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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 9, 1996
(August 30, 1996)
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UNIVERSAL SELF CARE, INC.
Delaware 1-11568 95-4228470
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(State or other (Commission File (IRS Employer
jurisdiction of No.) ID No.)
incorporation)
11585 Farmington Road, Livonia, Michigan 48150
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(Address of principal executive offices)
(313) 261-2988
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Registrant's telephone number, including area code
13715 Burbank Blvd., Van Nuys, California 91401
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On August 30, 1996, Universal Self Care, Inc. (the "Company") and three of
its operating subsidiaries (collectively, with the Company, the "Borrowers")
made their first borrowings under a Loan and Security Agreement, dated as of
August 15, 1996 (the "Loan Agreement"), by and among the Borrowers and
HealthPartners Funding, L.P. (the "Lender"). Such initial loan was in the
aggregate principal amount of $3,000,000, of which approximately $101,000 was
utilized to pay a portion of the breakage costs under a prior financing
agreement, $200,000 was utilized to repay an outstanding loan owed to the spouse
of a director of the Company, and the balance was and will be utilized to pay
certain accounts payable and accrued expenses, and to purchase inventory.
Pursuant to the Loan Agreement, the Borrowers may receive revolving credit
advances in an amount not to exceed the lesser of (a) 80% of the qualified
accounts receivable of the Borrowers, or (b) $4,500,000 minus a reserve on
account of certain contingent liabilities of the Borrowers (which reserve has
initially been fixed at $1,500,000, subject to reduction in the event and to the
extent that the subject contingencies are resolved). The stated term of the
Loan Agreement extends to August 30, 1999 (unless sooner terminated at the
option of the Borrowers, or by the Lender upon the occurrence of certain stated
events of default), and all loans and other obligations under the Loan Agreement
are secured by a first priority lien and security interest in all accounts
receivable of the Borrowers.
The Borrowers have agreed to pay interest on the outstanding loans under
the Loan Agreement at a rate equal to the fluctuating prime rate of Fleet
National Bank of Connecticut plus 1.4% per annum, with seven business days'
clearance for all collections for purposes of calculating interest. The
Borrowers have further agreed, during the first year of the term of the Loan
Agreement, to pay to the Lender a monthly loan management fee equal to 0.25% of
the average daily principal balance of the outstanding loans under the Loan
Agreement. The Loan Agreement further contains customary affirmative and
negative covenants, and events of default entitling the Lender to accelerate the
maturity of the loans and/or terminate the Loan Agreement.
In connection with the transactions pursuant to the Loan Agreement, the
Borrowers have entered into an agreement with Fred Kassner, to whom the
Borrowers remain indebted in the approximate amount of $1,474,000 (which is due
and payable on July 14, 1997); pursuant to such agreement, Mr. Kassner has
agreed to subordinate his lien on the accounts receivable of the Borrowers to
the lien and security interest held by the Lender in such collateral. In
addition, in consideration of Mr. Kassner's waiver of certain events of default
under his loan agreement with the Borrowers (such
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events of default consisting of the Company's failure to make certain mandatory
prepayments out of the proceeds received by the Company from certain exercises
of the Company's common stock purchase warrants), the Company has agreed to
issue to Mr. Kassner five-year warrants entitling Mr. Kassner to purchase up to
100,000 shares of common stock of the Company at an exercise price of $2.50 per
share.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not Applicable.
(b) Not Applicable.
(c) The following Exhibits are filed as part of this Form 8-K:
1. Loan and Security Agreement, dated as of August 15, 1996, by and among
the Borrowers and the Lender.
2. Letter agreement dated August 15, 1996, addressed to the Lender,
executed by Fred Kassner, and acknowledged by the Borrowers.
3. Letter agreement dated August 29, 1996 by and between the Company and
Fred Kassner, in respect of certain events of default and the issuance
of certain common stock purchase warrants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
UNIVERSAL SELF CARE, INC.
