Agreement shall be in addition to all of its
other rights and remedies under this Agreement and applicable Law, and nothing
herein shall be construed as limiting any such rights or remedies.
6.10 Amendments; Waivers. Any term, covenant, agreement or
condition of this Agreement may be amended, and any right under this Agreement
may be waived, if, but only if, such amendment or waiver is in writing and is
signed by Secured Party and, in the case of an amendment, by Debtor. Unless
otherwise specified in such waiver, a waiver of any right
- 14 -
<PAGE> 18
under this Agreement shall be effective only in the specific instance and for
the specific purpose for which given. No election not to exercise, failure to
exercise or delay in exercising any right, nor any course of dealing or
performance, shall operate as a waiver of any right of the Secured Party under
this Agreement or applicable Law, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise
of any other right of Secured Party under this Agreement or applicable Law.
6.11 Assignments.
(a) Debtor may not assign any of its rights or obligations under
this Agreement without the prior written consent of Secured Party.
(b) Secured Party may, in connection with any assignment under and
in accordance with the License Agreement to any Person of any or all of the
licensee's rights and obligations under such License Agreement, assign to such
Person, or any agent(s) or representative(s) on behalf of such licensee and its
sublicenses, any or all of Secured Party's rights and obligations under this
Agreement and any other document or instrument, including financing and
continuation statements and other filings, contemplated hereby and with respect
to the Collateral without the consent of Debtor. In addition, Secured Party
may assign or otherwise transfer (in whole or in part) to any other Person all
of its rights and obligations under any Loan Papers (including this Agreement)
or otherwise.
6.12 MANDATORY ARBITRATION.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas,
Texas and administered by JAMS who will appoint an arbitrator; if JAMS is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All
- 15 -
<PAGE> 19
arbitration hearings will be commenced within ninety days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional
sixty days.
(c) Reservations of Rights. Nothing in this Agreement or any
other Loan Paper shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers contained
in this Agreement; or (ii) be a waiver by Secured Party of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state
law; or (iii) limit the right of Secured Party hereto (A) to exercise self help
remedies such as (but not limited to) setoff, or (B) to foreclose against any
real or personal property collateral, or (C) to obtain from a court provisional
or ancillary remedies such as (but not limited to) injunctive relief or the
appointment of a receiver. Secured Party may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. At Secured Party's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by judicial
sale under the deed of trust or mortgage, or by judicial foreclosure. Neither
this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
6.13 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT
REFERENCE TO PRINCIPALS OF CONFLICTS OF LAWS), EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE REQUIRED TO GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
6.14 WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
6.15 Consent to Jurisdiction; Waiver of Immunities.
(a) Debtor hereby irrevocably submits to the non-exclusive
jurisdiction of any United States Federal or Texas State courts sitting in
Dallas County in any action or proceeding arising out of or relating to this
Agreement, and Debtor hereby irrevocably waives any objection it may now or
hereafter have as to the venue of any such suit, action or proceeding brought
in such court or that such court is an inconvenient forum.
- 16 -
<PAGE> 20
(b) Nothing in this section shall limit the right of Secured Party
to bring any action or proceeding against Debtor or its property in the courts
of any other jurisdictions.
(c) Any judicial proceeding by Debtor against Secured Party
involving, directly or indirectly, any matter in any way arising out of,
related to, or connected with this Agreement shall be brought only in a court
in Dallas County, Texas to the extent that jurisdiction may be effected against
such Person in Dallas County, Texas.
6.16 Severability of Provisions. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction. In the event that any change in applicable Law would
render invalid or unenforceable any provision of this Agreement, Debtor agrees
to enter into such amendments or modifications to this Agreement to provide
Secured Party with benefits intended to be granted by such provision.
6.17 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto were upon the same instrument.
6.18 Successors and Assigns. All of the provisions of this
Agreement shall be binding and inure to the benefit of the parties thereto and
their respective successors and assigns; provided, Debtor may not assign its
rights or obligations under this Agreement.
6.19 Loan Papers. This Agreement is a Loan Papers executed
pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
6.20 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any
Loan Papers or any instrument delivered in connection therewith or any
assignment or transfer thereof;
(b) any exercise, non-exercise, or waiver by Secured Party of any
right, remedy, power or privilege under or in respect of, or any release of any
guaranty or the Collateral or any part thereof provided pursuant to, this
Agreement or any Loan Papers;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement, any Loan Papers or any assignment or
transfer of any thereof; or
- 17 -
<PAGE> 21
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
6.21 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers all as of the date first above
written.
DEBTOR:
QUEST MEDICAL, INC.
By: __________________________________________
F. Robert Merrill III, Vice President
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A.
By: __________________________________________
Jay C. Henry, Vice President
- 18 -
<PAGE> 22
"SCHEDULES OMITTED"
<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
INTELLECTUAL PROPERTY SECURITY AGREEMENT AND ASSIGNMENT
dated as of March 31, 1995
Between
NEUROMED, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Secured Party
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. ASSIGNMENT AND GRANT OF SECURITY INTEREST
1.1 Assignment and Grant of Security Interest . . . . . . . . . . . . . . . . . . . 1
1.2 Security for Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Validity and Priority of Security Interest . . . . . . . . . . . . . . . . . . . 2
1.4 Maintenance of Status of Security Interest, Collateral and Rights . . . . . . . 2
(a) Required Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Protection of Collateral . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Authorized Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) State Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Debtor Remains Obligated; Secured Party Not Obligated . . . . . . . . . . . . . 3
1.6 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Security Interest Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Organization; Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Authorization; Enforceability; Required Consents; Absence of Conflicts . . . . . 4
2.3 Accuracy of Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Rights of Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 State Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. COVENANTS
3.1 Certain Matters Relating to Preservation of Status of Security Interest . . . . 5
(a) Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Change of Name, Identity, etc. . . . . . . . . . . . . . . . . . . . . 5
3.2 Preservation of Existence and Preservation of Enforceability . . . . . . . . . . 5
3.3 Requested Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 No Disposition of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Additional Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. EVENT OF DEFAULT
4.1 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Power of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Enforcement by Secured Party . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
(d) Other Loan Papers; Laws . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Sale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V. INTERPRETATION
5.1 Definitional Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Certain Terms Defined by Reference . . . . . . . . . . . . . . . . . . 8
(b) Other Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . 11
5.2 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI. MISCELLANEOUS
6.1 Expenses of Debtor's Agreements and Duties . . . . . . . . . . . . . . . . . . . 12
6.2 Secured Party's Right to Perform on Debtor's Behalf . . . . . . . . . . . . . . 12
6.3 Secured Party's Right to Use Agents . . . . . . . . . . . . . . . . . . . . . . 12
6.4 No Interference, Compensation or Expense . . . . . . . . . . . . . . . . . . . . 12
6.5 Limitation of Secured Party's Obligations With Respect to Collateral . . . . . . 12
6.6 Rights of Secured Party under UCC and Applicable Law . . . . . . . . . . . . . . 12
6.7 Waivers of Rights Inhibiting Enforcement . . . . . . . . . . . . . . . . . . . . 13
6.8 Notices and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Manner of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Designation of Notice . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.9 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.11 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.12 MANDATORY ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.13 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.15 Consent to Jurisdiction; Waiver of Immunities . . . . . . . . . . . . . . . . . 16
6.16 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.18 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.19 Loan Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.20 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.21 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
- ii -
<PAGE> 4
INTELLECTUAL PROPERTY SECURITY AGREEMENT
AND ASSIGNMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT AND ASSIGNMENT, dated as of
March 31, 1995, between Neuromed, Inc., a Florida corporation ("Debtor"), and
NationsBank of Texas, N.A., a national banking association ("Secured Party").
BACKGROUND.
(1) Secured Party and Quest Medical, Inc., a Texas corporation
("Borrower"), have entered into the First Amended and Restated Credit Agreement
dated as of March 31, 1995 (such agreement, together with all amendments and
restatements thereof, being the "Credit Agreement").
(2) It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.2.
(3) It is a condition precedent to the effectiveness of the Credit
Agreement that Debtor shall have executed and delivered this Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to induce Secured Party to make Advances
under the Credit Agreement, Debtor hereby agrees with Secured Party as follows:
ARTICLE I. ASSIGNMENT AND GRANT OF SECURITY INTEREST
1.1 Assignment and Grant of Security Interest. Debtor hereby
assigns, pledges and grants to Secured Party a security interest in the entire
right, title and interest of Debtor in and to the Collateral. Debtor is
assigning the marks in the above identified applications as part of the entire
business or portion thereof to which the marks pertain as required by 15 U.S.C.
Section 1060.
1.2 Security for Obligations. This Agreement creates a first
priority security interest securing the payment and performance of any and all
obligations now or hereafter existing of Debtor and each other Obligor under
the Credit Agreement and the other Loan Papers, including any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, expenses, indemnification or otherwise (all such
obligations of Debtor and each other Obligor being the "Obligations"). Without
limiting the generality of the foregoing, this Agreement secures the payment,
of all amounts which constitute part of the
<PAGE> 5
Obligations and would be owed by Debtor or any other Obligor to Secured Party
under any Loan Papers, but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving Debtor or any other Obligor (including all interest
accruing after, or that would have accrued but for, the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding of Debtor or any other Obligor).
1.3 Validity and Priority of Security Interest. Debtor agrees
that the Security Interest shall at all times be valid, perfected, continuing
and binding and enforceable against Debtor and all other Persons, in accordance
with the terms hereof, as security for the Obligations, and that the Collateral
shall not at any time be subject to any Lien, except as provided in the Loan
Papers.
1.4 Maintenance of Status of Security Interest, Collateral and
Rights.
(a) Required Action. Debtor shall take all action that may be
necessary or that Secured Party may reasonably request, so as at all times (i)
to maintain the validity, perfection, enforceability and priority of the
Security Interest in the Collateral in conformity with the requirements of
Section 1.3, and (ii) to protect and preserve, and to enable the exercise or
enforcement of, the rights of Secured Party hereunder, including (A)
immediately discharging all Liens, (B) executing and delivering the notice in
the form of Schedule 1.04(a)(ii)(B)-A, (C) executing and delivering the notice
in the form of Schedule 1.04(a)(ii)(B)-B, (D) executing and delivering the
notice in the form of Schedule 1.04(a)(ii)(B)-C and (E) executing and
delivering financing or continuation statements, instruments of pledge, notices
and instructions in each case in form and substance reasonably satisfactory to
Secured Party.
(b) Protection of Collateral. Debtor shall protect, preserve,
renew and maintain, in each case in a manner consistent with reasonably
responsible business and legal practices all rights of Debtor in the
Collateral, including the duty to prosecute and/or defend against any and all
suits concerning infringement or dilution of the Collateral, any suits against
Debtor asserting the invalidity of the Collateral and any suits claiming injury
to the goodwill associated with any of the Collateral. Any expenses incurred
in protecting, preserving, renewing and maintaining the Collateral shall be
borne by Debtor. To the maximum extent permitted by Laws, if a Default or
Event of Default exists, Secured Party shall have the right, without taking
title to any Collateral, to bring suit to enforce any or all Collateral or its
Security Interest in any or all of the Collateral, in which event Debtor shall,
at the request of Secured Party, do any and all lawful acts and execute any and
all proper documents required by Secured Party in aid of such enforcement. All
costs, expenses and other moneys advanced by Secured Party in connection with
the foregoing shall, whether or not there are then outstanding any amounts
under the Credit Agreement, be treated as Obligations, but the making of any
advances by Secured Party shall not relieve Debtor of any default hereunder.
