<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
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: 1-11150
---------------
IMAGYN MEDICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 98-0122944
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5 CIVIC PLAZA, SUITE 100, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 668-5858
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 than the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock outstanding as of January 31, 1998 was
36,200,216.
================================================================================
<PAGE> 2
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at
December 31, 1997 and March 31, 1997................................3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
December 31, 1997 and December 31, 1996.............................4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended December 31, 1997 and
December 31, 1996...................................................5
Notes to the Condensed Consolidated Financial Statements.............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................13
Item 2. Exhibits and Reports on Form 8-K....................................13
</TABLE>
2
<PAGE> 3
IMAGYN MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
--------- ---------
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents $ 3,035 $ 22,574
Short term investments -- 18,375
Receivables, net of allowance for doubtful accounts of $2,047 and $1,996 on
December 31, 1997 and March 31, 1997, respectively 42,828 18,103
Income tax receivable -- 377
Advances to officers -- 114
Inventories 43,484 24,063
Distributor inventories -- 6,307
Prepaid expenses 3,495 3,049
--------- ---------
Total current assets 92,842 92,962
Long-term cash investments -- 5,611
Restricted cash 13,436 48
Receivables - long term 2,513 2,722
Property and equipment, net 32,090 27,533
Patents and intangibles, net of accumulated amortization of $4,315 and $3,217
on December 31, 1997 and March 31, 1997, respectively 5,465 6,285
Loans to officers 2,195 550
Deposits and other assets 1,273 2,288
Deferred debt issuance costs 9,628 5,986
Goodwill 60,011 43,417
--------- ---------
$ 219,453 $ 187,402
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 33,908 $ 22,800
Compensation and employee benefits 3,523 3,381
Restructuring liabilities 6,103 6,192
Short-term debt -- 14,518
Current portion of long-term debt 3,276 3,328
--------- ---------
Total current liabilities 46,810 50,219
Deferred income 1,000 1,000
Long-term liabilities:
Long-term debt 75,306 98,292
Senior subordinated notes, net 108,463 --
Restructuring liabilities, less current portion 1,299 822
Other liabilities 3,119 4,149
Minority interest in consolidated subsidiary -- 237
Common Stockholders' Equity:
Common stock, $0.001 par value
Authorized shares - 100,000,000
Issued and outstanding shares - 35,956,761 and 34,981,208
at December 31, 1997 and March 31, 1997, respectively 36 35
Warrants 7,465 5,359
Additional paid-in capital 227,459 225,132
Note receivable from shareholders -- (121)
Unearned compensation -- (615)
Foreign currency translation adjustment 147 (14)
Deficit (251,651) (197,093)
--------- ---------
Total common stockholders' equity (16,544) 32,683
--------- ---------
$ 219,453 $ 187,402
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
IMAGYN MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- -----------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 1997 31, 1996 31, 1997 31, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 23,265 $ 31,541 $ 92,741 $ 75,695
Cost of goods sold 15,042 13,954 49,061 31,475
-------- -------- -------- --------
Gross profit 8,223 17,587 43,680 44,220
Operating expenses:
Selling, general and administrative 22,627 17,591 62,353 43,418
Research and development 3,189 2,233 8,864 5,359
Restructuring charges -- -- 5,413 4,000
Write-off of purchased research and development -- -- -- 25,500
Direct acquisition costs -- -- 4,220 --
-------- -------- -------- --------
Total operating expenses 25,816 19,824 80,850 78,277
Loss from operations (17,593) (2,237) (37,170) (34,057)
Other income (expense):
Accrued dividends on preferred stock of subsidiary -- (18) (4) (54)
Interest income 311 930 2,457 1,978
Interest expense (5,689) (2,479) (16,443) (5,379)
Other -- -- 464 --
-------- -------- -------- --------
Loss before taxes and extraordinary item (22,971) (3,804) (50,696) (37,512)
Provision (benefit) for income taxes -- (8) 2 (378)
Loss before extraordinary item (22,971) (3,796) (50,698) (37,134)
Extraordinary item (early extinguishment of debt) (2,037) -- (3,860) (2,973)
-------- -------- -------- --------
Net loss $(25,008) $ (3,796) $(54,558) $(40,107)
======== ======== ======== ========
Net loss per share:
Loss before extraordinary item $(22,971) $ (3,796) $(50,698) $(37,134)
Dividends and accretion on redeemable convertible
preferred stock -- -- -- 398
Loss before extraordinary item attributable to common
stockholders (22,971) (3,796) (50,698) (37,532)
Extraordinary item (2,037) -- (3,860) (2,973)
-------- -------- -------- --------
Net loss attributable to common stockholders (25,008) (3,796) (54,558) (40,505)
Basic and diluted loss per share before extraordinary item $ (0.64) $ (0.11) $ (1.43) $ (1.32)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.70) $ (0.11) $ (1.54) $ (1.43)
======== ======== ======== ========
Weighted average number of common shares used to
compute loss per share 35,862 33,531 35,416 28,345
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
IMAGYN MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
December 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (54,558) $ (40,107)
Non cash items included in net loss:
Extraordinary expense 3,334 2,433
Depreciation and amortization 7,897 3,884
Amortization of deferred debt issuance costs 1,234 569
Accretion and accrued interest on convertible notes -- 42
Loss on retirement of assets 205 7
Accrued dividend on preferred stock in subsidiary 4 54
Accrued interest on officer loan (105) --
Write off of purchased research and development -- 25,500
Provision for doubtful accounts 1,005 (248)
Compensation relating to stock option vesting 615 263
Other (812) 58
Changes in operating assets and liabilities (27,180) (37,730)
--------- ---------
Net cash used in operating activities (68,361) (45,275)
Cash flows from investing activities:
Purchase of property and equipment (9,780) (14,690)
Purchase of patents (278) (2,300)
Purchase of X-Cardia (15,555) --
Proceeds from sale of short and long term investments 50,547 872
Restricted cash, net (13,388) 131
Purchase of short and long term investments (26,561) (18,882)
Loans and advances to officers (1,305) --
Businesses purchased net of cash -- (33,880)
--------- ---------
Net cash used in investing activities (16,320) (68,749)
Cash flows from financing activities:
Deferred financing fees paid (7,641) (6,081)
Proceeds from issuance of common stock 508 63,358
Proceeds from long-term debt 132,301 72,060
Proceeds from short term debt 33,300 15,000
Repayment of long-term debt (50,634) (10,348)
---------
Repayment of short-term debt (42,550) (5,823)
Repurchase of preferred stock (142) --
--------- ---------
Net cash provided by financing activities 65,142 128,166
--------- ---------
Net (decrease) increase in cash (19,539) 14,142
Cash, beginning of period 22,574 6,865
--------- ---------
Cash, end of period $ 3,035 $ 21,007
========= =========
Cash paid for interest $ 12,836 $ 4,115
========= =========
Cash paid for taxes $ -- $ 7
========= =========
Non-cash investing and financing activities:
Equipment acquired under capital leases $ 27 $ 41
========= =========
Warrants issued in early extinguishment of debt $ 385 $ --
========= =========
Issuance of common stock for X-Cardia purchase $ 1,820 $ --
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
IMAGYN MEDICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. INTERIM REPORTING
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements are
prepared in accordance with generally accepted accounting principles (GAAP) and
include the accounts of Imagyn Medical Technologies, Inc. ("Imagyn" or the
"Company") and its subsidiaries. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with GAAP have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial
statements have been restated to reflect business combinations accounted for
using the pooling of interests method.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the Company's condensed consolidated financial position as of December
31, 1997, its condensed consolidated results of operations for the three and
nine month periods ended December 31, 1997 and December 31, 1996, and its
condensed consolidated cash flows for the nine month periods ended December 31,
1997 and December 31, 1996. Adjustments consist of normal recurring accruals
except for the extraordinary loss on early extinguishment of debt in the
accompanying unaudited condensed consolidated statements of operations. The
results of operations for the three and nine month periods ended December 31,
1997 are not necessarily indicative of those to be expected for the entire year.
These condensed consolidated financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K, as amended, for the year ended March 31, 1997, as filed
with the Securities and Exchange Commission.
Significant intercompany accounts and transactions have been eliminated in
consolidation and certain amounts have been reclassified in prior periods to
conform to the current presentation. In interim periods the Company defers and
amortizes over the fiscal year certain administrative costs to more
appropriately reflect the benefits realized during the course of the fiscal
year.
Financial information presented reflects the September 29, 1997 acquisition
of Imagyn Medical, Inc. ("IMI"), which has been accounted for as a pooling of
interest. The results of operations reported by the Company and those by IMI
included in the accompanying interim consolidated financial statement are
summarized below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales:
Imagyn .......... $ 19,767 $ 28,891 $ 84,755 $ 67,790
IMI ............. 3,498 2,650 7,986 7,905
-------- -------- -------- --------
$ 23,265 $ 31,541 $ 92,741 $ 75,695
======== ======== ======== ========
Net loss:
Imagyn .......... $(23,519) $ (2,452) $(42,700) $(38,153)
IMI ............. (1,489) (1,344) (11,858) (1,954)
-------- -------- -------- --------
$(25,008) $ (3,796) $(54,558) $(40,107)
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
2. NET LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share" in the third quarter of fiscal 1998. Net loss per share is
based on the weighted average number of shares of common stock outstanding
during all periods presented. Common stock equivalents have not been included in
the calculation because they are anti-dilutive.
3. INVENTORIES
Inventories are carried at the lower of cost or net realizable value. Cost
is determined on the first-in, first-out basis (in thousands).
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
----------- ----------
<S> <C> <C>
Raw materials and supplies $ 17,892 $ 10,147
Work in progress 6,065 3,606
Finished goods 19,527 10,310
----------- ----------
$ 43,484 $ 24,063
=========== ==========
Distributor inventories $ - $ 6,307
=========== ==========
</TABLE>
4. DEBT
During December 1997 the Company entered into a new $40 million revolving
bank credit facility. The credit facility will be used for working capital and
matures in December 2000. The facility is secured by substantially all of the
Company's assets and bears interest at prime plus 1.5% or LIBOR plus 3.25%. The
Company pays a fee of 0.5% on the unused portion of the facility and is required
to meet certain financial covenants under the facility. Available amounts under
the revolving facility are based on eligible accounts receivable. As of December
31, 1997, the Company had outstanding borrowings of $20 million under this
facility.
5. RESTRUCTURING
In December 1995, the Company initiated a restructuring plan to consolidate
redundant facilities and reduce personnel resulting from the mergers with
Dacomed Corporation, Osbon Medical Systems, Ltd. (Osbon) and Advanced Surgical,
Inc. The estimated cost associated with each component of this restructuring
plan and the cash and non-cash charges incurred through December 31, 1997 are
summarized in the table below. The remaining restructuring accrual at December
31, 1997 relates primarily to terminated employee severance and facility lease
obligations, which are expected to be paid in cash.
<TABLE>
<CAPTION>
Beginning Balance at
Restructuring Non-Cash Cash Re- December 31,
Accrual Charges Charges classifications 1997
------- -------- ------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Personnel reduction costs $2,620 $ -- $1,867 $ (730) $ 23
Facility reduction costs 2,836 1,199 1,931 730 436
------ ------ ------ ------ ------
$5,456 $1,199 $3,798 $ -- $ 459
====== ====== ====== ====== ======
</TABLE>
7
<PAGE> 8
In September 1996, the Company established a restructuring plan to eliminate
redundant manufacturing facilities resulting from Richard-Allan, Intermed and
O.R. Concepts acquisitions and their consolidation with some of the existing
manufacturing locations. The estimated cost associated with each component of
this restructuring plan and the cash and non-cash charges incurred through
December 31, 1997 are summarized in the table below.
<TABLE>
<CAPTION>
Beginning Balance at
Restructuring Non-Cash Cash December 31,
Accrual Charges Charges 1997
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Personnel reduction costs $2,412 $ -- $1,548 $ 864
Facility reduction costs 1,588 -- 390 1,198
------ ------ ------ ------
$4,000 $ -- $1,938 $2,062
====== ====== ====== ======
</TABLE>
In March 1997, the Company implemented a restructuring plan to consolidate
redundant facilities and reduce personnel resulting from mergers with Osbon and
Microsurge Inc. The estimated cost associated with each component of this
restructuring plan and the cash and non-cash charges incurred through December
31, 1997 are summarized in the table below.
<TABLE>
<CAPTION>
Beginning Balance at
Restructuring Non-Cash Cash December 31,
Accrual Charges Charges 1997
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Personnel reduction costs $7,067 $ -- $5,335 $1,732
Facility reduction costs 933 473 111 349
------ ------ ------ ------
$8,000 $ 473 $5,446 $2,081
====== ====== ====== ======
</TABLE>
In September 1997, the Company implemented a restructuring plan to
consolidate redundant facilities and reduce personnel resulting from the merger
with IMI. The estimated cost associated with each component of this
restructuring plan and the cash and non-cash charges incurred through December
31, 1997 are summarized in the table below.
<TABLE>
<CAPTION>
Beginning Balance at
Restructuring Non-Cash Cash December 31,
Accrual Charges Charges 1997
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Personnel reduction costs $3,598 $ -- $2,059 $1,539
Facility reduction costs 1,815 -- 554 1,261
------ ------ ------ ------
$5,413 $ -- $2,613 $2,800
====== ====== ====== ======
</TABLE>
Although subject to future adjustment, management of the Company believes
that restructuring reserves as of December 31, 1997 are adequate to complete the
various restructuring plans.
8
<PAGE> 9
6. INCOME TAXES
The Company did not record an income tax provision or benefit for the
quarter ended December 31, 1997 since the realization of tax benefits on
operating losses is not assured.
7. CONTINGENCIES
In July and August 1997, nine complaints were filed against the Company,
certain of its officers and directors and, in certain complaints, the lead
underwriters of the Company's November 1996 public offering, requesting
certification of a class action, alleging various violations of federal
securities laws and seeking unspecified compensatory damages. The suits were
filed in the United States District Court for the Central District of
California. All suits are based on substantially the same facts and have been
brought on behalf of purchasers of the Company's Common Stock during various
periods between July 18, 1996 and July 1, 1997. On October 6, 1997, the Court
ordered the nine cases consolidated and ordered the plaintiffs to file an
amended complaint setting forth all of the claims. On November 20, 1997, a
consolidated and amended class action complaint was filed. The Company filed a
motion to dismiss on December 23, 1997. The Company intends to vigorously defend
the class action complaints.
The Company filed a patent infringement suit against U.S. Surgical
Corporation on October 16, 1997. In its complaint, the Company alleges that U.S.
Surgical's ABBI breast biopsy device is infringing on two patents relating to
Imagyn's Percutaneous incisional breast biopsy device, which will be marketed
under the name SITESELECT (TM). The Company's complaint asks the court for an
injunction barring further ABBI manufacturing and sales in the United States and
damages for U.S. Surgical's willful infringement of the patents, and attorneys'
fees.
On November 19, 1997, US Surgical filed seven counterclaims against the
Company. The claims allege patent infringement on a wide range of endoscopic
products being marketed through the Surgical division of the Company.
The Company intends to aggressively pursue its claim that the US Surgical
ABBI device infringes on two of the Company's patents and it will vigorously
defend the infringement claims that were filed by US Surgical in response to the
Company lawsuit.
In addition, the Company is involved from time to time in various claims
and legal actions in the ordinary course of business. No provision for any
liability that may result from the ultimate resolution of such matters has been
included in the accompanying consolidated financial statements.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
December 31, December 31
1997 1996
---------------- --------------
<S> <C> <C>
Receivables $ (25,521) $ (14,418)
Inventories (13,114) (15,727)
Income tax receivable 377 (377)
Prepaid expenses and deposits 569 (3,878)
Accounts payable and accrued liabilities 11,009 (4,935)
Compensation and employee benefits 142 1,271
Restructuring liabilities 388 1,326
Other liabilities (1,030) (992)
----------- -----------
$ (27,180) $ (37,730)
=========== ===========
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996.
Net sales. For the three months ended December 31, 1997, net sales of $23.2
million were $8.3 million or 26.2% lower than sales of $31.5 million for the
corresponding period in 1996. The decrease was attributable to a $9.6 million
decline in urology sales including $3.0 million of sales of Rigiscan units to a
single urology customer which did not reoccur in the current quarter which was
partially offset by a $1.1 million increase in the Company's Surgical and
Gynecology division sales. The Company believes that a majority of the decline
in urology sales is attributable to the introduction of drug-based treatments
for impotence. It is impractical for the Company to predict the long-term
effects of this new treatment modality, however in the short term the Company
believes that urology sales will continue to be negatively impacted by this new
treatment modality.
Gross profit. For the three months ended December 31, 1997, gross profit
decreased $9.4 million or 53.2% over the same period in 1996. This decrease was
attributable to both a decrease in sales over the period and a decline in gross
profit margin. The gross profit margin decreased from 55.8% for the three months
ended December 31, 1996 to 35.3% for the three months ended December 31, 1997.
The decrease in gross profit margin was primarily due to a shift in sales from
higher margin urology products to lower margin surgical and gynecology products.
Higher margin urology products accounted for 53.3% of total sales, for the three
months ended December 31, 1996, decreasing to approximately 31.1% of total sales
during the three months ended December 31, 1997. Additionally an increase in
international sales which comprised 16.8% of total sales during the three months
ended December 31, 1997 compared to 4.6% of total sales in the corresponding
period in 1996, also adversely impacted gross profit margin due to lower average
product selling prices to international customers. Other factors having an
adverse effect on current period gross profit margin included an increase of
approximately $1.0 million to the Company's estimates for slow moving
inventories and manufacturing inefficiencies resulting from lower production
volumes during the current quarter. The Company is currently undertaking
measures to reduce its manufacturing costs by reducing its manufacturing
workforce and consolidating its two California manufacturing facilities. The
Company expects to realize the full impact of these cost savings during the
first quarter of its 1999 fiscal year.
Selling, general and administrative. Selling, general and administrative
expenses of $22.6 million for the three months ended December 31, 1997 were $5.0
million or 28.6% higher than selling, general and administrative expenses of
$17.6 million for the corresponding period in 1996. The increase was due to the
continued development of the Company's infrastructure, primarily in connection
with the Company's critical care and international platforms and various
promotional undertakings.
Research and development. Research and development costs for the three
months ended December 31, 1997 increased $1.0 million or 42.8% over the
corresponding period in 1996. During fiscal 1997, the Company made significant
investments in, and acquisitions of, technology. The increase in R&D
expenditures is related to the development of new products using the acquired
technologies.
Net interest expense. Net interest expense for the three months ended
December 31, 1997 increased $3.8 million over the corresponding period in 1996.
The increase was primarily due to higher debt levels associated with the
Company's 12.5% Senior Subordinated Notes.
Extraordinary expense. During the three months ended December 31, 1997, the
Company entered into a new $40 million revolving bank senior credit facility and
repaid its previous revolving credit facility. The Company recorded an
extraordinary loss of $2.0 million related to the write-off of deferred
financing costs associated with its previous credit facility.
10
<PAGE> 11
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1996.
Net sales. For the nine months ended December 31, 1997, net sales of $92.7
million were $17.0 million or 22.5% higher than sales of $75.7 million for the
corresponding period in 1996. Of this increase, $12.9 million was attributable
to initial surgical stocking orders shipped during fiscal 1997 and recorded in
the second quarter of fiscal 1998 and $20 million was attributable to an
increase in surgical sales resulting from increased effectiveness of the
Company's distribution channels, and the inclusion of sales for a full nine
months from the Surgical division's (Richard-Allan) operations which was
purchased on August 15, 1996. The surgical increases were partially offset by a
$16.3 million decline in urology sales. The Company believes that a majority of
the decline in urology sales is attributable to the introduction of drug-based
treatments for impotence. It is impractical for the Company to predict the
long-term effects of this new treatment modality. However, in the short term the
Company believes that urology sales will continue to be negatively impacted by
this new treatment modality. In addition the corresponding period in 1996
included $3.4 million of Rigiscan sales to a single urology customer which did
not reoccur in the current quarter.
Gross profit. For the nine months ended December 31, 1997, gross profit
decreased $0.5 million or 1.2% over the same period in 1996. The decrease was
the net result of an increase in sales over the period offset by a significant
decline in gross profit margin. The gross profit margin decreased from 58.4% for
the nine months ended December 31, 1996 to 47.1% for the nine months ended
December 31, 1997. The decrease in gross profit margin was primarily due to a
shift in sales from higher margin urology products to lower margin surgical and
gynecology products. For the nine months ended December 31, 1996, higher margin
urology products accounted for 56.5% of total sales, decreasing to approximately
28.5% of total sales during the nine months ended December 31, 1997.
Selling, general and administrative. Selling, general and administrative
expenses of $62.4 million for the nine months ended December 31, 1997 were $18.9
million or 43.6% higher than selling, general and administrative expenses of
$43.4 million for the corresponding period in 1996. The increase was due to
increased selling costs associated with growing sales and the continued
development of the Company's infrastructure, and the inclusion of nine months
selling general and administrative expenses relating to the Surgical division's
(Richard-Allan) operation which was purchased on August 15, 1996.
Research and development. Research and development costs for the nine months
ended December 31, 1997 increased $3.5 million over the corresponding period in
1996. The Company continues to make significant investments in, and acquisitions
of, technology. The increase in R&D expenditures is related to the development
of new products using the acquired technologies.
Restructuring. For the nine months ended December 31, 1997, the Company
recorded a restructuring charge attributable to the merger with IMI of $5.4
million consisting of $3.6 million in personnel reduction costs and $1.8 million
in facility reduction costs. Through December 31, 1997, $2.6 million of this
restructuring charge had been paid.
Direct acquisition costs. The Company had direct acquisition costs of
approximately $4.2 million related to expenses paid to complete the IMI merger.
Net interest expense. Net interest expense for the nine months ended
December 31, 1997 increased $10.6 million over the corresponding period in 1996.
The increase was primarily due to higher debt levels associated with the
Company's 12.5% Senior Subordinated Notes which was completed during April 1997.
Extraordinary expense. The Company recorded an extraordinary loss of $3.9
million related to the write-off of deferred financing costs, related to the
early retirement of two different bank credit facilities.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had working capital of $46 million.
The Company's consolidated cash and cash equivalents and short-term investments
of $3.0 million at December 31, 1997 decreased by $37.9 million over the nine
months ended December 31, 1997. Uses of cash totaled $107.4 million during the
nine months ended December 31, 1997 and related to cash used in operating
activities ($68.4 million), restricted cash ($13.4 million) and cash used to
purchase property, plant, equipment, patents and milestone technology payments
to X-Cardia ($25.6 million). For the nine months ended December 31, 1997, $72.4
million in cash was provided from net incremental debt funding.
The Company's negative cash flow from operations of $68.4 million for the
nine months ended December 31, 1997, was primarily related to operating losses,
and increases in accounts receivable and inventory. Net accounts receivable
balances at December 31, 1997 were approximately $24.7 million higher than at
March 31, 1997, as a result of increased sales and an increase in average days
sales outstanding. Management anticipates further increases in accounts
receivable in the fourth quarter of fiscal 1998, as sales volume increases. The
Company's inventory balances at December 31, 1997 were approximately $19.4
million higher that at March 31, 1997, due to an increase in inventories to
levels to support anticipated future sales increases, and the introduction of
new products.
Approximately $6.1 million of the Company's $7.4 million of remaining
restructuring liabilities are projected to be paid over the next 12 months. The
Company anticipates capital expenditures, primarily relating to tooling,
fixtures and information systems, to be approximately $1.5 million over the next
three months.
During December 1997, the Company and its subsidiaries entered into a $40
million senior bank credit facility with a new senior lender. The senior credit
facility is secured by substantially all of the assets of the Company and the
Company is required to meet certain financial covenants. Amounts available under
the senior credit facility are based on eligible accounts receivable. As of
December 31, 1997, the Company had outstanding borrowings of $20 million under
the senior credit facility. Subsequent to the quarter end the Company had
borrowed an additional $8 million under the senior credit facility and its
borrowing eligibility totaled $33 million.
The Company is a holding company whose material assets consist primarily of
the capital stock of its subsidiaries. Consequently, the Company is dependent
upon dividends paid by its subsidiaries to pay the Company's debt obligations,
including its obligations under the Company's $50 million convertible
subordinated debentures and the $110 million senior subordinated notes. Amounts
advanced under the $40 million senior bank credit facility have been loaned to
the subsidiaries of the Company, and the Company has guaranteed the obligations
of its subsidiaries.
Based on current cash flows, the Company believes that additional funding
will likely be necessary to fund its operations in the short-term.
Management has taken steps to improve the Company's liquidity position by
focusing efforts on the collection of outstanding accounts receivable, and
reducing expenses. During January 1998, the Company took steps to reduce
operating costs by reducing its work force by approximately 120 people, and
consolidating its operations, including the closing of its Laguna Niguel,
California manufacturing facility. The Company anticipates annualized cost
savings of approximately $18 million as a result of these cost saving measures.
The Company expects to realize the full impact of these cost savings in the
second quarter of fiscal 1999. The Company is actively seeking additional
sources of financing and is currently marketing the sale of certain
non-strategic assets and technology. However, the Company presently has no
commitments for any such financing or potential buyers for certain non-
strategic assets. Under the terms of the Company's senior credit facility and 12
1/2% Senior Subordinated Notes, the Company has restrictions on the amount of
additional debt it can currently incur. No assurances can be given that
additional financing will be available to the Company or that, if available,
such financing will be obtainable on terms favorable to the Company. In the
absence of such financing or the successful sale of certain assets the Company
will be required to take additional steps to improve cash flow, including, but
not limited to the scaling back of current operations.
