UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended April 3, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_____________.
Commission file number 0-17885
BEI MEDICAL SYSTEMS COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 71-0455756
- ----------------------- ----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
100 Hollister Road
Teterboro, New Jersey 07608
---------------------------
(Address of principal executive offices)
(201) 727-4900
(Registrant's telephone number)
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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 7,687,596 shares as of May 1, 1999
1
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BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART 1. FINANCIAL INFORMATION (Unaudited)
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- April 3, 1999 (unaudited) and
October 3, 1998 3
Condensed Consolidated Statements of Operations -- Three Months and Six
Months Ended April 3, 1999 (unaudited) and March 28, 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -- Six Months Ended
April 3, 1999 (unaudited) and March 28, 1998 (unaudited) 5
Notes to Condensed Consolidated Financial Statements -- April 3, 1999
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION 13
-----------------
Item 4. Submission of Matters to Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibits
10.32 Transamerica Business Credit Corporation Loan and Security
Agreement
10.33 Richard W. Turner Employment Letter
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES 15
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</TABLE>
2
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PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 3, October 3,
1999 1998
(dollars in thousands) (Unaudited) (See note below)
- -------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,780 $ 3,504
Trade receivables, net 1,403 1,897
Inventories -- Note 2 3,029 3,087
Refundable income taxes 357 2,384
Other current assets 255 360
- --------------------------------------------------------------------------------
Total current assets 7,824 11,232
Property, plant and equipment, net 691 820
Tradenames, patents and other, net 1,713 1,846
Goodwill, net 3,233 3,353
Other assets 137 137
- --------------------------------------------------------------------------------
Total assets $13,598 $17,388
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 851 $ 1,551
Accrued expenses and other liabilities 1,413 1,376
Current portion of long-term debt -- 21
- --------------------------------------------------------------------------------
Total current liabilities 2,264 2,948
Stockholders' equity 11,334 14,440
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Total liabilities and stockholders' equity $13,598 $17,388
================================================================================
See notes to condensed consolidated financial statements
Note: The balance sheet at October 3, 1998 has been derived from the audited
consolidated balance sheet at that date but does not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
3
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BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
----------------------------------------------------
April 3, March 28, April 3, March 28,
(amounts in thousands except per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,001 $ 2,535 $ 4,165 $ 4,953
Cost of sales 1,181 1,394 2,489 2,889
- ----------------------------------------------------------------------------------------------------------
Gross Profit 820 1,141 1,676 2,064
Selling, general and administrative expenses 1,728 2,232 3,545 4,496
Research, development and related expenses 857 516 1,583 994
- ----------------------------------------------------------------------------------------------------------
2,585 2,748 5,128 5,490
- ----------------------------------------------------------------------------------------------------------
Loss from operations (1,765) (1,607) (3,452) (3,426)
Interest income 37 98 63 218
Interest expense -- (8) -- (19)
- ----------------------------------------------------------------------------------------------------------
Loss before income taxes (1,728) (1,517) (3,389) (3,227)
Income tax benefit (74) (366) (208) (880)
- ----------------------------------------------------------------------------------------------------------
Net loss ($1,654) ($1,151) ($3,181) ($2,347)
==========================================================================================================
Loss per Common Share -- Note 3
Loss per common share, basic and diluted ($ 0.22) ($ 0.16) ($ 0.42) ($ 0.32)
==========================================================================================================
Weighted average shares outstanding 7,503 7,387 7,491 7,300
==========================================================================================================
</TABLE>
See notes to condensed consolidated financial statements
4
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BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------------
April 3, March 28,
(dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------
Net cash used in operating activities ($681) ($2,122)
Cash flows from investing activities:
Purchases of plant and equipment (22) (73)
Purchases of patents and licenses -- (153)
- -------------------------------------------------------------------------------
Net cash used in investing activities (22) (226)
Cash flows from financing activities:
Payments on long-term debt (21) (128)
- -------------------------------------------------------------------------------
Net cash used in financing activities (21) (128)
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (724) (2,476)
Cash and cash equivalents at beginning of period 3,504 9,271
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,780 $ 6,795
===============================================================================
See notes to condensed consolidated financial statements.
5
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BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 3, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
October 2, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's Annual Report on Form 10-K for
the year ended October 3, 1998.
On September 27, 1997, BEI Electronics, Inc. ("Electronics") distributed to
holders of Electronics common stock one share of common stock of BEI
Technologies, Inc. ("Technologies"), a newly formed subsidiary, for each share
of Electronics common stock held (the "Distribution"). In connection with the
Distribution, Electronics transferred to Technologies all of the assets,
liabilities and operations of its BEI Sensors & Systems Company, Inc. and
Defense Systems Company, Inc. business segments. After the Distribution, the
sole asset of Electronics was its investment in its subsidiary, BEI Medical
Systems Company, Inc. ("Medical"). On November 4, 1997, Electronics merged with
Medical and became one company with Electronics as the surviving corporation
(the "Merger"). After the Merger, Electronics changed its name to BEI Medical
Systems Company, Inc. (the "Company").
NOTE 2--INVENTORIES
April 3, October 3,
1999 1998
(dollars in thousands)
- --------------------------------------------------------------------------------
Finished products $2,149 $2,128
Work in process 137 196
Materials 743 763
- --------------------------------------------------------------------------------
Inventories $3,029 $3,087
================================================================================
NOTE 3--LOSS PER SHARE
As a result of the net loss for all periods presented, weighted average
shares used in the calculation of basic and diluted loss per share are the same.
Weighted average shares exclude unvested restricted stock, which amounted to
184,000 and 170,000 shares at April 3, 1999 and March 28, 1998 respectively.
Common stock equivalents are excluded from the loss per share for all periods
presented because the effect would be anti-dilutive.
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NOTE 4--SUBSEQUENT EVENT
As of May 7, 1999, the Company signed an agreement with Transamerica
Business Credit Corporation ("TBCC") to provide up to $2,500,000 in senior
secured financing. Key components of the agreement are as follows:
TBCC will provide the Company with a Revolving Credit Facility under which
the Company may from time to time borrow an aggregate amount not to exceed the
lesser of $1,000,000 or an amount equal to 85% of the amount of the Company's
eligible accounts receivable as defined in the agreement (the "Revolving Loan").
In addition to the Revolving Loan, TBCC will provide the Company with a Senior
Term Loan not to exceed $1,500,000 (the "Term Loan"). The Term Loan shall be
made (i) in an initial disbursement in the amount of $1,000,000; and (ii)
thereafter in an additional disbursement of $500,000 upon the closing of an
equity issuance by the Company generating net proceeds of not less than
$2,000,000. Both loans are collaterized by all of the assets of the Company.
The term of the Revolving Loan is one year from the date of the agreement
and may be renewed upon the agreement of both parties. The interest rate on the
Revolving Loan will be the Base Rate (defined below) plus 3.0% per annum,
provided that the interest rate in effect in each month will not be less than
9.0% per annum, and provided that the interest charged for each month in respect
of the Revolving Credit Facility shall be a minimum of $3,000, regardless of the
amount of the obligations outstanding. Base Rate means the highest prime, base
or equivalent rate of interest announced from time to time by Citibank, N.A.
(which may not be the lowest rate of interest charged by such bank).
The term of each disbursement of the Term Loan is for 30 months after the
date of such disbursement and the interest on the Term Loan accrues at a rate
not less than 13.5% per annum.
Concurrent with the above transaction, the Company provided TBCC with a
seven-year warrant to purchase 92,308 shares of common stock at an initial
exercise price of $1.625 per share, subject to adjustment. The warrants are
exercisable as of the date of the agreement and are non-refundable.
7
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Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, and those
discussed in the Company's Form 10-K for the year ended October 3, 1998.
The following table sets forth, for the fiscal periods indicated, the
percentage of revenues represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
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April 3, March 28, April 3, March 28,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 59.0 55.0 59.8 58.3
- --------------------------------------------------------------------------------------------------------
Gross profit 41.0 45.0 40.2 41.7
Selling, general and administrative expenses 86.4 88.0 85.1 90.8
Research, development and related expenses 42.8 20.4 38.0 20.1
- --------------------------------------------------------------------------------------------------------
Loss from operations (88.2) (63.4) (82.9) (69.2)
Interest income 1.8 3.9 1.5 4.4
Interest expense -- (0.3) -- (0.4)
- --------------------------------------------------------------------------------------------------------
Loss before income taxes (86.4) (59.8) (81.4) (65.2)
Income tax benefit (3.7) (14.4) (5.0) (17.8)
- --------------------------------------------------------------------------------------------------------
Net loss (82.7%) (45.4%) (76.4%) (47.4%)
========================================================================================================
</TABLE>
Quarters Ended April 3, 1999 and March 28, 1998
Revenues for the second quarter ended April 3, 1999, were $2,001,000 a
decrease of $534,000 or 21.1% from the quarter ended March 28, 1998. The lower
revenue principally reflects the impact of reduced shipments of reusable and
disposable instruments to both domestic and international customers in the
gynecology market. Revenues from these products declined $463,000 or 28.9% in
the second fiscal quarter of 1999 compared to the second fiscal quarter of 1998
principally due to the market impact resulting from a temporary supply short
fall from one outside vendor; generally soft market conditions and increased
competition. Sales of the gastrointestinal products also declined in the second
quarter of fiscal 1999 by $91,000 to $171,000 compared to the second quarter of
fiscal 1998 reflecting reduced volume of electrosurgery generators. Partially
offsetting these decreases were revenues from international shipments of the
Company's Hydro ThermAblator(R) ("HTA(R)") system for endometrial ablation which
increased for the quarter ended April 3, 1999 in the comparable period of fiscal
1998.
8
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Gross profit as a percentage of revenues decreased to 41.0% in the second
quarter of fiscal 1999 compared to 45.0% for the comparable quarter in fiscal
1998. The decrease was principally due to a change in the product mix, with a
larger portion of lower margin products shipped during the second quarter of
fiscal 1999 compared to the second quarter of fiscal 1998, plus higher overhead
absorption costs resulting from the reduced volume. Partially offsetting the
reduction in gross margin were decreases in overhead costs of $173,000 for the
quarter ended April 3, 1999 compared to the same period in fiscal 1998. This
decrease resulted primarily from the consolidation of the Company's
manufacturing and distribution facilities that occurred in the fourth quarter of
fiscal 1998.
Selling, general and administrative expenses decreased $504,000 to
$1,728,000 or 86.4% of revenue for the quarter ended April 3, 1999 compared to
$2,232,000 or 88.0% of revenue for the comparable period in fiscal 1998. The
decline in expenses reflects a reduction in legal fees ($267,000) following
settlement of the Company's litigation with CooperSurgical in July 1998 and
reduced amortization of intangible assets ($158,000) following the sale of a
previously acquired product line as well as the impact of a non-compete
agreement that became fully amortized during the second quarter of fiscal 1998.
Variable selling expenses also declined approximately $70,000 for the quarter
ended April 3, 1999 from the same period in fiscal 1998 as a result of lower
sales.
Research, development and related expenses as a percentage of revenues were
42.8% or $857,000 for the second quarter ended April 3, 1999 compared to 20.4%
or $516,000 for the same period of fiscal 1998. The increased spending reflects
expenses associated with recruiting and treating patients as part of the HTA
Phase III clinical trials in the United States. The Company received approval
from the Food and Drug Administration ("FDA") to proceed to the Phase III
portion of the HTA clinical trials in July 1998 and in September 1998 began to
treat patients under the approved protocol. The Company will treat 276 patients
at nine U.S. clinical sites under the Phase III protocol. As of May 14, 1999,
210 of the 276 patients have been treated, and an additional 39 patients have
been admitted in the program and are awaiting treatment. Data from examinations
one year following treatment is one of the requirements for FDA approval.
Interest income declined to $37,000 in the quarter ended April 3, 1999
compared to $98,000 in the quarter ended March 28, 1998, as a result of the
lower average cash balances during the quarter.
Income tax benefit was 4.3% of the pretax loss for the quarter ended April
3, 1999 compared to 24.1% of the pretax loss in the quarter ended March 28,
1998. The income tax benefit reflects the Company's ability to carry back losses
and collect a refund against prior years' taxes paid on the earnings of
previously discontinued operations. The amount of carryback available to the
Company is limited to the taxes paid on earnings of the previous two fiscal
years and the lower effective tax rate in fiscal 1999 results from the reduced
amount of remaining carryback available to the Company compared to fiscal 1998.