(c) Authorized Action. Secured Party is hereby authorized to file
one or more financing or continuation statements or amendments thereto and
instruments of pledge, notices
- 2 -
<PAGE> 6
and instructions without the signature of or in the name of Debtor. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement filed in connection with this Agreement shall be sufficient as a
financing statement.
(d) State Registrations. Debtor shall renew or maintain, as
specified in any applicable Law and shall make any filings necessary to renew
or maintain each registration described in Section 2.6.
1.5 Debtor Remains Obligated; Secured Party Not Obligated. The
grant by Debtor to Secured Party of the Security Interest shall not relieve
Debtor from the performance of any term, covenant, condition or agreement on
its part to be performed or observed (including by virtue of the exercise by
Secured Party of any of its Rights hereunder), or from any liability to any
Person, under or in respect of any of the Collateral or impose any obligation
on Secured Party or impose any liability on Secured Party for any act or
omission on the part of Debtor relative thereto.
1.6 Termination.
(a) In the event that (i) the License Agreement shall have been
terminated pursuant to a written termination by Secured Party delivered to
Debtor, and (ii) the Obligations shall have been finally paid in full, and all
commitments by Secured Party to extend credit shall have been terminated and
Secured Party shall have delivered to Debtor a written termination agreement,
then this Agreement shall also terminate and be of no further force and effect
(except as provided in Section 1.6(b)).
(b) Debtor agrees that, if at any time all or any part of any
payment theretofore applied by Secured Party to any of the Obligations is or
must be rescinded or returned by any Person for any reason whatsoever
(including the insolvency, bankruptcy or reorganization of Debtor or any other
Person), such Obligations shall, for the purposes of this Agreement, to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by Secured Party, and
the Security Interest granted hereunder shall continue to be effective or be
reinstated, as the case may be, as to such Obligations, all as though such
application by Secured Party had not been made.
1.7 Security Interest Absolute. All Rights of Secured Party and
the Security Interest granted to Secured Party hereunder, and all obligations
of Debtor hereunder, shall, to the extent permitted by Laws, be absolute and
unconditional, irrespective of
(a) any lack of validity or enforceability of any Loan Papers;
(b) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations or any
other amendment to or waiver of or any consent to departure from any Loan
Papers;
- 3 -
<PAGE> 7
(c) any exchange, release or non-perfection of any collateral
(including the Collateral or any part thereof), or any release of or amendment
to or waiver of or consent to departure from any guaranty, for all or any of
the Obligations; or
(d) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, Debtor, any other Obligor or any other
Person.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants as follows:
2.1 Organization; Power. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of Florida and has the
corporate power and authority to own its property and to carry on its business
as now being and hereafter proposed to be conducted.
2.2 Authorization; Enforceability; Required Consents; Absence of
Conflicts. Debtor has the power, and has taken all necessary action (including
any necessary corporate action) to authorize it, to execute, deliver and
perform in accordance with its terms this Agreement and to execute and deliver
all financing statements and other filings contemplated hereby. This Agreement
has been duly executed and delivered by Debtor and is the legal, valid and
binding obligation of Debtor, enforceable in accordance with its terms. The
execution, delivery and performance in accordance with its terms by Debtor of
this Agreement does not and (absent any change in any Law) will not (a) require
any Governmental Approval or any other consent or approval, including any
consent or approval of any partner of Debtor, other than those Governmental
Approvals, consents and approvals listed on Schedule 2.02 hereto which have
been duly obtained and remain in full force and effect, or (b) violate or
conflict with, result in a breach of, constitute a default under, or result in
or require the creation of any Lien (other than the Security Interest) upon any
assets of Debtor under any such contract or agreement or applicable Laws.
2.3 Accuracy of Questionnaire. The Questionnaire is, as of the
date hereof, complete and correct in all respects.
2.4 Rights of Debtor. Debtor is the legal and beneficial owner of
the Collateral free and clear of any Lien or other charge or encumbrance,
including, without limitation, pledges, assignments, licenses, shop rights and
covenants by Debtor not to sue any Person, except for the security interests
and assignment created by this Agreement. No effective financing statement or
other instrument similar in effect naming Debtor as "debtor" covering all or
any part of the Collateral is on file in any recording office, except such as
may have been filed in favor of Secured Party relating to this Agreement.
2.5 Perfection. This Agreement will create in favor of Secured
Party valid and perfected security interests in the Collateral upon making the
filing of Schedules 1.04(a)(ii)(B)
- 4 -
<PAGE> 8
- -A,-B and-C and the financing statements described on Schedule 2.02 and such
security interests will be a first priority security interest.
2.6 State Registrations. Schedule 2.06 lists each and all
registrations and applications of Debtor with the applicable authority of each
indicated state with respect to any Trademarks, Goodwill, Patents, Copyrights
and Trade Secrets.
ARTICLE III. COVENANTS
3.1 Certain Matters Relating to Preservation of Status of Security
Interest.
(a) Chief Executive Office. Debtor shall maintain its chief
executive office and the office where the books and records relating to the
Collateral are kept only at One Allentown Parkway, Allen, Texas 75002.
(b) Change of Name, Identity, etc. Debtor shall not change its
name without (i) giving Secured Party thirty days' prior written notice thereof
and (ii) performing all acts required by Secured Party to preserve the Liens
herein granted and the priority and perfection thereof.
3.2 Preservation of Existence and Preservation of Enforceability.
Debtor shall, so long as any of the Obligations remain outstanding, (a)
preserve and maintain its corporate existence and (b) take all action and
obtain all consents and Government Approvals required so that its obligations
under this Agreement will at all times be legal, valid and binding and
enforceable in accordance with its terms.
3.3 Requested Information. In addition to such other Information
as shall be specifically provided for herein, Debtor shall furnish to Secured
Party such other Information with respect to the Collateral as Secured Party
may reasonably request from time to time in connection with the Collateral, or
the protection, preservation, maintenance or enforcement of the Security
Interest or the Collateral including, without limitation, all documents and
things in Debtor's possession, or subject to its demand for possession, related
to the production and sale by Debtor, or any subsidiary, licensee or
subcontractor thereof, of products or services sold by or under the authority
of Debtor in connection with the Collateral, including by way of example,
without limiting the interest granted by this Agreement: (i) all lists and
ancillary documents which identify and describe any of Debtor's customers, or
licensees, for products sold or services rendered under or in connection with
the Collateral, including without limitation, such existing lists and ancillary
documents which contain each customer's full name and address, the full name
and address of all of its warehouses and branches, the identity of the Person
or Persons having the principal responsibility on each customer's behalf for
ordering products or services of the kind supplied by Debtor, the credit,
payment, discount, delivery and other sale terms applicable to such customer,
together with detailed information setting forth the total purchases, by brand,
product, style and size, and the patterns of such purchases; (ii) all product
and service specification documents and production and quality of services sold
under or in
- 5 -
<PAGE> 9
connection with the Collateral; (iii) all documents which reveal the names and
addresses of all sources of supply, and all terms of purchase and delivery, for
all materials and components used in the production or products or provision of
services, sold under or in connection with the Collateral; and (iv) all
documents constituting or concerning the then current or proposed advertising
and promotion by Debtor, licensees or subcontractors of products or services
sold under or in connection with the Collateral, including, by way of example
and not in limitation, all documents which reveal the media used or to be used
and the cost for all such advertising conducted within the described period or
planned for such products or services. In connection with its enforcement of
the Security Interest, Secured Party may use such Information or transfer it to
any assignee or sublicensee permitted hereunder for such assignee's or
sublicensee's use.
3.4 No Disposition of Collateral. Debtor shall not sell, transfer
or otherwise dispose of any of the Collateral or any interest therein, or grant
any license thereunder except for and as permitted by the License Agreement.
3.5 Additional Property. Prior to the application for, use or
acquisition or any interest in any property which is within the definition of
"Collateral" or modification, reformulation or other alteration to any such
interest (and, with respect to Collateral with respect to which Debtor's sole
interest is as a licensee, if allowed by the applicable license agreement),
Debtor shall execute and deliver to Secured Party all documents and instruments
Secured Party may require to grant to Secured Party a perfected first priority
Lien therein and to subject to all of such interest to this Agreement,
including but not limited to any new, supplementary or additional filings in
the form of Schedule 1.04(a)(ii)(B)-A,-B,or -C. Debtor shall execute and
deliver to Secured Party such license agreements and amendments thereto as
Secured Party may require.
ARTICLE IV. EVENT OF DEFAULT
Upon the occurrence and during the continuance of an Event of Default:
4.1 Application of Proceeds. All cash proceeds received by
Secured Party upon any sale of, collection of, or other realization upon, all
or any part of the Collateral shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other realization
upon Collateral, including attorneys' fees and disbursements;
Second: To the payment of the Obligations as provided in the Credit
Agreement (with Debtor remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to the
payment to Debtor or other Person entitled thereto.
- 6 -
<PAGE> 10
4.2 Remedies.
(a) Power of Sale. Secured Party (i) may sell the Collateral at
public or private sale, at any of its offices or elsewhere, for cash (including
for this purpose, should Secured Party be the successful purchaser at any such
sale, the cancellation of any of the Obligations) or on credit or for future
delivery, and at such price or prices and upon such other terms as it may deem
commercially reasonable, (ii) shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given, and (iii) may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned; provided, however,
that, if any item of the Collateral constituting a Trademark is assigned or
sold, rather than licensed, it shall be assigned or sold only as an entirety.
Secured Party may be the purchaser at any sale of the Collateral and may pay
all or any part of the purchase price thereof by canceling part or all of the
Obligations. To the fullest extent permitted by applicable Law, Debtor hereby
waives the right to object to the manner of sufficiency of advertising,
refurbishing of the Collateral, or solicitation of bids in connection with any
sales or other disposition of the Collateral. Debtor hereby expressly waives
and releases, to the fullest extent permitted by applicable Law, any right of
redemption on the part of Debtor. If any notification of intended disposition
of any of the Collateral is required by law, such notification, if mailed,
shall be deemed reasonably and properly given if mailed at least ten days
before such disposition, postage prepaid, addressed to Debtor either at the
address shown below, or at any other address of Debtor appearing on the records
of Secured Party.
(b) Receiver. Secured Party may obtain the appointment of a
receiver of the Collateral.
(c) Enforcement by Secured Party. Secured Party may without
notice to Debtor (except that if no Event of Default exists Secured Party shall
give at least 10 days' notice) and at such time or times as Secured Party in
its sole discretion may determine, exercise any or all of Debtor's rights in,
to and under, or in any way connected with or related to, any or all of the
Collateral, including (i) enforcing the performance of, and exercising any or
all of Debtor's rights with respect to the Collateral, in each case by legal
proceedings or otherwise and (ii) settling, adjusting, compromising, extending,
renewing, discharging and releasing any or all of, and any legal proceedings
brought with respect to any or all of, Debtor's rights with respect to the
Collateral.
