SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Period Ended March 31, 1995.
[ ] 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 - 16612
CNS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1580270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 PARK ROAD
CHANHASSEN, MN 55317
(Address of principal executive offices including zip code)
(612) 474-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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
At May 15, 1995, 8,533,528 shares of common stock were outstanding.
PART I - FINANCIAL INFORMATION
CNS, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,645,629 $ 6,024,366
Accounts receivable 5,245,190 2,390,651
Inventories:
Finished goods 299,490 1,405,406
Work in process 755,414 56,086
Components and subassemblies 1,683,475 1,720,464
Total Inventories 2,738,379 3,181,956
Prepaid expenses 147,810 262,864
TOTAL CURRENT ASSETS 15,777,008 11,859,837
PROPERTY AND EQUIPMENT
less accumulated depreciation of
$761,691 and $719,752,
respectively 560,745 542,906
OTHER ASSETS
Intangible assets
less accumulated amortization of
$65,423 and $50,312,
respectively 135,568 131,008
$ 16,473,321 $ 12,533,751
The accompanying notes are an integral part
of the condensed financial statements.
CNS, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
LIABILITIES AND 1995 1994
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,108,036 $ 662,534
Accrued expenses 1,024,662 383,080
Deferred maintenance revenues 289,502 281,602
TOTAL CURRENT LIABILITIES 3,422,200 1,327,216
SHAREHOLDERS' EQUITY
Common stock, $.01 par value.
Authorized 10,000,000 shares;
issued and outstanding,
8,532,928 shares at
March 31, 1995 and
8,520,828 shares at
December 31, 1994. 85,329 85,208
Additional paid-in capital 24,356,494 24,314,791
Accumulated deficit (11,390,702) (13,193,464)
TOTAL SHAREHOLDERS' EQUITY 13,051,121 11,206,535
$ 16,473,321 $ 12,533,751
The accompanying notes are an integral part
of the condensed financial statements.
CNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
1995 1994
(Unaudited)
Sales $ 9,011,575 $ 2,101,694
Cost of goods sold 3,948,490 1,180,206
Gross profit 5,063,085 921,488
Operating expenses:
Marketing and selling 2,646,540 944,427
General and administrative 514,600 228,182
Research and development 183,358 214,448
Total operating expenses 3,344,498 1,387,057
Operating profit (loss) 1,718,587 (465,569)
Interest income 84,175 326
Interest expense - (2,800)
Net income (loss) $ 1,802,762 $ (468,043)
Net income (loss) per common
& common equivalent share $ .20 $ (.07)
Weighted average number of
common & common equivalent shares 9,086,788 6,601,552
The accompanying notes are an integral part
of the condensed financial statements.
CNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1995 1994
(Unaudited)
OPERATING ACTIVITIES:
Net income (loss) $ 1,802,762 $ (468,043)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 57,050 35,393
Changes in operating assets and
liabilities:
Accounts receivable (2,854,539) (367,570)
Inventories 443,577 20,710
Prepaid expenses 115,054 (49,123)
Accounts payable and accrued expenses 2,094,984 229,716
Net cash provided by (used in)
operating activities 1,658,888 (598,917)
INVESTING ACTIVITIES:
Payments for purchases of property
and equipment (59,778) (54,820)
Payments for intangible assets (19,671) (41,939)
Net cash used in investing activities (79,449) (96,759)
FINANCING ACTIVITIES:
Proceeds from short term borrowing -- 600,000
Proceeds from exercise of stock options 41,824 --
Net cash provided by financing
activitiies 41,824 600,000
Net increase (decrease) in cash and
cash equivalents 1,621,263 (95,676)
Cash and cash equivalents:
Beginning of period 6,024,366 347,224
End of period $ 7,645,929 $ 251,548
The accompanying notes are an integral part
of the condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements as of March 31, 1995 were taken
from audited financial statements at that time and the condensed financial
statements as of March 31, 1994 are unaudited but, in the opinion of management,
include all adjustments (consisting only of normal, recurring accruals)
necessary for a fair presentation of results for the interim periods presented.
The condensed balance sheets at March 31, 1995 and at December 31, 1994 were
taken from the audited financial statements at that date.
The accounting principles followed in the preparation of the financial
information contained herein are the same as those described in the Form 10-K
report for the year ended December 31, 1994, and reference is hereby made to
that report for detailed information on accounting policies.
1. The Company's balance sheet reflects Common Stock outstanding on a
historical basis. Net income per common share for the three month
period ended March 31, 1995 was based upon the weighted average of
common and common equivalent shares outstanding during the period. Net
loss per share of Common Stock for the three month period ended March
31, 1994 was based upon the weighted average number of common shares
outstanding during the period. Common equivalent shares were not
included because they were anti-dilutive.
2. The Company has a $1.25 million bank line of credit. Borrowings are
due on demand, bear interest at 1% over a defined base rate (9% at
March 31, 1995), are secured by substantially all assets of the
Company and are subject to certain restrictive covenants. Borrowings
are limited to 80% of eligible Breathe Right accounts receivable and
50% of eligible sleep products accounts receivable. There were no
borrowings against this line of credit as of March 31, 1995. The
credit expires on March 31, 1996.
3. On May 9, 1995, the Company announced that it has executed a
definitive agreement with Aequitron Medical, Inc. under which
Aequitron will acquire the Company's assets of the sleep disorders
diagnostic business. The transaction is expected to close on or about
June 1, 1995. The sleep diagnostics business had net sales and gross
profits of:
Three months ended
1994 March 31, 1995
---- --------------
Net sales $7,057,875 $1,552,337
Gross profit $3,326,593 $514,132
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Sales for the first quarter of 1995 were $9.0 million, a 329% increase from the
first quarter of 1994 sales of $2.1 million. Sales of the Breathe Right nasal
strip during the first quarter of 1995 were $7.5 million compared to $344,000 in
the first quarter of 1994. The significant increase in Breathe Right nasal strip
sales was due to increased consumer awareness as a result of the use of the
Breathe Right nasal strip by professional athletes in several sports, as well as
the commencement of national consumer advertising in newspapers and magazines
and the expansion of the Company's distribution network in the fourth quarter of
1994 and the first quarter of 1995. The Company believes that Breathe Right
nasal strip sales to wholesalers and retailers represented an expansion of their
inventories as well as a replenishment of product sold to consumers. At March
31, 1995 the Company had unfilled orders in excess of the total amount shipped
during the first quarter. The Company expects that these unfilled orders will be
shipped early in the second quarter of 1995. As a result of the uncertainty
associated with the introduction of a new consumer product and the unanticipated
media exposure of the Breathe Right nasal strip during the NFL playoffs, orders
for the Breathe Right nasal strip in the fourth quarter of 1994 and the first
quarter of 1995 may not necessarily be indicative of future rates of orders of
the product. Foreign sales of the Breathe Right nasal strip were $308,000 for
the first quarter of 1995.
Sales of sleep disorders diagnostic products during the first quarter of 1995
were $1.6 million compared to $1.8 million in the first quarter of 1994. The
decrease was due to a large sale in the first quarter of 1994 of apnea screening
devices, a line of portable devices sold in international markets only. The
Company does not expect any significant short term increase in its sleep
disorders diagnostic product sales.
Gross profit for the first quarter of 1995 was $5.1 million, a 449% increase
from gross profit from 1994 of $921,000. As a percentage of sales, gross profit
was 56.2% for the first quarter of 1995 compared to 43.8% for the first quarter
of 1994. Gross profit from sales of the Breathe Right nasal strip increased to
61.0% from 27.8% as a result of efficiencies realized from the higher level of
Breathe Right nasal strip sales. Gross profit from sales of sleep diagnostic
products in the first quarter of 1995 decreased to 33.1% from 47.0% in the first
quarter of 1994 as a result of a shift in sales to lower margin products. The
Company expects overall gross profit to continue to increase from the
efficiencies realized from an anticipated higher level of Breathe Right nasal
strip sales.
Marketing and selling expenses for the first quarter of 1995 were $2.6 million,
a 180% increase from the first quarter of 1994 marketing and selling expenses of
$944,000. This increase resulted primarily from the marketing expenses
associated with establishing distribution channels, trade advertisements,
consumer advertisements, and other product roll-out items for the Breathe Right
nasal strip. As a percentage of sales, marketing and selling expenses decreased
to 29.4% from 44.9% as a result of the higher level of sales. Marketing and
selling expenses are expected to increase significantly in 1995 as a result of
increased marketing and advertising of the Breathe Right nasal strip.
General and administrative expenses for the first quarter of 1995 were $515,000,
a 126% increase from the first quarter of 1994 general and administrative
expenses of $228,000. This increase primarily reflects earned incentive bonuses
and the addition of administrative personnel to implement systems to control
present and anticipated sales increases. As a percentage of sales, general and
administrative expenses decreased to 5.7% from 10.9% as a result of the higher
level of sales.
Research and development expenses for the first quarter of 1995 were $183,000, a
14.5% decrease from 1994 research and development expenses of $214,000. As a
percentage of sales, research and development decreased to 2.0% in the first
quarter of 1995 from 10.2% in the first quarter of 1994, reflecting primarily an
increased level of sales and, to a lesser extent, a reduction in new research
and development projects. The Company's research and development expenses have
historically been in the Company's sleep disorders diagnostic products business.
The Company expects that future research and development expenses will be lower.
Interest income was $84,000 in the first quarter of 1995 and was negligible in
the first quarter of 1994 reflecting the increased cash available for investment
and higher interest rates during the quarter. Interest expense was minimal in
both periods.
Liquidity and Capital Resources:
At March 31, 1995, the Company had cash and cash equivalents of $7.6 million,
working capital of $12.4 million and a $1.25 million line of credit with a bank,
subject to certain borrowing base restrictions. The Company had total assets at
March 31, 1995 of $16.5 million, an increase of $4.0 million from $12.5 million
at December 31, 1994. The increase primarily reflects the Company's net income
together with the increases in accounts payable and accrued expenses during the
quarter ended March 31, 1995.
The Company generated cash flow from operations of approximately $1.7 million
for the three months ended March 31, 1995 compared with a use of cash of
$599,000 for the three months ended March 31, 1994. Cash provided by operations
was primarily the result of an increase in accounts payable of $1.4 million, an
increase in accrued expenses of $642,000 and a decrease in inventories of
$444,000 offset by an increase in accounts receivable of $2.9 million.
With respect to investing activities, the Company made purchases of property and
equipment totaling $60,000 during the first quarter of 1995 compared to $55,000
in the first quarter of 1994. Capitalized patent and trademark costs were
approximately $20,000 in the first quarter of 1995 compared to $42,000 in the
first quarter of 1994. The Company presently does not have any significant
commitments for capital equipment.
At March 31, 1995, the Company had a $1.25 million bank line of credit.
Borrowings are due on demand, bear interest at 1% over a defined base rate, are
secured by substantially all assets of the Company and are subject to certain
restrictive covenants. Borrowings are limited to 80% of eligible Breathe Right
accounts receivable and 50% of eligible sleep products accounts receivable.
There were no borrowings against this line of credit as of March 31, 1995. The
credit line expires on March 31, 1996.
In the first quarter of 1995, the Company experienced a substantial increase in
orders of its Breathe Right product and a corresponding inability to have
sufficient quantities of product manufactured to expeditiously fill such orders.
At March 31, 1995, the Company had unfilled orders in excess of the total amount
shipped during the first quarter. The Company expects that these unfilled orders
will be shipped early in the second quarter of 1995.
