UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) - June 1, 1995
AEQUITRON MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 0-11571 41-1359703
(State or other Jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
14800 Twenty Eighth Avenue North
Minneapolis, MN 55447
(Address of principal executive offices and zip code)
(612) 557-9200
(Registrant's telephone number, including area code)
AEQUITRON MEDICAL, INC.
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On June 1, 1995, Aequitron Medical, Inc. (the "Company") acquired the
sleep diagnostic business from CNS, Inc. pursuant to an Asset Purchase Agreement
dated May 8, 1995. The assets acquired include all rights to CNS, Inc.'s sleep
diagnostic products, all applicable patents and a product currently under
development. The acquisition involved the combination of a payment of cash and
short-term debt, totalling $5,595,610. A portion of the purchase price
($595,610) was calculating upon closing as an amount equal to 85% of certain net
receivables of the purchased business. To finance the acquisition, the Company
obtained a $2,500,000 term loan from Norwest Bank Minnesota, N.A., used
$2,500,000 in cash and presented CNS, Inc. with a promissory note in the amount
of $595,610.
As part of the acquisition, CNS Chairman and Chief Executive Officer,
Daniel E. Cohen, M.D. entered into a Non-competition Agreement with the Company.
Pursuant to such agreement, Dr. Cohen has agreed not to compete with the
Company's newly acquired sleep diagnostic product business, directly or
indirectly, generally for a period of seven years, or such lesser time if the
Company discontinues the manufacture and sale of sleep disorder diagnostic
equipment.
Item 5. Other Events.
Simultaneously with the signing of the Asset Purchase Agreement, the
Company entered into a Non-exclusive Distributorship Agreement dated May 8,
1995. Pursuant to such Agreement, the Company has the right to market and
distribute CNS, Inc.'s Breathe Right nasal strips to professional health care
markets, including hospitals, sleep labs, physician groups and homecare
providers. The agreement will continue for a term of one year, with automatic
renewals for one-year periods unless one party provides notice of nonrenewal.
Item 7. Financial Statements; Pro Forma Financial Information and Exhibits.
(a) Financial statements of business acquired.
It would be impracticable for the Registrant to provide the
financial statements of the CNS, Inc. sleep diagnostic
business for the periods specified in Rule 3- 05(b) of
Regulation S-X at the time of filing of this Form 8-K. The
Registrant will file the required financial statements as soon
as practicable, but not later than sixty days after the date
on which this Form 8-K must be filed.
(b) Pro forma financial information.
It would be impracticable for the Registrant to provide the pro
forma financial information required by Article 11 of Regulation
S-X at the time of filing this Form 8-K. The Registrant will file
the required pro forma financial information as soon as
practicable, but not later than sixty days after the date on
which this Form 8-K must be filed.
(c) Exhibits.
2.1 Asset Purchase Agreement dated May 8, 1995 by and among Aequitron
Medical, Inc. and CNS, Inc. Upon the request of the Commission,
the Company agrees to furnish a copy of the exhibits and
schedules to the Asset Purchase Agreement.
2.2 Non-Competition Agreement dated May 8, 1995 by and between Dan
Cohen and Aequitron Medical, Inc.
2.3 Term Loan and Credit Agreement dated June 1, 1995 by and between
Norwest Bank Minnesota, N. A. and Aequitron Medical, Inc.
2.4 Term Note from Aequitron Medical, Inc. to Norwest Bank Minnesota,
N.A. dated June 1, 1995 in the amount of $2,500,000.
2.5 Security Agreement dated June 1, 1995 for Norwest Bank Minnesota,
N.A. by Aequitron Medical, Inc.
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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 duly authorized.
DATED: June 15, 1995 AEQUITRON MEDICAL, INC.
By: /s/ James B. Hickey, Jr.
James B. Hickey, Jr.
President and Chief Executive Officer
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 8-K
Date of Report: Commission File No.:
June 1, 1995 0-11571
AEQUITRON MEDICAL, INC.
Exhibit
2.1 Asset Purchase Agreement dated May 8, 1995 by and among Aequitron Medical,
Inc. and CNS, Inc. Upon the request of the Commission, the Company agrees
to furnish a copy of the exhibits and schedules to the Asset Purchase
Agreement.
2.2 Non-Competition Agreement dated May 8, 1995 by and between Dan Cohen and
Aequitron Medical, Inc.
2.3 Term Loan and Credit Agreement dated June 1, 1995 by and between Norwest
Bank Minnesota, N. A. and Aequitron Medical, Inc.
2.4 Term Note from Aequitron Medical, Inc. to Norwest Bank Minnesota, N.A.
dated June 1, 1995 in the amount of $2,500,000
2.5 Security Agreement dated June 1, 1995 for Norwest Bank Minnesota, N.A. by
Aequitron Medical, Inc.
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ASSET PURCHASE AGREEMENT
AGREEMENT made as of the 8th day of May, 1995, by and among
AEQUITRON MEDICAL, INC., Minnesota corporation (the "Buyer"), and CNS, INC., a
Delaware corporation (the "Seller").
WHEREAS, the Seller owns and desires to sell and transfer to the
Buyer, and the Buyer desires to purchase and acquire from the Seller, the assets
of the Seller used by the Seller in the business ("Purchased Business") of
manufacturing, marketing, distributing and selling equipment for diagnosis of
sleep disorders (the "Equipment") upon the terms, conditions and provisions
hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Asset Purchase. Subject to the terms and conditions set forth
herein, the Buyer agrees to purchase from the Seller, and the Seller agrees to
sell, transfer, assign, convey and deliver to the Buyer, on the Closing Date (as
defined below), all of Seller's right, title and interest in and to the
following assets of the Seller which are used solely in the operation of the
Purchased Business ("Purchased Assets"):
(a) Material items of inventory of all kinds, including
raw materials, work-in-process, if any, finished goods, packaging
and supplies, including the inventories listed on Schedule 1.1(a).
(b) The machinery, tools, dies, molds, and other equipment
listed on Schedule 1.1(b) hereto.
(c) All registered and unregistered domestic and foreign
patents, all trademarks, tradenames, copyrights, service marks and
applications therefor and 510(k)s, issued or pending, (to the
extent transferable) which are listed on Schedule 1.1(c) together
with all related rights and associated goodwill ("Proprietary
Rights").
(d) All rights of the Seller under the unfilled sales
orders and any other contracts and commitments listed on Schedule
1.1(d) (the "Assumed Contracts").
(e) All books, records and correspondence pertaining to
inventories, accounts receivable, equipment, intangible property,
regulatory matters, manufacturing, quality control and quality
assurance documentation, all forms and correspondence with the FDA
on marketing authority and inspection issues, customers, sales
prospects and
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suppliers (including all customer, sales prospect and supplier
lists) used in connection with the Purchased Business (the
"Records").
(f) All technology, know-how and other intangible property
related to the Purchased Assets or the Purchased Business,
including, without limitation, tooling design, blue prints, repair
history, specifications, drawings, bills of material and
engineering documentation.
(g) All advertising and promotional literature and
materials, including catalogs, brochures, pamphlets and art work.
(h) Net receivables as described in 1.2 below.
The Seller hereby agrees to deliver to the Buyer possession of the Purchased
Assets on the Closing Date.
1.2 Consideration for Assets. In consideration of, and in exchange
for, the sale of the assets and property described in Section 1.1 above, Buyer
shall assume certain liabilities as set forth in Section 1.3, below, and, in
addition, shall pay the "Purchase Price" to Seller at Closing: (1) the sum of
Five Million Dollars ($5,000,000) cash; and (2) the remainder by delivery to
Seller of Buyer's promissory note in the form and on the terms attached as
Exhibit A in a face amount equal to 85% of the net receivables of the Purchased
Business (net of $105,274 of excluded receivables identified on Schedule 1.2) as
valued at the Closing Date ("Promissory Note"). If receivables in excess of 15%
of the net receivables of the Purchased Business remain uncollected 151 days
after the date of the Promissory Note, Seller will reimburse Buyer in cash in an
amount equal to 50% of such uncollected net receivables up to a maximum of
$50,000.
The Purchase Price shall be allocated among the Purchased Assets in
the manner determined by Buyer. Seller and Purchaser shall each file Form 8594
(Asset Acquisition Statement under Section 1060) on a timely basis reporting the
allocation of the Purchase Price. Seller and Purchaser shall not take any
position on their respective income tax returns that is inconsistent with the
allocation of the Purchase Price as determined by Buyer.
1.3 Liabilities of Seller.
Buyer shall assume no liabilities of Seller, fixed or contingent,
known or unknown, determined or undetermined, due or not yet due except as
specifically set forth on Schedule 1.3 hereto.
On the Closing Date, Buyer agrees to assume and to perform in
accordance with their respective terms the obligations of the Purchased Business
listed below ("Assumed Liabilities").
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(a) "Assumed Contracts" described herein or listed on
Schedule 1.1(d) hereof.
(b) Any warranty obligations for Equipment sold prior to
Closing Date. At Closing, Seller shall pay cash to Buyer in the
amount of Seller's accrual for warranty obligations determined as
of the Closing Date, the amount of which shall be determined
consistent with past accounting practices of Seller.
(c) Maintenance contract obligations of Seller on the
Purchased Assets, but at Closing Seller shall reimburse Buyer for
one-half the amount of the maintenance contract obligations thus
assumed by Buyer.
(d) Products liability claims arising from Equipment sold
by Seller prior to the Closing Date, if and to the extent that
Buyer has modified, upgraded or updated such Equipment, or serviced
such Equipment in a way found to have caused injury to a third
party or to the extent Buyer failed to service, update, upgrade or
properly modify such equipment pursuant to order of a court or
governmental agency or pursuant to a maintenance or service
obligation.
(e) Any recall or modification obligations imposed by a
governmental agency or by maintenance or service obligations.
(f) Post-closing training obligations in connection with
Equipment sold before Closing, for which Seller will reimburse
Buyer for its expenses when and as accrued.
1.4 Closing; Delivery of Documents.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on June 1, 1995 at a
mutually agreeable place (the "Closing Date"), or such other date
as agreed by the parties.
(b) On the Closing Date, Seller shall deliver to
Buyer the following:
(i) Patent Assignments in recordable form
transferring the patents and patent applications
listed on Schedule 1.1(c);
(ii) Trademark Assignments in recordable form
transferring the trademarks listed on Schedule
1.1(c);
(iii) an opinion of Lindquist & Vennum P.L.L.P.,
Seller's counsel, in form and substance satisfactory
to Buyer; and
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(iv) a Bill of Sale transferring the Purchased
Assets to Buyer free and clear of all encumbrances.
(v) the cash amounts referenced in Section
1.3(b) and (c) above.
(c) On the Closing Date, Buyer shall deliver to
Seller the following:
(i) the cash portion of the Purchase Price; and
(ii) the Promissory Note; and
(iii) an opinion of Best & Flanagan, P.L.L.P.,
Buyer's counsel, in form and substance satisfactory to
Seller.
