<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended December 28, 1996 Commission File No. 0-11484
________________________
MARQUEST MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 84-0785259
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11039 EAST LANSING CIRCLE, ENGLEWOOD, COLORADO 80112
(Address of principal executive offices, including zip code)
(303) 790-4835
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changes since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares of common stock, no par value, of Registrant outstanding at
January 16, 1997.
14,267,473
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATMENTS
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
December 28 March 30,
1996 1996
----------- ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 513 $ 1,635
Trade accounts receivable, less allowances for
doubtful accounts of $124 and $94, respectively 2,712 2,915
Notes and other receivables 70 181
Inventories 3,605 3,393
Prepaid items 176 173
----------- ----------
Total current assets 7,076 8,297
PROPERTY, PLANT AND EQUIPMENT
Land 1,265 1,265
Buildings 4,985 4,985
Machinery and equipment 8,942 8,866
Other 2,552 2,523
Construction in progress 47 2
----------- ----------
17,791 17,641
Less accumulated depreciation (11,193) (10,586)
----------- ----------
Net property, plant and equipment 6,598 7,055
OTHER ASSETS 69 41
----------- ----------
----------- ----------
$ 13,743 $ 15,393
----------- ----------
----------- ----------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
2
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 28, March 30,
1996 1996
----------- ----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,195 $ 1,001
Accrued liabilities 2,838 3,728
Payable to related party 40 48
Swiss debt principal and interest 368 397
Current maturities of long-term debt 93 117
Current maturities of capital lease obligation 313 289
------------ ----------
Total current liabilities 4,847 5,580
CAPITAL LEASE OBLIGATION 298 536
NOTE PAYABLE TO BANK 813 858
SWISS NOTES PAYABLE 2,851 2,896
NOTE PAYABLE TO SCHERER CAPITAL, LLC. 700 700
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000
shares authorized; 14,288,313 and 14,207,435 shares
issued and outstanding, respectively 9,900 9,834
Warrants 593 599
Retained earnings(deficit) ($20,434 of retained
deficit eliminated at July 3, 1993 relating to the
quasi-reorganization) (6,189) (5,540)
Treasury stock, 20,840 shares (70) (70)
------------ ----------
Total shareholders' equity (deficit) 4,234 4,823
------------ ----------
$ 13,743 $ 15,393
------------ ----------
------------ ----------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
----------------------------
December 28, December 30,
1996 1995
------------ -------------
NET REVENUES $ 5,035 $ 5,739
COST OF SALES (3,430) (3,960)
------------ -------------
GROSS PROFIT 1,605 1,779
COSTS AND EXPENSES
Selling and marketing expenses (1,054) (979)
General and administrative expenses (511) (620)
Research and development expenses (97) (36)
------------ -------------
OPERATING INCOME (LOSS) (57) 144
OTHER INCOME (EXPENSE)
Other income (expense) (112) 91
Interest expense (172) (169)
Foreign exchange gain (loss) 27 (2)
Gain on sale of assets -- 8
------------ -------------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (314) 72
Provision for income taxes -- (697)
------------ -------------
NET INCOME (LOSS) $ (314) $ (625)
------------ -------------
------------ -------------
Earnings (loss) per common share $ (0.02) $ (0.08)
------------ -------------
------------ -------------
Weighted average number of common shares
outstanding during the period 14,265,848 8,246,880
------------ -------------
------------ -------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
4
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Nine Months Ended
-----------------------------
December 28, December 30,
1996 1995
------------ ------------
NET REVENUES $ 15,840 $ 16,216
COST OF SALES (11,115) (11,149)
------------ ------------
GROSS PROFIT 4,725 5,067
COSTS AND EXPENSES
Selling and marketing expenses (3,066) (2,950)
General and administrative expenses (1,581) (1,757)
Research and development expenses (195) (112)
------------ ------------
OPERATING INCOME (LOSS) (117) 248
OTHER INCOME (EXPENSE)
Other income (expense) (73) 78
Interest expense (507) (506)
Foreign exchange gain (loss) 48 15
Gain on sale of assets -- 225
------------ ------------
LOSS FROM OPERATIONS BEFORE INCOME TAXES (649) 60
Provision for income taxes -- (697)
------------ ------------
NET INCOME (LOSS) $ (649) $ (637)
------------ ------------
------------ ------------
Earnings (loss) per common share $ (0.05) $ (0.08)
------------ ------------
------------ ------------
Weighted average number of common shares
outstanding during the period 14,234,363 8,231,715
------------ ------------
------------ ------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
5
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
December 28, December 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (649) $ (637)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 614 819
Provision for losses on accounts receivable 16 17
Foreign exchange (gain) loss (48) (15)
Gain on sale of assets -- (225)
Gain on extinguishment of debt -- (32)
Increase (decrease) in operating assets and
liabilities:
Accounts receivable 186 258
Notes and other receivables 111 (24)
Inventories and prepaid items (215) (439)
Accounts payable, accrued liabilities and
payable to related party (704) (158)
Accrued interest on Swiss bonds 19 42
Other (35) --
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (705) (394)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (150) (39)
Proceeds from sale of assets -- 225
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (150) 186
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Swiss bond principal and interest -- (146)
Proceeds from note payable to Scherer Capital -- 1,100
Issuance of common stock 16 1
Principal payments on borrowings (283) (360)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (267) 595
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,122) 387
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,635 562
------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 513 $ 949
------------ ------------
------------ ------------
</TABLE>
(Continued)
6
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MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Nine Months Ended
--------------------------------
December 28, December 30,
1996 1995
------------ ------------
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Warrants exercised:
Warrants $ (6) $ (13)
Swiss notes (45) (40)
Common stock 51 53
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
Capital lease:
Repayment of notes payable $ -- $ (220)
Purchases of property and equipment -- (364)
Capital lease addition -- 584
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
Swiss Bond exchange:
Issuance of Swiss notes payable $ -- $ 259
Repayment of Swiss Bond principal -- (291)
Gain on exchange -- 32
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
7
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. REPORT OF MANAGEMENT:
The management of Marquest Medical Products, Inc. (the "Company") is responsible
for the integrity of the financial information presented. The financial
statements have been prepared in accordance with generally accepted accounting
principles and they include amounts that are based on management's estimates and
judgment. These unaudited interim financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results of the interim periods presented.
Management relies upon the Company's system of internal controls in meeting its
responsibilities for maintaining reliable financial records. This system is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's
intentions. Judgments are required to assess and balance the relative cost and
expected benefits of such controls.
2. INVENTORIES:
Inventories consist of the following (in thousands of dollars):
December 28, 1996 March 30, 1996
----------------- --------------
Raw materials $2,254 $1,782
Work in process 338 233
Finished goods 1,013 1,378
______ ______
$3,605 $3,393
===== =====
3. QUASI-REORGANIZATION:
In June 1993, the Company's Board of Directors approved quasi-reorganization
procedures which were effective July 3, 1993, the end of the Company's first
quarter of fiscal 1994.