(d) Other Loan Papers; Laws. Secured Party may exercise any other
right or remedy available under any other Loan Paper or Laws.
(e) Sale Restrictions. Debtor agrees that, in any sale of any of
the Collateral, Secured Party is authorized to comply with any limitation or
restriction in connection with such sale as counsel may advise Secured Party is
necessary in order to avoid any violation of applicable Law (including
compliance with such procedures as may restrict the number of prospective
bidders or purchasers, require that such prospective bidders and purchasers
have certain qualifications,
- 7 -
<PAGE> 11
and restrict such prospective bidders and purchasers to Persons who will
represent and agree that they are purchasing for their own account or
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchase by any governmental or regulatory authority or official, and Debtor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall Secured Party be liable or accountable to Debtor for any discount
allowed by reason of the fact that such Collateral was sold in compliance with
any such limitation or restriction.
4.3 INDEMNITY AND EXPENSES.
(a) DEBTOR AGREES TO INDEMNIFY (WHICH SHALL BE PAYABLE FROM TIME
TO TIME ON DEMAND) SECURED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES
AND LIABILITIES GROWING OUT OF OR RESULTING FROM THIS AGREEMENT (INCLUDING
ENFORCEMENT OF THIS AGREEMENT), EXPRESSLY INCLUDING SUCH CLAIMS, LOSSES, OR
LIABILITIES ARISING OUT OF MERE NEGLIGENCE OF SECURED PARTY, EXCEPT CLAIMS,
LOSSES OR LIABILITIES RESULTING FROM SECURED PARTY'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
(b) Debtor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and disbursements of
its counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Secured Party hereunder, or (iv) the failure by Debtor to
perform or observe any of the provisions hereof.
ARTICLE V. INTERPRETATION
5.1 Definitional Provision.
(a) Certain Terms Defined by Reference. The terms "collateral",
"inventory", "rights", and "security interest" shall have the meanings ascribed
thereto in the UCC, or, when capitalized, the meanings specified in subsection
(b) below.
(b) Other Defined Terms. For purposes of this Agreement:
"Agreement" means this Agreement, including all schedules, annexes and
exhibits hereto.
"Bankruptcy Code" means 11 U.S.C.Sections 101-1330 (1995), as
amended, or any successor statute.
- 8 -
<PAGE> 12
"Collateral" means Debtor's rights, title and interests (whatever they
may be), in each of the following, in each case whether now or hereafter
existing or now owned or hereafter acquired by Debtor and whether or not the
same is subject to Article 9 of the UCC, and wherever the same may be located:
(i) the Trademarks and Goodwill;
(ii) the Copyrights;
(iii) the Patents;
(iv) the Trade Secrets;
(v) each state registration and application listed on
Schedule 2.06
(vi) any renewal, reissue, re-examination certificate,
extension or the like with respect to the Trademarks, Patents,
Copyrights and Trade Secrets (as applicable);
(vii) all rights to use the Trademarks as trade names or
assumed names in all aspects of its business; and
(viii) all proceeds and products of the foregoing together
with any license in favor of or from Debtor of any of the foregoing in
whatever form. The inclusion of "proceeds" of Collateral in the
definition of "Collateral" shall not be deemed a consent by Secured
Party to any sale or other disposition of any Collateral not otherwise
specifically permitted by the terms hereof.
"Copyright" means any copyright, copyright registration and
applications for such registration, including but not limited to the copyrights
listed on Annex C-1 attached hereto, all subject matter related to such
copyrights, in any and all forms, and all copyrights and applications for
copyrights related to such copyrights, including those copyrights and
applications listed in Annex C-2 attached hereto.
"Credit Agreement" is defined in the Background.
"Event of Default" means (i) those events described as a "Default" or
an "Event of Default" in the Credit Agreement, or (ii) the Rejection of the
License Agreement.
"Goodwill" means the goodwill of the businesses connected with the use
of (or associated with) and symbolized by the Trademarks, but not any other
goodwill.
"Governmental Approval" means any authorization, consent, approval,
license or exemption of, registration or filing with, or report or notice to,
any Tribunal.
- 9 -
<PAGE> 13
"Information" means data, certificates, reports, statements (including
financial statements), documents and other information in form (including
electronic media) acceptable to Secured Party.
"License Agreement" means the License Agreement dated March 31, 1995
between Debtor and Secured Party, including any renewal, extension,
modification or restatement thereof.
"Lien" means, with respect to any property or asset (or any income or
profits therefrom) of any Person (in each case whether the same is consensual
or nonconsensual or arises by contract, operation of law, legal process or
otherwise) (i) any mortgage, lien, pledge, attachment, levy, priority or other
security interest or encumbrance of any kind thereupon or in respect thereof
and (ii) any arrangement, express or implied, under which the same is
subordinated, transferred, sequestered or otherwise identified so as to subject
the same, or make the same available for, the payment or performance of any
obligation in priority to the payment of the ordinary, unsecured creditors of
such Person.
"Loan Papers" means the Credit Agreement and each agreement,
certificate and other documents delivered to any Person pursuant to the Credit
Agreement.
"Obligations" is defined inSection 1.2.
"Patents" means all patents, all inventions and subject matter related
to such patents, in any and all forms, and all patents and applications for
patents related to such patents, including but not limited to the patents
listed on Annex A-1 attached hereto, all inventions and all subject matter
related to such patents, in any and all forms, and all patents and applications
for patents related to such patents, including those patents and applications
listed on Annex A-2 attached hereto.
"Person" means an individual, firm, corporation, partnership,
association, joint venture, trust or any other entity or organization or
Tribunal.
"Questionnaire" means the Questionnaire in the form attached hereto as
Schedule 5.01 executed and delivered by Debtor to Secured Party in connection
with this Agreement.
"Rejection" means, with respect to the License Agreement in respect of
any item of Collateral, the entry of an order in any proceeding authorizing the
rejection by Debtor (or a trustee for Debtor or Debtor as debtor-in-possession)
of the License Agreement or any analogous event in any proceeding under the
laws of any jurisdiction; provided, however, that nothing contained in this
Agreement shall be deemed to be an acknowledgment or an agreement by any party
hereto that the License Agreement may be rejected under any Debtor Relief Law
or subject to any analogous event under any similar law of any jurisdiction
other than the United States.
- 10 -
<PAGE> 14
"Security Interest" means the continuing security interest of Secured
Party and assignment to Secured Party in the Collateral intended to be effected
by the terms of this Agreement or any financing and continuation statements or
other filings contemplated hereby.
"Trade Secrets" means those general intangibles (sometimes known as
"trade secrets").
"Trademarks" means all trademarks, all designs and logotypes related
to such trademarks, in any and all forms, and all trademark registrations and
applications for registration related to such trademarks, including but not
limited to the trademarks listed on Annex B-1 attached hereto, all designs and
logotypes related to such trademarks, in any and all forms, and all trademark
registrations and applications for registration related to such trademarks,
including those registrations and applications listed on Annex B-2 attached
hereto.
"UCC" means Chapter 9 of the Texas Business and Commerce Code as in
effect from time to time in the State of Texas.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to any Person shall be deemed to include such Person's
successors and assigns, (B) to any applicable Law referred to herein
shall be deemed references to such applicable Law as the same may have
been or may be amended or supplemented from time to time and (C) to
this Agreement or other agreement defined or referred to herein shall
be deemed a reference to this Agreement or other agreement as the
terms thereof may have been or may be amended, supplemented, waived or
otherwise modified from time to time.
(ii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, the masculine gender includes the
feminine, and the singular number includes the plural, and vice versa.
(iii) Except as otherwise indicated, any reference herein
to the "Collateral", the "Obligations" or any other collective or
plural term shall be deemed to be a reference to each and every item
included within the category described by such collective or plural
term, so that a reference to the "Collateral" or the "Obligations"
shall be deemed a reference to any or all of the Collateral or the
Obligations, as the case may be.
(iv) Capitalized Terms not otherwise defined herein have
the meaning specified in the Credit Agreement, and, to the extent of
any conflict, terms as defined in the Credit Agreement shall control
provided, that a more expansive or explanatory definition shall not be
deemed a conflict).
5.2 Power of Attorney. Each power of attorney, license and other
authorization in favor of Secured Party or any other Person granted by or
pursuant to this Agreement shall be deemed to be irrevocable and coupled with
an interest.
- 11 -
<PAGE> 15
ARTICLE VI. MISCELLANEOUS
6.1 Expenses of Debtor's Agreements and Duties. Secured Party
shall not be liable for the costs and expenses of Debtor arising out of
Debtor's performance or observance of the terms, conditions, covenants and
agreements to be observed or performed by Debtor under this Agreement.
6.2 Secured Party's Right to Perform on Debtor's Behalf. If
Debtor shall fail to observe or perform any of the terms, conditions, covenants
and agreements to be observed or performed by it under this Agreement, Secured
Party may (but shall not be obligated to) do the same or cause it to be done or
performed or observed, either in its name or in the name and on behalf of
Debtor, and in the event that Debtor shall have failed to observe or perform
any of the terms, conditions, covenants and agreements to be observed or
performed by it under this Agreement, then Debtor hereby authorizes Secured
Party to do so, and Debtor hereby appoints Secured Party, and any other Person
Secured Party may designate, as Debtor's attorney-in-fact to do, or cause to be
done, in the name, place and stead of Debtor in any way in which Debtor itself
could do, or cause to be done, any or all things necessary to observe or
perform the terms, conditions, covenants and agreements to be observed or
performed by Debtor under this Agreement. In addition, Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact to execute and
deliver in Debtor's name and stead to any purchaser at any sale held under
Section 4.2 any and all documents and instruments of assignment, transfer and
conveyance necessary or appropriate to transfer to such purchaser the
Collateral sold at such sale.
6.3 Secured Party's Right to Use Agents. Secured Party may
exercise its rights under this Agreement through an agent or other designee.
6.4 No Interference, Compensation or Expense. Secured Party may
exercise its rights under this Agreement (a) without resistance or interference
by Debtor and (b) without payment of any rent, license fee or compensation of
any kind to Debtor.
6.5 Limitation of Secured Party's Obligations With Respect to
Collateral.
(a) Except as provided in the License Agreement, Secured Party
shall not have any duty or liability to protect or preserve any Collateral or
to preserve rights pertaining thereto.
(b) Nothing contained in this Agreement shall be construed as
requiring or obligating Secured Party, and Secured Party shall not be required
or obligated, to (i) present or file any claim or notice or take any action,
with respect to any Collateral or in connection therewith or (ii) notify Debtor
of any decline in the value of any Collateral.
6.6 Rights of Secured Party under UCC and Applicable Law. Secured
Party shall have, with respect to the Collateral, in addition to all of its
rights under this Agreement, (a) the
- 12 -
<PAGE> 16
rights of a secured party under the UCC, whether or not the UCC would otherwise
apply to the collateral in question, and (b) the rights of a secured party
under all other applicable Laws.
6.7 Waivers of Rights Inhibiting Enforcement. Debtor waives (a)
any claim that, as to any part of the Collateral, a public sale, should Secured
Party elect so to proceed, is, in and of itself, not a commercially reasonable
method of sale for such Collateral, (b) except as otherwise provided in this
Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL
HEARING IN CONNECTION WITH SECURED PARTY'S DISPOSITION OF ANY OF THE COLLATERAL
INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND ALL OTHER
REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH
RESPECT TO THE ENFORCEMENT OF SECURED PARTY'S RIGHTS HEREUNDER and (c) all
rights of redemption, appraisement or valuation.