1.5 Conditions to Closing. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction by the other party of the following conditions:
(a) The representations and warranties of the other party
shall be true and correct in all material respects at the Closing
as though then made;
(b) The other party shall have performed and complied in
all material respects with all covenants and agreements required to
be performed and complied with by it under this Agreement prior to
the Closing;
(c) No action or proceeding before any court or agency
will be pending or threatened wherein an unfavorable judgment,
decree or order could prevent the carrying out of this Agreement or
any of the transactions contemplated hereby or have an adverse
effect on the Purchased Assets or the Purchased Business; and
(d) The other party shall have delivered all documents
required to be delivered by it under Section 1.4;
(e) The form and substance of all certificates,
instruments, opinions and other documents delivered on or before
the Closing pursuant to this Agreement shall be reasonably
satisfactory to each party and its counsel; and
(f) During the period from the date of this Agreement to
the Closing (i) there shall not have been any material adverse
change in the condition or the results of operation of the Purchase
Assets or the Purchased Business (ii) nor shall Seller have
sustained any material loss or damage to the Purchased Assets,
whether or not insured,
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either of which would have a material adverse effect on the ability
of Buyer to operate the Purchased Business.
Either party may waive any condition to its obligation to consummate the
transactions contemplated by this Agreement and agree to proceed with Closing.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE SELLER
As an inducement to the Buyer to enter into this Agreement, the
Seller hereby represents and warrants to, and agrees with, the Buyer as follows:
2.1 Organization and Corporate Power. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full power and authority to enter into this Agreement
and perform its obligations hereunder.
2.2 Authorization. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action and will
not create a lien or encumbrance on the Purchased Assets or conflict with or
result in a default under any material commitment, agreement or law applicable
to Seller. Approval of Seller's shareholders of the transactions contemplated
hereby is not required. Other than possible consents required under the Assumed
Contracts, no material consent or approval of or filing or registration with any
third party is required in connection with the execution, delivery or
performance of this Agreement by Seller. This Agreement constitutes a valid and
binding obligation of the Seller, enforceable in accordance with its terms.
2.3 Title and Condition of Properties. At the Closing Date the
Seller will own the Purchased Assets good and marketable title, free and clear
of all liens, charges, purchase rights, claims, pledges, mortgages, security
interests, encumbrances, or other limitations or restrictions whatsoever. The
Seller's machinery and equipment, and other tangible personal property included
in the Purchased Assets are in reasonable operating condition and repair, normal
wear and tear excepted (except for inventory, the condition of which shall be
governed by Section 2.5).
2.4 Tangible Personal Property. Schedule 1.1(b) lists all material
manufacturing machinery and equipment used to manufacture the Equipment, except
for Seller's manufacturing space at 1250 Park Road, Chanhassen, Minnesota 55317
and fixtures related thereto.
<PAGE>
2.5 Inventory. The inventory shall on the Closing Date be in the
condition as inspected by Buyer.
2.6 Proprietary Rights.
2.6.1 The Seller's use of the Proprietary Rights does not,
to Seller's knowledge, violate or constitute the misappropriation
or the misuse of any intellectual property rights of any third
party. Schedule 1.1(c) attached hereto sets forth a list of all
Proprietary Rights, other than trade secrets and know-how. The
Seller has not granted, conveyed, licensed or assigned any rights
under the Proprietary Rights and to Seller's knowledge there are no
other parties using the Proprietary Rights.
2.6.2 To the best knowledge of Seller, all Proprietary
Rights are valid and enforceable, and, as to patents, there exist
no facts or prior art which would render any of those patents
invalid or unenforceable.
2.6.3 Seller has received no notice that any of the
features, components or configurations (whether developed or under
development) of the products included in the Purchased Assets
infringe, nor has any claim been made that they may infringe, the
intellectual property rights of any other party. Further, the
Seller has not been sued or charged orally or in writing with, or
been a defendant in any claim, suit, action or proceeding relating
to the Purchased Business which involves a claim of infringement of
any patents, trademarks, service marks or copyrights, or a claim of
unfair competition or misappropriation of trade secrets or
confidential information.
2.6.4 None of the Proprietary Rights is subject to any
outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Seller or restricting the
licensing thereby by the Seller to any person.
2.6.5 Apnea Screener. The FDA has not granted the
authority sought by Seller in the 510(k) application filed by it
with the FDA for the apnea screener ("Sleep Test") owned by Seller
and made part of the Purchased Assets. Prior to and following the
Closing Date, Seller agrees to cooperate with Buyer in seeking to
cause the FDA to grant such 510(k) application with respect to the
Sleep Test.
2.7 Litigation. Except as set forth on Schedule 2.7, there are no
actions, suits or proceedings, pending or, to the best knowledge of Seller,
threatened or claimed against or affecting the Seller which relate in any manner
to the Purchased Business at law or in equity, or before or by any federal,
state, municipal or other governmental agency. The Seller is not presently a
party to or subject to or bound by any agreement or
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any judgment, order, writ, injunction or decree of any court or any governmental
body that contains any provision that would or could operate to prevent the
carrying out of this Agreement or the transactions contemplated hereby.
2.8 Contracts. Other than the Assumed Contracts, Seller is not a
party to or otherwise bound by any material agreement, contract, indenture,
instrument or lease with respect to the Purchased Business, except as set forth
on Schedule 2.8.
2.9 Insurance. Seller maintains products' liability and other
insurance as described in Schedule 2.9. Following the Closing Date, Buyer will
provide its own insurance and shall, consistent with the indemnification
provisions in 4.2 and 4.3 below, hold Buyer harmless from any products liability
or other claim in connection with the Equipment, the Purchased Business or the
Purchased Assets, arising from Equipment sold before the Closing Date, except as
provided in Section 1.3(d) above.
2.10 Medical Device Regulation. The Seller has applied for or
obtained all applicable material licenses, registrations, approvals, clearances
and authorizations required by local, state and Federal agencies, foreign or
domestic, regulating the safety, effectiveness and market clearance of the
Equipment. The Seller has had no recalls or FDA product actions, and has no
ongoing clinical studies. Seller has received no notice, oral or written, of any
adverse findings of the FDA in its inspections, except for certain non-material
facility-related items.
2.11 Product Performance. The Seller has made available to Buyer
all supportive materials and data substantiating representations made to the FDA
in its Section 510(k) pre-market notifications, including any and all testing
data in the possession or under the control of the Seller, whether or not
submitted to the FDA. The Seller further represents and warrants that to the
best of Seller's knowledge the Seller's products perform in compliance with the
representations and performance specifications as contained in said
notifications and the Seller's product literature, and that sales thereof, if
any, have been made in compliance with the rules and regulations of the FDA, and
in compliance with labeling approved by the FDA and/or submitted with the
products. The FDA authorizations and notifications described in Schedule 2.11
attached hereto represent to the best of Seller's knowledge the only FDA
authorizations and notifications necessary to permit the sale and use by Seller
in the United States of the Devices. Each 510(k) listed in Schedule 2.11 lists
the corresponding part or product covered by such 510(k).
2.12 Employee Plans. A complete list of all employee
benefit plans covering employees of the Purchased Business is set
forth on Schedule 2.12.
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2.13 Defaults. There has not to Seller's knowledge occurred any
default by Seller or, assuming all required consents to assignment are obtained,
any event which will become a default, nor, to Seller's knowledge, has there
occurred any default by any third party which will become a default under any
Assumed Contract or any judgment, order or commitment related to the Purchased
Assets.
2.14 Financial Statements. Seller's financial statements for the
fiscal years ending December 31, 1993 and 1994 and its interim statements for
the period ending March 31, 1995 (and its 1994 monthly financial statements,
which portray the fact that the majority of revenues of the Purchased Business
have historically occurred in the last months of the Company's fiscal quarters)
are attached as Schedule 2.14 hereto (the "Financial Statements"). The 1993 and
1994 year-end statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
covered thereby, and the Financial Statements fairly present the financial
position of Seller as of the respective dates of the balance sheets included
therein, and the results of operations for the respective periods indicated.
2.15 Absence of Undisclosed Liabilities. To the best knowledge and
belief of Seller after due diligence, except to the extent reflected or reserved
against in Seller's balance sheet or as otherwise noted on Schedule 2.15 hereto,
Seller as of March 31, 1995, and as of the Closing Date, had or will have no
liabilities which would prevent title to the Purchased Assets from transferring
to Buyer.
2.16 No Violation. Seller is not subject to or obligated under its
certificate of incorporation, its bylaws, any applicable law, or rule or
regulation of any governmental authority, or any agreement or instrument, or any
license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement.
2.17 Taxes. All tax returns required by law to be filed, and all
taxes required to be paid or withheld and paid over by Seller which relate to
the Purchased Assets, the non-filing or non-payment of which could result in a
lien on or encumbrance against the Purchased Assets, have been fully paid,
withheld and paid over, and filed, as appropriate. Seller does not have any
reason to believe that a claim for such taxes for prior years in any material
amount may be asserted by any taxing body. Specifically, but not by way of
limitation, there are no tax liens filed or outstanding for unpaid sales or
payroll withholding taxes at the office of the Minnesota Secretary of State or
any Minnesota County Recorder's office. The federal and state TIN of Seller is
41-1580270 and 3940631, respectively, and Seller's Minnesota sales tax permit
number is 3940631.
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2.18 Conduct of Business. Prior the Closing, Seller shall operate
the Purchased Business in a prudent manner and only in the ordinary course of
business consistent with past practices. Seller shall use all reasonable efforts
to preserve the Purchased Business organization intact and to preserve its
present relationship with employees, suppliers, customers and others having
business relationships with Seller.
2.19 Full Disclosure. To Seller's knowledge, no representation,
covenant or warranty of Seller in this Agreement or any Schedule or Exhibit
hereto contains or will contain any untrue statement of a material fact or omit
or will fail to state any material fact necessary to make any statement made not
misleading. Buyer acknowledges that it has had full access to relevant records
and to officers of Seller.
2.20 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer or any of its shareholders, other than consideration paid to
Piper Jaffray for financial advice to Seller, which Seller will pay.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE BUYER
3.1 Corporate Organization and Power. Buyer is a corporation duly
organized and validly existing under the laws of the State of Minnesota, with
full corporate power and authority to enter into this Agreement and perform its
obligations hereunder.
3.2 Authorization. The execution, delivery and performance of this
Agreement and the Promissory Note by Buyer and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery or performance of this Agreement
and the Promissory Note. This Agreement and the Promissory Note constitutes a
valid and binding obligation of Buyer, enforceable in accordance with its terms.
3.3 No Violation. Buyer is not subject to or obligated under its
certificate of incorporation, its bylaws, any applicable law, or rule or
regulation of any governmental authority, or any agreement or instrument, or any
license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement. Buyer will comply with all applicable laws, and
with all applicable rules and regulations of all governmental authorities in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
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3.4 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer or any of its shareholders, other than consideration paid to
Dain, Bosworth for financial advice to Buyer, which Buyer will pay.
3.5 Litigation. There are no actions, suits, proceedings or orders
pending or, to the best of Buyer's knowledge, threatened against or affecting
Buyer at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would adversely affect Buyer's
performance under this Agreement or the consummation of the transactions
contemplated hereby.
3.6 Insurance. Following the Closing Date, Buyer will provide its
own insurance and shall, consistent with the indemnification provisions in
Sections 4.2 and 4.3 below, hold Seller harmless from any products liability or
other claim in connection with the Equipment, the Purchased Business or the
Purchased Assets, arising from Equipment sold after the Closing Date.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Survival. All representations, warranties, agreements,
covenants and obligations herein shall survive the execution and delivery of
this Agreement and the Closing until December 31, 1996 except for matters
relating to products liability claims, which shall survive until June 1, 2000.