The remaining carryback available to the Company is approximately $136,000,
which will be recognized throughout the remainder of fiscal 1999 at the
Company's estimated annual effective tax rate.
Six Months Ended April 3, 1999 and March 28, 1998
Revenues for the six months ended April 3, 1999, were $4,165,000 a decrease
of $788,000 or 15.9% from the comparable six-month period ended March 28, 1998.
The lower revenue principally reflects the impact of reduced shipments of
reusable instruments and disposable products to both domestic and international
customers in the gynecology market. Revenues from these products declined
$647,000 or 21.5% in the first six months ended April 3, 1999 compared to the
six months ended March 28, 1998 principally due to the market impact resulting
from a temporary supply short fall from one outside vendor; generally soft
market conditions and increased competition. International revenues from
shipments of the Company's Hydro ThermAblator(R) ("HTA(R)") system for
endometrial ablation declined for the six months ended April 3, 1999 from the
comparable period of fiscal 1998. The fiscal 1999 decline reflects a large order
from one of the Company's Latin America distributors that was shipped in the
first quarter of fiscal 1998 but was not repeated in fiscal 1999.
9
<PAGE>
Gross profit as a percentage of revenues decreased to 40.2% in the first
six months of fiscal 1999 compared to 41.7% for the first six months of fiscal
1998. The decrease was principally due to a change in the product mix, with a
larger portion of lower margin products being sold during the six months ended
April 3, 1999 compared to the comparable period of fiscal 1998 and higher
overhead absorption costs resulting from the reduced volume. Partially
offsetting the reduction in gross margins were decreases in overhead costs of
$332,000 or 12.1% for the six-month period ended April 3, 1999, compared to the
six-month period ended March 28, 1998. This decrease primarily resulted from the
consolidation of the Company's manufacturing and distribution facilities that
occurred in the fourth quarter of fiscal 1998.
Selling, general and administrative expenses decreased $951,000 to
$3,545,000 or 85.1% of revenues for the six months ended April 3, 1999 compared
to $4,496,000 or 90.8% of revenues for the six month period in fiscal 1998. The
decline in expenses reflects a reduction in legal fees ($590,000) following
settlement of the Company's litigation with CooperSurgical in July 1998 and
reduced amortization of intangible assets ($331,000) following the sale of a
previously acquired product line as well as the impact of a non-compete
agreement that became fully amortized during the second quarter of fiscal 1998.
Variable selling expenses also declined approximately $79,000 for the six months
ended April 3, 1999 compared to the same period in fiscal 1998 as a result of
lower sales.
Research, development and related expenses as a percentage of revenues were
38.0% or $1,583,000 for the first six months ended April 3, 1999 compared to
20.1% or $994,000 for the same period of fiscal 1998. The increased spending
reflects expenses associated with recruiting and treating patients as part of
the HTA Phase III clinical trials in the United States discussed under "Quarters
Ended April 3, 1999 and March 28, 1998" above.
Interest income declined to $63,000 in the six month period ended April 3,
1999 compared to $218,000 in the six month period ended March 28, 1998, as a
result of the lower average cash balances during the period.
Income tax benefit was 6.1% of the pretax loss in the six-month period
ended April 3, 1999 compared to 27.3% of the pretax loss in the comparable
period ended March 28, 1998. The income tax benefit reflects the Company's
ability to carry back losses and collect a refund against prior years' taxes
paid on the earnings of previously discontinued operations. The amount of
carryback available to the Company is limited to the taxes paid on earnings of
the previous two fiscal years and the lower effective tax rate in fiscal 1999
results from the reduced amount of remaining carryback available to the Company
compared to fiscal 1998. The remaining carryback available to the Company is
approximately $136,000, which will be recognized throughout the remainder of
fiscal 1999 at the Company's estimated annual effective tax rate.
Liquidity and Capital Resources
The Company's capital requirements depend on numerous factors, including
the progress of the Company's clinical research and product development
programs, the timing and receipt of regulatory clearances and approvals, and the
resources the Company devotes to developing, manufacturing and marketing its
products. The Company's capital requirements also depend on the resources
required to expand and develop a direct sales force in the United States and to
expand the Company's manufacturing capacity, and the extent to which the
Company's products gain market acceptance and sales. The timing and amount of
such capital requirements cannot be predicted accurately. The Company is
currently seeking additional financing. Consequently, although the Company
believes its existing cash balances together with operating revenues, additional
tax refunds and funds available as a result of a financing arrangement concluded
with Transamerica Business Credit Corporation on May 7, 1999, (see below) will
provide adequate funding to meet the Company's liquidity requirements for the
remainder of the current fiscal year, there can be no assurance that additional
financing will be available on terms favorable to the Company, or at all. In the
event the Company is unable to generate sufficient cash flows from revenues or
to secure additional sources of capital, its ability to continue as a going
concern may be impaired. Any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive covenants
and may also be dilutive to stockholders.
During the first six months of fiscal 1999, cash used by operations was
$681,000 principally due to the $3,181,000 net loss for the period, which was
partially offset by changes in operating assets and liabilities of
10
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$2,500,000. Cash used in investing activities during the first six months of
fiscal 1999 of $22,000 consisted of purchases of equipment. Cash flows used in
financing activities consisted of $21,000 in scheduled payments made on
long-term debt.
The Company had no material capital or other commitments as of April 3,
1999.
As of May 7, 1999, the Company signed an agreement with Transamerica
Business Credit Corporation ("TBCC") to provide up to $2,500,000 in senior
secured financing. Key components of the agreement are as follows:
TBCC will provide the Company with a Revolving Credit Facility under which
the Company may from time to time borrow an aggregate amount not to exceed the
lesser of $1,000,000 or an amount equal to 85% of the amount of the Company's
eligible accounts receivable as defined in the agreement (the "Revolving Loan").
In addition to the Revolving Loan, TBCC will provide the Company with a Senior
Term Loan not to exceed $1,500,000 (the "Term Loan"). The Term Loan shall be
made (i) in an initial disbursement in the amount of $1,000,000; and (ii)
thereafter in an additional disbursement of $500,000 upon the closing of an
equity issuance by the Company generating net proceeds of not less than
$2,000,000. Both loans are collaterized by all of the assets of the Company.
The term of the Revolving Loan is one year from the date of the agreement
and may be renewed upon the agreement of both parties. The interest rate on the
Revolving Loan will be the Base Rate (defined below) plus 3.0% per annum,
provided that the interest rate in effect in each month will not be less than
9.0% per annum, and provided that the interest charged for each month in respect
of the Revolving Credit Facility shall be a minimum of $3,000, regardless of the
amount of the obligations outstanding. Base Rate means the highest prime, base
or equivalent rate of interest announced from time to time by Citibank, N.A.
(which may not be the lowest rate of interest charged by such bank).
The term of each disbursement of the Term Loan is for 30 months after the
date of such disbursement and the interest on the Term Loan accrues at a
rate not less than 13.5% per annum.
Concurrent with the above transaction, the Company provided TBCC with a
seven-year warrant to purchase 92,308 shares of common stock at an initial
exercise price of $1.625 per share, subject to adjustment. The warrants are
exercisable as of the date of the agreement and are non-refundable.
Year 2000 Compliance: Modification of Management Information Systems
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such Year 2000 requirements,
especially those with internally developed systems.
The Company and third parties, with which the Company does business, rely
on numerous computer programs in their day-to-day operations. The Company's Year
2000 project is divided into the following major sections: infrastructure and
applications software commonly referred to as "IT Systems", third party
suppliers and customers commonly referred to as "External Agents", process
control and instrumentation and company products.
IT Systems. The Company has completed a preliminary assessment of Year 2000
issues as they relate to the Company's IT systems. This analysis includes such
activities as order taking, billing, purchasing/accounts payable, general
ledger/financial, and inventory. Systems critical to the Company's business are
commercial packages available from third party vendors and currently in use with
little modification. As a result of this assessment, the Company converted
during the second quarter of fiscal 1999 one of its two primary internal IT
systems to an upgraded version of the software that is, according to information
provided by the supplier, believed to be fully Y2K compliant. The Company is
also evaluating a second internal IT system which is believed to be compliant in
all storage and calculation functions but has some screens that display a
two-digit. According to information provided by the vendor a Year 2000 compliant
version of the software is available. The Company plans to use both internal and
external resources to test the version of the software believed to be Year 2000
compliant and to complete such testing by mid-calendar year 1999 and plans to
implement this version if necessary before the end of fiscal year
11
<PAGE>
1999. The Year 2000 analysis and upgrading of existing systems are being
performed as a part of the Company's routine maintenance of computer systems and
are not anticipated to be material to the Company's financial results.
External Agents. The Company is currently assessing the impact of Year 2000
readiness of External Agents with which the Company relies for critical products
and services. The Company has sent questionnaires and letters of inquiry to the
External Agents to assist the Company in assessing the Year 2000 readiness of
its External Agents and evaluate the scope of the Company's exposure. Each
letter is tailored to the significance of the contribution each makes to the
Company's business. The Company anticipates that the assessment phase of this
part of the project will be completed by mid-calendar year 1999. To date, the
Company is not aware of any External Agent with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity or capital
resources. However, the Company has no means of ensuring that External Agents
will be Year 2000 ready. The inability of External Agents to complete their Year
2000 resolution process in a timely fashion could materially impact the Company.
The effect of non-compliance by External Agents is not determinable.
Process Control and Instrumentation. All other items with potential Year
2000 issues are currently being inventoried and evaluated. These include such
items as telephone systems, security systems, HVAC, copiers, FAX machines,
production equipment, tools and other process systems. The Company anticipates
that the assessment phase of this part of the project will be completed by
mid-calendar year 1999 and anticipates it will utilize both internal and
external resources to reprogram, replace and test noncompliant equipment.
Although the Company is in the early phases of this portion of the Year 2000
project, based upon a preliminary review the Company does not anticipate costs
related to this portion of the project to be material to the financial results
of the Company.
Company Products. In addition, BEI Medical has reviewed the Year 2000 issue
as it relates to the electronic products manufactured for sale by the Company.
The Company believes that none of its products are date sensitive or will
require modification to become Year 2000 compliant. Accordingly, the Company
does not believe the Year 2000 issue presents a material exposure as it relates
to the Company's products.
While the Company currently believes that it has an effective program in
place to resolve the Year 2000 issues in a timely manner, as noted above, the
Company has not yet completed all necessary phases of the Year 2000 project. In
the event that the Company does not complete any additional phases, the Company
would be unable to efficiently take customer orders, manufacture and ship
products, invoice customers or collect payments. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company.
The Company currently has no contingency plan in place in the event it does
not successfully complete all phases of its Year 2000 project. The Company plans
to finish evaluation of the status of its Year 2000 plan by June 30, 1999 and
then determine whether such a plan is necessary.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had
a material effect on the Company's operations.
12
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BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
PART II.
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company (the "Meeting") was
held on March 25, 1999. At the meeting, Charles Crocker and Ralph M.
Richart were elected as directors of the Company for a three-year term
expiring at the Company's 2002 Annual Meeting. They were elected by a
vote of 6,438,333 votes in favor and 518,982 votes withheld for
Charles Crocker and 6,429,559 votes in favor and 527,756 votes
withheld for Ralph M. Richart.
In addition, the following directors continued in office: Richard W.
Turner and Gary D. Wrench (until the Company's 2000 Annual Meeting);
Lawrence A. Wan (until the Company's 2001 Annual Meeting).
(b) The other matters presented at the Meeting and the votes of the
stockholders with respect thereto are as follows:
The Company's Amended 1987 Stock Option Plan was amended to increase
the aggregate number of shares of Common Stock authorized for issuance
under such plan by 500,000 shares from 1,600,000 to 2,100,000 shares,
with 4,497,666 votes in favor, 866,703 against, 6,782 abstentions and
1,586,164 broker non-votes.
The Company's 1992 Restricted Stock Plan was amended to increase the
aggregate number of shares of Common Stock authorized for issuance
under such plan by 200,000 shares from 700,000 to 900,000 shares, with
4,461,978 votes in favor, 880,903 against, 28,270 abstentions and
1,586,164 broker non-votes.
The selection of Ernst & Young LLP as the Company's independent public
accountants for the fiscal year ending October 2, 1999 was ratified
with 6,931,578 votes in favor, 8,231 against and 17,506 abstentions.