6.8 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials
(including all Information) to be given or delivered pursuant to this Agreement
shall, except in those cases where giving notice by telephone is expressly
permitted, be given or delivered in writing. All written notices,
communications and materials shall be sent by registered or certified mail,
postage prepaid, return receipt requested, by telecopier, or delivered by hand.
In the event of a discrepancy between any telephonic notice and any written
confirmation thereof, such written confirmation shall be deemed the effective
notice except to the extent Secured Party or Debtor has acted in reliance on
such telephonic notice.
(b) Addresses. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall be given or delivered at
the following respective addresses and telecopier and telephone numbers and to
the attention of the following individuals or departments:
(i) if to Debtor, to it at:
Neuromed, Inc.
One Allentown Parkway
Allen, Texas 75002
Telephone No: (214) 390-9800
Telecopier No: (214) 390-9687
Attention: F. Robert Merrill III
- 13 -
<PAGE> 17
(ii) if to Secured Party, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telephone No: (214) 508-1389
Telecopier No: (214) 508-3139
Attention: Commercial Banking
or at such other address, telecopier or telephone number or to the attention of
such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to
be given or delivered to Secured Party or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by mail, on the
fifth Business Day after such notice, communication or material is deposited in
the mail, addressed as above provided, (ii) if sent by telecopier, when such
notice, communication or material is transmitted to the appropriate number
determined as above provided in this Section 6.8 and the appropriate receipt is
received or acknowledged, (iii) if sent by hand delivery or overnight courier,
when left at the address of the addressee addressed as above provided and the
appropriate receipt is received or acknowledged, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices
of a change of address, telecopier or telephone number or individual or
department to whose attention notices, communications and materials are to be
given or delivered shall not be effective until received.
(d) Designation of Notice. No notice shall be effective under
Section 3.1(a) or (b) unless it is specifically designated and, in the case of
a notice under Section 3.1(a), "Notice of Change of Executive Office and Books
and Records."
6.9 Rights and Remedies Cumulative. Each of Secured Party's
rights and remedies under this Agreement shall be in addition to all of its
other rights and remedies under this Agreement and applicable Law, and nothing
herein shall be construed as limiting any such rights or remedies.
6.10 Amendments; Waivers. Any term, covenant, agreement or
condition of this Agreement may be amended, and any right under this Agreement
may be waived, if, but only if, such amendment or waiver is in writing and is
signed by Secured Party and, in the case of an amendment, by Debtor. Unless
otherwise specified in such waiver, a waiver of any right
- 14 -
<PAGE> 18
under this Agreement shall be effective only in the specific instance and for
the specific purpose for which given. No election not to exercise, failure to
exercise or delay in exercising any right, nor any course of dealing or
performance, shall operate as a waiver of any right of the Secured Party under
this Agreement or applicable Law, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise
of any other right of Secured Party under this Agreement or applicable Law.
6.11 Assignments.
(a) Debtor may not assign any of its rights or obligations under
this Agreement without the prior written consent of Secured Party.
(b) Secured Party may, in connection with any assignment under and
in accordance with the License Agreement to any Person of any or all of the
licensee's rights and obligations under such License Agreement, assign to such
Person, or any agent(s) or representative(s) on behalf of such licensee and its
sublicenses, any or all of Secured Party's rights and obligations under this
Agreement and any other document or instrument, including financing and
continuation statements and other filings, contemplated hereby and with respect
to the Collateral without the consent of Debtor. In addition, Secured Party
may assign or otherwise transfer (in whole or in part) to any other Person all
of its rights and obligations under any Loan Papers (including this Agreement)
or otherwise.
6.12 MANDATORY ARBITRATION.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas,
Texas and administered by JAMS who will appoint an arbitrator; if JAMS is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All
- 15 -
<PAGE> 19
arbitration hearings will be commenced within ninety days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional
sixty days.
(c) Reservations of Rights. Nothing in this Agreement or any
other Loan Paper shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers contained
in this Agreement; or (ii) be a waiver by Secured Party of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state
law; or (iii) limit the right of Secured Party hereto (A) to exercise self help
remedies such as (but not limited to) setoff, or (B) to foreclose against any
real or personal property collateral, or (C) to obtain from a court provisional
or ancillary remedies such as (but not limited to) injunctive relief or the
appointment of a receiver. Secured Party may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. At Secured Party's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by judicial
sale under the deed of trust or mortgage, or by judicial foreclosure. Neither
this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
6.13 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT
REFERENCE TO PRINCIPALS OF CONFLICTS OF LAWS), EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE REQUIRED TO GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
6.14 WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
6.15 Consent to Jurisdiction; Waiver of Immunities.
(a) Debtor hereby irrevocably submits to the non-exclusive
jurisdiction of any United States Federal or Texas State courts sitting in
Dallas County in any action or proceeding arising out of or relating to this
Agreement, and Debtor hereby irrevocably waives any objection it may now or
hereafter have as to the venue of any such suit, action or proceeding brought
in such court or that such court is an inconvenient forum.
- 16 -
<PAGE> 20
(b) Nothing in this section shall limit the right of Secured Party
to bring any action or proceeding against Debtor or its property in the courts
of any other jurisdictions.
(c) Any judicial proceeding by Debtor against Secured Party
involving, directly or indirectly, any matter in any way arising out of,
related to, or connected with this Agreement shall be brought only in a court
in Dallas County, Texas to the extent that jurisdiction may be effected against
such Person in Dallas County, Texas.
6.16 Severability of Provisions. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction. In the event that any change in applicable Law would
render invalid or unenforceable any provision of this Agreement, Debtor agrees
to enter into such amendments or modifications to this Agreement to provide
Secured Party with benefits intended to be granted by such provision.
6.17 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto were upon the same instrument.
6.18 Successors and Assigns. All of the provisions of this
Agreement shall be binding and inure to the benefit of the parties thereto and
their respective successors and assigns; provided, Debtor may not assign its
rights or obligations under this Agreement.
6.19 Loan Papers. This Agreement is a Loan Papers executed
pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
6.20 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any
Loan Papers or any instrument delivered in connection therewith or any
assignment or transfer thereof;
(b) any exercise, non-exercise, or waiver by Secured Party of any
right, remedy, power or privilege under or in respect of, or any release of any
guaranty or the Collateral or any part thereof provided pursuant to, this
Agreement or any Loan Papers;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement, any Loan Papers or any assignment or
transfer of any thereof; or
- 17 -
<PAGE> 21
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
6.21 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers all as of the date first above
written.
DEBTOR:
NEUROMED, INC.
By:_____________________________________
F. Robert Merrill III, Vice President
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A.
By:_____________________________________
Jay C. Henry, Vice President
- 18 -
<PAGE> 22
"SCHEDULES OMITTED"
<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
LICENSE AGREEMENT
Dated as of March 31, 1995
Between
QUEST MEDICAL, INC.
as Licensor
and
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION as Licensee
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
LICENSE AGREEMENT
LICENSE AGREEMENT, dated March 31, 1995, by and between Quest Medical,
Inc., a Texas corporation ("Licensor"), and NationsBank of Texas, National
Association, a national banking association ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor presently owns and will hereafter acquire right,
title, and interest (including rights and interests pursuant to licenses)
throughout the world in various Trademarks, Patents, Copyrights and Trade
Secrets (hereinafter, collectively, the "Intellectual Property");
WHEREAS, Licensee and Licensor have entered into the First Amended and
Restated Credit Agreement dated as of March 31, 1995 (such agreement, together
with all amendments and restatements thereof, being the "Credit Agreement");
WHEREAS, as security for the payment and performance of the
Obligations which are owed by Licensor to Licensee pursuant to the Loan Papers,
Licensor has agreed to grant or cause to be granted to Licensee, security
interests in, and pledges and assignments of, all assets of Licensor, including
all cash, Inventory, Receivables, Equipment, Permits and the Intellectual
Property, a license to use the Intellectual Property and Permits and certain
other collateral, to secure the Obligations;
WHEREAS, Licensee desires a license to use the Intellectual Property
and Permits in all countries of the world solely if an Event of Default exists
to enable Licensee to exercise its rights and remedies with respect to the
Collateral under the Security Agreement;
WHEREAS, Licensor desires to grant Licensee the foregoing license to
so use the Intellectual Property and Permits; and
WHEREAS, the parties acknowledge the excellent reputation for quality
of products sold under the Intellectual Property and Permits, and desire to
safeguard, promote and enhance that reputation by ensuring the future quality
of materials, workmanship, and performance of the Inventory with respect to
which Licensee has been granted a security interest, pledge and assignment and
may exercise its rights and remedies under the Security Agreement and
Intellectual Property Agreement, if an Event of Default exists.
AGREEMENT.
NOW, THEREFORE, in consideration of the above premises and of the
mutual covenants herein contained, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound, the parties hereto agree as follows:
<PAGE> 3
ARTICLE I. DEFINITIONS
1.1 "Collateral" has the same definition provided in the Security
Agreement.
1.2 "Effective Date" means March 31, 1995.
1.3 "Equipment" has the same definition provided in the Security
Agreement.
1.4 "Intellectual Property Agreement" means the Intellectual
Property Security Agreement and Assignment dated March 31,
1995 between Licensor and Licensee.
1.5 "Inventory" has the same definition provided in the Security
Agreement.
1.6 "Permits" means all licenses, permits and other similar rights
now or hereafter owned by Licensor (including but not limited
to all licenses, permits and similar rights issued by the FDA)
and necessary to the operation of its business, including but
not limited to all licenses, permits and other rights listed
on Schedule 2.
1.7 "Receivables" has the same definition provided in the Security
Agreement.
1.8 "Security Agreement" means the Security Agreement dated March
31, 1995 between Licensor and Licensee.
1.9 Unless otherwise defined in this Agreement, all capitalized
terms herein shall have the same definition provided in the
Credit Agreement, the Intellectual Property Agreement and the
Security Agreement.
ARTICLE II. GRANTS TO LICENSEE AND RELATED MATTERS
2.1 Licensor hereby grants to Licensee an irrevocable,
non-exclusive royalty-free right and license to use the Intellectual Property
and Permits worldwide including, without limitation, the Intellectual Property
identified in Schedule 1 and Permits identified on Schedule 2, if an Event of
Default exists, and to enable Licensee to exercise its rights and remedies
under the Security Agreement and Intellectual Property Agreement with respect
to Collateral, including, without limitation, the right to use the Intellectual
Property and Permits on or in connection with the operation and disposition of
any Collateral and the disposition, maintenance or further production,
manufacturing or processing of the Inventory, the operation and maintenance of
the Equipment and the collection of Receivables as Licensee reasonably deems
necessary or appropriate in the exercise of its rights and remedies under the
Security Agreement and Intellectual Property Agreement with respect to
Collateral.