4.2 Indemnification. Except to the extent indemnified by
insurance proceeds:
4.2.1 The Seller will indemnify the Buyer, and hold it
harmless against any loss, liability, damage, deficiency or expense
(including reasonable legal expenses and costs) which it may
suffer, sustain or become subject to as a result of a
misrepresentation or breach by Seller of any representation,
warranty, covenant or agreement of Seller set forth in this
Agreement, or resulting from liabilities or obligations of Seller
not assumed by Buyer, and any costs and expenses associated with
defending against such claims, liabilities, obligations, costs,
damages, losses and expenses.
4.2.2 The Buyer agrees to indemnify the Seller and hold it
harmless against any loss, liability, damage or expense, including
reasonable legal expenses and costs, which the Seller may suffer,
sustain or become subject to, as a result of (i) a misrepresentation
or breach by the Buyer of any representation, warranty, covenant or
agreement of the Buyer contained in this Agreement, (ii) the operation
of the Purchased Business or any of the Purchased Assets by Buyer after
the Closing (iii) Assumed Liabilities and (iv) any costs and expenses
associated with defending against such claims, liabilities,
obligations, costs, damages, losses and expenses.
4.2.3 The parties will be liable to each other for any
loss or liability arising under this Section 4 only if the
aggregate amount of all such losses and liabilities related to such
claims exceeds $150,000, in which case the Indemnifier, as defined
below, will be liable for all such amounts in excess of $150,000.
In no event shall either party's aggregate liability under this
Section 4 exceed the sum of $3,000,000, except, for products
liabilities, for which in no event shall either party's liability
under this Section 4 exceed the sum of $5,000,000.
4.2.4 The parties' indemnification provided for in this
Section 4 shall be the parties' sole and exclusive remedy with
regard to the subject matter of this Agreement, except for claims
as a result of fraudulent misrepresentation by the parties and
except with respect to any claim alleging violation of Sections
4.12 or 4.13 of this Agreement.
4.3 Indemnification Procedure.
(a) A party or parties entitled to indemnification
hereunder with respect to a third party claim (the "Indemnified
Party") will give the party or parties required to provide such
indemnification (the "Indemnifier") prompt written notice of any
legal proceeding, claim or demand instituted by any third party (in
each case, a "Claim") in respect of which the Indemnified Party is
entitled to indemnification hereunder.
(b) The Indemnifier shall have the right, at its option
and expense, to defend against, negotiate, settle or otherwise deal
with any Claim with respect to which it is the Indemnifier and to
select counsel, acceptable to the Indemnified Party, to defend the
Indemnified Party against such Claim; provided, that the
Indemnified Party may participate in any proceeding with counsel of
its choice and at its expense; and provided further that the
Indemnifier may not enter into a settlement of any such Claim
without the consent of the Indemnified Party unless such settlement
requires no monetary payment for which the Indemnified Party is not
fully indemnified and does not involve any other matters binding
upon the Indemnified Party.
<PAGE>
(c) The Indemnified Party will not settle any Claim
without the prior written consent of the Indemnifier, which shall
not be unreasonably withheld.
(d) The parties will cooperate fully with each other in
connection with the defense, negotiation or settlement of any
Claim.
4.4 Expenses. All fees, expenses, including attorneys' and
accountants' fees incurred by Seller in connection with the negotiation of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated by this Agreement shall be borne by the Seller.
All such fees and expenses incurred by Buyer shall be borne by Buyer.
4.5 Further Transfers. The Seller will, and will cause its
subsidiaries and affiliates, if any, to, execute and deliver such further
instruments of conveyance and transfer and take such additional action as the
Buyer may reasonably request to effect, consummate, confirm or evidence the
transfer to the Buyer (or its designees) of the Purchased Assets. The Seller
will execute such documents as may be necessary to assist the Buyer in
preserving or perfecting its rights in the Purchased Assets.
4.6 Transition Assistance. Seller will at no cost to Buyer provide
reasonable transition assistance to Buyer's employees with respect to the
manufacture and marketing of the Devices. Buyer will, at no cost to Seller,
provide to Seller reasonable transitional assistance with respect to Seller's
remaining operations by making available those individuals hired by Buyer.
4.7 Sales Tax. Any and all sales tax liability arising as a result
of the sale and purchase of the Purchased Assets shall be the sole
responsibility of, and shall be paid by, the Buyer.
4.8 Regulatory Transfers. If necessary, the Seller shall file a
letter with the FDA or any successor agency notifying the FDA of any
registration change required of the Seller to transfer all rights and pre-market
notification clearances to the Buyer. In regard to any other applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state and federal agencies, foreign or domestic, regulating the safety,
effectiveness and market clearance of the Devices which constitute a portion of
the Purchased Assets, the Seller shall file a letter with each applicable
regulatory authority notifying the authority of any registration change required
of the Seller to transfer all rights hereunder to the Buyer.
4.9 Conduct of Business. Prior to the Closing, Seller will conduct
the Purchased Business only in the ordinary course of business consistent with
past practices; take no steps to damage customer, employee or vendor
relationships; maintain the
<PAGE>
Purchased Assets in good repair, order and condition; not sell, lease, encumber,
transfer or otherwise dispose of any Purchased Assets; permit Buyer and its
employees and agents reasonable access to Seller's contracts, personnel,
facilities, equipment, records and other things reasonably related to the
Purchased Business.
4.10 Employee Matters. Buyer may offer employment to those
individuals listed on Schedule 4.10 and will provide such individuals who accept
such employment employee benefits consistent with those offered to other
employees of Buyer generally. Seller shall use its best efforts to encourage
such individuals to accept employment with Buyer on the Closing Date; provided
Seller makes no guarantee that such individuals will accept employment with
Buyer. Buyer shall provide Seller with the names of all Seller's employees to
whom Buyer extends offers of employment, within 48 hours of extending said
offers. Buyer shall also provide Seller with notices of acceptances and
rejections of these offers by Seller's employees, within 48 hours of receipt of
said notifications. Buyer shall not be bound by any CNS agreements or conditions
of employment, including any liability for accrued vacation pay, qualified
retirement plans, fringe benefits, salaries, severance pay or other benefits, or
by the terms and conditions of any collective bargaining agreement which gave or
established rights to any CNS employees prior to the Closing Date.
4.11 Customers. Buyer and Seller shall each use its best efforts to
obtain any consents required under the Assumed Contracts in order to provide
Buyer with the benefits under such Assumed Contracts, but Seller makes no
guarantees that such third parties will accept the assignment of its contracts.
4.12 Non-Compete Agreement. From the Closing Date until the end of
the period ending seven years after the end of the Relevant Period, or until
Buyer discontinues engaging in the manufacture and sale of sleep disorders
diagnostic equipment, Seller and Dan Cohen shall not (i) contact, deal with, or
in any way solicit any entity or individual that, at any time, was a customer of
the Seller or becomes a customer of the Buyer (after the Closing) to purchase
any products or services in competition with the Purchased Business anywhere in
the world, including any products or services developed by Buyer after the
Closing provided such products or services were developed from trade secrets,
know-how or other intellectual property included in the Purchased Assets; (ii)
engage in, own, manage, operate, control or participate in the ownership,
management, operations or control of, or have any financial interest in, any
entity or individual engaged in a business competitive with the Purchased
Business anywhere in the world; provided nothing herein shall prohibit Seller
from engaging in any business other than the sleep disorders diagnostic
business; or (iii) seek to persuade, directly or indirectly, any employees of
Buyer, including former employees of Seller, to discontinue that individual's
employment
<PAGE>
with the Buyer nor to become employed in any activity competitive with the
Purchased Business. A person or entity that acquires an interest in the Seller
or the entity that results from acquisition of control of or combination with
Seller shall not be prevented by this Section 4.12 from competing with the
Purchased Business in the sleep disorders diagnostic business. A violation by
Seller or Dan Cohen of the foregoing covenants may cause irreparable injury to
Buyer, and Buyer shall be entitled, in addition to any other rights and remedies
that it may have at law or in equity, to temporary or permanent injunctive
relief enjoining Seller and/or Dan Cohen from doing or continuing to do any such
act and any other violation or threatened violation of the foregoing covenants.
4.13 Confidentiality. Seller and Dan Cohen agree from and after the
Closing Date that they shall not, at any time, without the prior written consent
of Buyer, disclose or use any "Confidential Information" obtained in the course
of Seller's ownership of the Purchased Business prior to the Closing Date or in
the course of Seller's review of sale records or access to Buyer's Confidential
Information after the Closing Date, except as required in Seller's continuing
business or businesses. "Confidential Information" shall include, without
limitation, information relating to customers, products, machines, processes,
methods, know-how, trade secrets, inventions, developments, equipment or
supplies, made, sold, licensed, used, developed or practiced by Seller, its
customers or suppliers prior to the Closing Date or by Buyer, its customers or
suppliers after the Closing Date; provided, however, that Confidential
Information shall not include information which Seller is under a duty by its
customers not to use or to disclose to any third party or that relates to
publicly disclosed facts. Buyer shall have the same remedies in the event of a
violation or threatened violation of the foregoing covenants as are enumerated
in Section 4.12.
4.14 Products, Supplies and Documents. Buyer shall have the right
to use existing products, supplies and documents (including, but not limited to,
inventory, labels, shipping materials, catalogues and similar materials, and
advertising material) being transferred to it pursuant to this Agreement until
such products and supplies are depleted, but shall not have the right to use
Seller's name in connection therewith.
4.15 Press Release and Announcements. No general press releases
related to this Agreement and the transactions contemplated herein, or other
announcements to Seller's employees, customers and suppliers will be issued
without the joint approval of Buyer and Seller. Buyer and Seller will cooperate
to prepare a joint press release to be issued on the Closing Date or, upon the
request of Seller or Buyer, at the time of the signing of this Agreement.
4.16 Brain Wave Monitoring and Analysis. Seller owns
technology which is not part of the Purchased Assets related to
<PAGE>
brain wave monitors. However, there is software that is part of the Proprietary
Rights transferred hereunder as part of the Purchased Assets which is used and
involves intellectual property used in the brain wave monitoring technology.
Such software may be used by Seller in its brain wave monitoring business and
brain wave analysis, and Buyer hereby grants Seller a perpetual license to use
any such Proprietary Rights for this purpose. The perpetual license granted to
CNS under this Paragraph 4.16 shall not permit CNS to use the software or the
Proprietary Rights to engage in the sleep monitoring or diagnosis of sleep
disorder business and use of the software or the Proprietary Rights for such
purposes is expressly excluded from the perpetual license.
ARTICLE V
MISCELLANEOUS
5.1 Amendment and Waiver. This Agreement may be amended, and any
provision of this Agreement may be waived, provided that any such amendment or
waiver will be binding on the Seller only if such amendment or waiver is set
forth in a writing executed by the Seller and that any such amendment or waiver
will be binding upon the Buyer only if such amendment or waiver is set forth in
a writing executed by the Buyer. Waiver by the Seller or the Buyer of any breach
of or failure to comply with any provision of this Agreement by the other party
shall not be construed as, or constitute a continuing waiver of, or a waiver of
any other breach of, or failure to comply with, any other provision of this
Agreement.
5.2 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested. Notices, demands and
communications to the Seller and the Buyer will, unless another address is
specified in writing, be sent to the addresses indicated below:
Notices to the Seller:
CNS, Inc.
1250 Park Road
Chanhassen, MN 55317
Attention: Chief Executive Officer
Chief Operating Officer
with a copy to:
Lindquist & Vennum
4200 IDS Center
Minneapolis, MN 55402
Attn: Patrick Delaney
<PAGE>
Notices to the Buyer:
Aequitron Medical, Inc.