During the quarter ended March 31, 1995, the Company utilized net operating loss
carryforwards totaling $2,066,000. The remaining net operating loss and credit
carryforwards at March 31, 1995 which are available to reduce income taxes
payable in future years total $9,650,000 and $312,000 respectively, and expire
at various times through 2009.
On May 9, 1995, the Company announced that it has executed a definitive
agreement with Aequitron Medical, Inc. under which Aequitron will acquire the
Company's assets of the sleep disorders diagnostic business. The transaction is
expected to close on or about June 1, 1995.
The Company believes that the proceeds from this transaction, together with its
existing funds and funds generated from operations, along with its bank line of
credit, will be sufficient to support its planned operations for the foreseeable
future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Byron G. Ellingson v. Bruce C. Johnson, Creative Integration
and Design, Inc. and CNS, Inc.
On July 28, 1994, Byron G. Ellingson commenced a lawsuit against
the Company, Bruce Johnson (the inventor of the Breathe Right
device), and Creative Integration and Design, Inc., which is
wholly owned by Johnson and which licenses the Breathe Right
device to the Company (the "Licensor"), in Minnesota State
District Court. The trial is scheduled to begin on August 14,
1995. Ellingson is claiming that he entered into an oral
partnership agreement with Johnson concerning the Breathe Right
device and that the Company tortiously interfered with this
agreement. Ellingson is seeking an undefined amount of monetary
damages from the Company and an order declaring the License
Agreement between the Company and the Licensor null and void.
The Company has denied all material allegations in Ellingson's
complaint and is vigorously defending itself based upon what it
considers meritorious defenses. In addition, the Company has
interposed a counterclaim against Ellingson seeking monetary
damages for alleged acts of Ellingson in seeking to dissuade
investment in the Company. Under the terms of the License
Agreement, the Company has contractual indemnification rights
against the Licensor. Although the Company believes that this
matter will not have a material adverse effect on the Company
because it has good and sufficient defenses to Ellingson's claims
and because the Company will be indemnified by the Licensor,
there can be no assurance that, in the event an adverse decision
is rendered against the Company, the Licensor will be able to
completely indemnify the Company from all damages.
CNS, Inc. v. Bollinger Industries, Inc. On March 24, 1995, the
Company commenced litigation in Federal District Court for the
District of Minnesota seeking an injunction and money damages
against Bollinger Industries, Inc. ("Bollinger"), the
manufacturer of an imitation of the Breathe Right nasal strip,
for deceptive trade practices and unfair competition. On April
11, 1995, the Court issued a temporary restraining order
enjoining Bollinger from using certain misleading advertising but
declined to restrain Bollinger from selling its product.
Bollinger has brought a counterclaim against the Company seeking
money damages and alleging that the Company misrepresented to
Bollinger's existing and prospective customers that Bollinger's
product is required to have FDA approval to market its product.
The Company has denied all material allegations in the
counterclaim and will vigorously defend itself based on what it
considers meritorious defenses.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits:
No. Description
10.1 Amendment No. 1 to Employment Agreement dated
as of January 1, 1994 between
Richard E. Jahnke and the Company.
10.2 Amendment No. 2 to Employment Agreement
dated as of January 1, 1994 between
Daniel E. Cohen and the Company.
10.3 Loan Agreement with Riverside Bank dated
March 31, 1995.
10.4 Asset Purchase Agreement
10.5 Non-Exclusive Distributorship Agreement
11.0 Calculation of Income (Loss) Per Share.
27.0 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNS, Inc.
Registrant
Date: May 15, 1995 By: /s/ Richard E. Jahnke
Richard E. Jahnke
President & Chief Operating Officer
Date: May 15, 1995 By: /s/ Ronald D. Cox
Ronald D. Cox
Vice President of Finance
Exhibit 10.1
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT BETWEEN
CNS, INC.
AND
RICHARD E. JAHNKE
This Agreement, made and entered into in the City of Chanhassen, State
of Minnesota, as of the 1st day of January, 1994, is by and between CNS, Inc., a
Delaware corporation (the "Company"), and Richard E. Jahnke ("Employee").
WHEREAS, the Company and Employee are parties to that certain
Employment Agreement dated as of March 8, 1993 (the "Employment Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
first sentence of Section 4.1 of the Employment Agreement be amended to read as
follows:
4.1 The Company agrees to pay Employee a salary of One Hundred Twelve
Thousand Dollars ($112,000) per year, payable bi-weekly; an automobile expense
allowance of Five Hundred Dollars ($500) per month; and other benefits as
adopted from time to time by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
CNS, INC.
By /s/ Daniel E. Cohen
Daniel E. Cohen, M.D.,
Chief Executive Officer
/s/ Richard E. Jahnke
Richard E. Jahnke
Exhibit 10.2
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT BETWEEN
CNS, INC.
AND
DANIEL E. COHEN
This Agreement, made and entered into in the City of Minneapolis, State
of Minnesota, as of the 1st day of January, 1994, is by and between CNS, Inc., a
Delaware corporation (the "Corporation"), and Daniel E. Cohen ("Employee").
WHEREAS, the Corporation and Employee are parties to that certain
Employment Agreement dated as of February 13, 1984 as amended on February 7,
1991 (the "Employment Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that
Section 4.1 of the Employment Agreement be amended to read as follows:
4.1 The Corporation agrees to pay Employee a salary of One Hundred
Fifteen Thousand Six Hundred Dollars ($115,600) per year payable bi-weekly.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
CNS, INC.
By /s/ Richard E. Jahnke
Richard E. Jahnke, President
/s/ Daniel E. Cohen
Daniel E. Cohen, M.D.
LOAN AGREEMENT Exhibit 10.3
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C>
$1,250,000.00 03-31-1995 03-31-1996 90484249 3000 117018 610
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: CNS, INC. LENDER: RIVERSIDE BANK
1250 PARK ROAD MINNESOTA CENTER OFFICE
CHANHASSEN, MN 55317 7760 FRANCE AVENUE SOUTH, SUITE 125
BLOOMINGTON, MN 55435
THIS LOAN AGREEMENT BETWEEN CNS, INC. ("BORROWER") AND RIVERSIDE BANK ("LENDER")
IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS
RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A
COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE
WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT.
ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND
FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS
AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER
UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN,
LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS,
AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY
LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND
DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of MARCH 31, 1995, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means CNS, INC. The word "Borrower" also
includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $1,250,000.00; or (b) 99.999% of the
aggregate amount of Eligible Accounts.
BUSINESS DAY. The words "Business Day" mean a day on which commercial banks
are open for business in the State of Minnesota.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which
the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such Accounts
are supported by insurance, bonds or other assurances satisfactory
to Lender.
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered
by the Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or
setoff.
(g) Accounts with respect to which the goods have not been shipped
or delivered, or the services have not been rendered, to the
Account Debtor.
(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed a
trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of creditors
or has become insolvent or fails generally to pay its debts
(including its payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the United
States.
(k) Accounts which have not been paid in full within 90 DAYS from
the invoice date. The entire balance of any Account of any single
Account debtor will be ineligible whenever the portion of the
Account past due 90 DAYS is in excess of 10.000% of the total
amount outstanding on the Account.
(l) That portion of the Accounts of any single Account Debtor
which exceeds 25.000% of all of Borrower's Accounts.
(m) 50% OF THE "NON-BREATHE" RIGHT ACCOUNTS" LESS THAN 90 DAYS
FROM INVOICE DATE. 20% OF THE "BREATHE RIGHT ACCOUNTS" LESS
THAN 90 DAYS FROM INVOICE DATE.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means RIVERSIDE BANK, its successors and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below. Liquid Assets. The
words "Liquid Assets" mean Borrower's cash on hand plus Borrower's
receivables.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carders, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean Borrower's
total assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) and Related Party
Notes less total debt. The term "Related Party Notes" shall mean all notes
due from companies affiliated by common ownership, officers, directors,
stockholders, or employees. The term "Debt" shall mean all of Borrower's
liabilities excluding subordinated debt. The term "Subordinated Debt" shall
mean indebtedness and liabilities of Borrower which have been subordinated
by written agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and
all Related Documents have been duly authorized, executed, and
delivered by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be
in full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related Documents
as are then due and payable, including without limitation the
following loan fees: 1% ANNUAL LOAN FEE.
(g) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement.
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on Us books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts, contract fights, and general
intangibles. Lender's Security Interests in the Collateral shall be continuing
liens and shall include the proceeds and products of the Collateral, Including
without limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's Interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
information relating to Borrower's Accounts as Lender may request.
Supplemental schedules shall be delivered according to the following
schedule: ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, AND COLLATERAL SCHEDULE
DUE WITHIN 26 DAYS OF MONTH END IF BORROWING ON LINE OF CREDIT.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of
the date of this Agreement and as of the date of each disbursement of Loan
proceeds:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, or about any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation, manufacture,
storage, treatment, disposal, release, or threatened release of any
hazardous waste or substance by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the properties
shall use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, or about any of the properties; and
any such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including
without limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste. Borrower hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Borrower becomes liable
for cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note are
binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, and (iii) no steps have been taken to terminate
any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. The chief place of business of
Borrower and the office or offices where Borrower keeps its records
concerning the Collateral is located at 1250 PARK ROAD, CHANHASSEN, MN
55317.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understands and agrees
that Lender is relying upon the above representations and warranties in
extending Loan Advances to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as Borrower's Loan
and Note shall be paid in full, or until this Agreement shall be terminated
in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in Writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all litigation and
claims and all threatened litigation and claims affecting Borrower or any
Guarantor which could materially affect the financial condition of Borrower
or the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than twenty five (25) days after the end
of each month, Borrower's balance sheet and profit and loss statement for
the period ended, prepared and certified as correct to the best knowledge
and belief by Borrower's chief financial officer or other officer or person
acceptable to Lender. All financial reports required to be provided under
this Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time. Additional information shall be
delivered according to the following schedule:
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not
less than $11,000,000.00 at March 31, 1995 and monthly thereafter.
For purposes of this Agreement and to the extent the following terms are
utilized in this Agreement, the term "Tangible Net Worth" shall mean
Borrower's total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements) less
total Debt. The term "Debt" shall mean all of Borrower's liabilities
excluding Subordinated Debt. The term "Subordinated Debt" shall mean
indebtedness and liabilities of Borrower which have been subordinated by
written agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender. The term "Working Capital" shall mean
Borrower's current assets, excluding prepaid expenses, less Borrower's
current liabilities. The term "Liquid Assets" shall mean Borrower's cash on
hand plus Borrower's receivables. The term "Cash Flow" shall mean net
income after taxes, and exclusive of extraordinary gains and income, plus
depreciation and amortization. Except as provided above, all computations
made to determine compliance with the requirements contained in this
paragraph shall be made in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower as
being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN FEES AND CHARGES. In addition to all other agreed upon fees and
charges, pay the following: 1% ANNUAL LOAN FEE.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in all other instruments and agreements
between Borrower and Lender in a timely manner, and promptly notify Lender
if Borrower learns of the occurrence of any event which constitutes an
Event of Default under this Agreement.
OPERATIONS. Substantially maintain its present executive and management
personnel; conduct its business affairs in a reasonable and prudent manner
and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with
the Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to Borrower's
employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which
arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower, or
(d) purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower becomes insolvent, files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a
material adverse change in Borrower's financial condition, in the financial
condition of any Guarantor, or in the value of any Collateral securing any Loan;
(d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender; or (a)
Lender in good faith deems itself insecure, even though no Event of Default
shall have occurred.