12
<PAGE> 13
BUSINESS RISKS
Except for the historical information contained herein, the matters
discussed in this report are forward looking statements that involve risks and
uncertainties. Potential risks and uncertainties include, without limitation,
historical operating losses, ability to raise additional financing, dependence
on new products, ability to manage growth, reliance on patents and proprietary
rights, government regulation and required approvals, potential healthcare
reform, competition, and dependence on management. More information on potential
factors which could affect the Company's financial results are included in the
Company's Annual Report on Form 10-K, as amended, for fiscal 1997 which has been
filed with the Securities and Exchange Commission.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In July and August 1997, nine complaints were filed against the Company,
certain of its officers and directors and, in certain complaints, the lead
underwriters of the Company's November 1996 public offering, requesting
certification of a class action, alleging various violations of federal
securities laws and seeking unspecified compensatory damages. The suits were
filed in the United States District Court for the Central District of
California. All suits are based on substantially the same facts and have been
brought on behalf of purchasers of the Company's Common Stock during various
periods between July 18, 1996 and July 1, 1997. On October 6, 1997, the Court
ordered the nine cases consolidated and ordered the plaintiffs to file an
amended complaint setting forth all of the claims. On November 20, 1997, a
consolidated and amended class action complaint was filed. The Company filed a
motion to dismiss on December 23, 1997.
In September 1997, a derivative action was filed in California State Court
on behalf of the Company against certain directors and officers of the Company
alleging violations of certain fiduciary duties and seeking damages from those
individuals for the benefit of the Company. The allegations in the state
derivative action are based on substantially the same facts as those set forth
in the class action suits described above.
In addition, the Company is involved from time to time in various claims
and legal actions arising in the ordinary course of business. No provision for
any liability that may result from the ultimate resolution of any of the matters
described or referred to in this Item 1 have been included in the accompanying
consolidated financial statements. In management's opinion, the ultimate
resolution of claims currently pending will not have a material adverse effect
on the Company's business, results of operations or financial condition.
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.1 - Credit Agreement, dated December 30, 1997, among BT
Commercial Corporation as Agent, and the Company and its subsidiaries
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, dated September 29, 1997, relating to the
acquisition of Imagyn Medical, Inc. (as filed with the SEC on
October 6, 1997)
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on
Form 10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized, this 13th day of February 1998.
Imagyn Medical Technologies, Inc.,
a Delaware corporation
By: /s/ CHARLES A. LAVERTY
---------------------------------------------------
Charles A. Laverty
Chief Executive Officer/Chairman of the Board
By: /s/ MICHAEL A. MONTEVIDEO
---------------------------------------------------
Michael A. Montevideo
Senior Vice President and Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit 10.1 - Credit Agreement, dated December 30, 1997, among BT Commercial
Corporation as Agent, and the Company and its subsidiaries.
Exhibit 27 - Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
$40,000,000
AMONG
IMAGYN MEDICAL TECHNOLOGIES CALIFORNIA, INC.,
DACOMED CORPORATION,
ALLSTATE MEDICAL PRODUCTS, INC.,
OSBON MEDICAL SYSTEMS, LTD.,
UROHEALTH OF KENTUCKY, INC.,
MICROSURGE, INC. AND
IMAGYN MEDICAL, INC.
AS BORROWERS,
IMAGYN MEDICAL TECHNOLOGIES, INC.,
AS GUARANTOR,
EACH OF THE FINANCIAL INSTITUTIONS
INITIALLY A SIGNATORY HERETO,
TOGETHER WITH THOSE ASSIGNEES
PURSUANT TO SECTION 11.8 HEREOF,
AS LENDERS,
AND
BT COMMERCIAL CORPORATION,
AS AGENT
DATED AS OF DECEMBER 30, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1 DEFINITIONS.............................................................. 1
1.1 General Definitions............................................. 1
1.2 Accounting Terms and Determinations............................. 16
1.3 Other Terms; Headings........................................... 17
2 REVOLVING LOANS.......................................................... 17
2.1 Revolving Credit Commitments.................................... 17
2.2 Borrowing of Revolving Loans.................................... 17
2.3 Notice of Request for Lender Advances........................... 19
2.4 Periodic Settlement of Agent Advances;
Interest and Fees; Statements.................................. 19
2.5 Sharing of Payments............................................. 20
2.6 Defaulting Lenders.............................................. 20
2.7 Reliance on Notices; Appointment of Borrower Representative..... 21
3 LETTERS OF CREDIT........................................................ 22
3.1 Issuance of Letters of Credit................................... 22
3.2 Terms of Letters of Credit...................................... 22
3.3 Notice of Issuance.............................................. 22
3.4 Lenders' Participation.......................................... 23
3.5 Payments of Amounts Drawn Under Letters of Credit............... 23
3.6 Payment by Lenders.............................................. 23
3.7 Obligations Absolute............................................ 23
3.8 Agent's Execution of Applications and Other Issuing Bank
Documentation: Reliance on Credit Agreement
by Issuing Bank................................................ 23
4 COMPENSATION, REPAYMENT AND REDUCTION OF COMMITMENTS..................... 24
4.1 Interest on Revolving Loans..................................... 24
4.2 Unused Line Fee................................................. 25
4.3 Letter of Credit Fees........................................... 25
4.4 Interest and Letter of Credit Fees After Event of Default....... 25
4.5 Collateral Monitoring Fee....................................... 26
4.6 Expenses........................................................ 26
4.7 Mandatory Payment; Reductions of Commitments.................... 26
4.8 Maintenance of Loan Account; Statements of Account.............. 26
4.9 Intercompany Accounts; Allocation of Revolving Loans............ 27
4.10 Payment Procedures.............................................. 28
4.11 Collection of Accounts.......................................... 28
4.12 Distribution and Application of Collections and Other Amounts... 28
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
4.13 Calculations.................................................... 29
4.14 Special Provisions Relating to LIBOR Rate Loans................. 29
4.15 Indemnification in Certain Events............................... 32
5 CONDITIONS PRECEDENT..................................................... 34
5.1 Conditions Precedent to Initial Revolving
Loan and Letter of Credit...................................... 34
5.2 Conditions Precedent to All Revolving Loans and
Letters of Credit.............................................. 34
6 REPRESENTATIONS AND WARRANTIES........................................... 35
6.1 Organization and Qualification.................................. 35
6.2 Authority....................................................... 35
6.3 Enforceability.................................................. 35
6.4 No Conflict..................................................... 35
6.5 Consents and Filings............................................ 36
6.6 Government Regulation........................................... 36
6.7 Solvency........................................................ 36
6.8 Rights in Collateral; Priority of Liens......................... 36
6.9 Financial Data.................................................. 36
6.10 Locations of Offices, Records and Inventory..................... 37
6.11 Subsidiaries; Ownership of Stock................................ 37
6.12 No Judgments or Litigation...................................... 38
6.13 No Defaults..................................................... 38
6.14 Labor Matters................................................... 38
6.15 Compliance with Law............................................. 38
6.16 ERISA........................................................... 38
6.17 Compliance with Environmental Laws.............................. 38
6.18 Intellectual Property........................................... 39
6.19 Licenses and Permits............................................ 39
6.20 Taxes and Tax Returns........................................... 39
6.21 Material Contracts.............................................. 40
6.22 Accuracy and Completeness of Information........................ 40
6.23 No Change....................................................... 40
7 AFFIRMATIVE COVENANTS.................................................... 41
7.1 Financial Reporting............................................. 41
7.2 Collateral Reporting............................................ 43
7.3 Notification Requirements....................................... 43
7.4 Corporate Existence............................................. 45
7.5 Books and Records; Inspections.................................. 45
7.6 Insurance....................................................... 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
7.7 Taxes........................................................... 46
7.8 Compliance with Laws............................................ 46
7.9 Use of Proceeds................................................. 46
7.10 Fiscal Year..................................................... 46
7.11 Maintenance of Property......................................... 46
7.12 ERISA Documents................................................. 46
7.13 Environmental and Other Matters................................. 47
7.14 Further Assurances.............................................. 47
8 NEGATIVE COVENANTS....................................................... 48
8.1 Minimum EBITDA.................................................. 48
8.2 Maximum Account Turnover........................................ 48
8.3 INTENTIONALLY DELETED........................................... 48
8.4 Capital Expenditures............................................ 48
8.5 Additional Indebtedness......................................... 49
8.6 Liens........................................................... 49
8.7 Contingent Obligations.......................................... 50
8.8 Sale of Assets.................................................. 50
8.9 Restricted Payments............................................. 51
8.10 Investments..................................................... 51
8.11 Affiliate Transactions.......................................... 52
8.12 Additional Bank Accounts........................................ 52
8.13 INTENTIONALLY DELETED........................................... 52
8.14 Additional Negative Pledges..................................... 52
8.15 Additional Subsidiaries......................................... 52
8.16 Employee Benefit Plans.......................................... 52
9 EVENTS OF DEFAULT AND REMEDIES........................................... 53
9.1 Events of Default............................................... 53
9.2 Acceleration, Termination of Commitments and
Cash Collateralization......................................... 54
9.3 Rescission of Acceleration...................................... 54
9.4 Remedies........................................................ 55
9.5 Right of Setoff................................................. 55
9.6 License of Use of Software and Other Intellectual Property...... 55
9.7 Application of Proceeds; Surplus; Deficiencies.................. 55
10 THE AGENT................................................................ 55
10.1 Appointment of Agent............................................ 55
10.2 Nature of Duties of Agent....................................... 56
10.3 Lack of Reliance on Agent....................................... 56
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
10.4 Certain Rights of the Agent..................................... 57
10.5 Reliance by Agent............................................... 57
10.6 Indemnification of Agent........................................ 57
10.7 The Agent in its Individual Capacity............................ 58
10.8 Holders of Revolving Notes...................................... 58
10.9 Successor Agent................................................. 58
10.10 Collateral Matters.............................................. 59
10.11 Actions with Respect to Defaults................................ 60
10.12 Delivery of Information......................................... 60
11 MISCELLANEOUS............................................................ 60
11.1 GOVERNING LAW................................................... 60
11.2 SUBMISSION TO JURISDICTION...................................... 60
11.3 SERVICE OF PROCESS.............................................. 61
11.4 JURY TRIAL...................................................... 61
11.5 LIMITATION OF LIABILITY......................................... 61
11.6 Delays.......................................................... 61
11.7 Notices......................................................... 61
11.8 Assignments and Participations.................................. 62
11.9 Confidentiality................................................. 63
11.10 Indemnification................................................. 63
11.11 Amendments and Waivers.......................................... 64
11.12 Counterparts and Effectiveness.................................. 64
11.13 Severability.................................................... 65
11.14 Maximum Rate.................................................... 65
11.15 Entire Agreement; Successors and Assigns........................ 65
ARTICLE 12 CROSS-GUARANTY............................................. 66
12.1 Cross-Guaranty.................................................. 66
12.2 Waivers by Borrowers............................................ 66
12.3 Benefit of Guaranty............................................. 67
12.4 Subordination of Subrogation, Etc............................... 67
12.5 Election of Remedies............................................ 67
12.6 Limitation...................................................... 68
12.7 Contribution with Respect to Guaranty Obligations............... 68
12.8 Liability Cumulative............................................ 69
</TABLE>
ANNEXES
Annex I List of Lenders; Commitment Amounts; and
iv
<PAGE> 6
Applicable Lending Offices
v
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule A Closing Document List
Schedule B Disclosure Schedules
Schedule B, Part 6.1 States in which Qualified
Schedule B, Part 6.9 Contingent Obligations and Other Liabilities
Schedule B, Part 6.10 Principal Places of Business; Locations of
Collateral
Schedule B, Part 6.11 Subsidiaries
Schedule B, Part 6.12 Pending Judgments, Litigation and other Claims
Schedule B, Part 6.14 Labor Contracts
Schedule B, Part 6.16 Plans
Schedule B, Part 6.17 Environmental Matters
Schedule B, Part 6.20 Tax Matters; Tax Sharing Agreements
Schedule B, Part 6.21 Material Contracts
Schedule B, Part 8.5 Existing Indebtedness
Schedule B, Part 8.6 Existing Liens
Schedule B, Part 8.10 Existing Investments
Schedule B, Part 8.12 Disbursement Accounts
EXHIBITS
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Collateral Access Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Notice of Borrowing
Exhibit E Form of Revolving Note
Exhibit F-1 Form of Security Agreement (Guarantor)
Exhibit F-2 Form of Patent and License Security
Agreement (Guarantor)
Exhibit F-3 Form of Trademark and License
Security Agreement (Guarantor)
Exhibit F-4 Form of Pledge Agreement
Exhibit G-1 Form of Security Agreement (Borrowers)
Exhibit G-2 Form of Patent and License Security
Agreement (Borrowers)
Exhibit G-3 Form of Trademark and License
Security Agreement (Borrowers)
Exhibit H Form of Lock Box Agreement
Exhibit I Form of Notice of Continuation
Exhibit J Form of Notice of Conversion
Exhibit K Form of Compliance Certificate
Exhibit L Form of Assignment and Assumption Agreement
</TABLE>
vi
<PAGE> 8
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Credit Agreement") is entered into as of
December 30, 1997, among IMAGYN MEDICAL TECHNOLOGIES CALIFORNIA, INC., a
California corporation ("Imagyn California"), DACOMED CORPORATION, a Minnesota
corporation ("Dacomed"), ALLSTATE MEDICAL PRODUCTS, INC., a Minnesota
corporation ("Allstate"), OSBON MEDICAL SYSTEMS, LTD., a Georgia corporation
("Osbon"), UROHEALTH OF KENTUCKY, INC., a Kentucky corporation ("Urohealth"),
MICROSURGE, INC., a Delaware corporation ("Microsurge"), IMAGYN MEDICAL, INC., a
Delaware corporation ("Imagyn Delaware") (Imagyn California, Dacomed, Allstate,
Osbon, Urohealth, Microsurge and Imagyn Delaware are sometimes collectively
hereinafter referred to as the "Borrowers" and individually as a "Borrower"),
IMAGYN MEDICAL TECHNOLOGIES, INC., a Delaware corporation ("Guarantor"); each
financial institution identified on Annex I (together with its successors and
assigns, hereinafter referred to individually as a "Lender" and collectively as
the "Lenders"); and BT COMMERCIAL CORPORATION, a Delaware corporation (in its
individual capacity, "BTCC"), acting in its capacity as agent for the Lenders
(in such capacity, together with its successors in such capacity, the "Agent").
ARTICLE 1
DEFINITIONS
1.1 GENERAL DEFINITIONS
ACCOUNT has the meaning set forth in the Security Agreement.
AFFILIATE of a Person means another Person who directly or indirectly
controls, is controlled by, is under common control with or is a director or
officer of, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to vote five percent (5%) or
more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a business.
AGENT ADVANCES has the meaning set forth in Section 2.2.
APPLICABLE LENDING OFFICE means, with respect to each Lender, such
Lender's LIBOR Lending Office in the case of a LIBOR Rate Loan, and such
Lender's Domestic Lending Office in the case of a Prime Rate Loan.
ASSIGNMENT AND ASSUMPTION AGREEMENT has the meaning set forth in
Section 11.8.
AUDITORS means a nationally recognized firm of independent public
accountants selected
<PAGE> 9
by the Guarantor and satisfactory to the Agent in its sole discretion; provided,
that, for purposes of this Credit Agreement, the firm of Ernst & Young, LLP
shall be deemed to be satisfactory to the Agent.
BANKRUPTCY CODE means Title 11 of the U.S. Code (11 U.S.C. 101 et
seq.), as amended from time to time, and any successor statute.
BENEFIT PLAN means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which the Borrowers, any of their respective Subsidiaries or
any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
BORROWER REPRESENTATIVE means the Guarantor in its capacity as Borrower
Representative pursuant to the provision of Section 2.7.
BORROWING means a borrowing of Revolving Loans of the same Type by the
Borrowers on a pro rata basis from each of the Lenders on a given date (whether
pursuant to Section 2.2 or resulting from continuations or conversions of
Revolving Loans on a given date pursuant to Sections 4.14(a) and (b),
respectively) having, in the case of LIBOR Loans, the same Interest Period.
BORROWING BASE means, at any time, the sum at such time of:
(a) eighty percent (80%) of Eligible Accounts Receivable, plus
(b) (1) prior to the happening of the Liquidity Event, the
lesser of (i) $15,000,000 and (ii) sixty-two percent (62%) of such
other Accounts of the Borrower, which Agent, in its sole discretion,
deems to be Eligible Accounts Receivable (not withstanding the fact
that there exists with respect to any such Account one or more of the
events or circumstances enumerated in the definition of "Eligible
Accounts Receivable"), and (2) after the happening of the Liquidity
Event, an amount equal to $0; plus
(c) following the happening of the Liquidity Event, and so
long as no Default or Event of Default is then outstanding, the lesser
of (i) $10,000,000 and (ii) fifty percent (50%) of Eligible Inventory.
In addition, the Agent, in the exercise of its Permitted Discretion,
may (i) establish and increase or decrease reserves against Eligible Accounts
Receivable and Eligible Inventory, (ii) reduce the advance rates provided for in
this definition, or restore such advance rates to any level equal to or below
the advance rates in effect as of the date of this Credit Agreement, and (iii)
impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in the definitions of "Eligible Accounts Receivable" and
"Eligible Inventory."
2
<PAGE> 10
BORROWING BASE CERTIFICATE means the certificate of the Borrowers
concerning the Borrowing Base to be provided under Section 7.2, substantially in
the form of Exhibit A hereto.
BT ACCOUNT has the meaning set forth in Section 4.11.
BUSINESS DAY means any day that is not a Saturday, a Sunday or a day on
which commercial banks in Chicago, Illinois are required or permitted by law to
be closed and, when used in connection with LIBOR Rate Loans, this definition
will also exclude any day on which commercial banks are not open for dealing in
United States dollar deposits in the London (U.K.) interbank market.
CAPITAL EXPENDITURES means, for any Person for any period, the sum of
all expenditures capitalized by such Person for financial statement purposes in
accordance with GAAP during such period (whether payable in cash or other
property or accrued as a liability), including the capitalized portion of
Capital Leases and that portion of Investments made by such Person allocable to
property, plant or equipment. Capital Expenditures shall exclude proceeds of a
casualty loss applied to the repair or replacement of the property affected by
the casualty loss. "Casualty loss", as used herein, means, for any Person, (i)
the loss, damage, or destruction of any asset or property owned or used by such
Person, (ii) the condemnation, confiscation, or other taking, in whole or in
part, of any such asset or property, or (iii) the diminishment of the use of any
such asset or property so as to render impracticable or unreasonable the use
thereof for its intended purpose.
CASH EQUIVALENTS means either of the following, so long as the same are
maintained in accounts in which the Agent has a perfected security interest: (i)
securities issued, guarantied or insured by the United States, or any of its
agencies and having maturities of not more than one year; and (ii) certificates
of deposit having maturities of not more than one year issued by a United States
national or state chartered commercial bank of recognized standing whose
combined capital and unimpaired surplus is in excess of $200,000,000 and whose
short-term commercial paper rating, or that of its parent holding company, is at
least "A-1" or the equivalent by S&P and at least "Prime-1" or the equivalent by
Moody's.
CHANGE OF CONTROL means the occurrence of any of the following: (i) Mr.
Charles Laverty, the Chairman of the Guarantor, (x) ceases to remain in the
employ of the Guarantor in his current capacity or in some other executive
capacity or (y) ceases to "beneficially own" (such term having the meaning
ascribed to it pursuant to Section 13(3) of the United States Securities
Exchange Act of 1934) at least his current stock ownership (including securities
which may be exchanged for, converted into or exercised for shares of stock) in
the Guarantor, provided that he may sell, during each of the Guarantor's fiscal
quarters, up to 25,000 shares of such stock ownership; (ii) individuals who
constituted the Board of Directors of Guarantor or any Borrower
3
<PAGE> 11
on the Closing Date (together with any new directors whose proposal for election
by the shareholders of Guarantor or any Borrower was approved by a vote of 51%
of the directors of Guarantor or such Borrower then still in office who either
were directors on the Closing Date or whose election or nomination for election
was previously so approved) shall cease for any reason to constitute a majority
of the members of the Board of Directors of Guarantor or such Borrower still in
office; (iii) Guarantor or any Borrower conveys, transfers or leases all or
substantially all of its assets to any Person, other than to another Borrower or
the Guarantor; or (iv) the approval by stockholders of Guarantor or any Borrower
of any plan or proposal for the liquidation, dissolution or winding up of
Guarantor or any such Borrower, except for a liquidation, dissolution or winding
up involving the transfer of all assets and operations from one Borrower to
another.
CLOSING DATE means the date of execution and delivery of this Credit
Agreement by all of the parties hereto, or if later, the date on which the
initial Borrowing is advanced or the initial Letter of Credit is issued,
whichever occurs earlier.
CLOSING DOCUMENT LIST has the meaning set forth in Section 5.1.
CODE has the meaning set forth in Section 1.3.
COLLATERAL means the Accounts, Inventory and other real and personal
property identified in the Collateral Documents as security for the Obligations.
COLLATERAL ACCESS AGREEMENT means an agreement substantially in the
form of Exhibit B hereto pursuant to which a mortgagee or lessor of real
property on which Collateral is stored or otherwise located, or a warehouseman,
processor or other bailee of Inventory, acknowledges the Liens of the Agent and,
in the case of any such agreement with a mortgagee or lessor, permits the Agent
access to and use of such real property for a reasonable amount of time
following the occurrence and during the continuance of an Event of Default to
assemble, complete and sell any Collateral stored or otherwise located thereon.
COLLATERAL DOCUMENTS means, collectively, the Security Agreements, the
Mortgages and all other contracts, instruments and other documents pursuant to
which Liens are now or hereafter granted to the Agent to secure any or all of
the Obligations.
COLLECTIONS means all cash, funds, checks, notes, instruments and any
other form of remittance tendered by account debtors in payment of Accounts.
COMMITMENT of a Lender means its commitment to make Revolving Loans and
to participate in Letters of Credit, up to the amount set forth below its name
on Annex I, as such amount may be reduced from time to time in accordance with
the terms of this Credit Agreement.
4
<PAGE> 12
CONSOLIDATED ENTITY means the Guarantor and those of its Subsidiaries
(including the Borrowers and their respective Subsidiaries) consolidated with it
for purposes of financial reporting.
CONSOLIDATED NET INCOME means the consolidated net income of the
Consolidated Entity.
CONTINGENT OBLIGATION means, with respect to any Person, any direct,
indirect, contingent or non-contingent guaranty or obligation of such Person for
the Indebtedness of another Person, except for endorsements in the ordinary
course of business.
CREDIT DOCUMENTS means, collectively, this Credit Agreement, the
Revolving Notes, the Letters of Credit, the Guaranty, each of the Collateral
Documents and all other documents, agreements and instruments now or hereafter
executed in connection herewith or therewith, in each case as modified, amended,
extended, restated or supplemented from time to time.
CREDIT PARTIES means, collectively, the Guarantor, the Borrowers and
each other party to any of the Credit Documents (other than the Lenders, the
Agent or the Issuing Bank).
DEFAULT means an event, condition or default which with the giving of
notice, the passage of time or both would be an Event of Default.
DEFAULTING LENDER has the meaning set forth in Section 2.6.
DISBURSEMENT ACCOUNT means the operating account of the Borrower
Representative maintained with the Disbursement Account Bank.
DISBURSEMENT ACCOUNT BANK means Bankers Trust Company or any other
financial institution selected from time to time by the Agent and reasonably
acceptable to the Borrower Representative.
DOMESTIC LENDING OFFICE means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" on Annex I, as such
annex may be amended from time to time, which office shall in any event be
located in the United States.
EBITDA means, for any period, the Consolidated Net Income of the
Consolidated Entity (excluding extraordinary items, including one-time
restructuring charges) for such period, plus (a) all Interest Expense, income
tax expense, depreciation and amortization (including amortization of any
goodwill or other intangibles) for such period; minus (b) gains and losses
attributable to any fixed asset sales; plus or minus (c) any other non-cash
charges or gains which have been subtracted or added in calculating Consolidated
Net Income.
5
<PAGE> 13
ELIGIBLE ACCOUNTS RECEIVABLE means Accounts of a Borrower deemed by the
Agent in the exercise of its Permitted Discretion to be eligible for inclusion
in the calculation of the Borrowing Base. In determining the amount to be so
included, the face amount of such Accounts shall be reduced by the amount of all
returns, discounts, deductions, claims, credits, charges, or other allowances.