14800 28th Avenue North
Plymouth, MN 55447
Attn: Chief Executive Officer
Chief Financial Officer
with a copy to:
Best & Flanagan, Professional Limited Liability
Partnership
4000 First Bank Place
Minneapolis, MN 55402
Attn: David Morse
5.3 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other parties, which
shall not be unreasonably withheld.
5.4 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
5.5 Captions. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
will not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement will be enforced and
construed as if no caption had been used in this Agreement.
5.6 Complete Agreement. This document and the documents referred to
herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
There are no restrictions, promises, warranties, covenants, or undertakings,
other than those expressly provided for herein.
5.7 Counterparts. This Agreement may be executed in one or more
counterparts all of which taken together will constitute one and the same
instrument.
<PAGE>
5.8 Governing Law. The law of the State of Minnesota
will govern all questions concerning the construction, validity
and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
5.9 Arbitration.
(a) Except with respect to matters involving Sections
4.12, 4.13 and 4.15 hereof, if a dispute arises between Buyer and
Seller as to the interpretation of this Agreement or any other
agreement entered into pursuant hereto, including, without
limitations, any matter involving indemnification, Buyer and Seller
agree to use the following procedures, in lieu of either party
pursuing other available remedies and as the sole remedy, to
resolve the dispute.
(b) A party seeking to initiate the procedures shall give
written notice to the other party, describing briefly the nature of
the dispute. A meeting shall be held between the parties within 10
days of the receipt of such notice, attended by individuals with
decision-making authority regarding the dispute, to attempt in good
faith to negotiate a resolution of the dispute.
(c) If, within 30 days after such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, the
parties agree to submit the matter to binding arbitration in
Minneapolis, Minnesota, by one arbitrator appointed by Buyer and
Seller. If Buyer and Seller fail to appoint an arbitrator within 10
days from the conclusions of the negotiation period, then upon
petition of either party, such arbitrator shall be appointed by the
Chief Judge of the United States District Court for the District of
Minnesota or by the American Arbitration Association so as to
enable the arbitrator to render an award within 90 days after the
arbitrator has been appointed. Following the selection of the
arbitrator as set forth above, the arbitration shall be conducted
promptly and expeditiously and in accordance with the rules of the
American Arbitration Association. Such award shall be final and
binding and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction therefor.
(d) Each party shall bear one-half of the expenses of the
arbitrator excluding, however, legal, expert, accountant and other
professional fees of the other side.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
AEQUITRON, INC.
By /s/ James B. Hickey, Jr.
Its President and CEO
CNS, INC.
By /s/ Richard E. Jahnke
Its President
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Promissory Note
Schedule 1.1(a) Inventory
Schedule 1.1(b) Machinery and Equipment
Schedule 1.1(c) Proprietary Rights
Schedule 1.1(d) Assumed Contracts
Schedule 1.2 Excluded Receivables
Schedule 2.7 Litigation
Schedule 2.8 Other Contracts
Schedule 2.9 Insurance
Schedule 2.12 510(k)s
Schedule 2.13 Employee Plans
Schedule 2.14 Financial Statements
Schedule 4.10 Employee Matters
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$___________________________ Minneapolis, Minnesota
June 1, 1995
FOR VALUE RECEIVED, the undersigned promises to pay to the
order of CNS, Inc., at Chanhassen, Minnesota, or at such other place as may
hereafter from time to time be designated in writing by the holder hereof, the
sum of________________________ Dollars, payable in two equal installments (i) on
or before 75 days and (ii) 150 days from the date hereof, with interest at the
rate of 4% per year.
The undersigned shall have the right to prepay any or all of
this note at any time without penalty.
The undersigned waives demand, presentment, protest and notice
of dishonor of this note, and agrees that, without any notice, the holder hereby
may from time to time extend or renew the date or dates or amount or amounts of
payment above recited, and that in any such case the undersigned shall continue
liable to pay the unpaid balance of the indebtedness evidenced hereby so
extended, renewed or modified notwithstanding any such extension, renewal or
modification.
In the event any installment of the amount payable hereunder
is not paid on the due date, the entire amount payable hereunder shall become
payable immediately.
In the event any payment is not made when due, the undersigned agrees
to pay all costs of collection and reasonable attorney's fees.
WITNESS: AEQUITRON MEDICAL, INC.
_____________________________ By___________________________
Its:
NON-COMPETITION AGREEMENT
This Non-Competition agreement is made and entered into this 8th day of
May, 1995, by and between Dan Cohen who resides at Eden Prairie, Minnesota and
Aequitron Medical, Inc., a Minnesota corporation which maintains its principal
place of business at 14800 28th Avenue North, Minneapolis, Minnesota 55447. The
parties to this agreement (Dan Cohen and Aequitron Medical, Inc.) will
hereinafter respectively be referred to as "Cohen" and "Aequitron" and this
Non-Competition Agreement will hereinafter be referred to as the "Agreement."
The factual circumstances underlying the execution of this Agreement
are:
A. Cohen is the Chief Executive Officer of CNS, Inc. (hereinafter
"CNS"), a Delaware corporation which maintains its principal place of business
at 1250 Park Road, Chanhassen, Minnesota 55317.
B. Cohen is a shareholder of CNS and is the beneficial owner of 378,332
shares representing 4.4 percent of the issued and outstanding common stock of
CNS as of the date of this Agreement.
C. Aequitron has entered into an Asset Purchase Agreement with CNS of
even date herewith under which Aequitron is purchasing from CNS for cash those
assets of CNS used by CNS in the business of manufacturing, marketing,
distributing and selling equipment for the diagnosis of sleep disorders, the
terms and conditions of which are more specifically set forth in the Asset
Purchase Agreement between CNS and Aequitron (hereinafter the "Purchase
Agreement").
D. The Purchase Agreement contains provisions regarding non-competition
and confidentiality as regards the line of business being purchased by Aequitron
from CNS under the Purchase Agreement.
E. A specific condition of Aequitron's agreement to execute and perform
the Purchase Agreement is an acknowledgement by Cohen individually that the
non-competition and confidentiality provisions of the Purchase Agreement set
forth on Paragraphs 4.12 and 4.13 of the Purchase Agreement will be acknowledged
as binding upon him for the same period of time and upon the same terms and
conditions as set forth in Paragraphs 4.12 and 4.13 of the Purchase Agreement.
F. Aequitron and Cohen having agreed upon the terms and conditions
whereby Cohen individually agrees to be bound by the provisions of Paragraphs
4.12 and 4.13 now desire to memorialize their agreements and understandings in
writing.
NOW, THEREFORE, in consideration of the sum of One Dollar and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
are hereby acknowledged by Cohen, Cohen and Aequitron hereby agree as follows:
<PAGE>
1. Cohen in order to induce Aequitron to enter into the Purchase
Agreement hereby agrees to be bound personally by the terms and conditions of
Paragraphs 4.12 and 4.13 of the Purchase Agreement.
2. The provisions and conditions of Sections 4.12 and 4.13 of the
Purchase Agreement shall be binding upon Cohen and Aequitron for the period of
time set forth in said sections, notwithstanding the termination of his
employment, officership, shareholder or director status with CNS.
3. Cohen acknowledges that the sale of assets by CNS as specified in
the Purchase Agreement is beneficial to the future business operations of CNS
and more than likely will have a positive impact on the stock price of CNS stock
and shareholders' value and thereby should correspondingly inure to the benefit
of Cohen individually in light of his personal stock holdings in CNS.
4. Cohen hereby waives the defense of lack of consideration for
entering into this non-competition and confidentiality agreement should be
necessary for Aequitron to seek enforcement of same.
5. A true and correct copy of Sections 4.12 (Non-Compete Agreement) and
4.13 (Confidentiality) as set forth in the Purchase Agreement are attached
hereto marked as Exhibit A and incorporated herein by reference.
IN WITNESS WHEREOF, Cohen and Aequitron have executed this Agreement
the day and year first set forth above.
COHEN:
Date: May 8, 1995 /s/ Dan Cohen
Dan Cohen
AEQUITRON MEDICAL, INC.
Date: May 8, 1995 By /s/ James B. Hickey, Jr.
Its President and CEO
Norwest Bank Minnesota, Term Loan and
National Association Credit Agreement
This Term Loan and Credit Agreement (the "Agreement") dated as of June 1, 1995
(the "Effective Date") is between Norwest Bank Minnesota, National Association
(the "Bank") and Aequitron Medical, Inc. (the "Borrower").
BACKGROUND
The Borrower has requested that the Bank renew its existing revolving line of
credit in the amount of $2,000,000.00, which line of credit will be used for
short term working capital purposes. Borrowings under this line of credit are
currently evidenced by a promissory note dated October 1, 1994 (the "October 1,
1994 Revolving Note").
The Borrower has also requested that the Bank extend to the Borrower a
$2,500,000.00 term loan for purposes of partially financing the Borrower's
purchase of the assets of CNS, Inc.
The Bank is agreeable to meeting the Borrower's requests provided that each
credit facility extended is subject to the terms and conditions of this
Agreement.
The Revolving Note and the Term Note (all as defined below) will collectively be
referred to as the "Notes". The Revolving Note, the Term Note, this Agreement,
and all "Security Documents" described in Exhibit B may collectively be referred
to as the "Documents."
In consideration of the promises contained in this Agreement, the Borrower and
the Bank agree as follows:
1. LINE OF CREDIT
1.1 Line of Credit Amount. During the availability period described below,
the Bank agrees to provide a revolving line of credit (the "Line") to
the Borrower. Outstandings under the Line will not, at any one time,
exceed the lesser of Two Million and 00/100 Dollars ($2,000,000.00) or
the Borrowing Base less the outstanding balance of the Term Note. The
Borrowing Base is defined and calculated in accordance with Exhibit A
to this Agreement.
1.2 Line Availability Period. The Line Availability Period will mean the
period from the Effective Date to October 31, 1996 (the "Line
Expiration Date").
1.3 Advances. The Borrower's obligation to repay all advances made under
the Line will be evidenced by a single promissory note (the "Revolving
Note") dated as of the Effective Date and in form and content
acceptable to the Bank. The Revolving Note shall replace, but shall not
satisfy, the October 1, 1994 Revolving Note. Reference is made to the
Revolving Note for terms relating to interest rate, repayment and other
conditions governing the Line.
1.4 Mandatory Prepayment. If at any time the principal outstanding under
the Revolving Note exceeds the lesser of $2,000,000.00 or the Borrowing
Base less the outstanding balance of the Term Note, the Borrower must
immediately prepay the Revolving Note to the extent necessary to
eliminate the excess.
<PAGE>
2. TERM LOAN
2.1 Term Loan Amount. The Bank agrees to provide a term loan to the
Borrower in the amount of Two Million Five Hundred and 00/100 Dollars
($2,500,000.00) (the "Term Loan"). The Borrower's obligation to repay
outstandings under the Term Loan will be evidenced by a promissory note
(the "Term Note") dated as of the Effective Date, and in form and
content acceptable to the Bank. Reference is made to the Term Note for
terms relating to interest rate, repayment and other conditions
governing the Term Loan.
2.2 Term Loan Availability Period. The Term Loan is available in one
disbursement which may be requested by the Borrower on or after the
Effective Date but no later than July 18, 1995.