4. WARRANTS:
In June, August and December, 1996, 19,411, 59,618 and 1,849, respectively, of
the Company's warrants to purchase common stock at $0.75 per share were
exercised. These warrants had been issued to Swiss bondholders in exchange
transactions during fiscal 1994.
5. LINE OF CREDIT
The Company has obtained a revolving line of credit from Norwest Business
Credit, Inc. ("Norwest") secured by receivables with an interest rate of 2.25%
over Norwest's prime rate, expiring February 28, 1999. The maximum line of
credit to be extended is 80% of eligible accounts receivable or $2,000,000,
whichever is less. There have been no borrowings on the line of credit.
8
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6. FOOD AND DRUG ADMINISTRATION
The Company is subject to regulation by the Food and Drug Administration ("FDA")
regarding the manufacture and sale of the Company's products. On October 1,
1991, the Company entered into a five-year Consent Decree with the FDA in which
the Company agreed to comply with the FDA's Current Good Manufacturing Practices
("cGMP"). As of October 1, 1996, the Consent Decree expired.
7. JAPANESE PATENT
In a Complaint filed in September 1996, the Company's distributor of arterial
blood gas products in Japan is alleged to infringe the patent of Terumo K.K.,
resulting in a request for an injunction against the distributor from further
marketing and sale of arterial blood gas samplers manufactured by the Company
and distributed in Japan. The Complaint does not currently name the Company.
The Company is paying the cost to defend its distributor in the litigation and
has engaged Japanese counsel. Due to the preliminary nature of this litigation,
there can be no assessment as to the potential impact on the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1997 were $5,035,000, a decrease of
$704,000 or 12.3% compared to sales of $5,739,000 for the third quarter of the
previous year. Year-to-date sales of $15,840,000 declined by $376,000 or 2.3%
compared to sales for the nine-month period of the prior fiscal year. A portion
of the overall decrease is due to sales to one OEM manufacturer in fiscal 1996,
who did not order in fiscal 1997. Also, as a result of the Company's expanded
European warehouse facility, some foreign customers are changing buying
patterns, placing more frequent smaller orders in contrast to large orders.
This practice caused a delay in expected purchases during the third quarter.
The gross margin increased from 31% in the third quarter of fiscal 1996 to 31.9%
in the third quarter of fiscal 1997, and decreased from 31.2% to 29.8% for the
first nine months of fiscal 1996 and 1997, respectively. The year-to-date
decrease is due to (i) overtime incurred for rework of certain products, (ii)
the Company's commitment to improved quality systems to meet international
standards and (iii) an increase in the level of heated humidification units
provided to customers. Heated humidification units are provided to hospitals at
no charge in exchange for agreements to purchase specified levels of disposable
products. In fiscal 1997, more new units are being provided to hospitals.
Operating expenses have remained steady for the third quarter and for the first
nine months compared to the prior year. During the first quarter of fiscal
1996, the Company sold its 10% investment in Seabrook Medical Systems, Inc. for
a $200,000 gain.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash used in operations was $705,000 for the first nine
months of fiscal 1997 compared to $394,000 for the comparable period in fiscal
1996. This decrease was due to a reduction in payables and accrued liabilities
due resulting from payment of various legal settlements and monthly payments to
the Internal Revenue Service.
FINANCING ACTIVITIES: During fiscal 1996, the Company and Scherer Capital, LLC.
signed a loan agreement under which the Company may borrow up to $1,500,000 at
1-1/2% over prime, secured by inventory and equipment. At December 28, 1996,
there is $800,000 of borrowing capacity available to the Company under that
facility and
9
<PAGE>
$2,000,000 under a revolving credit facility. On March 29, 1996, Scherer
Capital purchased $1,000,000 of common stock of the Company for $0.485 per
share.
The Company has obtained a revolving line of credit from Norwest Business
Credit., Inc. ("Norwest") secured by receivables with an interest rate of 2.25%
over Norwest's prime rate, expiring February 28, 1999. The maximum line of
credit to be extended is 80% of eligible accounts receivable or $2,000,000,
whichever is less. All of the line is available for borrowing at December 28,
1996. The covenants for the line of credit provide that the company must
maintain a debt service coverage ratio of 1:1 at the end of fiscal 1997 and the
maximum net loss cannot exceed $50,000 for fiscal 1997.
Management of the Company believes that it can fund its current operating levels
and capital expenditures from the funds from the sale of common stock in March
1996 and from available borrowings under the loan agreement with Scherer Capital
and the line of credit. To the extent that fiscal 1997 operations and
borrowings are not sufficient to support anticipated capital expenditures, the
Company's planned investment in capital projects will be reduced.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In a Complaint filed in September 1996, the Company's distributor of arterial
blood gas products in Japan is alleged to infringe the patent of Terumo K.K.,
resulting in a request for an injunction against the distributor from further
marketing and sale of arterial blood gas samplers manufactured by the Company
and distributed in Japan. The Complaint does not currently name the Company.
The Company is paying the cost to defend its distributor in the litigation and
has engaged Japanese counsel. Due to the preliminary nature of this litigation,
there can be no assessment as to the potential impact on the Company.
ITEM 5. OTHER INFORMATION.
The Company is subject to regulation by the Food and Drug Administration ("FDA")
regarding the manufacture and sale of the Company's products. On October 1,
1991, the Company entered into a five-year Consent Decree with the FDA in which
the Company agreed to comply with the FDA's Current Good Manufacturing Practices
("cGMP"). As of October 1, 1996, the Consent Decree expired.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description Page
----------- ----------- ----
4. Credit and Security Agreement by and between
Marquest Medical Products, Inc. and Norwest Business
Credit, Inc. dated November 5, 1996 12
27. Financial Data Schedule (EDGAR version only) 65
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter for which
this report on Form 10-Q is being filed.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 5, 1997 MARQUEST MEDICAL PRODUCTS, INC.
/s/ William J. Thompson
-------------------------------------
William J. Thompson
President
/s/ Margaret Von der Schmidt
-------------------------------------
Margaret Von der Schmidt
Vice President - Finance and Chief Financial
Officer
11
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CREDIT AND SECURITY AGREEMENT
Dated as of November 5, 1996
MARQUEST MEDICAL PRODUCTS, INC., a Colorado corporation (the
"Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of
goods or rendition of services by the Borrower on an open account or
deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Scherer Healthcare, Inc., Scherer
Capital, LLC and any other Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota or Denver, Colorado.
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"Base Rate" means the rate of interest publicly announced from time
to time by Norwest Bank Minnesota, National Association as its "base rate"
or, if such bank ceases to announce a rate so designated, any similar
successor rate designated by the Lender.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, 80% of Eligible Accounts less the reserves for
rebates calculated in accordance with the Borrower's
historical practice and less a reserve in the amount owed by
the Borrower to the Internal Revenue Service for taxes,
interest and penalties for tax periods prior to the date
hereof.