COLLATERAL AUDIT. BORROWER AGREES TO ONE COLLATERAL AUDIT PER YEAR PERFORMED BY
RIVERSIDE BANK IF OWING OVER $500,000 FOR 90 DAYS.
BANKING RELATIONSHIP. THE BORROWER WILL DESIGNATE RIVERSIDE BANK AS ITS BANKING
ACCOUNT FOR ITS GENERAL OPERATING ACCOUNTS, ITS FEDERAL TAX DEPOSITORY AND ALL
OTHER BUSINESS ACCOUNTS.
ADDITIONAL DEFINITIONS. 1) "BREATHE RIGHT" MEANS THE PRODUCT LINE CONSISTING OF
EXTERNAL NASAL DILATORS WHICH THE BORROWER MANUFACTURES AND MARKETS PURSUANT TO
A LICENSING AGREEMENT WITH CREATIVE INTEGRATION & DESIGN, INC. 2) "BREATHE RIGHT
ACCOUNTS" MEANS ACCOUNTS WHICH ARISE OUT OF THE SALE OF BREATHE RIGHT INVENTORY
BY THE BORROWER. 3) "NON-BREATHE RIGHT ACCOUNTS" MEANS ACCOUNTS WHICH ARISE OUT
OF THE SALE OF PRODUCT AND SERVICE, OTHER THAN THE "BREATHE RIGHT" PRODUCT LINE,
BY THE BORROWER.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on the Indebtedness against any and all such
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent or any Guarantor revokes any guaranty of the
indebtedness. Lender, at its option, may, but shall not be required to,
permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Loans immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF MINNESOTA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
HENNEPIN COUNTY, THE STATE OF MINNESOTA. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any Interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, In addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower
will constitute notice to all Borrowers. For notice purposes, Borrower
agrees to keep Lender informed at all times of Borrower's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, If the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's fight otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH 31,1995.
BORROWER:
CNS, INC.
BY: /S/ RICHARD E. JAHNKE
RICHARD E. JAHNKE, PRESIDENT & C.O.O.
LENDER:
RIVERSIDE BANK
BY: /S/ LEANNE BALDWIN, VICE PRESIDENT
AUTHORIZED OFFICER
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,250,000.00 03-31-1995 03-31-1996 90484249 3000 117018 610
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: CNS, INC. LENDER: RIVERSIDE BANK
1250 PARK ROAD MINNESOTA CENTER OFFICE
CHANHASSEN, MN 55317 7760 FRANCE AVENUE SOUTH, SUITE 125
BLOOMINGTON, MN 55435
PRINCIPAL AMOUNT: $1,250,000.00 INITIAL RATE: 10.000%
DATE OF NOTE: MARCH 31, 1995
PROMISE TO PAY. CNS, INC. ("BORROWER") PROMISES TO PAY TO RIVERSIDE BANK
("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF ONE MILLION TWO HUNDRED FIFTY THOUSAND & 00/100 DOLLARS
($1,250,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE
UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL
PLUS ALL ACCRUED UNPAID INTEREST ON MARCH 31, 1996. IN ADDITION, BORROWER WILL
PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING APRIL 30,
1995, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE LAST DAY OF EACH MONTH
AFTER THAT. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the FIRST BANK
NATIONAL ASSOCIATION REFERENCE RATE (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. THE INDEX CURRENTLY IS 9.000% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000
PERCENTAGE POINT OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 10.000% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it Is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any of the events described in this
default section occurs with respect to any guarantor of this Note. (g) Lender in
good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire c>r pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. It not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender In the State of Minnesota. If there Is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of HENNEPIN County, the State of Minnesota. This Note shall be governed
by and construed In accordance with the laws of the State of Minnesota.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts. COLLATERAL. This Note is secured by ALL CORPORATE ASSETS PER SECURITY
AGREEMENT DATED 3-31-95.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
LOAN AGREEMENT. AN EXHIBIT, TITLED "LOAN AGREEMENT," IS ATTACHED TO THIS NOTE
AND BY THIS REFERENCE IS MADE A PART OF THIS NOTE JUST AS IF ALL THE PROVISIONS,
TERMS AND CONDITIONS OF THE LOAN AGREEMENT HAD BEEN FULLY SET FORTH IN THIS
NOTE.
PRIOR NOTE. RENEWAL OF #90484061.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or Impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
CNS, INC.
BY: /S/ RICHARD E. JAHNKE
RICHARD E. JAHNKE, PRESIDENT & C.O.O.
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,250,000.00 03-31-1995 03-31-1996 90484249 3000 117018 610
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: CNS, INC. LENDER: RIVERSIDE BANK
1250 PARK ROAD MINNESOTA CENTER OFFICE
CHANHASSEN, MN 55317 7760 FRANCE AVENUE SOUTH, SUITE 125
BLOOMINGTON, MN 55435
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN CNS, INC. (REFERRED
TO BELOW AS "GRANTOR"); AND RIVERSIDE BANK (REFERRED TO BELOW AS "LENDER"). FOR
VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE
COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE
RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO
ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, CONTRACT RIGHTS, EQUIPMENT AND
GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, contract rights, general intangibles,
instruments, rents, monies, payments, and all other rights,
arising out of a sale, lease, or other disposition of any of
the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means CNS, INC., its successors and
assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or any one or
more of them, to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such indebtedness may be or hereafter
may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means RIVERSIDE BANK, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated March
31, 1995, in the principal amount of $1,250,000.00 from Grantor to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, convoys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding however all IRA, Keogh, and trust accounts. Grantor authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. THIS IS
A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH
ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR
A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, contract rights, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated on
the Collateral have authority and capacity to contract and are in fact
obligated as they appear to be on the Collateral. At the time any
account becomes subject to a security interest in favor of Lender, the
account shall be a good and valid account representing an undisputed,
bona fide indebtedness incurred by the account debtor, for merchandise
held subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services theretofore
performed by Grantor with or for the account debtor; there shall be no
setoffs or counterclaims against any such account; and no agreement
under which any deductions or discounts may be claimed shall have been
made with the account debtor except those disclosed to Lender in
writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all real property being rented or
leased by Grantor; (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where Collateral is
or may be located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Minnesota, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in
right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and shall not
be commingled with any other funds; provided however, this requirement
shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require, including
without limitation names and addresses of account debtors and agings of
accounts and general intangibles. Insofar as the Collateral consists of
inventory and equipment, Grantor shall deliver to Lender, as often as
Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as
an additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, at seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SAFW"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 49 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest, Grantor will provide Lender with such
logs payable or other endorsements as Lender may require. If Grantor at
any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in
the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not committed
to the repair or restoration of the Collateral shall be used to prepay
the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the
premium due date, amounts at least equal to the insurance premiums to
be paid. If fifteen (15) days before payment is due, the reserve funds
are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit
and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment
of the insurance premiums required to be paid by Grantor. The
responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims at any time
levied or placed on the Collateral. Lender also may (but shall not be obligated
to) pay all costs of insuring, maintaining and preserving the Collateral. All
such expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses shall become a
part of the Indebtedness and, at Lender's option, will (a) be payable on demand,
(b) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement: Default on Indebtedness. Failure of Grantor to make any
payment when due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor. the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Grantor. Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of Grantor
or by any governmental agency against the Collateral or any other
collateral securing the Indebtedness. This includes a garnishment of
any of Grantor's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Grantor as
to the validity or reasonableness of the claim which is the basis of
the creditor or forfeiture proceeding and if Grantor gives Lender
written notice of the creditor or forfeiture proceeding and deposits
with Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default. Insecurity.
Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Minnesota Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and selling
the Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then
due. For these purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to Grantor; change
any address to which mail and payments are to be sent; and endorse
notes, checks, drafts, money orders, documents of title, instruments
and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Minnesota. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of HENNEPIN County, State of Minnesota. This Agreement shall
be governed by and construed in accordance with the laws of the State
of Minnesota.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement. Costs
and expenses Include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited
in the United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above.
Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. To the extent
permitted by applicable law, if there is more than one Grantor, notice
to any Grantor will constitute notice to all Grantors. For notice
purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's fights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31,
1995.
GRANTOR:
CNS, INC.
BY: /S/ RICHARD E. JAHNKE
RICHARD E. JAHNKE, PRESIDENT & C.O.O.
ASSET PURCHASE AGREEMENT
AGREEMENT made as of the 8th day of May, 1995, by and among
AEQUITRON MEDICAL, INC., Minnesota corporation (the "Buyer"), and CNS, INC., a
Delaware corporation (the "Seller").
WHEREAS, the Seller owns and desires to sell and transfer to the
Buyer, and the Buyer desires to purchase and acquire from the Seller, the assets
of the Seller used by the Seller in the business ("Purchased Business") of
manufacturing, marketing, distributing and selling equipment for diagnosis of
sleep disorders (the "Equipment") upon the terms, conditions and provisions
hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 ASSET PURCHASE. Subject to the terms and conditions set forth
herein, the Buyer agrees to purchase from the Seller, and the Seller agrees to
sell, transfer, assign, convey and deliver to the Buyer, on the Closing Date (as
defined below), all of Seller's right, title and interest in and to the
following assets of the Seller which are used solely in the operation of the
Purchased Business ("Purchased Assets"):
(a) Material items of inventory of all kinds, including
raw materials, work-in-process, if any, finished goods, packaging
and supplies, including the inventories listed on Schedule 1.1(a).
(b) The machinery, tools, dies, molds, and other equipment
listed on Schedule 1.1(b) hereto.
(c) All registered and unregistered domestic and foreign
patents, all trademarks, tradenames, copyrights, service marks and
applications therefor and 510(k)s, issued or pending, (to the
extent transferable) which are listed on Schedule 1.1(c) together
with all related rights and associated goodwill ("Proprietary
Rights").
(d) All rights of the Seller under the unfilled sales
orders and any other contracts and commitments listed on Schedule
1.1(d) (the "Assumed Contracts").
(e) All books, records and correspondence pertaining to
inventories, accounts receivable, equipment, intangible property,
regulatory matters, manufacturing, quality control and quality
assurance documentation, all forms and correspondence with the FDA
on marketing authority and inspection issues, customers, sales
prospects and suppliers (including all customer, sales prospect and
supplier lists) used in connection with the Purchased Business (the
"Records").
(f) All technology, know-how and other intangible property
related to the Purchased Assets or the Purchased Business,
including, without limitation, tooling design, blue prints, repair
history, specifications, drawings, bills of material and
engineering documentation.
(g) All advertising and promotional literature and
materials, including catalogs, brochures, pamphlets and art work.
(h) Net receivables as described in 1.2 below.
The Seller hereby agrees to deliver to the Buyer possession of the Purchased
Assets on the Closing Date.
1.2 CONSIDERATION FOR ASSETS. In consideration of, and in exchange
for, the sale of the assets and property described in Section 1.1 above, Buyer
shall assume certain liabilities as set forth in Section 1.3, below, and, in
addition, shall pay the "Purchase Price" to Seller at Closing: (1) the sum of
Five Million Dollars ($5,000,000) cash; and (2) the remainder by delivery to
Seller of Buyer's promissory note in the form and on the terms attached as
Exhibit A in a face amount equal to 85% of the net receivables of the Purchased
Business (net of $105,274 of excluded receivables identified on Schedule 1.2) as
valued at the Closing Date ("Promissory Note"). If receivables in excess of 15%
of the net receivables of the Purchased Business remain uncollected 151 days
after the date of the Promissory Note, Seller will reimburse Buyer in cash in an
amount equal to 50% of such uncollected net receivables up to a maximum of
$50,000.
