<PAGE> 1
U.S. Securities And Exchange Commission
Washington, D.C. 20549
-------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-15963
SAFETYTEK CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
49050 MILMONT DRIVE, FREMONT, CALIFORNIA 94538
----------------------------------------------
(Address of principal executive offices) (Zip Code)
TELEPHONE: (510) 226-9600
-------------------------
(Registrant's telephone number)
-----------------------------------------------------
Indicate by check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes (X) No ( )
The number of shares outstanding of the issuer's Common Stock, par value $.0008
per share, at December 31, 1995 was 3,216,268 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAFETYTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1995
DECEMBER 31, (DERIVED FROM
1995 AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 134,700 321,600
Trade receivables, net 6,285,800 6,199,600
Inventories 5,170,400 5,082,400
Deferred income taxes 519,500 519,500
Prepaid expenses and other current assets 475,100 456,500
----------- ----------
Total current assets 12,585,500 12,579,600
Property and equipment, net 2,644,700 2,516,600
Intangible and other assets 4,698,300 4,763,900
----------- ----------
$19,928,500 19,860,100
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 1,637,000 1,967,200
Accounts payable 1,537,700 1,343,500
Current portion of long-term debt and
bank borrowings 949,600 2,483,300
Income taxes payable 489,100 267,800
Other 54,300 90,300
----------- ----------
Total current liabilities 4,667,700 6,152,100
Long-term debt, excluding current portion 747,100 926,400
Deferred income taxes 165,500 165,500
----------- ----------
Total liabilities 5,580,300 7,244,000
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,457,500 12,406,500
Retained earnings 1,888,100 207,000
----------- ----------
Total stockholders' equity 14,348,200 12,616,100
Commitments and contingencies
$19,928,500 19,860,100
=========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
2
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SAFETYTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND
THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 7,865,200 7,463,300 15,707,100 15,050,700
Cost of goods sold 3,787,600 3,717,400 7,679,600 7,377,900
----------- ---------- ----------- -----------
Gross profit 4,077,600 3,745,900 8,027,500 7,672,800
Operating expenses:
Selling, general
and administrative 2,250,800 2,178,800 4,435,400 4,577,700
Research and experimental 504,800 416,300 972,500 890,700
----------- ---------- ----------- -----------
Total operating expenses 2,755,600 2,595,100 5,407,900 5,468,400
Income from operations 1,322,000 1,150,800 2,619,600 2,204,400
Other income (expense):
Interest expense (41,800) (28,200) (100,800) (57,700)
Other, net 24,300 28,600 28,300 33,900
----------- ---------- ----------- -----------
Income before income taxes 1,304,500 1,151,200 2,547,100 2,180,600
Income tax expense 443,500 414,500 866,000 785,200
----------- ---------- ----------- -----------
Net income $ 861,000 736,700 1,681,100 1,395,400
=========== ========== =========== ===========
Net income per common share $ .25 .22 .49 .42
=========== ========== =========== ===========
Weighted average common
shares outstanding 3,467,398 3,365,169 3,463,864 3,361,627
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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SAFETYTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,681,100 1,395,400
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 273,600 247,200
Change in operating assets and liabilities:
Trade receivables (86,200) (538,500)
Inventories (88,000) (315,300)
Prepaid expenses and other current assets (18,600) (114,700)
Accrued expenses (330,200) (118,900)
Accounts payable 194,200 456,900
Income taxes payable 221,300 13,500
Other current liabilities (36,000) 200
----------- ----------
Net cash provided by operating activities 1,811,200 1,025,800
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (336,100) (420,100)
----------- ----------
Net cash used by investing activities (336,100) (420,100)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 51,000 7,500
Bank borrowings 550,000 427,500
Principal payments under acquisition notes
payable, long term debt and other (2,263,000) (1,099,100)
----------- ----------
Net cash used in financing activities (1,662,100) (664,100)
----------- ----------
Net decrease in cash and cash equivalents (186,900) (58,400)
Cash and cash equivalents at beginning of period 321,600 215,700
----------- ----------
Cash and cash equivalents at end of period $ 134,700 157,300
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 463,000 794,500
=========== ==========
Interest $ 100,800 57,700
=========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
4
<PAGE> 5
SAFETYTEK CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of December 31, 1995; and the related
consolidated statements of operations for the six-month periods ended December
31, 1995 and 1994; and the consolidated statements of cash flows for the
six-month periods ended December 31, 1995 and 1994 are unaudited. The
consolidated financial statements reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position and results of
operations as of the end of and for the periods indicated. Interim results are
not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's annual
financial statements and notes.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIOD ENDED DECEMBER 31, 1995 AND 1994
Sales
Sales increased 5.4% and 4.4%, respectively, for the three and six
month periods ended December 31, 1995 as compared to the same periods in fiscal
1995. The increase was the result of increased volume from the Company's gas
detection business which was attributable to strong demand for the "MicroMax"
portable multi-gas monitor. Sales volume at the Company's patient safety
monitoring business was essentially unchanged for the three month period ended
December 31, 1995 as compared to the same period in fiscal 1995 and was down
slightly for the first six months of fiscal 1996 as compared to the prior year
period. Sales of the Company's existing non-MRI monitors were negatively
affected by the delay in receiving FDA approval for its new non-invasive blood
pressure monitor, which had been anticipated in the summer of 1995 but was not
received until late November, 1995. Sales of the older non-MRI vital signs
monitors have also been affected by the upcoming introduction of the Company's
new multi-parameter vital signs monitor. The new monitor is currently under
review by the FDA and is expected to be introduced later this fiscal year.
Gross Profit
Gross profit margin increased to 51.8% in the second quarter of fiscal
1996 from 50.2% in the second quarter of fiscal 1995. This increase was due
principally to the increased sales volume and higher gross margins at the
Company's gas detection business. For the six months ended December 31, 1995,
the Company's gross profit margin remained stable at approximately 51% as the
increased sales volume and higher gross margins at the Company's gas detection
business offset higher manufacturing costs at the Company's oxygen monitoring
business.
Operating Expenses
Selling, general and administrative expenses were 28.6% and 28.2% of
sales in the three and six month periods of fiscal 1996 compared with 29.2% and
30.4% for the same periods of fiscal 1995. The decrease in these expenditures as
a percentage of sales was principally the result of spreading of fixed operating
expenses over the higher sales volume at the gas detection business. Selling,
general and administrative expenses for the three month period ended December
31, 1995 increased 3.3% over the prior year period. The increase in these
expenditures was attributable to higher administrative expenses at the patient
safety monitoring business.
Research and experimental expenses were 6.4% and 6.2% of sales for the
three and six month periods ended December 31, 1995 compared to 5.6% and 5.9%
for the same periods in fiscal 1995. The increase in aggregate research and
experimental expenses for the three and six month periods ended December 31,
1995 was due to higher research and experimental expenditures on behalf of the
patient safety monitoring business as the Company continues its efforts in
developing the next generation of its multi-parameter vital signs monitor and
other vital signs monitoring products.
6
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Other Income and Expense
Interest expense of $100,800 in the first six months of fiscal 1996
reflected the interest expense incurred from the Company's revolving bank line
of credit and acquisition related term loan and the interest portion of the
Company's mortgage on the patient safety monitoring facility.
Provision for Income Taxes
The effective tax rate for the first six months of fiscal 1996 was
34.0% compared with 36.0% for same period in fiscal 1995. This reduction in the
effective tax rate was principally due to the review and subsequent beneficial
changes in the Company's state income tax filing status in certain state tax
jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1995 increased to $7,917,800 compared
with $6,427,500 at June 30, 1995. Cash and cash equivalents at December 31, 1995
were $134,700 compared with $321,600 at June 30, 1995. Net cash provided by
operating activities was $1,811,200 for the six months ended December 31, 1995
compared with $1,025,800 for the six months ended December 31, 1994 as net
income and depreciation along with an increase in income taxes payable and
accounts payable more than offset increases in trade receivables, inventories,
and a decrease in accrued expenses. Capital expenditures were $336,100 for the
six months ended December 31, 1995 compared to $420,100 for the first six months
of fiscal 1995.
In fiscal 1993, the Company purchased 80% of the outstanding common
stock of Invivo Research, Inc. The agreement provided for a contingent payment
resulting in an initial payment of $1,000,000 made on July 15, 1994 and a final
payment of $2,000,000 paid on July 15, 1995. In fiscal 1994, the Company entered
into an agreement to acquire the remaining 20% of the Invivo Research, Inc.
shares. The contingent purchase price for such shares is to be paid in one or
more installments. One-fifth of the price "vests" on each of January 1, 1996,
1997 and 1998 and two-fifths vest on January 1, 1999. The former Invivo
shareholders can make one election each year beginning in 1996 to be paid any
vested payment. The amount of any payment is based on the after tax profits of
Invivo for the calendar year preceding the year that the payment is made,
regardless of when the payment vested, subject to a minimum share price if
certain milestones are achieved. The former Invivo shareholders must, generally,
elect to receive a payment in any calendar year by giving notice to the Company
by March of that year and the payment so elected is to be made on June 1 of that
year. The payments are to be made in cash, but if the shareholders require that
more than one-fifth of the payments be made in any year, the Company can elect
to make the excess amount of the payment in the form of its shares. Based on the
1995 calendar year results for Invivo and assuming no subsequent changes to the
financial statements for the referenced period, the approximate payment on June
1, 1996, if so elected by the former Invivo shareholders, would be $980,000.
Bank borrowings increased $550,000 in the first six months of fiscal
1996 as the contingent payment of $2,000,000 was made on July 15, 1995 in
connection with the Invivo Research acquisition. The Company's revolving bank
line of credit and $325,000 acquisition related term loan are collateralized by
the Company's accounts receivable, inventory, and equipment. In December 1995,
the Company renewed the bank line of credit to December 1, 1996 and increased
the amount under the revolving line of credit from $3,000,000 to $4,000,000. At
December 31, 1995, $550,000 was outstanding on the line of credit.
7
<PAGE> 8
The Company believes that its cash flow from operations and amounts
available from the bank line of credit will be adequate to meet its anticipated
cash needs for working capital and capital expenditures through the end of
fiscal 1996. The Company will continue to explore opportunities for the possible
acquisitions of technologies or businesses, which may require the Company to
seek additional financing.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
None.
ITEM 2: CHANGES IN SECURITIES:
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
At the Annual Meeting of Stockholders of the Company held on
December 6, 1995 the stockholders:
1. Elected all of the nominees for Director for the ensuing year
as follows:
Name For Against Abstain
---- --- ------- -------
Ernest Goggio 2,843,910 0 461
James Hawkins 2,843,910 0 461
George Sarlo 2,843,910 0 461
Paul Kutler 2,843,910 0 461
2. Ratified the selection of KPMG Peat Marwick LLP as independent
certified accountants for the Company, with the number of shares
voted in favor of the ratification being 2,844,371; the number of
shares voted against being 480; and the number of abstentions being
1,425.
ITEM 5: OTHER INFORMATION:
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index included herein on page 9.
(b) Reports on Form 8-K:
None.
8
<PAGE> 9
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SAFETYTEK CORPORATION
Date: February 9 , 1996 By:/S/ John F. Glenn
------------------
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
<PAGE> 10
SAFETYTEK CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.19 Amended and Restated Credit Agreement between First
Interstate Bank of California and SafetyTek Corp. dated
December 21, 1995.