Unless otherwise approved in writing by the Agent, no Account shall be deemed to
be an Eligible Account Receivable if:
(a) it arises out of a sale made by a Borrower to an
Affiliate; or
(b) its payment terms are longer than sixty (60) days from
date of invoice; or
(c) except to the extent provided in the following subsection
(d), it is unpaid more than ninety (90) days after the original date of
invoice; or
(d) to the extent such Account is due and owing from certain
account debtor's of Borrowers' surgical and gynecology divisions, as
determined by Agent in its sole discretion, it is unpaid more than one
hundred fifty (150) days after the original date of invoice; or
(e) it is from the same account debtor or its Affiliate and
fifty percent (50%) or more of all Accounts from that account debtor
(and its Affiliates) are ineligible under (c) above; or
(f) when aggregated with all other Accounts of an account
debtor whose outstanding Accounts equal or exceed $1,000,000 at the
time of determination, the Account exceeds twenty percent (20%) in face
value of all Accounts of such Borrower then outstanding, to the extent
of such excess, unless supported by an irrevocable letter of credit
satisfactory to the Agent (as to form, substance and issuer) and
assigned to and directly drawable by the Agent; or
(g) the account debtor for the Account is a creditor of such
Borrower, has or has asserted a right of setoff against such Borrower,
has disputed its liability or made any claim with respect to the
Account or any other Account which has not been resolved, but in each
of the foregoing cases, solely to the extent of the amount of such
actual or asserted right of setoff, or the amount of such dispute or
claim, as the case may be; or
(h) the account debtor is (or its assets are) the subject of
an Insolvency Event; or
(i) the Account is not payable in United States dollars or the
account debtor
6
<PAGE> 14
for the Account is located outside the continental United States,
unless the Account is supported by an irrevocable letter of credit or
other credit support satisfactory to the Agent (as to form, substance
and issuer) and, if requested by Agent, assigned to and directly
drawable by the Agent; or
(j) the sale to the account debtor is on a bill-and-hold,
guarantied sale, sale-and-return, sale on approval or consignment basis
or made pursuant to any other written agreement providing for
repurchase or return; or
(k) the Agent determines by its own credit analysis that
collection of the Account is uncertain or the Account may not be paid;
or
(l) the account debtor is the United States of America or any
department, agency or instrumentality thereof, unless such Borrower
duly assigns its rights to payment of such Account to the Agent
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
?? 3727 et seq.); or
(m) the goods giving rise to such Account have not been
shipped and delivered to and accepted by the account debtor, the
services giving rise to such Account have not been performed and
accepted or the Account otherwise does not represent a final sale; or
(n) the Account does not comply with all Requirements of Law,
including, without limitation, the Federal Consumer Protection Act, the
Federal Truth-in-Lending Act and Regulation Z; or
(o) the Account is subject to any adverse security deposit,
progress payment or other similar advance made by or for the benefit of
the applicable account debtor; or
(p) the Account is not subject to a valid and perfected first
priority Lien in favor of the Agent or does not otherwise conform to
the representations and warranties contained in the Credit Documents.
ELIGIBLE INVENTORY means the aggregate amount of Inventory deemed by
the Agent in the exercise of its Permitted Discretion to be eligible for
inclusion in the calculation of the Borrowing Base. In determining the amount to
be so included, Inventory shall be valued at the lower of cost or market on a
basis consistent with such Borrower's current and historical accounting
practice. Unless otherwise approved in writing by the Agent, no Inventory shall
be deemed Eligible Inventory if:
(a) it is not owned solely by a Borrower or such Borrower does
not have good, valid and marketable title thereto; or
(b) it is not located in the United States; or
7
<PAGE> 15
(c) it is not located on property owned by a Borrower or by a
third party that has executed and delivered a Collateral Access
Agreement and, in the case of Inventory located on property owned by
such a third party, it is segregated or otherwise separately
identifiable from goods of others, if any, stored on such property; or
(d) it is not subject to a valid and perfected first priority
Lien in favor of the Agent, except with respect to Inventory stored at
sites described in clause (c) above, for Liens for unpaid rent or
normal and customary warehousing charges; or
(e) it consists of goods returned or rejected by such
Borrower's customers or goods in transit to third parties (other than
to warehouse sites covered by a Collateral Access Agreement); or
(f) it is not first-quality finished goods, is obsolete or
slow moving, or does not otherwise conform to the representations and
warranties contained in the Credit Documents.
EMPLOYEE BENEFIT PLAN has the meaning set forth in Section 3(3)g of
ERISA.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, 29 U.S.C. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
ERISA AFFILIATE means any entity required to be aggregated with the
Guarantor or any of its Subsidiaries under Sections 414 (b), (c), (m) or (o) of
the Internal Revenue Code.
EVENT OF DEFAULT has the meaning set forth in Article 9.
EXPENSES means all reasonable costs and expenses of the Agent incurred
in connection with the Credit Documents and the transactions contemplated
therein, including, without limitation, (i) the costs of conducting record
searches, examining collateral, opening bank accounts and lockboxes, depositing
checks, and receiving and transferring funds (including charges for checks for
which there are insufficient funds), (ii) the reasonable fees and expenses of
legal counsel and paralegals (including the allocated cost of internal counsel
and paralegals), accountants, appraisers and other consultants, experts or
advisors retained by the Agent, (iii) reasonable fees and expenses of legal
counsel and paralegals incurred in connection with the matters relating to
assignments of or sales of participations in the Revolving Loans, including
without limitation, the documentation of any such transaction, (iv) the cost of
title insurance premiums, real estate survey costs, and fees and taxes in
connection with the filing of financing statements, and (v) the costs of
preparing and recording Collateral Documents, releases of Collateral, and
waivers, amendments, and terminations of any of the Credit Documents.
8
<PAGE> 16
Expenses also means all reasonable costs and expenses (including the reasonable
fees and expenses of legal counsel and other professionals) paid or incurred by
the Agent and any Lender (i) during the continuance of an Event of Default, (ii)
in enforcing or defending its rights under or in respect of this Credit
Agreement, the other Credit Documents or any other document or instrument now or
hereafter executed and delivered in connection herewith, (iii) collecting the
Revolving Loans, (iv) foreclosing or otherwise collecting upon the Collateral or
any part thereof and (v) in obtaining any legal, accounting or other advice in
connection with any of the foregoing.
EXPIRATION DATE means December 30, 1998; provided, however, that so
long as no Event of Default has occurred prior to December 30, 1998, by
agreement of the parties hereto, the Expiration Date shall be extended to
December 30, 1999; and provided, further, that so long as no Event of Default
has occurred after December 30, 1998, by agreement of the parties hereto, the
Expiration Date shall be extended to, but not beyond, December 30, 2000.
FEDERAL FUNDS RATE means, for any period, a fluctuating interest rate
per annum for each day during such period equal to the weighted average of the
rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
FEDERAL RESERVE BOARD means the Board of Governors of the Federal
Reserve System or any Governmental Authority succeeding to its functions.
FEES means, collectively, the Unused Line Fee, the Letter of Credit
Fees, the L/C Facing Fee, the Issuing Bank Fees, the Collateral Monitoring Fee,
and the other fees provided for in that certain letter dated November 17, 1997,
between BTCC and the Guarantor.
FINANCIAL STATEMENTS means the consolidated and consolidating balance
sheets, statements of operations, statements of cash flows and statements of
changes in shareholder's equity of the Consolidated Entity for the period
specified, prepared in accordance with GAAP and consistently with prior
practices.
GAAP means generally accepted accounting principles in the United
States as in effect from time to time.
GOVERNING DOCUMENTS means certificates or articles of incorporation,
by-laws and other similar organizational or governing documents.
9
<PAGE> 17
GOVERNMENTAL AUTHORITY means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
GUARANTY means the guaranty to be executed by the Guarantor
substantially in the form of Exhibit C hereto.
HIGHEST LAWFUL RATE means, at any given time during which any
Obligations shall be outstanding hereunder, the maximum nonusurious interest
rate that at any time or from time to time may be contracted for, taken,
reserved, charged or received on such Obligations, under the laws of the State
of Illinois (or the law of any other jurisdiction whose laws may be mandatorily
applicable notwithstanding other provisions of this Credit Agreement and the
other Credit Documents), or under applicable federal laws which may presently or
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than under Illinois (or such other jurisdiction's) law, in any case after
taking into account, to the extent permitted by applicable law, any and all
relevant payments or charges under this Credit Agreement and any other Credit
Documents executed in connection herewith, and any available exemptions,
exceptions and exclusions.
INDEBTEDNESS of a Person means, without duplication, (a) indebtedness
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), whether on open account or
evidenced by a note, bond, debenture or similar instrument, (b) obligations
under capital leases, (c) reimbursement obligations for letters of credit,
banker's acceptances or other credit accommodations, (d) liabilities, as
determined by the Agent, under any Interest Rate Agreement, (e) Contingent
Obligations and (f) Indebtedness secured by any Lien on any property of that
Person, even if that Person has not assumed such Indebtedness.
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 generally fail to pay, or admit in writing its inability to pay,
its debts as they become due, (b) the voluntary commencement of any proceeding
or the filing of any petition under any bankruptcy, insolvency or similar law,
(c) the seeking of 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, (d) the filing of any answer admitting the jurisdiction of the
court and the material allegations of an involuntary petition filed against it
in any bankruptcy, insolvency or similar proceeding, (e) such Person shall make
a general assignment for the benefit of its creditors, or shall consent to, or
acquiesce in the appointment of, a receiver, trustee, custodian or liquidator
for a substantial portion of its property, assets or business. Insolvency Event
shall also mean, with respect to any Person, the occurrence of any of the
following: an involuntary proceeding or involuntary petition shall be commenced
or filed
10
<PAGE> 18
against such Person under any bankruptcy, insolvency or similar law seeking the
dissolution or reorganization of it or the appointment of a receiver, trustee,
custodian or liquidator for it or of a substantial part of its property, assets
or business, or any writ, judgment, warrant of attachment, execution or similar
process shall be issued or levied against a substantial part of its property,
assets or business, and such proceedings or petitions shall not be dismissed, or
such writ, judgment, warrant of attachment, execution or similar process shall
not be released, vacated or fully bonded, within thirty (30) days after
commencement, filing, or levy, as the case may be, or any order for relief shall
be entered in any such proceeding.
INTEREST EXPENSE means the aggregate consolidated expense of the
Consolidated Entity for interest on Indebtedness, including, without limitation,
amortization of original issue discount, incurrence fees (to the extent included
in interest expense), the interest portion of any deferred payment obligation
and the interest component of any capital lease obligation.
INTEREST PERIOD means, for any LIBOR Rate Loan, the period commencing
on the date of such Borrowing and ending on the last day of the period selected
by the Borrower Representative pursuant to the provisions below. The duration of
each such Interest Period shall be one, two, three or six months, in each case
as the Borrower Representative may, in an appropriate Notice of Borrowing,
Notice of Continuation or Notice of Conversion, select; provided, that the
Borrower Representative may not select any Interest Period that ends after the
Expiration Date. Whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day; provided, that
if such extension would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day.
INTEREST RATE AGREEMENT means any interest rate protection or hedge
agreement, including, without limitation, interest rate future, option, swap,
and cap agreements.
INTERNAL REVENUE CODE means the Internal Revenue Code of 1986,
amendments thereto, successor statutes, and regulations or guidance promulgated
thereunder.
INVENTORY has the meaning set forth in the Security Agreement.
INVESTMENT means all expenditures made and all liabilities incurred
(contingently or otherwise) for or in connection with the acquisition of stock
or Indebtedness of, or for loans, advances, capital contributions or transfers
of property to, or acquisition of substantially all the assets of, a Person. In
determining the aggregate amount of Investments outstanding at any particular
time, (i) the amount of any Investment represented by a guaranty shall be taken
at not less than the principal amount of the obligations guaranteed and
outstanding; (ii) there shall be deducted in respect of each such Investment any
amount received as a return of capital (but only
11
<PAGE> 19
by repurchase, redemption, retirement, repayment, liquidating dividend or
liquidating distribution); (iii) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment, whether as
dividends, interest or otherwise; and (iv) there shall not be deducted from the
aggregate amount of Investments any decrease in the market value thereof.
ISSUING BANK means Bankers Trust Company or any Lender or other
financial institution that is acceptable to the Agent and the Borrowers which
may at any time issue or be requested to issue a Letter of Credit for the
account of a Borrower.
ISSUING BANK FEES has the meaning set forth in Section 4.3(b).
L/C FACING FEE has the meaning set forth in Section 4.3(a).
LENDER ADVANCES has the meaning set forth in Section 2.2.
LETTER OF CREDIT FEE has the meaning set forth in Section 4.3(a).
LETTER OF CREDIT OBLIGATIONS means the sum of the aggregate undrawn
face amount of all Letters of Credit outstanding, plus the aggregate amount of
all drawings under Letters of Credit for which a Borrower has not reimbursed the
Issuing Bank, plus the aggregate amount of all payments made by Lenders to the
Issuing Bank for their participations in Letters of Credit, for which a Borrower
has not reimbursed the Lenders.
LETTER OF CREDIT REQUEST has the meaning set forth in Section 3.3.
LETTERS OF CREDIT means all letters of credit issued for the account of
the Borrowers under Article 3 and all amendments, renewals, extensions or
replacements thereof.
LIBOR LENDING OFFICE means, with respect to any Lender, the office of
such Lender specified as its "LIBOR Lending Office" opposite its name on Annex
I, as such annex may be amended from time to time (or, if no such office is
specified, its Domestic Lending Office).
LIBOR RATE means, with respect to any Interest Period for each LIBOR
Rate Loan comprising part of the same Borrowing, an interest rate per annum
equal to the rate (rounded upward to the nearest whole multiple of one-sixteenth
(1/16) of one percent (1.00%) per annum, if such rate is not such a whole
multiple of one-sixteenth (1/16) of one percent (1.00%) of the offered
quotation, if any, to first class banks in the London (U.K.) interbank market by
Bankers Trust Company for United States dollar deposits of amounts in
immediately available funds comparable to the principal amount of the LIBOR Rate
Loan of BTCC for which the LIBOR Rate is being determined with maturities
comparable to the Interest Period for which such LIBOR
12
<PAGE> 20
Rate will apply as of approximately 10:00 a.m. Chicago time two (2) Business
Days prior to the commencement of such Interest Period.
LIBOR RATE LOAN means a Revolving Loan that bears interest as provided
in Section 4.l(b) hereof.
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.
LINE OF CREDIT means the aggregate revolving line of credit extended
pursuant to this Credit Agreement by the Lenders to the Borrowers for Revolving
Loans and Letters of Credit, in an amount up to $40,000,000, as such amount may
be reduced from time to time pursuant to the respective terms and provisions
hereof.
LIQUIDITY EVENT means any transaction which results in not less than
$30,000,000 of net cash proceeds in the Consolidated Entity, whether arising
from the issuance of additional equity securities, subordinated debt, or asset
disposition (it being understood that the happening of any such events are
subject to the terms hereof, including any consents required hereunder).
LOAN ACCOUNT has the meaning set forth in Section 4.8.
LOCKBOXES has the meaning set forth in Section 4.11.
LOCKBOX ACCOUNT has the meaning set forth in Section 4.11.
LOCKBOX AGREEMENTS has the meaning set forth in Section 4.11.
LOCKBOX BANKS has the meaning set forth in Section 4.11.
MAJORITY LENDERS means those Lenders holding in the aggregate more than
fifty percent (50%) of the total Commitments, or if the Commitments are
terminated, those Lenders owed more than fifty percent (50%) of the Revolving
Loans and Letter of Credit Obligations then outstanding.
MATERIAL ADVERSE EFFECT means a material adverse effect on (i) the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Credit Parties taken as a whole, (ii)
the ability of any Credit Party to perform its obligations under the Credit
Documents to which it is a party, or on the ability of the Agent or the Lenders
to enforce the Obligations or realize upon the Collateral, or (iii) the value of
the Collateral, or the
13
<PAGE> 21
amount which the Agent or the Lenders would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral.
MATERIAL CONTRACT means any contract or other arrangement to which the
Borrowers or any of their respective Subsidiaries is a party (other than the
Credit Documents) for which breach, nonperformance, cancellation or failure to
renew could reasonably be expected to have a Material Adverse Effect.
MOODY'S means Moody's Investors Services, Inc., or any successor
thereto.
MORTGAGES means each mortgage, deed of trust or similar security
agreement in form reasonably satisfactory to Agent, made or to be made by one or
more Borrowers having an interest in real property to be encumbered, in favor of
Agent to secure the Obligations.
MULTIEMPLOYER PLAN means a "multiemployer plan" (as defined in Section
4001(a) (3) of ERISA) to which the Guarantor, any of its Subsidiaries or any
ERISA Affiliate has contributed within the past six years or with respect to
which the Guarantor or any of its Subsidiaries could reasonably be expected to
incur any liability.
NOTICE OF BORROWING means an irrevocable and binding notice delivered
by the Borrower Representative to the Agent either by telephone or by facsimile
transmission (and if by telephone, confirmed in writing), of the Borrower
Representative's request for a Borrowing, which notice shall be substantially in
the form of Exhibit D hereto.
NOTICE OF CONTINUATION has the meaning set forth in Section 4.14(a).
NOTICE OF CONVERSION has the meaning set forth in Section 4.14(b).
OBLIGATIONS means the unpaid principal and interest hereunder
(including interest accruing on or after the occurrence of an Insolvency Event),
reimbursement obligations under Letters of Credit, Fees, Expenses and all other
obligations and liabilities of the Borrowers to the Agent, the Issuing Bank or
to the Lenders under this Credit Agreement, the Revolving Notes, or any other
Credit Document.
PERMITTED DISCRETION means the Agent's judgment exercised in good faith
and not in an irrational manner based upon its consideration of any factor which
the Agent believes in good faith could materially adversely affect the value of
any Collateral, including any Inventory or Accounts or the amount which the
Agent and the Lenders would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral. In exercising such judgment, the Agent may consider such factors
which are already included in or tested by the definition of Eligible Accounts
Receivable or Eligible Inventory, as well as any
14
<PAGE> 22
of the following: (i) the financial and business climate of the Borrowers'
industry and general macroeconomic conditions, (ii) changes in collection
history and dilution with respect to the Accounts, (iii) changes in levels of
backlog of firm purchase orders and demand for, and pricing of, Inventory, (iv)
changes in any concentration of risk with respect to Accounts and Inventory, and
(v) any other factors that change the credit risk of lending to any of the
Borrowers on the security of the Accounts and Inventory.
PERMITTED LIENS means the Liens referred to in clauses (a) through (i)
of Section 8.6.
PERSON means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency or
department thereof), and its successors, heirs and assigns.
PLAN means any Benefit Plan, Multiemployer Plan, or Retiree Health
Plan, or any Employee Benefit Plan, fund, program or arrangement, whether oral
or written, maintained or contributed to by the Guarantor or any of its
Subsidiaries, or with respect to which any of them could reasonably be expected
to incur liability.
PRIME LENDING RATE means the rate which Bankers Trust Company announces
as its prime lending rate, from time to time. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bankers Trust Company and each of the Lenders
may make commercial loans or other loans at rates of interest at, above or below
the Prime Lending Rate.
PRIME RATE LOAN means a Revolving Loan that bears interest as provided
in Section 4.1(a) hereof.
PROPORTIONATE SHARE of a Lender means a fraction, expressed as a
percentage, obtained by dividing its Commitment by the Line of Credit or, if the
Commitments are terminated, by dividing its then outstanding Revolving Loans and
Letter of Credit participations by the then outstanding aggregate Revolving
Loans and Letter of Credit Obligations.
PURCHASE MONEY LIENS has the meaning set forth in Section 8.5(f).
REGISTER has the meaning set forth in Section 11.8(c).
REGULATION D means Regulation D of the Federal Reserve Board, as in
effect from time to time.
REGULATION G means Regulation G of the Federal Reserve Board, as in
effect from time to time.
15
<PAGE> 23
REGULATION Z means Regulation Z of the Federal Reserve Board, as in
effect from time to time.
REPORTABLE EVENT means any of the events described in Section 4043 of
ERISA and the regulations thereunder.
REQUIREMENT OF LAW means, with respect to any Person, (a) the Governing
Documents of such Person, (b) any law, treaty, rule or regulation or
determination of an arbitrator, court or other Governmental Authority binding on
such Person, or (c) any franchise, license, permit, certificate, authorization,
qualification, easement, right of way, right or approval binding on a Person or
any of its property.
RETIREE HEALTH PLAN means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA, and any other plan, program or arrangement,
whether oral or written, that provides benefits to persons after termination of
employment, other than as required by Section 601 of ERISA.
REVOLVING LOANS has the meaning set forth in Section 2.1.
REVOLVING NOTE means a promissory note of the Borrowers payable to the
order of any Lender, substantially in the form of Exhibit E hereto.
S&P means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
SECURITY AGREEMENTS mean the Security Agreement substantially in the
form of Exhibit F-1 hereto, the Patent and License Security Agreement
substantially in the form of Exhibit F-2 hereto, the Trademark and License
Security Agreement substantially in the form of Exhibit F-3 hereto, and the
Pledge Agreement substantially in the form of Exhibit F-4 hereto, all executed
by the Guarantor in favor of the Agent, and the Security Agreement substantially
in the form of Exhibit G-1 hereto, the Patent and License Security Agreement
substantially in the form of Exhibit G-2 hereto, and the Trademark and License
Security Agreement substantially in the form of Exhibit G-3 hereto, all executed
by the Borrowers in favor of the Agent.
SETTLEMENT DATE has the meaning set forth in Section 2.4(a).
SUBSIDIARY of a Person means a corporation or other entity in which
that Person directly or indirectly owns or controls the 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.
16
<PAGE> 24
TERMINATION EVENT means (i) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan; (ii) the withdrawal of the Guarantor, any of
its Subsidiaries or any ERISA Affiliate from a Benefit Plan during a plan year
in which it was a "substantial employer" (as defined in Section 4001(a) (2) of
ERISA); (iii) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA); (iv) the
institution by the Pension Benefit Guaranty Corporation of proceedings to
terminate a Benefit Plan or Multiemployer Plan; (v) any event or condition (a)
which could reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Benefit Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or
complete withdrawal, within the meaning of Sections 4203 and 4205 of ERISA, of
the Guarantor, the Borrower, any of its Subsidiaries or any ERISA Affiliate from
a Multiemployer Plan.
TYPE means a LIBOR Rate Loan or a Prime Rate Loan.
UNUSED LINE FEE has the meaning set forth in Section 4.2.
1.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise defined or
specified herein, all accounting terms used in this Credit Agreement shall be
construed in accordance with GAAP, applied on a basis consistent in all material
respects with the Financial Statements referred to in Section 6.9. All
accounting determinations for purposes of determining compliance with the
financial covenants contained in Article 8 shall be made in accordance with GAAP
as in effect on the Closing Date and applied on a basis consistent in all
material respects with the audited Financial Statements delivered to the Agent
on or before the Closing Date. The Financial Statements required to be delivered
hereunder from and after the Closing Date, 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 the Agent on or before
the Closing Date, the certificates required to be delivered pursuant to Section
7.1 demonstrating compliance with the covenants contained herein shall include,
at the election of the Borrowers or upon the request of the Majority Lenders,
calculations setting forth the adjustments necessary to demonstrate how the
Borrowers are in compliance with the financial covenants based upon GAAP as in
effect on the Closing Date.
1.3 OTHER TERMS; HEADINGS. Terms used herein and not otherwise defined
in Article 1 that are defined in the Uniform Commercial Code in effect in the
State of Illinois (the "Code") shall have the meanings given in the Code. Each
of the words "hereof," "herein," and "hereunder" refer to this Credit Agreement
as a whole. An Event of Default shall "continue" or be "continuing" until such
Event
17
<PAGE> 25
of Default has been waived in accordance with Section 11.11 hereof. References
to Articles, Sections, Annexes, Schedules, and Exhibits are internal references
to this Credit Agreement, and to its attachments, unless otherwise specified.
The headings and the Table of Contents are for convenience only and shall not
affect the meaning or construction of any provision of this Credit Agreement.
ARTICLE 2
REVOLVING LOANS
2.1 REVOLVING CREDIT COMMITMENTS. Subject to the terms and conditions
set forth in this Credit Agreement, and in reliance on the representations and
warranties of the Borrowers set forth herein, on and after the Closing Date and
to and excluding the Expiration Date, each Lender severally agrees to make loans
and advances to the Borrowers (each a "Revolving Loan") in an amount not to
exceed at any time its Proportionate Share of the lesser at such time of the
Line of Credit and the Borrowing Base MINUS, in each case, the then outstanding
Letter of Credit Obligations.
2.2 BORROWING OF REVOLVING LOANS. Revolving Loans may be made available
to the Borrowers directly by the Lenders ("Lender Advances") or, in the
circumstances described in Section 2.2(b), from the Agent acting on behalf of
the Lenders ("Agent Advances").
(a) LENDER ADVANCES. Subject to the determination by the Agent
and the Lenders that the conditions for borrowing contained in Section
5.2 are satisfied, upon receipt of a Notice of Borrowing from the
Borrower Representative received by the Agent before noon Chicago time
on a Business Day, Lender Advances of Revolving Loans may be made to
the extent of each Lender's Proportionate Share of the requested
Borrowing. Each Notice of Borrowing shall specify whether the requested
Borrowing is of Prime Rate Loans or LIBOR Rate Loans.
(b) AGENT ADVANCES. The Agent is authorized by the Lenders,
but is not obligated, to make Agent Advances upon a receipt of any
Notice of Borrowing received by the Agent before 2:00 P.M. Chicago time
on a Business Day. Agent Advances shall be subject to periodic
settlement with the Lenders under Section 2.4. Agent Advances may be
made only in the following circumstances:
(i) NORMAL COURSE AGENT ADVANCES. For administrative
convenience, the Agent may, but is not obligated, to make
Agent Advances up to
18
<PAGE> 26
the amount available for borrowing under Section 2.1 in
reliance upon the actual or deemed representations of the
Borrowers under Section 5.2 that the conditions for borrowing
are satisfied.