"Capital Expenditures" for a period means any expenditure of money
for the purchase or construction of assets, or for improvements or
additions thereto, which are capitalized on the Borrower's balance sheet
for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any Collateral
Account, and any items in any Lockbox; together with (i) all substitutions
and replacements for and products of any of the foregoing; (ii) proceeds
of any and all of the foregoing; (iii) in the case of all tangible goods,
all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with
any tangible goods; (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
"Collateral Account Agreement" means the Collateral Account Agreement
of even date herewith by and among the Borrower, Norwest Bank Colorado,
N. A. and the Lender.
"Commitment" means the Lender's commitment to make Advances to or for
the Borrower's account pursuant to Article II.
"Credit Facility" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
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"Current Maturities of Long Term Debt" as of a given date means the
amount of the Borrower's long-term debt and capitalized leases which become
due during the twelve-month period after the designated date.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes
of determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum of
(A) Funds from Operations and (B) Interest Expense MINUS (C) unfinanced
Capital Expenditures to (ii) the sum of (A) Current Maturities of Long Term
Debt and (B) Interest Expense.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2.0%)
over the Floating Rate, which rate shall change when and as the Floating
Rate changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) Except as permitted for accounts listed in
subparagraph (v) below, that portion of Accounts over 90 days past
invoice date;
(ii) That portion of Accounts that are disputed or subject to
a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether foreign
or domestic (provided, however, that there shall be included in
Eligible Accounts that portion of Accounts owed by such units of
government for which the
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Borrower has provided evidence satisfactory to the Lender that (A) the
Lender has a first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such unit of
government under all applicable laws);
(v) Accounts owed by an account debtor located outside the
United States which are not backed by a bank letter of credit assigned
to the Lender, in the Lender's possession and acceptable to the Lender
in all respects in its sole discretion, or which are not insured by an
insurance company acceptable to the Lender in all respects in its sole
discretion, with evidence of insurance delivered to the Lender with
all endorsements or assignments necessary or appropriate to permit the
Lender to realize thereon and which accounts are not more than
120 days past invoice date;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security interest
in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
(ix) That portion of Accounts that have been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes, advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii) or
(ix) above;
(xii) Accounts owed by an account debtor, regardless of whether
otherwise eligible, in excess of 20% of the total amount of all
otherwise Eligible Accounts; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all
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present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts,
tools, supplies, and including specifically (without limitation) the goods
described in any equipment schedule or list herewith or hereafter furnished
to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus two and one-quarter percent (2.25%), which annual rate shall change
when and as the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given twelve-month period means the sum
of (i) Net Income, (ii) depreciation and amortization, (iii) deferred
income taxes, and (iv) other non-cash items, each as determined for such
period in accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial
Accounting Standards Board changing or implementing any new accounting
standard, the Borrower either (i) is required to implement such change, or
(ii) for future periods will be required to and for the current period may
in accordance with generally accepted accounting principles implement such
change, for its financial statements to be in conformity with generally
accepted accounting principles (any such change is herein referred to as a
"Required GAAP Change"), provided that (1) the Borrower shall fully
disclose in such financial statements any such Required GAAP Change and the
effects of the Required GAAP Change on the Borrower's income, retained
earnings or other accounts, as applicable, and (2) the Borrower's financial
covenants set forth in Sections 6.12, 6.13, and 7.10 shall be adjusted as
necessary to reflect the effects of such Required GAAP Change.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower's name, and the goodwill
of the Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
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"Interest Expense" means, for a fiscal year-to-date period, the
Borrower's total gross interest expense during such period (excluding
interest income), and shall in any event include, without limitation,
(i) interest expensed (whether or not paid) on all Debt, (ii) the
amortization of debt discounts, (iii) the amortization of all fees
payable in connection with the incurrence of Debt to the extent included
in interest expense, and (iv) the portion of any capitalized lease
obligation allocable to interest expense.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application an agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.12.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Norwest Bank Colorado, N.A. and, the Lender, of even date
herewith.
"Maturity Date" means February 28, 1999.
"Maximum Line" means $2,000,000, unless said amount is reduced
pursuant to Section 2.6, in which event it means the amount to which said
amount is reduced.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"Net Income" means fiscal year-to-date after-tax net income, DECREASED
by the sum of any extraordinary, non-operating or non-cash income recorded
by the Borrower and INCREASED by any extraordinary, non-cash or
non-operating expense or loss recorded by the Borrower, as determined in
accordance with GAAP.
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"Note" means the Revolving Note.
"Obligation of Reimbursement" has the meaning given in Section 2.13.
"Obligations" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness
of the Borrower arising under this Agreement, the Note, any L/C Application
completed by the Borrower, or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or
hereafter entered into.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in Exhibit C attached hereto.
"Receivables" means each and every right or the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all
including but not limited to all present and future accounts, contract
rights, loans and
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obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto.
"Security Documents" means this Agreement, the Collateral Account
Agreement, and the Lockbox Agreement.
"Security Interest" has the meaning given in Section 3.1.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries.
"Termination Date" means the Maturity Date, or the earlier date of
termination in whole of the Commitment pursuant to Sections 2.6(a) or 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
Section 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and Subsections, shall be to Articles, Sections and
Subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 REVOLVING ADVANCES. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). The
Lender shall have no obligation to make a Revolving Advance if, after
giving effect to such requested Revolving Advance, the sum of the outstanding
and unpaid
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Revolving Advances would exceed the Borrowing Base less the L/C Amount. The
Borrower's obligation to pay the Revolving Advances and the Obligation of
Reimbursement shall be evidenced by the Revolving Note and shall be secured by
the Collateral as provided in Article III. Within the limits set forth in this
Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.6 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Denver time) of the day of the requested
Revolving Advance which if timely made and if Borrower is otherwise
entitled thereto pursuant to the terms hereof, shall be advanced that day
by Lender. Requests may be made in writing or by telephone, specifying the
date of the requested Revolving Advance and the amount thereof. Each
request shall be by (i) any officer of the Borrower; or (ii) any person
designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender or (iii) any person whom the Lender
reasonably believes to be an officer of the Borrower or such a designated
agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand deposit
account maintained with Norwest Bank Colorado N.A. unless the Lender and
the Borrower shall agree in writing to another manner of disbursement.
Upon the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to
do so. Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.
SECTION 2.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY. Interest accruing on the Note shall be due and payable
in arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.2(b), 2.2(c)
and 2.2(e), the outstanding principal balance of the Revolving Note shall
bear interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to Section 2.2(a), the Borrower shall pay to the Lender interest
of not less than $15,000 per calendar quarter (the "Minimum Interest
Charge") during the term of
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this Agreement, whether or not this Agreement is terminated prior to
January 31, 1997, and the Borrower shall pay any deficiency between the
Minimum Interest Charge and the amount of interest otherwise calculated
under Sections 2.2(a) and 2.2(c) on the date and in the manner provided in
Section 2.4.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a participation in
the Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated hereunder, along
with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its prorata share of such fees, charges and other
amounts due under this Agreement.