Item 5. Other Information
Effective February 1, 1999, Herbert H. Spoon resigned as President and
Chief Executive Officer of the Company and Richard W. Turner returned
as President and Chief Executive Officer. Mr. Spoon will continue as
an employee of the Company in the position of Senior Advisor to the
Chairman and the President through October 31,1999, at which time his
employment will terminate.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Index to Exhibits
(a) Exhibits
10.32 Transamerica Business Credit Corporation Loan and Security
Agreement
10.33 Richard W. Turner Employment Letter
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the second quarter
ended April 3, 1999.
14
<PAGE>
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 on May 18, 1999.
BEI Medical Systems Company, Inc.
By: /s/ Thomas W. Fry
---------------------------------------------
Thomas W. Fry
Vice President of Finance and Administration,
Secretary and Treasurer
(Chief Financial Officer)
15
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TBCC
Loan and Security Agreement
Borrower: BEI Medical Systems Company, Inc.,
a Delaware Corporation
Address: 100 Hollister Road
Teterboro, New Jersey 07608
Date: May 6, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower (the "Borrower"), having its chief executive office and
principal place of business at the address shown above, and TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("TBCC"), having its
principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018
and having an office at 15260 Ventura Boulevard, Sherman Oaks, California 91403.
The Schedule to this Agreement (the "Schedule") being signed concurrently is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 9 below.) The parties agree as follows:
1. LOANS.
1.1 Loans. TBCC, subject to the terms and conditions of this Agreement,
agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule. If at any
time the total outstanding Loans and other monetary Obligations exceed said
limit, Borrower shall repay the excess immediately without demand. Borrower
shall use the proceeds of all Loans solely for lawful general business purposes.
1.2 Due Date. The Loans, all accrued interest and all other monetary
Obligations shall be payable in full on the Maturity Date. Borrower may borrow,
repay and reborrow Loans (other than any Term Loans), in whole or in part, in
accordance with the terms of this Agreement.
1.3 Loan Account. TBCC shall maintain an account on its books in the name
of Borrower (the "Loan Account"). All Loans and advances made by TBCC to
Borrower or for Borrower's account and all other monetary Obligations will be
charged to the Loan Account. All amounts received by TBCC from Borrower or for
Borrower's account will be credited to the Loan Account. TBCC will send Borrower
a monthly statement reflecting the activity in the Loan Account, and each such
monthly statement shall be an account stated between Borrower and TBCC and shall
be final conclusive and binding absent manifest error.
1.4 Collection of Receivables. Borrower shall remit to TBCC all Collections
including all checks, drafts and other documents and instruments evidencing
remittances in payment (collectively referred to as "Items of Payment") within
one Business Day after receipt, in the same form as received, with any necessary
indorsements. For purposes of calculating interest due to TBCC, credit will be
given for Collections and all other proceeds of Collateral and other payments to
TBCC three Business Days after receipt of cleared funds. For all purposes of
this Agreement any cleared funds received by TBCC later than 10:00 a.m.
(California time) on any Business Day shall be deemed to have been received on
the following Business Day and any applicable interest or fee shall continue to
accrue. Borrower's Loan Account will be credited only with the net amounts
actually received in payment of Receivables, and such payments shall be credited
to the Obligations in such order as TBCC shall determine in its discretion.
Pending delivery to TBCC, Borrower will not commingle any Items of Payment with
any of its other funds or property, but will segregate them from the other
assets of Borrower and will hold them in trust and for the account and as the
property of TBCC. Borrower hereby agrees to endorse any Items of Payment upon
the request of TBCC.
1.5 Reserves. TBCC may, from time to time, in its Good Faith business
judgment*: (i) establish and modify reserves against Eligible Receivables and
Eligible Inventory, (ii) modify advance rates with respect to Eligible
Receivables and Eligible Inventory, (iii) modify the standards of eligibility
set forth in the definitions of Eligible Receivables and Eligible Inventory, and
(iv) establish reserves against available Loans.
* upon reasonable prior notice to Borrower
1.6 Term.
(a) The term of this Agreement shall be from the date of this Agreement to
the Maturity Date set forth in the Schedule, unless sooner terminated in
accordance with the terms of this Agreement, provided that the Maturity Date
shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this
-1-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
Agreement effective on the next Maturity Date. On the Maturity Date or on any
earlier termination of this Agreement Borrower shall pay in full all
Obligations, and notwithstanding any termination of this Agreement all of TBCC's
security interests and all of TBCC's other rights and remedies shall continue in
full force and effect until payment and performance in full of all Obligations.
(b) This Agreement may be terminated prior to the Maturity Date as follows:
(i) by Borrower, effective three business days after written notice of
termination is given to TBCC; or (ii) by TBCC at any time after the occurrence
of an Event of Default, without notice, effective immediately. If this Agreement
is terminated by Borrower or by TBCC under this Section 1.6(b), Borrower shall
pay to TBCC a termination fee (the "Termination Fee") in the amount shown on the
Schedule. The Termination Fee shall be due and payable on the effective date of
termination. Notwithstanding the foregoing, Borrower shall have no right to
terminate this Agreement at any time that any principal of, or interest on any
of the Loans or any other monetary Obligations are outstanding, except upon
prepayment of all Obligations and the satisfaction of all other conditions set
forth in the Loan Documents.
1.7 Payment Procedures. Borrower hereby authorizes TBCC to charge the Loan
Account with the amount of all interest, fees, expenses and other payments to be
made hereunder and under the other Loan Documents. TBCC may, but shall not be
obligated to, discharge Borrower's payment obligations hereunder by so charging
the Loan Account. Whenever any payment to be made hereunder is due on a day that
is not a Business Day, the payment may be made on the next succeeding Business
Day and such extension of time shall be included in the computation of the
amount of interest due.
1.8 Conditions to Initial Loan. The obligation of TBCC to make the initial
Loan is subject to the satisfaction of the following conditions prior to or
concurrent with such initial Loan, and Borrower shall cause all such conditions
to be satisfied by the Closing Deadline set forth in the Schedule:
(a) Except for the filing of termination statements under the Uniform
Commercial Code by the existing lender to Borrower whose loans are being
repaid with the Loan proceeds and the documents and actions relating to the
Liens of TBCC created hereunder, as provided for in Section 1.8(c) below,
no consent or authorization of, filing with or other act by or in respect
of any Governmental Authority or any other Person is required in connection
with the execution, delivery, performance, validity or enforceability of
this Agreement, or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby or the continuing operations of
the Borrower following the consummation of such transactions.
(b) TBCC and its counsel shall have performed (i) a review
satisfactory to TBCC of all of the Material Contracts and other assets of
the Borrower, the financial condition of the Borrower, including all of its
tax, litigation, environmental and other potential contingent liabilities,
and the corporate and capital structure of the Borrower and (ii) a
pre-closing audit and collateral review, in each case with results
satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and
substance satisfactory to TBCC and its counsel: (i) a Blocked Account
Agreement , duly executed by the Borrower and its bank on TBCC's standard
form; (ii) acknowledgment copies of Uniform Commercial Code financing
statements (naming TBCC as secured party and the Borrower as debtor), duly
filed in all jurisdictions that TBCC deems necessary or desirable to
perfect and protect the Liens created hereunder, and evidence that all
other filings, registrations and recordings have been made in the
appropriate governmental offices, and all other action has been taken,
which shall be necessary to create, in favor of TBCC, a perfected first
priority Lien on the Collateral*; (iii) the opinion of counsel for the
Borrower covering such matters incident to the transactions contemplated by
this Agreement as TBCC may specify in its discretion; (iv) certified copies
of all policies of insurance required by this Agreement and the other Loan
Documents, together with loss payee endorsements for all such policies
naming TBCC as lender loss payee and an additional insured; (v) copies of
the Borrower's articles or certificate of incorporation, certified as true,
correct and complete by the secretary of state of Borrower's state of
incorporation within 45 days of the date hereof; (vi) copies of the bylaws
of the Borrower and a copy of the resolutions of the Board of Directors of
the Borrower authorizing the execution, delivery and performance of this
Agreement, the other Loan Documents, and the transactions contemplated
hereby and thereby, attached to which is a certificate of the Secretary or
an Assistant Secretary of the Borrower certifying (A) that such copies of
the bylaws and resolutions are true, complete and accurate copies thereof,
have not been amended or modified since the date of such certificate and
are in full force and effect and (B) the incumbency, names and true
signatures of the officers of the Borrower**; (vii) a good standing
certificate from the Secretary of State of Borrower's state of
incorporation and each state in which the Borrower is qualified as a
foreign corporation, each dated within ten days of the date hereof; (viii)
the additional documents and agreements, if any, listed in the Schedule;
and (ix) such other agreements and instruments as TBCC deems necessary in
its*** discretion in connection with the transactions contemplated hereby.
* (except for Excluded Collateral). For purposes hereof, "Excluded
Collateral" shall mean (i) any deposit account held by the Borrower or any
Guarantor at a depository institution office located in a jurisdiction where
TBCC's security interest in such deposit account cannot be perfected by
providing notice thereof to such depository institution (provided, however, that
with respect to any such deposit account Borrower shall, at TBCC's request,
provide TBCC with duly executed agreements and instruments (all in form and
substance satisfactory to TBCC) necessary or, in the opinion of TBCC, desirable
to perfect and maintain in favor of TBCC a first priority security interest in
such deposit account), and (ii) specialized molds and demonstration equipment
owned by Xylog Corporation and located in jurisdictions other than California
and New Jersey (provided that (a) the aggregate book value of such
-2-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
specialized molds and demonstration equipment at all such locations other than
California and New Jersey shall not at any time exceed $350,000, and (b) the
aggregate book value of such specialized molds and demonstration equipment at
any single location outside of California or New Jersey shall not at any time
exceed $50,000).
** who are authorized to sign the Loan Documents
*** reasonable
1.9 Conditions to Lending. The obligation of TBCC to make any Loan is
subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower after
due inquiry, threatened litigation, proceeding, inquiry or other action
relating to this Agreement, or any other Loan Document, which could* be
expected to have a Material Adverse Effect in the judgment of TBCC;
* reasonably
(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not* have a
Material Adverse Effect;
* reasonably be expected to
(c) The Liens in favor of TBCC shall have been duly perfected and
shall constitute first priority Liens, except for Permitted Liens*;
* and except with respect to Excluded Collateral (as defined in Section
1.8(c) above)
(d) All representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct on and as of the date of
such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have
been true and correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be
continuing or would result from the making of the requested Loan as of the
date of such request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
2.1 Interest. Borrower shall pay TBCC interest on all outstanding Loans and
other monetary Obligations, at the interest rate set forth in the Schedule*.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occurrence and during the
continuance of any Event of Default, the interest rate applicable to each Loan
shall be increased to the extent provided for in the Note evidencing such Loan,
and the interest rate applicable to all other Obligations shall be increased by
two percent per annum.
* with respect to such Loans and other monetary Obligations
2.2 Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
2.3 Calculations. All interest and fees under this Agreement shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4 Taxes. Any and all payments by Borrower under this Agreement or any
other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
3.1 Grant of Security Interest. To secure the payment and performance when
due of all of the Obligations, Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Investment Property,
Inventory, Equipment, Other Property, and other Collateral, wherever located.*
* Notwithstanding the foregoing, the grant of a security interest as
provided herein shall not extend to, and the term "Collateral" shall not
include, any Receivables or general intangibles (whether owned or held as
licensee or lessee, or otherwise), to the extent that (i) such Receivables or
general intangibles are not assignable or capable of being encumbered as a
matter of law or under the terms of the license or lease applicable thereto (but
solely to the extent that any such restriction shall be enforceable under
applicable law against an assignee), without the consent of the licensor or
lessor thereof and (ii) such consent has not been obtained; provided, however,
that the foregoing grant of security interest shall extend to, and the term
"Collateral" shall include, (A) any and all proceeds of any Receivables or
general intangibles which are otherwise excluded to the extent that the
assignment or encumbrance of such proceeds is not so restricted, including under
Section 9-318 of the Uniform Commercial Code, and (B) upon obtaining the consent
of any such licensor, lessor or other applicable party with respect to any such
otherwise excluded Receivables or general intangibles, such Receivables or
general intangibles as well as any and all proceeds thereof that might have been
excluded from such grant of security interest and the term "Collateral."
3.2 Other Liens; Location of Collateral. Borrower represents, warrants and
covenants that all of the Collateral
-3-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
is, and will at all times continue to be, free and clear of all Liens, other
than Permitted Liens and Liens in favor of TBCC. All Collateral is and will
continue to be maintained at the locations shown on the Schedule.