The Purchase Price shall be allocated among the Purchased Assets in
the manner determined by Buyer. Seller and Purchaser shall each file Form 8594
(Asset Acquisition Statement under Section 1060) on a timely basis reporting the
allocation of the Purchase Price. Seller and Purchaser shall not take any
position on their respective income tax returns that is inconsistent with the
allocation of the Purchase Price as determined by Buyer.
1.3 LIABILITIES OF SELLER.
Buyer shall assume no liabilities of Seller, fixed or contingent,
known or unknown, determined or undetermined, due or not yet due except as
specifically set forth on Schedule 1.3 hereto.
On the Closing Date, Buyer agrees to assume and to perform in
accordance with their respective terms the obligations of the Purchased Business
listed below ("Assumed Liabilities").
(a) "Assumed Contracts" described herein or listed on
Schedule 1.1(d) hereof.
(b) Any warranty obligations for Equipment sold prior to
Closing Date. At Closing, Seller shall pay cash to Buyer in the
amount of Seller's accrual for warranty obligations determined as
of the Closing Date, the amount of which shall be determined
consistent with past accounting practices of Seller.
(c) Maintenance contract obligations of Seller on the
Purchased Assets, but at Closing Seller shall reimburse Buyer for
one-half the amount of the maintenance contract obligations thus
assumed by Buyer.
(d) Products liability claims arising from Equipment sold
by Seller prior to the Closing Date, if and to the extent that
Buyer has modified, upgraded or updated such Equipment, or serviced
such Equipment in a way found to have caused injury to a third
party or to the extent Buyer failed to service, update, upgrade or
properly modify such equipment pursuant to order of a court or
governmental agency or pursuant to a maintenance or service
obligation.
(e) Any recall or modification obligations imposed by a
governmental agency or by maintenance or service obligations.
(f) Post-closing training obligations in connection with
Equipment sold before Closing, for which Seller will reimburse
Buyer for its expenses when and as accrued.
1.4 CLOSING; DELIVERY OF DOCUMENTS.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on June 1,1995 at a
mutually agreeable place (the "Closing Date"), or such other date
as agreed by the parties.
(b) On the Closing Date, Seller shall deliver to Buyer the
following:
(i) Patent Assignments in recordable form
transferring the patents and patent applications listed on
Schedule 1.1(c);
(ii) Trademark Assignments in recordable form
transferring the trademarks listed on Schedule 1.1(c);
(iii) an opinion of Lindquist & Vennum P.L.L.P.,
Seller's counsel, in form and substance satisfactory to
Buyer; and
(iv) a Bill of Sale transferring the Purchased
Assets to Buyer free and clear of all encumbrances.
(v) the cash amounts referenced in Section 1.3(b)
and (c) above.
(c) On the Closing Date, Buyer shall deliver to Seller the
following:
(i) the cash portion of the Purchase Price; and
(ii) the Promissory Note; and
(iii) an opinion of Best & Flanagan, P.L.L.P.,
Buyer's counsel, in form and substance satisfactory to
Seller.
1.5 CONDITIONS TO CLOSING. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction by the other party of the following conditions:
(a) The representations and warranties of the other party
shall be true and correct in all material respects at the Closing
as though then made;
(b) The other party shall have performed and complied in
all material respects with all covenants and agreements required to
be performed and complied with by it under this Agreement prior to
the Closing;
(c) No action or proceeding before any court or agency
will be pending or threatened wherein an unfavorable judgment,
decree or order could prevent the carrying out of this Agreement or
any of the transactions contemplated hereby or have an adverse
effect on the Purchased Assets or the Purchased Business; and
(d) The other party shall have delivered all documents
required to be delivered by it under Section 1.4;
(e) The form and substance of all certificates,
instruments, opinions and other documents delivered on or before
the Closing pursuant to this Agreement shall be reasonably
satisfactory to each party and its counsel; and
(f) During the period from the date of this Agreement to
the Closing (i) there shall not have been any material adverse
change in the condition or the results of operation of the Purchase
Assets or the Purchased Business (ii) nor shall Seller have
sustained any material loss or damage to the Purchased Assets,
whether or not insured, either of which would have a material
adverse effect on the ability of Buyer to operate the Purchased
Business.
Either party may waive any condition to its obligation to consummate the
transactions contemplated by this Agreement and agree to proceed with Closing.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE SELLER
As an inducement to the Buyer to enter into this Agreement, the
Seller hereby represents and warrants to, and agrees with, the Buyer as follows:
2.1 ORGANIZATION AND CORPORATE POWER. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full power and authority to enter into this Agreement
and perform its obligations hereunder.
2.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action and will
not create a lien or encumbrance on the Purchased Assets or conflict with or
result in a default under any material commitment, agreement or law applicable
to Seller. Approval of Seller's shareholders of the transactions contemplated
hereby is not required. Other than possible consents required under the Assumed
Contracts, no material consent or approval of or filing or registration with any
third party is required in connection with the execution, delivery or
performance of this Agreement by Seller. This Agreement constitutes a valid and
binding obligation of the Seller, enforceable in accordance with its terms.
2.3 TITLE AND CONDITION OF PROPERTIES. At the Closing Date the
Seller will own the Purchased Assets good and marketable title, free and clear
of all liens, charges, purchase rights, claims, pledges, mortgages, security
interests, encumbrances, or other limitations or restrictions whatsoever. The
Seller's machinery and equipment, and other tangible personal property included
in the Purchased Assets are in reasonable operating condition and repair, normal
wear and tear excepted (except for inventory, the condition of which shall be
governed by Section 2.5).
2.4 TANGIBLE PERSONAL PROPERTY. Schedule 1.1(b) lists all material
manufacturing machinery and equipment used to manufacture the Equipment, except
for Seller's manufacturing space at 1250 Park Road, Chanhassen, Minnesota 55317
and fixtures related thereto.
2.5 INVENTORY. The inventory shall on the Closing Date be in the
condition as inspected by Buyer.
2.6 PROPRIETARY RIGHTS.
2.6.1 The Seller's use of the Proprietary Rights does not,
to Seller's knowledge, violate or constitute the misappropriation
or the misuse of any intellectual property rights of any third
party. Schedule 1.1(c) attached hereto sets forth a list of all
Proprietary Rights, other than trade secrets and know-how. The
Seller has not granted, conveyed, licensed or assigned any rights
under the Proprietary Rights and to Seller's knowledge there are no
other parties using the Proprietary Rights.
2.6.2 To the best knowledge of Seller, all Proprietary
Rights are valid and enforceable, and, as to patents, there exist
no facts or prior art which would render any of those patents
invalid or unenforceable.
2.6.3 Seller has received no notice that any of the
features, components or configurations (whether developed or under
development) of the products included in the Purchased Assets
infringe, nor has any claim been made that they may infringe, the
intellectual property rights of any other party. Further, the
Seller has not been sued or charged orally or in writing with, or
been a defendant in any claim, suit, action or proceeding relating
to the Purchased Business which involves a claim of infringement of
any patents, trademarks, service marks or copyrights, or a claim of
unfair competition or misappropriation of trade secrets or
confidential information.
2.6.4 None of the Proprietary Rights is subject to any
outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Seller or restricting the
licensing thereby by the Seller to any person.
2.6.5 Apnea Screener. The FDA has not granted the
authority sought by Seller in the 510(k) application filed by it
with the FDA for the apnea screener ("Sleep Test") owned by Seller
and made part of the Purchased Assets. Prior to and following the
Closing Date, Seller agrees to cooperate with Buyer in seeking to
cause the FDA to grant such 510(k) application with respect to the
Sleep Test.
2.7 LITIGATION. Except as set forth on Schedule 2.7, there are no
actions, suits or proceedings, pending or, to the best knowledge of Seller,
threatened or claimed against or affecting the Seller which relate in any manner
to the Purchased Business at law or in equity, or before or by any federal,
state, municipal or other governmental agency. The Seller is not presently a
party to or subject to or bound by any agreement or any judgment, order, writ,
injunction or decree of any court or any governmental body that contains any
provision that would or could operate to prevent the carrying out of this
Agreement or the transactions contemplated hereby.
2.8 CONTRACTS. Other than the Assumed Contracts, Seller is not a
party to or otherwise bound by any material agreement, contract, indenture,
instrument or lease with respect to the Purchased Business, except as set forth
on Schedule 2.8.
2.9 INSURANCE. Seller maintains products' liability and other
insurance as described in Schedule 2.9. Following the Closing Date, Buyer will
provide its own insurance and shall, consistent with the indemnification
provisions in 4.2 and 4.3 below, hold Buyer harmless from any products liability
or other claim in connection with the Equipment, the Purchased Business or the
Purchased Assets, arising from Equipment sold before the Closing Date, except as
provided in Section 1.3(d) above.
2.10 MEDICAL DEVICE REGULATION. The Seller has applied for or
obtained all applicable material licenses, registrations, approvals, clearances
and authorizations required by local, state and Federal agencies, foreign or
domestic, regulating the safety, effectiveness and market clearance of the
Equipment. The Seller has had no recalls or FDA product actions, and has no
ongoing clinical studies. Seller has received no notice, oral or written, of any
adverse findings of the FDA in its inspections, except for certain non-material
facility-related items.
2.11 PRODUCT PERFORMANCE. The Seller has made available to Buyer
all supportive materials and data substantiating representations made to the FDA
in its Section 510(k) pre-market notifications, including any and all testing
data in the possession or under the control of the Seller, whether or not
submitted to the FDA. The Seller further represents and warrants that to the
best of Seller's knowledge the Seller's products perform in compliance with the
representations and performance specifications as contained in said
notifications and the Seller's product literature, and that sales thereof, if
any, have been made in compliance with the rules and regulations of the FDA, and
in compliance with labeling approved by the FDA and/or submitted with the
products. The FDA authorizations and notifications described in Schedule 2.11
attached hereto represent to the best of Seller's knowledge the only FDA
authorizations and notifications necessary to permit the sale and use by Seller
in the United States of the Devices. Each 510(k) listed in Schedule 2.11 lists
the corresponding part or product covered by such 510(k).
2.12 EMPLOYEE PLANS. A complete list of all employee benefit plans
covering employees of the Purchased Business is set forth on Schedule 2.12.
2.13 DEFAULTS. There has not to Seller's knowledge occurred any
default by Seller or, assuming all required consents to assignment are obtained,
any event which will become a default, nor, to Seller's knowledge, has there
occurred any default by any third party which will become a default under any
Assumed Contract or any judgment, order or commitment related to the Purchased
Assets.
2.14 FINANCIAL STATEMENTS. Seller's financial statements for the
fiscal years ending December 31, 1993 and 1994 and its interim statements for
the period ending March 31, 1995 (and its 1994 monthly financial statements,
which portray the fact that the majority of revenues of the Purchased Business
have historically occurred in the last months of the Company's fiscal quarters)
are attached as Schedule 2.14 hereto (the "Financial Statements"). The 1993 and
1994 year-end statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
covered thereby, and the Financial Statements fairly present the financial
position of Seller as of the respective dates of the balance sheets included
therein, and the results of operations for the respective periods indicated.