(e) USURY. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law.
Section 2.3 FEES.
(a) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a
fee with respect to each Letter of Credit, at the annual rate of two
percent (2.0%) of the aggregate amount that may then be drawn on all issued
and outstanding Letters of Credit, assuming compliance with all conditions
for drawing thereunder from and including the date of issuance of such
Letter of Credit until such date as such Letter of Credit shall terminate
by its terms, prorated for the term of the Letter of Credit. The foregoing
fee shall be in addition to any and all fees, commissions and charges of
any Issuer of a Letter of Credit with respect to or in connection with such
Letter of Credit.
(b) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees to pay
the Lender, on written demand, the administrative fees charged by the
Issuer in connection with the honoring of drafts under any Letter of
Credit, amendments thereto, transfers thereof and all other activity with
respect to the Letters of Credit at the then-current rates published by the
Issuer for such services rendered on behalf of customers of the Issuer
generally.
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(c) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of $20,000, due and payable
upon the execution of this Agreement.
(d) UNUSED LINE FEE. For the purposes of this Section 2.3(d),
"Unused Amount" means the Maximum Line reduced by outstanding Revolving
Advances and by the L/C Amount. The Borrower agrees to pay to the Lender
an unused line fee at the rate of one-quarter percent (0.25%) per annum on
the average daily Unused Amount from the date of this Agreement to and
including the Termination Date, due and payable monthly in arrears on the
first day of the month and on the Termination Date.
(e) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the standard rate or rates established from time to time by the Lender as
its audit fees (which fees are currently $50 per hour per auditor),
together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection; PROVIDED, HOWEVER, that except
during Default Periods, the Borrower shall not have to reimburse the Lender
for such fees, costs and expenses to the extent they exceed $10,000 per
year.
Section 2.4 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE
AND PAYABLE. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed
on the basis of actual number of days elapsed in a year of 360 days. Interest
shall be payable in arrears on the first day of each month and on the
Termination Date.
Section 2.5 CAPITAL ADEQUACY. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. If
any Related Lender invokes its rights under this Section 2.5, the Borrower shall
have the right, in lieu of making such payment to the Related Lender, to
terminate this Agreement without payment of any fees that would otherwise be
payable under Section 2.6 hereof, by giving the Lender written notice of such
election within 30 days of demand by the Related Lender for payment and within
30 days after giving such notice, making prepayment of the Obligations in full.
For purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any Law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related
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Lender. Such rules include rules requiring financial institutions to
maintain total capital in amounts based upon percentages of outstanding
loans, binding loan commitments and letters of credit.
(b) "L/C Rule" means any law, rule, regulation, guideline, directive,
requirement or request regarding letters of credit, or the interpretation
or administration thereof by any governmental or regulatory authority,
central bank or comparable agency, whether or not having the force of law,
that applies to any Related Lender. Such rules include rules imposing
taxes, duties or other similar charges, or mandating reserves, special
deposits or similar requirements against assets of, deposits with or for
the account of, or credit extended by any Related Lender, on letters of
credit.
(c) "Return", for any period, means the return as determined by such
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules then in effect and costs of issuing
or maintaining any Letter of Credit. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(d) "Rule Change" means any change in any Capital Adequacy Rule or
L/C Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(e) "Related Lender" includes (but is not limited to) the Lender, the
Issuer, any parent corporation of the Lender or the Issuer and any assignee
of any interest of the Lender hereunder and any participant in the loans
made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.6 VOLUNTARY PREPAYMENT; TERMINATION OF CREDIT FACILITY BY
THE BORROWER; PERMANENT REDUCTION OF THE MAXIMUM LINE; WAIVER OF REDUCTION AND
PREPAYMENT
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FEES. Except as otherwise provided herein, the Borrower may terminate the
Credit Facility or prepay the Advances in whole at any time or from time to time
in part.
(a) TERMINATION BY BORROWER. The Borrower may terminate the Credit
Facility at any time so long as no Letter of Credit has been issued and is
outstanding with an expiration date after such date, and, subject to
payment and performance of all Obligations, may obtain any release or
termination of the Security Interest and the Security Documents to which
the Borrower is otherwise entitled by law by (i) giving at least 30 days'
prior written notice to the Lender of the Borrower's intention to terminate
the Credit Facility unless terminated on or before January 31, 1997;
and (ii) paying the Lender the reduction or termination fees in accordance
with subsection (b) if the Borrower reduces the Maximum Line or terminates
the Credit Facility effective as of any date other than the Maturity Date.
(b) PERMANENT REDUCTION OF MAXIMUM LINE. The Borrower may at any
time and from time to time, upon at least 30 days' prior written notice to
the Lender, permanently reduce in part or completely the Maximum Line or
terminate the Credit Facility in accordance with the following provisions:
(i) The Borrower may not reduce the Maximum Line to an amount
less than the then-aggregate outstanding balance of the Revolving
Advances plus the L/C Amount.
(ii) If a reduction of the Maximum Line occurs at any time other
than the Maturity Date, the Borrower shall pay to the Lender a premium
in an amount equal to a percentage of the reduction as follows:
(A) three percent (3.0%) if the reduction occurs on or
before the first anniversary of the Funding Date;
(B) two percent (2.0%) if the reduction occurs after the
first anniversary of the Funding Date but on or before the second
anniversary of the Funding Date; and
(C) one percent (1.0%) if the reduction occurs after the
second anniversary of the Funding Date.
(iii) Any reduction in the Maximum Line must be in an amount
not less than $250,000 or an integral multiple thereof.
(iv) If the Borrower reduces the Maximum Line to zero, all
Obligations shall be immediately due and payable.
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(v) The premium otherwise payable under subparagraph (ii) above
shall be reduced to zero if the Borrower terminates this Credit
Facility on or before January 31, 1997 and upon ten business days'
written notice to the Lender and pays the Obligations in full with the
proceeds of the sale of the stock or substantially all of the assets
of Borrower or its parent corporation at closing of such sale, which
must occur on or before January 31, 1997.
(c) WAIVER OF REDUCTION, TERMINATION FEES. The Borrower will not be
required to pay the reduction, termination fees otherwise due under
subsection (b) if such reduction is requested or such prepayment is made
because of refinancing by an affiliate of the Lender.
Section 2.7 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall immediately
prepay the Revolving Advances to the extent necessary to eliminate such
excess. Any payment received by the Lender under this Section 2.7 or under
Section 2.6 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.8 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations two Banking
Days after deposit in the Collateral Account. Notwithstanding anything in
Section 2.1, the Borrower hereby authorizes the Lender, in its discretion at
any time or from time to time without the Borrower's request and even if the
conditions set forth in Section 4.2 would not he satisfied, to make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time
due and payable.
Section 2.9 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.10 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances and each Letter of Credit for ordinary working capital purposes.