2.3 Mandatory Prepayment. If at any time the principal outstanding under
the Term Note exceeds the lesser of $2,000,000.00 or the Borrowing Base
less the outstanding balance of the Revolving Note, the Borrower must
immediately prepay the Revolving Note to the extent necessary to
eliminate the excess, and if after prepaying the Revolving Note the
outstanding balance of the Term Note continues to exceed the Borrowing
Base, the Borrower will prepay the Term Note to the extent necessary to
eliminate the excess.
3. EXPENSES
3.1 Application Fee. The Borrower has fully paid, and the Bank has earned
and accepted, a one-time application fee of $5,000.00, which will be
applied to the loan fee payable by the Borrower as provided in Section
3.6.
3.2 Non-Usage Fee. During the Line Availability Period the Borrower will
pay the Bank a nonusage fee of 0.45% per annum on the average daily
unused amount of the Line The fee will be paid quarterly in arrears.
3.3 Documentation Expenses. The Borrower agrees to pay the Bank's
reasonable expenses relating to the preparation of the Documents. The
Borrower also agrees to pay the Bank's future expenses relating to any
amendments to the Documents that may be necessary in the future, and
any expenses relating to the collection of each promissory note given
by the Borrower. Expenses include, but are not limited to, reasonable
attorneys' fees, including the allocated costs of the Bank's in-house
counsel.
3.4 Collection Expenses. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses
incurred by the Bank in the event the Borrower fails to pay the Bank
any amounts due under any promissory note or the Documents.
3.5 Audit Expense. The Borrower agrees to reimburse the Bank for the cost
of its initial prefunding collateral survey and the cost of periodic
audits of all collateral pledged to the Bank which may be conducted at
such intervals as the Bank may reasonably require. The audits may be
performed by employees of the Bank or independent contractors retained
by the Bank.
3.6 Loan Fee. The Borrower will pay a $25,000.00 loan fee in consideration
of the Term Loan, which is due on the Effective Date.
3.7 Miscellaneous Expense. The Borrower agrees to reimburse the Bank for
all expenses paid to third parties relating to the perfection of its
security interest in collateral pledged to the Bank.
<PAGE>
4. DISBURSEMENTS AND PAYMENTS
4.1 Requests for Advances. Any advance permitted under this Agreement must
be requested in a writing in the form of Exhibit B transmitted to the
Bank via facsimile, with the original to be delivered to the Bank via
United States mail. The Bank will not consider any request for an
advance under the Line or consider disbursing the Term Loan if there is
an event which is, or with notice or the lapse of time would be, an
event of default under this Agreement. Proceeds from an advance under
the Line or a disbursement under the Term Loan will be deposited into
the Borrower's account at the Bank or disbursed in such other manner as
the Bank and the Borrower mutually agree.
4.2 Optional Cost of Funds Interest Rate Advances. According to the terms
of the Replacement Note, the Borrower may elect interest rates based on
the Bank's cost of funds index. To elect a Cost of Funds Rate Option,
as defined in the Term Note, the Borrower must, prior to funding,
request a quote from the Bank. This request must designate an amount
(the "Cost of Funds Rate Portion") and a period (the "Cost of Funds
Interest Period"). The Cost of Funds Interest Period will be any period
of time mutually agreed to by the Bank and the Borrower. The Borrower
must orally accept a quote at the time of receipt or it will be deemed
rejected. If accepted, the Cost of Funds Rate Option will remain in
effect for the Cost of Funds Interest Period specified in the quote. At
the end of each Cost of Funds Interest Period the principal amount
subject to the Cost of Funds Rate Portion shall bear interest at the
Base Rate Option (as defined in the Replacement Note).
4.3 Performance Based Rate Reductions / Premiums. The Borrower, depending
on its financial performance as measured under the performance
standards set forth in Sections 4.3(a) or (c), may be entitled to a
reduced rate of interest on its borrowings under the Replacement Note
and the Term Note, or may be subject to the payment of a rate premium
on such borrowings.
(a) Rate Reduction. The Bank shall discount the otherwise applicable rate
of interest in effect at any time under the Replacement Note or under
the Term Note by 0.29% at any time after August 1, 1996 if the
Borrower's performance meets or exceeds all of the following criteria
as certified annually by the Borrower's certified public accountants in
a certificate addressed to the Bank:
1) the Borrower's net income after taxes exceeds $575,000.00
for each quarter of the fiscal year preceding the year in which net
income is measured, for each fiscal quarter of the current fiscal year,
and for each fiscal quarter of the following fiscal year as projected
under the financial projection provided to the Bank to Section 8.1(e)
of this Agreement;
2) the Borrower remains in compliance with all covenants set
forth in this Agreement regardless of whether any default is waived or
cured by the Bank, with the exception of Section 8.1(d);
3) the Borrower's "B Score", or ratio of after tax net income
plus depreciation plus amortization to total liabilities, is greater
than 0.40 to 1.0. (this ratio shall be calculated on a rolling basis at
the end of each month using the results of that month and each of the
eleven immediately preceding months).
(b) Effective Date or Cancellation Date of Rate Reduction: Any rate
reduction shall become effective on either August 1st or the date on
which the Bank receives from the Borrower's certified public
accountants the certificate of compliance described in Section 4.3(a),
whichever is later. The rate reduction shall be canceled by the Bank,
based on its review of
<PAGE>
the Borrower's interim financial statements effective on the first day
of the quarterly reporting period following the quarterly period in
which the Borrower fails to meet the rate reduction performance
criteria.
(c) Rate Increase. The Bank shall increase the otherwise applicable rate of
interest in effect at any time under the Replacement Note or under the
Term Note by 0.63% whenever the Bank determines from its review of the
Borrower's interim financial statements that the Borrower has failed to
comply with the following minimum performance criteria in any fiscal
quarter:
1) the Borrower's after tax net income is less than
$250,000.00;
2) the Borrower's B Score is less than 0.25 to 1.0.
(d) Effective Date or Cancellation Date of Rate Increase. Any rate increase
shall become effective on the first day of the quarterly reporting
period following the quarterly period in which the Borrower fails to
meet the minimum performance criteria set forth in Section 4.3(c). The
rate increase shall be canceled on the first day of the quarterly
reporting period following the quarterly period in which the Borrower
exceeds such minimum performance criteria.
4.4 Payments. All principal, interest and fees due under the Documents will
be paid to the Bank by the direct debit of available funds on deposit
in the Borrower's account with the Bank. The Bank will debit the
account on the dates the payments become due. If a due date does not
fall on a day on which the Bank is open for substantially all of its
business (a "Banking Day"), the Bank will debit the account on the next
Banking Day and interest will continue to accrue during the extended
period. If there are insufficient funds in the account on the day the
Bank enters any debit authorized by this Agreement, the debit will be
reversed and the payment will be due immediately without necessity of
demand by direct remittance of immediately available funds.
5. SECURITY
All amounts due under this Agreement and the Documents will be secured
as provided in Exhibit C. The Borrower also hereby grants the Bank a
security interest (independent of the Bank's right of set-off) in its
deposit accounts at the Bank and in any other debt obligations of the
Bank to the Borrower.
6. CONDITIONS PRECEDENT
Prior to each request for an advance under this Agreement, the Borrower
must also deliver to the Bank any additional documents that are
described in Exhibit C as a condition precedent to any such advance.
7. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower makes the
representations and warranties contained in Exhibit D. Each request for
an advance under this Agreement constitutes a reaffirmation of these
representations and warranties.
8. COVENANTS
During the time period that credit is available under this Agreement,
and thereafter until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, the Borrower
agrees to:
<PAGE>
8.1 Financial Information
Annual Reporting Information
(a) Annual Financial Statements, CPA Management Letter and CPA Compliance
Certificate. Provide the Bank on or before July 31 of each calendar
year the Borrower's annual financial statements. The statements must be
audited with an unqualified opinion by a certified public accountant
acceptable to the Bank. The Borrower shall also deliver to the Bank the
letter to management provided by its accountants with respect to the
annual financial statements, together with a compliance certificate
prepared by the Borrower's certified public accountants in form
acceptable to the Bank, which demonstrates and certifies that the
Borrower remains in compliance with the requirements of this Agreement.
(b) Financial Projections. Provide the Bank on or before July 31st of each
year, the financial projections for the succeeding three fiscal years
of the Borrower in form acceptable to the Bank.
(c) High Performance Certification. Provide the Bank on or before July 31st
of each year, a certification from its Certified Public Accountants as
to the Borrower's compliance with the performance criteria set forth in
Section 4.3 of this Agreement, in form acceptable to the Bank.
Monthly Reporting Information
(d) Interim Financial Statements. Provide the Bank within 45 days of each
month end, the Borrower's interim financial statements certified as
correct and in form acceptable to the Bank.
(e) Borrower Prepared Compliance Certificate. Provide the Bank concurrently
with the interim financial statements required above, a compliance
certificate in the form of Exhibit E, signed by an officer of the
Borrower, which certifies that: 1) the statements have been accurately
prepared in accordance with generally accepted accounting principles
applied consistently with the Borrower's annual financial statements;
2) the Borrower remains in compliance with the covenants required by
this Agreement; and 3) if the Borrower is benefiting from a Section 4.3
rate reduction, a certification stating that the Borrower remains in
compliance with the performance criteria of Section 4.3 of the
Agreement, and information in support of such certification.
(f) Borrowing Base Certificate. Provide the Bank within 45 days of each
month end, a Borrowing Base Certificate in form acceptable to the Bank.
(g) Lawsuit Status Report. Provide the Bank within 30 days of each month
end, a status report regarding all lawsuits pending against the
Borrower in form acceptable to the Bank.
(h) Financial Performance Trending Report. Provide the Bank within 30 days
of each month end, graphs showing the trends of the Borrower's
financial performance and covenant compliance.
(i) Analysis of Significant Financial Items. Provide the Bank within 30
days of each month end, a detailed internal analysis of significant
financial and operating items affecting the Borrower's financial and
operating performance.
<PAGE>
(j) Accounts Receivable Aging. Provide the Bank within 45 days of each
month end, an accounts receivable aging report certified as correct and
in form acceptable to the Bank.
(k) Accounts Payable Aging. Provide the Bank within 45 days of each month
end, an accounts payable aging report certified as correct and in form
acceptable to the Bank.
Other Reporting Information
(l) SEC Reporting. Provide the Bank within 30 days of filing with the
Securities and Exchange Commission, copies of its Form 10-K Annual
Report, Form 10-Q Quarterly Report and 8-K Current Report.
(m) Notices. Provide the Bank prompt written notice of: 1) any event which
has or might after the passage of time or the giving of notice, or
both, constitute an event of default under the Documents, or 2) any
event that would cause the representations and warranties contained in
this Agreement to be untrue.
(n) Additional Information. Provide the Bank with such other information as
it may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
8.2 Financial Measures
(a) Cash Flow Coverage Ratio. Maintain at all times a ratio of after-tax
profit plus depreciation and amortization to Current Maturities of Long
Term Debt of at least 2.25 to 1.0.
"Current Maturities of Long Term Debt" means that portion of the
Borrower's long term debt and capital leases payable within 12 months
of the determination date.
(b) Tangible Net Worth. Maintain at all times a minimum Tangible Net Worth
of at least $9,000,000.00, plus 50% of all positive monthly net income,
beginning May 1, 1995.
"Tangible Net Worth" means total assets less total liabilities and less
the following types of assets: (1) leasehold improvements; (2)
receivables and other investments in or amounts due from any
shareholder, director, officer, employee or other person or entity
related to or affiliated with the Borrower; (3) goodwill, patents,
copyrights, mailing lists, trade names, trademarks, servicing rights,
organizational and franchise costs, bond underwriting costs and other
like assets properly classified as intangible.