2.15 ABSENCE OF UNDISCLOSED LIABILITIES. To the best knowledge and
belief of Seller after due diligence, except to the extent reflected or reserved
against in Seller's balance sheet or as otherwise noted on Schedule 2.15 hereto,
Seller as of March 31, 1995, and as of the Closing Date, had or will have no
liabilities which would prevent title to the Purchased Assets from transferring
to Buyer.
2.16 NO VIOLATION. Seller is not subject to or obligated under its
certificate of incorporation, its bylaws, any applicable law, or rule or
regulation of any governmental authority, or any agreement or instrument, or any
license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement.
2.17 TAXES. All tax returns required by law to be filed, and all
taxes required to be paid or withheld and paid over by Seller which relate to
the Purchased Assets, the non-filing or non-payment of which could result in a
lien on or encumbrance against the Purchased Assets, have been fully paid,
withheld and paid over, and filed, as appropriate. Seller does not have any
reason to believe that a claim for such taxes for prior years in any material
amount may be asserted by any taxing body. Specifically, but not by way of
limitation, there are no tax liens filed or outstanding for unpaid sales or
payroll withholding taxes at the office of the Minnesota Secretary of State or
any Minnesota County Recorder's office. The federal and state TIN of Seller is
41-1580270 and 394063, respectively, and Seller's Minnesota sales tax permit
number is 394063.
2.18 CONDUCT OF BUSINESS. Prior the Closing, Seller shall operate
the Purchased Business in a prudent manner and only in the ordinary course of
business consistent with past practices. Seller shall use all reasonable efforts
to preserve the Purchased Business organization intact and to preserve its
present relationship with employees, suppliers, customers and others having
business relationships with Seller.
2.19 FULL DISCLOSURE. To Seller's knowledge, no representation,
covenant or warranty of Seller in this Agreement or any Schedule or Exhibit
hereto contains or will contain any untrue statement of a material fact or omit
or will fail to state any material fact necessary to make any statement made not
misleading. Buyer acknowledges that it has had full access to relevant records
and to officers of Seller.
2.20 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer or any of its shareholders, other than consideration paid to
Piper Jaffray for financial advice to Seller, which Seller will pay.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE BUYER
3.1 CORPORATE ORGANIZATION AND POWER. Buyer is a corporation duly
organized and validly existing under the laws of the State of Minnesota, with
full corporate power and authority to enter into this Agreement and perform its
obligations hereunder.
3.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the Promissory Note by Buyer and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery or performance of this Agreement
and the Promissory Note. This Agreement and the Promissory Note constitutes a
valid and binding obligation of Buyer, enforceable in accordance with its terms.
3.3 NO VIOLATION. Buyer is not subject to or obligated under its
certificate of incorporation, its bylaws, any applicable law, or rule or
regulation of any governmental authority, or any agreement or instrument, or any
license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement. Buyer will comply with all applicable laws, and
with all applicable rules and regulations of all governmental authorities in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.4 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer or any of its shareholders, other than consideration paid to
Dain, Bosworth for financial advice to Buyer, which Buyer will pay.
3.5 LITIGATION. There are no actions, suits, proceedings or orders
pending or, to the best of Buyer's knowledge, threatened against or affecting
Buyer at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would adversely affect Buyer's
performance under this Agreement or the consummation of the transactions
contemplated hereby.
3.6 INSURANCE. Following the Closing Date, Buyer will provide its
own insurance and shall, consistent with the indemnification provisions in
Sections 4.2 and 4.3 below, hold Seller harmless from any products liability or
other claim in connection with the Equipment, the Purchased Business or the
Purchased Assets, arising from Equipment sold after the Closing Date.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 SURVIVAL. All representations, warranties, agreements,
covenants and obligations herein shall survive the execution and delivery of
this Agreement and the Closing until December 31, 1996 except for matters
relating to products liability claims, which shall survive until June 1, 2000.
4.2 INDEMNIFICATION. Except to the extent indemnified by
insurance proceeds:
4.2.1 The Seller will indemnify the Buyer, and hold it
harmless against any loss, liability, damage, deficiency or expense
(including reasonable legal expenses and costs) which it may
suffer, sustain or become subject to as a result of a
misrepresentation or breach by Seller of any representation,
warranty, covenant or agreement of Seller set forth in this
Agreement, or resulting from liabilities or obligations of Seller
not assumed by Buyer, and any costs and expenses associated with
defending against such claims, liabilities, obligations, costs,
damages, losses and expenses.
4.2.2 The Buyer agrees to indemnify the Seller and hold it
harmless against any loss, liability, damage or expense, including
reasonable legal expenses and costs, which the Seller may suffer,
sustain or become subject to, as a result of (i) a
misrepresentation or breach by the Buyer of any representation,
warranty, covenant or agreement of the Buyer contained in this
Agreement, (ii) the operation of the Purchased Business or any of
the Purchased Assets by Buyer after the Closing (iii) Assumed
Liabilities and (iv) any costs and expenses associated with
defending against such claims, liabilities, obligations, costs,
damages, losses and expenses.
4.2.3 The parties will be liable to each other for any
loss or liability arising under this Section 4 only ifthe aggregate
amount of all such losses and liabilities related to such claims
exceeds $150,000, in which case the Indemnifier, as defined below,
will be liable for all such amounts in excess of $150,000. In no
event shall either party's aggregate liability under this Section 4
exceed the sum of $3,000,000, except, for products liabilities, for
which in no event shall either party's liability under this Section
4 exceed the sum of $5,000,000.
4.2.4 The parties' indemnification provided for in this
Section 4 shall be the parties' sole and exclusive remedy with
regard to the subject matter of this Agreement, except for claims
as a result of fraudulent misrepresentation by the parties and
except with respect to any claim alleging violation of Sections
4.12 or 4.13 of this Agreement.
4.3 INDEMNIFICATION PROCEDURE.
(a) A party or parties entitled to indemnification
hereunder with respect to a third party claim (the "Indemnified
Party") will give the party or parties required to provide such
indemnification (the "Indemnifier") prompt written notice of any
legal proceeding, claim or demand instituted by any third party (in
each case, a "Claim") in respect of which the Indemnified Party is
entitled to indemnification hereunder.
(b) The Indemnifier shall have the right, at its option
and expense, to defend against, negotiate, settle or otherwise deal
with any Claim with respect to which it is the Indemnifier and to
select counsel, acceptable to the Indemnified Party, to defend the
Indemnified Party against such Claim; provided, that the
Indemnified Party may participate in any proceeding with counsel of
its choice and at its expense; and provided further that the
Indemnifier may not enter into a settlement of any such Claim
without the consent of the Indemnified Party unless such settlement
requires no monetary payment for which the Indemnified Party is not
fully indemnified and does not involve any other matters binding
upon the Indemnified Party.
(c) The Indemnified Party will not settle any Claim
without the prior written consent of the Indemnifier, which shall
not be unreasonably withheld.
(d) The parties will cooperate fully with each other in
connection with the defense, negotiation or settlement of any
Claim.
4.4 EXPENSES. All fees, expenses, including attorneys' and
accountants' fees incurred by Seller in connection with the negotiation of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated by this Agreement shall be borne by the Seller.
All such fees and expenses incurred by Buyer shall be borne by Buyer.
4.5 FURTHER TRANSFERS. The Seller will, and will cause its
subsidiaries and affiliates, if any, to, execute and deliver such further
instruments of conveyance and transfer and take such additional action as the
Buyer may reasonably request to effect, consummate, confirm or evidence the
transfer to the Buyer (or its designees) of the Purchased Assets. The Seller
will execute such documents as may be necessary to assist the Buyer in
preserving or perfecting its rights in the Purchased Assets.
4.6 TRANSITION ASSISTANCE. Seller will at no cost to Buyer provide
reasonable transition assistance to Buyer's employees with respect to the
manufacture and marketing of the Devices. Buyer will, at no cost to Seller,
provide to Seller reasonable transitional assistance with respect to Seller's
remaining operations by making available those individuals hired by Buyer.
4.7 SALES TAX. Any and all sales tax liability arising
as a result of the sale and purchase of the Purchased Assets shall be the sole
responsibility of, and shall be paid by, the Buyer.
4.8 REGULATORY TRANSFERS. If necessary, the Seller shall file a
letter with the FDA or any successor agency notifying the FDA of any
registration change required of the Seller to transfer all rights and pre-market
notification clearances to the Buyer. In regard to any other applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state and federal agencies, foreign or domestic, regulating the safety,
effectiveness and market clearance of the Devices which constitute a portion of
the Purchased Assets, the Seller shall file a letter with each applicable
regulatory authority notifying the authority of any registration change required
of the Seller to transfer all rights hereunder to the Buyer.
4.9 CONDUCT OF BUSINESS. Prior to the Closing, Seller will conduct
the Purchased Business only in the ordinary course of business consistent with
past practices; take no steps to damage customer, employee or vendor
relationships; maintain the Purchased Assets in good repair, order and
condition; not sell, lease, encumber, transfer or otherwise dispose of any
Purchased Assets; permit Buyer and its employees and agents reasonable access to
Seller's contracts, personnel, facilities, equipment, records and other things
reasonably related to the Purchased Business.
4.10 EMPLOYEE MATTERS. Buyer may offer employment to those
individuals listed on Schedule 4.10 and will provide such individuals who accept
such employment employee benefits consistent with those offered to other
employees of Buyer generally. Seller shall use its best efforts to encourage
such individuals to accept employment with Buyer on the Closing Date; provided
Seller makes no guarantee that such individuals will accept employment with
Buyer. Buyer shall provide Seller with the names of all Seller's employees to
whom Buyer extends offers of employment, within 48 hours of extending said
offers. Buyer shall also provide Seller with notices of acceptances and
rejections of these offers by Seller's employees, within 48 hours of receipt of
said notifications. Buyer shall not be bound by any CNS agreements or conditions
of employment, including any liability for accrued vacation pay, qualified
retirement plans, fringe benefits, salaries, severance pay or other benefits, or
by the terms and conditions of any collective bargaining agreement which gave or
established rights to any CNS employees prior to the Closing Date.
4.11 CUSTOMERS. Buyer and Seller shall each use its best efforts to
obtain any consents required under the Assumed Contracts in order to provide
Buyer with the benefits under such Assumed Contracts, but Seller makes no
guarantees that such third parties will accept the assignment of its contracts.
4.12 NON-COMPETE AGREEMENT. From the Closing Date until the end of
the period ending seven years after the end of the Relevant Period, or until
Buyer discontinues engaging in the manufacture and sale of sleep disorders
diagnostic equipment, Seller and Dan Cohen shall not (i) contact, deal with, or
in any way solicit any entity or individual that, at any time, was a customer of
the Seller or becomes a customer of the Buyer (after the Closing) to purchase
any products or services in competition with the Purchased Business anywhere in
the world, including any products or services developed by Buyer after the
Closing provided such products or services were developed from trade secrets,
know-how or other intellectual property included in the Purchased Assets; (ii)
engage in, own, manage, operate, control or participate in the ownership,
management, operations or control of, or have any financial interest in, any
entity or individual engaged in a business competitive with the Purchased
Business anywhere in the world; provided nothing herein shall prohibit Seller
from engaging in any business other than the sleep disorders diagnostic
business; or (iii) seek to persuade, directly or indirectly, any employees of
Buyer, including former employees of Seller, to discontinue that individual's
employment with the Buyer nor to become employed in any activity competitive
with the Purchased Business. A person or entity that acquires an interest in the
Seller or the entity that results from acquisition of control of or combination
with Seller shall not be prevented by this Section 4.12 from competing with the
Purchased Business in the sleep disorders diagnostic business. A violation by
Seller or Dan Cohen of the foregoing covenants may cause irreparable injury to
Buyer, and Buyer shall be entitled, in addition to any other rights and remedies
that it may have at law or in equity, to temporary or permanent injunctive
relief enjoining Seller and/or Dan Cohen from doing or continuing to do any such
act and any other violation or threatened violation of the foregoing covenants.