Section 2.11 LIABILITY RECORDS. The Lender shall maintain from time to
time liability records as to the Obligations and shall provide the Borrower a
statement of account at least monthly, showing, among other things, each change
in the Floating Rate. All entries made on any such record shall be presumed
correct until the Borrower establishes the contrary. Upon the Lender's demand,
the Borrower will admit and certify in writing the exact
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principal balance of the Obligations that the Borrower then asserts to be
outstanding. Any billing statement or accounting rendered by the Lender shall
be conclusive and fully binding on the Borrower unless the Borrower gives the
Lender specific written notice of exception within 60 days after receipt.
Section 2.12 LETTERS OF CREDIT. The Lender agrees, on the terms and
subject to the conditions herein set forth, to cause an Issuer to issue, from
the Funding Date to the Termination Date, one or more irrevocable standby or
documentary letters of credit (each, a "Letter of Credit") for the Borrower's
account. The Lender shall have no obligation to cause an Issuer to issue any
Letter of Credit if the face amount of the Letter of Credit to be issued would
exceed the Borrowing Base less the sum of (A) all outstanding and unpaid
Revolving Advances and (B) the L/C Amount.
(a) Each Letter of Credit, if any, shall be issued pursuant to a
separate L/C Application entered into by the Borrower and the Lender for
the benefit of the Issuer, completed in a manner satisfactory to the Lender
and the Issuer. The terms and conditions set forth in each such L/C
Application shall supplement the terms and conditions hereof, but if the
terms of any such L/C Application and the terms of this Agreement are
inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiration date later
than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit under
this Section 2.12 shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of the
date of the request.
Section 2.13 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT; OBLIGATION
OF REIMBURSEMENT. The Borrower acknowledges that the Lender, as co-applicant,
will be liable to the Issuer for reimbursement of any and all draws under
Letters of Credit and for all other amounts required to be paid under the
applicable L/C Application. Accordingly, the Borrower agrees to pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a draft
is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and
expenses that the Issuer or the Lender may pay or incur relative to such
draw and the applicable L/C Application, plus interest on all such amounts,
charges and expenses as set forth below (the Borrower's obligation to pay
all such amounts is herein referred to as the "Obligation of
Reimbursement").
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(b) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of Reimbursement
together with interest, accrued from the date of the draft until payment in
full at the Default Rate. Notwithstanding the Borrower's inability to
obtain a Revolving Advance for any reason, the Lender is irrevocably
authorized, in its sole discretion, to make a Revolving Advance in an
amount sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.
(c) The Borrower's obligation to pay any Revolving Advance made under
this Section 2.13, shall be evidenced by Revolving Note and shall bear
interest as provided in Section 2.2.
Section 2.14 SPECIAL ACCOUNT. If the Commitment is terminated for
any reason whatsoever, while any Letter of Credit is outstanding, the Borrower
shall thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. Amounts on
deposit in the Special Account may be applied by the Lender at any time or from
time to time to the Obligations in the Lender's sole discretion, and shall not
be subject to withdrawal by the Borrower so long as the Lender maintains a
security interest therein. The Lender agrees to transfer any balance in the
Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
Section 2.15 OBLIGATIONS ABSOLUTE. The Borrower's obligations arising
under this Agreement shall be absolute, unconditional and irrevocable, and shall
be paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure from all
or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such
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transferee may be acting), or other person or entity, whether in connection
with this Agreement, the transactions contemplated herein or in the Related
Documents or any unrelated transactions,
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;
(e) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, or during any Default Period, the
Lender may, but need not, in the Lender's name or in the Borrower's name, (a)
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the
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Borrower hereby directs the issuer of any such policy to pay all such monies
directly to the Lender. At any time, whether or not a Default Period then
exists, the Lender may (but need not), in the Lender's name or in the Borrower's
name, execute and deliver proof of claim, receive all such monies, endorse
checks and other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations
and termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the
Lender for, all taxes, fees, duties, imposts, charges and expenses at any
time incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5 LICENSE. The Borrower hereby grants to the Lender a
nonexclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
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Name and address of Debtor:
Marquest Medical Products, Inc.
11039 East Lansing Circle
Englewood, Colorado 80112
Federal Tax Identification No. 84-0785259
Name and address of Secured Party:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Federal Tax Identification No. 41-1237652
Section 3.7 SETOFF. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or set off any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE AND
THE INITIAL LETTER OF CREDIT. The Lender's obligation to make the initial
Revolving Advance or to cause to be issued the initial Letter of Credit
hereunder shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all mortgages pursuant to
which the Borrower has mortgaged the Premises.
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(d) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Colorado, N. A..
(e) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank Colorado, N. A..
(f) A security agreement and financing statement(s) granting Norwest
Bank Colorado, N. A. a perfected security interest in the Collateral to
secure the Borrower's obligations to the Lockbox agent and the Collateral
Account agent under the Lockbox Agreement and the Collateral Account
Agreement.
(g) Current searches of appropriate filing offices showing that (i)
no state or federal tax liens have been filed and remain in effect against
the Borrower, other than the lien of the Internal Revenue Service to be
paid in full prior to the initial Advance, (ii) no financing statements
have been filed and remain in effect against the Borrower except those
financing statements relating to Permitted Liens or to liens held by
Persons who have agreed in writing that upon receipt of proceeds of the
Advances, they will deliver UCC releases and/or terminations satisfactory
to the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(h) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf.
(i) A current certificate issued by the Secretary of State of
Colorado, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Colorado.
(j) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(k) An opinion of counsel to the Borrower, addressed to the Lender.
(l) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
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(m) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit under Section 2.3 and expenses incurred
by the Lender through such date and required to be paid by the Borrower
under Section 9.6, including all legal expenses incurred through the date
of this Agreement.
(n) A support agreement executed by William Thompson.
(o) The Borrowing Base shall exceed all amounts owed to the Internal
Revenue Service by at least $200,000.
(p) A debt subordination agreement signed by Scherer Capital LLC in
form and substance satisfactory to the Lender.
(q) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender's
obligation to make each Advance or to cause the Issuer to issue any Letter of
Credit shall be subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of Letter of
Credit as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance or issuance of Letter of Credit which constitutes a
Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Colorado and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under
the names set forth in Schedule 5.1 hereto. The
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Borrower's chief executive office and principal place of business is located at
the address set forth in Schedule 5.1 hereto, and all of the Borrower's records
relating to its business or the Collateral are kept at that location. All
Inventory and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto. The Borrower's tax identification
number is correctly set forth in Section 3.6 hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon
due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. The Borrower has two Subsidiaries: Intec
Medical, Incorporated, a Delaware corporation and Diverse Molding Technologies,
Inc., a Colorado corporation.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for its fiscal year ended March 31, 1996 and unaudited financial statements of
the Borrower for the months ended June 30, 1996, and those statements fairly
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with GAAP. Since the date of the most recent
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financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
Section 5.6 LITIGATION. Except as disclosed to the Lender in
writing, there are no actions, suits or proceedings pending or, to the
Borrower's knowledge, threatened against or affecting the Borrower or any of
its Affiliates or the properties of the Borrower before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower.