-2-
<PAGE> 4
The parties acknowledge and agree that the Intellectual Property and
Permits are the sole and exclusive property of Licensor, subject to the terms
and conditions stated in this Agreement, the Security Agreement and the
Intellectual Property Agreement. Other than in connection with any security
interest in the Intellectual Property and Permits that Licensor has granted to
Licensee pursuant to the Security Agreement and the Intellectual Property
Agreement or any rights and remedies of Licensee under the Security Agreement
or the Intellectual Property Agreement, Licensee shall not challenge Licensor's
ownership of the Intellectual Property and Permits. Licensor expressly retains
all rights to license third parties to use the Intellectual Property and
Permits for any purpose whatsoever not in violation of the Loan Papers and
which are not exclusive as to prevent Licensee from using any of the
Intellectual Property and Permits as provided in the Security Agreement and
Intellectual Property Agreement.
2.2 The license granted to Licensee hereunder shall include the
right of Licensee to grant sublicenses to others to use the Intellectual
Property and Permits if an Event of Default exists, and to enable such
sublicensees to exercise any rights and remedies of Licensee under the Security
Agreement and the Intellectual Property Agreement with respect to Collateral,
including, without limitation, the right to grant sublicenses to others to use
the Intellectual Property and Permits on or in connection with the operation
and disposition of any Collateral, the disposition, maintenance or further
production, manufacturing or processing of Inventory, the operation and
maintenance of the Equipment and the collection of Receivables as Licensee
reasonably deems necessary or appropriate in the exercise of the rights and
remedies of Licensee under the Security Agreement and the Intellectual Property
Agreement. In any country where sublicenses are incapable of registration or
where registration of a sublicense will not satisfactorily protect the rights
of Licensor and Licensee, Licensee shall also have the right to designate other
parties as direct licensees of Licensor to use the Intellectual Property and
Permits if an Event of Default exists and to enable such direct licensees to
exercise any rights and remedies of Licensee under the Security Agreement and
the Intellectual Property Agreement including, without limitation, the right to
use the Intellectual Property and Permits on or in connection with the
operation and disposition of any Collateral, the disposition, maintenance or
further production, manufacturing or processing of Inventory, the operation and
maintenance of the Equipment and the collection of Receivables as such
licensees reasonably deem necessary or appropriate and Licensor agrees to enter
into direct written licenses with the parties as designated on the same terms
as would be applicable to a sublicense, and any such direct license may,
depending on the relevant local requirements, be either (a) in lieu of a
sublicense or (b) supplemental to a sublicense. In either case, the parties
hereto shall cooperate to determine what shall be necessary or appropriate in
the circumstances. For each sublicense to a sublicensee and direct license to
a licensee, Licensor appoints Licensee its agent for the purpose of exercising
quality control over the sublicensee. Licensor shall execute this Agreement in
any form, content and language suitable for recordation, notice and/or
registration in all available and appropriate agencies of foreign countries as
Licensee may require.
2.3 In connection with the assignment or other transfer (in whole
or in part) of its obligations under the Security Agreement and the
Intellectual Property Agreement to any other Person, Licensee may assign the
license granted herein without Licensor's consent and upon
-3-
<PAGE> 5
such assignment or transfer such other Person shall thereupon become vested
with all rights and benefits in respect thereof granted to Licensee under this
Agreement.
2.4 The parties hereto shall take reasonable action to preserve
the confidentiality of the Intellectual Property and Permits which is not
otherwise public information; provided, that Licensee shall not have any
liability to any Person for any disclosure of the Intellectual Property or
Permits upon and after any realization upon Collateral under the Security
Agreement or the Intellectual Property Agreement or otherwise as part of
Licensee's enforcement of remedies under the Loan Papers.
ARTICLE III. QUALITY CONTROL
3.1 Licensor shall refrain from using the Intellectual Property
and Permits in a form and manner or for a subject matter as to (a) reduce the
value of the Intellectual Property or Permits or (b) cause injury to Licensor's
business, reputation or goodwill.
3.2 If an Event of Default exists and Licensee exercises its
rights or remedies under the license granted herein:
(a) Licensee may use the Trademarks licensed hereby in such form
and manner as previously used by Licensor, and shall need not notify Licensor
of any change in the form or substance of the display of a Trademark licensed
hereby. Licensee shall take reasonable action to apply trademark notice or
other marking as may be required under applicable Law of each territory and
country where each Trademark is used, or as otherwise appropriate, in
connection with use of each of the Trademarks licensed hereunder. Licensee
shall have the right to register any and all Trademarks in any and all
countries on and after the Effective Date.
(b) Licensee may dispose of any Inventory and any other
manufactured products under any of the Intellectual Property or Permits
licensed hereby, provided the Inventory and any other manufactured products so
disposed of by it or any other Person acting on behalf of Licensee shall comply
in any material respect with (i) quality standards and specifications,
including labelling specifications, employed by Licensor in commerce prior to
the Effective Date, or, where no such standards and specifications exist, a
level of quality comparable to the quality standards generally accepted for
other leading competitive brands of the same item of Inventory in the same
markets from time to time; or (ii) a level of quality comparable to that which
may be adopted by Licensor for its or its other licensees' products. Licensee
shall maintain quality control commensurate with the quality standards of
Licensor at the Effective Date or, if quality control improves after the
Effective Date, commensurate with such improved quality standards.
-4-
<PAGE> 6
ARTICLE IV. TERM AND TERMINATION
4.1 This Agreement is effective as of the Effective Date and,
unless sooner terminated under the provisions set forth in this Article IV, is
perpetual and irrevocable.
4.2 The license granted in Article II with respect to any
Intellectual Property and Permits may be terminated only upon the event that
the Obligations which are owed by Licensor and each other Obligor to Licensee,
and which are secured in part by the Collateral of Licensor under the Security
Agreement and the Intellectual Property Agreement and by the license granted
herein, are finally and fully satisfied and paid in accordance with all terms
and conditions of the Loan Papers at the time of such termination. If after
termination of this Agreement, there occurs a rescission of payment of any of
the Obligations or the restoration of such payments by Licensee or any other
Person upon the insolvency, bankruptcy or reorganization of Licensor or any
other Person, this Agreement shall be reinstated as though such payment had not
been made and remain in full force and effect in accordance with the terms of
the preceding sentence.
4.3 Upon termination of this Agreement, Licensee shall, and shall
cause any sublicensee, to cease all use of any and all of the Intellectual
Property and Permits and not thereafter use any of them in any other manner
whatsoever, subject to reinstatement under Section 4.2.
4.4 Upon termination (or reinstatement) of this Agreement, the
parties shall perform all other acts which may be necessary or useful to render
effective the termination (or reinstatement) of the interest of Licensee in the
Intellectual Property and Permits, including but not limited to the
cancellation of any registration or recordation (or the reinstatement by
registration or recordation) of this Agreement, or any summary thereof.
ARTICLE V. RECORDATION OF AGREEMENT
5.1 The parties shall cooperate to determine what may or shall be
required to satisfy the laws or regulations throughout the world with respect
to the recordation and validation of this Agreement, or otherwise to render
this Agreement and the Intellectual Property and Permits effective, and shall
execute all documents which may be necessary or desirable to implement this
Section 5.1, including registered user statements or other documents suitable
for filing with the appropriate government authorities of any country.
ARTICLE VI. REPRESENTATION AND WARRANTIES
6.1 Licensor represents and warrants that it is the owner of the
Intellectual Property identified in Schedule 1 and Permits identified on
Schedule 2 and has the right to grant the rights and license granted herein.
-5-
<PAGE> 7
ARTICLE VII. PRODUCT LIABILITY INSURANCE
7.1 Licensor shall maintain product liability insurance covering
liabilities for its activities pursuant to this Agreement, of at least such
amounts as is required by the Loan Papers.
ARTICLE VIII. MISCELLANEOUS
8.1 Failure of either party to insist upon strict performance of
the terms, conditions, and provisions of this Agreement shall not be deemed a
waiver of such terms, conditions or provisions or a waiver of future compliance
therewith. No waiver of any terms, conditions, or provisions hereof shall be
deemed to have been made unless expressed in writing and signed by the waiving
party.
8.2 Any sale, transfer or other disposition of ownership of any
Intellectual Property or Permits by Licensor shall be subject to this Agreement
and the Intellectual Property Agreement and any purchaser or transferee shall
specifically state in writing that it is assuming this Agreement and that it
will be bound by all of the terms and conditions of this Agreement and the
Intellectual Property Agreement (this sentence is not a consent by Licensee to
any sale, transfer or other disposition (other than the grant of a license
permitted pursuant to Section 2.1) of any interest in Intellectual Property or
Permits). After giving effect to such sale, transfer or other disposition,
this Agreement and the Intellectual Property Agreement shall be valid, binding,
and enforceable in accordance with its terms against such purchaser or
transferee. A sale, transfer or other disposition of any shares of the capital
stock of Licensor shall not be deemed to be a sale, transfer or other
disposition of ownership of any Intellectual Property or Permits.
8.3 Except as otherwise may be expressly provided in this
Agreement or any other Loan Paper, Licensee shall not be construed to be and
shall not represent itself as an agent of Licensor.
8.4 (a) All notices, communications and materials to be given
or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent Licensor
or Licensee has acted in reliance on such telephonic notice.
(b) All notices, communications and materials to be given
or delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
-6-
<PAGE> 8
To Licensor: Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002
U.S.A.
Attention: F. Robert Merrill III
To Licensee: NationsBank of Texas, National
Association
NationsBank Plaza
901 Main Street, 7th Floor
Dallas, Texas 75202
U.S.A.
Attention: Commercial Banking
8.5 This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Texas, U.S.A.
8.6 (a) Licensor hereby irrevocably submits to the
non-exclusive jurisdiction of any United States Federal or Texas State court
sitting in Dallas County, Texas, U.S.A. in any action or proceeding arising out
of or relating to this Agreement, and Licensor hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard or determined
in any such court and hereby irrevocably waives any objection it may now or
hereafter have as to the venue of any such suit, action or proceeding brought
in such court or that such court is an inconvenient forum.
(b) Nothing in this Section 8.6 shall limit the right of
Licensee to bring any action or proceeding against Licensor or its property in
the courts of any other jurisdiction or any party's rights under Section 8.10
of the Credit Agreement.
(c) Any judicial proceeding by Licensor against Licensee
involving, directly or indirectly, any matter in any way arising out of,
related to, or connected with this Agreement shall be brought only in a court
in Dallas County, Texas, U.S.A.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
-7-
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers as of the date written
above.
QUEST MEDICAL, INC.
_____________________________
Witness
By: _______________________________________
F. Robert Merrill III, Vice President
_____________________________
Witness
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION
_____________________________
Witness
By: _______________________________________
Jay C. Henry, Vice President
_____________________________
Witness
-8-
<PAGE> 10
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on March ___, 1995 by F.
Robert Merrill III, Vice President of Quest Medical, Inc., a Texas corporation,
on behalf of said corporation.
___________________________________________
Notary Public in and for the State of Texas
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on March ___, 1995 by Jay
C. Henry, Vice President of NationsBank of Texas, National Association, a
national banking association, on behalf of said association.