11.1 Statement of computation of net income per share
27.0 Financial Data Schedule
10
<PAGE> 1
EXHIBIT 10.19
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of December 21,
1995, is entered into by and among SAFETYTEK CORPORATION, a Delaware
corporation, (herein referred to as the "Borrower"), LUMIDOR SAFETY CORPORATION,
G.C. INDUSTRIES, GAMMA INSTRUMENTS, INC., LINEAR LABORATORIES CORPORATION,
SIERRA PRECISION AND INVIVO RESEARCH, INC., jointly and severally, (herein
referred to, jointly and severally, as the "Guarantors"), and FIRST INTERSTATE
BANK OF CALIFORNIA, a California banking corporation, (herein referred to as the
"Lender ").
RECITALS
A. The Borrower and the Lender are parties to that certain Amended and
Restated Credit Agreement dated as of July 27, 1993 as amended by that certain
First Amendment thereto dated December 27, 1993, that certain Second Amendment
thereto dated April 1, 1994, that certain Third Amendment thereto dated November
17, 1994 and that certain Fourth Amendment thereto dated June 21, 1995 (herein
referred to jointly as the "Original Credit Agreement").
B. The Borrower and the Lender now wish to amend the Original Credit
Agreement in certain respects and, for convenience, to restate the Original
Credit Agreement, as so amended, in its entirety.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Borrower, the Guarantors and the Lender agree that, effective
simultaneously with the execution of this Agreement by the Borrower, the
Guarantors and the Lender, the Original Credit Agreement shall be amended and
restated in its entirety to read as set forth below.
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the following meanings:
"Agreement": This Amended and Restated Credit Agreement, as
amended, supplemented or modified from time to time.
"Borrower": As set forth in the introductory paragraph of this
Agreement.
"Borrowing": As defined in Sections 2.01 and 2.02.
"Borrowing Base": Eighty percent (80%) of Eligible Accounts
Receivable.
"Business Day": A day other than a Saturday, Sunday or a day
on which commercial banks in California are authorized or required by law to
close.
"Capital Lease": As applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which would,
in accordance with GAAP, be required to be accounted for as a capital lease on
the balance sheet of that Person.
"Commitment": The Lender's obligation to make Loans to the
Borrower and to issue Letters of Credit and Corporate Credit Cards pursuant to
Article II in the amount or amounts referred to therein.
"Consolidated Cash Flow": In respect of any period, the net
income from operations during such period of the Borrower and its consolidated
Subsidiaries plus all non-cash items (including, without limitation,
depreciation, depletion, amortization, deferred taxes and amortization of debt
discount) deducted in calculating net income of the Borrower and its
consolidated Subsidiaries during such period.
"Consolidated Current Assets": At any date of determination,
the total assets of the Borrower and its Subsidiaries on a consolidated basis
which may properly be classified as current assets in conformity with GAAP.
1
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"Consolidated Current Liabilities": At any date of
determination, the Consolidated Liabilities which may properly be classified as
current liabilities in conformity with GAAP.
"Consolidated Liabilities": At any date of determination, the
total liabilities of the Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP (including, without limitation, (1) any
balance sheet liability with respect to a Pension Plan recognized pursuant to
Financial Accounting Standards Board Statements 87 or 88 and (2) any withdrawal
liability under Section 4201 of ERISA with respect to a withdrawal from a
Multiemployer Plan, as such liability may be set forth in a notice of withdrawal
liability under Section 4219 [and as adjusted from time to time subsequent to
the date of such notice]).
"Consolidated Tangible Net Worth": At any date of
determination, the sum of the capital stock and additional paid-in capital plus
retained earnings and subordinated debt (or minus accumulated deficit) of the
Borrower and its consolidated Subsidiaries, minus intangible assets (including,
without limitation, franchises, patents, patent applications, trademarks, brand
names, goodwill and research and development expenses), on a consolidated basis
determined in conformity with GAAP.
"Corporate Credit Card" or "Corporate Credit Cards": Any
corporate credit card issued or to be issued by the Lender for the account of
the Borrower to one or more of the Borrower's corporate officers.
"Corporate Credit Card Usage": At any date of determination,
the aggregate face amount of any and all Corporate Credit Cards, which in no
event will exceed $10,000.
"Debt": As applied to any Person, (i) all indebtedness for
borrowed money, (ii) that portion of obligations with respect to Capital Leases
which is properly classified as a liability on a balance sheet in conformity
with GAAP, (iii) notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed money, (iv) any
obligation owed for all or any part of the deferred purchase price of property
or services which purchase price is (y) due more than six months from the date
of incurrence of the obligation in respect thereof, or (z) evidenced by a note
or similar written instrument and (v) all indebtedness secured by any Lien on
any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that person.
"Debt Service": In respect of any period, the sum of the
Borrower's consolidated (a) dividends of preferred stock, and (b) the
amortization of Debt, including that portion of rental payments with respect to
Capital Leases which is or should be applied as a reduction to the principal of
such Capital Leases in accordance with GAAP.
"Dollars" and "$": Dollars in lawful currency of the United
States of America.
"Eligible Accounts Receivable": All accounts receivable,
rights to payment, choses in action, general intangibles, instruments, notes,
drafts, documents, chattel paper and all other forms of obligations owing to the
Borrower, whether or not earned by performance, as such are deemed eligible by
the Lender, through its Commercial Finance Division from time to time, for
inclusion in the Borrowing Base.
"Employee Benefit Plan": Any Pension Plan, any employee
welfare benefit plan, or any other employee benefit plan which is described in
Section 3(3) of ERISA and which is maintained for employees of the Borrower or
any ERISA affiliate of the Borrower.
"ERISA": The Employee Retirement Income Security Act of 1974,
as amended from time to time and any successor statute.
"ERISA Affiliate": As applied to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
Section 414(b) and (c) of the Internal Revenue Code.
"GAAP": Generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession.
"Guarantees": The guarantees, executed by the Guarantors, in
form and content acceptable to the Lender, by which the performance by the
Borrower of any or all of the Borrower's obligations under the Loan Documents is
guaranteed.
"Guarantors": As set forth in the introductory paragraph of
this Agreement.
2
<PAGE> 3
"Interest Payment Date": As to any Prime Rate Loan until
payment in full, the Maturity Date and the last day of each month commencing on
the first of such days to occur after a Prime Rate Loan is made.
As to any LIBOR Loan with an Interest Period of one month or
less until payment in full, the last day of such Interest Period and the
Maturity Date, and as to any LIBOR Loan with an Interest Period in excess of one
month until payment in full, (i) the last day of each month following the
beginning of such Interest Period, (ii) the last day of such Interest Period and
(iii) the Maturity Date.
"Interest Period": With respect to any LIBOR Loan:
(i) initially, the period commencing on, as the case may be,
the Borrowing or conversion date with respect to such LIBOR Loan and ending one,
two, three, four, five or six months thereafter as selected by the Borrower in
its notice of Borrowing as provided in Section 2.01(b) or its notice of
conversion as provided in Section 2.05; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such LIBOR Loan and ending one,
two, three or six months thereafter as selected by the Borrower in its notice of
continuation as provided in Section 2.05;
provided, that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(a) if any Interest Period for a LIBOR Loan would otherwise
end on a day which is not a LIBOR Business Day, that Interest Period shall be
extended to the next succeeding LIBOR Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding LIBOR
Business Day;
(b) the Borrower may not select an Interest Period with
respect to any portion of principal of a LIBOR Loan which extends beyond a date
on which the Borrower is required to make a scheduled payment of that portion of
principal; and
(c) there shall be no more than six Interest Periods with
respect to LIBOR Loans outstanding at any time.
"Internal Revenue Code": The Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Lender": As set forth in the introductory paragraph of this
Agreement.
"Letter of Credit" or "Letters of Credit": Any letter of
credit or similar instrument issued or to be issued by the Lender for the
account of the Borrower and/or any Subsidiary pursuant to Section 2.06 for the
purpose of supporting the operations of the Borrower and/or any Subsidiary in
the ordinary course of the Borrower's and/or any Subsidiary's businesses.
"Letter of Credit Usage": At any date of determination, the
sum of (i) the maximum aggregate amount that is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding and
(ii) the aggregate amount of all drawings under Letters of Credit honored by the
Lender and not theretofore reimbursed by the Borrower.
"LIBOR": For each Interest Period (i) the prevailing rate of
interest determined by the Lender at which dollar deposits for the relevant
Interest Period would be offered to the Lender in the approximate amount of the
relevant LIBOR Loan in the London interbank market upon request of the Lender at
11:00 A.M. (London time) on the day which is two days on which dealings in
Dollar deposits may be carried out in the London interbank market prior to the
first day of such Interest Period, divided by (ii) a number equal to 1.00 minus
the aggregate (but without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on the day which is two LIBOR
Business Days prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as in effect at
the time the Lender quotes the rate to the Borrower) for Eurocurrency funding of
domestic assets (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) which are required to be maintained by a member bank
of such System (such rate to be adjusted to the next higher 1/16 of 1%).
"LIBOR Business Day": A day which is a Business Day and on
which dealings in Dollar deposits may be carried out in the London interbank
market.
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<PAGE> 4
"LIBOR Loans": Loans hereunder, which must be in a minimum
amount of $500,000 each, at such time as they accrue interest at a rate based
upon LIBOR.
"Lien": Any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Loans": The Revolving Loans, the Term Loan and any
combination thereof.
"Loan Documents": This Agreement, the Notes, the Letters of
Credit and each letter of credit application, the Corporate Credit Card
applications, the Security Agreements, the Guarantees and other documents
required by the Lender in connection with this Agreement and/or the credit
extended hereunder.
"Maturity Date": December 1, 1996 with respect to the
Revolving Loan and December 31, 1996 with respect to the Term Loan.
"Multiemployer Plan": A "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is maintained for employees of the Borrower or
any ERISA Affiliate of the Borrower.
"Note" and "Notes": The Revolving Note, the Term Note and any
combination thereof.
"Pension Plan": Any employee plan which is subject to Section
412 of the Internal Revenue Code and which is maintained for employees of the
Borrower or any ERISA Affiliate of the Borrower, other than a Multiemployer
Plan.
"Person": An individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Potential Event of Default": A condition or event which,
after notice or lapse of time or both, would constitute an Event of Default if
that condition or event were not cured or removed within any applicable grace or
cure period.
"Prime Rate": The index rate of interest established from time
to time by the Lender in connection with the pricing of certain of its loans.
The Lender may make loans priced at, above or below the Prime Rate. Information
concerning the Prime Rate may be obtained from the Lender.
"Prime Rate Loans": Loans hereunder at such time as they
accrue interest at a rate based upon the Prime Rate.
"Regulation G, T, U and X": Regulations G, T, U and X,
respectively, promulgated by the Board of Governors of the Federal Reserve
System, as amended from time to time, and any successors thereto.
"Revolving Commitment": The lesser of (a) $4,000,000 (less any
amounts outstanding under the Term Loan) or (b) the amount of the Borrowing Base
(less any amounts outstanding under the Term Loan), as such amounts may be
reduced pursuant to Section.2.01(c).
"Revolving Loans": As defined in Section 2.01(a).
"Revolving Note": As defined in Section 2.01(d).
"S.E.C.": The United States Securities and Exchange Commission
and any successor institution or body which performs the functions or
substantially all of the functions thereof.
"Security Agreements": mean those certain security agreements
set forth below:
The Borrower in favor of the Lender dated December 30, 1992;
Invivo Research, Inc. In favor of the Lender dated February
21, 1993;
Gamma Instruments, Inc. In favor of the Lender dated February
11, 1993;
G.C. Industries in favor of the Lender dated February 11,
1993;
Linear Laboratories Corporation in favor of Lender dated
February 11, 1993;
Lumidor Safety Corporation in favor of Lender dated February
11, 1993; and Sierra Precision in favor of Lender dated February 11, 1993.