(Registrant)
By: /s/ Richard R. Hough
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Richard R. Hough
Chief Operating Officer
Dated: September 9, 1996
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EXHIBIT 1
$4,500,000.00
LOAN AND SECURITY AGREEMENT
by and among
UNIVERSAL SELF CARE, INC.
DIABETES SELF CARE, INC.
PCS, INC.- WEST
PHYSICIANS SUPPORT SERVICES, INC.
(collectively, the "Borrower")
and
HEALTHPARTNERS FUNDING, L.P.
(the "Lender")
August 15, 1996
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this 15th
day of August, 1996, by and among UNIVERSAL SELF CARE, INC., a Delaware
corporation, DIABETES SELF CARE, INC., a Virginia corporation, PCS, INC. - WEST,
a Michigan corporation, and PHYSICIANS SUPPORT SERVICES, INC., a California
corporation (collectively, the "Borrower") and HEALTHPARTNERS FUNDING, L.P., a
Delaware limited partnership ("Lender").
RECITALS
A. Borrower desires to establish certain financing arrangements with and
borrow funds from Lender, and Lender is willing to establish such arrangements
for and make loans and extensions of credit to Borrower, on the terms and
conditions set forth below.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the promises and covenants contained in
this Agreement, and for other consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
SECTION 1.1. ACCOUNT. "Account" means any right to payment for goods
sold or leased or services rendered, whether or not evidenced by an instrument
or chattel paper, and whether or not earned by performance, including, without
limitation, the right to payment of management fees.
SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated
on any Account of Borrower, including without limitation, any Insurer and any
Medicaid/Medicare Account Debtor.
SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified
Person, any Person directly or indirectly controlling, controlled by, or under
common control with the specified Person, including without limitation their
controlling stockholders and any Affiliates thereof. A Person shall be deemed
to control a corporation or other entity if the Person possesses, directly or
indirectly, the power (other than upon the
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happening of a contingency which has not occurred) to direct or cause the
direction of the management and business of the corporation or other entity,
whether through the ownership of voting securities, by contract, or otherwise.
SECTION 1.4. AGREEMENT. "Agreement" means this Loan and Security
Agreement, as it may be amended or supplemented from time to time.
SECTION 1.5. BASE RATE. "Base Rate" means a rate of interest equal to
one and four-tenths percent (1.40%) above the "Prime Rate of Interest".
SECTION 1.6. BORROWED MONEY. "Borrowed Money" means any obligation to
repay money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under GAAP would
be capitalized on the books of the Borrower or which is the substantial
equivalent of the financing of the property so leased.
SECTION 1.7. BORROWER. "Borrower" has the meaning set forth in the
Preamble.
SECTION 1.8. BORROWING BASE. "Borrowing Base" has the meaning set forth
in Section 2.1(d).
SECTION 1.9. BUSINESS DAY. "Business Day" means any day on which
financial institutions are open for business in the State of Maryland, excluding
Saturdays and Sundays.
SECTION 1.10. CALIFORNIA PROCEEDINGS. "California Proceedings" means the
pending proceedings relating to allegations brought by the State of California
that (a) Borrower has practiced two-tier pricing policies in violation of
applicable Medi-Cal regulations, and (b) Borrower has failed to pay sales taxes
totalling approximately $860,000, which pending proceedings are more fully
described on SCHEDULE 4.5 attached hereto.
SECTION 1.11. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have
the meanings set forth in Section 5.3.
SECTION 1.12. COLLATERAL. "Collateral" has the meaning set forth in
Section 3.1.
SECTION 1.13. COMMITMENT FEE. "Commitment Fee" has the meaning set forth
in Section 2.4(a).
SECTION 1.14 CONCENTRATION ACCOUNT. "Concentration Account" has the
meaning set forth in Section 2.3(a).
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SECTION 1.15. CONTROLLED GROUP. "Controlled Group" means a "controlled
group" within the meaning of Section 4001(b) of ERISA.