(c) Total Liabilities to Tangible Net Worth Ratio. Maintain at all times a
ratio of total liabilities to Tangible Net Worth of less than 0.85 to
1.0.
(d) Current Ratio. Maintain at all times a ratio of Current Assets to
Current Liabilities of at least 2.5 to 1.0.
"Current Assets" means current assets less receivables and investments
in or other amounts due from any shareholder, director, officer,
employee or any person or entity related to or affiliated with the
Borrower.
"Current Liabilities" means current liabilities less any portion of
such current liabilities that constitute Subordinated Debt.
(e) Interest Coverage Ratio. Maintain at all times after November 1, 1995,
a ratio of net income plus income taxes plus interest expense to
interest expense of at least 2.0 to 1.0, as calculated on a rolling 12
month basis as of each month end and phased in by using the results of
November, 1995 and of each succeeding month.
(f) Debt Service Coverage Ratio. Maintain at all times after November 1,
1995, a ratio of Traditional Cash Flow plus interest expense to Current
Maturities of Long Term Debt plus interest expense of at least 1.75 to
1.0, calculated on a rolling 12 month basis as of each month end and
phased in by using the results of November, 1995 and of each succeeding
month.
"Traditional Cash Flow" means the aggregate amount of the following:
(1) net income after taxes; (2) amortization expense; (3) depreciation
and depletion expense; (4) deferred tax expense and (5) similar
non-cash charges against income which the Bank determines in its
discretion to be appropriate "add-backs".
8.3 Other Covenants
(a) Insurance. Cause its properties to be adequately insured by a reputable
insurance company against loss or damage and to carry such other
insurance (including business interruption, flood, or environmental
risk insurance) as is required of or usually carried by persons engaged
in the same or similar business. Such insurance must, with respect to
the Bank's collateral security, include a lender's loss payable
endorsement in favor of the Bank in form acceptable to the Bank. The
Borrower shall additionally maintain product liability insurance in an
amount not less than $5,000,000.00.
(b) Additional Borrowing. Refrain from incurring any indebtedness except:
(i) Trade credit incurred in the ordinary course of
business.
(ii) Purchase money indebtedness (including capitalized
leases) for the acquisition of fixed assets, provided that the
total principal amount outstanding at any one time does not
exceed $500,000.00.
(c) Other Liens. Refrain from allowing any security interest or lien on
property it owns now or in the future, except:
(i) Liens in favor of the Bank.
(ii) Liens for taxes not delinquent or which the Borrower is
contesting in good faith.
(iii) Liens which secure purchase money indebtedness allowed
under this Agreement.
(d) Sale of Assets. Refrain from selling or leasing during any fiscal year
assets with a cumulative value in excess of $500,000.00, other than
sales of inventory in the ordinary course of business.
(e) Business Acquisition. Refrain from purchasing or otherwise acquiring
during any fiscal year, all or substantially all, of the assets of any
other person, firm, corporation or other entity with a cumulative value
in excess of $500,000.00.
(f) Change of Ownership. Refrain from permitting or suffering any change,
direct or indirect in its capital ownership in excess of 15%.
<PAGE>
(g) Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(h) Guaranties. Refrain from assuming, guaranteeing, endorsing, or
otherwise becoming contingently liable for any obligations of any other
person, except for those guaranties outstanding as of the Effective
Date and disclosed to the Bank in writing.
(i) Deposit Accounts. Maintain its principal deposit accounts with the
Bank.
(j) Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
(k) Books and Records. Maintain adequate books and records and refrain from
making any material changes in its accounting procedures whether for
tax purposes or otherwise.
(l) Compliance with Laws. Comply in all material respects with all laws
applicable to its business and the ownership of its property.
(m) Preservation of Rights. Maintain and preserve all rights, privileges,
charters and franchises it now has.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a
covenant is an indication that the risk of the transaction has
increased. As consideration for any waiver or modification of these
covenants, the Bank may require: additional collateral, guaranties or
other credit support; higher fees or interest rates; and possible
modifications to the Documents and the monitoring of the Agreement. The
waiver or modification of any covenant that has been violated by the
Borrower will be made in the sole discretion of the Bank. These options
do not limit the Bank's right to exercise its rights under Section 9 of
this Agreement.
9. EVENTS OF DEFAULT AND REMEDIES
9.1 Default
Upon the occurrence of any one or more of the following events of
default, or at any time afterward unless the default has been cured,
the Bank may declare the Line to be terminated and in its discretion
accelerate and declare the unpaid principal, accrued interest and all
other amounts payable under the Revolving Note, the Term Note, and the
Documents to be immediately due and payable:
(a) Default by the Borrower in the payment when due of any principal or
interest due under the Revolving Note and the Term Note and continuance
for 10 days.
(b) Default by the Borrower in the observance or performance of any
covenant or agreement contained in the Documents, including this
Agreement, and continuance for more than 30 days.
(c) Default by the Borrower in the observance or performance of any
covenant or agreement contained in the Documents, or any of them,
excluding this Agreement, after giving effect to any applicable grace
period.
(d) Default by the Borrower in any agreement with the Bank or any other
lender that relates to indebtedness or contingent liabilities which
would allow the maturity of such indebtedness to be accelerated.
<PAGE>
(e) Any representation or warranty made by the Borrower to the Bank is
untrue in any material respect.
(f) Any litigation or governmental proceeding against the Borrower seeking
an amount in excess of $500,000.00 either 1) results in an uninsured
final judgment equal to or in excess of that amount against the
Borrower or 2) remains unresolved on the 270th day following its
commencement, unless as of the 270th day no judgment or award has been
entered and the contingent liability arising as a result is classified
as "remote" by the Borrower's counsel as defined in FASB 5 in a signed
opinion addressed to the Bank.
(g) A garnishment, levy or writ of attachment, or any local, state, or
federal notice of tax lien or levy is served upon the Bank for the
attachment of property of the Borrower in the Bank's possession or
indebtedness owed to the Borrower by the Bank.
(h) Any Guarantor dissolves or becomes insolvent or is the subject of a
voluntary or involuntary petition under the United States Bankruptcy
Code.
(i) A material adverse change occurs in the Borrower's financial condition
or ability to repay its obligations to the Bank.
9.2 Immediate Default
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, then the Line shall immediately terminate and the
unpaid principal, accrued interest and all other amounts payable under
the Revolving Note, the Term Note, and the Documents will become
immediately due and payable without notice or demand.
10. MISCELLANEOUS.
(a) 360 Day Year. All interest and fees due under this Agreement will be
calculated on the basis of actual days elapsed in a 360 day year.
(b) GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all calculations for compliance
with financial covenants will be made using generally accepted
accounting principles consistently applied ("GAAP").
(c) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are cumulative
and not exclusive of any remedies provided by law.
(d) Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed
by the Bank.
(e) Binding Effect: Assignment. This Agreement and the Documents are
binding on the successors and assigns of the Borrower and Bank. The
Borrower may not assign its rights under this Agreement and the
Documents without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the Documents and
exchange financial information about the Borrower with actual or
potential participants or assignees.
(f) Minnesota Law. This Agreement and the Documents will be governed by the
substantive laws of the State of Minnesota.
<PAGE>
(g) Severability of Provisions. If any part of this Agreement or the
Documents are unenforceable, the rest of this Agreement or the
Documents may still be enforced.
(h) Integration. This Agreement and the Documents contains the entire
understanding between the parties and supersedes all prior agreements
between the Bank and the Borrower relating to each credit facility
subject to this Agreement, whether verbal or in writing.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Minnesota Aequitron Medical, Inc.
National Association 14800 28th Avenue North
55 East Fifth Street Plymouth, Minnesota 55447
St. Paul, Minnesota 55101
Attention: William M. Milne
Attention: Thomas L. Falck Chief Financial Officer
Vice President
Norwest Bank Minnesota Aequitron Medical, Inc.
National Association
By: /s/ Thomas L. Falck By: /s/ William M. Milne
Its: Vice President Its: Chief Financial Officer
<PAGE>
EXHIBIT A
BORROWING BASE DEFINITION
Borrowing Base means the sum of 75% of Eligible Accounts Receivable (as defined
below) plus 20% of Eligible Inventory (as defined below), plus 90% of Eligible
Investments (as defined below) plus 50% of Eligible Crow River Industries,
Incorporated Inventory (as defined below).
Eligible Accounts Receivable means all accounts receivable except those which
are:
1) Greater Than 90 days past the invoice date.
2) Due from an account debtor, 10% or more of whose accounts owed to
the Borrower are more than 90 days past the invoice date.
3) Subject to offset or dispute.
4) Due from an account debtor who is subject to any bankruptcy
proceeding.
5) Owed by a shareholder, subsidiary, affiliate, officer or employee
of the Borrower.
6) Not subject to a perfected first lien security interest in favor of
the Bank.
7) Due from an account debtor located outside the United States and
not supported by a standby letter of credit acceptable to the Bank.
8) Due from a unit of government, whether foreign or domestic.
9) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
Eligible Inventory means all medical inventory of the Borrower, including the
purchased inventory of CNS, Inc., at the lower of cost or market as determined
by generally accepted accounting principals, except inventory which is:
1) In transit; or located at any warehouse not approved by the Bank.
2) Covered by a warehouse receipt, bill of lading or other document of
title.
3) On consignment to or from any other person or subject to any
bailment.
4) Damaged, obsolete or not salable in the Borrower's ordinary course
of business.
5) Subject to a perfected first lien security interest in favor of
any third party.
6) Supplies or parts inventory.
7) Work-in-process inventory.
8) In the process of being returned.
9) Custom or non-standard parts.
10) Finished goods.
11) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
Eligible Crow River Industries, Incorporated Inventory means all inventory of
Crow River Industries, Incorporated, at the lower of cost or market as
determined by generally accepted accounting principals except inventory, which
is:
1) In transit; or located at any warehouse not approved by the Bank.
2) Covered by a warehouse receipt, bill of lading or other document of
title.
3) On consignment to or from any other person or subject to any
bailment.
4) Damaged, obsolete or not salable in the Borrower's ordinary course
of business.
5) Subject to a perfected first lien security interest in favor of
any third party.
6) Supplies or parts inventory.
7) Work-in-process inventory.
8) In the process of being returned.
9) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
Eligible Investments means any security issued by the United States government
with an initial maturity not in excess of one (1) year, or any money market
mutual fund rated A-1/P-1 provided that such investment are subject to a first
lien security interest in favor of the Bank.
Actual advance rates are to be determined on a reasonable basis by Norwest
Collateral Review staff prior to initial funding following its pre-funding
collateral survey and from time to time afterward.
<PAGE>
EXHIBIT A
AEQUITRON MEDICAL, INC.
BORROWING BASE CERTIFICATE
TO: Norwest Bank Minnesota, National Association
55 East Fifth Street
St. Paul, Minnesota 55101
(the "Bank")
Aequitron Medical, Inc. (the "Borrower") certifies that the following
computation of the Borrowing Base was performed as of ___________________ in
accordance with the Borrowing Base definitions set forth in Exhibit A to the
Credit Agreement between the Bank and the Borrower dated --------------.