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"Subsidiary": A corporation of which shares of stock having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or
other managers of such corporation are at the time owned, directly, or
indirectly through one or more intermediaries, or both, by the Borrower.
"Term Commitment": The amount of $1,300,000.
"Term Loan": As defined in Section 2.02(a).
"Term Note": As defined in Section 2.02(c).
"Termination Event": (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations), or (ii) the withdrawal of
the Borrower or any of its ERISA Affiliates from a Pension Plan during a plan
year in which it was a "substantial employer" as defined in Section 4001(1)(2)
or 4068(f) of ERISA, or (iii) the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a
Pension Plan by the Pension Benefit Guaranty Corporation, (v) any other event or
condition which might constitute grounds under ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan, or (vi) the
imposition of a lien pursuant to Section 412(n) of the Internal Revenue Code.
SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms not defined
in subsection 1.01, and accounting terms partly defined in subsection 1.01 to
the extent not defined, shall have the respective meanings given to them under
GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
(d) So long as the Borrower does not have any Subsidiaries,
references to a Subsidiary or Subsidiaries in this Agreement shall be deemed to
be deleted.
ARTICLE II
THE LOANS
SECTION 2.01. The Revolving Loans.
(a) The Revolving Commitment. The Lender agrees, on the terms
and conditions hereinafter set forth, to make loans ("Revolving Loans") to the
Borrower from time to time during the period from the date hereof to and
including the Maturity Date in an aggregate amount not to exceed the Revolving
Commitment, as such amount may be reduced pursuant to Section 2.01(c). Each
borrowing under this Section (a "Borrowing" shall be in a minimum amount of
$50,000. Within the limits of the Revolving Commitment, the Borrower may borrow,
repay pursuant to Section 2.02(b) and reborrow under this Section, provided that
at no time shall the sum of the aggregate principal amount of outstanding
Revolving Loans plus the Letter of Credit Usage plus the Corporate Credit Card
Usage exceed the Revolving Commitment then in effect.
(b) Making the Revolving Loans. The Borrower may borrow under
the Revolving Commitment on any Business Day if the Borrowing is to consist of a
Prime Rate Loan and on any LIBOR Business Day if the Borrowing is to consist of
a LIBOR Loan, provided that the Borrower shall give the Lender irrevocable
notice (which notice must be received by the Lender prior to 10:00 A.M., San
Francisco time)(i) three LIBOR Business Days prior to the requested Borrowing
date in the case of a LIBOR Loan, and (ii) on or before the requested Borrowing
date in the case of a Prime Rate Loan, specifying (A) the amount of the proposed
Borrowing, (B) the requested date of the Borrowing, (C) whether the Borrowing is
to consist of a LIBOR Loan or a Prime Rate Loan, and (D) if the Loan is to be a
LIBOR Loan, the length of the Interest Period therefor. Upon satisfaction of the
applicable conditions set forth in Article IV, the proceeds of all such Loans
will then be made available to the Borrower by the Lender by crediting the
account of the Borrower on the books of the Lender, or as otherwise directed by
the Borrower.
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The notice of Borrowing may be given orally (including
telephonically) or in writing (including telex or facsimile transmission) and
any conflict regarding a notice or between an oral notice and a written notice
applicable to the same Borrowing shall be conclusively determined by the
Lender's books and records. The Lender's failure to receive any written notice
of a particular Borrowing shall not relieve the Borrower of its obligations to
repay the Borrowing made and to pay interest thereon. The Lender shall not incur
any liability to the Borrower in acting upon any notice of Borrowing which the
Lender believes in good faith to have been given by a Person duly authorized to
borrow on behalf of the Borrower.
(c) Reduction of the Revolving Commitment. The Borrower shall
have the right, upon at least two (2) Business Days' notice to the Lender, to
terminate in whole or reduce in part the unused portion of the Revolving
Commitment, without premium or penalty, provided that each partial reduction
shall be in the aggregate amount of $20,000 and that such reduction shall not
reduce the Revolving Commitment to an amount less than the amount outstanding
hereunder on the effective date of the reduction. Such notice shall be
irrevocable and such reduction shall not be reinstated.
(d) Revolving Note. The Revolving Loans made by the Lender
pursuant hereto shall be evidenced by a promissory note of the Borrower,
substantially in the form of Exhibit A, with appropriate insertions (the
"Revolving Note"), payable to the order of the Lender and representing the
obligation of the Borrower to pay the aggregate unpaid principal amount of all
Revolving Loans made by the Lender, with interest thereon as prescribed in
Section 2.04. The Lender is hereby authorized to record in its books and records
and on any schedule annexed to the Revolving Note the date and amount of each
Revolving Loan made by the Lender, and the date and amount of each payment of
principal thereof, and any such recordation shall constitute prima facie
evidence of the accuracy of the information so recorded; provided that failure
by the Lender to effect such recordation shall not affect the Borrower's
obligations hereunder. Prior to the transfer of a Revolving Note, the Lender
shall record such information on any schedule annexed to and forming a part of
such Revolving Note.
(e) Fees. With respect to the Revolving Commitment the
Borrower agrees to pay to the Lender (a) a non-refundable $1,500 commitment fee
annually, in advance, on each anniversary date of this Agreement and (b) a
non-refundable fee equal to one-eighth of one percent (.125%) per annum on the
unused portion of the Revolving Commitment payable quarterly in arrears,
commencing on December 31, 1995 and continuing on the last Business Day of each
quarter thereafter and on the Maturity Date.
SECTION 2.02. The Term Loan.
(a) The Term Commitment. The Lender agrees, on the terms and
conditions hereinafter set forth, to make a Loan (the "Term Loan") to the
Borrower on the date hereof in an aggregate amount not to exceed the Term
Commitment.
(b) Making the Term Loan. The Borrower shall give the Lender
irrevocable notice of its intention to borrow under the Term Commitment (which
notice shall be received by the Lender prior to 11:00 A.M., San Francisco time)
one (1) Business Day prior to the date the Term Loan is to be made specifying
the amount of the proposed borrowing. Upon satisfaction of the applicable
conditions set forth in Article IV, the proceeds of such Term Loan will then be
made available to the Borrower by the Lender by crediting the account of the
Borrower on the books of the Lender, or as otherwise directed by the Borrower.
(c) Term Note. The Term Loan made by the Lender pursuant
hereto shall be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit B, with any appropriate insertions (the "Term Note"),
payable to the order of the Lender and representing the obligation of the
Borrower to pay the unpaid principal amount of the Term Loan made by the Lender,
with interest thereon as prescribed in Section 2.04. The Lender is hereby
authorized to record in its books and records and on any schedule annexed to the
Term Note, the date and amount of the Term Loan made by the Lender and the date
and amount of each payment of principal thereof, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided that failure by the Lender to effect such recordation shall not affect
the obligations of the Borrower hereunder. Prior to the transfer of the Term
Note, the Lender shall record such information on any schedule annexed to and
forming a part of such Term Note.
SECTION 2.03. Repayment.
(a) Mandatory Repayments.
(i) Revolving Loans. The aggregate principal amount
of the Revolving Loans outstanding on the Maturity Date, together with accrued
interest thereon, shall be due and payable in full on the Maturity Date. At any
time the sum of the aggregate principal amount of outstanding Revolving Loans
plus the Letter of Credit Usage plus the Corporate Credit Card
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Usage plus any amounts outstanding under the Term Loan exceeds the Revolving
Commitment then in effect, the Borrower shall immediately repay the Revolving
Loans in an amount equal to the excess.
(ii) Term Loan. The aggregate principal amount of the
Term Loan shall be payable in equal monthly installments payable on the last day
of each month, commencing on the first such date after the date of this
Agreement and ending on the Maturity Date, on which date the remaining
outstanding principal amount of the Term Loan, together with accrued interest
thereon shall be due and payable.
(b) Optional Payment. The Borrower may at its option pay the
Loans, in whole or in part, on any Business Day from time to time, provided the
Lender shall have received from the Borrower notice of any such payment at least
one (1) Business Day prior to the date of the proposed payment if such date is
not the last day of the then current Interest Period for each Loan being paid,
in each case specifying the date and the amount of payment. For Prime Rate Loans
each day shall be defined as and constitute an "Interest Period." Partial
payments hereunder shall be in an aggregate principal amount of not less than
the lesser of (a) $20,000 and (b) the outstanding balance of the Loan being
paid.
Payments which are partial prepayments of the Term
Loan shall be applied to the principal installments of the Term Loan of latest
maturity.
SECTION 2.04. Interest Rate and Payment Dates.
(a) Payment of Interest. Interest with respect to each Loan
shall be payable in arrears on each Interest Payment Date for such Loan. In no
event shall interest on a Loan exceed the maximum rate permitted by applicable
law.
(b) Prime Rate Loans. Revolving Loans and Term Loans which are
Prime Rate Loans shall bear interest on the unpaid principal amount thereof at a
rate per annum equal to one-fourth percent (.25%) in excess of the Prime Rate
from the date hereof through the Maturity Date.
(c) LIBOR Loans. Revolving Loans which are LIBOR Loans shall
bear interest for each Interest Period with respect thereto on the unpaid
principal amount thereof at a rate per annum equal to LIBOR determined for such
Interest Period in accordance with the terms hereof plus 300 basis points(i)
from the date hereof through the Maturity Date.
SECTION 2.05. Continuation and Conversion Options. The Borrower may
elect from time to time to convert its outstanding Loans from Loans bearing
interest at a rate determined by reference to one basis to Loans bearing
interest at a rate determined by reference to an alternative basis by giving the
Lender (i) at least one Business Day's prior irrevocable notice of an election
to convert Loans to Prime Rate Loans and (ii) at least three LIBOR Business
Days' prior irrevocable notice of an election to convert Loans to LIBOR Loans,
provided that any conversion of Loans other than Prime Rate Loans shall only be
made on the last day of an Interest Period with respect thereto, provided
further that no Loan may be converted to a Loan other than a Prime Rate Loan so
long as an Event of Default or Potential Event of Default has occurred and is
continuing. The Borrower may elect from time to time to continue its outstanding
Loans other than Prime Rate Loans upon the expiration of the Interest Period(s)
applicable thereto by giving to the Lender at least three LIBOR Business Days'
prior irrevocable notice of continuation of a LIBOR Loan and the succeeding
Interest Period(s) of such continued Loan or Loans will commence on the last day
of the Interest Period of the Loan to be continued, provided that no Loan may be
continued as a Loan other than a Prime Rate Loan so long as an Event of Default
or Potential Event of Default has occurred and is continuing. Each notice
electing to convert or continue a Loan shall specify: (i) the proposed
conversion/continuation date; (ii) the amount of the Loan to be
converted/continued; (iii) the nature of the proposed continuation/conversion;
and (iv) in the case of a conversion to, or continuation of a Loan other than a
Prime Rate Loan, the requested Interest Period, and shall certify that no Event
of Default or Potential Event of Default has occurred and is continuing. On the
date on which such conversion or continuation is being made the Lender shall
take such action as is necessary to effect such conversion or continuation. In
the event that no notice of continuation or conversion is received by the Lender
with respect to outstanding Loans other than Prime Rate Loans, upon expiration
of the Interest Period(s) applicable thereto, such Loans shall convert to Prime
Rate Loans. Subject to the limitations set forth in this Section and in the
definition of Interest Period, all or any part of outstanding Loans may be
converted or continued as provided herein, provided that partial conversions or
continuations with respect to Loans other than Prime Rate Loans shall be in an
aggregate minimum amount of $500,000.