3.3 Receivables.
(a) Schedules and Other Actions. As often as requested by TBCC, Borrower
shall execute and deliver to TBCC written schedules of Receivables and Eligible
Receivables (but the failure to execute or deliver any schedule shall not affect
or limit TBCC's security interest in all Receivables). On TBCC's request,
Borrower shall also furnish to TBCC copies of invoices to customers and shipping
and delivery receipts. Borrower shall deliver to TBCC the originals of all
letters of credit, notes, and instruments in its favor and such endorsements or
assignments as TBCC may reasonably request and, upon the request of TBCC,
Borrower shall deliver to TBCC all certificated securities with respect to any
Investment Property, with all necessary indorsements, and obtain such account
control agreements with securities intermediaries and take such other action
with respect to any Investment Property, as TBCC shall request, in form and
substance satisfactory to TBCC. Upon request of TBCC Borrower additionally shall
obtain consents from any letter of credit issuers with respect to the assignment
to TBCC of any letter of credit proceeds.
(b) Records, Collections. Borrower shall report all customer credits to
TBCC, on the regular reports to TBCC in the form from time to time specified by
TBCC. Borrower shall notify TBCC of all returns and recoveries of merchandise
and of all claims asserted with respect to merchandise, on its regular reports
to TBCC. Borrower shall not settle or adjust any dispute or claim, or grant any
discount, credit or allowance or accept any return of merchandise, except in the
ordinary course of its business, without TBCC's prior written consent.
(c) Representations. Borrower represents and warrants to TBCC that each
Receivable with respect to which Loans are requested by Borrower shall, on the
date each Loan is requested and made, represent an undisputed, bona fide,
existing, unconditional obligation of the account debtor created by the sale,
delivery, and acceptance of goods, the licensing of software or the rendition of
services, in the ordinary course of Borrower's business, and meet the Minimum
Eligibility Requirements set forth in Section 9.1(n) below.
3.4 Inventory. Borrower shall maintain full, accurate and complete records
respecting the Inventory describing the kind, type and quantity of the Inventory
and Borrower's cost therefor, withdrawals therefrom and additions thereto,
including a perpetual inventory for work in process and finished goods.
3.5 Equipment. Borrower shall at all times keep correct and accurate
records itemizing and describing the location, kind, type, age and condition of
the Equipment, Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, ordinary wear and tear
excepted. No Equipment shall be annexed or affixed to or become part of any
realty, unless the owner of the realty has executed and delivered a Landlord
Waiver in such form as TBCC shall specify. Where Borrower is permitted to
dispose of any Equipment under this Agreement or by any consent thereto
hereafter given by TBCC, Borrower shall do so at arm's length, in good faith and
by obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment.
3.6 Investment Property. Borrower shall have the right to retain all
Investment Property payments and distributions, unless and until a Default or an
Event of Default has occurred. If a Default or an Event of Default exists,
Borrower shall hold all payments on, and proceeds of, and distributions with
respect to, Investment Property in trust for TBCC, and Borrower shall deliver
all such payments, proceeds and distributions to TBCC, immediately upon receipt,
in their original form, duly endorsed, to be applied to the Obligations in such
order as TBCC shall determine. Upon the request of TBCC, any such distributions
and payments with respect to any Investment Property held in any securities
account shall be held and retained in such securities account as part of the
Collateral.
3.7 Further Assurances. Borrower will perform any and all steps that TBCC
may reasonably request to perfect TBCC's security interests in the Collateral,
including, without limitation, executing and filing financing and continuation
statements in form and substance satisfactory to TBCC. TBCC is hereby authorized
by Borrower to sign Borrower's name or file any financing statements or similar
documents or instruments covering the Collateral whether or not Borrower's
signature appears thereon. Borrower agrees, from time to time, at TBCC's
request, to file notices of Liens, financing statements, similar documents or
instruments, and amendments, renewals and continuations thereof, and cooperate
with TBCC, in connection with the continued perfection and protection of the
Collateral. If any Collateral is in the possession or control of any Person
other than a public warehouseman where the warehouse receipt is in the name of
or held by TBCC, Borrower shall notify such Person of TBCC's security interest
therein and, upon request, instruct such Person or Persons to hold all such
Collateral for the account of TBCC and subject to TBCC's instructions. If so
requested by TBCC, Borrower will deliver to TBCC warehouse receipts covering any
Collateral located in warehouses showing TBCC as the beneficiary thereof and
will also cause the warehouseman to execute and deliver such agreements as TBCC
may request relating to waivers of liens by such warehouseman and the release of
the Inventory to TBCC on its demand. Borrower shall defend the Collateral
against all claims and demands of all Persons.
3.8 Power of Attorney. Borrower hereby appoints and constitutes TBCC as
Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing thereon,
(ii) upon the occurrence and during the continuance of an Event of Default, to
convey any item of Collateral to any purchaser thereof, (iii) to give or sign
Borrower's name to any notices or statements necessary or desirable to create or
continue the Lien on any Collateral granted hereunder, (iv) to execute and
deliver to any securities intermediary or other Person any entitlement
-4-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
order, account control agreement or other notice, document or instrument with
respect to any Investment Property, and (v) to make any payment or take any act
necessary or desirable to protect or preserve any Collateral. TBCC's authority
hereunder shall include, without limitation, the authority to execute and give
receipt for any certificate of ownership or any document, transfer title to any
item of Collateral and take any other actions arising from or incident to the
powers granted to TBCC under this Agreement. This power of attorney is coupled
with an interest and is irrevocable.
4. Representations and Warranties of Borrower. Borrower represents and warrants
as follows:
4.1 Organization, Good Standing and Qualification. Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State set forth above, (ii) has the corporate power and authority to own
its properties and assets and to transact the businesses in which it is engaged
and (iii) is duly qualified, authorized to do business and in good standing in
each jurisdiction where it is engaged in business, except to the extent that the
failure to so qualify or be in good standing would not have a Material Adverse
Effect.
4.2 Locations of Offices, Records and Collateral. The address of the
principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records relating
to Collateral are maintained exclusively in the possession of Borrower at, the
address of Borrower specified in the heading of this Agreement. Borrower has
places of business, and Collateral is located, only at such address and at the
addresses set forth in the Schedule and at any additional locations reported to
TBCC as provided in Section 5.8(c) as to which*
* Borrower has provided TBCC (i) 7 days prior written notice thereof, and
(ii) duly executed financing statements and other agreements and instruments
(all in form and substance satisfactory to TBCC) necessary or, in the opinion of
TBCC, desirable to perfect and maintain in favor of TBCC a first priority
security interest in the Collateral (other than Excluded Collateral, as defined
in Section 1.8(c) above) located at such additional locations
4.3 Authority. Borrower has the requisite corporate power and authority to
execute, deliver and perform its obligations under each of the Loan Documents.
All corporate action necessary for the execution, delivery and performance by
Borrower of the Loan Documents has been taken.
4.4 Enforceability. This Agreement is, and, when executed and delivered,
each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
4.5 No Conflict. The execution, delivery and performance of each Loan
Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract and will
not result in the imposition of any Liens other than in favor of TBCC.
4.6 Consents and Filings. No consent, authorization or approval of, or
filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any other
Loan Document, the consummation of the transactions contemplated hereby or
thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, (ii) the filing of financing
statements under the Uniform Commercial Code and (iii) any necessary filings
with U.S. Copyright Office and the U.S. Patent and Trademark Office.
4.7 Solvency. Borrower is Solvent and will be Solvent upon the completion
of all transactions contemplated to occur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8 Financial Data. Borrower has provided to TBCC complete and accurate
Financial Statements, which have been prepared in accordance with GAAP
consistently applied throughout the periods involved and fairly present the
financial position and results of operations of Borrower for each of the periods
covered, subject, in the case of any quarterly financial statements, to normal
year-end adjustments and the absence of notes. Borrower has no Contingent
Obligation or liability for taxes, unrealized losses, unusual forward or
long-term commitments or long-term leases, which is not reflected in such
Financial Statements or the footnotes thereto. Since the last date covered by
such Financial Statements,* there has been no sale, transfer or other
disposition by Borrower of any material part of its business or property and no
purchase or other acquisition of any business or property (including any capital
stock of any other Person) material in relation to the financial condition of
Borrower at said date. Since said date, (i) there has been no change,
occurrence, development or event which has had or could reasonably be expected
to have a Material Adverse Effect and (ii) none of the capital stock of Borrower
has been redeemed, retired, purchased or otherwise acquired for value by
Borrower.
* and other than transactions in the ordinary course of business,
4.9 Accuracy and Completeness of Information. All data, reports and
information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and information are dated or
certified, and not incomplete by omitting to state any material fact necessary
to make such data, reports and information not materially misleading at such
time. There are no facts now known to Borrower which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect and
which have not been disclosed in writing to TBCC.
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TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
4.10 No Joint Ventures, Partnerships or Subsidiaries. Borrower is not
engaged in any joint venture or partnership with any other Person. *Borrower has
no Subsidiaries.
*Except as disclosed in the Schedule,
4.11 Corporate and Trade Name. During the past five years, Borrower has not
been known by or used any other corporate, trade or fictitious name except for
its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12 No Actual or Pending Material Modification of Business. There exists
no actual or, to the best of Borrower's knowledge after due inquiry, threatened
termination, cancellation or limitation of, or any modification or change in the
business relationship of Borrower with any customer or group of customers whose
purchases individually or in the aggregate are material to the operation of
Borrower's business or with any material supplier.
4.13 No Broker's or Finder's Fees. No broker or finder brought about this
Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14 Taxes and Tax Returns. Borrower has properly completed and timely
filed all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accordance with GAAP. All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date of this Agreement have been
timely paid (or, if not yet due, adequate reserves therefor have been
established in accordance with GAAP) and Borrower has no liability for taxes in
excess of the amounts so paid or reserves so established. No deficiencies for
taxes have been claimed, proposed or assessed by any taxing or other
Governmental Authority against Borrower and no notice of any tax Lien has been
filed. There are no pending or threatened audits, investigations or claims for
or relating to any liability for taxes and there are no matters under discussion
with any Governmental Authority which could result in an additional liability
for taxes. No extension of a statute of limitations relating to taxes,
assessments, fees or other governmental charges is in effect with respect to
Borrower. Borrower is not a party to and does not have any obligations under any
written tax sharing agreement or agreement regarding payments in lieu of taxes.
4.15 No Judgments or Litigation. Except as set forth in the Schedule, no
judgments, orders, writs or decrees are outstanding against Borrower, nor is
there now pending or, to the knowledge of Borrower after due inquiry, threatened
litigation, contested claim, investigation, arbitration, or governmental
proceeding by or against Borrower that (i) could individually or in the
aggregate be likely in the reasonable business judgment of TBCC to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any other Loan Document or the consummation of
the transactions contemplated hereby or thereby.
4.16 Investments; Contracts. Borrower (i) has not committed to make any
Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any "take or pay" contract as to which it is
the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could* have a Material Adverse Effect.
* reasonably be expected to
4.17 No Defaults; Legal Compliance. Borrower is not in default under any
term of any Material Contract or in violation of any Requirement of Law, nor is
Borrower subject to any investigation with respect to a claimed violation of any
Requirement of Law.
4.18 Rights in Collateral; Priority of Liens. All Collateral is owned or
leased by Borrower, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. The Liens granted to TBCC pursuant to the
Loan Documents constitute valid, enforceable and perfected first-priority Liens
on the Collateral, except for Permitted Liens.
4.19 Intellectual Property. Set forth in the written Representations and
Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered and unregistered), and all applications therefor and licenses
thereof, of Borrower. Borrower owns or licenses all material patents,
trademarks, service-marks, logos, tradenames, trade secrets, know-how,
copyrights, or licenses and other rights with respect to any of the foregoing,
which are necessary or advisable for the operation of its business as presently
conducted or proposed to be conducted. To the best of its knowledge after due
inquiry, Borrower has not infringed any patent, trademark, service-mark,
tradename, copyright, license or other right owned by any other Person by the
sale or use of any product, process, method, substance, part or other material
presently contemplated to be sold or used, where such sale or use would
reasonably be expected to have a Material Adverse Effect and no claim or
litigation is pending, or to the best of Borrower's knowledge, threatened
against or affecting Borrower that contests its right to sell or use any such
product, process, method, substance, part or other material.