(ii) OTHER AGENT ADVANCES. When the conditions for
borrowing under Section 5.2 cannot be fulfilled, and
notwithstanding the Borrowing Base limitation of Section 2.1,
the Agent may, but is not obligated, to continue to make Agent
Advances for seven (7) Business Days or until sooner
instructed by the Majority Lenders to cease, in an aggregate
amount at any time not to exceed $1,500,000.
(c) DISBURSEMENT OF REVOLVING LOANS. The proceeds of Revolving
Loans shall be transmitted: (x) in the circumstances described in
Section 3.5, by the Agent directly to the Issuing Bank, and (y) in all
other circumstances, by the Agent or Lenders, as the case may be, to
the Disbursement Account.
(d) NOTICES OF BORROWING. Notices of Borrowing may be given
under this Section by telephone or facsimile transmission, and, if by
telephone, promptly confirmed in writing. The Borrower Representative
shall specify in each Notice of Borrowing whether the conditions for
the requested Borrowing are satisfied. The Borrower Representative may
request one or more Borrowings of Revolving Loans constituting Prime
Rate Loans on the same Business Day. Each Notice of Borrowing for LIBOR
Rate Loans shall be given not later than noon Chicago time on the third
Business Day prior to the proposed Borrowing. Each Notice of Borrowing
shall, unless otherwise specifically provided herein, consist entirely
of Revolving Loans of the same Type and, if such Borrowing is to
consist of LIBOR Rate Loans, shall be in an aggregate amount of not
less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof. The right of the Borrowers to choose LIBOR Rate Loans is
subject to the provisions of Section 4.14. Once given, a Notice of
Borrowing is irrevocable by and binding on the Borrowers. The Borrower
Representative shall provide to the Agent a list, with specimen
signatures, of officers authorized to request Revolving Loans. The
Agent is entitled to rely upon such list until it is replaced by the
Borrower Representative.
2.3 NOTICE OF REQUEST FOR LENDER ADVANCES. Subject to the last sentence
of this Section, the Agent shall give each Lender prompt notice by telephone or
facsimile transmission of a Notice of Borrowing that is received pursuant to
Section 2.2(a) and is to be satisfied by Lender Advances. No later than 2:00
P.M. Chicago time on the date of receipt of such notice, each Lender shall make
available for the account of its Applicable Lending Office to the Agent at the
Agent's address for deposit into the Disbursement Account, its Proportionate
Share of such Borrowing in immediately available funds. Unless the Agent
receives contrary written notice prior to any such Borrowing, it is entitled to
assume that each Lender will make available its
19
<PAGE> 27
Proportionate Share of the Borrowing and in reliance upon that assumption, but
without any obligation to do so, may advance such Proportionate Share on behalf
of the Lender, without the necessity of giving daily notice to each Lender of
the receipt of a Notice of Borrowing.
2.4 PERIODIC SETTLEMENT OF AGENT ADVANCES; INTEREST AND FEES;
STATEMENTS
(a) THE SETTLEMENT DATE; ALLOCATION OF INTEREST AND FEES. The
amount of each Lender's Proportionate Share of Revolving Loans shall be
computed weekly (or more frequently in the Agent's discretion) and
shall be adjusted upward or downward based on all Loans (including
Agent Advances) and repayments received by the Agent as of 5:00 P.M.
Chicago time on the last Business Day of the period specified by the
Agent (such date, the "Settlement Date").
(b) SUMMARY STATEMENTS; SETTLEMENTS. The Agent shall deliver
to the Borrower Representative and each of the Lenders promptly after
the Settlement Date a summary statement of the account of outstanding
Loans (including Agent Advances) for the period, the amount of
repayments received for the period, and the amount allocated to each
Lender of the interest and Unused Line Fee for the period. After
application of payments under Section 4.12, as reflected on the summary
statement: (i) the Agent shall transfer to each Lender its allocated
share of interest and Unused Line Fee, and its Proportionate Share of
repayments; and (ii) each Lender shall transfer to the Agent, or the
Agent shall transfer to each Lender, such amounts as are necessary to
insure that, after giving effect to all such transfers, the amount of
Loans made by each Lender shall be equal to such Lender's Proportionate
Share of the aggregate amount of Loans outstanding as of such
Settlement Date. If the summary statement requires transfers to be made
to the Agent by the Lenders and is received by the Lenders prior to
12:00 noon Chicago time on a Business Day, such transfers shall be made
in immediately available funds no later than 3:00 P.M. Chicago time
that day; and, if received after 12:00 noon Chicago time, then no later
than 3:00 P.M. Chicago time on the next Business Day. The obligation of
each Lender to transfer such funds is irrevocable, unconditional and
without recourse to or warranty by the Agent.
(c) DISTRIBUTION OF INTEREST AND UNUSED LINE FEES. Interest on
the Revolving Loans (including Agent Advances) and the Unused Line Fee
shall be allocated by the Agent to each Lender (i) in the case of
interest, in accordance with the Revolving Loans actually advanced by
and repaid to such Lender and (ii) in the case of the Unused Line Fee,
in accordance with the Proportionate Share of such Lender. Interest
shall accrue from and including the date Revolving Loans are advanced
and to but excluding the date such Revolving Loans are either repaid by
the Borrowers or, if later, actually settled under this Section.
Promptly after the end of each month, the Agent shall distribute to
each Lender its portion, allocated as provided above, of the interest
and
20
<PAGE> 28
Unused Line Fee which has accrued during such month.
2.5 SHARING OF PAYMENTS. If any Lender shall obtain any payment
(whether made voluntarily or involuntarily, or through the exercise of any right
of set-off, or otherwise) on account of the Revolving Loans made by it or its
participation in the Letter of Credit Obligations in excess of its Proportionate
Share of payments on account of the Revolving Loans or Letter of Credit
Obligations obtained by all the Lenders, such Lender shall forthwith purchase
from the other Lenders such participations in the Revolving Loans made by them
or in their participation in Letters of Credit as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of them;
provided, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be
rescinded and each such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery, together with an amount equal to such
Lender's ratable share (according to the proportion of (i) the amount of such
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect to the total amount so recovered. The Borrowers
agree that any Lender so purchasing a participation from another Lender pursuant
to this Section 2.5, to the fullest extent permitted by law, may exercise all of
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrowers in the amount of such participation.
2.6 DEFAULTING LENDERS
(a) A Lender who fails to pay the Agent its Proportionate
Share of any Revolving Loans (including Agent Advances) made available
by the Agent on such Lender's behalf, or who fails to pay any other
amounts owing by it to the Agent, is a "Defaulting Lender." The Agent
is entitled to recover from such Defaulting Lender all such amounts
owing by such Defaulting Lender on demand. If the Defaulting Lender
does not pay such amounts on the Agent's demand, the Agent shall
promptly notify the Borrower Representative and the Borrowers shall pay
such amounts within five (5) Business Days of the Borrower
Representative's receipt of such notice. In addition, the Defaulting
Lender or the Borrowers shall pay to the Agent for its own account
interest on such amount for each day from the date it was made
available by the Agent to the Borrowers to the date it is recovered by
the Agent at a rate per annum equal to (x) the overnight Federal Funds
Rate, if paid by the Defaulting Lender, or (y) the then applicable rate
of interest calculated under Section 4.1, if paid by the Borrowers;
plus, in each case, the Expenses and losses, if any, incurred as a
result of the Defaulting Lender's failure to perform its obligations.
Nothing herein shall be deemed to relieve any Lender of its obligation
to fulfill its commitments hereunder or to prejudice any rights which
the Borrowers may have against any Lender as a result of any default by
such Lender
21
<PAGE> 29
hereunder, including, without limitation, the right of the Borrowers to
seek reimbursement from any Defaulting Lender for any amounts paid by
the Borrowers under clause (y) above on account of such Defaulting
Lender's default.
(b) The failure of any Lender to fund its Proportionate Share
of a Revolving Loan shall not relieve any other Lender of its
obligation to fund its Proportionate Share of a Revolving Loan.
Conversely, no Lender shall be responsible for the failure of another
Lender to fund its Proportionate Share of a Revolving Loan.
(c) The Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by the Borrowers to the Agent for
the Defaulting Lender's benefit; nor shall a Defaulting Lender be
entitled to the sharing of any payments hereunder. Amounts payable to a
Defaulting Lender shall instead be paid to or retained by the Agent.
The Agent may hold and, in its discretion, re-lend to the Borrowers the
amount of all such payments received by it for the account of such
Lender. For purposes of voting or consenting to matters with respect to
the Credit Documents and determining Proportionate Shares, such
Defaulting Lender shall be deemed not to be a "Lender" and such
Lender's Commitment shall be deemed to be zero (-0-). This Section
shall remain effective with respect to such Lender until (x) the
Obligations under this Credit Agreement shall have been declared or
shall have become immediately due and payable or (y) the Majority
Lenders, the Agent and the Borrowers shall have waived such Lender's
default in writing. The operation of this Section shall not be
construed to increase or otherwise affect the Commitment of any Lender,
or relieve or excuse the performance by the Borrowers of their duties
and obligations hereunder.
2.7 RELIANCE ON NOTICES; APPOINTMENT OF BORROWER REPRESENTATIVE. Agent
shall be entitled to rely upon, and shall be fully protected in relying upon,
any Notice of Borrowing or similar notice believed by Agent to be genuine. Agent
may assume that each Person executing and delivering such a notice was duly
authorized, unless the responsible individual acting thereon for Agent has
actual knowledge to the contrary. Each Borrower hereby designates the Guarantor
("Borrower Representative") as its representative and agent on its behalf for
the purpose of issuing notices of Borrowing, giving instructions with respect to
the disbursement of the proceeds of the Loans, selecting interest rate options,
requesting Letters of Credit, giving and receiving all other notices and
consents hereunder or under any of the other Credit Documents and taking all
other actions (including in respect of compliance with covenants) on behalf of
any Borrower or Borrowers under the Credit Documents. Borrower Representative
hereby accepts such appointment. Agent and each Lender may regard any notice or
other communication pursuant to any Credit Document from Borrower Representative
as a notice or communication from all Borrowers, and may give any notice or
communication required or permitted to be given to any Borrower or
22
<PAGE> 30
Borrowers hereunder to Borrower Representative on behalf of such Borrower or
Borrowers. Each Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been directly by such Borrower.
ARTICLE 3
LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT. Subject to the terms and conditions
hereof and in reliance on the representations and warranties of the Borrowers
set forth herein, the Agent shall cause the Issuing Bank to issue Letters of
Credit hereunder at the request of the Borrower Representative and for its
account, as more specifically described below. The Agent shall not be obligated
to cause the Issuing Bank to issue any Letter of Credit if:
(a) issuance of the requested Letter of Credit (i) would cause
the Letter of Credit Obligations then outstanding to exceed $5,000,000
or (ii) would cause the sum of the Revolving Loans plus the Letter of
Credit Obligations then outstanding to exceed the lesser of (x) the
Line of Credit then in effect and (y) the Borrowing Base then in
effect; or
(b) issuance of the Letter of Credit is enjoined, restrained
or prohibited by any Governmental Authority, Requirement of Law or any
request or directive of any Governmental Authority (whether or not
having the force of law) or would impose upon the Agent or the Issuing
Bank any material restriction, reserve, capital requirement, loss, cost
or expense (for which the Agent or the Issuing Bank is not otherwise
compensated) not in effect or known as of the Closing Date.
3.2 TERMS OF LETTERS OF CREDIT. The proposed amount, terms and
conditions, and form of each Letter of Credit (and of any drafts or acceptances
thereunder) shall be subject to approval by the Issuing Bank. The term of each
standby Letter of Credit shall not exceed 360 days, but may be subject to annual
renewal. The term of each documentary Letter of Credit shall not exceed one
hundred twenty (120) days. No Letter of Credit shall have an expiry date later
than five (5) Business Days prior to the Expiration Date.
3.3 NOTICE OF ISSUANCE. A request for issuance of a Letter of Credit (a
"Letter of Credit Request") may be given in writing or electronically and, if
requested by the Agent, promptly confirmed in writing. A Letter of Credit
23
<PAGE> 31
Request must be received by the Agent no later than 1:00 P.M. Chicago time at
least ten (10) Business Days (or such shorter period as may be agreed to by the
Issuing Bank) in advance of the proposed date of issuance.
3.4 LENDERS' PARTICIPATION. Immediately upon issuance or amendment of
any Letter of Credit, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from the Issuing Bank, without recourse
or warranty, an undivided interest and participation in all rights and
obligations under such Letter of Credit (other than fees and other amounts owing
to the Issuing Bank) in accordance with such Lender's Proportionate Share.
3.5 PAYMENTS OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. The Agent shall
notify the Borrowers of the receipt by the Agent of notice from the Issuing Bank
of a draft or other presentation for payment or drawing under a Letter of Credit
not later than 11:00 A.M. Chicago time on the Business Day immediately prior to
the date on which the Issuing Bank intends to honor such drawing. Unless the
procedures set forth in Section 9.2(c) shall be applicable, the Borrowers shall
be deemed to have concurrently given a Notice of Borrowing to the Agent to make
a Revolving Loan in the amount of and at the time of such drawing, the proceeds
of which shall be applied directly by the Agent to reimburse the Issuing Bank
for the amount of such drawing.
3.6 PAYMENT BY LENDERS. If a Revolving Loan is not made in an amount
sufficient to reimburse the Issuing Bank in full for the amount of any draw
under a Letter of Credit, the Agent shall promptly notify each Lender of the
unreimbursed amount of such drawing and of such Lender's respective
participation therein. Each Lender shall make available to the Agent, for the
account of the Issuing Bank, the amount of its participation in immediately
available funds not later than 1:00 P.M. Chicago time on the next Business Day
after such Lender receives notice from the Agent of the amount of such Lender's
participation in such unreimbursed amount. If any Lender fails to make available
to the Agent the amount of such Lender's participation, the Issuing Bank shall
be entitled to recover such amount on demand from such Lender together with
interest at the Federal Funds Rate for the first three Business Days and
thereafter at the Prime Lending Rate. For each Letter of Credit, the Agent shall
promptly distribute to each Lender which has funded the amount of its
participation its Proportionate Share of all payments subsequently received by
the Agent from the Borrowers in reimbursement of honored drawings.
3.7 OBLIGATIONS ABSOLUTE. The obligations of the Borrowers to reimburse
the Lenders under Section 3.6 shall be unconditional and irrevocable and shall
be paid strictly in accordance with the terms of this Credit Agreement under all
circumstances including, without limitation, upon the occurrence and
24
<PAGE> 32
during the continuance of an Event of Default.
3.8 AGENT'S EXECUTION OF APPLICATIONS AND OTHER ISSUING BANK
DOCUMENTATION: RELIANCE ON CREDIT AGREEMENT BY ISSUING BANK. The Agent shall be
authorized to execute, deliver and perform on behalf of the Lenders such letter
of credit applications, shipping indemnities, letter of credit modifications and
consents and other undertakings for the benefit of the Issuing Bank as may be
reasonably necessary or appropriate in connection with the issuance or
modification of Letters of Credit requested by the Borrowers hereunder. The
Lenders, the Agent and the Borrowers all expressly agree that the terms of this
Article 3 and various other provisions of this Credit Agreement identifying the
Issuing Bank are also intended to benefit the Issuing Bank and the Issuing Bank
shall be entitled to enforce the provisions hereof which are for its benefit.
ARTICLE 4
COMPENSATION, REPAYMENT
AND REDUCTION OF COMMITMENTS
4.1 INTEREST ON REVOLVING LOANS
(a) Interest on the unpaid principal amount of Revolving Loans
which are Prime Rate Loans shall be payable monthly in arrears, on the
first Business Day of each month, at an interest rate per annum equal
to the Prime Lending Rate PLUS one and one-half percent (1-1/2%)
calculated on the net balances owing to the Agent and the Lenders at
the close of business each day during such month. The rate hereunder
shall change each day the Prime Lending Rate changes.
(b) Interest on Revolving Loans which are LIBOR Rate Loans
shall be payable on the last day of each Interest Period (provided,
that in the case of any LIBOR Rate Loan having an Interest Period of
six (6) months, such interest shall be payable on the ninetieth day
occurring in such Interest Period and on the last day of such Interest
Period) with respect to such LIBOR Rate Loans, at the date of
conversion of such LIBOR Rate Loans (or a portion thereof) to a Prime
Rate Loan and at maturity of such LIBOR Rate Loans at an interest rate
per annum equal during the Interest Period for such LIBOR Rate Loans to
the LIBOR Rate for the Interest Period in effect for such LIBOR Rate
Loans PLUS three and one-quarter percent (3-1/4%). After maturity of
such LIBOR Rate Loans (whether by acceleration or otherwise), interest
shall be payable upon demand. The Agent upon determining the LIBOR Rate
for any Interest Period shall promptly notify the Borrowers and the
Lenders by telephone (confirmed promptly in writing) or in writing
25
<PAGE> 33
thereof. Each determination by the Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent demonstrable
error.
(c) Notwithstanding the provisions of Sections 4.1(a) and (b),
the Borrowers shall pay to each Lender, so long as and to the extent
such Lender shall be required under regulations of the Board of
Governors of the Federal Reserve System to maintain reserves with
respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each Revolving Loan comprised of LIBOR Rate Loans of such
Lender, from the date of such LIBOR Rate Loan until such principal
amount is paid in full, at an interest rate per annum equal at all
times to the remainder obtained by subtracting (a) the LIBOR Rate for
the applicable Interest Period for such LIBOR Rate Loan from (b) the
rate obtained by dividing such LIBOR Rate by a percentage equal to 1
MINUS the stated maximum rate (stated as a decimal) applicable two (2)
Business Days before the first day of such Interest Period of all
reserves, if any, required to be maintained against "Eurocurrency
liabilities" as specified in Regulation D (or against any other
category of liabilities which includes deposits by reference to which
the interest rate on LIBOR Rate Loans is determined or any category of
extensions of credit or other assets which includes loans by a
non-United States office of any Lender to United States residents)
having a term equal to the Interest Period applicable to such LIBOR
Rate Loan. Such Lender shall as soon as practicable provide notice to
the Agent and the Borrowers of any such additional interest arising in
connection with such LIBOR Rate Loan, which notice shall be conclusive
and binding, absent demonstrable error.
4.2 UNUSED LINE FEE. The Borrowers shall pay to the Agent, for the
ratable benefit of the Lenders, a non-refundable fee (the "Unused Line Fee")
equal to one-half percent (1/2%) per annum of the unused portion of the Line of
Credit. The Unused Line Fee shall accrue daily from the Closing Date until the
Expiration Date, and shall be due and payable monthly in arrears, on the first
Business Day of each month and on the Expiration Date.
4.3 LETTER OF CREDIT FEES
(a) The Agent, for the ratable benefit of the Lenders, shall
be entitled to charge to the account of the Borrowers on the first
Business Day of each month, a fee (the "Letter of Credit Fee"), in an
amount equal to one and three-quarters percent (1-3/4%) per annum of
the daily weighted average undrawn amount of Letters of Credit
outstanding during the immediately preceding month. In addition, the
Agent, for its own account, shall be entitled to charge to the account
of the Borrowers on the date of issuance of any standby Letter of
Credit, a facing fee equal to one-half percent (1/2%) on the initial
face amount of each such standby Letter of Credit (the "L/C Facing
Fee").
26
<PAGE> 34
(b) The Agent shall also be entitled to charge to the account
of the Borrowers, as and when incurred by the Agent or any Lender, the
customary charges, fees, costs and expenses charged to the Agent or any
Lender for the Borrowers' account by any Issuing Bank (the "Issuing
Bank Fees") in connection with the issuance, transfer, drawing,
amendment or negotiation of any Letters of Credit by the Issuing Bank.
Each determination by the Agent of Letter of Credit Fees, L/C Facing
Fees, Issuing Bank Fees and other fees, costs and expenses charged
under this Section shall be conclusive and binding for all purposes,
absent manifest error.
4.4 INTEREST AND LETTER OF CREDIT FEES AFTER EVENT OF DEFAULT. From the
date of occurrence of an Event of Default until the earlier of the date upon
which (i) all Obligations shall have been paid and satisfied in full or (ii)
such Event of Default shall have been waived, interest on the Revolving Loans
and Letter of Credit Fees on Letter of Credit Obligations shall each be payable
on demand as a rate per annum equal to, with respect to the Revolving Loans, the
rate in effect under Section 4.1, plus two percent (2%), and with respect to the
Letter of Credit Obligations, the rate at which Letter of Credit Fees are
charged pursuant to the first sentence of Section 4.3(a), plus two percent (2%).
4.5 COLLATERLAL MONITORING FEE. The Borrowers shall pay to the Agent,
for its own account, a non-refundable annual collateral monitoring fee (the
"Collateral Monitoring Fee") in the amount of $40,000. The Collateral Monitoring
Fee shall be fully earned and payable on the Closing Date and on each
anniversary thereof.
4.6 EXPENSES. The Borrowers shall reimburse the Expenses of the Agent,
or any Lender, as the case may be, promptly upon demand.
4.7 MANDATORY PAYMENT; REDUCTIONS OF COMMITMENTS
(a) Except during the period described in Section 2.2(b)(ii),
the aggregate outstanding principal amount of Revolving Loans plus
Letter of Credit Obligations at any time in excess of the lesser at
such time of (i) the Borrowing Base and (ii) the Line of Credit, shall
be immediately due and payable without the necessity of any demand.
(b) On the happening of the Liquidity Event, the proceeds
thereof shall be applied, to the extent necessary, to reduce the
Revolving Loans then outstanding to zero (0). To the extent any of the
Revolving Loans then outstanding constitute LIBOR Rate
27
<PAGE> 35
Loans, Borrowers shall pay to Agent an amount equal thereto, to be held
in a cash collateral account for the benefit of Lenders and under the
sole control and dominion of Agent, and from which Agent shall apply
such funds to the LIBOR Rate Loans at the end of the applicable
Interest Period. Any such repayment under this subsection (b) shall not
constitute a permanent reduction or termination of the Line of Credit,
unless so indicated by the Borrower Representative in writing.
(c) On the Expiration Date, the Commitment of each Lender
shall automatically reduce to zero (-0-) and may not be reinstated.
(d) The Borrowers may reduce or terminate the Line of Credit
at any time and from time to time in whole or in part; provided, that
each such reduction must be in an amount not less than $5,000,000 (and
in increments of $1,000,000 in excess thereof). Once reduced, no
portion of the Line of Credit may be reinstated. If the Borrowers seek
to reduce the Line of Credit to an amount less than $10,000,000, then
the Line of Credit shall be reduced to zero (-0-).
4.8 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF ACCOUNT. The Agent shall
maintain an account on its books in the name of the Borrowers (the "Loan
Account") in which the Borrowers will be charged with all loans and advances
made by the Lenders to the Borrowers or for the account of the Borrowers,
including the Revolving Loans, and all Letter of Credit Obligations, the Fees,
the Expenses and any other Obligations, as and when such payments become due.
The Loan Account will be credited with all payments received by the Agent from
the Borrowers or for the account of the Borrowers, including all amounts
received in the BT Account from the Lockbox Banks. After the end of each month,
the Agent shall send the Borrower Representative a monthly statement accounting
for the charges, loans, advances and other transactions occurring among and
between the Agent, the Lenders and the Borrowers during that month, provided,
that the failure of the Agent to send such statement to the Borrower
Representative shall not relieve the Borrowers of any Obligations. Absent
manifest error, each monthly statement shall be an account stated and shall be
final, conclusive and binding on the Borrowers.
4.9 INTERCOMPANY ACCOUNTS; ALLOCATION OF REVOLVING LOANS
(a) The Borrowers maintain an integrated cash management
system reflecting the Borrowers' interdependence on one another and the
mutual benefits shared among them as a result of their respective
operations. In order to efficiently fund and operate their respective
businesses and minimize the number of borrowings which they will make
28
<PAGE> 36
under this Credit Agreement and thereby reduce the administrative costs
and record keeping required in connection therewith, including the
necessity to maintain separately identified and monitored borrowing
facilities, the Borrowers have requested, and the Agent and the Lenders
have agreed, that the Loans and the Letters of Credit be provided to
and for the account of the Borrowers on a joint and several basis. Such
Loans will be advanced to the Disbursement Account and each Letter of
Credit will be issued pursuant to an application therefor executed by
the Borrower Representative on behalf of the Borrowers. Each of the
Borrowers hereby acknowledges that it will be receiving a direct
benefit from each Revolving Loan made and each Letter of Credit issued
pursuant to this Credit Agreement.
(b) In order to track more precisely the recipient of proceeds
of Revolving Loans and the Borrower receiving the primary benefit from
the issuance of any Letter of Credit, to determine the amount of
prepayments required pursuant to the terms hereof as a result of any
asset disposition, and to aid the Borrowers, the Agent and the Lenders
in administering the Loans and the Letters of Credit in a manner
consistent with applicable fraudulent conveyance and fraudulent
transfer law, the Guarantor and the Borrowers have agreed with the
Agent and the Lenders (i) to establish and maintain intercompany
accounts tracking the net amount of all loans, dividends and other
disbursements made to or received from Guarantor or advances made among
the Borrowers to the extent permitted by this Credit Agreement
(individually an "Intercompany Account" and, collectively, the
"Intercompany Accounts"), (ii) to track on a monthly basis the
recipient of the proceeds of Revolving Loans, and (iii) that all
Letters of Credit will be issued in the name of the Borrower which will
receive the goods which are the subject of such Letter of Credit.