SECTION 2.06. Letters of Credit
(a) Letters of Credit. The Borrower may request from time to
time during the period from the date hereof through the Maturity Date that the
Lender issue Letters of Credit for the account of the Borrower, provided that
(i) Borrower shall not request that the Lender issue any Letter of Credit, if
after giving effect to such issuance, the sum of the aggregate principal
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amount of outstanding Revolving Loans plus the Letter of Credit Usage plus the
Corporate Credit Card Usage exceeds the Revolving Commitment then in effect,
(ii) in no event shall the Lender issue any Letter of Credit having an
expiration date more than one year from the date of issuance, and (iii) Borrower
shall not request any Letter of Credit, if after giving effect to such issuance,
the Letter of Credit Usage exceeds $200,000 or any regulatory, legal or internal
limit on the Lender's ability to issue the requested Letter of Credit.
(b) Request for Issuance; Payments Under Letters of Credit.
Whenever the Borrower requests that the Lender issue a Letter of Credit, it
shall deliver to the Lender an executed application for such Letter of Credit in
the form customarily required by the Lender and the form of the Letter of Credit
requested, together with such other information or materials as the Lender may
request with respect to such Letter of Credit no later than 11:00 a.m., San
Francisco time, at least three (3) Business Days in advance of the proposed date
of issuance. IN DETERMINING WHETHER TO PAY UNDER ANY LETTER OF CREDIT, THE
LENDER SHALL BE RESPONSIBLE ONLY TO DETERMINE THAT THE DOCUMENTS AND
CERTIFICATES REQUIRED TO BE DELIVERED UNDER THAT LETTER OF CREDIT HAVE BEEN
DELIVERED AND THAT THEY COMPLY ON THEIR FACE WITH THE REQUIREMENTS OF THAT
LETTER OF CREDIT.
(c) Issuance of Letters of Credit. If the Lender elects to
issue the requested Letter of Credit and upon the satisfaction of all relevant
conditions set forth in Sections 4.01 and 4.03, the Lender shall issue a Letter
of Credit by delivering the Letter of Credit to the beneficiary. If the Lender
declines to issue the requested Letter of Credit, it shall promptly so notify
the Borrower and the Borrower shall withdraw its application therefor.
(d) Reimbursement of Amounts Drawn Under Letter of Credit. The
Lender shall notify the Borrower of a request for a drawing under a Letter of
Credit, and upon the drawing, the Borrower shall be obligated to reimburse the
Lender for such amount. In the event that the Borrower shall fail to reimburse
the Lender on the date of any drawing under a Letter of Credit in an amount
equal to the amount of such drawing, the Lender, subject to the terms and
conditions contained herein (except those terms and conditions relating to
notice and minimum amounts of Borrowings), shall make a Revolving Loan to the
Borrower in an amount equal to the unreimbursed amount of such drawing together
with accrued interest thereon. The proceeds of such Revolving Loan shall be used
to repay the Lender the unreimbursed amount together with accrued interest
thereon. Such Revolving Loan shall be evidenced by the Revolving Note and shall
initially be a Prime Rate Loan.
(e) Compensation. The Borrower agrees to pay the following
amounts to the Lender with respect to Letters of Credit:
(i) with respect to each Letter of Credit, on the
date of issuance of such Letter of Credit, all administrative fees, commissions
and other charges in accordance with the Lender's standard schedule for such
charges in effect at the time of issuance;
(ii) with respect to drawings made under any Letter
of Credit, to the extent a Revolving Loan is not made to reimburse the Lender
for each such drawing, interest, payable on demand, on the amount paid by the
Lender in respect of each such drawing from the date of the drawing through the
date such amount is reimbursed by the Borrower at a rate which is at all times
equal to three percent (3%) per annum in excess of the Prime Rate in effect from
time to time.
(iii) with respect to the amendment or transfer of
each Letter of Credit and each drawing made thereunder, documentary and
processing charges in accordance with the Lender's standard schedule for such
charges in effect at the time of amendment, transfer or drawing, as the case may
be.
(f) Obligations Absolute. The obligations of the Borrower to
reimburse the Lender for drawings made under each Letter of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
the following circumstances:
(i) any lack of validity or enforceability of any
Letter of Credit;
(ii) the existence of any claim, set-off, defense or
other right which the Borrower may have as any time against the beneficiary or
any transferee of the Letter of Credit (or any persons or entities for whom any
such transferee may be acting), the Lender or any other person or entity,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction between the
Borrower and the beneficiary for which the Letter of Credit was procured);
(iii) any draft, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or
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(iv) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS,
LETTERS OF CREDIT AND CORPORATE CREDIT CARDS
SECTION 3.01. Use of Proceeds. The proceeds of the Revolving Credit
Loans shall be used by the Borrower for its working capital requirements and of
the Term Loan for its acquisition of Invivo Research, Inc.
SECTION 3.02. Post Maturity Interest. Notwithstanding anything to the
contrary contained in Section 2.04, if all or a portion of the principal amount
of any of the Loans made hereunder or any interest accrued thereon shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
any such overdue amount shall bear interest at a rate per annum which is equal
to the greater of (a) two percent (2%) above the highest rate which would
otherwise be applicable pursuant to Section 2.04 and (b) three percent (3%)
above the Prime Rate, from the date of such nonpayment until paid in full (after
as well as before judgment), payable on demand. In addition, such Loan, if a
Loan other than a Prime Rate Loan, shall be converted to a Prime Rate Loan at
the end of the then current Interest Period therefor.
SECTION 3.03. Computation of Interest and Fees.
(a) Calculations. Interest in respect of the Prime Rate Loans
shall be calculated on the basis of a 360 day year for the actual days elapsed.
Any change in the interest rate on a Prime Rate Loan resulting from a change in
the Prime Rate shall become effective as of the opening of business on the day
on which such change in the Prime Rate shall become effective. Interest in
respect of LIBOR Loans and interest payable pursuant to Section 2.06 shall also
be calculated on the basis of a 360 day year for actual days elapsed.
(b) Determination by Lender. Each determination of an interest
rate or fee by the Lender pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower in the absence of manifest error.
SECTION 3.04. Payments. The Borrower shall make each payment of
principal, interest and fees hereunder and under the Notes, without setoff or
counterclaim, not later than 2:00 P.M. (San Francisco time) on the day when due
in lawful money of the United States of America to the Lender at the office of
the Lender designated from time to time in immediately available funds.
SECTION 3.05. Payment on Non-Business Days. Whenever any payment to be
made hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
SECTION 3.06. Reduced Return. If the Lender shall have determined that,
after the date hereof, the adoption of any applicable law, regulation, rule or
regulatory requirement (collectively in this Section 3.06 "Requirement")
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the Lender's capital as a consequence of the Letter of Credit
Usage or its undrawn Commitments and obligations hereunder to a level below that
which would have been achieved but for such Requirement, change or compliance
(taking into consideration the Lender's policies with respect to capital
adequacy) by an amount deemed by the Lender to be material, then from time to
time, within five (5) Business Days after demand by the Lender, the Borrower
shall pay to the Lender such additional amount or amounts as will compensate the
Lender for such reduction.
SECTION 3.07. Funding Losses. The Borrower agrees to indemnify the
Lender and to hold the Lender harmless from any loss or expense including, but
not limited to, any such loss or expense arising from interest or fees payable
by the Lender to lenders of funds obtained by it in order to maintain its LIBOR
Loans hereunder, which the Lender may sustain or incur as a consequence of (i)
default by the Borrower in payment of the principal amount of or interest on the
LIBOR Loans of the Lender, (ii) default by the Borrower in making a conversion
or continuation after the Borrower has given a notice thereof, (iii) default by
the Borrower in making any payment after the Borrower has given a notice of
payment or (iv) the Borrower making any payment of a LIBOR Loan on a day other
than the last day of the Interest Period for such Loan. For purposes of this
Section and Section 3.10, it shall be assumed that the Lender had funded or
would have funded 100%, as the case may be, of each LIBOR Loan in the London
interbank market for a corresponding amount and term. The determination by the
Lender of amounts payable under this Section shall be
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presumed correct in the absence of manifest error. This covenant shall survive
termination of this Agreement and payment of the Notes.
SECTION 3.08. Funding Sources. Nothing in this Agreement shall be
deemed to obligate the Lender to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by the Lender that it has
obtained or will obtain the funds for any Loan in any particular place or
manner.
SECTION 3.09. Inability to Determine Interest Rate. In the event that
the Lender shall have determined (which determination shall be conclusive and
binding upon the Borrower) that by reason of circumstances affecting the
interbank LIBOR market, adequate and reasonable means do not exist for
ascertaining LIBOR applicable pursuant to Section 2.04 for any Interest Period
with respect to a LIBOR Loan that will result from a requested LIBOR Loan or
that such rate of interest does not adequately cover the cost of funding such
Loan, the Lender shall forthwith give notice of such determination to the
Borrower not later than 1:00 P.M., San Francisco time, on the requested date of
a Borrowing, the requested conversion date or the last day of an Interest Period
of a Loan which was to have been continued as a LIBOR Loan. If such notice is
given and has not been withdrawn (i) any requested LIBOR Loan shall be made as a
Prime Rate Loan, or, at the Borrower's option, such Loan shall not be made, (ii)
any Loan that was to have been converted to a LIBOR Loan shall be continued as,
or converted into, a Prime Rate Loan and (iii) any outstanding LIBOR Loan shall
be converted, on the last day of the then current Interest Period with respect
thereto, to a Prime Rate Loan. Until such notice has been withdrawn by the
Lender, no further LIBOR Loans shall be made and the Borrower shall not have the
right to convert a Loan to a LIBOR Loan. The Lender will review the
circumstances affecting the interbank LIBOR market from time to time and the
Lender will withdraw such notice at such time as it shall determine that the
circumstances giving rise to said notice no longer exist.
SECTION 3.10. Requirements of Law. In the event that any law,
regulation or directive or any change therein or in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Agency or instrumentality:
(a) does or shall subject the Lender to any tax of any kind
whatsoever with respect to this Agreement, the Notes or any Loan made hereunder,
any Letter of Credit issued hereunder or change the basis of taxation of
payments to the Lender of principal, commitment fee, interest, fees, commissions
or any other amount payable hereunder (except for changes in the rate of tax on
the overall net income of the Lender);
(b) does or shall impose, modify or hold applicable any
reserve, assessment rate, special deposit, compulsory loan or similar
requirement (collectively in this Section, "Requirements") against assets held
by, or deposits or other liabilities in or for the account of, advances or loans
by, letters of credit issued by, or other credit extended by, or any other
acquisition of funds by, any office of the Lender which Requirements are not
otherwise included in the determination of LIBOR at the last Borrowing,
conversion or continuation date of a Loan;
(c) does or shall impose, modify or hold applicable any of the
Requirements against Commitments to extend credit;
(d) does or shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining its Revolving Commitment or the LIBOR Loans or
issuing, renewing or maintaining the Letters of Credit or to reduce any amount
receivable thereunder (which increase or reduction shall be determined by the
Lender's reasonable allocation of the aggregate of such cost increases or
reduced amounts receivable resulting from such events), then, in any such case,
the Borrower shall pay to the Lender, within three Business Days of its demand,
any additional amounts necessary to compensate the Lender for such additional
cost or reduced amount receivable as determined by the Lender with respect to
this Agreement. If the Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall notify the Borrower of the event by reason
of which it has become so entitled. A statement incorporating the calculation as
to any additional amounts payable pursuant to the foregoing sentence submitted
by the Lender to the Borrower shall be conclusive in the absence of manifest
error.