<TABLE>
<S> <C> <C>
Total Accounts Receivable $_________________
Less: 1) Greater than 90 days in age $__________________
2) Other ineligibles $__________________
Eligible Accounts Receivable $__________________
75% of Eligible Accounts Receivable $_______________
Total Inventory $__________________
Less: Ineligible Inventory $__________________
Eligible Inventory $__________________
20% of Eligible Inventory $_______________
Total Crow River Industries,
Incorporated Inventory $__________________
Less: Ineligible
Crow River Inventory $__________________
Eligible Inventory $__________________
50% of Eligible Crow River Inventory $________________
Eligible Investments $__________________
90% of Eligible Investments* $________________
Total Borrowing Base $________________
Line Outstandings $________________
Term Outstandings $________________
Line Outstandings $________________
Excess (Deficit) $________________
</TABLE>
Aequitron Medical, Inc.
By: _____________________________
Its: _____________________________
* NOTE: Additional documentation required to support reliance on Eligible
Investments. See Exhibit "C" of the Agreement.
<PAGE>
EXHIBIT B
AEQUITRON MEDICAL, INC.
TO BE SENT VIA FAX (612) 291-2141 BY 11:00 A.M. DAILY
REQUEST FOR ADVANCE OR PAYDOWN
OF REVOLVING LINE
To: Norwest Bank Minnesota, From: Aequitron Medical, Inc.
National Association 14800 - 28th Avenue North
55 East Fifth Street Plymouth, Minnesota 55447
St. Paul, Minnesota 55101 (the "Borrower")
(the "Bank")
Pursuant to the terms of the conditional revolving line of credit
documented under the existing credit agreement (the "Agreement") entered into
between the Bank and the Borrower, the Borrower requests as follows:
___ REQUEST FOR LINE ADVANCE. The Borrower requests that the Bank advance to the
Borrower on ________________, 199__ , by direct deposit into demand deposit
account #_________, funds in the amount of U.S.$ ____________ .
The advance should bear interest as follows: ___ Base Rate, floating; or ___
Fixed Rate Cost of Funds plus ________%, maturing _______________ .
In making this request, the Borrower hereby certifies as follows:
1. This request is not in excess of the Borrowing Base reflected in the
Borrower's last Borrowing Base Certificate dated ______________
2. As of this date, the Borrower's availability under the Line is as
follows:
Borrowing Base $ ____________________
Term Loan Balance ($____________________)
Revolving Line Balance ($____________________)
Current Borrowing Base Availability $_____________________
___ REQUEST FOR PAYDOWN OF LINE. The Borrower requests that the Bank debit the
Borrowers demand deposit account #_______________, on ___________________ in the
amount of U.S.$ ________________________ and apply the proceeds to the payment
of the outstanding balance of the Revolving Note that evidences its borrowings
under the Line.
I personally certify that I am authorized to sign on behalf of the Borrower,
that I have read and am familiar with the terms of the Agreement and have no
knowledge of an existing event of default or event which after the lapse of time
or the delivery of notice would constitute an event of default under the
Agreement. If this request includes reliance on Eligible Investments, the
required documentation for the specific investments is attached.
AEQUITRON MEDICAL, INC.
By:_______________________________
Its:_______________________________
<PAGE>
EXHIBIT C
CONDITIONS PRECEDENT TO INITIAL ADVANCE OR DISBURSEMENT
The Replacement Note and the Term Note
Security Documents
Security Agreement. A Security Agreement signed by the Borrower granting the
Bank a first lien security interest in the Borrower's accounts, inventory,
equipment and general intangibles. The Borrower will also execute financing
statements sufficient to perfect the security interest granted to the Bank.
Collateral Pledge Agreement. A Collateral Pledge Agreement signed by the
Borrower and pledging to the Bank a first lien security interest in the
securities described in it. The Borrower will also execute any other documents
required by the Bank to perfect the pledge.
Guaranty by Corporation. The unlimited, unconditional Guaranty by Corporation
(the "Guaranty") of Crow River Industries, Incorporated (the "Guarantor"),
together with a Certificate of Authority for Guaranty by Corporation.
Authorization
Corporate Certificate of Authority. A certificate of the Borrower's corporate
secretary as to the incumbency and signatures of the officers of the Borrower
signing the Documents and containing a copy of resolutions of the Borrower's
board of directors authorizing execution of the Documents and performance in
accordance with the terms of the Agreement.
Organization
Articles of Incorporation And By - Laws. A certified copy of the Borrower's
Articles of Incorporation and By-Laws and any amendments, if applicable.
Certificate of Good Standing. A copy of the Borrower's Certificate of Good
Standing, certified within 30 days of the Effective Date by the Minnesota
Secretary of State.
Other
Arbitration Agreement. The Bank's standard form of arbitration agreement (the
"Arbitration Agreement") signed by the Bank and Borrower, subjecting to binding
arbitration potential controversies between the Bank and Borrower relating to
the Documents and the Agreement, as more fully described in the Arbitration
Agreement.
Legal Opinion. A signed opinion of counsel for the Borrower, addressed to the
Bank, and in form and substance satisfactory to the Bank, opining that: (1) the
Borrower is duly organized and in good standing in its state of organization;
(2) the Borrower is qualified in each state in which it does business and is
legally required to be qualified; (3) the Borrower has the power to execute and
deliver the Documents and to borrow money and perform in accordance with the
terms of the Documents; (4) all corporate action and consent necessary to the
validity of the Documents has been obtained; (5) the Documents have been duly
signed and are the valid and binding obligation of the Borrower and enforceable
in accordance with their terms; and (6) to the best of counsel's knowledge, the
Documents and the transactions contemplated thereunder do not conflict with any
provision of the articles of incorporation or by-laws of Borrower or any
agreement binding upon the Borrower or its properties.
Pre-Funding Collateral Survey. A collateral survey conducted by the Bank or its
agents
<PAGE>
substantiating the Borrower's inventory and the inventory of Crow River
Industries, Incorporated and confirming or adjusting the Bank's advance rate
with respect to such collateral.
CONDITIONS PRECEDENT TO ALL ADVANCES
Request for Advance. Concurrent with each request for an advance under the Line
or a disbursement under the Term Loan, the Borrower will deliver a Request for
Advance certificate to the Bank in the form set froth at Exhibit B.
CONDITIONS PRECEDENT TO ADVANCES SECURED BY INVESTMENT SECURITIES
Notice of Pledge. Concurrent with each request for an advance under the Line or
a disbursement under the Term Loan that will be supported in part by investment
securities permitted under the Borrowing Base definition set forth in the
Agreement, the Borrower will deliver to the Bank a Notice of Pledge form
identifying those investment securities to be included in the Borrowing Base,
together with such other documents as the Bank may deem necessary to secure the
pledge.
<PAGE>
EXHIBIT D
REPRESENTATIONS AND WARRANTIES
Organizational Status. The Borrower is a corporation duly formed and in good
standing under the laws of the State of Minnesota.
Authorization. This Agreement, and the execution and delivery of the Documents
required hereunder, is within the Borrower's powers, and has been duly
authorized, and does not conflict with any of its organizational papers or any
other agreement by which the Borrower is bound.
Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated April 30, 1994 and its unaudited interim financial
statement dated April 30 1995, and these statements fairly represent the
financial condition of the Borrower as of their respective dates and were
prepared in accordance with GAAP.
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
No Default. There is no event which is, or with notice or the lapse of time
would be, an event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with ERISA and has
received no notice to the contrary from the PBGC or other governmental area.
Environmental Matters. To the best of the Borrower's knowledge following
diligent inquiry: 1) the Borrower is in compliance in all material respects with
all applicable environmental, health, and safety statutes and regulations, 2)
the Borrower is not the subject of any "Superfund" evaluations, and 3) the
Borrower has not incurred, directly or indirectly, any material contingent
liability in connection with the release of any toxic or hazardous waste or
substance into the environment.
Norwest Bank Minnesota,
National Association Term Note
$2,500,000.00 June 1, 1995
FOR VALUE RECEIVED, Aequitron Medical, Inc. (the "Borrower") promises to pay to
the order of Norwest Bank Minnesota, National Association (the "Bank"), at its
principal office or such other address as the Bank or holder may designate from
time to time, the principal sum of Two Million Five Hundred and 00/100 Dollars
($2,500,000.00), or the amount shown on the Bank's records to be outstanding,
plus interest (calculated on the basis of actual days elapsed in a 360-day year)
accruing on the unpaid balance at the annual rate of interest defined below.
Absent manifest error the Bank's records will be conclusive evidence of the
principal and accrued interest owing hereunder.
This Term Note is issued pursuant to a credit agreement of even date herewith
between the Bank and the Borrower (the "Agreement"). The Agreement, and any
amendments or substitutions thereto, contain additional terms and conditions
including default and acceleration provisions. The terms of the Agreement are
incorporated into this Term Note by reference. Capitalized terms not expressly
defined herein shall have the meanings given them in the Agreement.
INTEREST RATE.
Base Rate Option. Unless the Borrower chooses the Cost of Funds Option as
defined below, the principal balance outstanding under this Term Note will bear
interest at an annual rate equal to the Base Rate plus 0.85%, floating (the
"Base Rate Option"). The Base Rate is the "base" or "rate" of interest
established by the Bank from time to time at its principal office in
Minneapolis.
Cost of Funds Option. Subject to the terms and conditions of the Agreement, the
Borrower may elect that all or portions of the principal balance of this Term
Note bear interest at the Bank's cost of funds plus 3.25% (the "Cost of Funds
Option"). The Bank's Cost of Funds is the rate determined by the Bank to
represent the Bank's direct and indirect cost of acquiring funds with a term
equal to the applicable Cost of Funds Interest Period, in an amount equal to the
Cost of Funds Rate Portion. Specific reference is made to the disbursement
section of the Agreement for terms governing the designation of Cost of Funds
Interest Periods and Cost of Funds Rate Portions.
Rate Decrease / Premium. The interest rate contracted in this Term Note shall be
subject to either an increase or a decrease in accordance with the terms of
Section 4.3 of the Agreement in the manner provided therein.
REPAYMENT TERMS
Interest. Interest accruing under the Cost of Funds Rate Option will be payable
on the first day of each month and at the end of each Cost of Funds Interest
Period.
Principal. Principal will be payable in 25 successive quarterly installments of
$92,500.00, payable on the first day of each calendar quarter and starting
October 1, 1995. The remaining principal balance, plus any accrued interest,
will be payable on July 1, 2002.
PREPAYMENT. The Borrower may prepay this Term Note in full or in part at any
time in a minimum amount of $100,000.00. Each prepayment will be applied in
inverse order of maturity and will include accrued interest on the amount
prepaid, if the installment consists of principal only.
Each prepayment of principal amounts bearing interest under an optional interest
rate, whether voluntary or by reason of acceleration, will be accompanied by
accrued interest on the amount prepaid plus a prepayment fee equal to the
amount, if any, by which:
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(i) the additional interest that would have been payable on the amount
prepaid, if it had not been paid until the last day of the applicable
interest period, exceeds
(ii) the interest that would have been recoverable by the Bank by
reinvesting the amount prepaid from the prepayment date to the last day
of the applicable interest period in U.S. Government Securities having
a maturity date on or about that date.
ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses incurred by
the Bank in the event this Term Note is not duly paid. Demand, presentment,
protest and notice of nonpayment and dishonor of this Term Note are expressly
waived. This Term Note will be governed by the substantive laws of the State of
Minnesota.
Aequitron Medical, Inc.
By: /s/ William M. Milne
Its: Chief Financial Officer
Norwest Bank Minnesota,
National Association Security Agreement
Norwest Bank Minnesota Aequitron Medical, Inc.