(c) Upon the request of Agent, for any month during the term
hereof, Borrowers and Guarantor shall deliver to the Agent a report
setting forth (i) a comparison as of the end of such month of the
Borrowing Base of each Borrower, (ii) the aggregate balance of the
Intercompany Accounts of each Borrower and (iii) a reasonable
allocation of the amount of the outstanding Revolving Loan proceeds
received (including payments to its creditors) by each Borrower.
Guarantor and Borrowers' covenant and agree that in the event with
respect to any Borrower, the Revolving Loan allocated to such Borrower,
plus the outstanding Letter of Credit Obligations with respect to
Letters of Credit issued in the name of such Borrower (such amount
being the "Aggregate Credit Advances") shall exceed such Borrower's
Borrowing Base, the Aggregate Credit Advances to Borrower shall be
reduced and such amounts in excess of its Borrowing Base shall be
allocated to another Borrower in a manner consistent with the
requirements of applicable fraudulent conveyance and fraudulent
transfer law.
29
<PAGE> 37
4.10 PAYMENT PROCEDURES. Payments of principal, interest, Fees and
Expenses shall be made not later than 2:00 P.M. Chicago time on the day when
due, in immediately available dollars, to the offices of the Agent, at the
address set forth in Section 11.7, or as the Agent may otherwise direct the
Borrowers. The Borrowers hereby authorize the Agent to charge the Loan Account
with the amount of all payments to be made hereunder and under the other Credit
Documents, including all Fees and Expenses, as and when such payments become
due. The obligation of the Borrowers to the Lenders with respect to such
payments shall be discharged by making such payments to the Agent pursuant to
this Section or by the charging of the Loan Account by the Agent.
4.11 COLLECTION OF ACCOUNTS. The Borrowers shall at all times maintain
lockboxes ("Lockboxes") and shall instruct all account debtors on the Accounts
of the Borrowers to remit all Collections to the Lockboxes. The Borrowers, the
Agent and financial institutions selected by the Borrowers and acceptable to the
Agent (the "Lockbox Banks") shall enter into agreements substantially in the
form of Exhibit H (the "Lockbox Agreements", which among other things shall
provide for the opening of an account for the deposit of Collections (a "Lockbox
Account") at a Lockbox Bank. All Collections and other amounts received by the
Borrowers from any account debtor, in addition to all other cash received from
any other source shall upon receipt be deposited into a Lockbox Account.
Termination of such arrangements shall also be subject to approval by the Agent.
Upon the terms and subject to the conditions set forth in the Lockbox
Agreements, all available amounts held in each Lockbox Account shall be wired
each Business Day into an account (the "BT Account") maintained by the Agent at
Bankers Trust Company. Amounts received in the BT Account from the Lockbox Banks
shall be credited to the Loan Account and distributed and applied as set forth
in Section 4.12.
4.12 DISTRIBUTION AND APPLICATION OF COLLECTIONS AND OTHER AMOUNTS. All
Collections received by the Agent, and all other amounts received by the
Borrowers from any account debtor and delivered to the Agent, shall be credited
to the Loan Account, unless an Event of Default has occurred and is continuing,
in which case such Collections and other amounts shall be distributed and
applied in the following order: first, to the payment of any Fees, Expenses or
other Obligations due and payable to the Agent under any of the Credit
Documents, including Agent Advances and any other amounts advanced by the Agent
on behalf of the Lenders; second, to the payment of any Fees, Expenses or other
Obligations due and payable to the Issuing Bank under any of the Credit
Documents; third, to the ratable payment of any Fees, Expenses or other
Obligations due and payable to the Lenders under any of the Credit Documents
other than those Obligations specifically referred to in this Section; fourth,
to the ratable payment of interest due on the Revolving Loans; and, fifth, to
the ratable payment of principal due on the Revolving Loans.
4.13 CALCULATIONS. All calculations of
30
<PAGE> 38
(i) interest hereunder and (ii) Fees, including, without limitation, Unused Line
Fees and Letter of Credit Fees, shall be made by the Agent, on the basis of a
year of 360 days, or, if such computation would cause the interest and fees
chargeable hereunder to exceed the Highest Lawful Rate, 365/366 days, in each
case for the actual number of days elapsed (including the first day but
excluding the last day) occurring in the period for which such interest or Fees
are payable. Each determination by the Agent of an interest rate, Fee or other
payment hereunder shall be conclusive and binding for all purposes, absent
manifest error.
4.14 SPECIAL PROVISIONS RELATING TO LIBOR RATE LOANS
(a) CONTINUATION. With respect to any Borrowing consisting of
LIBOR Rate Loans, the Borrowers may, subject to the provisions of
Section 4.14(c), elect to maintain such Borrowing or any portion
thereof as consisting of LIBOR Rate Loans by selecting a new Interest
Period for such Borrowing, which new Interest Period shall commence on
the last day of the immediately preceding Interest Period. Each
selection of a new Interest Period shall be made by notice given not
later than noon Chicago time on the third Business Day prior to the
date of any such continuation relating to LIBOR Rate Loans, by the
Borrower Representative to the Agent. Such notice by the Borrower
Representative of a continuation (a "Notice of Continuation") shall be
by telephone or facsimile transmission, and if by telephone, promptly
confirmed in writing, substantially in the form of Exhibit I hereto, in
each case specifying (i) the date of such continuation, (ii) the Type
of Revolving Loans subject to such continuation, (iii) the aggregate
amount of Revolving Loans subject to such continuation and (iv) the
duration of the selected Interest Period. The Borrowers may elect to
maintain more than one Borrowing consisting of LIBOR Rate Loans by
combining such Borrowings into one Borrowing and selecting a new
Interest Period pursuant to this Section 4.14(a). If the Borrowers
shall fail to select a new Interest Period for any Borrowing consisting
of LIBOR Rate Loans in accordance with this Section 4.14(a), such
Revolving Loans will automatically, on the last day of the then
existing Interest Period therefor, convert into Prime Rate Loans. The
Agent shall give each Lender prompt notice by telephone or facsimile
transmission of each Notice of Continuation.
(b) CONVERSION. The Borrowers may on any Business Day (so long
as no Default or Event of Default has occurred and is continuing), upon
notice (each such notice, a "Notice of Conversion") given to the Agent
by the Borrower Representative, and subject to the provisions of
Section 4.14(c), convert the entire amount of or a portion of all
Revolving Loans of one Type comprising the same Borrowing into
Revolving Loans of another Type; provided, that any conversion of any
LIBOR Rate Loans into Revolving Loans of another Type shall be made on,
and only on, the last day of an Interest Period for such LIBOR Rate
Loans and, upon conversion of any Prime Rate
31
<PAGE> 39
Loans into Revolving Loans of another Type, the Borrowers shall pay
accrued interest to the date of conversion on the principal amount
converted. Each such Notice of Conversion shall be given not later than
Noon Chicago time on the Business Day prior to the date of any proposed
conversion into Prime Rate Loans and on the third Business Day prior to
the date of any proposed conversion into LIBOR Rate Loans. Subject to
the restrictions specified above, each Notice of Conversion shall be by
telephone or facsimile transmission, and if by telephone, promptly
confirmed in writing, substantially in the form of Exhibit J hereto, in
each case specifying (i) the requested date of such conversion, (ii)
the Type of Revolving Loans to be converted (iii) the portion of such
Type of Revolving Loan to be converted, (iv) the Type of Revolving
Loans such Revolving Loans are to be converted into and (v) if such
conversion is into LIBOR Rate Loans, the duration of the Interest
Period of such Loan. Each conversion shall be in an aggregate amount
for the Revolving Loans of not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof. The Borrowers may elect to
convert the entire amount of or a portion of all Revolving Loans of one
Type comprising more than one Borrowing into Revolving Loans of another
Type by combining such Borrowings into one Borrowing; provided, that if
the Borrowings so combined consist of LIBOR Rate Loans, such Loans
shall have Interest Periods ending on the same date.
(c) CERTAIN LIMITATIONS ON LIBOR RATE LOANS. The right of the
Borrowers to maintain, select, continue or convert LIBOR Rate Loans
shall be limited as follows:
(i) If the Agent is advised by Bankers Trust Company
that it is not offering United States dollar deposits (in the
applicable amounts) in the London interbank market, or the
Agent determines that adequate and fair means do not otherwise
exist for ascertaining the LIBOR Rate or LIBOR Rate Loans
comprising any requested Borrowing, continuation or
conversion, the right of the Borrowers to select or maintain
LIBOR Rate Loans for such Borrowing or any subsequent
Borrowing shall be suspended until the Agent shall notify the
Borrower Representative and the Lenders that the circumstances
causing such suspension no longer exists, and each Revolving
Loan shall be made as a Prime Rate Loan.
(ii) If the Majority Lenders shall, at least one
Business Day before the date of any requested Borrowing,
continuation or conversion, notify the Agent that the LIBOR
Rate for Revolving Loans comprising such Borrowing will not
adequately reflect the cost to such Lenders of making or
funding their respective Revolving Loans for such Borrowing,
the right of the Borrowers to select LIBOR Rate Loans for such
Borrowing shall be suspended until the Agent shall notify the
Borrower Representative and the Lenders that the circumstances
causing such suspension no longer exist, and each Revolving
Loan comprising such Borrowing and each other Borrowing
requested during such period of suspension shall be
32
<PAGE> 40
made as a Prime Rate Loan.
(iii) If at any time any Lender determines (which
determination shall, absent manifest error, be conclusive and
binding on all parties) that the making, continuation or
conversion of any Revolving Loan as a LIBOR Rate Loan by such
Lender has become unlawful or impermissible by reason of
compliance by that Lender with any law, governmental rule,
regulation or order of any Governmental Authority (whether or
not having the force of law), then, and in any such event,
such Lender may give notice of that determination in writing,
to the Agent and the Borrower Representative and the Agent
shall promptly transmit the notice to each other Lender. Until
such Lender gives notice otherwise, the right of the Borrowers
to select LIBOR Rate Loans from that Lender shall be suspended
and each Revolving Loan made by that Lender, notwithstanding
the Type of Revolving Loan made by the other Lenders, shall be
a Prime Rate Loan and each LIBOR Rate outstanding from that
Lender shall automatically, on the last day of the existing
Interest Period therefor (or earlier, if so required under
such law, rule, regulation or order), convert to a Prime Rate
Loan.
(iv) No Agent Advance shall be made as a LIBOR Rate
Loan.
(v) No Revolving Loans may be made, continued or
converted as or to LIBOR Rate Loans at any time that a Default
or Event of Default shall have occurred and be continuing.
(vi) The Borrowers may not (a) have more than six (6)
LIBOR Rate Loans outstanding at any one time, and (b) select a
LIBOR Rate Loan prior to the date which is the earlier to
occur of (x) the completion of the syndication by the Agent as
determined in its sole discretion and (y) ninety (90) days
after the Closing Date.
(d) COMPENSATION.
(i) Each Notice of Continuation and Notice of
Conversion shall be irrevocable by and binding on the
Borrowers. In the case of any Borrowing, continuation or
conversion that the related Notice of Borrowing, Notice of
Continuation or Notice of Conversion specifies is to be
comprised of LIBOR Rate Loans, the Borrowers shall indemnify
each Lender against any loss, cost or expense incurred by such
Person as a result of any failure to fulfill, on or before the
date for such Borrowing, continuation or conversion specified
in such Notice of Borrowing, Notice of Continuation or Notice
of Conversion, the applicable conditions set forth in Article
5, including, without limitation, any loss (excluding
33
<PAGE> 41
loss of anticipated profits), cost or expense incurred by
reason of the liquidation or re-employment of deposits or
other funds acquired by such Lender to fund the Revolving Loan
to be made by such Lender as part of such Borrowing,
continuation or conversion.
(ii) If any payment of principal of, or conversion or
continuation of, any LIBOR Rate Loan is made other than on the
last day of the Interest Period for such Loan as a result of a
payment, prepayment, conversion or continuation of such Loan
or acceleration of the maturity of the Revolving Notes or for
any other reason, the Borrowers shall, upon demand by any
Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such
payment, including, without limitation, any loss (excluding
loss of anticipated profits), cost or expense incurred by
reason of the liquidation or re-employment of deposits or
other funds acquired by any Lender to fund or maintain such
Loan.
(iii) Calculation of all amounts payable to a Lender
under this Section 4.14(d) shall be made as though such Lender
elected to fund all LIBOR Rate Loans by purchasing United
States dollar deposits in its LIBOR Lending Office's interbank
eurodollar market.
4.15 INDEMNIFICATION IN CERTAIN EVENTS
(a) INCREASED COSTS. If after the Closing Date, either (i) any
change in or in the interpretation of any law or regulation is
introduced, including, without limitation, with respect to reserve
requirements applicable to the Agent, to any of the Lenders, Bankers
Trust Company or any other banking or financial institution from whom
any of the Lenders borrows funds or obtains credit (a "Funding Bank"),
or (ii) the Agent, a Funding Bank or any of the Lenders complies with
any future guideline or request from any central bank or other
Governmental Authority proposed or promulgated after the date of this
Credit Agreement or (iii) the Agent, a Funding Bank or any of the
Lenders determines that the adoption of any applicable law, rule or
regulation regarding capital adequacy or any change therein, or any
change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof announced after the date
of this Credit Agreement has or would have the effect described below,
or the Agent, a Funding Bank or any of the Lenders complies with any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable
agency announced after the date of this Credit Agreement and in the
case of
34
<PAGE> 42
any event set forth in this clause (iii), such adoption, change
or compliance has or would have the direct or indirect effect of
reducing the rate of return on any of such Person's capital as a
consequence of its obligations hereunder to a level below that which
such Person could have achieved but for such adoption, change or
compliance (taking into consideration such Person's policies with
respect to capital adequacy) by an amount deemed by such Person to be
material, and any of the foregoing events described in clauses (i),
(ii) or (iii) increases the cost to the Agent, or any of the Lenders of
(A) funding or maintaining its Commitments or (B) issuing, causing the
issuance of, making or maintaining any Letter of Credit or of
purchasing or maintaining any participation therein, or reduces the
amount receivable in respect thereof by the Agent or any Lender, then
the Borrowers shall upon demand by the Agent at any time within one
hundred eighty (180) days after the date on which an officer of the
Agent, such Funding Bank or such Lender, as the case may be,
responsible for overseeing this Credit Agreement knows or has reason to
know of its right to additional compensation under this Section
4.15(a), pay to the Agent, for the account of such Lender or, as
applicable, the Agent or a Funding Bank, additional amounts sufficient
to reimburse the Agent, such Funding Bank and such Lender against such
increase in cost or reduction in amount receivable; provided, however,
that if the Agent or any such Lender or Funding Bank, as the case may
be, fails to deliver such demand within such 180 day period, such
entity shall only be entitled to additional compensation for any such
costs incurred from and after the date that is one hundred eighty (180)
days prior to the date the Borrower Representative receives such
demand; and provided further, however, that before making any such
demand, the Agent and each Lender agree to use reasonable efforts
(consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the
making of such a designation would avoid the need for, or reduce the
amount of, such increased cost and would not, in the reasonable
judgment of such Lender, be otherwise disadvantageous to such Lender. A
certificate as to the amount of such increased cost, and setting forth
in reasonable detail the calculation thereof, shall be submitted to the
Borrower Representative by the Agent, or the applicable Lender or
Funding Bank, and shall be conclusive absent demonstrable error.
(b) Each Lender will promptly notify the Borrower
Representative and the Agent, and the Agent will promptly notify the
Borrower Representative, of any event of which it has knowledge that
would entitle such entity to additional compensation under this Section
4.15. Neither the Agent nor any Lender shall request any additional
compensation under this Section 4.15 unless it is generally making
similar requests of other borrowers similarly situated, and the Agent
and each Lender agrees to use a reasonable basis for calculating
amounts allocable to its commitment to lend or its Revolving Loans and
Letter of Credit obligations hereunder.
35
<PAGE> 43
ARTICLE 5
CONDITIONS PRECEDENT
5.1 CONDITIONS PRECEDENT TO INITIAL REVOLVING LOAN AND LETTER OF
CREDIT. The obligation of each Lender to fund its Proportionate Share of the
initial Borrowing, or the obligation of the Agent to cause the issuance by the
Issuing Bank of the initial Letter of Credit, is subject to the satisfaction or
waiver of the following conditions precedent:
(a) CLOSING DOCUMENT LIST. The Agent and the Lenders shall
have received each of the agreements, opinions, reports, approvals,
consents, certificates and other documents set forth on the closing
document list attached hereto as Schedule A (the "Closing Document
List").
(b) MATERIAL ADVERSE CHANGE. (i) No event shall have occurred
which has had or could reasonably be expected to have a Material
Adverse Effect; or (ii) there shall not have occurred a substantial
impairment of the financial markets generally that is reasonably likely
to materially and adversely affect the transactions contemplated
hereby, in each case as determined by the Agent and each Lender in
their sole discretion.
(c) FEES AND EXPENSES. All Fees and Expenses payable by the
Guarantor or the Borrowers hereunder on or before the Closing Date
shall have been paid in full.
5.2 CONDITIONS PRECEDENT TO ALL REVOLVING LOANS AND LETTERS OF CREDIT.
The obligation of each Lender to fund its Proportionate Share of any requested
Revolving Loan or of the Issuing Bank to issue any requested Letter of Credit is
subject to the satisfaction of the conditions precedent set forth below. Each
Notice of Borrowing, each Letter of Credit Request, and each issuance by the
Borrower Representative of a check drawn against, or request for transfer from,
the Disbursement Account shall constitute a representation and warranty by the
Borrowers that such conditions are satisfied.
(a) All representations and warranties contained in this
Credit Agreement and the other Credit Documents are true and correct in
all material respects on and as of the date of such Notice of
Borrowing, Letter of Credit Request or issuance of a check drawn
against or request for transfer from the Disbursement Account, as if
then made, other than representations and warranties that relate solely
to a date other than the date of such Notice of Borrowing, Letter of
Credit Request or issuance of a check drawn against or
36
<PAGE> 44
request for transfer from the Disbursement Account;
(b) No Default or Event of Default shall have occurred or
could reasonably be expected to result from the making of the requested
Revolving Loan or the issuance of the requested Letter of Credit, which
has not been waived; and
(c) Since September 30, 1997, no event has occurred which has
had or could reasonably be expected to have a Material Adverse Effect.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Credit Agreement
and to induce the Lenders to make the Revolving Loans and other financial
accommodations described herein, the Guarantor and the Borrowers hereby
represent and warrant to the Agent and the Lenders that the representations and
warranties contained in this Article 6 are true and correct. Such
representations and warranties, and all other representations and warranties
made by the Guarantor and the Borrowers in any other Credit Documents, shall
survive the execution and delivery of this Credit Agreement and such other
Credit Documents.
6.1 ORGANIZATION AND QUALIFICATION. The Guarantor, each Borrower and
each of their respective Subsidiaries (i) are corporations duly organized,
validly existing and in good standing under the laws of the respective states of
their incorporation, (ii) have the power and authority to own their respective
properties and assets and to transact their respective businesses in which they
presently are, or propose to be, engaged and (iii) are duly qualified and are
authorized to do business and are in good standing in each of the respective
jurisdictions where they presently are, or propose to be, engaged in business.
Schedule B, Part 6.1 lists all jurisdictions in which the Guarantor, each
Borrower and each of their respective Subsidiaries are qualified to do business
as foreign corporations.
6.2 AUTHORITY. The Guarantor, each Borrower and each of their
respective Subsidiaries have the requisite corporate power and authority to
execute, deliver and perform the respective Credit Documents to which they are
parties. All corporate action necessary for the execution, delivery and
performance of any of the Credit Documents by the Guarantor, each Borrower and
each of their respective Subsidiaries has been taken.
6.3 ENFORCEABILITY. This Credit Agreement and each of the other Credit
Documents are the legal, valid and binding obligations of
37
<PAGE> 45
the Guarantor, each Borrower and each of their respective Subsidiaries which are
parties thereto, enforceable in accordance with their respective terms, except
as such enforceability may be limited by (i) bankruptcy, insolvency or similar
laws affecting creditors' rights generally, and (ii) general principles of
equity.
6.4 NO CONFLICT. The execution, delivery and performance of each Credit
Document by the Guarantor, each Borrower and each of their respective
Subsidiaries which are parties thereto are not in contravention of (i) the
Governing Documents of such Persons, or (ii) any Requirement of Law, or (iii)
any indenture, contract, agreement or instrument or other commitment to which
any or all of such Persons are parties or by which any of such Persons or any of
its properties are bound, and will not, except as contemplated herein, result in
the imposition of any Liens upon any of the properties of any of such Persons.
6.5 CONSENTS AND FILINGS. No consent, authorization, permit or filing
is required in connection with the execution, delivery and performance of this
Credit Agreement or any Credit Document by the Guarantor, any of the Borrowers
or any of their respective Subsidiaries which are parties thereto, or in
connection with the continuing operations of such Persons, except (i) those that
have been obtained or made and (ii) filings necessary to create, perfect or
retain the perfection of Liens against the Collateral.
6.6 GOVERNMENT REGULATION. Neither Guarantor, any Borrower nor any of
their respective Subsidiaries is 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 similar Requirement of Law that
limits the respective abilities of such Persons to incur indebtedness or
consummate the transactions contemplated in this Credit Agreement and the other
Credit Documents.
6.7 SOLVENCY. The fair saleable value of the assets of the Borrowers
exceeds all its probable liabilities, including those to be incurred pursuant to
this Credit Agreement and the other Credit Documents. The Borrowers (i) do not
have unreasonably small capital in relation to the business in which it is or
proposes to be engaged and (ii) have not incurred and do not believe that they
will incur, after giving effect to the transactions contemplated by this Credit
Agreement, debts beyond their ability to pay as such debts become due.
6.8 RIGHTS IN COLLATERAL; PRIORITY OF LIENS. All property constituting
Collateral is owned or leased by a Borrower, free and clear of any and all Liens
in favor of third parties, other
38
<PAGE> 46
than Permitted Liens. Upon the proper filing of the UCC financing (and
termination statements, if any) listed in the Closing Document List, the
security interests granted pursuant to the Credit Documents constitute valid and
enforceable first, prior (subject to Permitted Liens) and perfected Liens on the
Collateral, to the extent such Liens can be perfected by the filing of such
financing statements.
6.9 FINANCIAL DATA. The Guarantor has provided to the Agent and each of
the Lenders complete and accurate copies of annual audited Financial Statements
for the Consolidated Entity for the fiscal years ended March 31, 1996 and 1997
and unaudited Financial Statements for the six-month fiscal period ended
September 30, 1997. Such Financial Statements have been prepared in accordance
with GAAP consistently applied throughout the periods involved and fairly
present the respective consolidated financial positions, results of operations
and cash flows of the Consolidated Entity for each of the periods covered;
provided, that the annual financial statements have not been restated to reflect
the results of operations of Imagyn Delaware which was acquired in a pooling of
interests transaction on September 29, 1997. The Consolidated Entity has no
Contingent Obligation, or liability for taxes or long-term leases, which is not
reflected in such Financial Statements or the footnotes thereto, or is not
otherwise disclosed on Schedule B, Part 6.9.
6.10 LOCATIONS OF OFFICES, RECORDS AND INVENTORY. The address of the
principal place of business and chief executive office of the Guarantor and each
Borrower is set forth on Schedule B, Part 6.10, as the same may be amended after
the Closing Date in accordance with Section 11.11. The books and records of each
Borrower, and all its chattel paper, if any, and records of Accounts, are
maintained exclusively at one or more of such locations. There is no
jurisdiction in which any Borrower has any Collateral (except for vehicles and
Inventory in transit) other than those jurisdictions identified on Schedule B,
Part 6.10, as the same may be amended after the Closing Date in accordance with
Section 11.11. A complete list of the legal name and address of each warehouse
at which Inventory of any Borrower is stored is set forth on Schedule B, Part
6.10, as the same may be amended after the Closing Date in accordance with
Section 11.11. None of the receipts received and to be received by any Borrower
from any warehouseman state that the Inventory covered thereby is to be
delivered to bearer or to the order of a named Person or to a named Person and
such named Person's assigns, in each case other than such Borrower.
6.11 SUBSIDIARIES; OWNERSHIP OF STOCK
(a) As of the Closing Date, (i) the only direct or indirect
Subsidiaries of the Guarantor and the Borrowers are those listed on
Schedule B, Part 6.11, (ii) the Guarantor and each Borrower is the
record and beneficial owner of all of the respective shares of
39
<PAGE> 47
capital stock of each of its respective Subsidiaries listed on Schedule
B, Part 6.11, (iii) there are no proxies, irrevocable or otherwise,
with respect to such shares, and no equity securities of any of such
Subsidiaries are or may become required to be issued by reason of any
options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of
any such Subsidiary, and (iv) there are no contracts, commitments,
understandings or arrangements by which any such Subsidiary is or may
become bound to issue additional shares of its capital stock or
securities convertible into or exchangeable for such shares. All of
such shares so owned by the Guarantor and the Borrowers are so owned
free and clear of any Liens.