SECTION 3.11. Illegality. Notwithstanding any other provisions herein,
if any law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful, impossible, or
impracticable for the Lender to make or maintain LIBOR Loans as contemplated by
this Agreement, (a) the commitment of the Lender hereunder to make LIBOR Loans
or convert Prime Rate Loans to LIBOR Loans shall forthwith be canceled and (b)
the Lender's Loans then outstanding as LIBOR Loans, if any, shall be converted
automatically to Prime Rate Loans on the next succeeding Interest Payment Date
if the Lender may lawfully continue to maintain and fund such LIBOR Loans to
such day, or on such earlier date beyond which the Lender shall determine that
it may not lawfully continue to maintain and fund such LIBOR Loans. The Borrower
hereby agrees to pay the Lender, within three Business Days of its demand, any
additional amounts necessary to compensate the Lender for any costs incurred by
the Lender in making any conversion in accordance with this Section, including,
but not limited to, any interest or fees payable by
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the Lender to lenders of funds obtained by it in order to make or maintain its
LIBOR Loans hereunder (the Lender's notice of such costs, as certified to the
Borrower to be conclusive absent manifest error).
SECTION 3.12. Security for Loans, Letters of Credit and Corporate
Credit Cards. As security for the payment and performance of its obligations
hereunder, the Borrower and each of its wholly owned Subsidiaries hereby grants
to the Lender a security interest in all of the Borrower's and/or its wholly
owned Subsidiaries', as the case may be, right, title and interest in and to the
collateral described in the Security Agreements executed by the Borrower and its
wholly owned Subsidiaries in favor of the Lender.
SECTION 3.13. Guarantees. The payment and performance of the Borrower's
obligations hereunder shall be jointly and severally guaranteed by the
Guarantors, through the Guarantees.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.01. Conditions Precedent to Initial Loans. The obligation of
the Lender to make its initial Loan is subject to the conditions precedent that:
(a) The Lender shall have received on or before the day of the
initial Borrowing the following, each dated such day (except for the document
referred to in clause (ii)), in form and substance satisfactory to the Lender:
(i) The Notes issued by the Borrower to the order
of the Lender;
(ii) Copies of the Articles of Incorporation, or
other organizational document of the Borrower, certified as of a recent date by
the Secretary of State of its state of formation or incorporation;
(iii) Copies of the Bylaws, if any, of the Borrower,
certified by the Secretary or an Assistant Secretary of the Borrower;
(iv) Copies of resolutions of the Board of
Directors or other authorizing documents of the Borrower, in form and substance
satisfactory to the Lender, approving the Loan Documents and the Borrowings
hereunder;
(v) An incumbency certificate executed by the
Secretary or an Assistant Secretary of the Borrower or equivalent document,
certifying the names and signatures of the officers of the Borrower or other
Persons authorized to sign the Loan Documents and the other documents to be
delivered hereunder;
(vi) Executed copies of all Loan Documents;
(vii) Executed copies of the Guaranties, together
with all appropriate resolutions, incumbency certificates and other authorizing
documents as the Lender may request;
(viii) Executed copies of the Security Agreements,
together with: (w) all appropriate resolutions, incumbency certificates and
other authorizing documents as the Lender may request; (x) acknowledgment copies
(or other evidence of filing satisfactory to the Lender) of proper financing
statements duly filed under the Uniform Commercial Code (or any equivalent or
similar legislation) of all jurisdictions as may be necessary or, in the
Lender's opinion, desirable to effectively perfect the interests in the personal
property and fixtures granted under the security agreement(s); (y) evidence
satisfactory to the Lender that all other filings, recordings, landlord consents
and waivers and other actions the Lender deems necessary or advisable to
establish, preserve and perfect the Liens granted to the Lender in real or
personal property shall have been made or obtained; and (z) any opinions of
local or foreign counsel or such other counsel as the Lender may request with
respect to the establishment, preservation, perfection and enforceability of the
Liens granted in favor of the Lender;
(ix) A Borrowing Base Certificate setting forth in
detail acceptable to the Lender the calculation of the Borrowing Base, certified
by the chief financial officer or treasurer of the Borrower;
and (b) All corporate and legal proceedings and all
instruments and documents in connection with the transactions contemplated by
this Agreement shall be reasonably satisfactory in content, form and substance
to the Lender and its counsel, and the Lender and such counsel shall have
received any and all further information and documents which the Lender or such
counsel
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may reasonably have requested in connection therewith, such documents where
appropriate to be certified by proper corporate or governmental authorities.
SECTION 4.02. Conditions Precedent to Each Borrowing. The obligation of
the Lender to make a Loan on the occasion of each Borrowing (including the
initial Borrowing) shall be subject to the further conditions precedent that on
the date of such Borrowing (a) the following statements shall be true and the
Lender shall have received the notice required by Section 2.01(b), which notice
shall be deemed to be a certification by the Borrower that:
(i) The representations and warranties contained
in Section 5.01 are correct on and as of the date of such Borrowing as though
made on and as of such date,
(ii) No event has occurred and is continuing, or
would result from such Borrowing, which constitutes an Event of Default or
Potential Event of Default, and
(iii) All Loan Documents are in full force and
effect,
and (b) the Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
SECTION 4.03. Conditions Precedent to Each Letter of Credit. The
issuance of any Letter of Credit hereunder is subject to the prior or concurrent
satisfaction of all of the following conditions:
(a) On or before the date of issuance of the initial Letter of
Credit, each of the conditions set forth in Section 4.01 shall have been
satisfied or waived and the initial Loans shall have been made hereunder.
(b) On or before the date of issuance, the Lender shall have
received the executed application for such Letter of Credit in the form
customarily required by the Lender and all other information specified in
Section 2.06(b) and such other documents as the Lender may require in connection
with the issuance of such Letter of Credit.
(c) On the date of issuance, all conditions precedent
described in Section 4.02 shall be satisfied to the same extent as though the
issuance of such Letter of Credit were the making of a Loan and the date of
issuance of such Letter of Credit were the date of a Borrowing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties. The Borrower represents
and warrants as follows:
(a) Organization. The Borrower is duly organized, validly
existing and in good standing under the laws of the state of its formation. The
Borrower is also duly authorized, qualified and licensed in all applicable
jurisdictions, and under all applicable laws, regulations, ordinances or orders
of public authorities, to carry on its business in the locations and in the
manner presently conducted.
(b) Authorization. The execution, delivery and performance by
the Borrower of the Loan Documents, and the making of Borrowings hereunder, are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene (i) the Borrower's articles,
by-laws or other organizational document or (ii) any law or regulation
(including Regulations G, T, U and X) or any contractual restriction binding on
or affecting the Borrower.
(c) Governmental Consents. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (except routine reports required pursuant to the Securities
Exchange Act of 1934, as amended (if such act is applicable to the Borrower),
which reports will be made in the ordinary course of business) is required for
the due execution, delivery and performance by the Borrower of the Loan
Documents.
(d) Validity. The Loan Documents are the binding obligations
of the Borrower or other executing Person, if any, enforceable in accordance
with their respective terms; except in each case as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to
or affecting creditors' rights.
(e) Financial Condition. The balance sheets of the Borrower
and its consolidated Subsidiaries as at June 30, 1995, and the related
statements of income and retained earnings of the Borrower and its consolidated
Subsidiaries for the fiscal
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year, copies of which have been furnished to the Lender, fairly present the
financial condition of the Borrower and its consolidated Subsidiaries as at such
dates and the results of the operations of the Borrower and its consolidated
Subsidiaries for the respective periods ended on such dates, all in accordance
with GAAP, consistently applied, and since September 30, 1995, there has been no
material adverse change in the business, operations, properties, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole.
(f) Litigation. Except as set forth on Schedule 5.01(f)
hereto, there is no pending or threatened action or proceeding affecting the
Borrower or any of its Subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the consolidated financial
condition or operations of the Borrower or which may have a material adverse
effect on the Borrower's ability to perform its obligations under the Loan
Documents, having regard for its other financial obligations.
(g) Employee Benefit Plans. The Borrower and each of its ERISA
Affiliates is in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations thereunder
with respect to all Employee Benefit Plans. No Termination Event has occurred or
is reasonably expected to occur with respect to any Pension Plan. The excess of
the actuarial present value of all benefit liabilities under all Pension Plans
(excluding in such computation Pension Plans with assets greater than benefit
liabilities) over the fair market value of the assets allocable to such benefit
liabilities are not greater than five percent (5%) of Consolidated Tangible Net
Worth. For purposes of the preceding sentence, the terms "actuarial present
value" and "benefit liabilities" shall have the meanings specified in Section
4001 of ERISA.
(h) Disclosure. No representation or warranty of the Borrower
contained in this Agreement or any other document, certificate or written
statement furnished to the Lender by or on behalf of the Borrower for use in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact (known to
the Borrower in the case of any document not furnished by it) necessary in order
to make the statements contained herein or therein not misleading. There is no
fact known to the Borrower (other than matters of a general economic nature)
which materially adversely affects the business, operations, property, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole, which has not been disclosed herein or in such other documents,
certificates and statements furnished to the Lender for use in connection with
the transactions contemplated hereby.
(i) Margin Stock. The aggregate value of all margin stock (as
defined in Regulation U) directly or indirectly owned by the Borrower and its
Subsidiaries is less than 25% of the aggregate value of the Borrower's assets.
(j) Environmental Matters. Except as set forth in Schedule
5.01(j) hereto, neither the Borrower nor any Subsidiary, nor any of their
respective officers, employees, representatives or agents, nor, to the best of
their knowledge, any other person, has treated, stored, processed, discharged,
spilled, or otherwise disposed of any substance defined as hazardous or toxic by
any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at any real property or any other
facility owned, leased or used by the Borrower or any Subsidiary, in violation
of any applicable statutes, regulations, ordinances or directives of any
governmental authority or court, which violations may result in liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 for all
such violations; and the unresolved violations set forth in said Schedule will
not result in liability to the Borrower or any Subsidiary or any of their
respective officers, employees, representatives, agents or shareholders in an
amount exceeding $100,000 for all such unresolved violations. Except as set
forth in said Schedule, no employee or other person has ever made a claim or
demand against the Borrower or any Subsidiary based on alleged damage to health
caused by any such hazardous or toxic substance or by any waste or by-product
thereof; and the unsatisfied claims or demands against the Borrower or any
Subsidiary set forth in said Schedule will not result in uninsured liability to
the Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 for all
such unsatisfied claims or demands. Except as set forth in said Schedule,
neither the Borrower nor any Subsidiary has been charged by any governmental
authority with improperly using, handling, storing, discharging or disposing of
any such hazardous or toxic substance or waste or by-product thereof or with
causing or permitting any pollution of any body of water; and the outstanding
charges set forth in said Schedule will not result in liability to the Borrower
or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 for all
such outstanding charges. The Borrower has heretofore delivered to the Lender
copies of various manufacturers' safety sheets which identify among other things
the primary chemical substances used by the Borrower and its Subsidiaries in the
ordinary course of their businesses.
(k) Employee Matters. There is no strike or work stoppage in
existence or threatened involving the Borrower or its Subsidiaries that may
materially adversely affect the consolidated financial condition or operations
of the Borrower or that may have a material adverse effect on the Borrower's
ability to perform its obligations under the Loan Documents, having regard for
its other financial obligations.