SECTION 1.16. DEFAULT RATE. "Default Rate" means a rate per annum equal
to four percent (4%) above the Base Rate.
SECTION 1.17. ERISA. "ERISA" has the meaning set forth in Section 4.12.
SECTION 1.18. EVENT OF DEFAULT. "Event of Default" and "Events of
Default" have the meanings set forth in Section 8.1.
SECTION 1.19. GAAP. "GAAP" means generally accepted accounting principles
applied in a matter consistent with the financial statements referred to in
Section 4.7.
SECTION 1.20. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and
includes any federal, state, District of Columbia, county, municipal, or other
government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
SECTION 1.21. HAZARDOUS MATERIAL. "Hazardous Material" means any
substances defined or designated as hazardous or toxic waste, hazardous or toxic
material, hazardous or toxic substance, or similar term, by any environmental
statute, rule or regulation or any Governmental Authority.
SECTION 1.22. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the
maximum lawful rate of interest referred to in Section 2.7 that may accrue
pursuant to this Agreement.
SECTION 1.23. INSURER. A Person that insures a Patient against certain of
the costs incurred in the receipt by such Patient of Medical Services, or that
has an agreement with Borrower to compensate Borrower for providing Medical
Services to a Patient.
SECTION 1.24. LENDER. "Lender" has the meaning set forth in the Preamble.
SECTION 1.25. LOAN. "Loan" has the meaning set forth in Section 2.1(a).
SECTION 1.26. LOAN DOCUMENTS. "Loan Documents" means and includes this
Agreement, the Note, and each and every other document now or hereafter
delivered by Borrower in connection
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therewith, as any of them may be amended, modified, or supplemented from time to
time.
SECTION 1.27. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning
set forth in Section 2.4(c).
SECTION 1.28. LOCKBOX. "Lockbox" has the meaning set forth in Section
2.3(a).
SECTION 1.29. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in
Section 2.3(a).
SECTION 1.30. MATERIAL ADVERSE EFFECT. "Material Adverse Effect" means any
act, event, condition or circumstance which has or will be reasonably likely to
have a material adverse effect on the assets, properties, financial condition,
business, or results of operations of Borrower taken as a whole or on any
Borrower's ability to perform its obligations under the Loan Documents.
SECTION 1.31. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning
set forth in Section 2.1(a).
SECTION 1.32. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare
Account Debtor" means any Account Debtor which is (i) the United States of
America acting under the Medicaid/Medicare program established pursuant to the
Social Security Act, (ii) any state or the District of Columbia acting pursuant
to a health plan adopted pursuant to Title XIX of the Social Security Act or
(iii) any agent, carrier, administrator or intermediary for any of the
foregoing.
SECTION 1.33. MEDICAL SERVICES. Medical and health care goods and/or
services provided to a Patient, including, but not limited to, medical and
health care products sold and/or services provided to a Patient by Borrower
which are covered by a policy of insurance issued by an Insurer, and includes
physician services, nurse and therapist services, dental services, hospital
services, skilled nursing facility services, comprehensive outpatient
rehabilitation services, home health care services, residential and out-patient
behavioral healthcare services, and medicine or health care products and/or
equipment including related services provided by Borrower to a Patient for a
necessary or specifically requested valid and proper medical or health purpose.
SECTION 1.34. NOTE. "Note" has the meaning set forth in Section 2.1(c).
SECTION 1.35. OBLIGATIONS. "Obligations" has the meaning set forth in
Section 3.1.
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SECTION 1.36. PATIENT. Any Person receiving Medical Services from
Borrower and all Persons legally liable to pay Borrower for such Medical
Services other than Insurers.