4.20 Labor Matters. There are no existing or threatened strikes, lockouts
or other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
4.21 Licenses and Permits. Borrower has obtained and holds in full force
and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications,
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easements, rights of way and other rights and approvals which are necessary or
advisable for the operation of its business as presently conducted and as
proposed to be conducted, except where the failure to possess any of the
foregoing (individually or in the aggregate) would not have a Material Adverse
Effect.
4.22 Government Regulation. Borrower is not subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its ability
to consummate the transactions contemplated by this Agreement and the other Loan
Documents.
4.23 Business and Properties. The business of Borrower is not affected by
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that could reasonably be expected
to have a Material Adverse Effect.
4.24 Status of Certain Subsidiaries. Calculus Instruments Company, Inc., a
New Jersey corporation and an indirect wholly-owned subsidiary of Borrower
("Calculus"), is a dormant company with no material assets of any kind and no
Indebtedness or Obligations whatsoever, whether to Borrower, to any other
Affiliate of Calculus or to any third party. Ovamed Corporation, a California
corporation and an indirect wholly-owned subsidiary of Borrower ("Ovamed"), is a
dormant company with no material assets of any kind and no Indebtedness or
Obligations whatsoever, whether to Borrower, to any other Affiliate of Ovamed or
to any third party. Borrower has no plans to transfer assets to, or otherwise
alter the dormant status of, either Calculus or Ovamed.
4.25 Affiliate Transactions. Borrower is not a party to or bound by any
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower and (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person.
4.26 Survival of Representations. All representations made by Borrower in
this Agreement and in any other Loan Document executed and delivered by it in
connection herewith shall survive the execution and delivery hereof and thereof
and the closing of the transactions contemplated hereby and thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement
and payment and satisfaction of all Obligations:
5.1 Corporate Existence. Borrower shall (i) maintain its corporate
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary or
advisable to the profitable conduct of its business, and (iii) continue in, and
limit its operations to, the same lines of business as presently conducted by
it*.
* or lines of business closely related or ancillary thereto
5.2 Maintenance of Property. Borrower shall keep all property useful and
necessary to its business in good working order and condition (ordinary wear and
tear excepted).
5.3 Affiliate Transactions. Borrower shall conduct transactions with any of
its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are approved by the board of directors of Borrower.
5.4 Taxes. Borrower shall pay when due (i) all tax assessments, and other
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax assessment, charge, levy or
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings diligently
conducted and an adequate reserve or other appropriate provision shall have been
made therefor as required in accordance with GAAP.
5.5 Requirements of Law. Borrower shall comply with all Requirements of Law
applicable to it, including, without limitation, all applicable Federal, State,
local or foreign laws and regulations, including, without limitation, those
relating to environmental matters, employee matters, the Employee Retirement
Income Security Act of 1974, and the collection, payment and deposit of
employees' income, unemployment and social security taxes, provided that
Borrower shall not be deemed in violation hereof if Borrower's failure to comply
with any of the foregoing would not require more than* $50,000 to cure the same.
* $100,000
5.6 Insurance. Borrower shall maintain public liability insurance, business
interruption insurance, third party property damage insurance and replacement
value insurance on its assets (including the Collateral) under such policies of
insurance, with such insurance companies, in such amounts and covering such
risks as are at all times satisfactory to TBCC in its commercially reasonable
judgment, all of which policies covering the Collateral shall name TBCC as an
additional insured and lender loss payee in case of loss, and contain other
provisions as TBCC may reasonably require to protect fully TBCC's interest in
the Collateral and any payments to be made under such policies.
5.7 Books and Records; Inspections. Borrower shall (i) maintain books and
records (including computer records) pertaining to the Collateral in such
detail, form and scope as is consistent with good business practice and (ii)
provide TBCC and its agents access to the premises of Borrower at any time and
from time to time, during normal business hours and upon reasonable notice under
the circumstances, and at any time on and after the occurrence of a Default or
Event of Default, for the purposes of (A) inspecting and verifying the
Collateral, (B) inspecting
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and copying (at Borrower's expense) any and all records pertaining thereto, and
(C) discussing the affairs, finances and business of Borrower with any officer,
employee or director of Borrower or with the Auditors. Borrower shall reimburse
TBCC for the reasonable travel and related expenses of TBCC's employees or, at
TBCC's option, of such outside accountants or examiners as may be retained by
TBCC to verify or inspect Collateral, records or documents of Borrower on a
regular basis or for a special inspection if TBCC deems the same appropriate. If
TBCC's own employees are used, Borrower shall also pay therefor $600 per person
per day (or such other amount as shall represent TBCC's then current standard
charge for the same), or, if outside examiners or accountants are used, Borrower
shall also pay TBCC such* sum as TBCC may be obligated to pay as fees
therefor**.
* reasonable
**, provided, however, that unless a Default or Event of Default has
occurred and is continuing, Borrower's obligation to reimburse TBCC for expenses
incurred pursuant to this Section 5.7 shall be limited to a maximum of $10,000
during any period of 12 consecutive months
5.8 Notification Requirements. Borrower shall give TBCC the following
notices and other documents:
(a) Notice of Defaults. Borrower shall give TBCC written notice of any
Default or Event of Default within two Business Days after becoming aware
of the same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written
notice of any of the following, promptly, and in any event within five
Business Days after Borrower becomes aware of any of the following: (i) any
proceeding being instituted or threatened by or against it in any federal,
state, local or foreign court or before any commission or other regulatory
body involving a sum, together with the sum involved in all other similar
proceedings, in excess of* in the aggregate, (ii) any order, judgment or
decree being entered against Borrower or any of its properties or assets
involving a sum, together with the sum of all other orders, judgments or
decrees, in excess of** in the aggregate, and (iii) any actual or
prospective change, development or event which has had or could reasonably
be expected to have a Material Adverse Effect.
* $100,000
** $75,000
(c) Change of Name or Chief Executive Office; Opening Additional
Places of Business. Borrower shall give TBCC at least* days prior written
notice of any change of Borrower's corporate name or its chief executive
office or of the opening of any additional place of business**.
* 7
** where Inventory or Equipment with an aggregate value of more than
$50,000 will be located.
(d) Casualty Loss. Borrower shall (i) provide written notice to TBCC,
within ten Business Days, of any material damage to, the destruction of or
any other material loss to any asset or property owned or used by Borrower
other than any such asset or property with a net book value (individually
or in the aggregate) less than* or any condemnation, confiscation or other
taking, in whole or in part, or any event that otherwise diminishes so as
to render impracticable or unreasonable the use of such asset or property
owned or used by Borrower together with the amount of the damage,
destruction, loss or diminution in value and (ii) diligently file and
prosecute its claim or claims for any award or payment in connection with
any of the foregoing.
* $50,000
(e) Intellectual Property. Borrower shall promptly give TBCC written
notice of any copyright registration made by it, any rights Borrower may
obtain to any copyrightable works, new trademarks or any new patentable
inventions, and of any renewal or extension of any trademark registration,
or if it shall otherwise become entitled to the benefit of any patent or
patent application or trademark or trademark application.
(f) Deposit Accounts and Security Accounts. Borrower shall promptly
give TBCC written notice of the opening of any new bank account or other
deposit account, and any new securities account.
5.9 Qualify to Transact Business. Borrower shall qualify to transact
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would have
a Material Adverse Effect.
5.10 Financial Reporting. Borrower shall timely deliver to TBCC the
following financial information: the information set forth in the Schedule, and,
when requested by TBCC in its good-faith judgment, any further information
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they may have with respect to Borrower and its
business and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11 Payment of Liabilities. Borrower shall pay and discharge, in the
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
5.12 Patents, Trademarks, Etc. Borrower shall do and cause to be done all
things necessary to preserve, maintain and keep in full force and effect all of
its
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registrations of trademarks, service marks and other marks, trade names and
other trade rights, patents, copyrights and other intellectual property in
accordance with prudent business practices.
5.13 Proceeds of Collateral. Without limiting any of the other terms of
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of any
Collateral*,** upon receipt of the same*** and in the same form as received,
with any necessary endorsements, and Borrower will not commingle any such
proceeds with any of its other funds or property, but will segregate them from
the other assets of Borrower and will hold them in trust and for the account and
as the property of TBCC.
* (other than (provided no Default or Event of Default has occurred and is
continuing) proceeds deriving from transactions in the ordinary course of
business)
** promptly
*** (and in any event within one Business Day of such receipt)
5.14 Solvency. Borrower shall be Solvent at all times.
6. Negative Covenants. Until termination of this Agreement and payment and
satisfaction of all Obligations:
6.1 Contingent Obligations. Borrower will not, directly or indirectly,
incur, assume, or suffer to exist any Contingent Obligation, excluding
indemnities given in connection with this Agreement or the other Loan Documents
in favor of TBCC or in connection with the sale of Inventory or other asset
dispositions permitted hereunder.
6.2 Corporate Changes. Borrower will not, directly or indirectly, merge or
consolidate with any Person, or liquidate or dissolve (or suffer any liquidation
or dissolution).
6.3 Change in Nature of Business. Borrower will not at any time make any
material change in the lines of its business as carried on at the date of this
Agreement or enter into any new line of business*.
* not closely related or ancillary to the lines of Business of Borrower on
the date hereof
6.4 Sales of Assets. Borrower will not, directly or indirectly, in any
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less than $25,000 the proceeds of which
shall be paid to TBCC and applied to the Obligations*, (ii) sales of Inventory
in the ordinary course of business and (iii) licenses or sublicenses on a
non-exclusive basis of intellectual property in the ordinary course of
Borrower's business.
* (provided, however, that the foregoing limit shall be $50,000 in the case
of Equipment that is obsolete or no longer useful in Borrower's business)
6.5 Cancellation of Debt. Borrower will not cancel any claim or debt owed
to it, except in the ordinary course of business.
6.6 Loans to Other Persons. Borrower will not at any time make loans or
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of* in the aggregate at any time for all such loans.
* $50,000
6.7 Liens. Borrower will not, directly or indirectly, at any time create,
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than: Liens created hereunder and by any other Loan Document;
and Permitted Liens.
6.8 Dividends, Stock Redemptions. Borrower will not, directly or
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capital stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding
("Stock"), or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower.
6.9 Investments in Other Persons. *Borrower will not, directly or
indirectly, at any time make or hold any Investment in any Person (whether in
cash, securities or other property of any kind) other than Investments in Cash
Equivalents.
*Except as permitted by Section 6.6 hereof,
6.10 Partnerships; Subsidiaries; Joint Ventures; Management Contracts.
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint venture or similar arrangement or become a partner in any general
or limited partnership or enter into any management contract (other than an
employment contract for the employment of an officer or employee entered into in
the regular course of Borrower's business) permitting third party management
rights with respect to Borrower's business.
6.11 Fiscal Year. Borrower will not change its fiscal year.
6.12 Accounting Changes. Borrower will not at any time make or permit any
change in accounting policies or reporting practices, except as required by
GAAP.
6.13 Broker's or Finder's Fees. Borrower will not pay or incur any broker's
or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14 (Reserved.)
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6.15 Amendments of Material Contracts. Borrower will not amend, modify,
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination* have a Material Adverse Effect.
* would be reasonably likely to
6.16 Sale and Leaseback Obligations. Borrower will not at any time create,
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17 Acquisition of Stock or Assets. Borrower will not acquire or commit or
agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business.