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ARTICLE VI
COVENANTS
SECTION 6.01 Affirmative Covenants. So long as the Notes shall remain
unpaid, or any Letter of Credit shall remain outstanding or unreimbursed or the
Lender shall have any Commitment hereunder, the Borrower will, unless the Lender
shall otherwise consent in writing:
(a) Financial Information. Furnish to the Lender:
(i) as soon as available, but in any event within
90 days after the end of each fiscal year of the Borrower, [a] a copy of the
Borrower's consolidated balance sheet of itself and its consolidated
Subsidiaries as at the end of each fiscal year and the related consolidated
statements of income and retained earnings (or comparable statement) employed in
the business and changes in financial position and cash flow for such year,
setting forth in each case in comparative form the figures for the previous
year, accompanied by an unqualified report and opinion thereon of independent
certified public accountants acceptable to the Lender; [b] copies of the
Borrower prepared consolidating financial statements; and [c] copies of the
Borrower's 10-K Report;
(ii) as soon as available, but in any event within
45 days after the end of each fiscal quarter of the Borrower, [a] copies of the
Borrower's consolidated and consolidating financial statements and [b] copies of
the Borrower's 10-Q Report.
all such financial statements to be complete and correct in all
material respects and to be prepared in reasonable detail acceptable to the
Lender and in accordance with GAAP applied consistently throughout the periods
reflected therein (except as approved by such accountants and disclosed
therein);
(iii) together with each delivery of financial
statements of the Borrower and its Subsidiaries pursuant to subdivisions (i),
(ii) and (iii) above, an officers' certificate stating that the signers have
reviewed the terms of the Loan Documents and have made, or caused to be made
under their supervision, a review in reasonable detail of the transactions and
condition of the Borrower and its Subsidiaries during the accounting period
covered by such financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and that the signers
do not have knowledge of the existence as at the date of the officers'
certificate, of any condition or event which constitutes an Event of Default or
Potential Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Borrower has taken, is taking and proposes to take with respect thereto;
(iv) as soon as available, copies of all reports
which the Borrower sends to any of its security holders, and copies of all
reports and registration statements which the Borrower or any Subsidiary files
with the S.E.C. or any national securities exchange; and
(v) within 25 days after the end of each quarter,
[a] a Borrowing Base Certificate setting forth in detail acceptable to the
Lender the calculation of the Borrowing Base, certified by the chief financial
officer or treasurer of the Borrower and [b] copies of the Borrower's and the
Borrower's Subsidiaries' accounts receivable and payable agings, each in form
and detail acceptable to the Lender;
(b) Notices and Information. Deliver to the Lender:
(i) promptly upon any officer of the Borrower
obtaining knowledge (a) of any condition or event which constitutes an Event of
Default or Potential Event of Default, (b) that any Person has given any notice
to the Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 7.01(e), (c) of the institution of any litigation involving an alleged
liability (including possible forfeiture of property) of the Borrower or any of
its Subsidiaries equal to or greater than $50,000 or any adverse determination
in any litigation involving a potential liability of the Borrower or any of its
Subsidiaries equal to or greater than $50,000, or (d) of a material adverse
change in the business, operations, properties, assets or condition (financial
or otherwise) of the Borrower and its Subsidiaries, taken as a whole, an
officers' certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person and the nature of such claimed default, Event of Default,
Potential Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
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(ii) promptly upon becoming aware of the occurrence
of or forthcoming occurrence of any (a) Termination Event, or (b) "prohibited
transaction," as such term is defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA, in connection with any Employee Benefit Plan or
any trust created thereunder, a written notice specifying the nature thereof,
what action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal Revenue
Service, the Department of Labor, or the Pension Benefit Guaranty Corporation
with respect thereto;
(iii) with reasonable promptness copies of (a) all
notices received by the Borrower or any of its ERISA Affiliates of the Pension
Benefit Guaranty Corporation's intent to terminate any Pension Plan or to have a
trustee appointed to administer any Pension Plan; (b) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by the Borrower or
any of its ERISA Affiliates with the Internal Revenue Service with respect to
each Pension Plan; and (c) all notices received by the Borrower or any of its
ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA;
(iv) promptly, and in any event within 30 days after
receipt thereof, a copy of any notice, summons, citation, directive, letter or
other form of communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Subsidiaries in connection with any substance defined as toxic or hazardous by
any applicable federal, state or local law, rule, regulation, order or directive
or any waste or by-product thereof, or concerning the filing of a lien upon,
against or in connection with the Borrower, its Subsidiaries, or any of their
leased or owned real or personal property, in connection with a Hazardous
Substance Superfund or a Post-Closure Liability Fund as maintained pursuant to
ss.9507 of the Internal Revenue Code; and
(v) promptly, and in any event within 10 days after
request, such other information and data with respect to the Borrower or any of
its Subsidiaries as from time to time may be reasonably requested by the Lender.
(c) Corporate Existence, Etc. At all times preserve and keep
in full force and effect its and its Subsidiaries' corporate existence and
rights and franchises material to its business and those of each of its
Subsidiaries; provided, however, that the corporate existence of any such
Subsidiary may be terminated if such termination is in the best interest of the
Borrower and is not materially disadvantageous to the holder of the Notes.
(d) Payment of Taxes and Claims. Pay, and cause each of its
Subsidiaries to pay, all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or property before any penalty or interest accrues
thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or may become a lien upon any of its properties or assets,
prior to the time when any penalty or fine shall be incurred with respect
thereto; provided that no such charge or claim need be paid if being contested
in good faith by appropriate proceedings promptly instituted and diligently
conducted and if such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to
be maintained in good repair, working order and condition all material
properties used or useful in the business of the Borrower and its Subsidiaries
and from time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof. The Borrower will maintain or cause to be
maintained, with financially sound and reputable insurers, insurance with
respect to its properties and business and the properties and business of its
Subsidiaries against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations, with the Lender
named as additional insured or loss payee thereon. The Borrower will comply with
any other insurance requirement set forth in any other Loan Document.
(f) Inspection. Permit any authorized representatives
designated by the Lender to visit and inspect any of the properties of the
Borrower or any of its Subsidiaries, including its and their financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants, all at such reasonable times during normal
business hours and as often as may be reasonably requested.
(g) Compliance with Laws, Etc., Exercise, and cause each of
its Subsidiaries to exercise, all due diligence in order to comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including, without limitation, all environmental laws,
rules, regulations and orders, noncompliance with which would materially
adversely affect the business, properties, assets, operations or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole.
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(h) Hazardous Waste Studies. Promptly conduct and complete all
such investigations, studies, samplings and testings as may be requested by the
Lender relative to any substance defined as hazardous or toxic by any applicable
federal, state or local law, rule, regulation, order or directive, or any waste
or by-product thereof, at or affecting any real property or any facility owned,
leased or used by the Borrower or any Subsidiary.
(i) Subordination of Seller Financing. Roger E. Susi shall
subordinate his interest in that certain $362,500 Note executed in his favor by
the Borrower to the Lender through a Subordination Agreement heretofore executed
by him in favor of the Lender dated December 30, 1992. Notwithstanding the
foregoing, so long as the Borrower is in compliance with all of the terms and
conditions contained in this Agreement, the Borrower may make $41,827 quarterly
principal payments plus accrued interest thereon on subordinated debt. However,
in the Event of Default, as that term is defined in this Agreement, all payments
on subordinated debt will be suspended until said Event of Default is cured.
(j) Profitability. Maintain profitability on an after-tax
basis on a fiscal quarter basis.
SECTION 6.02. Negative Covenants. So long as the Notes shall remain
unpaid, or any Letter of Credit shall remain outstanding or unreimbursed or the
Lender shall have any Commitment hereunder, the Borrower will not, without the
written consent of the Lender:
(a) Working Capital. Permit Working Capital to be less than
$5,000,000. As used herein "Working Capital" shall mean Consolidated Current
Assets less Consolidated Current Liabilities. For purposes hereof, calculations
shall be measured on a fiscal quarterly basis of the Borrower.
(b) Consolidated Tangible Net Worth. Permit Consolidated
Tangible Net Worth to be less than $6,000,000. For purposes hereof, calculations
shall be measured on a fiscal quarterly basis of the Borrower.
(c) Consolidated Liabilities to Consolidated Tangible Net
Worth. Permit Consolidated Liabilities to Consolidated Tangible Net Worth to be
greater than 2.0 to 1.0. For purposes hereof, calculations shall be measured on
a fiscal quarterly basis of the Borrower.
(d) Debt Service Coverage Ratio. Permit the ratio of
Consolidated Cash Flow to Debt Service to be less than 1.5 to 1.0. For purposes
hereof, calculations shall be measured on a fiscal quarterly basis of the
Borrower.
(e) Liens, Etc. Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any Lien upon or with respect to
any of its properties, whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income, in each
case to secure any Debt of any Person other than (i) Liens in favor of the
Lender; (ii) Liens reflected on the financial statements referred to in Section
5.01(e) hereof and other Liens existing on the date hereof and set forth in
Schedule 6.02(e) hereto; and (iii) purchase money Liens upon or in any property
acquired or held by the Borrower or any Subsidiary in the ordinary course of
business to secure the purchase price of such property or to secure indebtedness
incurred solely for the purpose of financing the acquisition of such property.
(f) Debt. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Debt, other than (i) Debt
reflected on the Borrower's financial statements referred to in Section 5.01(e)
hereof and other Debt existing on the date hereof and set forth on Schedule
6.02(f) hereto; (ii) the Loans contemplated herein; (iii) Debt relating to liens
permitted under Section 6.02(e); (iv) Debt of a Subsidiary to another Subsidiary
or to the Borrower; and (v) reimbursement obligations with respect to Letters of
Credit issued hereunder in accordance with Section 2.06.
(g) Lease Obligations. Create or suffer to exist, or permit
any of its Subsidiaries to create or suffer to exist, any obligations for the
payment of rental for any property under leases or agreements to lease (other
than Capital Leases) which would cause the direct or contingent liabilities of
the Borrower and its Subsidiaries, on a consolidated basis, in respect of all
such obligations to exceed $550,000 payable in any fiscal year of the Borrower.
(h) Dividends, Etc. Declare or pay any dividends, purchase or
otherwise acquire for value its capital stock now or hereafter outstanding, or
make an distribution of assets to its stockholders as such, or permit any of its
Subsidiaries to purchase or otherwise acquire for value any stock of the
Borrower, except that the Borrower may declare and deliver dividends and
distributions payable in capital stock of the Borrower.
(i) Consolidation, Merger. Consolidate with or merge into any
other corporation or entity without the prior written consent of the Lender,
which consent will not be unreasonably withheld.
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(j) Loans, Investments, Secondary Liabilities. Make or permit
to remain outstanding, or permit any Subsidiary to make or permit to remain
outstanding, any loan or advance to, or guarantee (other than the $862,500
guarantee in favor of First Union Bank guaranteeing the construction and
mini-permanent loan to Invivo Research, Inc. referred to in Section 6.02),
induce or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of or any other interest in, or
make any capital contribution to, any other Person, except that the Borrower and
its Subsidiaries may:
(i) own, purchase or acquire certificates of
deposit issued by the Lender, commercial paper rated Moody's P-1, municipal
bonds rated Moody's AA or better, direct obligations of the United States of
America or its agencies, and obligations guaranteed by the United States of
America;
(ii) acquire and own stock, obligations or
securities received from customers in connection with debts created in the
ordinary course of business owing to the Borrower or a Subsidiary;
(iii) continue to own the existing capital stock of
the Borrower's Subsidiaries;
(iv) endorse negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(v) allow the Borrower's Subsidiaries to permit to
remain outstanding advances from the Borrower's Subsidiaries to the Borrower;
and
(vi) become or remain liable with respect to
reimbursement obligations under the Letters of Credit issued hereunder in
accordance with Section 2.06.