SECTION 1.37. PERMITTED LIENS. "Permitted Liens" means: (a) liens for
taxes not delinquent, or which are being contested in good faith and by
appropriate proceedings which suspend the collection thereof and in respect of
which adequate reserves have been made (provided that such proceedings do not,
in Lender's good faith judgement, involve any substantial danger of the sale,
loss or forfeiture of any material portion of the Collateral or any interest
therein); (b) deposits or pledges to secure obligations under workmen's
compensation, social security or similar laws, or under unemployment insurance;
(c) 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; (d) mechanic's, workmen's, materialmen's or other like liens arising
in the ordinary course of business with respect to obligations which are not
due, or which are being contested in good faith by appropriate proceedings which
suspend the collection thereof and in respect of which adequate reserves have
been made (provided that such proceedings do not, in Lender's good faith
judgement, involve any substantial danger of the sale, loss or forfeiture of any
material portion of the Collateral or any interest therein); (e) liens and
encumbrances in favor of Lender; (f) liens granted in connection with the lease
or purchase of property or assets financed by borrowings permitted by Section
7.1 (provided, however, that no such borrowings permitted by Section 7.1 may be
secured by liens on any of the Collateral); and (g) liens set forth on Schedule
1.37.
SECTION 1.38. PERSON. "Person" means an individual, partnership,
corporation, trust, joint venture, joint stock company, limited liability
company, association, unincorporated organization, Governmental Authority, or
any other entity.
SECTION 1.39. PLAN. "Plan" has the meaning set forth in Section 4.12.
SECTION 1.40. PREMISES. "Premises" has the meaning set forth in Section
4.14.
SECTION 1.41. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that
rate of interest designated by Fleet National Bank of Connecticut, N.A., or any
successor thereto, as the same may from time to time fluctuate.
SECTION 1.42. PROHIBITED TRANSACTION. "Prohibited Transaction" means a
"prohibited transaction" within the meaning
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of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code.
SECTION 1.43. QUALIFIED ACCOUNT. "Qualified Account" means an Account of
any Borrower generated in the ordinary course of Borrower's business from the
sale of goods or rendition of Medical Services which Lender, in its sole credit
judgment (exercised in good faith), deems to be a Qualified Account. Without
limiting the generality of the foregoing, no Account shall be a Qualified
Account: (a) to the extent that such Account is payable by an individual
beneficiary, recipient or subscriber individually and not directly to Borrower
by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier
acceptable to Lender in its sole discretion (exercised in good faith); (b) if
the Account remains unpaid more than ninety (90) days past the claim or invoice
date; (c) to the extent that the Account is subject to any defense, set-off,
counterclaim, deduction, discount, credit, chargeback, freight claim, allowance,
or adjustment of any kind, other than prompt payment discounts or customary
product or service warranties; (d) if any part of any goods the sale of which
has given rise to the Account has been returned, rejected, lost, or damaged; (e)
if the Account arises from the sale of goods by Borrower and such sale was not
an absolute sale or was on consignment or on approval or on a sale-or-return
basis or subject to any other repurchase or return agreement, or such goods have
not been shipped to the Account Debtor or its designee other than by reason of
the express request of the Account Debtor; (f) if the Account arises from the
performance of services, such services have not been actually performed or were
undertaken in violation of any law; (g) if the Account is subject to a lien
other than a Permitted Lien; (h) if there is then pending any proceeding
relating to the bankruptcy, receivership, reorganization, or insolvency of the
Account Debtor; (i) if the Account is evidenced by chattel paper or an
instrument of any kind which is not in the possession of Lender, or has been
reduced to judgment; (j) if the Account is an Account of an Account Debtor
having its principal place of business or executive office outside the United
States; (k) if the Account Debtor is an Affiliate or Subsidiary of Borrower; (l)
if more than twenty percent (20%) of the aggregate balance of all Accounts owing
to Borrower from the Account Debtor (other than a Medicaid/Medicare Account
Debtor) obligated on the Account that arise following the date of this Agreement
are outstanding more than one hundred twenty (120) days past their invoice date;
(m) if fifty percent (50%) or more of the aggregate unpaid Accounts owing to
Borrower from the subject Account Debtor are not deemed Qualified Accounts
hereunder; (n) to the extent that the total unpaid Accounts of the Account
Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty percent
(20%) of the net amount of all Qualified Accounts (including Medicaid/Medicare
Account Debtors); (o) if any covenant, representation or warranty contained in
the Loan Documents with
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respect to such Account has been breached; or (p) if the Account fails to meet
such other specifications and requirements which may from time to time be
established by Lender in good faith.