Section 5.7 REGULATION U. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 TAXES. The Borrower and its Affiliates have paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them, other than the federal
taxes to be paid as described in Section 4.1(g) hereof. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 TITLES AND LIENS. The Borrower has good and absolute
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
balance sheet referred to in Section 5.5 and all proceeds thereof, free and
clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is on
file in any office except to perfect only Permitted Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Except with regard to its 401K plan
(disclosed to the Lender in writing), neither the Borrower nor any Affiliate
has received any notice or has any knowledge to the effect that it is not in
full compliance with any of the requirements of ERISA. Neither the Borrower
nor any Affiliate will establish or maintain a defined benefit Plan.
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property
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is bound or affected, the breach or default of which could have a material
adverse effect on the Borrower's financial condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances that are being handled in such
a manner, as to create any liability or obligation for either the Borrower
or the Lender under common law of any jurisdiction or under any
Environmental Law and all such Hazardous Substances are routinely removed
from the Premises by qualified disposal services. No Hazardous Substances
have ever been stored, buried, spilled, leaked, discharged, emitted or
released in, on or under the Premises in such a way as to create any such
liability.
(c) to the Borrower's best knowledge, the Borrower has not disposed
of Hazardous Substances in such a manner as to create any liability under
any Environmental Law.
(d) There are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law
or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and
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there is no threat that any such permit will be withdrawn, terminated,
limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's businesses.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
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Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 105 days after the
end of each fiscal year of the Borrower, the Borrower's audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the Borrower's balance sheet as
at the end of such fiscal year and the related statements of the Borrower's
income, retained earnings and cash flows for the fiscal year then ended,
prepared, if the Lender so requests and only if reasonably necessary to
allow the Lender to accurately perform a complete financial analysis, on a
consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i)
copies of all management letters prepared by such accountants; (ii) a
report signed by such accountants stating that in making the investigations
necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 6.12, 6.13 and 7.10; and (iii) a certificate of the
Borrower's chief financial officer stating that such financial statements
have been prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;
(b) as soon as available and in any event within 30 days after the
end of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such
month and for the year to date period then ended, prepared, if the Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments;
and accompanied by a certificate of the Borrower's chief financial officer,
substantially in the form of Exhibit B hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail
the facts with respect thereto, and (iii) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not
the Borrower is in compliance with the requirements set forth in Sections
6.12, 6.13 and 7.10;
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(c) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, and a calculation of the Borrower's Accounts and
Eligible Accounts as at the end of such month or shorter time period;
(d) before the beginning of each fiscal year of the Borrower, the
projected balance sheets and income statements for each month of such year,
each in reasonable detail, representing the Borrower's good faith
projections and certified by the Borrower's chief financial officer as
being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(e) weekly, reports of sales, and daily, collections and cash,
supported by summary sales journals, summary collection journals and
validated deposit slips;
(f) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of $25,000;
(g) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(h) weekly, reports of (i) any disputes or claims by the Borrower's
customers exceeding $10,000 per individual claim or dispute or $50,000 in
the aggregate for any one customer during any fiscal year, (ii) credit
memos, including any for goods returned to or recovered by the Borrower;
and (iii) any change in the persons constituting the Borrower's officers
and directors;
(i) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral
or such other collateral or the prospect of payment thereof;
(j) promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which the Borrower shall file with
the Securities and
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Exchange Commission or any national securities exchange or send to its
shareholders, including proxy statements;
(k) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(l) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining
to the Collateral and pertaining to the Borrower's business and financial
condition and such other matters as the Lender may from time to time request
in which true and complete entries will be made in accordance with GAAP and,
upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any
and all corporate and financial books and records of the Borrower at all
times during ordinary business hours, to send and discuss with account
debtors and other obligors requests for verification of amounts owed to the
Borrower, and to discuss the Borrower's affairs with any of its directors,
officers, employees or agents. The Borrower will permit the Lender, or its
employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and
from time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and
other obligors. The Lender may also at any time and from time to time
telephone account debtors and other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental
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Laws, and will not generate, use, transport, treat, store or dispose of any
Hazardous Substances in such a manner as to create any liability or
obligation under the common law of any jurisdiction or any Environmental
Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect
to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible
and reputable, in such amounts and against such risks as may from time to
time be required by the Lender, but in all events in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will
at all times maintain business interruption insurance and keep all tangible
Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting
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of motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will preserve
and maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall
conduct its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly
endorsed or assigned by the Borrower.
Section 6.10 COLLATERAL ACCOUNT.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time shall, after allowing two Banking Days, apply
deposited funds in the Collateral Account to the payment of the
Obligations, in any order or manner of application satisfactory to the
Lender, by transferring such funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
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Section 6.11 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5 and 6.7, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.11.
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Section 6.12 MINIMUM DEBT SERVICE COVERAGE RATIO. The Borrower will
maintain, at the close of its fiscal year ending March 29, 1997, its Debt
Service Coverage Ratio, determined as at the end of such period, at not less
than 1.00 to 1.00.
Section 6.13 MAXIMUM ALLOWABLE LOSSES. The Borrower will not incur
during any year to date period after tax losses from continuing operations
excluding special extraordinary gains for such period, of greater than the
amount set forth opposite such period:
Period Losses
------ ------
through 6/29/96 ($900,000)
6/30/96 through 9/28/96 ($1,000,000)
9/29/96 through 12/28/96 ($900,000)
12/29/96 through 1/25/97 ($700,000)
1/26/97 through 3/1/97 ($350,000)
3/2/97 through 3/29/97 ($50,000)
Section 6.14 NEW COVENANTS. On or before March 29, 1997, the Lender
shall set new covenant levels for Sections 6.12, 6.13, and 7.10 for periods
after such date based on the Borrower's projections for such periods.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; EXCLUDING, HOWEVER, from the operation of the foregoing
the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto;
(c) the Security Interest and liens and security interests created
by the Security Documents; and
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(d) except for grants during a Default Period, the grant of purchase
money security interests relating to the acquisition of machinery and
equipment of the Borrower not exceeding the cost or fair market value
thereof.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of
deposits or advances or any indebtedness for borrowed money, or any other
indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower listed in Schedule 7.2 hereto, which
indebtedness shall not be restructured or prepaid without the Lender's
written consent except as provided in Schedule 7.2; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper
issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
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having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $50,000; and
(iii) advances in the form of progress payments, and prepaid
rent or security deposits not exceeding two months.
(b) The Borrower will not create or permit to exist any Subsidiary.
Section 7.5 DIVIDENDS. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than $2,000,000 in the aggregate
during its fiscal year
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ending March 31, 1997, of which not more than $200,000 may be Capital
Expenditures not financed or leased by any Person.