(k) Asset Sales. Convey, sell, lease, transfer or otherwise
dispose of, or permit any Subsidiary to convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
part of its or its Subsidiary's business, property or fixed assets outside the
ordinary course of business, whether now owned or hereafter acquired.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any installment of the
principal of the Notes when due, or to pay any installment of interest on the
Notes, or to pay when due any amount payable in reimbursement of the Lender in
respect of a drawing under a Letter of Credit, or other amount payable hereunder
within three (3) Business Days of the date when due; or
(b) Any representation or warranty made by the Borrower herein
or by the Borrower (or any of its officers) in connection with the Loan
Documents shall prove to have been incorrect in any material respect when made;
or
(c) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 6.01 or 6.02 hereof on its part to
be performed or observed; or
(d) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in this Agreement other than those referred to
in Subsections 7.01(a), (b) and (c) above on its part to be performed or
observed and any such failure shall remain unremedied for 30 days after the
Borrower knows of such failure;
(e) The Borrower or any of its Subsidiaries shall default in
the performance of or compliance with any term contained in any Loan Document
other than this Agreement and such default shall not have been remedied or
waived within any applicable grace period; or
(f) (i) The Borrower or any of its Subsidiaries shall (A) fail
to pay any principal of, or premium or interest on, any Debt (excluding Debt
evidenced by the Notes), when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt, or (B) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Debt, when required to be performed
or observed, and such failure shall continue after the applicable grace period,
if any, specified in such agreement or instrument; or
17
<PAGE> 18
(g) (i) The Borrower or any of its Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of thirty (30) days; or (iii] there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 30 days from the entry
thereof; or (iv) the Borrower or any of its Subsidiaries shall take any action
in furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii) and (iii) above; or (v) the
Borrower or any of its Subsidiaries shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its debts as they become due; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) equal to or greater than $100,000 and
all such judgments or decrees shall not have been vacated, discharged, or stayed
or bonded pending appeal within 30 days from the entry thereof; or
(i) Any guaranty, if any, for any reason other than
satisfaction in full of all obligations of the Borrower under the Loan
Documents, ceases to be in full force and effect or is declared null and void,
or any guarantor denies that it has any further liability under such guaranty or
gives notice to such effect;
(j) (i) The Borrower or any of its ERISA Affiliates
fails to make full payment when due of all amounts which, under the provisions
of any Pension Plan or Section 412 of the Internal Revenue Code, the Borrower or
any of its ERISA Affiliates is required to pay as contributions thereto;
(ii) any accumulated funding deficiency occurs or
exists, whether or not waived, with respect to any Pension Plan;
(iii) the excess of the actuarial present value of
all benefit liabilities under all Pension Plans over the fair market value of
the assets of such Pension Plans (excluding in such computation Pension Plans
with assets greater than benefit liabilities) allocable to such benefit
liabilities are greater than five percent (5%) of Consolidated Tangible Net
Worth;
(iv) the Borrower or any of its ERISA Affiliates
enters into any transaction which has as its principal purpose the evasion of
liability under Subtitle D of Title IV of ERISA;
(v) (A) Any Pension Plan maintained by the Borrower
or any of its ERISA Affiliates shall be terminated within the meaning of Title
IV of ERISA, or (B) a trustee shall be appointed by an appropriate United States
district court to administer any Pension Plan, or (C) the Pension Benefit
Guaranty Corporation (or any successor thereto) shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan, or (D) the Borrower or any of its ERISA Affiliates shall withdraw (under
Section 4063 of ERISA) from a Pension Plan, if as of the date of the event
listed in subclauses (A)-(D) above or any subsequent date, either the Borrower
or its ERISA Affiliates has any liability (such liability to include, without
limitation, any liability to the Pension Benefit Guaranty Corporation, or any
successor thereto, or to any other party under Sections 4062, 4063 or 4064 of
ERISA or any other provision of law) resulting from or otherwise associated with
the events listed in subclauses (A)-(D) above;
(vi) As used in this subsection 7.01(j) the term
"accumulated funding deficiency" has the meaning specified in Section 412 of the
Internal Revenue Code, and the terms "actuarial present value" and "benefit
liabilities" have the meanings specified in Section 4001 of ERISA; or
(k) There shall be instituted against the Borrower or any
Subsidiary, or against any guarantor, any proceeding for which forfeiture of any
property is a potential penalty;
THEN (i) upon the occurrence of any Event of Default described in clause (g)
above, the Commitment, any obligation of the Lender to issue any Letter of
Credit shall immediately terminate and all Loans hereunder with accrued interest
thereon, an amount equal to the Letter of Credit Usage and all other amounts
owing under this Agreement, the Notes Letters of Credit and the other Loan
Documents shall automatically become due and payable, and (ii) upon the
occurrence of any other Event of Default, the Lender may,
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<PAGE> 19
by notice to the Borrower, declare the Commitment, any obligation of the Lender
to issue any Letter of Credit and/or Corporate Credit Card to be terminated
forthwith, whereupon the Commitment, and any obligation of the Lender to issue
any Letter of Credit and/or Corporate Credit Card shall immediately terminate;
and by notice to the Borrower, declare the Loans hereunder, with accrued
interest thereon, an amount equal to the Letter of Credit Usage and all other
amounts owing under this Agreement, the Notes, the Letters of Credit and the
other Loan Documents to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived. So long as any Letter of Credit shall remain
outstanding, any amounts received by the Lender, may be held as cash collateral
for the obligation of the Borrower to reimburse the Lender in the event of a
drawing under any Letter of Credit. In the event any Letter of Credit in respect
of which the Borrower has deposited cash collateral with the Lender is canceled
or expires, the cash collateral shall be applied first to the reimbursement of
the Lender for any drawings thereunder and second to the payment of any
outstanding obligations of the Borrower hereunder or under any other Loan
Document. Notwithstanding any other provision of this Agreement, including
Section 8.02, notices to the Borrower pursuant to this Section may be
communicated orally (including by telephone) or in writing (including telex or
facsimile transmission).
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
of the Loan Documents nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 8.02. Notices, Etc. Except as otherwise set forth in this
Agreement, all notices and other communications provided for hereunder shall be
in writing (including telegraphic, telex or facsimile communication) and mailed
or telegraphed or telexed or sent by facsimile or delivered, if to the Borrower,
at its address set forth on the signature page hereof; and if to the Lender, at
its address set forth on the signature page hereof; or, as to each party, at
such other address as shall be designated by such party in a written notice to
the other parties. All such notices and communications shall be effective when
deposited in the mails, delivered to the telegraph company, sent by telex or
sent by facsimile, respectively, except that notices and communications to the
Lender pursuant to Article II or VII shall not be effective until received by
the Lender.
SECTION 8.03. Right of Setoff; Deposit Accounts. Upon and after the
occurrence of any Event of Default, the Lender is hereby authorized by the
Borrower, at any time and from time to time, without notice, (a) to set off
against, and to appropriate and apply to the payment of, the obligations and
liabilities of the Borrower under the Loan Documents (whether matured or
unmatured, fixed or contingent or liquidated or unliquidated) any and all
amounts owing by the Lender to the Borrower (whether payable in Dollars or any
other currency, whether matured or unmatured, and, in the case of deposits,
whether general or special, time or demand and however evidenced) and (b)
pending any such action, to the extent necessary, to hold such amounts as
collateral to secure such obligations and liabilities and to return as unpaid
for insufficient funds any and all checks and other items drawn against any
deposits so held as the Lender in its sole discretion may elect. The Borrower
hereby grants to the Lender a security interest in all deposits and accounts
maintained with the Lender and with any other financial institution. The Lender
is authorized to debit any account maintained with it by the Borrower for any
amount of principal, interest or fees which are then due and owing to the
Lender.
SECTION 8.04. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.05. Costs and Expenses; Indemnity.
(a) Whether or not the transactions contemplated hereby shall
be consummated, the Borrower agrees to pay on demand all costs and expenses of
the Lender (including attorney's fees and the reasonable estimate of the cost of
in-house counsel and staff) in connection with the preparation, execution,
delivery, filing, administration, amendment, modification, enforcement
(including, without limitation, in appellate, bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings)
restructuring, preservation of any rights under, or waivers of any of the
provisions of, any of the Loan Documents. In addition, the Borrower shall pay
any and all stamp and other taxes and fees payable or determined to be payable
in connection with the execution, delivery, filing, and recording of any of the
Loan Documents and the other documents to be delivered under any such Loan
Documents, and agrees to hold the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.
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<PAGE> 20
(b) Whether or not the transactions contemplated hereby shall
be consummated, the Borrower agrees to indemnify, pay and hold the Lender, and
the shareholders, officers, directors, employees and agents of the Lender (each
such person being called an "Indemnitee"), harmless from and against any and all
claims, demands, actions, causes of action, suits, liabilities, losses, damages,
costs and expenses, including, without limitation, reasonable attorneys' fees
and costs (including, without limitation, the reasonable estimate of the cost of
in-house legal counsel and staff) (collectively "Claims"), with respect to,
resulting from or arising, directly or indirectly, out of (i) the execution or
delivery of this Agreement or any agreement or instrument contemplated thereby,
the performance by the parties thereto of their respective obligations
thereunder or the consummation of the transactions contemplated thereby, (ii)
any actual or proposed use of proceeds hereunder, (iii) the violation of any
environmental protection, health, or safety law, whether such claims are
asserted by any Governmental Agency or any other person, (iv) the issuance of
any Letter of Credit or the failure by the Lender to honor a drawing under a
Letter of Credit as a result of any act or omission of any Governmental Agency,
or (v) any claim, litigation, investigative, administrative or judicial
proceeding relating to any of the foregoing, (whether or not any Indemnitee is a
party thereto); provided, however, that no Indemnitee shall have the right to be
indemnified under this paragraph to the extent that such Claims are determined
by a court of competent jurisdiction, by final and nonappealable judgment, to
have resulted from the gross negligence or willful misconduct of any such
Indemnitee.
(c) If any action, suit or proceeding is brought against any
Indemnitee pursuant to this Section, such Indemnitee shall notify the Borrower
of such Claim, but the failure to so promptly notify the Borrower shall not
affect the Borrower's obligations under this Section, and the Borrower will
assume the defense of such action, suit or proceeding, employing counsel
selected by the Borrower and reasonably satisfactory to the Indemnitee, and pay
the fees and expenses of such counsel.
(d) As between the Borrower and the Lender, the Borrower
assumes all risks of the acts and omissions of, or misuse of the Letters of
Credit by, the respective beneficiaries of the Letters of Credit. In furtherance
and not in limitation of the foregoing, the Lender shall not be responsible: (i)
for the form, validity, sufficiency, accuracy, genuineness or legal effect of
any document submitted by any party in connection with the application for and
issuance of the Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply fully with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in interpretation of
technical terms; (vi) for any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under any Letter of Credit or
of the proceeds thereof; (vii) for the misapplication by the beneficiary of a
Letter of Credit of the proceeds of any drawing under such Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Lender, including, without limitation, any act or omission by any government or
Governmental Agency. None of the above shall affect, impair, or prevent the
vesting of any of the Lender's rights or powers hereunder. In furtherance and
extension and not in limitation of the specific provisions set forth herein, any
action taken or omitted by the Lender, under or in connection with the Letters
of Credit or the related certificates, if taken or omitted in good faith, shall
not put the Lender under any resulting liability to the Borrower.
(e) The provisions of this Section shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby , the
repayment of any of the Loans, the invalidity of unenforceability of any term or
provision of this Agreement or any investigation made by or on behalf of the
Lender. All amounts due under this Section shall be payable on written demand
therefor.