SECTION 1.44. REPORTABLE EVENT. "Reportable Event" means a "reportable
event" as defined in Section 4043(b) of ERISA.
SECTION 1.45. RESERVE. "Reserve" means the sum of One Million Five
Hundred Thousand and No/100 Dollars ($1,500,000.00), subject to reduction equal
to the difference between (x) $1,500,000.00, and (y) the amount that is finally
determined (whether by a court or administrative body or as a result of a
binding settlement between Borrower and the California Department of Health
Services) to be due and owing by Borrower with respect to the California
Proceeding involving allegations of two-tier pricing in violation of Medi-Cal
regulations, which final determination shall be demonstrated by court orders or
other documentation reasonably satisfactory to Lender.
SECTION 1.46. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the
meaning set forth in Section 2.1(b).
SECTION 1.47. TERM. "Term" has the meaning set forth in Section 2.8.
ARTICLE II
LOAN
SECTION 2.1. TERMS.
(a) The maximum aggregate principal amount of credit extended by
Lender to Borrower hereunder (the "Loan") that will be outstanding at any time
shall be (x) Four Million Five Hundred Thousand and No/100 Dollars
($4,500,000.00), LESS (y) the Reserve (the "Maximum Loan Amount"); provided,
that Lender and Borrower shall review the status of the Accounts through October
31, 1996 with a view to a possible increase in the Maximum Loan Amount to up to
$5,000,000.00, net of the Reserve (provided that Lender is making no commitment
for any such increase, and until any such increase in the Maximum Loan Amount
occurs the aggregate outstanding principal amount of Revolving Credit Loans
shall in no event exceed $3,000,000.00, irrespective of the outcome of the
California Proceedings).
(b) The Loan shall be in the nature of a revolving line of credit, and
shall include sums advanced and other credit extended by Lender to or for the
benefit of the Borrower from time to time under this Article II (each a
"Revolving Credit Loan") up to the Maximum Loan Amount depending upon the
availability in the Borrowing Base, the requests of Borrower
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pursuant to the terms and conditions of Section 2.2 below, and on such other
basis as Lender may reasonably determine. The outstanding principal balance of
the Loan may fluctuate from time to time, to be reduced by repayments made by
Borrower (which may be made without penalty or premium), and to be increased by
future Revolving Credit Loans, advances and other extensions of credit to or for
the benefit of Borrower, and shall be due and payable in full upon the
expiration of the Term. For purposes of this Agreement, any determination as to
whether there is ability within the Borrowing Base for advances or extensions of
credit shall be made by Lender in its sole discretion (exercised in good faith).
(c) At Closing, Borrower shall execute and deliver to Lender a
promissory note evidencing the Borrower's unconditional obligation to repay
Lender for Revolving Credit Loans, advances, and other extensions of credit made
under the Loan, in the form of EXHIBIT A to this Agreement (the "Note"), dated
the date hereof, payable to the order of Lender in accordance with the terms
thereof. The Note shall bear interest from the date thereof until repaid, with
interest payable monthly in arrears on the first Business Day of each month, at
a rate per annum (on the basis of the actual number of days elapsed over a year
of 360 days) equal to the Base Rate, provided that, during the continuance of an
Event of Default, such rate shall be equal to the Default Rate. Each Revolving
Credit Loan, advance and other extension of credit shall be deemed evidenced by
the Note, which is deemed incorporated by reference herein and made a part
hereof.