Section 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. Except for discounts, credits or
allowances granted in the ordinary course and in accordance with the Borrower's
historical practice, the Borrower will not, after notice from the Lender, grant
any discount, credit or allowance to any customer of the Borrower or accept any
return of goods sold, or at any time (whether before after notice from the
Lender) modify, amend, subordinate, cancel or terminate the obligation of any
account debtor or other obligor of the Borrower.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS; S CORPORATION STATUS. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, commissions, consultant fees or other
compensation of any director, officer or consultant, or any member of their
families, by more than 20% in any one year, either individually or for all such
persons in the aggregate or to pay bonuses in excess of 25% of base salary for
any individual.
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ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of any interest on or principal of the
Note when it becomes due and payable;
(b) Default in the payment of any, fees, commissions, costs, expenses
or any other monetary obligations required to be paid by the Borrower to
the Lender under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement, provided that for
defaults other than under Sections 6.1(b), 6.1(c), 6.1(e) through (j),
6.1(l), 6.2, 6.7, 6.10, 7.5, 7.6, 7.7, 8.1(a), 8.1(b), 8.1(d) through (g),
8.1(i) (to the extent such Security Document or other document provides its
own notice and cure period or a default thereunder is also a Default under
this Agreement for which no notice and cure period is provided), and 8.1(j)
hereof, the Lender shall give the Borrower at least ten days' notice of and
opportunity to cure any such default (for defaults susceptible to cure) and
provided further that no notice or right to cure shall be required if the
Borrower previously has been given two notices of default relating to
defaults in the performance, or breach, of the same covenant or agreement;
(d) The Borrower shall be or become insolvent, or admit in writing
its inability to pay its debts as they mature, or make an assignment for
the benefit of creditors; or the Borrower shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower; or the Borrower shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower;
(e) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
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(f) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or by any of its officers) in any agreement,
certificate, instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any such guaranty shall prove to have been incorrect in any
material respect when deemed to be effective;
(g) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of $50,000 and for which an
insurance company has not accepted responsibility without reservation of
rights, and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of 30 consecutive days without a stay of
execution;
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(i) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note;
(j) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(k) The Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for
which it shall have set aside on its books adequate reserves
therefor) or notice of any state or federal tax liens shall
be filed or issued;
(l) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(m) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 RIGHTS AND REMEDIES. During any Default Period, the
Lender may exercise any or all of the following rights and remedies:
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(a) The Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) The Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which the
Borrower hereby expressly waives;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower
to the payment of the Obligations;
(d) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Borrower
hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the Lender
at a place to be designated by the Lender which is reasonably convenient to
both parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available
to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(e), the Obligations shall be immediately due and
payable automatically without presentment, demand, protest or notice of any
kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a
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waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy under the Loan Documents. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States
mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below:
If to the Borrower:
Marquest Medical Products, Inc.
11039 East Lansing Circle
Englewood, Colorado 80112
Telecopier: (303) 799-0210
Attention: Margaret Von der Schmidt
If to the Lender:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: 303/863-4904
Attention: Tony Lee
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of
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transmission if delivered by telecopy, except that notices or requests to the
Lender pursuant to any of the provisions of Article II shall not be effective
until received by the Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law,
the Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third
person, and the Lender need not otherwise preserve, protect, insure or care
for any Collateral. The Lender shall not be obligated to preserve any rights
the Borrower may have against prior parties, to realize on the Collateral at
all or in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys'
fees, incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents, and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including
without limitation all such costs, expenses and fees incurred in connection
with the negotiation, preparation, execution, amendment, administration,
performance, collection and enforcement of the Obligations and all such
documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.
Section 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.6, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents
of the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
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(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or the
making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.12 proves to be incorrect in any respect
or as a result of any violation of the covenant contained in
Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection with
the foregoing and any other investigative, administrative or
judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by
or asserted against any such Indemnitee, in any manner related to
or arising out of or in connection with the making of the
Advances and the Loan Documents or the use or intended use of the
proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's
obligation under this Section 9.7 shall survive the termination of this
Agreement and the discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender
may be transferred or delegated to any of the Lender's participants,
successors or assigns.
Section 9.9 EXECUTION IN COUNTERPARTS. This Agreement and other
Loan Documents may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
instrument.
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Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure
to the benefit of the Borrower and the Lender and their respective successors
and assigns, except that the Borrower shall not have the right to assign its
rights thereunder or any interest therein without the Lender's prior written
consent. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding
the Borrower and its Affiliates with the Lender's participants, accountants,
lawyers and other advisors, the Lender, Norwest Corporation, and all direct
and indirect subsidiaries of Norwest Corporation, may exchange any and all
information they may have in their possession regarding the Borrower and its
Affiliates, and the Borrower waives any right of confidentiality it may have
with respect to such exchange of such information.
Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY
TRIAL. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of
Colorado. This Agreement shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of
Colorado. The parties hereto hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of Colorado
in connection with any controversy related to this Agreement; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that
any litigation initiated by the Lender or the Borrower in connection with
this Agreement or the other Loan Documents shall be venued in either the
District Court of the City and County of Denver, Colorado, or the United
States District Court, District of Colorado; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
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NORWEST BUSINESS CREDIT, INC. MARQUEST MEDICAL PRODUCTS, INC.
By /s/ Gregory L. Glissmann By /s/ Margaret Von der Schmidt
------------------------------- --------------------------------
Gregory L. Glissmann Margaret Von der Schmidt
Its Vice President Its Vice President
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TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
_________________
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
EXHIBIT A TO
CREDIT AND SECURITY AGREEMENT
REVOLVING NOTE
$2,000,000 Denver Colorado
November____, 1996
For value received, the undersigned, MARQUEST MEDICAL PRODUCTS, INC.,
a Colorado corporation (the "Borrower"), hereby promises to pay on the Maturity
Date under the Credit Agreement (defined below), to the order of NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main
office in Denver, Colorado, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Two Million Dollars
($2,000,000) or, if less, the aggregate unpaid principal amount of all Revolving
Advances made by the Lender to the Borrower under the Credit Agreement (defined
below) together with interest on the principal amount hereunder remaining unpaid
from time to time, computed on the basis of the actual number of days elapsed
and a 360-day year, from the date hereof until this Note is fully paid at the
rate from time to time in effect under the Credit and Security Agreement of
even date herewith (the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
<PAGE>
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
MARQUEST MEDICAL PRODUCTS, INC.
By ________________________________
Margaret Von der Schmidt
Its Vice President
-2-
<PAGE>
EXHIBIT B TO
CREDIT AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
To: Tony Lee
Norwest Business Credit, Inc.
Date: _________________, 199__
Subject: Marquest Medical Products, Inc. Financial Statements
In accordance with our Credit and Security Agreement dated as of
November___, 1996 (the "Credit Agreement"), attached are the financial
statements of Marquest Medical Products, Inc. (the "Borrower") as of and for
__________________, 199_ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition as of the date thereof.
EVENTS OF DEFAULT. (Check one):
/ / The undersigned does not have knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement.