(b) None of the Subsidiaries of Imagyn California, Imagyn
Delaware or Dacomed listed on such Schedule B have any substantial
assets or business operations. At the request of Agent, each of Imagyn
California, Imagyn Delaware and Dacomed will pledge to Agent, for the
benefit of the Lenders, all of the issued and outstanding shares of
capital Stock of each such Subsidiary (or, in the case of a Subsidiary
not organized under the laws of a state or territory of the United
States, sixty-five percent (65%) thereof), and cause each such
Subsidiary to execute such security documents, pledge agreements,
guarantees, and the like as Agent shall deem necessary in order to
perfect a security interest in all of the real and personal property of
each such Subsidiary.
6.12 NO JUDGMENTS OR LITIGATION. Except as set forth on Schedule B,
Part 6.12, no judgments, orders, writs or decrees are outstanding against the
Guarantor or any Borrower or any of their respective Subsidiaries, nor is there
now pending or, to the best of the Guarantor's and Borrowers' knowledge after
diligent inquiry, threatened, any litigation, contested claim, investigation,
arbitration, or governmental proceeding by or against the Guarantor, any
Borrower or any of their respective Subsidiaries.
6.13 NO DEFAULTS. Neither the Guarantor, any Borrower nor any of their
respective Subsidiaries are in default under any term of any indenture,
contract, lease, agreement, instrument or commitment to which any of them is a
party or by which any of them is bound which default could reasonably be
expected to result in a Material Adverse Effect. Neither the Guarantor nor any
Borrower knows of any dispute regarding any such indenture, contract, lease,
agreement, instrument or other commitment, which, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect.
6.14 LABOR MATTERS. Schedule B, Part 6.14 accurately sets forth all
labor contracts to which the Borrowers or any of their respective Subsidiaries
are parties as of the Closing Date (including their dates of expiration).
40
<PAGE> 48
There are no existing or, to the knowledge of the Borrowers, threatened strikes,
lockouts or other disputes relating to any collective bargaining or similar
agreement to which the Borrowers or any of their respective Subsidiaries are a
party.
6.15 COMPLIANCE WITH LAW. Neither the Guarantor, any Borrower nor any
of their respective Subsidiaries has violated or failed to comply with any
Requirements of Law, including without limitation ERISA and environmental laws,
which violation or failure could reasonably be expected to result in a Material
Adverse Effect.
6.16 ERISA. None of the Guarantor, any Borrower, any of their
respective Subsidiaries or any ERISA Affiliate maintains or contributes to any
Plan other than those listed on Schedule B, Part 6.16. Each Plan has been and is
maintained and funded in accordance with its terms and in compliance with all
applicable provisions of ERISA and the Code. The Guarantor, each Borrower, each
of their respective Subsidiaries and each ERISA Affiliate has fulfilled all
contribution obligations for each Plan (including obligations related to the
minimum funding standards of ERISA and the Internal Revenue Code). No
Termination Event has occurred nor has any other event occurred that may result
in a Termination Event. None of the Guarantor, any Borrower, any of their
respective Subsidiaries, or any ERISA Affiliate, or any fiduciary of any Plan is
subject to any direct or indirect liability with respect to any Plan under any
Requirement of Law or agreement. None of the Guarantor, any Borrower, any of
their respective Subsidiaries or any ERISA Affiliate is required to provide
security to any Plan under Section 401(a)(29) of the Internal Revenue Code, or
sponsors or maintains any Retiree Health Plan.
6.17 COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as disclosed on
Schedule B, Part 6.17, (i) the operations of the Borrowers and each of their
respective Subsidiaries comply with all applicable federal, state and local
environmental, health and safety statutes, regulations, directions, ordinances,
criteria and guidelines; (ii) no Borrower has received notice that any of the
operations of such Borrower or any of its Subsidiaries is the subject of any
judicial or administrative proceeding alleging the violation of any federal,
state or local environmental, health or safety statute, regulation, direction,
ordinance, criteria or guideline; (iii) none of the operations of the Borrowers
or any of their respective Subsidiaries is the subject of any federal or state
investigation evaluating whether any of the Borrowers or any of their respective
Subsidiaries disposed of any hazardous or toxic waste, substance or constituent
or other substance at any site that may require remedial action, or any federal
or state investigation evaluating whether any remedial action is needed to
respond to a release of any hazardous or toxic waste, substance or constituent
or other substance into the environment; (iv) none of the Borrowers nor any of
their respective Subsidiaries has filed any notice under any federal or state
law indicating past or present treatment, storage or disposal of a hazardous
waste, substance or constituent or reporting
41
<PAGE> 49
a spill or release of a hazardous or toxic waste, substance or constituent or
other substance into the environment; and (v) none of the Borrowers nor any of
their respective Subsidiaries has any contingent liability of which any of the
Borrowers has knowledge, or reasonably should have knowledge, in connection with
any release or potential release of any hazardous or toxic waste, substance or
constituent or other substance into the environment which could reasonably be
expected to result in a Material Adverse Effect, nor has any Borrower or any of
their respective Subsidiaries received any notice, letter or other indication of
potential liability arising from the disposal of any hazardous or toxic waste,
substance or constituent or other substance into the environment.
6.18 INTELLECTUAL PROPERTY. The Guarantor, the Borrowers and each of
their respective Subsidiaries possesses such assets, licenses, patents, patent
applications, copyrights, service marks, trademarks and trade names as are
necessary in the reasonable judgment of such party to continue to conduct their
respective present and proposed business activities.
6.19 LICENSES AND PERMITS. The Borrowers and each of their respective
Subsidiaries has obtained and holds in full force and effect all franchises,
licenses, leases, permits, certificates, authorizations, qualifications,
easements, rights of way and other rights and approvals which are necessary in
the reasonable judgment of such party for the operation of its business as
presently conducted.
6.20 TAXES AND TAX RETURNS
(a) Except as set forth on Schedule B, Part 6.20, the
Consolidated Entity has 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.
(b) All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date hereof, have been
timely paid and the Consolidated Entity has no liability for taxes in
excess of the amounts so paid or reserves so established.
(c) Except as set forth in Schedule B, Part 6.20, no
deficiencies for taxes have been claimed, proposed or assessed by any
taxing or other Governmental Authority against the Consolidated Entity
no tax liens have been filed. Except as set forth in Schedule B, Part
6.20, 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
42
<PAGE> 50
Governmental Authority which could reasonably be expected to result in
a material additional liability for taxes. Either the federal income
tax returns of the Consolidated Entity have been audited by the
Internal Revenue Service and such audits have been closed, or the
period during which any assessments may be made by the Internal Revenue
Service has expired without waiver or extension for all years up to and
including the fiscal year of the Consolidated Entity ended June 30,
1993. Except as set forth in Schedule B, Part 6.20, no extension of a
statute of limitations relating to taxes, assessments, fees or other
governmental charges is in effect with respect to the Consolidated
Entity.
(d) Except as set forth on Schedule B, Part 6.20, the
Consolidated Entity has no obligation under any written tax sharing
agreement or agreement regarding payments in lieu of taxes.
6.21 MATERIAL CONTRACTS. Schedule B, Part 6.21, contains a true,
correct and complete list of all the Material Contracts currently in effect on
the Closing Date. Except as described on Schedule B, Part 6.21, none of the
Material Contracts contains any burdensome restrictions on the Borrowers or any
of their respective Subsidiaries or any of their respective properties, all of
the Material Contracts are in full force and effect and no defaults currently
exist thereunder.
6.22 ACCURACY AND COMPLETENESS OF INFORMATION. All factual information
furnished by or on behalf of the Guarantor, the Borrowers or any of their
respective Subsidiaries in writing to the Agent, any Lender, or the Auditors for
purposes of or in connection with this Credit Agreement or any Credit Documents
or any transaction contemplated hereby or thereby is or will be true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading at such time.
6.23 NO CHANGE. Since September 30, 1997 no event has occurred which
has had or could reasonably be expected to have a Material Adverse Effect.
ARTICLE 7
AFFIRMATIVE COVENANTS
Until termination of this Credit Agreement and payment and satisfaction
of all Obligations due hereunder:
43
<PAGE> 51
7.1 FINANCIAL REPORTING. The Guarantor and Borrowers, as appropriate
shall timely deliver to each Lender the following information:
(a) AUDITOR'S ENGAGEMENT LETTER. As soon as available, but in
any event not later than the earlier of (i) fifteen (15) days prior to
the end of each fiscal year or (ii) prior to the date the Auditors
commence work on the preparation of the annual audited Financial
Statement, a copy of the engagement letter between the Guarantor and
its Auditors. At the request of Agent, Guarantor shall notify such
Auditors in writing (with a copy thereof to Agent) that such annual
audited Financial Statement will be delivered by the Guarantor to the
Agent and Lenders, and stating that it is a primary intent of Guarantor
that Agent and Lenders be entitled to rely thereon with respect to the
transactions which are the subject of this Agreement.
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available, but not
later than two (2) days after the date Guarantor is obligated to
provide any such information to the Securities and Exchange Commission
(the "Commission"): (i) the annual audited consolidated, and unaudited
consolidating, Financial Statements of the Consolidated Entity; (ii) a
comparison in reasonable detail to the prior year annual audited and
unaudited Financial Statements; (iii) the Auditors' unqualified
opinion, "Management Letter" (deliverable as soon as available) and
statement indicating whether the Auditors have obtained knowledge of
the existence of any Default or Event of Default during their audit;
(iv) a narrative discussion of the consolidated financial condition and
results of operations and the consolidated liquidity and capital
resources of the Consolidated Entity for such fiscal year, prepared by
the chief financial officer of the each Borrower Representative; and
(v) a compliance certificate substantially in the form of Exhibit K
hereto with an attached schedule of calculations demonstrating
compliance with the financial covenants set forth in Article 8.
(c) MONTHLY AND ANNUAL PROJECTIONS. Not later than forty-five
(45) days after each fiscal year end, beginning with the fiscal year
ended March 31, 1998, monthly projections of the financial condition
and results of operations of the Consolidated Entity (with specific and
separate detail on the surgical and urological divisions thereof) for
the next succeeding year, quarterly projections for the second
succeeding year, and annual projections for each succeeding fiscal year
thereafter, through and including the fiscal year in which the
Expiration Date will occur, in each case containing projected
consolidating balance sheets, statements of operations, statements of
cash flows and statements of changes in shareholders equity.
(d) QUARTERLY FINANCIAL STATEMENTS. As soon as available, but
not later than
44
<PAGE> 52
two (2) days after the date Guarantor is obligated to provide any such
information to the Commission with respect to each of the fiscal
quarters of the Consolidated Entity: (i) Financial Statements of the
Consolidated Entity (with specific and separate detail on the surgical
and urological divisions thereof) as of the fiscal quarter then ended,
and for the fiscal year to date; (ii) a comparison in reasonable detail
to the Financial Statements for the corresponding periods of the prior
fiscal year; (iii) the certification of the chief executive officer or
chief financial officer of the Guarantor that such Financial Statements
have been prepared in accordance with GAAP (subject to year-end audit
adjustments); (iv) a narrative discussion of the consolidated financial
condition and results of operations and the consolidated liquidity and
capital resources of the Consolidated Entity (with specific and
separate detail on the surgical and urological divisions thereof) for
such fiscal quarter and fiscal year to date, prepared by the chief
financial officer of the Borrower Representative; and (v) a compliance
certificate substantially in the form of Exhibit K hereto with an
attached schedule of calculations demonstrating compliance with the
financial covenants set forth in Article 8.
(e) MONTHLY FINANCIAL STATEMENTS. As soon as available, but
not later than thirty (30) days after the end of each of the first two
(2) months of each fiscal quarter, and together with the deliveries
required in subsections (b) and (d) above with respect to the third
month of each fiscal quarter: (i) a balance sheet for the Consolidated
Entity (with specific and separate detail on the surgical and
urological divisions thereof) as at the end of such month and
statements of operations and cash flows for such month and for the
fiscal year to date; (ii) a comparison to the balance sheet, statement
of operations and statement of cash flows for the same periods in the
prior year; (iii) a certification by the chief executive officer or
chief financial officer the Borrower Representative that such balance
sheet, statement of operations and statement of cash flows have been
prepared in accordance with GAAP (subject to year-end audit
adjustments); and (iv) a compliance certificate substantially in the
form of Exhibit K with an attached schedule of calculations
demonstrating compliance with the financial covenants set forth in
Article 8.
(f) MONTHLY COMPARISON TO PRIOR PROJECTIONS. As soon as
available, but not later than thirty (30) days after the end of each of
the first two (2) months of each fiscal quarter, and together with the
deliveries required in subsections (b) and (d) above with respect to
the third month of each fiscal quarter, commencing with the month
beginning April 1, 1998, a comparison of actual results of operations,
cash flow and capital expenditures for the Consolidated Entity (with
specific and separate detail on the surgical and urological divisions
thereof) each of the Borrowers for such month and for the period from
the beginning of the current fiscal year through the end of such month
with amounts previously projected for those periods (see Section
7.1(c)) and with actual results for corresponding periods in the
previous fiscal year.
45
<PAGE> 53
(g) SEC FILINGS. Promptly after the filing thereof with the
Commission, a copy of each report, notice or other filing, if any, by
Guarantor or any Borrower, and (ii) a copy of each written
communication received by Guarantor or any Borrower from, or delivered
by Guarantor or any Borrower to, the Commission, in each case promptly
after each such receipt or delivery.
7.2 COLLATERAL REPORTING. Each of the Borrowers shall timely deliver to
the Agent the following certificates and reports:
(a) WEEKLY AND MONTHLY BORROWING BASE CERTIFICATES. Weekly,
before 12:00 noon on the second Business Day of each week (except the
last week of each month), monthly, within two (2) Business Days after
the last Business Day of each month, and at any other time requested by
the Agent, a Borrowing Base Certificate, which shall be: (i)
substantially in the form of Exhibit A, detailing the Eligible Accounts
Receivable and Eligible Inventory as of each Friday of the immediately
preceding week (if a weekly Borrowing Base Certificate), or as of the
last Business Day of the immediately preceding month (if a monthly
Borrowing Base Certificate), or as of such other date as the Agent may
request; and (ii) prepared by or under the supervision of the chief
executive officer or chief financial officer of each of the Borrowers
and certified by such officer subject only to adjustment upon
completion of the normal annual audit of physical inventory. Each
Borrowing Base Certificate shall have attached to it such additional
schedules and other information as the Agent may reasonably request,
including, without limitation, an aging of Accounts.
(b) APPRAISALS. When requested by the Agent, which, prior to
the occurrence of an Event of Default shall be no more frequently than
once every calendar year, an appraisal of Borrowers' Inventory by a
third-party appraisal firm acceptable to Agent, in such form and detail
as Agent shall request.
(c) FURTHER ASSURANCES. When requested by the Agent, any
further information regarding the Collateral, business affairs and
financial condition of the Borrowers or any of their respective
Subsidiaries.
7.3 NOTIFICATION REQUIREMENTS. The Guarantor and each of the Borrowers
shall timely give to the Agent and each of the Lenders the following notices:
(a) NOTICE OF DEFAULTS. Promptly, and in any event within two
(2) Business Days after becoming aware of the occurrence of a Default
or Event of Default, a certificate of the chief executive officer or
chief financial officer of the Guarantor specifying the nature thereof
and the proposed response thereto, each in reasonable detail.
46
<PAGE> 54
(b) PROCEEDINGS OR ADVERSE CHANGES. Promptly, and in any event
within five (5) Business Days after the Guarantor or any Borrower
becomes aware of (i) any proceeding being instituted or threatened to
be instituted by or against the Guarantor or any such Borrower or any
of their respective Subsidiaries in any federal, state, local or
foreign court or before any commission or other regulatory body
(federal, state, local or foreign), and which could reasonably be
expected to result in a Material Adverse Effect, (ii) any order,
judgment or decree in excess of $500,000 being entered against the
Guarantor or any Borrower or any of their respective Subsidiaries or
any of their respective properties or assets or (iii) any actual or
prospective change, development or event which has had or could
reasonably be expected to result in a Material Adverse Effect, a
written statement describing such proceeding, order, judgment, decree,
change, development or event and any action being taken with respect
thereto.
(c) ERISA NOTICES. (i) Promptly, and in any event within ten
(10) Business Days after the Guarantor, any Borrower, any of their
respective Subsidiaries or any ERISA Affiliate knows or has reason to
know that a Termination Event has occurred, a written statement of the
chief financial officer of the affected Person describing such
Termination Event and any action that is being taken with respect
thereto by such Person, and any action taken or threatened by the
Internal Revenue Service, Department of Labor or Pension Benefit
Guaranty Corporation. The Guarantor, each Borrower, each of their
respective Subsidiaries and each ERISA Affiliate shall be deemed to
know all facts known by the administrator of any Benefit Plan of which
it is the plan sponsor; (ii) promptly, and in any event within three
(3) Business Days after the filing thereof with the Internal Revenue
Service, a copy of each funding waiver request filed with respect to
any Benefit Plan and all communications received by the Guarantor, any
Borrower, any of their respective Subsidiaries or any ERISA Affiliate
with respect to such request; and (iii) promptly, and in any event
within three (3) Business Days after receipt by the Guarantor, any
Borrower, any of their respective Subsidiaries or any ERISA Affiliate,
of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of each such
notice.
(d) ENVIRONMENTAL AND HEALTH AND SAFETY NOTICES. Promptly, and
in any event within ten (10) Business Days after receipt by the
Guarantor, any Borrower or any of their respective Subsidiaries of any
notice, complaint or order alleging any actual or prospective violation
of any environmental, health or safety Requirement of Law or alleging
responsibility for costs of a cleanup, together with a copy of such
notice, complaint, or order which could reasonably be expected to
result in a Material Adverse Effect, and a written statement describing
any action being taken with respect thereto.
47
<PAGE> 55
(e) MATERIAL CONTRACTS. Promptly, and in any event within ten
(10) Business Days after any Material Contract of the Guarantor, any
Borrower or any of their respective Subsidiaries is terminated or
amended or any new Material Contract is entered into, a written
statement describing such event, with copies of amendments or new
contracts, and an explanation of any actions being taken with respect
thereto.
(f) COLLATERAL MATTERS. At least thirty (30) Business Days'
prior written notice to the Agent of any change in the location of any
Collateral (other than in-transit Inventory) or in the location of the
chief executive office or place of business of the Guarantor, any
Borrower or any of their respective Subsidiaries from the locations
specified in Schedule B, Part 6.10. At least twenty (20) Business Days
prior to any such change, the affected Credit Party shall cause to be
executed and delivered to the Agent any financing statements,
Collateral Access Agreements or other documents required by the Agent,
all in form and substance satisfactory to the Agent.
7.4 CORPORATE EXISTENCE. Each Credit Party shall, and shall cause each
of its Subsidiaries to, (i) maintain its corporate existence (except that any of
the Borrowers' Subsidiaries may merge with each other and with any Borrower),
provided, that the Agent receives five (5) Business Days' prior written notice
thereof, (ii) maintain in full force and effect all licenses, bonds, franchises,
leases, trademarks and qualifications to do business, and all patents, contracts
and other rights necessary in the reasonable judgment of such party for the
profitable conduct of their businesses, (iii) continue in, and limit their
operations to, the same general lines of business as presently conducted by them
and (iv) in the case of the Guarantor and the Borrowers, maintain all material
terms and provisions of their respective corporate charter and bylaws in the
form in effect on the Closing Date.
7.5 BOOKS AND RECORDS; INSPECTIONS. The Guarantor and each Borrower
agrees to maintain, and to cause each of its Subsidiaries to maintain, books and
records pertaining to the Collateral in such detail, form and scope as is
consistent with good business practice. The Guarantor and each Borrower agrees
that the Agent or its agents may enter upon their respective premises (or any of
their Subsidiaries' premises) any time and from time to time, during normal
business hours and upon reasonable notice under the circumstances, and at any
time at all upon the occurrence and during the continuance of an Event of
Default, for the purposes of (i) inspecting and verifying the Collateral, (ii)
inspecting and/or copying (at the expense of the Borrowers) any and all records
pertaining thereto, and (iii) discussing the affairs, finances and business of
the Borrowers with any officers, employees and directors of the Borrowers or
with the Auditors.
7.6 INSURANCE. The Guarantor and each Borrower agrees to maintain, and
to cause each of its Subsidiaries to maintain, public liability insurance,
48
<PAGE> 56
third party property damage insurance and replacement value insurance on 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 the
Agent in its commercially reasonable judgment. All policies covering the
Collateral are to name the Agent as an additional insured and/or the loss payee
in case of loss, and are to contain such other provisions as the Agent may
reasonably require to fully protect the Agent's interest in the Collateral and
to any payments to be made under such policies.
7.7 TAXES. The Guarantor and each Borrower agrees to pay, when due, and
to cause each of their respective Subsidiaries to pay when due, all taxes
lawfully levied or assessed against them, any of their respective Subsidiaries
or any of the Collateral before any penalty or interest accrues thereon;
provided, that, unless such taxes have become a federal tax or ERISA Lien on any
of the assets of the Guarantor, any Borrower or any of their respective
Subsidiaries, no such tax need be paid if the same is being contested, in good
faith, by appropriate proceedings promptly instituted and diligently conducted
and if an adequate reserve or other appropriate provision shall have been made
therefor as required in order to be in conformity with GAAP.
7.8 COMPLIANCE WITH LAWS. The Guarantor and each Borrower agrees to
comply, and to cause each of their Subsidiaries to comply in all material
respects, with all Requirements of Law applicable to the Collateral or any part
thereof, or to the operation of its business or its assets generally, unless
contested in a reasonable manner and in good faith.
7.9 USE OF PROCEEDS. Proceeds of the initial Revolving Loan shall be
used by the Borrowers to refinance certain existing Indebtedness of the
Guarantor and the Borrowers and pay the costs and expenses of the transactions
contemplated by this Credit Agreement which are due and payable on the Closing
Date, including without limitation the Fees and Expenses due on the Closing Date
pursuant to Article 4 hereof; and the proceeds of any subsequent Revolving Loans
made hereunder shall be used by the Borrowers solely for ongoing working capital
requirements and other general corporate purposes. The Borrowers shall not use
any portion of the proceeds of any Revolving Loans for the purpose of purchasing
or carrying any "margin stock" (as defined in Regulation G) or engage in any
transaction which violates the provisions of Regulation G, U or X or of the
terms and conditions of this Credit Agreement or any other Credit Document.
7.10 FISCAL YEAR. The Consolidated Entity agrees to maintain its fiscal
year as a year ending March 31.
7.11 MAINTENANCE OF PROPERTY. Each Borrower agrees to keep, and to
cause each of its
49
<PAGE> 57
Subsidiaries to keep, all property useful and necessary to their respective
businesses in good working order and condition (ordinary wear and tear excepted)
in accordance with their past operating practices and not to commit or suffer
any waste with respect to any of their properties.
7.12 ERISA DOCUMENTS. The Guarantor and each Borrower will cause to be
delivered to the Agent, upon the Agent's request, each of the following: (i) a
copy of each Plan (or, where any such plan is not in writing, complete
description thereof) (and if applicable, related trust agreements or other
funding instruments) and all amendments thereto, all written interpretations
thereof and written descriptions thereof that have been distributed to employees
or former employees of the Guarantor, any Borrower or any of its Subsidiaries;
(ii) the most recent determination letter issued by the Internal Revenue Service
with respect to each Plan that is intended to be tax-qualified under Section
401(a) of the Code; (iii) for the three (3) most recent plan years, Annual
Reports on Form 5500 Series required to be filed with any governmental agency
for each Plan; (iv) all actuarial reports prepared for the last three (3) plan
years for each Benefit Plan; (v) a listing of all Multiemployer Plans, with the
aggregate amount of the most recent annual contributions required to be made by
the Guarantor, any Borrower or any ERISA Affiliate to each such plan and copies
of the collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to the Guarantor, any Borrower or any ERISA
Affiliate regarding withdrawal liability under any Multiemployer Plan; and (vii)
the aggregate amount of the most recent annual payments made to former employees
of the Guarantor, any Borrower or any ERISA Affiliate under any Retiree Health
Plan.
7.13 ENVIRONMENTAL AND OTHER MATTERS
(a) Each Borrower and each of its Subsidiaries will conduct
their businesses so as to comply in all material respects with all
environmental, land use, occupational, safety or health laws,
regulations, directions, ordinances, criteria and guidelines in all
jurisdictions in which any of them is or may at any time be doing
business, except to the extent that such Borrower or such Subsidiary is
contesting, in good faith by appropriate legal proceedings, any such
law, regulation, direction, ordinance, criteria, guideline, or
interpretation thereof or application thereof; provided, that the
Borrowers and each of their Subsidiaries shall comply with the order of
any court or other Governmental Authority relating to such laws unless
such Borrower or such Subsidiary shall currently be prosecuting an
appeal or proceedings for review and shall have secured a stay of
enforcement or execution or other arrangement postponing enforcement or
execution pending such appeal or proceedings for review.
(b) If the Agent reasonably believes, or the Majority Lenders
reasonably believe, that the facts or circumstances evidence or suggest
that any of the Borrowers or
50
<PAGE> 58
any of their Subsidiaries is in material non-compliance with any
environmental law and that such non-compliance could reasonably be
expected to have a Material Adverse Effect, then at the written request
of the Agent or the Majority Lenders, which request shall specify in
reasonable detail the basis therefor, at any time and from time to
time, such Borrower will provide at its sole cost and expense an
environmental site assessment report concerning the site owned,
operated or leased by such Borrower or such Subsidiary in respect of
which such material non-compliance is believed to have occurred and be
continuing, such report to be prepared by an environmental consulting
firm approved by the Agent and the Majority Lenders, indicating the
presence, release or absence of hazardous materials on or from such
site and the potential cost of any removal, remedial or corrective
action in connection with any such hazardous materials on such site.