National Association 14800 - 28th Avenue North
55 East Fifth Street Plymouth, Minnesota 55447
St. Paul, Minnesota 55101 (the "Borrower")
(the "Bank")
June 1, 1995
1. SECURITY INTEREST AND COLLATERAL. To secure payment of the Obligations (as
defined below), the Borrower hereby enters into this Security Agreement (the
"Agreement") and grants to the Bank a security interest (the "Security
Interest") in the Collateral (defined below).
"Obligations" means every present and future debt, liability, and obligation
which the Borrower may owe to the Bank, whether direct or indirect, due or
unmatured, absolute or contingent, primary or secondary, or joint, several or
joint and several, and including all extensions, renewals, amendments or
replacements of such debt, liability, or obligation.
"Collateral" means the following property, excluding consumer goods, in which
the Borrower now has or hereafter acquires an interest and all products and
proceeds of such property:
(a) "Inventory". All inventory held for sale or lease or supply under a service
contract, or which constitutes work in process or materials used or consumed in
the Borrower's business.
(b) "Equipment". All equipment including but not limited to all machinery,
vehicles, furniture, appliances, fixtures, manufacturing and processing
equipment, shop equipment, office and recordkeeping equipment, computer hardware
and software, and parts and tools.
(c) "Accounts". All accounts and other rights to the payment of money including
all debt instruments, contract rights, chattel paper, loans and other
receivables, tax refunds, unearned premiums, rebates, documents and all returned
or repossessed goods arising from or relating to such accounts or rights.
(d) "General Intangibles". All general intangibles including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
goodwill, trade names, customer lists, permits, franchises, contracts, and the
right to use the Borrower's name.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Borrower represents, warrants and
agrees that:
(a) Borrower is a corporation whose chief executive office is located at the
address shown at the beginning of this Agreement, and that this Agreement has
been authorized by all necessary corporate action.
(b) The Collateral will be primarily used for business purposes.
(c) Borrower has and will have title to each item of Collateral free and clear
of all security interests and other encumbrances, except:
(i) the Security Interest;
<PAGE>
(ii) liens for taxes not delinquent or which the Borrower is contesting
in good faith;
(iii) liens securing purchase money indebtedness to the extent
consented to in writing in advance by the Bank;
The Borrower will defend the Collateral against the claims of all persons except
the Bank. Borrower will not dispose of any interest in the Collateral without
the prior written consent of the Bank, except that, prior to the occurrence of
an Event of Default and the revocation by the Bank of the Borrower's right to do
so, Borrower may sell Inventory in the ordinary course of business.
(d) Borrower will execute and deliver to the Bank financing statements and any
other documents that the Bank may require to perfect its Security Interest in
the Collateral, and will not permit any tangible Collateral to be located in any
state and/or county in which a financing statement perfecting such Collateral is
required to be but has not been filed. Borrower agrees that the Bank may
alternatively execute financing statements to perfect the Security Interest in
the Collateral where permitted by law.
(e) Each Account and each document is (or will be when arising or issued) the
valid and legally enforceable obligation, subject to no defense, set-off or
counterclaim (other than those arising in the ordinary course of business) of
the obligor shown by the Borrower's records to be obligated to pay such Account.
Borrower will not agree to the material modification or cancellation of any such
right to payment without the Bank's prior written consent, and will not
subordinate any such Account or right to payment to any other claim.
(f) Borrower will at all times:
(i) keep all tangible Collateral in good working order and condition,
normal depreciation excepted;
(ii) promptly pay all taxes and other governmental charges levied or
assessed upon Collateral;
(iii) permit the Bank to examine or inspect any Collateral, wherever
located, and to examine, inspect and copy Borrower's books and records
pertaining to the Collateral and Borrower's business, and to request
verifications from account obligors of amounts owed to Borrower;
(iv) keep accurate and complete records regarding the Collateral and
Borrower's business and financial condition and provide the Bank such periodic
reports of condition as the Bank may reasonably request;
(v) promptly notify the Bank of any loss of or material damage to any
Collateral or of any adverse change known to Borrower regarding the prospect of
payment on any Account;
(vi) upon Bank's request, promptly deliver to the Bank any instrument,
document or chattel paper constituting Collateral, duly endorsed or assigned by
Borrower;
(vii) keep all tangible Collateral insured against loss and damage,
including risks of fire (including extended coverage), theft, collision (in case
of Collateral consisting of motor vehicles) and such other risks in such amounts
as the Bank may reasonably request, with any loss payable to the Bank to the
extent of its interest and with the commitment of the insurer to notify the Bank
before cancellation;
(viii) pay when due or reimburse the Bank on demand for all costs of
collection of the Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorney's fees) incurred by the Bank in connection
with this Agreement and the Obligations, including expenses incurred in any
litigation or bankruptcy proceedings;
<PAGE>
(ix) prevent the Collateral from being used or kept in violation of all
applicable law;
(x) obtain a waiver or consent from the owner and any mortgagee of any
real property where the Collateral may be located that provides that the
Security Interest will at all times be senior to any such interest or lien.
(g) If Borrower breaches any covenant or warranty in this Agreement, and the
breach or failure continues for a period of ten calendar days after the Bank
gives written notice (or, in the case of the agreement contained in clause (vii)
of Section 2(f), immediately upon the occurrence of such failure, without notice
or lapse of time), the Bank may in its discretion perform or observe such
agreements in the Borrower's or the Bank's name, and may take any other actions
which the Bank deems necessary to cure or correct such failure. Borrower shall
reimburse the Bank on demand for all costs and expenses (including reasonable
attorneys' fees) incurred by the Bank in performing or observing such
agreements. If the Borrower fails to reimburse the Bank upon demand, the Bank
may cause such amounts to be advanced or added to any of the Obligations secured
hereunder, which will bear interest at the highest rate provided under the note
designated for this purpose by the Bank at the time of the advance.
(h) Borrower irrevocably appoints the Bank or its delegate as attorney-in-fact
of Borrower with the right (but not the duty) to execute, deliver, endorse or
file, in the name and on behalf of Borrower, any instruments, documents,
financing statements, applications for insurance or other agreements required of
Borrower under Section 2 at any time following an Event of Default. Following an
Event of Default, the Bank may in its discretion enforce any rights of the
Borrower under any contract of insurance, and in the Borrower's or the Bank's
name, execute and deliver proofs of claim, receive payment of proceeds, endorse
checks and other instruments representing payment of such proceeds, and adjust,
litigate, compromise or release any claim against the issuer of any such policy.
3. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an
event of default under this Agreement (each an "Event of Default"):
(a) Borrower defaults under the terms of any of the Obligations or any credit
agreement relating thereto; or
(b) Borrower materially fails to observe or perform any covenant contained in
this Agreement; or
(c) any representation or warranty made by the Borrower and set forth in this
Agreement is materially false or misleading.
4. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of Default
and at any time thereafter, the Bank may exercise any one or more of the
following rights and remedies:
(a) declare all unmatured Obligations to be immediately due and payable, without
presentment or other notice or demand;
(b) exercise all rights available upon default to a secured party under the
Uniform Commercial Code. The Bank may require Borrower to make the Collateral
available to the Bank at a place to be designated by the Bank which is
reasonably convenient to both parties, and if notice to 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 this Agreement at least 10 calendar days prior
to the date of any public sale or disposition or the date after which any
private sale may occur;
(c) exercise any or all other rights available to the Bank by law or agreement
against the Collateral, the Borrower or any other person or property.
<PAGE>
The Bank shall not be obligated to preserve any rights Borrower may have against
prior parties, to liquidate or realize on the Collateral at all or in any
particular manner or order, or apply any cash proceeds of Collateral in any
particular order.
5. OTHER PERSONAL PROPERTY. Unless at the time the Bank takes possession of any
tangible Collateral, or at any time within seven days thereafter, the Borrower
gives the Bank written notice of the existence of property belonging to the
Borrower that does not constitute Collateral, but which is located or found upon
or within such Collateral, together with a description of such property, the
Bank shall not be responsible or liable to the Borrower with respect to such
property unless it has actual knowledge of its existence and location upon or in
such Collateral.
6. LOCK BOX, COLLATERAL ACCOUNT. Upon the Bank's request following an Event of
Default, the Borrower will direct each obligor on an account to make payments to
a special lock box under the control of the Bank. Borrower authorizes and
directs the Bank to deposit into a special collateral account to be established
and maintained with the Bank all checks, drafts and cash payments, received in
said lock box. All deposits to this collateral account shall constitute
Collateral and shall not constitute payment of any Obligation. At its option,
the Bank may, at any time, apply collected funds on deposit in the collateral
account to the payment of the Obligations in such order of application as the
Bank may determine, or permit the Borrower to withdraw all or part of the
balance of the collateral account. If a collateral account is established,
Borrower agrees that it will promptly deliver to the Bank for deposit into the
collateral account all payments on Accounts. All such payments shall be
delivered to the Bank in the form received (except for Borrower's endorsement
where necessary). Until deposited, all payments on Accounts received by Borrower
shall be held in trust by the Borrower as the property of the Bank, and shall
not be commingled with any funds or property of the Borrower.
7. COLLECTION RIGHTS OF THE BANK. In addition to its rights under Sections 4 and
6, the Bank may, at any time following an Event of Default, notify any account
obligor or any other person obligated to pay any amount due with respect to an
Account to make payment directly to the Bank. Upon the Bank's request, Borrower
will notify such account obligors and other obligors in writing and will state
on all invoices to such account obligors or other obligors that the amount due
is payable directly to the Bank. At any time after the Bank or Borrower gives
such notice to an account obligor or other obligor, the Bank may, in its
discretion, and in its own name or in Borrower's name, demand, sue for, collect
or receive any money or property at any time payable or receivable on account
of, or securing, any such chattel paper, account, or other right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive or change the obligations (including collateral obligations) of
any such account obligor or other obligor.
8. AMENDMENTS. This Agreement can be waived, amended or terminated and the
Security Interest released, only in an express writing signed by the Bank. A
waiver signed by the Bank shall be effective only in the specific instance and
for the specific purpose given.
9. NO WAIVER; CUMULATIVE REMEDIES. Delay or failure to act shall not preclude
the exercise or enforcement of any of the Bank's rights or remedies. All rights
of the Bank shall be cumulative and may be exercised singularly or concurrently,
at the Bank's option, and the exercise of any one such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of any other.
10. NOTICES. All notices to be given to Borrower shall be deemed sufficiently
given if delivered or mailed to the Borrower at the above address or at the most
recent address shown on the Bank's records.
11. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of Borrower and the Bank and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Borrower and delivered to the Bank. A photographic or other reproduction of this
Agreement or of any financing statement signed by the Borrower shall have the
same force and effect as the original.
<PAGE>
12. APPLICABLE LAW; SEVERABILITY. Except to the extent otherwise required by
law, this Agreement shall be governed by the laws of the state in which the
Bank's main office is located. If any provision or application of this Agreement
is unenforceable in any respect, such unenforceability shall not affect other
provisions of this Agreement.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
14. INTEGRATION. This Agreement represents the entire understanding of the Bank
and Borrower with respect to the Collateral and supersedes all prior oral or
written agreements between the parties relating to the Collateral.
IN WITNESS WHEREOF, this Agreement was executed the day and year first
above written.
AEQUITRON MEDICAL, INC.
By: /s/ William M. Milne
Title: Chief Financial Officer