/ / The undersigned has knowledge of the occurrence of a Default or Event
of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
I hereby certify to the Lender as follows:
/ / The Reporting Date does not mark the end of one of the Borrower's
fiscal quarters, hence I am completing only paragraph __below.
/ / The Reporting Date marks the end of one of the Borrower's fiscal
quarters, hence I am completing all paragraphs below except paragraph
__.
/ / The Reporting Date marks the end of the Borrower's fiscal year, hence
I am completing all paragraphs below.
FINANCIAL COVENANTS. I further hereby certify as follows:
<PAGE>
1. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to Section 6.12 of
the Credit Agreement, as of the Reporting Date, the Borrower's Debt Service
Coverage Ratio was _____to 1.00. For Reporting Dates on or after fiscal
year end only, such Ratio / / satisfies / / does not satisfy the
requirement that such ratio be no less than _____ to 1.00 on the
Reporting Date.
2. LOSSES. Pursuant to Section 6.13 of the Credit Agreement, the
Borrower's losses for the _______ period ending on the Reporting Date, were
$_________, which / / satisfies / / does not satisfy the requirement that
such losses be not greater than $__________ during such period as set forth
in table below:
Period Losses
------ -----
through 6/29/96 ($900,000)
6/30/96 through 9/28/96 ($1,000,000)
9/29/96 through 12/28/96 ($900,000)
12/29/96 through 1/25/97 ($700,000)
1/26/97 through 3/1/97 ($350,000)
3/2/97 through 3/29/97 ($50,000)
3. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date,
the Borrower has expended or contracted to expend during the fiscal year
ended ____________, 199__, for Capital Expenditures, $______________ in the
aggregate and at most $____________ in unfinanced Capital Expenditures from
the date of the Credit Agreement, which / / satisfies / / does not satisfy
the requirement that such expenditures not exceed $___________ in the
aggregate and $__________ in unfinanced Capital Expenditures from the date
of the Credit Agreement.
4. SALARIES. As of the Reporting Date, the Borrower / / is / / is
not in compliance with Section 7.17 of the Credit Agreement concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
MARQUEST MEDICAL PRODUCTS, INC.
By _______________________________
Its Chief Financial Officer
-2-
<PAGE>
EXHIBIT C TO
CREDIT AND SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
LOT 1, BLOCK 1, AN AMENDMENT TO LOTS 1 AND 3 OF AN AMENDED PLAT OF
BLOCK 1, MERIDIAN OFFICE PARK FILING NO. 1, SECOND AMENDMENT AS
RECORDED FEBRUARY 10, 1986 UNDER RECEPTION NO. 374931, COUNTY OF
DOUGLAS, STATE OF COLORADO
-3-
<PAGE>
SCHEDULE 5.1 TO
CREDIT AND SECURITY AGREEMENT
Trade Names, Chief Executive Office, Principal Place of Business, and Locations
of Collateral
TRADE NAMES
Marquest Hospital Supply, Inc.
Med Tech Leasing
Intermountain Molding, Inc.
Precision Technologies, Inc.
Intec Medical, Inc.
Intermountain Molding, Inc.
Precision Technologies, Inc.
Intec Medical, Inc.
Diverse Technologies, Inc.
American International Medical Corp.
Saratoga Medical Instrumentation, Inc.
Marquest Medical Instrumentation, Inc.
Orlando Drug Distributors, Inc. a/k/a Drug Emporium
York Prosthetics, Inc.
York Hospital Supply
York Medical Supply
Angels of Mercy
D&T Medical Home Care Services, Inc.
Roghtert's Hospital Equipment, Inc.
Med-Care Equipment Leasing, Inc.
Med-E-Quip Rental & Leasing, Inc.
Central Missouri Medical Supply, Inc.
Advanced Medical Systems, Inc.
Marquest Health Services, Inc.
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
Marquest Medical Products, Inc.
11039 East Lansing Circle
Englewood, Colorado 80112
<PAGE>
OTHER INVENTORY AND EQUIPMENT LOCATIONS
Medeco B.V.
Box 1555
3260 BB Oud-Beijerland
A. Flemingstraat 2
3261 MA Oud-Beijerland
Netherlands
11039 East Lansing Circle
Englewood, CO 80112
14002 E. 33rd Place
Aurora, CO 80011
ii
<PAGE>
SCHEDULE 7.1 TO
CREDIT AND SECURITY AGREEMENT
PERMITTED LIENS
<TABLE>
<CAPTION>
Creditor Collateral Jurisdiction Filing Date Filing No.
-------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Colorado National Bank Real Estate, Colorado 10/11/83 872659892
Fixtures and
Equipment
Scherer Capital, LLC Inventory Colorado 1/22/96 962005469
Tenney Engineering Equipment Colorado 10/29/92 922078153
Xerox Copier Colorado 3/29/96 962024125
Financing For Science Leased equipment Colorado various various
International, Inc. and
assignees
Internal Revenue Service All Property Colorado 1/22/96 849600394
Internal Revenue Service All Property Colorado 4/11/95 849504326
</TABLE>
<PAGE>
SCHEDULE 7.2 TO
CREDIT AND SECURITY AGREEMENT
PERMITTED INDEBTEDNESS AND GUARANTIES
INDEBTEDNESS
1. Swiss 8% Notes maturing 3/31/99
2. Swiss Bearer Bonds maturing 3/11/94 (Those Bearer Bonds which have not yet
been exchanged for Swiss 8% Notes and Warrants may be exchanged for Swiss 8%
Notes or a combination of such Notes and Warrants on terms no less favorable to
the Borrower than the exchange of Notes with Rud Blass & Cie AG accomplished on
or about December 27, 1995.)
3. Colorado National Bank
4. Scherer Capital, LLC
5. Tennery Engineering
6. Xerox
7. Financing For Science International, Inc. and assignees
GUARANTIES
PRIMARY OBLIGOR AMOUNT AND DESCRIPTION OF BENEFICIARY OF GUARANTY
OBLIGATION GUARANTEED
None
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS AS OF DECEMBER 28, 1996 AND FOR THE NINE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> DEC-28-1996
<CASH> 513
<SECURITIES> 0
<RECEIVABLES> 2,836
<ALLOWANCES> 124
<INVENTORY> 3,605
<CURRENT-ASSETS> 7,076
<PP&E> 17,791
<DEPRECIATION> (11,193)
<TOTAL-ASSETS> 13,743
<CURRENT-LIABILITIES> 4,847
<BONDS> 4,662
0
0
<COMMON> 9,900
<OTHER-SE> (5,666)
<TOTAL-LIABILITY-AND-EQUITY> 13,743
<SALES> 15,840
<TOTAL-REVENUES> 15,840
<CGS> 11,115
<TOTAL-COSTS> 11,115
<OTHER-EXPENSES> 4,842
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 507
<INCOME-PRETAX> (649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (649)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