___________________________________________
Notary Public in and for the State of Texas
-9-
<PAGE> 11
"SCHEDULES OMITTED"
<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
LICENSE AGREEMENT
Dated as of March 31, 1995
Between
NEUROMED, INC.
as Licensor
and
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION
as Licensee
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
LICENSE AGREEMENT
LICENSE AGREEMENT, dated March 31, 1995, by and between Neuromed,
Inc., a Florida corporation ("Licensor"), and NationsBank of Texas, National
Association, a national banking association ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor presently owns and will hereafter acquire right,
title, and interest (including rights and interests pursuant to licenses)
throughout the world in various Trademarks, Patents, Copyrights and Trade
Secrets (hereinafter, collectively, the "Intellectual Property");
WHEREAS, Licensee and Quest Medical, Inc., a Texas corporation
("Borrower"), have entered into the First Amended and Restated Credit Agreement
dated as of March 31, 1995 (such agreement, together with all amendments and
restatements thereof, being the "Credit Agreement");
WHEREAS, Licensor is a wholly-owned subsidiary of Borrower;
WHEREAS, as security for the payment and performance of the
Obligations which are owed by Licensor and each other Obligor to Licensee
pursuant to the Loan Papers, Licensor has agreed to grant or cause to be
granted to Licensee, security interests in, and pledges and assignments of, all
assets of Licensor, including all cash, Inventory, Receivables, Equipment,
Permits and the Intellectual Property, a license to use the Intellectual
Property and Permits and certain other collateral, to secure the Obligations;
WHEREAS, Licensee desires a license to use the Intellectual Property
and Permits in all countries of the world solely if an Event of Default exists
to enable Licensee to exercise its rights and remedies with respect to the
Collateral under the Security Agreement;
WHEREAS, Licensor desires to grant Licensee the foregoing license to
so use the Intellectual Property and Permits; and
WHEREAS, the parties acknowledge the excellent reputation for quality
of products sold under the Intellectual Property and Permits, and desire to
safeguard, promote and enhance that reputation by ensuring the future quality
of materials, workmanship, and performance of the Inventory with respect to
which Licensee has been granted a security interest, pledge and assignment and
may exercise its rights and remedies under the Security Agreement and
Intellectual Property Agreement, if an Event of Default exists.
<PAGE> 3
AGREEMENT.
NOW, THEREFORE, in consideration of the above premises and of the
mutual covenants herein contained, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
1.1 "Collateral" has the same definition provided in the Security
Agreement.
1.2 "Effective Date" means March 31, 1995.
1.3 "Equipment" has the same definition provided in the Security
Agreement.
1.4 "Intellectual Property Agreement" means the Intellectual
Property Security Agreement and Assignment dated March 31,
1995 between Licensor and Licensee.
1.5 "Inventory" has the same definition provided in the Security
Agreement.
1.6 "Permits" means all licenses, permits and other similar rights
now or hereafter owned by Licensor (including but not limited
to all licenses, permits and similar rights issued by the FDA)
and necessary to the operation of its business, including but
not limited to all licenses, permits and other rights listed
on Schedule 2.
1.7 "Receivables" has the same definition provided in the Security
Agreement.
1.8 "Security Agreement" means the Security Agreement dated March
31, 1995 between Licensor and Licensee.
1.9 Unless otherwise defined in this Agreement, all capitalized
terms herein shall have the same definition provided in the
Credit Agreement, the Intellectual Property Agreement and the
Security Agreement.
ARTICLE II. GRANTS TO LICENSEE AND RELATED MATTERS
2.1 Licensor hereby grants to Licensee an irrevocable,
non-exclusive royalty-free right and license to use the Intellectual Property
and Permits worldwide including, without limitation, the Intellectual Property
identified in Schedule 1 and Permits identified on Schedule 2, if an Event of
Default exists, and to enable Licensee to exercise its rights and remedies
under the
-2-
<PAGE> 4
Security Agreement and Intellectual Property Agreement with respect to
Collateral, including, without limitation, the right to use the Intellectual
Property and Permits on or in connection with the operation and disposition of
any Collateral and the disposition, maintenance or further production,
manufacturing or processing of the Inventory, the operation and maintenance of
the Equipment and the collection of Receivables as Licensee reasonably deems
necessary or appropriate in the exercise of its rights and remedies under the
Security Agreement and Intellectual Property Agreement with respect to
Collateral.
The parties acknowledge and agree that the Intellectual Property and
Permits are the sole and exclusive property of Licensor, subject to the terms
and conditions stated in this Agreement, the Security Agreement and the
Intellectual Property Agreement. Other than in connection with any security
interest in the Intellectual Property and Permits that Licensor has granted to
Licensee pursuant to the Security Agreement and the Intellectual Property
Agreement or any rights and remedies of Licensee under the Security Agreement
or the Intellectual Property Agreement, Licensee shall not challenge Licensor's
ownership of the Intellectual Property and Permits. Licensor expressly retains
all rights to license third parties to use the Intellectual Property and
Permits for any purpose whatsoever not in violation of the Loan Papers and
which are not exclusive as to prevent Licensee from using any of the
Intellectual Property and Permits as provided in the Security Agreement and
Intellectual Property Agreement.
2.2 The license granted to Licensee hereunder shall include the
right of Licensee to grant sublicenses to others to use the Intellectual
Property and Permits if an Event of Default exists, and to enable such
sublicensees to exercise any rights and remedies of Licensee under the Security
Agreement and the Intellectual Property Agreement with respect to Collateral,
including, without limitation, the right to grant sublicenses to others to use
the Intellectual Property and Permits on or in connection with the operation
and disposition of any Collateral, the disposition, maintenance or further
production, manufacturing or processing of Inventory, the operation and
maintenance of the Equipment and the collection of Receivables as Licensee
reasonably deems necessary or appropriate in the exercise of the rights and
remedies of Licensee under the Security Agreement and the Intellectual Property
Agreement. In any country where sublicenses are incapable of registration or
where registration of a sublicense will not satisfactorily protect the rights
of Licensor and Licensee, Licensee shall also have the right to designate other
parties as direct licensees of Licensor to use the Intellectual Property and
Permits if an Event of Default exists and to enable such direct licensees to
exercise any rights and remedies of Licensee under the Security Agreement and
the Intellectual Property Agreement including, without limitation, the right to
use the Intellectual Property and Permits on or in connection with the
operation and disposition of any Collateral, the disposition, maintenance or
further production, manufacturing or processing of Inventory, the operation and
maintenance of the Equipment and the collection of Receivables as such
licensees reasonably deem necessary or appropriate and Licensor agrees to enter
into direct written licenses with the parties as designated on the same terms
as would be applicable to a sublicense, and any such direct license may,
depending on the relevant local requirements, be either (a) in lieu of a
sublicense or (b) supplemental to a sublicense. In either case, the parties
hereto shall cooperate to determine what shall be necessary or appropriate in
the circumstances. For each sublicense to a sublicensee and
-3-
<PAGE> 5
direct license to a licensee, Licensor appoints Licensee its agent for the
purpose of exercising quality control over the sublicensee. Licensor shall
execute this Agreement in any form, content and language suitable for
recordation, notice and/or registration in all available and appropriate
agencies of foreign countries as Licensee may require.
2.3 In connection with the assignment or other transfer (in whole
or in part) of its obligations under the Security Agreement and the
Intellectual Property Agreement to any other Person, Licensee may assign the
license granted herein without Licensor's consent and upon such assignment or
transfer such other Person shall thereupon become vested with all rights and
benefits in respect thereof granted to Licensee under this Agreement.
2.4 The parties hereto shall take reasonable action to preserve
the confidentiality of the Intellectual Property and Permits which is not
otherwise public information; provided, that Licensee shall not have any
liability to any Person for any disclosure of the Intellectual Property or
Permits upon and after any realization upon Collateral under the Security
Agreement or the Intellectual Property Agreement or otherwise as part of
Licensee's enforcement of remedies under the Loan Papers.
ARTICLE III. QUALITY CONTROL
3.1 Licensor shall refrain from using the Intellectual Property
and Permits in a form and manner or for a subject matter as to (a) reduce the
value of the Intellectual Property or Permits or (b) cause injury to Licensor's
business, reputation or goodwill.
3.2 If an Event of Default exists and Licensee exercises its
rights or remedies under the license granted herein:
(a) Licensee may use the Trademarks licensed hereby in such form
and manner as previously used by Licensor, and shall need not notify Licensor
of any change in the form or substance of the display of a Trademark licensed
hereby. Licensee shall take reasonable action to apply trademark notice or
other marking as may be required under applicable Law of each territory and
country where each Trademark is used, or as otherwise appropriate, in
connection with use of each of the Trademarks licensed hereunder. Licensee
shall have the right to register any and all Trademarks in any and all
countries on and after the Effective Date.
(b) Licensee may dispose of any Inventory and any other
manufactured products under any of the Intellectual Property or Permits
licensed hereby, provided the Inventory and any other manufactured products so
disposed of by it or any other Person acting on behalf of Licensee shall comply
in any material respect with (i) quality standards and specifications,
including labelling specifications, employed by Licensor in commerce prior to
the Effective Date, or, where no such standards and specifications exist, a
level of quality comparable to the quality standards generally accepted for
other leading competitive brands of the same item of Inventory in the same
markets from time to time; or (ii) a level of quality comparable to that
-4-
<PAGE> 6
which may be adopted by Licensor for its or its other licensees' products.
Licensee shall maintain quality control commensurate with the quality standards
of Licensor at the Effective Date or, if quality control improves after the
Effective Date, commensurate with such improved quality standards.
ARTICLE IV. TERM AND TERMINATION
4.1 This Agreement is effective as of the Effective Date and,
unless sooner terminated under the provisions set forth in this Article IV, is
perpetual and irrevocable.
4.2 The license granted in Article II with respect to any
Intellectual Property and Permits may be terminated only upon the event that
the Obligations which are owed by Licensor and each other Obligor to Licensee,
and which are secured in part by the Collateral of Licensor under the Security
Agreement and the Intellectual Property Agreement and by the license granted
herein, are finally and fully satisfied and paid in accordance with all terms
and conditions of the Loan Papers at the time of such termination. If after
termination of this Agreement, there occurs a rescission of payment of any of
the Obligations or the restoration of such payments by Licensee or any other
Person upon the insolvency, bankruptcy or reorganization of Licensor or any
other Person, this Agreement shall be reinstated as though such payment had not
been made and remain in full force and effect in accordance with the terms of
the preceding sentence.
4.3 Upon termination of this Agreement, Licensee shall, and shall
cause any sublicensee, to cease all use of any and all of the Intellectual
Property and Permits and not thereafter use any of them in any other manner
whatsoever, subject to reinstatement under Section 4.2.
4.4 Upon termination (or reinstatement) of this Agreement, the
parties shall perform all other acts which may be necessary or useful to render
effective the termination (or reinstatement) of the interest of Licensee in the
Intellectual Property and Permits, including but not limited to the
cancellation of any registration or recordation (or the reinstatement by
registration or recordation) of this Agreement, or any summary thereof.
ARTICLE V. RECORDATION OF AGREEMENT
5.1 The parties shall cooperate to determine what may or shall be
required to satisfy the laws or regulations throughout the world with respect
to the recordation and validation of this Agreement, or otherwise to render
this Agreement and the Intellectual Property and Permits effective, and shall
execute all documents which may be necessary or desirable to implement this
Section 5.1, including registered user statements or other documents suitable
for filing with the appropriate government authorities of any country.