7.14 FURTHER ASSURANCES. The Guarantor and each Borrower shall take,
and shall cause each of its Subsidiaries to take, all such further actions and
execute all such further documents and instruments as the Agent may at any time
reasonably determine in the exercise of its sole discretion to be necessary or
desirable to further carry out and consummate the transactions contemplated by
the Credit Documents, to cause the execution, delivery and performance of the
Credit Documents to be duly authorized and to perfect or protect the Liens (and
the priority status thereof) of the Agent on the Collateral.
ARTICLE 8
NEGATIVE COVENANTS
Until termination of this Credit Agreement and payment and satisfaction
of all Obligations due hereunder, the Guarantor, where required, and the
Borrowers, where required, shall comply with, and, where required, shall cause
each of their respective Subsidiaries to comply with, the following covenants:
8.1 MINIMUM EBITDA. The Consolidated Entity shall maintain a minimum
EBITDA for the six (6) month period ending September 30, 1998 of not less than
$7,500,000, and thereafter, in the event the Expiration Date is extended beyond
December 30, 1998 and December 30, 1999, as applicable, the Consolidated Entity
shall maintain such minimum EBITDA for such periods as may be agreed to by the
Borrowers, Agent and Lenders in connection with any such extension.
8.2 MAXIMUM ACCOUNT TURNOVER. Not permit the number determined by
multiplying (i) 360 times (ii)(a) Borrowers' outstanding Accounts as at each of
the measurement dates set forth below, divided by (b) Borrowers' net sales for
the twelve month period ending on such
51
<PAGE> 59
measurement date, to exceed the corresponding number:
<TABLE>
<CAPTION>
Measurement Date Maximum
---------------- -------
<S> <C>
March 31, 1998 170
June 30, 1998 165
September 30, 1998 145
December 31, 1998 130
</TABLE>
8.3 INTENTIONALLY DELETED
8.4 CAPITAL EXPENDITURES. The Consolidated Entity shall not make
payments for Capital Expenditures in excess of $12,500,000 (inclusive of certain
equipment previously acquired with purchase money financing in the approximate
amount of $3,000,000) during fiscal year 1998 and $12,000,000 during fiscal year
1999. The Consolidated Entity shall not make any Capital Expenditures that are
not directly related to the businesses conducted on the Closing Date by
Borrowers. In the event the Expiration Date is extended beyond December 30, 1998
and December 30, 1999, as applicable, the Consolidated Entity shall not make
Capital Expenditures during such additional periods in excess of such amounts as
may be agreed to by the Borrowers, Agent and Lenders in connection with any such
extension.
8.5 ADDITIONAL INDEBTEDNESS. Neither the Guarantor, any Borrower nor
any of their respective Subsidiaries shall directly or indirectly incur, create,
assume or suffer to exist any Indebtedness other than:
(a) Indebtedness under the Credit Documents;
(b) Indebtedness in the ordinary course of business under
Interest Rate Agreements in form and substance satisfactory to the
Agent;
(c) Indebtedness of any Subsidiary of a Borrower to a Borrower
or any other Subsidiary of a Borrower;
(d) Indebtedness of any Borrower to the Guarantor or any other
Borrower;
(e) Indebtedness described on Schedule B, Part 8.5, and any
refinancing of such Indebtedness, so long as the aggregate principal
amount of the Indebtedness so refinanced shall not be increased and the
refinancing shall be on terms and conditions no more restrictive than
the terms and conditions of the Indebtedness to be refinanced; and
52
<PAGE> 60
(f) Indebtedness secured by purchase money Liens on equipment
acquired after the date of this Credit Agreement not to exceed
$1,500,000 in the aggregate outstanding at any one time ("Purchase
Money Liens") so long as (i) such Indebtedness shall be from parties
and on terms and conditions satisfactory to the Agent, (ii) each
Purchase Money Lien shall attach only to the property to be acquired,
(iii) a description shall have been furnished to the Agent for any item
of equipment for which the purchase price is greater than $400,000, and
(iv) the debt incurred shall not exceed one hundred percent (100%) of
the purchase price of the item or items of equipment purchased.
8.6 LIENS. Neither the Guarantor, any Borrower nor any of their
respective Subsidiaries shall directly or indirectly create, incur, assume, or
suffer to exist any Lien on any of its property now owned or hereafter acquired
except:
(a) Liens granted to the Lenders under the Credit Documents;
(b) Liens listed on Schedule B, Part 8.6;
(c) Purchase Money Liens;
(d) Liens of warehousemen, mechanics, materialmen, workers,
repairmen, common carriers, or landlords, liens for taxes not yet
delinquent, assessments or other governmental charges, and other
similar Liens arising by operation of law for amounts that are not yet
due and payable or that are being diligently contested in good faith by
the Borrowers, so long as the Agent has been notified thereof and
adequate reserves are maintained by the Borrowers for their payment;
(e) Attachment or judgment Liens not to exceed an aggregate of
$500,000, excluding amounts (i) bonded to the reasonable satisfaction
of the Agent or (ii) covered by insurance to the reasonable
satisfaction of the Agent;
(f) Deposits or pledges to secure obligations under workmen's
compensation, social security or similar laws, under unemployment
insurance, or to secure public or statutory obligations not to exceed
an aggregate of $1,000,000;
(g) Deposits or pledges to secure bids, tenders, contracts
(other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of business not to exceed an
aggregate of $1,000,000.
(h) Easements, rights-of-way, restrictions and other similar
encumbrances on
53
<PAGE> 61
title to, or restrictions on the use of, real property, which, in the
aggregate, in the opinion of the Agent, are not substantial in amount
and which do not materially detract from the value of the property
subject thereto or materially interfere with the ordinary conduct of
the business of the Borrowers or any of their respective Subsidiaries;
and
(i) Extensions and renewals of any of the foregoing so long as
the aggregate amount of extended or renewed Liens are not increased and
are on terms and conditions no more restrictive than the terms and
conditions of the Liens extended or renewed.
8.7 CONTINGENT OBLIGATIONS. Neither the Guarantor, any Borrower nor any
of their respective Subsidiaries shall directly or indirectly incur, assume, or
suffer to exist any Contingent Obligation, excluding indemnities given in
connection with the sale of Inventory or other asset dispositions permitted
hereunder and Contingent Obligations for Indebtedness permitted to be incurred
under Section 8.5, and Investments permitted under Section 8.10.
8.8 SALES OF ASSETS. Neither the Guarantor, any Borrower nor any of
their respective Subsidiaries shall, directly or indirectly, sell, lease,
assign, transfer or otherwise dispose of any assets other than (i) Inventory in
the ordinary course of business; (ii) individual items of Collateral with a book
value of less than $400,000 in the aggregate during any fiscal year, (iii)
obsolete or worn out property disposed of in the ordinary course of business;
and (iv) dispositions of assets not otherwise permitted under this Section 8.8,
provided, that, (a) such dispositions are for fair value, (b) the aggregate
consideration is paid in full in cash at the time of disposition and is
thereupon (I) reinvested in the business of the affected Borrower or its
Subsidiaries or (II) delivered to the Agent, in which case such consideration
will be applied to repay the Revolving Loans and (c) the aggregate amount of all
such dispositions does not exceed $1,000,000 in the aggregate for any fiscal
year.
8.9 RESTRICTED PAYMENTS. No Borrower shall, nor shall any Borrower
permit any of its Subsidiaries to, directly or indirectly, (a) declare or pay
any dividend (other than dividends payable solely in capital stock of such
Person) on, 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, any shares of any class of capital stock of such Person or
any warrants, options or rights to purchase any such capital stock, whether now
or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
such Person or any of its Subsidiaries; (b) make any optional payment or
prepayment on or redemption (including, without limitation, by making payments
to a sinking or analogous fund) or repurchase of any Indebtedness (other than
Indebtedness pursuant to this Credit Agreement); provided, that, notwithstanding
the foregoing, any Subsidiary of the Borrower may (i) make payments on account
of Indebtedness owing to such Borrower or any Subsidiary of such
54
<PAGE> 62
Borrower, (ii) declare and pay dividends to any Borrower or any other Subsidiary
of a Borrower, and (iii) so long as no Default or Event of Default has occurred
or is occasioned thereby, declare and pay dividends to the Guarantor in an
amount not to exceed $20,000,000 in any fiscal year, which dividends may only be
used by Guarantor (A) to make interest payments with respect to Guarantor's
8.75% Convertible Subordinated Debentures in the amount of $50,000,000 due May
30, 2006 and Guarantor's 12.5% Senior Subordinated Notes in the amount of
$110,000,000 due 2004, (B) to pay federal, state and local taxes, and (C) for
general corporate overhead.
8.10 INVESTMENTS. Neither the Guarantor, any Borrower, nor any of their
respective Subsidiaries shall, directly or indirectly, make any Investment in
any Person, whether in cash, securities, or other property of any kind
including, without limitation, any Subsidiary or Affiliate of the Guarantor or
any Borrower, other than:
(a) Advances or loans made in the ordinary course of business
not to exceed $250,000 outstanding at any time to any one Person and
$1,000,000 in the aggregate outstanding at any one time;
(b) Loans, investments and advances made by any Credit Party
in existence as of the date hereof and described on Schedule B, Part
8.10;
(c) Cash Equivalents;
(d) Deposits with financial institutions, disclosed in
Schedule B, Part 8.10, and which are insured by the Federal Deposit
Insurance Corporation ("FDIC") or a similar federal insurance program;
provided, that the Borrowers may, in the ordinary course of its
business, maintain in its disbursement accounts from time to time
amounts in excess of then applicable FDIC or other program insurance
limits;
(e) Inter-company advances in the ordinary course of business
among the Credit Parties; and
(f) Such other Investments as the Agent may approve in writing
in the exercise of its sole discretion.
8.11 AFFILIATE TRANSACTIONS. Neither the Guarantor, any Borrower, nor
any of their respective Subsidiaries shall, directly or indirectly, enter into
any transaction with (including, without limitation, the purchase, sale or
exchange of property or the rendering of any service to) any Subsidiary or
Affiliate of such Persons, except in the ordinary course of and pursuant to the
reasonable requirements of the Guarantor's, such Borrower's or such Subsidiary's
business, as the case may be, and upon fair and reasonable terms no less
favorable thereto than could be obtained in a
55
<PAGE> 63
comparable arm's-length transaction with an unaffiliated Person, except for
transactions otherwise permitted under Sections 8.9 and 8.10;
8.12 ADDITIONAL BANK ACCOUNTS. Neither the Guarantor, any Borrower, nor
any of their respective Subsidiaries shall, directly or indirectly, open,
maintain or otherwise have any checking, savings or other accounts at any bank
or other financial institution, or any other account where money is or may be
deposited or maintained with any Person, other than the Disbursement Account and
the accounts set forth on Schedule B, Part 8.12.
8.13 INTENTIONALLY DELETED
8.14 ADDITIONAL NEGATIVE PLEDGES. Neither the Guarantor, any Borrower,
nor any of their respective Subsidiaries shall, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, directly or
indirectly, (i) any prohibition or restriction (including any agreement to
provide equal and ratable security to any other Person in the event a Lien is
granted to or for the benefit of the Agent and the Lenders) on the creation or
existence of any Lien upon the assets of such Person, other than Permitted
Liens; or (ii) any contractual obligation which may restrict or inhibit the
Agent's rights or ability to sell or otherwise dispose of the Collateral or any
part thereof after the occurrence of an Event of Default.
8.15 ADDITIONAL SUBSIDIARIES. Neither the Guarantor, any Borrower, nor
any of their respective Subsidiaries shall, directly or indirectly, form or
acquire any new Subsidiaries.
8.16 EMPLOYEE BENEFIT PLANS. Neither the Guarantor, any Borrower, nor
any of their respective Subsidiaries shall, directly or indirectly, without
Agent's advanced written consent, adopt any New Employee Benefit Plan or amend
an existing Employee Benefit Plan in any manner which will, or could reasonably
be expected to, result in a Material Adverse Effect.
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
9.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an event of default (each an "Event of Default") hereunder:
56
<PAGE> 64
(a) FAILURE TO PAY. The Borrowers shall fail to pay (i) any
Obligation consisting of a payment of principal when the same shall
become payable, or (ii) any other Obligation when due and such failure
shall continue unremedied for three (3) or more Business Days.
(b) BREACH OF CERTAIN COVENANTS. The Guarantor or any of the
Borrowers shall fail to comply with Sections 7.1, 7.2(a), 7.3 or 7.6,
or with any covenant contained in Article 8.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation
or warranty made or deemed to be made by the Guarantor, the Borrowers
or any other Credit Party in this Credit Agreement or in any other
Credit Document (and in any statement or certificate given under this
Credit Agreement or any other Credit Document), shall be false or
misleading in any material respect when made or deemed to be made.
(d) BREACH OF OTHER COVENANTS. Any Credit Party shall fail to
comply with any covenant contained in this Credit Agreement or any
other Credit Document, other than as set forth in Section 9.1(b), and
such failure shall continue for fifteen (15) days after the earlier to
occur of (i) the date such Credit Party knew or should have known of
such failure, or (ii) notice thereof from Agent or any Lender.
(e) DISSOLUTION. The Guarantor or any Borrower shall dissolve,
wind up or otherwise cease its business.
(f) INSOLVENCY EVENT. Any Credit Party shall become the
subject of an Insolvency Event.
(g) CHANGE OF CONTROL. A Change of Control shall occur.
(h) CROSS DEFAULT. A default or event of default shall occur
(and continue beyond any applicable grace period) under any note,
agreement or instrument evidencing any other Indebtedness of the
Guarantor, any Borrower or any of their respective Subsidiaries, which
default or event of default permits the acceleration of its maturity,
provided, that the aggregate principal amount of all such Indebtedness
for which the default or event of default has occurred exceeds
$2,500,000.
(i) FAILURE OF ENFORCEABILITY OF CREDIT DOCUMENTS; SECURITY.
Any covenant, agreement or obligation of any Credit Party contained in
or evidenced by any of the Credit Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance
with its terms; any Credit Party shall deny or disaffirm its
57
<PAGE> 65
obligations under any of the Credit Documents or any Liens granted in
connection therewith; or, any Liens granted in any of the Collateral
shall be determined to be void, voidable, invalid or unperfected, are
subordinated or not given the priority contemplated by this Credit
Agreement.
9.2 ACCELERATION, TERMINATION OF COMMITMENTS AND CASH
COLLATERALIZATION. Upon the occurrence and during the continuance of any Event
of Default, without prejudice to the rights of the Agent or any Lender to
enforce its claims against any Credit Party:
(a) ACCELERATION. Upon the written request of the Majority
Lenders, and by delivery of written notice to the Borrower
Representative from the Agent, all Obligations shall be immediately due
and payable (except with respect to any Event of Default set forth in
Section 9.1(f), in which case all Obligations shall automatically
become immediately due and payable without the necessity of any request
of the Majority Lenders or notice or other demand to the Borrowers)
without presentment, demand, protest or any other action or obligation
of the Agent or any Lender.
(b) TERMINATION OF COMMITMENTS. Upon the written request of
the Majority Lenders, and by delivery of written notice to the Borrower
Representative from the Agent, the Commitments shall be immediately
terminated and, at all times thereafter, all Revolving Loans made by
any Lender pursuant to this Credit Agreement shall be at such Lender's
sole discretion, unless such Event of Default is waived in accordance
with Section 11.11, in which case the Commitments shall be
automatically reinstated.
(c) CASH COLLATERALIZATION. On demand of the Agent or the
Majority Lenders, the Borrowers shall immediately deposit with the
Agent for each Letter of Credit then outstanding, cash or Cash
Equivalents in an amount equal to 110% of the greatest amount drawable
thereunder. Such deposit shall be held by the Agent and used to
reimburse the Issuing Bank for the amount of each drawing made under
such Letters of Credit, as and when each such drawing is made.
9.3 RECISSION OF ACCELERATION. After acceleration of the maturity of
the Obligations, if the Borrowers pay all accrued interest and all principal due
(other than by reason of the acceleration) and all Defaults and Events of
Default are waived in accordance with Section 11.11, the Majority Lenders may
elect in their sole discretion, to rescind the acceleration and return to the
Borrowers any cash collateral deposited with the Agent pursuant to Section
9.2(c). (This Section is intended only to bind all of the Lenders to a decision
of the Majority Lenders and not to confer any right on the Borrowers, even if
the described conditions for the Majority Lenders' election may be met.)
58
<PAGE> 66
9.4 REMEDIES. Upon the occurrence and during the continuance of an
Event of Default, upon the written request and at the direction of the Majority
Lenders, the Agent may exercise any rights and remedies available to it under
applicable law (including under the Code) and under the Collateral Documents.
The foregoing rights and remedies are not intended to be exhaustive and the full
or partial exercise of any right or remedy shall not preclude the full or
partial exercise of any other right or remedy available under this Credit
Agreement, any other Credit Document, at equity or at law.
9.5 RIGHT OF SETOFF. In addition to and not in limitation of all rights
of offset that any Lender may have under applicable law, upon the occurrence and
during the continuance of any Event of Default, and whether or not any Lender
has made any demand or the Obligations of any Credit Party have matured, each
Lender shall have the right to appropriate and apply to the payment of the
Obligations of such Credit Party all deposits and other obligations then or
thereafter owing by such Lender to such Credit Party. Each Lender exercising
such rights shall notify the Agent thereof and any amount received as a result
of the exercise of such rights shall be shared by the Lenders in accordance with
Section 2.5.
9.6 LICENSE OF USE OF SOFTWARE AND OTHER INTELLECTURAL PROPERTY. Unless
expressly prohibited by the licenser thereof, if any, the Agent is hereby
granted a license to use all computer software programs, data bases, processes
and materials used by the Guarantor and the Borrowers in connection with their
businesses or in connection with the Collateral. The Agent agrees not to use any
such license except upon the occurrence and during the continuance of an Event
of Default without giving the Borrower Representative prior notice.
9.7 APPLICATION OF PROCEEDS; SURPLUS; DEFICIENCIES. The net cash
proceeds resulting from the Agent's exercise of any of the foregoing rights
against any Collateral (after deducting all of the Agent's Expenses related
thereto) shall be applied by the Agent to the payment of the Obligations,
whether due or to become due, in the order set forth in Section 4.12. The
Guarantor and the Borrowers shall remain liable to the Agent and the Lenders for
any deficiencies, and the Agent and the Lenders in turn agree to remit to the
Borrowers or their successors or assigns, any surplus resulting therefrom.
59
<PAGE> 67
ARTICLE 10
THE AGENT
10.1 APPOINTMENT OF AGENT
(a) Each Lender hereby designates BTCC as Agent to act as
herein specified. Each Lender hereby irrevocably authorizes, and each
holder of any Revolving Note, by the acceptance of such Revolving Note,
shall be deemed irrevocably to authorize the Agent to take such action
on its behalf under the provisions of this Credit Agreement and the
other Credit Documents and any other instruments and agreements
referred to herein and therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof
and such other powers as are reasonably incidental thereto. The Agent
shall hold all Collateral and all payments of principal, interest,
Fees, (other than Fees that are exclusively for the account of the
Agent), charges and Expenses received pursuant to this Credit Agreement
or any other Credit Document for the ratable benefit of the Lenders.
The Agent may perform any of its duties hereunder by or through its
agents or employees.
(b) Other than the Borrowers' rights under Section 10.9, the
provisions of this Article 10 are for the benefit of the Agent and the
Lenders only and none of the Credit Parties or any other Persons shall
have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Credit
Agreement and the other Credit Documents, the Agent shall act only for
the Lenders and does not assume and shall not be deemed to have assumed
any obligation toward or relationship of agency or trust with or for
any Credit Party.
10.2 NATURE OF DUTIES OF AGENT. The Agent has no duties or
responsibilities except those expressly set forth in the Credit Documents.
Neither the Agent nor any of its officers, directors, employees or agents shall
be liable for any action taken or omitted hereunder or in connection herewith,
unless caused by its or their gross negligence or willful misconduct. The duties
of the Agent shall be mechanical and administrative in nature; the Agent shall
not have by reason of this Credit Agreement or any of the other Credit Documents
a fiduciary relationship in respect of any Lender or any participant of any
Lender; and nothing in this Credit Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Credit Agreement or any other
Credit Document, except as expressly set forth herein or therein.
60
<PAGE> 68
10.3 LACK OF RELIANCE ON AGENT
(a) Independently and without reliance upon the Agent, each
Lender, to the extent it deems appropriate, has made and shall continue
to make (i) its own independent investigation of the financial or other
condition and affairs of each Credit Party in connection with the
taking or not taking of any action in connection herewith and (ii) its
own appraisal of the creditworthiness of each Credit Party, and, except
as expressly provided in this Credit Agreement, the Agent shall have no
duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the
Revolving Loans or at any time or times thereafter.
(b) The Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness,
validity, enforceability, collectibility, priority or sufficiency of
this Credit Agreement or any of the other Credit Documents or the
financial or other condition of any Credit Party. The Agent shall not
be required to make any inquiry concerning either the performance or
observance of any other terms, provisions or conditions of this Credit
Agreement or any of the other Credit Documents, or the financial
condition of any Credit Party, or the existence or possible existence
of any Default or Event of Default, unless specifically requested to do
so in writing by any Lender.
10.4 CERTAIN RIGHTS OF THE AGENT. The Agent shall have the right to
request instructions from the Majority Lenders by notice to each of the Lenders.
If the Agent shall request instructions from the Majority Lenders with respect
to any act or action (including the failure to act) in connection with this
Credit Agreement, the Agent shall be entitled to refrain from such act or taking
such action unless and until the Agent shall have received instructions from the
Majority Lenders, and the Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender shall have
any right of action whatsoever against the Agent as a result of the Agent acting
or refraining from acting hereunder in accordance with the instructions of the
Majority Lenders. The Agent may give any notice required under Article 9 hereof
without the consent of any of the Lenders unless otherwise directed by the
Majority Lenders in writing and will, at the direction of the Majority Lenders,
give any such notice required under Article 9.
10.5 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message,
61
<PAGE> 69
cablegram, radiogram, order or other documentary, teletransmission or telephone
message believed by it to be genuine and correct and to have been signed, sent
or made by the proper person. The Agent may consult with legal counsel
(including counsel for the Guarantor and the Borrowers with respect to matters
concerning any such Person), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
10.6 INDEMNIFICATION OF AGENT. To the extent the Agent is not
reimbursed and indemnified by the Borrowers, each Lender will reimburse and
indemnify the Agent, in proportion to its respective Commitment, for and against
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent in performing its duties hereunder, in any way
relating to or arising out of this Credit Agreement; provided, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct.
10.7 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its
obligation to lend under this Credit Agreement, the Revolving Loans made by it
and the Revolving Notes issued to it and its participation in Letters of Credit
issued hereunder, the Agent shall have the same rights and powers hereunder as
any other Lender or holder of a Revolving Note or participation interests and
may exercise the same as though it was not performing the duties specified
herein; and the terms "Lenders," "Majority Lenders," "holders of Revolving
Notes," or any similar terms shall, unless the context clearly otherwise
indicates, include the Agent in its individual capacity. The Agent may accept
deposits from, lend money to, acquire equity interests in, and generally engage
in any kind of banking, trust, financial advisory or other business with the
Guarantor, the Borrowers or any Affiliate thereof as if it were not performing
the duties specified herein, and may accept fees and other consideration from
the Guarantor and the Borrowers for services in connection with this Credit
Agreement and otherwise without having to account for the same to the Lenders.
10.8 HOLDERS OF REVOLVING NOTES. The Agent may deem and treat the
payee of any Revolving Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any Person who, at
the time of making such request or giving such authority or consent, is the
holder of any Revolving Note, shall be conclusive and binding on any subsequent
holder, transferee or assignee of such Revolving Note or of any Revolving Note
or Notes issued in exchange therefor.
62
<PAGE> 70
10.9 SUCCESSOR AGENT
(a) The Agent may, upon five (5) Business Days' notice to the
Lenders and the Borrower Representative, resign at any time (effective
upon the appointment of a successor Agent pursuant to the provisions of
this Section 10.9) by giving written notice thereof to the Lenders and
the Borrower Representative. Upon any such resignation, the Majority
Lenders shall have the right, upon five (5) days' notice and approval
by the Borrower Representative (which approval shall not be
unreasonably withheld or delayed), to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority Lenders
and accepted such appointment, within thirty (30) days after the
retiring Agent's giving of notice of resignation, then, upon five (5)
days' notice and approval by the Borrower Representative (which
approval shall not be unreasonably withheld or delayed), the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be a bank or a trust company or other financial institution which
maintains an office in the United States, or a commercial bank
organized under the laws of the United States of America or of any
State thereof, or any Affiliate of such bank or trust company or other
financial institution which is engaged in the banking business, having
a combined capital and surplus of at least $500,000.000.
(b) Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Credit Agreement and the other Credit
Documents. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article 10 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under or
in connection with this Credit Agreement.