(d) Subject to the terms and conditions of this Agreement, advances
under the Loan shall be made against a borrowing base equal to eighty percent
(80%) of Qualified Accounts due and owing from any Medicaid/Medicare Account
Debtor, Insurer or other Account Debtor (the "Borrowing Base").
SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as
follows:
(a) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrower may give Lender notice
of its intention to borrow, in which notice Borrower shall specify the amount of
the proposed borrowing and the proposed borrowing date, not later than 2:00 p.m.
Eastern time one (1) Business Day prior to the proposed borrowing date;
PROVIDED, HOWEVER, that no such request may be made at a time when there exists
an Event of Default; and (ii) the becoming due of any amount required to be paid
under this Agreement, whether as interest or for any other Obligation, shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the due date
in the amount required to pay such interest or other Obligation.
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(b) Borrower hereby irrevocably authorizes Lender to disburse the
proceeds of each Revolving Credit Loan requested, or deemed to be requested, as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank
account as may be agreed upon by Borrower or Lender from time to time or
elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds
of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be
disbursed by Lender by way of direct payment of the relevant interest or other
Obligation.
(c) All Revolving Credit Loans, advances and other extensions of
credit to or for the benefit of Borrower shall constitute one general Obligation
of Borrower, and shall be secured by Lender's lien upon all of the Collateral.
(d) Lender shall enter all Revolving Credit Loans as debits to a loan
account in the name of Borrower and shall also record in said loan account all
payments made by Borrower on any Obligations and all proceeds of Collateral
which are indefeasibly paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits, including interest
and all charges and expenses properly chargeable to Borrower under this
Agreement.
(e) Lender will account to Borrower monthly with a statement of
Revolving Credit Loans, charges and payments made pursuant to this Agreement,
and such account rendered by Lender shall be deemed final, binding and
conclusive upon Borrower unless Lender is notified by Borrower in writing to the
contrary within thirty (30) days of the date each accounting is mailed to
Borrower. Such notice shall be deemed an objection to those items specifically
objected to therein.
SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND
LOCKBOX ACCOUNT. Borrower shall maintain a lockbox account (the "Lockbox") with
The Chase Manhattan Bank, N.A.(the "Lockbox Bank"), subject to the provisions of
this Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in
the form attached as EXHIBIT B, and such other agreements related thereto as
Lender may require. Borrower shall direct all of its Account Debtors that all
payments made on Borrower's Accounts are paid directly from Account Debtors into
the Lockbox, and the Lockbox Agreement shall provide that all funds paid into
the Lockbox are immediately transferred into a depository account maintained by
Lender at Bank One Arizona, N.A. (the "Concentration Account"). Lender shall
apply, on a daily basis, all funds transferred into the Concentration Account
pursuant to this Section 2.3 to reduce the outstanding indebtedness under the
Loan, with future Revolving Credit Loans, advances and other extensions of
credit to be made by Lender under the conditions set forth in this Article II.
To the extent
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that any collections of Accounts or proceeds of other Collateral are not sent
directly to the Lockbox but are received by Borrower, such collections shall be
held in trust for the benefit of Lender and immediately remitted, in the form
received, to the Lockbox Bank for transfer to the Concentration Account
immediately upon receipt by Borrower. All funds transferred from the
Concentration Account for application to Borrower's indebtedness to Lender shall
be applied to reduce the Loan balance, but for purposes of calculating interest
shall be subject to a seven (7) Business Day clearance period. If as the result
of collections of Accounts pursuant to the terms and conditions of this Section
2.3 a credit balance exists with respect to the Concentration Account, such
credit balance shall not accrue interest in favor of Borrower, but shall be
available to Borrower at any time or times for so long as no Event of Default
exists.
SECTION 2.4. FEES.
(a) At Closing, Borrower shall unconditionally pay to Lender a
commitment fee equal to Seventeen Thousand Five Hundred and No/100 Dollars
($17,500.00) (the "Commitment Fee"). In addition, Borrower shall pay a
commitment fee equal to three-quarters of one percent (0.75%) of the amount of
any reduction in the Reserve.