-5-
<PAGE> 7
ARTICLE VI. REPRESENTATION AND WARRANTIES
6.1 Licensor represents and warrants that it is the owner of the
Intellectual Property identified in Schedule 1 and Permits identified on
Schedule 2 and has the right to grant the rights and license granted herein.
ARTICLE VII. PRODUCT LIABILITY INSURANCE
7.1 Licensor shall maintain product liability insurance covering
liabilities for its activities pursuant to this Agreement, of at least such
amounts as is required by the Loan Papers.
ARTICLE VIII. MISCELLANEOUS
8.1 Failure of either party to insist upon strict performance of
the terms, conditions, and provisions of this Agreement shall not be deemed a
waiver of such terms, conditions or provisions or a waiver of future compliance
therewith. No waiver of any terms, conditions, or provisions hereof shall be
deemed to have been made unless expressed in writing and signed by the waiving
party.
8.2 Any sale, transfer or other disposition of ownership of any
Intellectual Property or Permits by Licensor shall be subject to this Agreement
and the Intellectual Property Agreement and any purchaser or transferee shall
specifically state in writing that it is assuming this Agreement and that it
will be bound by all of the terms and conditions of this Agreement and the
Intellectual Property Agreement (this sentence is not a consent by Licensee to
any sale, transfer or other disposition (other than the grant of a license
permitted pursuant to Section 2.1) of any interest in Intellectual Property or
Permits). After giving effect to such sale, transfer or other disposition,
this Agreement and the Intellectual Property Agreement shall be valid, binding,
and enforceable in accordance with its terms against such purchaser or
transferee. A sale, transfer or other disposition of any shares of the capital
stock of Licensor shall not be deemed to be a sale, transfer or other
disposition of ownership of any Intellectual Property or Permits.
8.3 Except as otherwise may be expressly provided in this
Agreement or any other Loan Paper, Licensee shall not be construed to be and
shall not represent itself as an agent of Licensor.
8.4 (a) All notices, communications and materials to be given
or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice
-6-
<PAGE> 8
and any written confirmation thereof, such written confirmation shall be deemed
the effective notice except to the extent Licensor or Licensee has acted in
reliance on such telephonic notice.
(b) All notices, communications and materials to be given
or delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
To Licensor: Neuromed, Inc.
One Allentown Parkway
Allen, Texas 75002
U.S.A.
Attention: F. Robert Merrill III
To Licensee: NationsBank of Texas, National
Association
NationsBank Plaza
901 Main Street, 7th Floor
Dallas, Texas 75202
U.S.A.
Attention: Commercial Banking
8.5 This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Texas, U.S.A.
8.6 (a) Licensor hereby irrevocably submits to the
non-exclusive jurisdiction of any United States Federal or Texas State court
sitting in Dallas County, Texas, U.S.A. in any action or proceeding arising out
of or relating to this Agreement, and Licensor hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard or determined
in any such court and hereby irrevocably waives any objection it may now or
hereafter have as to the venue of any such suit, action or proceeding brought
in such court or that such court is an inconvenient forum.
(b) Nothing in this Section 8.6 shall limit the right of
Licensee to bring any action or proceeding against Licensor or its property in
the courts of any other jurisdiction or any party's rights under Section 8.10
of the Credit Agreement.
(c) Any judicial proceeding by Licensor against Licensee
involving, directly or indirectly, any matter in any way arising out of,
related to, or connected with this Agreement shall be brought only in a court
in Dallas County, Texas, U.S.A.
-7-
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers as of the date written
above.
NEUROMED, INC.
______________________________
Witness
By: ______________________________________
F. Robert Merrill III, Vice President
______________________________
Witness
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION
______________________________
Witness
By: ______________________________________
Jay C. Henry, Vice President
______________________________
Witness
-8-
<PAGE> 10
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on March ___, 1995 by F.
Robert Merrill III, Vice President of Neuromed, Inc., a Florida corporation, on
behalf of said corporation.
___________________________________________
Notary Public in and for the State of Texas
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on March ___, 1995 by Jay
C. Henry, Vice President of NationsBank of Texas, National Association, a
national banking association, on behalf of said association.
___________________________________________
Notary Public in and for the State of Texas
-9-
<PAGE> 11
"SCHEDULES OMITTED"
<PAGE> 1
GUARANTY
THIS GUARANTY is entered into as of this 31st day of March, 1995 by
Neuromed, Inc., a Florida corporation ("Guarantor"), in favor of NationsBank of
Texas, N.A. ("Lender") under the First Amended and Restated Credit Agreement
dated as of March 31, 1995 (such agreement, together with all amendments and
restatements thereof, the "Credit Agreement") between Quest Medical, Inc.
("Borrower") and Lender.
RECITALS:
Pursuant to the Credit Agreement and the other Loan Papers, Borrower
may from time to time be indebted to Lender; and
Lender is not willing to make Advances under the Credit Agreement or
otherwise extend credit to Borrower unless Guarantor unconditionally guarantees
payment of all present and future indebtedness and obligations of Borrower to
Lender; and
Guarantor is a wholly-owned subsidiary of Borrower and will directly
benefit from Lender's making loans to Borrower.
AGREEMENT:
NOW, THEREFORE, as an inducement to Lender to enter into the Credit
Agreement and to make loans to Borrower thereunder, and to extend such
additional credit as Lender may from time to time agree to extend, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
Guarantor hereby unconditionally guarantees to Lender the prompt
payment at the time provided inSection 5 of this Guaranty, at maturity (by
acceleration or otherwise), and at all times thereafter, of the Guaranteed
Indebtedness (hereinafter defined), this guaranty being upon the following
terms and conditions:
1. Definitions. Unless defined herein, all capitalized terms
have the meanings ascribed to such terms in the Credit Agreement. As used
herein, the following terms are defined as follows:
"Borrower" includes, without limitation, Borrower, Borrower as a
debtor-in-possession, and any receiver, trustee, liquidator,
conservator, custodian, or similar party appointed for Borrower or all
or substantially all of its assets pursuant to any Debtor Relief Law.
"Guaranteed Indebtedness" means any and all obligations now or
hereafter existing of Borrower, each other Obligor and any other
Person under the Credit Agreement and the other Loan Papers, including
any extensions, modifications, substitutions, amendments and renewals
thereof, whether for principal, interest,
<PAGE> 2
fees, premium, expenses, indemnification or otherwise (all such
obligations of Borrower and each other Obligor being the
"Obligations"), together with all amounts which constitute part of the
Obligations and would be owed by Borrower or any other Person to
Lender under any Loan Paper, but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Borrower, each other
Obligor or any other Person (including all such amounts which would
become due but for the operation of the automatic stay under Section
362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a),
and the operation of Sections 502(b) and 506(b) of the United States
Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b) or any
analogous stay under any foreign Law), and any and all costs,
attorneys' fees, and expenses incurred by Lender by reason of
Borrower's, Guarantor's or any other Person's default in payment of
any of the foregoing indebtedness.
"Maximum Guaranteed Indebtedness" means, with respect to Guarantor as
of the date of determination, the lesser of (a) the Guaranteed
Indebtedness, and (b) the maximum amount for which Guarantor may be
liable under this Guaranty without such amount and Guarantor's
obligations under this Guaranty with respect to such amount being
deemed a fraudulent transfer, as determined by a bankruptcy or similar
court.
2. Maximum Guaranteed Indebtedness. Notwithstanding any contrary
provision herein or in any other Loan Paper, Guarantor's maximum liability
hereunder shall not exceed the Maximum Guaranteed Indebtedness. Guarantor
agrees that the Guaranteed Indebtedness may at any time exceed the aggregate
Maximum Guaranteed Indebtedness of all Obligors (excluding Borrower) on all or
any part of the Guaranteed Indebtedness, without affecting or impairing the
obligation of Guarantor.
3. Continuing Guaranty. This instrument shall be an absolute and
continuing guaranty of payment, and the circumstances that at any time or from
time to time the Guaranteed Indebtedness may be paid in full shall not affect
the obligation of Guarantor with respect to indebtedness or obligations of
Borrower to Lender thereafter incurred pursuant to the Credit Agreement, any
other Loan Paper, or otherwise.
4. Other Debt. If Guarantor becomes liable for any indebtedness
owing by Borrower to Lender by endorsement or otherwise, other than this
Guaranty, such liability shall not be in any manner impaired or affected
hereby, and the Rights of Lender hereunder shall be cumulative of any and all
other Rights which Lender may ever have against Guarantor. The exercise by
Lender of any Right or remedy hereunder or under any other instrument shall not
preclude the concurrent or subsequent exercise of any other Right or remedy.
5. Payment. If an Event of Default exists, Guarantor shall, on
demand by Lender and without further notice of dishonor, without any notice
having been given to Guarantor previous to such demand of acceptance by Lender
of this Guaranty, and without any notice having been given to Guarantor
previous to such demand of the creating or incurring of the Guaranteed
Indebtedness, pay the entire amount of the Guaranteed Indebtedness to Lender at
the Principal Office of Lender, and it shall not be necessary for Lender, in
order to enforce such
-2-
<PAGE> 3
payment by Guarantor, first to institute suit or exhaust its remedies against
Borrower, or other Person liable for the Guaranteed Indebtedness, or to enforce
its Rights against any security which shall ever have been given to secure the
Guaranteed Indebtedness, this Guaranty being a guaranty of payment and not of
collection, and in no way conditional or contingent. Guarantor hereby
irrevocably and unconditionally covenants and agrees that it is liable for the
Guaranteed Indebtedness as primary obligor.
6. Obligation Not Impaired. Guarantor hereby agrees that its
obligations under the terms of this Guaranty shall not be released, diminished,
impaired, reduced, or affected by the occurrence of any one or more of the
following events: (a) the taking or accepting of any other security or
guaranty for any or all of the Guaranteed Indebtedness; (b) any release,
surrender, exchange, subordination, or loss of any security at any time
existing in connection with any or all of the Guaranteed Indebtedness; (c) the
modification of, amendment to, or waiver of compliance with any terms of the
Credit Agreement or any other Loan Paper without the notification of Guarantor
(the right to such notification being herein specifically waived by Guarantor);
(d) the insolvency, bankruptcy, or lack of corporate or other power of Borrower
or any other Person at any time liable for the payment of any or all of the
Guaranteed Indebtedness, whether now existing or hereafter occurring; (e) any
renewal, extension, and/or rearrangement of the payment of any or all of the
Guaranteed Indebtedness, either with or without notice to or consent of
Guarantor, or any adjustment, indulgence, forbearance, or compromise that may
be granted or given by Lender to Borrower, Guarantor or any Person at any time
liable for the payment of any or all of the Guaranteed Indebtedness; (f) any
neglect, delay, omission, failure, or refusal of Lender to take or prosecute
any action for the collection of any of the Guaranteed Indebtedness or to
foreclose or take or prosecute any action in connection with any instrument or
agreement evidencing or securing all or any part of the Guaranteed
Indebtedness; (g) any failure of Lender to notify Guarantor of any renewal,
extension, or assignment of the Guaranteed Indebtedness or any part thereof, or
the release of any security, or of any other action taken or refrained from
being taken by Lender, it being understood that Lender shall not be required to
give Guarantor any notice of any kind under any circumstances whatsoever with
respect to or in connection with the Guaranteed Indebtedness; (h) the
unenforceability of all or any part of the Guaranteed Indebtedness against
Borrower or any Person at any time liable for the payment of any or all of the
Guaranteed Indebtedness by reason of the fact that the Guaranteed Indebtedness,
and/or the interest paid or payable with respect thereto, exceeds the amount
permitted by Law, the act of creating the Guaranteed Indebtedness, or any part
thereof, is ultra vires, or the officers creating same acted in excess of their
authority, or for any other reason; or (i) any payment by Borrower to Lender is
held to constitute a preference under any Debtor Relief Law or if for any other
reason Lender is required to refund such payment or pay the amount thereof to
another Person.