4.13 CONFIDENTIALITY. Seller and Dan Cohen agree from and after the
Closing Date that they shall not, at any time, without the prior written consent
of Buyer, disclose or use any "Confidential Information" obtained in the course
of Seller's ownership of the Purchased Business prior to the Closing Date or in
the course of Seller's review of sale records or access to Buyer's Confidential
Information after the Closing Date, except as required in Seller's continuing
business or businesses. "Confidential Information" shall include, without
limitation, information relating to customers, products, machines, processes,
methods, know-how, trade secrets, inventions, developments, equipment or
supplies, made, sold, licensed, used, developed or practiced by Seller, its
customers or suppliers prior to the Closing Date or by Buyer, its customers or
suppliers after the Closing Date; provided, however, that Confidential
Information shall not include information which Seller is under a duty by its
customers not to use or to disclose to any third party or that relates to
publicly disclosed facts. Buyer shall have the same remedies in the event of a
violation or threatened violation of the foregoing covenants as are enumerated
in Section 4.12.
4.14 PRODUCTS, SUPPLIES AND DOCUMENTS. Buyer shall have the right
to use existing products, supplies and documents (including, but not limited to,
inventory, labels, shipping materials, catalogues and similar materials, and
advertising material) being transferred to it pursuant to this Agreement until
such products and supplies are depleted, but shall not have the right to use
Seller's name in connection therewith.
4.15 PRESS RELEASE AND ANNOUNCEMENTS. No general press releases
related to this Agreement and the transactions contemplated herein, or other
announcements to Seller's employees, customers and suppliers will be issued
without the joint approval of Buyer and Seller. Buyer and Seller will cooperate
to prepare a joint press release to be issued on the Closing Date or, upon the
request of Seller or Buyer, at the time of the signing of this Agreement.
4.16 BRAIN WAVE MONITORING AND ANALYSIS. Seller owns technology
which is not part of the Purchased Assets related to brain wave monitors.
However, there is software that is part of the Proprietary Rights transferred
hereunder as part of the Purchased Assets which is used and involves
intellectual property used in the brain wave monitoring technology. Such
software may be used by Seller in its brain wave monitoring business and brain
wave analysis, and Buyer hereby grants Seller a perpetual license to use any
such Proprietary Rights for this purpose. The perpetual license granted to CNS
under this Paragraph 4.16 shall not permit CNS to use the software or the
Proprietary Rights to engage in the sleep monitoring or diagnosis of sleep
disorder business and use of the software or the Proprietary Rights for such
purposes is expressly excluded from the perpetual license.
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT AND WAIVER. This Agreement may be amended, and any
provision of this Agreement may be waived, provided that any such amendment or
waiver will be binding on the Seller only if such amendment or waiver is set
forth in a writing executed by the Seller and that any such amendment or waiver
will be binding upon the Buyer only if such amendment or waiver is set forth in
a writing executed by the Buyer. Waiver by the Seller or the Buyer of any breach
of or failure to comply with any provision of this Agreement by the other party
shall not be construed as, or constitute a continuing waiver of, or a waiver of
any other breach of, or failure to comply with, any other provision of this
Agreement.
5.2 NOTICES. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested. Notices, demands and
communications to the Seller and the Buyer will, unless another address is
specified in writing, be sent to the addresses indicated below:
Notices to the Seller:
CNS, Inc.
1250 Park Road
Chanhassen, MN 55317
Attention: Chief Executive Officer
Chief Operating Officer
with a copy to:
Lindquist & Vennum
4200 IDS Center
Minneapolis, MN 55402
Attn: Patrick Delaney
Notices to the Buyer:
Aequitron Medical, Inc.
14800 28th Avenue North
Plymouth, MN 55447
Attn: Chief Executive Officer
Chief Financial Officer
with a copy to:
Best & Flanagan,
Professional Limited Liability Partnership
4000 First Bank Place
Minneapolis, MN 55402
Attn: David Morse
5.3 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other parties, which
shall not be unreasonably withheld.
5.4 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
5.5 CAPTIONS. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
will not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement will be enforced and
construed as if no caption had been used in this Agreement.
5.6 COMPLETE AGREEMENT. This document and the documents referred to
herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
There are no restrictions, promises, warranties, covenants, or undertakings,
other than those expressly provided for herein.
5.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which taken together will constitute one and the same
instrument.
5.8 GOVERNING LAW. The law of the State of Minnesota will govern
all questions concerning the construction, validity and interpretation of this
Agreement and the performance of the obligations imposed by this Agreement.
5.9 ARBITRATION.
(a) Except with respect to matters involving Sections
4.12, 4.13 and 4.15 hereof, if a dispute arises between Buyer and
Seller as to the interpretation of this Agreement or any other
agreement entered into pursuant hereto, including, without
limitations, any matter involving indemnification, Buyer and Seller
agree to use the following procedures, in lieu of either party
pursuing other available remedies and as the sole remedy, to
resolve the dispute.
(b) A party seeking to initiate the procedures shall give
written notice to the other party, describing briefly the nature of
the dispute. A meeting shall be held between the parties within 10
days of the receipt of such notice, attended by individuals with
decision-making authority regarding the dispute, to attempt in good
faith to negotiate a resolution of the dispute.
(c) If, within 30 days after such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, the
parties agree to submit the matter to binding arbitration in
Minneapolis, Minnesota, by one arbitrator appointed by Buyer and
Seller. If Buyer and Seller fail to appoint an arbitrator within 10
days from the conclusions of the negotiation period, then upon
petition of either party, such arbitrator shall be appointed by the
Chief Judge of the United States District Court for the District of
Minnesota or by the American Arbitration Association so as to
enable the arbitrator to render an award within 90 days after the
arbitrator has been appointed. Following the selection of the
arbitrator as set forth above, the arbitration shall be conducted
promptly and expeditiously and in accordance with the rules of the
American Arbitration Association. Such award shall be final and
binding and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction therefor.
(d) Each party shall bear one-half of the expenses of the
arbitrator excluding, however, legal, expert, accountant and other
professional fees of the other side.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
AEQUITRON, INC.
By /s/ James Hickey
Its President and CEO
CNS, INC.
By /s/ Richard E. Jahnke
Its President and CEO
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Promissory Note
Schedule 1.1(a) Inventory
Schedule 1.1(b) Machinery and Equipment
Schedule 1.1(c) Proprietary Rights
Schedule 1.1(d) Assumed Contracts
Schedule 1.2 Excluded Receivables
Schedule 2.7 Litigation
Schedule 2.8 Other Contracts
Schedule 2.9 Insurance
Schedule 2.11 510(k)s
Schedule 2.12 Employee Plans
Schedule 2.14 Financial Statements
Schedule 4.10 Employee Matters
CNS, INC.
NON-EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
THIS AGREEMENT is made and entered into as of the 8th day of May, 1995
between CNS, Inc., a Delaware corporation ("Manufacturer"), and Aequitron
Medical, Inc., a Minnesota corporation ("Distributor").
B A C K G R O U N D
Manufacturer is in the business of manufacturing and marketing a device
known as the Breathe Right(R) nasal strip, which improves nasal breathing by
reducing nasal airflow resistance. Distributor has established sales channels to
the professional health care market. Manufacturer desires to enter into a
distribution agreement with Distributor for the purpose of developing
distribution channels for the Breathe Right nasal strip to the professional
health care market, on the terms and conditions set forth in this Agreement.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. NON-EXCLUSIVE DISTRIBUTORSHIP.
1.1 Subject to the terms and conditions contained herein,
Manufacturer grants to the Distributor, and the Distributor hereby
accepts, the rights and responsibilities of a non-exclusive distributor
of the products described in Exhibit A (the "Products") in the
Professional Health Care Market in the United States and all of its
possessions and territories (the "Territory"). The "Professional Health
Care Market" shall mean (i) hospitals, medical clinics and other health
care facilities, including accute and sub-accute health care facilities
and freestanding sleeplabs, and (ii) those persons or entities commonly
referred to as home health care dealers that purchase medical devices
for the purpose of providing in-home health care services. Distributor
is prohibited from selling the Products to any customer who is not in
the Professional Health Care Market or who is not in the Territory.
1.2 Nothing contained herein shall in any manner restrict or
limit Manufacturer in regard to appointing another distributor for the
Products in the Territory or in regard to selling directly or through
other outlets.
2. DISTRIBUTOR NOT MADE AN AGENT. Each of the parties is an independent
contractor and nothing contained herein shall be deemed or construed to create
the relationship of an agency, partnership, joint venture, franchise or any
other association or relationship between the parties except that of an
exclusive distributor relationship. Distributor is not granted any right or
authority to assume or create any obligations or responsibilities, express or
implied, on behalf, or in the name of, Manufacturer or to bind Manufacturer in
any manner or thing whatsoever, without the prior written approval and
acceptance by Manufacturer in each instance. Distributor acknowledges that it
has paid no fee or other consideration for any right under this Agreement. It is
the express intent of the parties, pursuant to their right to freedom to
contract, that this Agreement shall govern the obligations of each to the other
and the right of each resulting from such relationship and that no federal or
state franchise law or any other law purporting to alter the relationship
between Manufacturer and Distributor, presently in force or hereinafter enacted,
may apply to the rights and obligations of and between the parties of this
Agreement. The rights and obligations of the parties in the event of termination
of this Agreement have been separately bargained for and are intended by both
parties to be in lieu of any rights or obligations arising under any state or
federal franchise law, or any other law purporting to alter the relationship
between the parties.
3. PURCHASE ORDERS.
3.1 No purchase orders of Distributor shall be binding upon
Manufacturer until accepted by Manufacturer in writing at its general
office in Chanhassen, Minnesota. Except as otherwise agreed in writing
by Manufacturer, an order may not be cancelled by Distributor after it
has been accepted.
3.2 All sales of Products by Manufacturer to Distributor
hereunder shall be subject to the provisions of this Agreement and
shall not be subject to the terms and conditions contained in any
purchase order of Distributor or confirmation of Manufacturer, except
insofar as any such purchase order or confirmation establishes (a) the
quantity of Products to be sold or (b) the shipment date of Products.
3.3 If Distributor shall default in any payment due
Manufacturer or if its financial condition shall at any time seem to
Manufacturer inadequate to warrant further shipments, Manufacturer
shall have the right to cancel any orders, delay any shipments to
Distributor until payment is made or assurances required by
Manufacturer are received, or terminate this Agreement in accordance
with Section 11.
3.4 All orders of Distributor for Products shall be subject to
such reasonable allocation as, in the sole judgment of Manufacturer,
may be necessary or equitable in the event of any shortages of the
Products at any time.
3.5 In the event either Distributor or Manufacturer sends a
notice of termination of this Agreement pursuant to Section 11, all
subsequent purchases by Distributor of Products from Manufacturer shall
be C.O.D.