7. EVENTS OF DEFAULT.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default":
(a) Borrower shall fail to pay any principal, interest, fees, expenses
or other Obligations when payable, whether at stated maturity, by
acceleration, or otherwise; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision or term contained in Section 1.1,
1.2, 1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of
this Agreement, or Borrower shall fail to perform any non-monetary
Obligation which by its nature cannot be cured; or
(c) Borrower shall default in the performance or observance of any
other agreement, covenant, condition, provision or term of this Agreement
(other than those referred to in Section 7.1(a) above or Section 7.1(b)
above) or any other Loan Document, and such failure continues uncured for a
period of* Business Days after the date it occurs; or
* seven
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise
cease to conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an
Insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event or (ii) an Insolvency Event as set forth in clause (e) of
the definition of Insolvency Event that is not dismissed within sixty days;
or
(f) any representation or warranty made by or on behalf of Borrower or
any Guarantor to TBCC, under this Agreement or otherwise, shall be
incorrect or misleading in any material respect when made or deemed made;
or
(g) A change in the ownership or control of more than 20% of the
voting stock of the Borrower compared to such ownership on the date of this
Agreement;
(h) any judgment or order for the payment of money shall be rendered
against Borrower* and shall not be stayed, vacated, bonded or discharged
within thirty days; or
* in an amount in excess of $100,000
(i) any defined "Event of Default" shall occur under any other Loan
Document; or Borrower or any Guarantor shall deny or disaffirm its
obligations under any of the Loan Documents or any Liens granted in
connection therewith or shall otherwise challenge any of its obligations
under any of the Loan Documents; or any Liens granted in any of the
Collateral shall be determined to be void, voidable or invalid, are
subordinated or are not given the priority contemplated by this Agreement;
or
(j) any Loan Document shall for any reason cease to create a valid and
perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens*); or
* and except with respect to Excluded Collateral, as defined in Section
1.8(c) above
(k) the Auditors for Borrower shall deliver a Qualified opinion on any
Financial Statement; or
(l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness
owing to TBCC under any other agreement with TBCC or note or instrument in
favor of TBCC, when due (whether at scheduled maturity or by required
prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be
in breach of or default in any of its obligations under any such agreement,
note or instrument with respect to any such Indebtedness; or
(m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness
in excess of* owing to any Person other than TBCC or any interest or
premium thereon, when due (whether at scheduled maturity or by required
prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be
in breach or default in any of its obligations under any agreement with
respect to any such Indebtedness, if the effect of such breach, default or
failure to pay is to cause such Indebtedness to become due or redeemed or
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to declare such Indebtedness due or
require such Indebtedness to be redeemed prior to its stated maturity; or
* $75,000
(n) the occurrence of any event or condition that, in TBCC's judgment,
could reasonably be expected to have a Material Adverse Effect.
TBCC may cease making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2 Remedies. Upon the occurrence and during the continuance of an
Event of Default, TBCC shall have all rights and remedies under applicable
law and the Loan Documents, and TBCC may do any or all of the following:
(a) Declare all Obligations to be immediately due and payable
(except with respect to any Event of Default with respect to Borrower
set forth in Section 7.1(e), in which case all Obligations shall
automatically become
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immediately due and payable) without presentment, demand, protest or
any other action or obligation of TBCC;
(b) Cease making any Loans or other extensions of credit to
Borrower of any kind;
(c) Take possession of all documents, instruments, files and
records (including the copying of any computer records) relating to
the Receivables or other Collateral and use (at the expense of
Borrower) such supplies or space of Borrower at Borrower's places of
business necessary to administer and collect the Receivables and other
Collateral;
(d) Accelerate or extend the time of payment, compromise, issue
credits, or bring suit on the Receivables and other Collateral (in the
name of Borrower or TBCC) and otherwise administer and collect the
Receivables and other Collateral;
(e) Collect, receive, dispose of and realize upon any Investment
Property, including withdrawal of any and all funds from any
securities accounts;
(f) Sell, assign and deliver the Receivables and other
Collateral, with or without advertisement, at public or private sale,
for cash, on credit or otherwise, subject to applicable law; and
(g) Foreclose on the security interests created pursuant to the
Loan Documents by any available procedure, take possession of any or
all of the Collateral, with or without judicial process and enter any
premises where any Collateral may be located for the purpose of taking
possession of or removing the same.
(h) TBCC may bid or become a purchaser at any sale, free from any
right of redemption, which right is expressly waived by Borrower, if
permitted under applicable law. If notice of intended disposition of
any Collateral is required by law, it is agreed that ten days' notice
shall constitute reasonable notification. Borrower will assemble the
Collateral and make it available at such locations as TBCC may
specify, whether at the premises of Borrower or elsewhere, and will
make available to TBCC the premises and facilities of Borrower for the
purpose of TBCC's taking possession of or removing the Collateral or
putting the Collateral in salable form.
(i) Borrower recognizes that TBCC may be unable to make a public
sale of any or all of the Investment Property, by reason of
prohibitions contained in applicable securities laws or otherwise, and
expressly agrees that a private sale to a restricted group of
purchasers for investment and not with a view to any distribution
thereof shall be considered a commercially reasonable sale.
7.3 Receivables. Upon the occurrence and during the continuance of an Event
of Default, or at any time that TBCC believes in good faith that fraud has
occurred or that Borrower has failed to deliver the proceeds of Receivables or
other Collateral to TBCC as required by this Agreement or any other Loan
Document, TBCC may (i) settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which it considers advisable, and (ii) notify
account debtors on the Receivables and other Collateral that the Receivables and
Collateral have been assigned to TBCC, and that payments in respect thereof
shall be made directly to TBCC. If an Event of Default has occurred and is
continuing or TBCC reasonably believes in good faith that fraud has occurred, or
that Borrower has failed to deliver the proceeds of Receivables or other
Collateral to TBCC as required by this Agreement or any other Loan Document,
Borrower hereby irrevocably authorizes and appoints TBCC, or any Person TBCC may
designate, as its attorney-in-fact, at Borrower's sole cost and expense, to
exercise, all of the following powers, which are coupled with an interest and
are irrevocable, until all of the Obligations have been indefeasibly paid and
satisfied in full in cash: (A) to receive, take, endorse, sign, assign and
deliver, all in the name of TBCC or Borrower, any and all checks, notes, drafts,
and other documents or instruments relating to the Collateral; (B) to receive,
open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as TBCC
may designate; and (C) to take or bring, in the name of TBCC or Borrower, all
steps, actions, suits or proceedings deemed by TBCC necessary or desirable to
enforce or effect collection of Receivables and other Collateral or file and
sign Borrower's name on a proof of claim in bankruptcy or similar document
against any obligor of Borrower.
7.4 Right of Setoff. In addition to all rights of offset that TBCC may have
under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the Obligations
of Borrower have matured, TBCC shall have the right to appropriate and apply to
the payment of the Obligations of Borrower all deposits and other obligations
then or thereafter owing by TBCC to or for the credit or the account of
Borrower. In the event that TBCC exercises any of its rights under this Section,
TBCC shall provide notice to Borrower of such exercise, provided that the
failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5 License for Use of Software and Other Intellectual Property. After the
occurrence and during the continuance of an Event of Default, unless expressly
prohibited by any licensor thereof, TBCC is hereby granted a license to use all
computer software programs, data bases, processes, trademarks, tradenames and
materials used by Borrower in connection with its businesses or in connection
with the Collateral.
7.6 No Marshalling; Deficiencies; Remedies Cumulative. The net cash
proceeds resulting from TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
discretion, whether due or to become due. Borrower shall remain liable to TBCC
for any deficiencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any of them shall not preclude the full or
partial exercise of any other available remedy under this Agreement, under any
other Loan Document, at equity or at law.
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7.7 Waivers. Borrower hereby waives any bonds, security or sureties
required by any statute, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights under
this Agreement or any other Loan Document including the taking of possession of
any Collateral or the giving of notice to any account debtor or the collection
of any Receivable or other Collateral (other than damages that are the result of
acts or omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in this Agreement and the other
Loan Documents have been negotiated by the parties and Borrower acknowledges
that it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder.
7.8 Right to Make Payments. In the event that Borrower shall fail to
purchase or maintain insurance required hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permitted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
hereunder or under any other Loan Document, TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
8.1 Assignments. Borrower shall not assign this Agreement or any right or
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a portion of its
rights and obligations under this Agreement and the other Loan Documents*.
* provided, however, that unless a Default or Event of Default has occurred
and is continuing, TBCC shall not assign any of its rights or obligations under
this Agreement to a competitor of Borrower or to any subsidiary or affiliate of
any such competitor
8.2 Participations. TBCC may sell participations in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loans); provided, however, that TBCC's
obligations under this Agreement shall remain unchanged.
8.3 Disclosure. TBCC may, in connection with any permitted assignment or
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower.
9. DEFINITIONS.
9.1 General Definitions. As used herein, the following terms shall have the
meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
(a) "Affiliate" means as to any Person, any other Person who directly
or indirectly controls, is under common control with, is controlled by or
is a director or officer of such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and "under
common control with") means possession, directly or indirectly, of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities or partnership or other ownership
interests, by contract or otherwise), provided that, in any event, any
Person who owns directly or indirectly twenty percent (20%) or more of the
securities having ordinary voting power for the election of the members of
the board of directors or other governing body of a corporation or twenty
percent (20%) or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person)
will be deemed to control such corporation, partnership or other Person.
(b) "Agreement" means this Loan and Security Agreement, as amended,
supplemented or otherwise modified from time to time.
(c) "Auditors" means a nationally recognized firm of independent
public accountants selected by Borrower and reasonably satisfactory to
TBCC*.
*, provided that Ernst & Young LLP is deemed to be reasonably satisfactory
to TBCC
(d) "Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy," as that title may be amended from time to time, or
any successor statute.
(e) "Borrowing" means a borrowing of Loans.
(f) "Business Day" means any day other than a Saturday, Sunday or any
other day on which commercial banks in Chicago, Illinois are required or
permitted by law to close.
(g) "Cash Equivalents" means (i) securities issued, guaranteed or
insured by the United States or any of its agencies with maturities of not
more than one year from the date acquired; (ii) certificates of deposit
with maturities of not more than one year from the date acquired, issued by
any U.S. federal or state chartered commercial bank of recognized standing
which has capital and unimpaired surplus in excess of $100,000,000; (iii)
investments in money market funds registered under the Investment Company
Act of 1940; and (iv) other instruments, commercial paper or investments
acceptable to TBCC in its sole discretion.
(h) "Collateral" means Receivables, Investment Property, Inventory,
Equipment, and Other Property, and all additions and accessions thereto and
substitutions and replacements therefor and improvements thereon, and all
proceeds (whether cash or other property) and products thereof, including,
without limitation, all proceeds of insurance covering the same and all
tort claims in connection therewith, and all records, files, computer
programs and files, data and writings relating to the foregoing, and all
equipment containing the foregoing.*
* Notwithstanding the foregoing, the term "Collateral" shall not include
any Receivables or
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general intangibles (whether owned or held as licensee or lessee, or
otherwise), to the extent that (i) such Receivables or general intangibles
are not assignable or capable of being encumbered as a matter of law or
under the terms of the license or lease applicable thereto (but solely to
the extent that any such restriction shall be enforceable under applicable
law against an assignee), without the consent of the licensor or lessor
thereof and (ii) such consent has not been obtained; provided, however,
that the term "Collateral" shall include (A) any and all proceeds of any
Receivables or general intangibles which are otherwise excluded to the
extent that the assignment or encumbrance of such proceeds is not so
restricted, including under Section 9-318 of the Uniform Commercial Code,
and (B) upon obtaining the consent of any such licensor, lessor or other
applicable party with respect to any such otherwise excluded Receivables or
general intangibles, such Receivables or general intangibles as well as any
and all proceeds thereof that might have been excluded from the term
"Collateral."
(i) "Collections" means all cash, funds, checks, notes, instruments,
any other form of remittance tendered by account debtors in respect of
payment of Receivables and any other payments received by Borrower with
respect to any other Collateral.
(j) "Compliance Certificate" means a certificate as to compliance with
the Obligations, on TBCC's standard form (in effect from time to time).
(k) "Contingent Obligation" means any direct, indirect, contingent or
non-contingent guaranty or obligation for the Indebtedness of another
Person, except endorsements in the ordinary course of business.
(l) "Default" means any of the events specified in Section 7.1,
whether or not any of the requirements for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
(m) "Eligible Inventory" means Inventory of Borrower which TBCC in its
sole discretion deems eligible for borrowing, based on such considerations
as TBCC in its sole discretion may deem appropriate from time to time and
less any such reserves as TBCC, in its sole discretion, may require.
Without limiting the fact that the determination of which Inventory is
eligible for borrowing is a matter of TBCC's sole discretion, the following
are the minimum requirements for Inventory to be Eligible Inventory: (i)
the Inventory must consist of finished goods, in good, new and salable
condition which is not perishable, not obsolete or unmerchantable, and is
not comprised of raw materials, work in process, packaging materials or
supplies; (iii) the Inventory must meet all applicable governmental
standards; (iv) the Inventory must have been manufactured in compliance
with the Fair Labor Standards Act; (v) the Inventory must conform in all
respects to the warranties and representations set forth in this Agreement;
(vi) the Inventory must at all times be subject to TBCC's duly perfected,
first priority security interest; and (vii) the Inventory must be in
Borrower's exclusive possession, separately identifiable from goods of
others, and situated at Borrower's chief executive office or at one of the
other Borrower locations set forth on the Schedule. The value of Eligible
Inventory shall be computed at the lower of cost (computed on a "first in,
first out" basis) or wholesale market value.