10.10 COLLATERAL MATTERS
(a) Each Lender authorizes and directs the Agent to enter into
the Collateral Documents for the benefit of the Lenders. Each Lender
hereby agrees, and each holder of any Revolving Note by the acceptance
thereof will be deemed to agree, that, except as otherwise set forth
herein, any action taken by the Majority Lenders in accordance with the
provisions of this Credit Agreement or any of the Credit Documents, and
the exercise by the Majority Lenders of the powers set forth herein or
therein, together with such other powers as are reasonably incidental
thereto, shall be authorized and binding upon all of the Lenders. The
Agent is hereby authorized on behalf of all of the Lenders, without the
necessity of any notice to or further consent from any Lender, from
time to time prior to an Event of Default, to take any action with
respect to any Collateral or Collateral Documents which may be
necessary to perfect and maintain the perfection of the Liens
63
<PAGE> 71
upon the Collateral granted pursuant to the Collateral Documents.
(b) The Lenders hereby authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent
upon any Collateral (i) upon termination of the Commitments and payment
and satisfaction of all of the Obligations at any time arising under or
in respect of this Credit Agreement or the Credit Documents or the
transactions contemplated hereby or thereby or (ii) if approved,
authorized or ratified in writing by the Majority Lenders, unless such
release is required to be approved by all of the Lenders pursuant to
Section 11.11. Upon request by the Agent at any time, the Lenders will
confirm in writing the Agent's authority to release particular types or
items of Collateral pursuant to this Section 10.10.
(c) The Agent shall have no obligation whatsoever to the
Lenders or to any other Person to assure that the Collateral exists or
is owned by the Borrowers or is cared for, protected or insured or that
the Liens granted to the Agent in or pursuant to any of the Collateral
Documents have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular
priority, or to exercise or to continue exercising at all or in any
manner or under any duty of care, disclosure or fidelity any of the
rights, authorities and powers granted or available to the Agent in
this Section 10.10 or in any of the Collateral Documents, it being
understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it
may deem appropriate, in its sole discretion, given the Agent's own
interest in the Collateral as one of the Lenders and that the Agent
shall have no duty or liability whatsoever to the Lenders, except for
its gross negligence or willful misconduct. The Agent agrees to conduct
or cause to be conducted at least one audit of the Collateral during
each year that this Credit Agreement shall remain in effect.
10.11 ACTIONS WITH RESPECT TO DEFAULTS. In addition to the Agent's
right to take actions on its own accord as permitted under this Credit
Agreement, the Agent shall take such action with respect to a Default or Event
of Default as shall be directed by the Majority Lenders; provided, that until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable and in the best
interests of the Lenders.
10.12 DELIVERY OF INFORMATION. The Agent shall not be required to
deliver to any Lender originals or copies of any documents, instruments,
notices, communications or other information received by the Agent from the
Guarantor, any Borrower, any Subsidiary thereof, the Majority Lenders, any
Lender or any other Person under or in connection with this Credit Agreement or
any other Credit Document except (i) as specifically provided in this Credit
Agreement or any
64
<PAGE> 72
other Credit Document and (ii) as specifically requested from time to time in
writing by any Lender with respect to a specific document, instrument, notice or
other written communication received by and in the possession of the Agent at
the time of receipt of such request and then only in accordance with such
specific request.
ARTICLE 11
MISCELLANEOUS
11.1 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS CREDIT AGREEMENT AND THE REVOLVING NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND DECISIONS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
11.2 SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG THE GUARANTOR, THE
BORROWERS AND THE LENDERS (OR THE AGENT ACTING ON THEIR BEHALF), 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 THE AGENT, ON BEHALF OF
THE LENDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE GUARANTOR, THE BORROWERS OR THEIR RESPECTIVE PROPERTIES IN
ANY LOCATION REASONABLY SELECTED BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE AGENT. THE GUARANTOR, AND EACH BORROWER AGREES THAT IT WILL NOT
ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING
BROUGHT BY THE AGENT. THE GUARANTOR AND EACH BORROWER WAIVES ANY OBJECTION THAT
IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS COMMENCED A
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON FORUM NON CONVENIENS.
11.3 SERVICE OF PROCESS. THE GUARANTOR AND EACH BORROWER HEREBY
IRREVOCABLY AGREES THAT SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS CREDIT AGREEMENT OR ANY OTHER
65
<PAGE> 73
CREDIT DOCUMENT MAY BE AFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER REPRESENTATIVE AT ITS ADDRESS
SET FORTH IN SECTION 11.7.
11.4 JURY TRIAL. THE GUARANTOR, EACH BORROWER, THE AGENT AND THE
LENDERS EACH HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY DISPUTES
WILL BE RESOLVED IN A BENCH TRIAL.
11.5 LIMITATION OF LIABILITY. NEITHER THE AGENT NOR ANY LENDER SHALL
HAVE ANY LIABILITY TO THE GUARANTOR OR ANY BORROWER (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED THEREBY IN CONNECTION WITH, ARISING
OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED
BY THIS CREDIT 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 THE AGENT OR ANY SUCH LENDER, THAT THE LOSSES WERE THE
RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
11.6 DELAYS. No delay or omission of the Agent or the Lenders to
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof.
11.7 NOTICES. Except as otherwise provided herein, all notices and
correspondences hereunder shall be in writing and sent by certified or
registered mail, return receipt requested, or by overnight delivery service,
with all charges prepaid, if to the Agent or any of the Lenders, then to BT
Commercial Corporation, 233 South Wacker Drive, Chicago, Illinois 60606,
Attention: Credit Department, if to the Borrowers, then to Guarantor at 5 Civic
Plaza, Suite 100, Newport Beach, California 92660, Attention: Kevin M. Higgins,
or by facsimile transmission, promptly confirmed in writing sent by first class
mail, if to the Agent, or any of the Lenders, at (312) 993-8096 and if to the
Borrowers at (714) 668-5824 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
telex or facsimile transmission, when receipt of such transmission is
acknowledged.
66
<PAGE> 74
11.8 ASSIGNMENTS AND PARTICIPATIONS
(a) BORROWER ASSIGNMENT. The Borrowers shall have no right to
assign this Credit Agreement, or any rights or obligations hereunder,
without the prior written consent of the Agent and the Lenders.
(b) LENDER ASSIGNMENTS. Each Lender may assign to one or more
banks or other financial institutions all or a portion of its rights
and obligations under this Credit Agreement, the Revolving Notes and
the other Credit Documents, with the consent of the Agent; and upon
execution and delivery to the Agent, for its acceptance and recording
in the Register, of an agreement in substantially the form of Exhibit L
hereto (an "Assignment and Assumption Agreement"), together with
surrender of any Revolving Note or Revolving Notes subject to such
assignment and a processing and recordation fee of $2,500. No such
assignment shall be for less than $10,000,000 of the Commitments unless
it is to another Lender or is an assignment of all of such Lender's
rights and obligations under this Credit Agreement. (This Section does
not apply to branches and Affiliates of a Lender, it being understood
that a Lender may make, carry or transfer Revolving Loans at or for the
account of any of its branch offices or Affiliates without consent of
the Borrowers, the Agent or any other Lender).
(c) AGENT'S REGISTER. The Agent shall maintain a register of
the names and addresses of the Lenders, their Commitments, and the
principal amount of their Revolving Loans (the "Register") at the
address specified for the Agent in Section 11.7. The Agent shall also
maintain a copy of each Assignment and Assumption Agreement delivered
to and accepted by it and modify the Register to give effect to each
Assignment and Assumption Agreement. Upon its receipt of each
Assignment and Assumption Agreement and surrender of the affected
Revolving Note or Revolving Notes, the Agent will give prompt notice
thereof to the Borrower Representative and deliver to the Borrower
Representative a copy of the Assignment and Assumption Agreement and
the surrendered Revolving Note or Revolving Notes. Within five Business
Days after its receipt of such notice, the Borrowers shall execute and
deliver to the Agent a substitute Revolving Note or Revolving Notes to
the order of the assignee in the amount of the Commitment or
Commitments assumed by it and to the assignor in the amount of the
Commitment or Commitments retained by it, if any. Such substitute
Revolving Note or Revolving Notes shall re-evidence the Indebtedness
outstanding under the surrendered Revolving Note or Revolving Notes and
shall be dated as of the Closing Date. The Agent shall be entitled to
rely upon the Register exclusively for purposes of identifying the
Lenders hereunder. The Register shall be available for inspection by
the Borrower Representative and the Lenders (or any of them) at any
reasonable time and from time to time upon reasonable notice to the
Agent.
67
<PAGE> 75
(d) LENDER PARTICIPATIONS. Each Lender may sell participations
(without the consent of the Agent, the Borrowers or any other Lender)
to one or more parties in or to all or a portion of its rights and
obligations under this Credit Agreement, the Revolving Notes and the
other Credit Documents. Notwithstanding a Lender's sale of a
participation interest, its obligations hereunder shall remain
unchanged. The Borrowers, the Agent, and the other Lenders shall
continue to deal solely and directly with such Lender. No participant
shall have rights to approve any amendment or waiver of this Credit
Agreement or any of the other Credit Documents except to the extent
such amendment or waiver would (i) increase the participant's
obligation in respect of the Commitment of the Lender from whom the
participant purchased its participation interest; (ii) reduce the
principal of, or stated rate or amount of interest on, the Revolving
Loans subject to such participation, (iii) postpone any maturity date
fixed for final payment of principal of the Revolving Loans subject to
the participation interest, and (iv) release any guarantor of the
Obligations or all or a substantial portion of the Collateral, other
than when otherwise permitted hereunder.
11.9 CONFIDENTIALITY. Each Lender agrees that it will use its
reasonable best efforts not to disclose without the prior consent of the
Guarantor any information with respect to the Borrowers or any of their
Subsidiaries which is furnished pursuant to this Credit Agreement and which is
designated by the Guarantor to the Lenders in writing as confidential, provided,
that, each Lender may disclose any such information (a) to its employees,
auditors, or counsel, or to another Lender if the disclosing Lender or such
disclosing Lender's holding or parent company in its sole discretion determines
that any such party should have access to such information, (b) as has become
generally available to the public, (c) as may be required or appropriate in any
report, statement or testimony submitted to any Governmental Authority having or
claiming to have jurisdiction over such Lender, (d) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (e) in order to comply with any Requirement of Law, and (f) to any
such prospective or actual transferee or participant in connection with any
contemplated transfer or participation of any of the Revolving Notes or
Commitments or any interest therein by such Lender.
11.10 INDEMNIFICATION. Each Borrower hereby indemnifies and agrees to
defend and hold harmless the Agent and each of the Lenders and their respective
directors, officers, agents, employees and counsel from and against any and all
losses, claims, damages, liabilities, deficiencies, judgments or expenses
incurred by any of them (except to the extent that it is finally judicially
determined to have resulted from their own gross negligence or willful
misconduct) arising out of or by reason of (a) any litigations, investigations,
claims or proceedings which arise out of or are in any way related to (i) this
Credit Agreement or the transactions contemplated hereby, (ii) the issuance of
the Letters of
68
<PAGE> 76
Credit, (iii) the failure of the Issuing Bank to honor a drawing under any
Letter of Credit, as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority, (iv) any actual or proposed use by any Borrower of the
proceeds of the Revolving Loans or (v) the Agent's or the Lenders' entering into
this Credit Agreement, the other Credit Documents or any other agreements and
documents relating hereto, including, without limitation, amounts paid in
settlement, court costs and the fees and disbursements of counsel incurred in
connection with any such litigation, investigation, claim or proceeding or any
advice rendered in connection with any of the foregoing and (b) any remedial or
other action taken by any Borrower or any of the Lenders in connection with
compliance by any Borrower or any of its Subsidiaries, or any of their
respective properties, with any federal, state or local environmental laws,
acts, rules, regulations, orders, directions, ordinances, criteria or
guidelines.
11.11 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Credit Agreement, any part of Schedule B, or any other Credit Document
shall be effective unless in writing and signed by the Majority Lenders (or by
the Agent on their behalf), except that:
(a) the consent of all the Lenders is required to (i) increase
the Commitments, (ii) reduce the principal of, or interest on, the
Revolving Notes, any Letter of Credit reimbursement obligations or any
Fees hereunder (other than Fees that are exclusively for the account of
the Agent), (iii) postpone any date fixed for any payment in respect of
principal of, or interest on, the Revolving Notes, any Letter of Credit
reimbursement obligations or any Fees hereunder, (iv) change the
percentage of the Commitments, or any minimum requirement necessary for
the Lenders or the Majority Lenders to take any action hereunder, (v)
amend or waive this Section 11.11(a), or change the definition of
Majority Lenders or (vi) except as otherwise expressly provided in this
Credit Agreement, and other than in connection with the financing,
refinancing, sale or other disposition of any asset of the Borrowers
permitted under this Credit Agreement, release any Liens in favor of
the Lenders on any of the Collateral; and
(b) the consent of the Agent shall be required for any
amendment, waiver or consent affecting the rights or duties of the
Agent under any Credit Document, in addition to the consent of the
Lenders otherwise required by this Section.
The consent of the Borrowers shall not be required for any amendment,
modification or waiver of the provisions of Article 10 (other than Section
10.9). The Borrowers and the Lenders each hereby authorize the Agent to modify
this Credit Agreement by unilaterally amending or supplementing Annex I to
reflect assignments of the Commitments. Notwithstanding the foregoing, the
Borrowers may amend Schedule B, Parts 6.1, 6.10, and 6.14, without the consent
of the Majority Lenders.
69
<PAGE> 77
11.12 COUNTERPARTS AND EFFECTIVENESS. This Credit Agreement and any
waiver or amendment hereto may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Credit Agreement shall become
effective on the date on which all of the parties hereto shall have signed a
copy hereof (whether the same or different copies) and shall have delivered the
same to the Agent pursuant to Section 11.7 or, in the case of the Lenders, shall
have given to the Agent written, telecopied or telex notice (actually received)
at such office that the same has been signed and mailed to it.
11.13 SEVERABILITY. In case any provision in or obligation under this
Credit Agreement or the Revolving Notes or the other Credit Documents 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.
11.14 MAXIMUM RATE. Notwithstanding anything to the contrary contained
elsewhere in this Credit Agreement or in any other Credit Document, the
Borrowers, the Agent and the Lenders hereby agree that all agreements among them
under this Credit Agreement and the other Credit 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 the Agent or any Lender for the use, forbearance, or detention of the
money loaned to the Borrowers and evidenced hereby or thereby or for the
performance or payment of any covenant or obligation contained herein or
therein, exceed the Highest Lawful Rate. If due to any circumstance whatsoever,
fulfillment of any provisions of this Credit Agreement or any of the other
Credit 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 any
Lender 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 the Borrowers. All sums paid or agreed to be paid to
the Agent or any Lender for the use, forbearance, or detention of the
Obligations and other Indebtedness of the Borrowers to the Agent or any Lender,
to the extent permitted by applicable law, shall 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
70
<PAGE> 78
Lawful Rate throughout the entire term of such Indebtedness. The terms and
provisions of this Section shall control over every other provision of this
Credit Agreement, the other Credit Documents, and all agreements among the
Guarantor, the Borrowers, the Agent and the Lenders.
11.15 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Credit Agreement
and the other Credit Documents constitute the entire agreement among the
Guarantor, the Borrowers, the Agent and the Lenders, supersede any prior
agreements among them, and shall bind and benefit each of such Persons and their
respective successors and permitted assigns.
ARTICLE 12
CROSS-GUARANTY
12.1 CROSS-GUARANTY. Each Borrower hereby agrees that such Borrower is
jointly and severally liable for, and hereby absolutely and unconditionally
guarantees to Agent and Lenders and their respective successors and assigns, the
full and prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance of, all Obligations owed or hereafter owing to Agent
and Lenders by each other Borrower. Each Borrower agrees that its guaranty
obligation hereunder is a continuing guaranty of payment and performance and not
of collection, and that its obligations under this Section 12 shall be absolute
and unconditional, irrespective of, and unaffected by,
(a) the genuineness, validity, regularity, enforceability or
any future amendment of, or change in, this Agreement, any other Credit
Document or any other agreement, document or instrument to which any
Borrower is or may become a party;
(b) the absence of any action to enforce this Agreement
(including this Section 12) or any other Credit Document or the waiver
or consent by Agent and Lenders with respect to any of the provisions
thereof;
(c) the existence, value or condition of, or failure to
perfect its Lien against, any security for the Obligations or any
action, or the absence of any action, by Agent and Lenders in respect
thereof (including the release of any such security);
(d) the insolvency of any Credit Party; or
(e) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor,
it being agreed by each Borrower that its obligations under this Section 12
shall not be discharged
71
<PAGE> 79
until the payment and performance, in full, of the Obligations has occurred.
Each Borrower shall be regarded, and shall be in the same position, as principal
debtor with respect to the Obligations guaranteed hereunder.
12.2 WAIVERS BY BORROWERS. Each Borrower expressly waives all rights it
may have now or in the future under any statute, or at common law, or at law or
in equity, or otherwise, to compel Agent or Lenders to marshall assets or to
proceed in respect of the Obligations guaranteed hereunder against any other
Credit Party, any other party or against any security for the payment and
performance of the Obligations before proceeding against, or as a condition to
proceeding against, such Borrower. It is agreed among each Borrower, Agent and
Lenders that the foregoing waivers are of the essence of the transaction
contemplated by this Agreement and the other Credit Documents and that, but for
the provisions of this Section 12 and such waivers, Agent and Lenders would
decline to enter into this Agreement.
12.3 BENEFIT OF GUARANTY. Each Borrower agrees that the provisions of
this Section 12 are for the benefit of Agent and Lenders and their respective
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between any other Borrower and Agent or Lenders, the
obligations of such other Borrower under the Credit Documents.
12.4 SUBORDINATION OF SUBROGATION, ETC. Notwithstanding anything to the
contrary in this Agreement or in any other Credit Document, and except as set
forth in Section 12.7, each Borrower hereby expressly and irrevocably
subordinates to payment of the Obligations any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off and any and all defenses available to a surety, guarantor or
accommodation co-obligor until the Obligations are indefeasibly paid in full in
cash. Each Borrower acknowledges and agrees that this subordination is intended
to benefit Agent and Lenders and shall not limit or otherwise affect such
Borrower's liability hereunder or the enforceability of this Section 12, and
that Agent, Lenders and their respective successors and assigns are intended
third party beneficiaries of the waivers and agreements set forth in this
Section 12.4.
12.5 ELECTION OF REMEDIES. If Agent or any Lender may, under applicable
law, proceed to realize its benefits under any of the Credit Documents giving
Agent or such Lender a Lien upon any Collateral, whether owned by any Borrower
or by any other Person, either by judicial foreclosure or by non-judicial sale
or enforcement, Agent or any Lender may, at its sole option, determine which of
its remedies or rights it may pursue without affecting any of its rights and
remedies under this Section 12. If, in the exercise of any of its rights and
remedies, Agent or any Lender shall forfeit
72
<PAGE> 80
any of its rights or remedies, including its right to enter a deficiency
judgment against any Borrower or any other Person, whether because of any
applicable laws pertaining to "election of remedies" or the like, each Borrower
hereby consents to such action by Agent or such Lender and waives any claim
based upon such action, even if such action by Agent or such Lender shall result
in a full or partial loss of any rights of subrogation which each Borrower might
otherwise have had but for such action by Agent or such Lender. Any election of
remedies which results in the denial or impairment of the right of Agent or any
Lender to seek a deficiency judgment against any Borrower shall not impair any
other Borrower's obligation to pay the full amount of the Obligations. In the
event Agent or any Lender shall bid at any foreclosure or trustee's sale or at
any private sale permitted by law or the Credit Documents, Agent or such Lender
may bid all or less than the amount of the Obligations and the amount of such
bid need not be paid by Agent or such Lender but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether Agent,
Lender or any other party is the successful bidder, shall be conclusively deemed
to be the fair market value of the Collateral and the difference between such
bid amount and the remaining balance of the Obligations shall be conclusively
deemed to be the amount of the Obligations guaranteed under this Section 12,
notwithstanding that any present or future law or court decision or ruling may
have the effect of reducing the amount of any deficiency claim to which Agent or
any Lender might otherwise be entitled but for such bidding at any such sale.
12.6 LIMITATION. Notwithstanding any provision herein contained to the
contrary, each Borrower's liability under this Section 12 (which liability is in
any event in addition to amounts for which such Borrower is primarily liable
under Section 2) shall be limited to an amount not to exceed as of any date of
determination the greater of:
(a) the net amount of all Loans advanced to any other Borrower
under this Agreement and then re-loaned or otherwise transferred to, or
for the benefit of, such Borrower; and
(b) the amount which could be claimed by Agent and Lenders
from such Borrower under this Section 12 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy
Code or under any applicable state Uniform Fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law
after taking into account, among other things, such Borrower's right of
contribution and indemnification from each other Borrower under Section
12.7.
73
<PAGE> 81
12.7 CONTRIBUTION WITH RESPECT TO GUARANTY OBLIGATIONS
(a) To the extent that any Borrower shall make a payment under this
Section 12 of all or any of the Obligations (other than Loans made to that
Borrower for which it is primarily liable) (a "Guarantor Payment") which, taking
into account all other Guarantor Payments then previously or concurrently made
by any other Borrower, exceeds the amount which such Borrower would otherwise
have paid if each Borrower had paid the aggregate Obligations satisfied by such
Guarantor Payment in the same proportion that such Borrower's "Allocable Amount"
(as defined below) (as determined immediately prior to such Guarantor Payment)
bore to the aggregate Allocable Amounts of each of the Borrowers as determined
immediately prior to the making of such Guarantor Payment, then, following
indefeasible payment in full in cash of the Obligations and termination of the
Commitments, such Borrower shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each other Borrower for the
amount of such excess, pro rata based upon their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Section 12 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This Section 12.7 is intended only to define the relative rights of
Borrowers and nothing set forth in this Section 12.7 is intended to or shall
impair the obligations of Borrowers, jointly and severally, to pay any amounts
as and when the same shall become due and payable in accordance with the terms
of this Agreement, including Section 12.1. Nothing contained in this Section
12.7 shall limit the liability of any Borrower to pay the Loans made directly or
indirectly to that Borrower and accrued interest, Fees and expenses with respect
thereto for which such Borrower shall be primarily liable.
(d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of the Borrowers to which such
contribution and indemnification is owing.
(e) The rights of the indemnifying Borrowers against other Credit
Parties under this Section 12.7 shall be exercisable upon the full and
indefeasible payment of the Obligations and the termination of the Commitments.
74
<PAGE> 82
12.8 LIABILITY CUMULATIVE. The liability of Borrowers under this
Section 12 is in addition to and shall be cumulative with all liabilities of
each Borrower to Agent and Lenders under this Agreement and the other Credit
Documents to which such Borrower is a party or in respect of any Obligations or
obligation of the other Borrower, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
75
<PAGE> 83
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed and delivered in Chicago, Illinois by their proper and
duly authorized officers as of the date first set forth above.
BORROWERS:
IMAGYN MEDICAL TECHNOLOGIES
CALIFORNIA, INC.
By: /s/ Michael A. Montevideo
-----------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
DACOMED CORPORATION
By: Michael A. Montevideo
-----------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
ALLSTATE MEDICAL PRODUCTS, INC.
By: Michael A. Montevideo
-----------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
OSBON MEDICAL SYSTEMS, LTD.
By: Michael A. Montevideo
-----------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
76
<PAGE> 84
UROHEALTH OF KENTUCKY, INC.
By: Michael A. Montevideo
---------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
MICROSURGE, INC.
By: Michael A. Montevideo
---------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
IMAGYN MEDICAL, INC.
By: Michael A. Montevideo
---------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
77
<PAGE> 85
GUARANTOR:
IMAGYN MEDICAL TECHNOLOGIES, INC.
By: Michael A. Montevideo
--------------------------------------
Name: Michael A. Montevideo
Title: Senior Vice President and CFO
AGENT:
BT COMMERCIAL CORPORATION, as Agent
By: Wayne D. Hillock
--------------------------------------
Name: Wayne D. Hillock
Title: Principal
LENDERS:
BT COMMERCIAL CORPORATION
By: Wayne D. Hillock
--------------------------------------
Name: Wayne D. Hillock
Title: Principal
<PAGE> 86
ANNEX I
TO
CREDIT AGREEMENT
DATED AS OF DECEMBER 30, 1997
LIST OF LENDERS; COMMITMENT AMOUNTS;
AND APPLICABLE LENDING OFFICES
1. BT COMMERCIAL CORPORATION
233 South Wacker Drive
Chicago, Illinois 60606
COMMITMENT AMOUNT: $40,000,000
DOMESTIC LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
I-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,035
<SECURITIES> 0
<RECEIVABLES> 42,828
<ALLOWANCES> 2,047
<INVENTORY> 43,484
<CURRENT-ASSETS> 92,842
<PP&E> 32,090
<DEPRECIATION> 0
<TOTAL-ASSETS> 219,453
<CURRENT-LIABILITIES> 46,810
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> (16,580)
<TOTAL-LIABILITY-AND-EQUITY> 219,453
<SALES> 23,265
<TOTAL-REVENUES> 23,265
<CGS> 15,042
<TOTAL-COSTS> 25,816
<OTHER-EXPENSES> (311)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,689
<INCOME-PRETAX> (22,971)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,037
<CHANGES> 0
<NET-INCOME> (25,008)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