4. SHIPMENT OF THE PRODUCTS.
4.1 Subject to delay due to force majeure, Manufacturer will
endeavor to ship Products on the date indicated in Manufacturer's
written acceptance of Distributor's purchase order. Manufacturer
reserves the right to extend any such delivery period due to business
circumstances.
4.2 All Products sold by Manufacturer to Distributor hereunder
will be shipped by Manufacturer F.0.B. Manufacturer's loading dock at
Chanhassen, Minnesota ("Shipping Point").
4.3 Distributor shall assume all risk of loss for Products
upon delivery by Manufacturer of the Products to the Shipping Point.
4.4 Distributor will pay all loading, freight, shipping,
insurance, forwarding and handling charges, taxes, storage, and all
other charges applicable to the Products after they are delivered by
Manufacturer to the Shipping Point.
4.5 All Products will be shipped in bulk quantities.
5. PRICE AND PAYMENT.
5.1 Manufacturer agrees to sell the Product to Distributor
F.O.B. Shipping Point at the prices set forth on Exhibit A, which
prices may be changed by Manufacturer at any time and from time to
time. Distributor shall be given ninety (90) days' prior written notice
prior to the effective date of any change in the price of the Products.
5.2 Except as otherwise provided in this Agreement,
Distributor shall pay Manufacturer for each shipment of Products within
thirty (30) days of the date of the invoice issued by Manufacturer in
conjunction with such shipment. Any payment received more than thirty
(30) days after invoice date will be subject to a service charge of two
percent (2%) per month.
6. RETURNED GOODS POLICY.
6.1 All returns must be authorized in writing by Manufacturer
prior to the return of the Products, freight prepaid.
6.2 Products are not returnable unless Manufacturer determines
upon inspection that such Products deviated from its standards when
shipped.
6.3 Complaints concerning package conditions of any Products
must be made within fifteen (15) days of receipt by Distributor of such
Products.
7. DISTRIBUTOR SALES SUPPORT BY MANUFACTURER. In support of
Distributor's sales efforts to promote Products in the Territory, Manufacturer
will furnish, at no cost to Distributor, (i) medical literature, including
abstracts of clinical studies and medical journal articles, (ii) sales and
promotional materials as may be developed by Manufacturer, such as technical
data, instructional manuals, films, slides and technical journal reprints, and
(iii) samples of Products in reasonable quantities, as determined by
Manufacturer acting in good faith.
8. NO COMPETING PRODUCTS. Distributor agrees that during the term of
this Agreement, Distributor shall not, either directly or indirectly, promote,
arrange for the sale of, or sell, within the Territory, any product which is
similar in purpose or function to, or otherwise competitive with, the Products,
without the prior written consent of Manufacturer. For purposes of this
Agreement, competing products shall be defined as other non-electrical or
electro-mechanical nasal dilators or drug-free decongestants. The performance of
any of the activities described in this Section 8 by an affiliate of Distributor
shall be deemed to be the performance of those activities by Distributor. An
"affiliate of Distributor" shall include any person, corporation, partnership,
or other legal entity which is in control of, is controlled by, or is under
common control with Distributor, directly or indirectly.
9. DISTRIBUTOR RESPONSIBILITIES. In addition to the duties and
responsibilities outlined elsewhere in this Agreement, Distributor agrees as
follows:
9.1 Distributor shall devote its best efforts to promote, and
will vigorously promote, the sale and acceptance of Products to the
Professional Health Care Market throughout the Territory. Distributor
shall provide its customers with all necessary and appropriate training
and support regarding the use of the Products. Manufacturer will
furnish information to aid in the orientation and training of
Distributor's service and sales personnel.
9.2 Distributor shall promptly furnish to Manufacturer any
information which Manufacturer may determine necessary or appropriate
(in such detail as Manufacturer may request) to ascertain current or
potential sales of the Products in the Territory, including (i) a
written six-month rolling forecast for the Products by model number,
which forecast shall be given to Manufacturer on or before the 10th day
of each month, and (ii) a written three-month historical report listing
sales made by customer, which report shall be given to Manufacturer
within 30 days after the end of a calendar quarter. Distributor further
agrees to inform Manufacturer promptly of any change in market
conditions in the Territory which might affect current or potential
sales of Products in the Territory.
9.3 Distributor shall maintain at least a thirty (30) day
inventory of the Products and shall provide suitable storage facilities
for such inventory, said facilities to be properly maintained free of
contamination.
9.4 Distributor shall furnish customers and potential
customers with such advertising, promotional and informational
materials as Manufacturer may request. All advertising or promotional
materials utilized by Distributor, its agents or employees in
conjunction with the sale of Products, other than such sales literature
as is furnished to Distributor by Manufacturer, shall be approved, in
writing, by Manufacturer prior to their use or dissemination.
Distributor shall publicize all of the Products in Distributor's
advertising and literature.
9.5 Distributor shall cooperate fully with Manufacturer in
dealing with customer complaints concerning the Products and shall take
such action to resolve such complaints as may be requested by
Manufacturer.
9.6 Distributor agrees, during the term of this Agreement, to
comply with all FDA regulations applicable to the Products. Distributor
shall not, in any way, misrepresent the nature or indications for use
of the Products or alter Products, except by prior written approval of
Manufacturer.
9.7 All costs, including salaries, contributions to Social
Security, severance pay and other expenses incurred by Distributor in
connection with its performance under this Agreement shall be borne
solely by Distributor and Distributor agrees to indemnify and hold
Manufacturer harmless from any and all liability under laws relating to
liabilities of employers with respect to their employees.
9.8 If so requested by Manufacturer, Distributor shall provide
adequate financial information on a confidential basis, or in the
alternative, credit references satisfactory to Manufacturer to assure
Manufacturer of Distributor's financial capability to conduct its
ongoing business.
10. MINIMUM PURCHASE OBLIGATIONS.
10.1 During the original term of this Agreement, there shall
be no minimum purchase obligations. Upon any renewal of this Agreement,
minimum purchase obligations shall be as agreed by the parties.
10.2 In the event Distributor shall fail to meet any minimum
purchase requirements as set forth in Section 10.1 upon any renewal of
this Agreement, Distributor shall have defaulted under this Agreement,
and Manufacturer may terminate this Agreement pursuant to Section 11.
11. TERM OF AGREEMENT; TERMINATION.
11.1 This Agreement shall commence on the date of the closing
of the transactions contemplated in the Asset Purchase Agreement dated
the date hereof and by and between the parties hereto and shall
continue for a term of one (1) year (the "Initial Term"). This
Agreement will be null and void in the event such closing does not
occur on or before June 15, 1995. The term will be automatically
renewed for one-year periods ("Renewal Terms") unless either party
provides the other party with written notice, no later than sixty (60)
days prior to the expiration of the Initial Term or a Renewal Term, of
such party's intention of not renewing this Agreement. In the event
that on the expiration of the Initial Term or a Renewal Term of this
Agreement neither party has served notice of their intent to not renew
the Agreement and the parties have not agreed upon minimum purchase
requirements, but a distributor arrangement nonetheless continues, that
arrangement shall be subject to the provisions of this Agreement, with
the most recent agreed upon minimum purchase requirements, and the
Agreement may be terminated by either party at any time, with or
without cause, by a written notice of thirty (30) days.
11.2 Either party may terminate this Agreement by giving
thirty (30) days' written notice to the other party of any material
breach (including without limitation Distributor's failure to pay for
Products in accordance with Section 5, or purchase minimum requirements
in accordance with Section 10.1) of this Agreement, provided that as of
the expiration of said thirty (30) day period such breach remains
uncured (other than a breach by Distributor of Section 10.1).
11.3 Either party may terminate this Agreement immediately
upon written notice to the other party if the other party shall: (i)
file a voluntary petition in bankruptcy or be the subject of an
involuntary petition in bankruptcy which is not dismissed within thirty
(30) days of the date of filing; (ii) be voluntarily or involuntarily
dissolved; or (iii) have a receiver, trustee or other court officer
appointed for its property in connection with any such bankruptcy
proceeding, liquidation or insolvency proceeding. Further, Manufacturer
may terminate this Agreement immediately upon written notice in the
event (i) Distributor fails to provide additional assurances when
requested by Manufacturer under Section 3.3; (ii) Distributor transfers
or assigns this Agreement or any right or obligation hereunder or sells
or transfers any material interest in the ownership of Distributor
without the prior written approval of Manufacturer; (iii) Distributor
provides falsified data or information to Manufacturer; or (iv)
Distributor ceases to function as a going concern or to conduct its
operations in the normal course of business as currently conducted.
11.4 Manufacturer or Distributor may terminate this Agreement
on ninety (90) days' written notice if there is a change in control
(purchase of 50% or more) of Manufacturer, or in the event of a sale by
Manufacturer of that portion of its business operation which includes
the Products.
11.5 After the Initial Term of this Agreement, Manufacturer or
Distributor may terminate this Agreement without cause on 180 days'
written notice.
11.6 Termination of this Agreement shall not relieve
Manufacturer of its obligations to deliver all Products ordered by
Distributor and accepted by Manufacturer prior to such termination; nor
will such termination relieve Distributor of its obligation to accept
and pay for all Products ordered by Distributor under purchase orders
issued by Distributor and accepted by Manufacturer prior to the date of
such termination. Termination shall not relieve or release either party
from its obligation to make any other payments which may be owing to
the other party under the terms of this Agreement or from any other
liability which either party may have to the other arising out of this
Agreement or the breach of this Agreement. Following notice of
termination, Manufacturer shall have no obligation to accept any orders
for Products from Distributor.
11.7 Upon termination of this Agreement, Manufacturer shall
have the right, but not the obligation, to repurchase all unexpired
Products in the possession of Distributor at the price paid to
Manufacturer by Distributor for said Products at the lower of
Distributor's original invoice purchase price or the then current
invoice price, provided, however, that such Products are new, unused,
nonobsolete and in saleable condition as determined by Manufacturer.
Distributor agrees to sell said Products to Manufacturer for said price
should Manufacturer exercise this right to repurchase.
11.8 It is expressly understood and agreed that the right of
termination set forth in this Section 11 is absolute, and that the
parties have considered the possibility of the making of expenditures
by one or both of the parties hereto in preparing for and the actual
performance of this Agreement and the possibility of loss and damage
resulting from termination hereof. It is the express intent and
agreement of the parties that neither shall be liable to the other for
damages arising by reason of the termination of this Agreement as
hereinabove provided.
11.9 Notwithstanding anything contained herein to the
contrary, Sections 13, 14.1.1, and 21 of this Agreement shall survive
termination of this Agreement and shall remain in full force and
effect.
12. WAIVER OF BREACH. The waiver or failure of either party to enforce
the terms of this Agreement in one instance shall not constitute a waiver of
said party's rights under this Agreement with respect to other violations.
13. DISCLAIMER OF WARRANTY. All Products shall be warranted by CNS only
in accordance with the terms set forth in the CNS warranty as the same is
included in Product packaging and as it may be changed from time to time at
CNS's sole discretion. Representative may not alter or modify that warranty.
Replacement or refund shall be the exclusive remedy. Manufacturer shall not be
liable to Distributor, its agents or purchasers, for any incidental or
consequential loss, personal injury, damage or expense, including loss of
profits, arising, directly or indirectly, from the sale or use of the Product
whether such claim is based on warranty, contract, negligence, strict liability
or any other basis. Under no circumstances shall the liability of Manufacturer
to Distributor exceed the amount paid by Distributor to Manufacturer for the
particular Products involved. Distributor shall notify Manufacturer of any
claimed defect and shall include model and lot number of each Product, as well
as the number and date of invoice therefor. If the Products are to be returned
to Manufacturer, written authorization and shipping instructions shall be
transmitted to the Distributor. If the defect is the result of improper storage,
all necessary expenses shall be borne by Distributor. Any Products returned to
Manufacturer for replacement shall become the property of Manufacturer.