(n) "Eligible Receivables" means and includes only those Receivables
which TBCC in its sole discretion deems eligible for borrowing, based on
such considerations as TBCC in its sole discretion may deem appropriate
from time to time and less any such reserves as TBCC, in its sole
discretion, may require. Without limiting the fact that the determination
of which Receivables are eligible for borrowing is a matter of TBCC's sole
discretion, the following (the "Minimum Eligibility Requirements") are the
minimum requirements for a Receivable to be an Eligible Receivable: (i) the
Receivable must not be outstanding for more than 90 days from its invoice
date, (ii) the Receivable must not represent progress billings, or be due
under a fulfillment or requirements contract with the account debtor, (iii)
the Receivable must not be subject to any contingencies (including
Receivables arising from sales on consignment, guaranteed sale or other
terms pursuant to which payment by the account debtor may be conditional),
(iv) the Receivable must not be owing from an account debtor with whom the
Borrower has any dispute (whether or not relating to the particular
Receivable), (v) the Receivable must not be owing from an Affiliate of
Borrower, (vi) the Receivable must not be owing from an account debtor
which is subject to any insolvency or bankruptcy proceeding, or whose
financial condition is not acceptable to TBCC, or which, fails or goes out
of a material portion of its business, (vii) the Receivable must not be
owing from the United States or any department, agency or instrumentality
thereof (unless there has been compliance, to TBCC's satisfaction, with the
United States Assignment of Claims Act), (viii) the Receivable must not be
owing from an account debtor located outside the United States or Canada
(unless pre-approved by TBCC in its discretion in writing, or backed by a
letter of credit satisfactory to TBCC, or FCIA insured satisfactory to
TBCC), (ix) the Receivable must not be owing from an account debtor to whom
Borrower is or may be liable for goods purchased from such account debtor
or otherwise, (x) the Receivable must not violate any representation or
warranty set forth in this Agreement, and (xi) the Receivable must not be
one in which TBCC does not have a first-priority, valid, perfected Lien.
Without limiting the generality of the foregoing, Borrower must be in
compliance with all requirements of the Loan Documents regarding
registration with the U.S. Copyright Office of any copyrightable software
in order for any Receivable arising from any licensing of such software to
constitute an Eligible Receivable hereunder. Receivables owing from one
account debtor will not be deemed Eligible Receivables to the extent they
exceed 30% of the total eligible Receivables outstanding. In addition, if
more than 50% of the Receivables owing from an account debtor are
outstanding more than 90 days from their invoice date (without regard to
unapplied credits) or are otherwise not eligible Receivables, then all
Receivables owing from that account debtor will be deemed ineligible for
borrowing. TBCC may, from time to time, in its sole discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
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(o) "Equipment" means all machinery, equipment, furniture, fixtures,
conveyors, tools, materials, storage and handling equipment, hydraulic
presses, cutting equipment, computer equipment and hardware, including
central processing units, terminals, drives, memory units, printers,
keyboards, screens, peripherals and input or output devices, molds, dies,
stamps, vehicles, and other equipment of every kind and nature and wherever
situated now or hereafter owned by Borrower or in which Borrower may have
any interest as lessee or otherwise (to the extent of such interest),
together with all additions and accessions thereto, all replacements and
all accessories and parts therefor, all manuals, blueprints, know-how,
warranties and records in connection therewith, all rights against
suppliers, warrantors, manufacturers, sellers or others in connection
therewith, and together with all substitutes for any of the foregoing.
(p) "Event of Default" means the occurrence of any of the events
specified in Section 7.1.
(q) "Financial Statements" means the balance sheets, profit and loss
statements, statements of cash flow, and statements of changes in
intercompany accounts, if any, for the period specified, prepared in
accordance with GAAP and consistent with prior practices.
(r) "GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are
applicable to the circumstances as of the date of determination. Whenever
any accounting term is used herein which is not otherwise defined, it shall
be interpreted in accordance with GAAP.
(s) "Good Faith" means "good faith" as defined in the Uniform
Commercial Code, from time to time in effect in the State of Illinois.
(t) "Governing Documents" means the articles or certificate of
incorporation and by-laws of Borrower.
(u) "Governmental Authority" means any nation or government, any state
or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
(v) "Guarantor" means any present or future guarantor of any or all of
the Obligations.
(w) "Indebtedness" means, with respect to any Person, as of the date
of determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and
Contingent Obligations).
(x) "Insolvency Event" means, with respect to any Person, the
occurrence of any of the following: (a) such Person shall be adjudicated
insolvent or bankrupt, or shall generally fail to pay or admit in writing
its inability to pay its debts as they become due, (b) such Person shall
seek dissolution or reorganization or the appointment of a receiver,
trustee, custodian or liquidator for it or a substantial portion of its
property, assets or business or to effect a plan or other arrangement with
its creditors, (c) such Person shall make a general assignment for the
benefit of its creditors, or consent to or acquiesce in the appointment of
a receiver, trustee, custodian or liquidator for a substantial portion of
its property, assets or business, (d) such Person shall file a voluntary
petition under any bankruptcy, insolvency or similar law or take any
corporate or similar act in furtherance thereof, or (e) such Person, or a
substantial portion of its property, assets or business shall become the
subject of an involuntary proceeding or petition for its dissolution,
reorganization, and such proceeding is not dismissed or stayed within sixty
days, or the appointment of a receiver, trustee, custodian or liquidator,
and such receiver is not dismissed within sixty days.
(y) "Inventory" means all present and future goods intended for sale,
lease or other disposition by Borrower* including, without limitation, all
raw materials, work in process, finished goods and other retail inventory,
goods in the possession of outside processors or other third parties, goods
consigned to Borrower to the extent of its interest therein as consignee,
materials and supplies of any kind, nature or description which are or
might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of any such goods, and all documents of
title or documents representing the same.
* in the ordinary course of business
(z) "Investment" in any Person means, as of the date of determination
thereof, any payment or contribution, or commitment to make a payment or
contribution, by any Person including, without limitation, property
contributed or committed to be contributed by any Person, on its account
for or in connection with its acquisition of any stock, bonds, notes,
debentures, partnership or other ownership interest or any other security
of the Person in whom such Investment is made or any evidence of
indebtedness by reason of a loan, advance, extension of credit, guaranty or
other similar obligation for any debt, liability or indebtedness of such
Person in whom the Investment is made.
(aa) "Investment Property" means any and all investment property of
Borrower, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and
commodity accounts, and all financial assets held in any securities account
or otherwise, wherever located, and whether now existing or hereafter
acquired or arising.
(bb) "Lien" means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, lease, conditional
sale, retention of title or other preferential arrangement having
substantially the same economic effect as any of the foregoing, whether
voluntary or imposed by law.
(cc) "Loan Account" has the meaning specified in Section 1.3.
(dd) "Loan Documents" means this Agreement and all present and future
documents and instruments delivered or to be delivered by Borrower or any
of its Affiliates or any Guarantor under, in connection with or relating to
this Agreement, or any other present or future instrument or agreement
between TBCC and Borrower, as
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each of the same may be amended, supplemented or otherwise modified from
time to time.
(ee) "Loans" means the loans and financial accommodations made by TBCC
hereunder.
(ff) "Material Adverse Effect" means (i) a material adverse effect on
the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower*, (ii) the
impairment of Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of TBCC to enforce the Obligations or
realize upon the Collateral or (iii) a material adverse effect on the value
of the Collateral or the amount which TBCC would be likely to receive
(after giving consideration to delays in payment and costs of enforcement)
in the liquidation of the Collateral.
* alone, or of Borrower and its Subsidiaries on a consolidated basis
(gg) "Material Contract" means any contract or other arrangement to
which Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could* have a Material
Adverse Effect.
* reasonably be expected to
(hh) "Obligations" means and includes all loans (including the Loans),
advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether or not arising
under or in connection with this Agreement, any other Loan Document or any
other present or future instrument or agreement, whether or not for the
payment of money, whether arising by reason of an extension of credit,
opening, guaranteeing or confirming of a letter of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect
(including those acquired by assignment, purchase, discount or otherwise),
whether absolute or contingent, due or to become due, now due or hereafter
arising and however acquired (including without limitation all loans
previously made by TBCC to Borrower). The term includes, without
limitation, all interest (including interest accruing on or after an
Insolvency Event, whether or not an allowed claim), charges, expenses,
commitment, facility, closing and collateral management fees, letter of
credit fees, reasonable attorneys' fees, and any other sum properly
chargeable to Borrower under this Agreement, the other Loan Documents or
any other present or future agreement between TBCC and Borrower.
(ii) "Other Property" means all present and future: instruments,
documents, documents of title, securities, bonds, notes, promissory notes,
drafts, acceptances, letters of credit and rights to receive proceeds of
letters of credit, deposit accounts, chattel paper, certificates, insurance
policies, insurance proceeds, leases, computer tapes, causes of action,
judgments, claims against third parties, leasehold rights in any personal
property, books, ledgers, files and records, general intangibles (including
without limitation, all contract rights, tax refunds, rights to receive tax
refunds, patents, patent applications, copyrights (registered and
unregistered), royalties, licenses, permits, franchise rights,
authorizations, customer lists, rights of indemnification, contribution and
subrogation, computer programs, discs and software, trade secrets, computer
service contracts, trademarks, trade names, service marks and names, logos,
goodwill, deposits, choses in action, designs, blueprints, plans, know-how,
telephone numbers and rights thereto, credits, reserves, and all forms of
obligations whatsoever now or hereafter owing to Borrower), all property at
any time in the possession or under the control of TBCC, and all security
given by Borrower to TBCC pursuant to any other Loan Document or agreement.
(jj) "Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced and be continuing: (i) Liens for taxes, assessments and
other governmental charges or levies or the claims or demands of landlords,
carriers, warehousemen, mechanics, laborers, materialmen and other like
Persons arising by operation of law in the ordinary course of business for
sums which are not yet due and payable, (ii) deposits or pledges to secure
the payment of workmen's compensation, unemployment insurance or other
social security benefits or obligations, public or statutory obligations,
surety or appeal bonds, bid or performance bonds, or other obligations of a
like nature incurred in the ordinary course of business (but nothing in
this clause (ii) shall permit the creation of Liens on Receivables,
Investment Property, Inventory or Other Property), (iii) zoning
restrictions, easements, encroachments, licenses, restrictions or covenants
on the use of the Property which do not materially impair either the use of
the Property in the operation of the business of Borrower or the value of
the Property, (iv) rights of general application reserved to or vested in
any municipality or other governmental, statutory or public authority to
control or regulate property, or to use property in a manner which does not
materially impair the use of the property for the purposes for which it is
held by Borrower, (v) state and municipal Liens for personal property taxes
which are not yet due and payable, (vi) Purchase Money Liens*.
*, (vii) Liens on personal property leased by Borrower or any of its
Subsidiaries pursuant to an operating or capital lease in the ordinary course of
business (including proceeds thereof and accessions thereto) incurred solely for
the purpose of financing the lease of such property; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payments of
customs duties in connection with the importation of goods; and (ix) Liens
(existing and disclosed to TBCC on or prior to the date hereof) in favor of
depository institutions and securities intermediaries constituting rights of
set-off of a customary nature or bankers' or brokers' Liens with respect to
amounts or investment property on deposit, whether arising by operation of law
or by contract, in connection with arrangements entered into with banks and
securities intermediaries in the ordinary course of business
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(kk) "Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated
organization, joint stock company, association, corporation, institution,
entity, party or government (including any division, agency or department
thereof) or any other legal entity, whether acting in an individual,
fiduciary or other capacity, and, as applicable, the successors, heirs and
assigns of each.
(ll) "Plan" means any employee benefit plan, program or arrangement
maintained or contributed to by Borrower or with respect to which it may
incur liability.
(mm) "Purchase Money Lien" means a Lien on any item of Equipment
created substantially simultaneously with the acquisition of such Equipment
for the purpose of financing such acquisition, provided that such Lien
shall attach only to the Equipment acquired.
(nn) "Qualification" or "Qualified" means, with respect to any report
of Auditors covering Financial Statements, a material qualification to such
report (i) resulting from a limitation on the scope of examination of such
Financial Statements or the underlying data, (ii) as to the capability of
Borrower to continue operations as a going concern or (iii) which could be
eliminated by changes in Financial Statements or notes thereto covered by
such report (such as by the creation of or increase in a reserve or a
decrease in the carrying value of assets) and which if so eliminated by the
making of any such change and after giving effect thereto would result in a
Default or an Event of Default.