SECTION 8.06. Participations. The Lender may sell, assign, transfer,
negotiate or grant participations to other financial institutions in all or part
of the obligations of the Borrower outstanding under the Loan Documents,
provided that any such sale, assignment, transfer, negotiation or participation
shall be in compliance with the applicable federal and state securities laws;
and provided further that any assignee or transferee agrees to be bound by the
terms and conditions of this Agreement. The Lender may, in connection with any
actual or proposed assignment or participation, disclose to the actual or
proposed assignee or participant, any information relating to the Borrower or
any of its Subsidiaries.
SECTION 8.07. Effectiveness; Binding Effect; Governing Law. This
Agreement shall become effective when it shall have been executed by the
Borrower and the Lender and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lender. THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW
DOCTRINE. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS AND RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO RULES OR LAWS ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES
FOR
20
<PAGE> 21
DOCUMENTARY CREDIT (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 500 (THE "UCP") AND, AS TO MATTERS NOT GOVERNED BY THE UCP, THE
LAWS OF THE STATE OF CALIFORNIA.
SECTION 8.08. Arbitration.
1. Binding Arbitration. Upon the demand of any party
("Party/Parties") to a Document (as defined below), whether made before the
institution of any judicial proceeding or not more than 60 days after service of
a complaint, third party complaint, cross-claim, counterclaim or any answer
thereto or any amendment to any of the above, any Dispute (as defined below)
shall be resolved by binding arbitration in accordance with the terms of this
arbitration program ("Arbitration Program"). A "Dispute" shall include any
action, dispute, claim or controversy of any kind, whether founded in contract,
tort, statutory or common law, equity, or otherwise, now existing or hereafter
arising between any of the Parties arising out of, pertaining to or in
connection with any agreement, document or instrument to which this Arbitration
Program is attached or in which it appears or is referenced or any related
agreements, documents, or instruments ("Documents"). Any Party who fails to
submit to binding arbitration following a lawful demand by another Party shall
bear all costs and expenses, including reasonable attorneys' fees (including
those incurred in any trial, bankruptcy proceeding or on appeal), incurred by
the other Party in obtaining a stay of any pending judicial proceeding and
compelling arbitration of any Dispute. The Parties agree that any agreement,
document or instrument which includes, attaches to or incorporates this
Arbitration Program represents a transaction involving commerce as that term is
used in the Federal Arbitration Act, Title 9 United States Code ("FAA"). THE
PARTIES UNDERSTAND THAT BY THIS AGREEMENT THEY HAVE DECIDED THAT THEIR DISPUTES
SHALL BE RESOLVED BY BINDING ARBITRATION RATHER THAN IN COURT, AND ONCE DECIDED
BY ARBITRATION NO DISPUTE CAN LATER BE BROUGHT, FILED OR PURSUED IN COURT.
2. Governing Rules. Arbitrations conducted pursuant to this
Arbitration Program shall be administered by the American Arbitration
Association ("AAA"), or other mutually agreeable administrator ("Administrator")
in accordance with the terms of this Arbitration Program and the Commercial
Arbitration Rules of the AAA. Proceedings hereunder shall be governed by the
provisions of the FAA. The arbitrator(s) shall resolve all Disputes in
accordance with the applicable substantive law designated in the Documents.
Judgment upon any award rendered hereunder may be entered in any court having
jurisdiction; provided, however, that nothing herein shall be construed to be a
waiver by any Party that is a bank of the protections afforded pursuant to 12
U.S.C. 91 or any similar applicable state law.
3. Arbitrator Powers and Qualifications; Awards. The Parties
agree to select a neutral qualified arbitrator or a panel of three qualified
arbitrators to resolve any Dispute hereunder. "Qualified" means a retired judge
or practicing attorney, with not less than 10 years practice in commercial law,
licensed to practice in the state of the applicable substantive law designated
in the Documents. A Dispute in which the claims or amounts in controversy do not
exceed $1,000,000, shall be decided by a single arbitrator. A single arbitrator
shall have authority to render an award up to but not to exceed $1,000,000.00
including all damages of any kind whatsoever, costs, fees, attorneys' fees and
expenses. Submission to a single arbitrator shall be a waiver of all Parties'
claims to recover more than $1,000,000.00. A Dispute involving claims or amounts
in controversy exceeding $1,000,000.00 shall be decided by a majority vote of a
panel of three qualified arbitrators. All three arbitrators on the arbitration
panel must actively participate in all hearings and deliberations. The
arbitrator(s) shall be empowered to, at the written request of any Party in any
Dispute, 1) to consolidate in a single proceeding any multiple party claims that
are substantially identical or based upon the same underlying transaction; 2) to
consolidate any claims and Disputes between other Parties which arise out of or
relate to the subject matter hereof, including all claims by or against
borrowers, guarantors, sureties and/or owners of collateral; and 3) to
administer multiple arbitration claims as class actions in accordance with Rule
23 of the Federal Rules of Civil Procedure. In any consolidated proceeding the
first arbitrator(s) selected in any proceeding shall conduct the consolidated
proceeding unless disqualified due to conflict of interest. The arbitrators(s)
shall be empowered to resolve any dispute regarding the terms of this
arbitration clause, including questions about the arbitrability of any Dispute,
but shall have no power to change or alter the terms of the Arbitration Program.
The prevailing Party in any Dispute shall be entitled to recover its reasonable
attorneys' fees in any arbitration, and the arbitrator(s) shall have the power
to award such fees. The award of the arbitrator(s) shall be in writing and shall
set forth the factual and legal basis for the award.
4. Preservation of Remedies. No provision of, nor the exercise
of any rights under, this Arbitration Program shall limit the right of any Party
to: (1) foreclose against and/or sale of any real or personal property
collateral or other security, or obtain a personal or deficiency award; (2)
exercise self-help remedies (including repossession and setoff rights); or (3)
obtain provisional or ancillary remedies such as injunctive relief,
sequestration, attachment, replevin, garnishment, or the appointment of a
receiver from a court having jurisdiction. Such rights can be exercised at any
time except to the extent such action is contrary to a final award or decision
in any arbitration proceeding. The institution and maintenance of an action as
described above shall not constitute a waiver of the right of any Party to
submit the Dispute to arbitration, nor render inapplicable the compulsory
arbitration provisions hereof. Any claim or dispute related to the exercise of
any self-help, auxiliary or other rights under this paragraph shall be a Dispute
hereunder.
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<PAGE> 22
5. Miscellaneous. All statutes of limitation applicable to any
Dispute shall apply to any proceeding in accordance with this Arbitration
Program. The Parties agree, to the maximum extent practicable, to take any
action necessary to conclude an arbitration hereunder within 180 days of the
filing of a Dispute with the Administrator. The arbitrator(s) shall be empowered
to impose sanctions for any Party's failure to proceed within the times
established herein. Arbitrations shall be conducted in the state of the
applicable substantive law designated in the Documents. The provisions of this
Arbitration Program shall survive a termination, amendment, or expiration hereof
or of the Documents unless the Parties otherwise expressly agree in writing.
Each Party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required in the ordinary
course of business of the Parties or as required by applicable law or
regulation. If any provision of this Arbitration Program is declared invalid by
any court, the remaining provisions shall not be affected thereby and shall
remain fully enforceable.
SECTION 8.09. JURY TRIAL WAIVER.
WITHOUT AFFECTING THE APPLICABILITY AND ENFORCEABILITY OF THE
SECTION OF THIS AGREEMENT ENTITLED "ARBITRATION," THE PARTIES HERETO HEREBY
WAIVE THEIR RESPECTIVE RIGHT: (A) TO TRIAL BY JURY OF ANY CAUSE OF ACTION,
CLAIM, COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING
BROUGHT BY EITHER PARTY AGAINST THE OTHER ON ANY MATTER WHATSOEVER RELATING TO,
RESULTING FROM, ARISING OUT OF, OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
LOAN DOCUMENTS, OR ANY COLLATERAL, INCLUDING, BUT NOT BY WAY OF LIMITATION, THE
ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR
OTHERWISE, NOW OR HEREAFTER IN EFFECT; AND (B) TO CONSOLIDATE ANY SUCH ACTION,
PROCEEDING AND/OR HEARING WITH ANY OTHER ACTION, PROCEEDING AND/OR HEARING IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT, THE LOAN DOCUMENTS AND ANY OTHER DOCUMENTS RELATED HERETO OR THERETO.
NEITHER LENDER NOR BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
SECTION 8.10. Consent to Jurisdiction; Venue. In any judicial
proceeding brought under or arising out of this Agreement or the Loan Documents,
each party hereby consents to the jurisdiction of a state or federal court of
competent jurisdiction in the County of Santa Clara in the State of California.
Each party agrees that the forum for any action or actions brought under or
arising out of this Agreement shall be a court of competent jurisdiction within
the County of Santa Clara in the State of California. Each party irrevocably
waives any objection, including, without limitation, any objection to the laying
of venue or based on the ground of forum non conveniens, which it may now or
hereafter have to the bringing of any action or proceeding in such jurisdiction
in respect of this Agreement or any document related hereto. Each party hereby
consents to service of process by any means authorized by California law and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement.
SECTION 8.11. Entire Agreement. This Agreement with Exhibits and
Schedules and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
SECTION 8.12. Separability of Provisions. In case any one or more of
the provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 8.13. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER: BANK:
SAFETYTEK CORPORATION FIRST INTERSTATE BANK OF CALIFORNIA
_________________________________ _________________________________
By:______________________________ By:______________________________
22
<PAGE> 23
Its:_____________________________ By:______________________________
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
Address: Address:
49050 Milmont Drive South Bay Business Banking Center
Fremont, CA 94538 177 Park Avenue, Third Floor
San Jose, CA 951134
Attention: James B. Hawkins Attention: Pattie Harlan
President Assistant Vice President
GUARANTOR: GUARANTOR:
G.C. INDUSTRIES GAMMA INSTRUMENTS, INC.
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
GUARANTOR: GUARANTOR:
LINEAR LABORATORIES SIERRA PRECISION
CORPORATION
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
23
<PAGE> 24
GUARANTOR: GUARANTOR:
INVIVO RESEARCH, INC. LUMIDOR SAFETY CORPORATION
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
_________________________________ _________________________________
By:______________________________ By:______________________________
Its:_____________________________ By:______________________________
24
<PAGE> 1
EXHIBIT 11.1
SAFETYTEK CORPORATION STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 861,000 736,700 1,681,100 1,395,400
========== ========= ========= =========
Computation of weighted
common and common equivalent
shares outstanding:
Common stock 3,214,624 3,183,843 3,209,078 3,182,339
Common stock
equivalents 252,774 181,326 254,786 179,288
---------- --------- --------- ---------
Weighted common and common
equivalent shares used
in the calculation of
income per share 3,467,398 3,365,169 3,463,864 3,361,627
========== ========= ========= =========
Net income per common share $ .25 .22 .49 .42
========== ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 135
<SECURITIES> 0
<RECEIVABLES> 6,496
<ALLOWANCES> 210
<INVENTORY> 5,170
<CURRENT-ASSETS> 12,586
<PP&E> 5,411
<DEPRECIATION> 2,766
<TOTAL-ASSETS> 19,929
<CURRENT-LIABILITIES> 4,668
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 14,346
<TOTAL-LIABILITY-AND-EQUITY> 19,929
<SALES> 7,865
<TOTAL-REVENUES> 7,865
<CGS> 3,788
<TOTAL-COSTS> 3,788
<OTHER-EXPENSES> 2,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 1,305
<INCOME-TAX> 443
<INCOME-CONTINUING> 861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 861
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