14. DISTRIBUTOR'S REPRESENTATIONS AND ACTIONS.
14.1 Distributor's Representations.
14.1.1 Distributor, its agents and employees, shall
not make any statements, representations, warranties, or
advertisements concerning the Products or their effectiveness
which exceed in scope or are different in meaning from the
statements made by the Company in its own literature (the
"Permissible Statements"). Any statements, representations,
warranties, or advertisements by Distributor, its agents or
employees, which exceed in scope or are different in meaning
from the Permissible Statements shall be the sole
responsibility of Distributor and Distributor shall indemnify
and hold Manufacturer harmless against the liability, costs,
and expenses of any nature which Manufacturer may incur as the
result of any such activities or any negligent or willful
conduct by Distributor, its agents or employees. Manufacturer
reserves the right at its sole discretion, separate from all
other termination provisions of this Agreement, to terminate
this Agreement immediately and cancel all open orders from
Distributor if, in the sole judgment of Manufacturer,
Distributor has made any statements, representations,
warranties or advertisements concerning the Products beyond
the scope of the Permissible Statements.
14.1.2 Distributor has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Minnesota and the undersigned has been
duly authorized to execute this Agreement on behalf of the
Distributor, and when so executed, this Agreement will
constitute the valid and binding obligation of Distributor,
enforceable in accordance with its terms.
14.2 Manufacturer's Representations.
14.2.1 Manufacturer has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware.
14.2.2 Manufacturer is the exclusive licensee of the
Products and Manufacturer has obtained clearance to market the
Product in the United States and Canada from the FDA and the
Ministry of Health, respectively.
15. TRADEMARKS AND TRADE NAMES.
15.1 Manufacturer hereby grants to Distributor permission to
use all trademarks and trade names owned by Manufacturer on Products in
connection with the advertising and sale thereof in conformity with the
requirements set forth herein. In connection with such advertising and
sales, Distributor agrees to use such trade name or trademark of
Manufacturer as is requested by Manufacturer in the form requested by
Manufacturer. Except as otherwise expressly provided in this Agreement,
Manufacturer is not granting Distributor any rights or license
whatsoever, by implication, estoppel or otherwise, to utilize
Manufacturer technology, information, data, proprietary or patent
rights, or trademarks or trade names which Manufacturer may have or may
secure in the future, without the express written consent of
Manufacturer.
15.2 Distributor shall not remove, cover, change, or add to
the labels affixed by Manufacturer to Products without first receiving
Manufacturer's written approval.
16. PATENT INFRINGEMENT.
16.1 If a patent infringement action is commenced or
threatened against Manufacturer as to any Product and Manufacturer
elects to, as a result, discontinue the sale of any particular Product
in any part or all of the Territory, Distributor shall discontinue its
efforts to sell said Product in any such part or all of the Territory
immediately upon receipt of written notice thereof from Manufacturer.
Manufacturer shall indemnify Distributor against any and all claims
brought against Distributor for patent infringement and will hold
Distributor harmless against any and all damages relating thereto.
16.2 Distributor shall promptly notify Manufacturer in the
event Distributor becomes aware of any activities of a third party that
may constitute infringement of the Manufacturer's patents or pending
patents on the Products.
17. RECALL. Distributor shall maintain complete and accurate records of
all Products sold by Distributor, its agents or employees (including without
limitation a complete and current list of all customers who have purchased, the
date of such purchases and the lot numbers of the units purchased). In the event
of a recall of any of the Products, Distributor will, at its own expense,
cooperate fully with Manufacturer in effecting such recall, including without
limitation, promptly contacting any purchasers Manufacturer desires be contacted
during the course of any such recall, and promptly communicating to such
purchasers such information or instructions as Manufacturer may desire be
transmitted to such purchasers.
18. TRACEABILITY. Distributor agrees to comply with all traceability
programs in effect at any time as initiated by Manufacturer. Manufacturer may
examine and make transcripts of any records required as part of a traceability
program at reasonable times during business hours.
19. WARRANTY CREDIT. In order that Manufacturer may make accurate
warranty representations and in order to promote the goodwill of Manufacturer,
Distributor shall credit its customer's account for the amount of Distributor's
mark-up, in addition to Distributor's costs whenever Manufacturer credits
Distributor's account in fulfillment of a warranty obligation or in the case of
Products recall by Manufacturer or advisory by Manufacturer.
20. APPOINTMENT OF SUBDISTRIBUTORS. Distributor shall not, without the
prior written approval of Manufacturer, appoint any subdistributors in the
Territory in connection with the performance of this Agreement. In the event
Manufacturer grants such approval, it is understood that such appointment shall
be made only in the name and for the account of Distributor and shall be for a
term no greater than the term of this Agreement. Distributor shall not grant to
the subdistributors and/or sales representatives, any rights greater than those
which are granted by Manufacturer to Distributor under this Agreement.
Distributor shall also impose on the subdistributors and/or sales
representatives, the same obligations as Manufacturer has imposed on Distributor
under this Agreement for the purpose of protecting the goodwill of Manufacturer
and the Products. Distributor shall defend, indemnify and hold Manufacturer
harmless against any claims, loss, liability or expense, including attorneys'
fees and court costs arising out of or based upon any claim made by any of
Distributor's subdistributors, sales representatives or employees against
Manufacturer.
21. CONFIDENTIAL INFORMATION. Distributor specifically agrees to keep
confidential and not to disclose to others any and all technical and other
information marked "confidential" or "proprietary" made available to it by
Manufacturer. Upon the request of Manufacturer, or in the event of the
expiration or other termination of this Agreement, Distributor shall promptly
return all such confidential and proprietary information to Manufacturer.
Distributor agrees not to use any such confidential or proprietary information
of Manufacturer except in conjunction with the purposes of this Agreement.
22. FORCE MAJEURE. Manufacturer assumes no liability and shall not be
liable to Distributor for any failure to fill, or any delay in filling, orders
received and accepted by Manufacturer caused, in whole or in part, directly or
indirectly, by strikes, lockouts, or any other labor troubles, fires, floods,
acts of God, accidents, embargoes, war, riots, act or order of any government or
governmental agency, delay in the delivery of raw material, parts, or completed
merchandise by the supplier thereof, or any other cause beyond the control of,
or occurring without the fault of, Manufacturer.
23. NOTICE. All notices under this Agreement shall be in writing, and
may be delivered by hand or sent by mail or facsimile transaction. Notices sent
by mail shall be sent by registered mail, return receipt requested, and shall be
deemed received on the date of receipt indicated by the receipt verification
provided by the United States postal service. Notices delivered by hand or
facsimile transaction shall be effective upon receipt. Notices shall be given,
mailed, or sent to the parties at the following addresses:
If to Distributor: Aequitron Medical, Inc.
14800 28th Avenue North
Minneapolis, MN 55447
Attn: Bill Milne
Phone: (612) 557-8233
Fax: (612) 557-8200
If to Manufacturer: CNS, Inc.
1250 Park Road
Chanhassen, MN 55317
Attn: Richard E. Jahnke
Phone: (612) 474-7600
Fax: (612) 474-6737
Any party hereto may designate any other address for notices given it
hereunder for written notice to the other party given at least ten (10) days
prior to the effective date of such change.
24. ENTIRE CONTRACT. There are no oral or other agreements or
understandings between the parties affecting this Agreement or relating to the
selling or purchase of Products. This Agreement supersedes all previous oral and
written arrangements between the parties and is intended as a complete and
exclusive statement of the terms of their understanding.
25. AMENDMENTS. Amendments, if any, shall be in writing and valid only
when signed by both parties.
26. ASSIGNABILITY; CHANGE IN OWNERSHIP. This Agreement is personal to
Distributor and may not be sold, assigned, or transferred without the written
consent of Manufacturer. Distributor shall promptly notify Manufacturer of any
substantial change in the nature or ownership of its business. In the event of
the material change in the ownership or control of Distributor, or in the event
of the sale by Distributor of that portion of the business operation which
includes all or most of the Products and, Manufacturer has not consented to that
change or sale, then this Agreement may be terminated at any time thereafter by
Manufacturer upon written notice given at least sixty (60) days in advance of
the effective date of termination. Manufacturer may assign this Agreement to any
subsidiary or division controlled by it, or to an entity purchasing control of
Manufacturer as provided in paragraph 11 of this Agreement.
27. SEVERABILITY. In the event that any provision of this Agreement is
held invalid by the final judgment of any court of competent jurisdiction, the
remaining provisions shall remain in full force and effect as if such invalid
provision had not been included herein.
28. REMEDIES. The parties acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that, in
addition to any other relief afforded by law, an injunction against such
violation may be issued against it and every other person concerned thereby, it
being understood that both damages and an injunction shall be proper modes of
relief and are not to be considered mutually exclusive remedies. In the event of
any such violation, Distributor agrees to pay, in addition to the actual damages
sustained by Manufacturer as a result thereof, the reasonable attorneys' fees
incurred by Manufacturer in pursuing any of its rights under this Agreement.
29. ACTION FOR BREACH. The time within which Manufacturer or
Distributor may bring an action for breach of this Agreement shall be one year
from the date of such breach. No action may be commenced after that one-year
period.
30. APPLICABLE LAW AND FORUM SELECTION. Except as altered or expanded
by this Agreement, the substantive law (and not the law of conflicts) of the
State of Minnesota shall govern this Agreement in all respects as to the
validity, interpretation, construction and enforcement of this Agreement and all
aspects of the relationship between the parties hereto. Any disputes between the
parties hereto shall be resolved before a court of general jurisdiction located
in Hennepin County, Minnesota, and jurisdiction is hereby conferred upon such
court. In connection therewith, each party hereby agrees to submit to the
jurisdiction of such court and to waive any possible defense of lack of personal
jurisdiction before such court.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seal
as of the day and year first above written.
AEQUITRON MEDICAL, INC.
By /s/ James Hickey
Its President and CEO
Date 5/8/95
CNS, INC.
By /s/ Richard E. Jahnke
Its President and CEO
Date 5/8/95
Exhibit 11
CNS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Three Months Ended
March 31,
1995 1994
Unaudited
Net income (loss) $ 1,802,762 $ (468,043)
Weighted average number of common shares 8,528,377 6,601,552
Common equivalent shares 558,411 --
Total average number of common and
common equivalent shares outstanding 9,086,788 6,601,552
Net income (loss) per common
& common equivalent share $ .20 $ (.07)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 7,645,629
<SECURITIES> 0
<RECEIVABLES> 5,245,190
<ALLOWANCES> 0
<INVENTORY> 2,738,379
<CURRENT-ASSETS> 15,777,008
<PP&E> 1,322,436
<DEPRECIATION> 761,691
<TOTAL-ASSETS> 16,473,321
<CURRENT-LIABILITIES> 3,422,200
<BONDS> 0
<COMMON> 24,441,823
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,473,321
<SALES> 9,011,575
<TOTAL-REVENUES> 9,011,575
<CGS> 3,948,490
<TOTAL-COSTS> 3,948,490
<OTHER-EXPENSES> 183,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,802,762
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,802,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,802,762
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
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