7. Waivers. Guarantor hereby waives all Rights by which it might
be entitled to require suit on an accrued right of action in respect of any of
the Guaranteed Indebtedness or require suit against Borrower or others, whether
arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as
amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as
amended, and Rule 31 of the Texas Rules of Civil Procedure, as amended, or
otherwise.
-3-
<PAGE> 4
8. Guarantor Insolvency. Should Guarantor become insolvent, fail
to pay its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely
affect the Rights of Lender granted hereunder, then, the Guaranteed
Indebtedness shall be, as between Guarantor and Lender, a fully matured, due,
and payable obligation of Guarantor to Lender (without regard to whether
Borrower is then in default under the Credit Agreement or any other Loan Paper
or whether any part of the Obligation is then due and owing by Borrower to
Lender), payable in full by Guarantor to Lender upon demand, which shall be the
estimated amount owing in respect of the contingent claim created hereunder.
9. Representations and Warranties. Guarantor represents and
warrants to Lender that:
(a) Guarantor is a corporation duly organized and validly
existing under the Laws of the State of Florida;
(b) Guarantor is qualified to do business in all
jurisdictions where the nature of its business or properties require
such qualification;
(c) the board of directors of Guarantor has duly
authorized the execution, delivery, and performance of this Guaranty
and the other Loan Papers to be executed by Guarantor and no consent
of any shareholder of Guarantor is required to authorize such
execution, delivery or performance;
(d) Guarantor has full legal right, power, and authority
to execute, deliver, and perform under this Guaranty and the Loan
Papers to be executed and delivered by it;
(e) this Guaranty and the other Loan Papers to be
executed by Guarantor constitute the legal, valid, and binding
obligations of Guarantor enforceable in accordance with their terms
(subject as to enforcement of remedies to any applicable Debtor Relief
Laws);
(f) the execution or delivery of any Loan Papers to be
executed by Guarantor and performance thereunder, does not conflict
with, or result in a breach of the terms, conditions, or provisions
of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any properties of Guarantor
(other than rights of setoff in favor of Lender) under, or require any
consent (other than consents already obtained), approval, or other
action by, notice to, or filing with any Tribunal or Person pursuant
to, the corporate governance documents of Guarantor, any award of any
arbitrator, or any agreement, instrument, or Law to which Guarantor or
any of its properties is subject;
(g) the financial statements of Guarantor and its
subsidiaries dated January 31, 1995 delivered to Lender fairly present
its financial condition and the results of operations as of the dates
and for the periods shown, all in accordance with GAAP
-4-
<PAGE> 5
(subject to audit adjustments) and such financial statements reflect
all material liabilities, direct and contingent, of Guarantor that are
required to be disclosed in accordance with GAAP (subject to audit
adjustments);
(h) as of the date of such financial statements, there
were no contingent liabilities, liabilities for Taxes currently due
and payable, forward or long-term commitments, or unrealized or
anticipated losses from any unfavorable commitments that are
substantial in amount and that are not reflected on such financial
statements or otherwise disclosed in writing to Lender;
(i) Guarantor is Solvent;
(j) there is no pending or, to Guarantor's best
knowledge, threatened Litigation or any claim related to the release
of any toxic or hazardous waste or substance or alleged violation of
any federal, state or local environmental, health or safety law
against Guarantor that could constitute a Material Adverse Change as
to Guarantor;
(k) the value of the consideration received and to be
received by Guarantor is reasonably worth at least as much as the
liability and obligation of Guarantor hereunder, and such liability
and obligation may reasonably be expected to benefit Guarantor
directly or indirectly;
(l) Guarantor is familiar with, and has independently
reviewed books and records regarding, the financial condition of
Borrower and is familiar with the value of any and all collateral
intended to be created as security for the payment of the Guaranteed
Indebtedness; and
(m) neither Lender nor any of its officers or agents has
made any representation, warranty or statement to Guarantor in order
to induce Guarantor to execute this Guaranty.
10. Affirmative Covenants. So long as any of the Facility A
Commitment or the Facility B Commitment or any Advance under the Credit
Agreement or any portion of the Obligation is outstanding, or Borrower owes any
amount under any Loan Paper, Guarantor:
(a) shall furnish to Lender:
(i) As soon as available and in any
event within 45 days after the end of each of Guarantor's
fiscal quarters, consolidated and consolidating balance sheets
of Guarantor as of the end of such quarter, and consolidated
and consolidating statements of income, and a consolidated
statement of changes in cash flow of Guarantor and its
subsidiaries for such quarter and for the portion of the
fiscal year ending with such quarter, setting forth, in
comparative form, figures for the corresponding periods in the
previous fiscal year, all in reasonable detail, and certified
by an authorized officer of Guarantor as prepared in
-5-
<PAGE> 6
accordance with GAAP, and fairly presenting the financial
condition and results of operations of Guarantor and its
subsidiaries;
(ii) As soon as available and in any
event within 90 days after the end of each fiscal year of
Guarantor, a consolidated balance sheet of Guarantor and its
subsidiaries as at the end of such fiscal year, and
consolidated statements of income and changes in cash flow of
Guarantor and its subsidiaries for such fiscal year, all in
reasonable detail, prepared in accordance with GAAP, and
accompanied by an unqualified opinion of the auditor, which
opinion shall state that said financial statements were
prepared in accordance with GAAP, that the examination by the
auditor in connection with such financial statements was made
in accordance with generally accepted auditing standards, and
that said financial statements present fairly the financial
condition and results of operations of Guarantor and its
subsidiaries;
(iii) Promptly upon becoming aware,
written notice of any actual or potential contingent
liabilities, including Litigation, against Guarantor involving
liability in an amount which must be disclosed in either
Borrower's or Guarantor's financial statements or filings with
the Securities and Exchange Commission;
(iv) Promptly after filing or receipt
thereof by an officer of Guarantor, copies of all reports and
notices that Guarantor or any of its Subsidiaries furnishes to
or receives from any holders of any Debt or Contingent
Liability, if any information or dispute referred to therein
could result in a Default or an Event of Default;
(v) As soon as possible and in any event
within 10 days after Guarantor knows that any Reportable Event
has occurred with respect to any Plan of Guarantor, a
statement, signed by an authorized officer, describing said
Reportable Event and the action which Guarantor proposes to
take with respect thereto;
(vi) As soon as possible, and in any
event within 10 days after receipt by Guarantor, a copy of (A)
any notice or claim to the effect that Guarantor or any of its
subsidiaries is or may be liable to any Person as a result of
the release by Guarantor, any of its subsidiaries or any other
Person of any toxic or hazardous waste or substance into the
environment, and (B) any notice alleging any violation of any
federal, state or local environmental, health or safety law or
regulation by Guarantor or any of its subsidiaries, which
could, in either case, cause a Material Adverse Change as to
Guarantor; and
(vii) Promptly upon request, such other
information concerning the condition or operations of any of
Guarantor, its subsidiaries, and its Affiliates, financial or
otherwise, as Lender may from time to time reasonably request.
-6-
<PAGE> 7
(b) (i) shall cause to be done all things
necessary to preserve and keep in full force and effect
Guarantor's existence as a corporation;
(ii) shall comply with the requirements
of all applicable Laws and orders (including but not limited
to the FDA Act, ERISA and environmental laws) of Tribunals or
other governmental authorizations necessary to the ownership
of Guarantor's properties or to the conduct of its business if
the result of failure to so comply would have a Material
Adverse Effect as to Guarantor; and
(iii) will, on request of Lender, promptly
correct any defect, error or omission which may be discovered
in the contents of any of the Loan Papers to which it is a
party or in the execution or acknowledgment thereof, and will
execute, acknowledge and deliver such further instruments and
do such further acts as may be necessary or as may be
requested by Lender to carry out more effectively the purposes
of this Guaranty and the Loan Papers to which it is a party.
11. Setoff. Guarantor grants to Lender a right of setoff and Lien
upon each deposit account (time, demand, special and other) of Guarantor
maintained with Lender and any of its Affiliates to secure performance of
Guarantor's obligations hereunder. If an Event of Default exists, Lender may
setoff and otherwise apply any and all amounts in any such deposit account to
all amounts due hereunder.
12. Benefit; Binding Obligation. This Guaranty is for the benefit
of Lender and its successors and assigns, and in the event of an assignment of
the Guaranteed Indebtedness, or any part thereof, the Rights and benefits
hereunder, to the extent applicable to the Guaranteed Indebtedness so assigned,
may be transferred with such indebtedness. This Guaranty is binding not only
on Guarantor, but on its successors and assigns.
13. Defenses. The Guaranteed Indebtedness shall not be reduced,
discharged, or released because or by reason of any existing or future offset,
claim or defense of Borrower or any other Person against Lender or against
payment of the Guaranteed Indebtedness, whether such offset, claim, or defense
arises in connection with the Guaranteed Indebtedness or otherwise.
14. Change of Borrower Status. Should the status of Borrower
change through merger, consolidation, or otherwise, this Guaranty shall
continue and shall cover Guaranteed Indebtedness under the new status.
15. Fees. Guarantor agrees to pay reasonable attorneys' fees and
collection costs if this Guaranty is placed in the hands of an attorney for
collection.
16. Governing Law. This Guaranty shall be governed by and
construed according to the substantive Laws of the State of Texas. The
unenforceability or invalidity, as determined by a court of competent
jurisdiction, of any provision of this Guaranty shall not render unenforceable
or invalid any other provision of this Guaranty.
-7-
<PAGE> 8
17. Waiver of Subrogation. Guarantor shall not assert, enforce,
or otherwise exercise (i) any right of subrogation to any of the rights or
liens of Lender or any other beneficiary of any Lien against Borrower or any
other obligor on the Guaranteed Indebtedness or any collateral or other
security, or (ii) any right of recourse, reimbursement, contribution,
indemnification, or similar right against Borrower or any other obligor on all
or any part of the Guaranteed Indebtedness or any guarantor thereof, and
Guarantor hereby waives any and all of the foregoing rights and the benefit of,
and any right to participate in, any collateral or other security given to
Lender or any other beneficiary of any Lien to secure payment of the Guaranteed
Indebtedness. The provisions of this Section 17 shall survive the termination
of this Guaranty, and any satisfaction and discharge of Borrower by virtue of
any payment, court order, or Law.
18. LOAN PAPERS. THIS GUARANTY AND THE OTHER LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of March 31, 1995.
NEUROMED, INC.
By: /s/ F. ROBERT MERRILL III
-------------------------------------
F. Robert Merrill III, Vice President
-8-