(b) INTENTIONALLY OMITTED.
(c) During the first year of the Term, Borrower unconditionally shall
pay to Lender a monthly loan management fee (the "Loan Management Fee") equal
to one quarter of one percent (0.25%) of the average daily amount of the
outstanding principal balance of the Revolving Credit Loans during the preceding
month. The Loan Management Fee shall be payable monthly in arrears on the first
day of each successive calendar month.
(d) Borrower shall pay to Lender all reasonable out-of-pocket audit
fees in connection with audits of Borrower's books and records and such other
matters as Lender shall reasonably deem appropriate, which shall be due and
payable on the first Business Day of the month following the date of issuance by
Lender of a request for payment thereof to Borrower; provided, however, that
unless there is a continuing Event of Default at the time of any audit, Lender
shall not charge Borrower for more than two such audits in any calendar year.
(e) Borrower shall pay to Lender, on demand, any and all reasonable
out-of-pocket costs or expenses which Lender or any participant pays to a bank
or other similar institution (including, without limitation, any customary fees
paid by Lender to any participant) arising out of or in connection with (i) the
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forwarding to Borrower or any other Person on behalf of Borrower, by Lender, of
proceeds of Revolving Credit Loans made by Lender to Borrower pursuant to this
Agreement, and (ii) the depositing for collection, by Lender or any participant,
of any check or item of payment received or delivered to Lender or any
participant on account of Obligations.
SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Borrower of any proceeds of any of the Collateral, to the
extent of such proceeds, (ii) the occurrence and continuance of an Event of
Default in consequence of which the Loan and the maturity of the payment of the
Obligations are accelerated, or (iii) the termination of this Agreement pursuant
to Section 2.8 hereof; PROVIDED, HOWEVER, that if any advance made by Lender in
excess of the Borrowing Base shall exist at any time, Borrower shall,
immediately upon demand, repay such overadvance. Interest accrued on the
Revolving Credit Loans shall be due on the earliest of (i) the first Business
Day of each month (for the immediately preceding month), computed on the last
calendar day of the preceding month, (ii) the occurrence and continuance of an
Event of Default in consequence of which the Loan and the maturity of the
payment of the Obligations are accelerated, or (iii) the termination of this
Agreement pursuant to Section 2.8 hereof. Except to the extent otherwise set
forth in this Agreement, all payments of principal and of interest on the Loan,
all other charges and any other obligations of Borrower hereunder, shall be made
to Lender to the Concentration Account, in immediately available funds.
SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the
Loan shall be used solely for repayment of outstanding indebtedness of Borrower
to Daiwa Healthco-1, Inc., Fred Kassner and certain officers and Affiliates of
Borrower, for payments under or in respect of the California Proceedings, and
for working capital and for other costs of Borrower arising in the ordinary
course of Borrower's business, with the initial funding hereunder to be used as
reflected on SCHEDULE 2.6.
SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform
strictly to the applicable usury laws in effect from time to time during the
term of the Loan. Accordingly, if any transaction contemplated hereby would be
usurious under such laws, then notwithstanding any other provision hereof: (a)
the aggregate of all interest that is contracted for, charged, or received under
this Agreement or under any other Loan Document shall not exceed the maximum
amount of interest allowed by applicable law (the "Highest Lawful Rate"), and
any excess shall be promptly credited to Borrower by Lender (or, to the extent
that such consideration shall have been paid, such excess shall
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be promptly refunded to Borrower by Lender); (b) neither Borrower nor any other
Person now or hereafter liable hereunder shall be obligated to pay the amount of
such interest to the extent that it is in excess of the Highest Lawful Rate; and
(c) the effective rate of interest shall be reduced to the Highest Lawful Rate.