(oo) "Receivables" means all present and future accounts and accounts
receivable, together with all security therefor and guaranties thereof and
all rights and remedies relating thereto, including any right of stoppage
in transit.
(pp) "Requirement of Law" means (a) the Governing Documents, (b) any
law, treaty, rule, regulation, order or determination of an arbitrator,
court or other Governmental Authority or (c) any franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way,
right or approval binding on Borrower or any of its property.
(qq) "Schedule" means the Schedule to this Agreement being signed
concurrently by Borrower and TBCC, as amended from time to time.
(rr) "Solvent" means when used with respect to any Person that as of
the date as to which such Person's solvency is to be measured: (a) the fair
salable value of its assets is in excess of the total amount of its
liabilities (including contingent liabilities as valued in accordance with
applicable law) as they become absolute and matured; (b) it has sufficient
capital to conduct its business; and (c) it is able to meet its debts as
they mature.
(ss) "Subsidiary" means, as to any Person, a corporation or other
entity in which that Person directly or indirectly owns or controls shares
of stock or other ownership interests having ordinary voting power to elect
a majority of the board of directors or appoint other managers of such
corporation or other entity.
9.2 Accounting Terms and Determinations. Unless otherwise defined or
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to TBCC on or before the date of this
Agreement. All accounting determinations for purposes of determining compliance
with this Agreement shall be made in accordance with GAAP as in effect on the
date of this Agreement and applied on a basis consistent in all material
respects with the audited Financial Statements delivered to TBCC on or before
the date of this Agreement. The Financial Statements required to be delivered
hereunder, and all financial records, shall be maintained in accordance with
GAAP. If GAAP shall change from the basis used in preparing the audited
Financial Statements delivered to TBCC on or before the date of this Agreement,
the Compliance Certificates required to be delivered pursuant to this Agreement
shall include calculations setting forth the adjustments necessary to
demonstrate how Borrower is in compliance with the Financial Covenants (if any)
based upon GAAP as in effect on the date of this Agreement.
9.3 Other Terms; Headings; Construction. Unless otherwise defined herein,
terms used herein that are defined in the Uniform Commercial Code, from time to
time in effect in the State of Illinois, shall have the meanings set forth
therein. Each of the words "hereof," "herein," and "hereunder" refer to this
Agreement as a whole. The term "including", whenever used in this Agreement,
shall mean "including (but not limited to)". An Event of Default shall
"continue" or be "continuing" unless and until such Event of Default has been
waived or cured within the grace period specified therefor under Section 7.1.
References to Articles, Sections, Annexes, Schedules, and Exhibits are internal
references to this Agreement, and to its attachments, unless otherwise
specified. The headings and any Table of Contents are for convenience only and
shall not affect the meaning or construction of any provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against TBCC or Borrower under any rule of construction or
otherwise.
10. GENERAL PROVISIONS.
10.1 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2 SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND
TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED
ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
-16-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD
FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
10.3 SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF TBCC TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4 LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER
(WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON TBCC THAT THE
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS AGAINST
TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.5 Delays; Partial Exercise of Remedies. No delay or omission of TBCC to
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof. No single or partial exercise by TBCC of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
10.6 Notices. Except as otherwise provided herein, all notices and
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7 Indemnification; Reimbursement of Expenses of Collection. Borrower
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
shareholders, attorneys and Affiliates (each, an "Indemnified Party") from and
against any and all losses, claims, damages, liabilities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
Claim is determined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investigation, claim or proceeding which arises out of or is related
to (A) Borrower, or this Agreement, any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by Borrower of
the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any
other Loan Document or any other agreements and documents relating hereto,
including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding, (ii) any remedial or other
action taken by Borrower in connection with compliance by Borrower, or any of
its properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director of Borrower or any actual or
purported violation of Borrower's charter, by-laws or any other agreement or
instrument to which Borrower is a party or by which any of its properties is
bound. In addition and without limiting the generality of the foregoing,
Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses
incurred by TBCC (including the reasonable fees and disbursements of counsel and
other professionals) in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and pay to
TBCC all reasonable costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by TBCC in
order to enforce or defend any of its rights under or in respect of this
Agreement, any other Loan Document or any other document or instrument now or
hereafter executed and delivered in connection herewith, collect the
-17-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
Obligations or otherwise administer this Agreement, foreclose or otherwise
realize upon the Collateral or any part thereof, prosecute actions against, or
defend actions by, account debtors; commence, intervene in, or defend any action
or proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce TBCC's security interest in, the Collateral;
and otherwise represent TBCC in any litigation relating to Borrower. Without
limiting the generality of the foregoing, Borrower shall pay TBCC a fee with
respect to each wire transfer in the amount of $15 plus all bank charges and a
fee of $15 for all returned checks plus all bank charges. If either TBCC or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. If and to the extent that the
Obligations of Borrower hereunder are unenforceable for any reason, Borrower
hereby agrees to make the maximum contribution to the payment and satisfaction
of the Obligations which is permissible under applicable law. Borrower's
obligations under Section 2.4 and this Section shall survive any termination of
this Agreement and the other Loan Documents and the payment in full of the
Obligations, and are in addition to, and not in substitution of, any of the
other Obligations.
10.8 Amendments and Waivers. Any provision of this Agreement or any other
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and signed by Borrower and TBCC and then any such amendment or
waiver shall be effective only to the extent set forth therein. The failure of
TBCC at any time or times to require Borrower to strictly comply with any of the
provisions of this Agreement or any other present or future agreement between
Borrower and TBCC shall not waive or diminish any right of TBCC later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other agreement now
or in the future executed by Borrower and delivered to TBCC shall be deemed to
have been waived by any act or knowledge of TBCC or its agents or employees, but
only by a specific written waiver signed by an authorized officer of TBCC and
delivered to Borrower.
10.9 Counterparts; Telecopied Signatures. This Agreement and any waiver or
amendment hereto may be executed in counterparts and by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10 Severability. In case any provision in or obligation under this
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.11 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12 Maximum Rate. Notwithstanding anything to the contrary contained
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved, charged or received
on the Obligations, under the laws of the State of Illinois (or the laws of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement and the other Loan Documents), or under
applicable federal laws which may presently or hereafter be in effect and which
allow a higher maximum non-usurious interest rate than under the laws of the
State of Illinois (or such other jurisdiction), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Agreement and the other Loan Documents executed
in connection herewith, and any available exemptions, exceptions and exclusions
(the "Highest Lawful Rate"). If due to any circumstance whatsoever, fulfillment
of any provisions of this Agreement or any of the other Loan Documents at the
time performance of such provision shall be due shall exceed the Highest Lawful
Rate, then, automatically, the obligation to be fulfilled shall be modified or
reduced to the extent necessary to limit such interest to the Highest Lawful
Rate, and if from any such circumstance TBCC should ever receive anything of
value deemed interest by applicable law which would exceed the Highest Lawful
Rate, such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then outstanding Obligations, such excess shall be refunded to Borrower. All
sums paid or agreed to be paid to TBCC for the use, forbearance, or detention of
the Obligations and other indebtedness of Borrower to TBCC shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness, until payment in full thereof, so
that the actual rate of interest on account of all such indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such indebtedness.
The terms
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TBCC Loan and Security Agreement
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and provisions of this Section shall control every other provision of this
Agreement, the other Loan Documents and all other agreements between the parties
hereto.
10.13 Entire Agreement; Successors and Assigns. This Agreement and the
other Loan Documents constitute the entire agreement between the parties,
supersede any prior written and verbal agreements between them, and shall bind
and benefit the parties and their respective successors and permitted assigns.
There are no oral understandings, oral representations or oral agreements
between the parties which are not set forth in this Agreement or in other
written agreements signed by the parties in connection herewith.
10.14 MUTUAL WAIVER OF JURY TRIAL. TBCC and Borrower each hereby waive the
right to trial by jury in any action or proceeding based upon, arising out of,
or in any way relating to: (i) this Agreement; or (ii) any other present or
future instrument or agreement between TBCC and Borrower; or (iii) any conduct,
acts or omissions of TBCC or Borrower or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with TBCC or
Borrower; in each of the foregoing cases, whether sounding in contract or tort
or otherwise.
{REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.)
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<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
Borrower:
BEI MEDICAL SYSTEMS COMPANY, INC.
By: /s/ Richard W. Turner
----------------------------------
Title: President
-------------------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Ian Schneider
----------------------------------
Title: Sr. Vice President & Gen. Mgr.
-------------------------------
-20-
Charles Crocker
Chairmen of the Board
January 24, 1999
Personal and Confidential
Mr. Richard W. Turner
9 Nomas Lane
Richmond, VA 23233
Dear Dick:
This letter agreement will formalize an offer to you to assume the position of
President and Chief Executive Officer of BEI Medical Systems Company, effective
January 15, 1999. You will report to the Board and to me in my capacity as
Chairman of the Board of Directors.
The following outlines your compensation package:
1. Salary of $180,000 per year from January 15, 1999 to March 30, 1999.
Effective April 15, 1999, salary compensation would be $250,000 per
annum.
2. Bonus of $50,000 per year, based on performance goals to be
established in conjunction with you and the Compensation Committee.
Confirmation of the financial goals and the actual bonus payout would
occur following the audit of the company.
3. Stock options of 80,000 shares of BEI Medical Systems Company stock,
at market price on or around January 15, 1999, vested over four years.
Vesting to occur immediately If a change of control takes place.
Vesting will also continue If you elect to move into a consulting role
and to maintain an association with the company.
4. An additional financing bonus of $80,000 at the close of an equity
financing of BE! Medical Systems Company.
5. Your time commitment to the company would be as required until April
15, 1999; thereafter, on a full-time basis.
<PAGE>
Mr. Richard W. Turner
January 24, 1999 Page 2 of 3
6. Benefits to include the normal and standard expense reimbursement;
full and standard BEI Medical Systems Company's medical executive
benefit package; standard D and 0 insurance coverage and
indemnification; salary review every 12 months; stock option review
every 12 months; auto expenses to continue at current level as has
been customary.
7. Use of current office facility at 1145 Gaskins Road, Suite 109, in
Richmond, Virginia, plus the services or a part-time assistant.
8. The term of this agreement will be at will as of January 15, 1999 and
is terminable at any time by either party on not less than 60 days
notice (with or without cause). Should termination occur, items 9 A
thru H and 10 A thru C outline the details of the termination package.
9. If BEI Medical Systems Company is sold by January 31, 2000, you shall
have the option of departing the company effective as of the closing,
with the following termination package:
(A) Salary for one year at $250,000 per year
(B) Additional quarterly payment of $125.00 per hour for time spent
on duties at company's request over 20 hours per week
(C) Normal and standard expense reimbursement
(D) Full and standard executive medical benefit package
(E) Standard D and 0 insurance coverage and indemnification
(F) Bonuses and stock options per Compensation Committee
(G) Termination package without cause by either party on six months
written notice, except that BEI Medical Systems Company cannot
give a termination notice without cause before the end of six
months
(H) All stock options would fully vest and be exercisable upon the
sale of the company
17
<PAGE>
Mr. Richard W. Turner
January 24, 1999 Page 3 of 3
10. Should you leave or are terminated before the company is sold, or if
the company is not sold by January 31, 2000, you shall have the option
of departing the company with the following package:
(A) Salary for two years at $125,000 per year
(B) Benefits 9(B) thru (H) above to be a part of the termination
package, in addition to (a), with the exception that in item 9
(G), the last six words are changed to "before the end of 18
months"
(C) Vesting will continue in stock options until conclusion.
Accepted: Accepted:
RICHARD W. TURNER BEI MEDICAL SYSTEMS COMPANY, INC.
By: /s/ Richard W. Turner By: /s/ Charles Crocker
--------------------------- -------------------------------
Richard W. Turner Charles Crocker
Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED APRIL 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> APR-02-1999
<CASH> 2,780
<SECURITIES> 0
<RECEIVABLES> 1,568
<ALLOWANCES> (165)
<INVENTORY> 3,029
<CURRENT-ASSETS> 7,824
<PP&E> 1,622
<DEPRECIATION> (931)
<TOTAL-ASSETS> 13,598
<CURRENT-LIABILITIES> 2,264
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 11,324
<TOTAL-LIABILITY-AND-EQUITY> 13,598
<SALES> 4,165
<TOTAL-REVENUES> 4,228
<CGS> 2,489
<TOTAL-COSTS> 5,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,389)
<INCOME-TAX> (208)
<INCOME-CONTINUING> (3,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,181)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