All sums paid, or agreed to be paid, to Lender for the use, forbearance, and
detention of the debt of Borrower to Lender shall, to the extent permitted by
applicable law, be allocated throughout the full term of the Note until payment
is made in full so that the actual rate of interest does not exceed the Highest
Lawful Rate in effect at any particular time during the full term thereof. If
at any time the rate of interest being charged in respect of the Loan exceeds
the Highest Lawful Rate, the rate of interest to accrue pursuant to this
Agreement shall be limited, notwithstanding anything to the contrary herein, to
the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall
not reduce the interest to accrue pursuant to this Agreement below the Highest
Lawful Rate until the total amount of interest accrued equals the amount of
interest that would have accrued if a varying rate per annum equal to the
interest rate under the Note had at all times been in effect. If the total
amount of interest paid or accrued pursuant to this Agreement under the
foregoing provisions is less than the total amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had been in effect, then Borrower agrees to pay to Lender an amount equal to the
difference between (a) the lesser of (i) the amount of interest that would have
accrued if the Highest Lawful Rate had at all times been in effect, or (ii) the
amount of interest that would have accrued if a varying rate per annum equal to
the interest rate under the Note had at all times been in effect, and (b) the
amount of interest accrued in accordance with the other provisions of this
Agreement.
SECTION 2.8. TERM.
(a) Subject to Lender's right to cease making Revolving Credit Loans
to Borrower commencing at any time during the continuance of any Event of
Default and thereafter, this Agreement shall be in effect for a period of three
(3) years from the Closing Date, unless terminated as provided in this Section
2.8 (the "Term"), and this Agreement shall be renewed for one-year periods
thereafter upon the mutual written agreement of the parties.
(b) Notwithstanding anything herein to the contrary, Lender may
terminate this Agreement without notice upon the occurrence and during the
continuance of an Event of Default.
(c) Upon at least thirty (30) days prior written notice to Lender,
Borrower may terminate this Agreement prior to the third annual anniversary of
the Closing Date, provided that, at
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the effective date of such termination, Borrower shall pay to Lender (in
addition to the then outstanding principal, accrued interest and other
Obligations owing under the terms of this Agreement and any other Loan
Documents) as liquidated damages for the loss of bargain and not as a penalty,
an amount equal to (i) two percent (2%) of the Maximum Loan Amount if the
effective date of such termination by Borrower is on or prior to the first
annual anniversary of the Closing Date, (ii) one percent (1%) of the Maximum
Loan Amount if the effective date of such termination by Borrower is after the
first annual anniversary of the Closing Date and prior to the second annual
anniversary of the Closing Date, and (iii) one-half of one percent (0.5%) of the
Maximum Loan Amount if the effective date of such termination by Borrower is
after the second annual anniversary of the Closing Date and prior to the third
annual anniversary of the Closing Date. Notwithstanding the foregoing, if at
any time prior to the third annual anniversary of the Closing Date all of the
outstanding principal, accrued interest and other Obligations are repaid through
the proceeds of a refinancing provided to Borrower by a federal or state-
chartered bank that is not providing the financing through its asset-based
lending subsidiary, division or Affiliate, and such refinancing occurs following
at least thirty (30) days' prior written notice to Lender, no termination
payment shall be due and payable by Borrower hereunder.
(d) All of the Obligations shall be immediately due and payable upon
the termination date stated in any notice of termination of this Agreement. All
undertakings, agreements, covenants, warranties, and representations, of
Borrower contained in the Loan Documents shall survive any such termination and
Lender shall retain its liens in the Collateral and all of its rights and
remedies under the Loan Documents notwithstanding such termination until
Borrower has paid the Obligations to Lender, in full, in immediately available
funds.
SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each
entity comprising the Borrower and executing this Agreement on behalf of the
Borrower shall be jointly and severally liable for all of the Obligations. In
addition, each entity comprising the Borrower hereby acknowledges and agrees
that (i) all of the representations, warranties, covenants, obligations,
conditions, agreements and other terms contained in this Agreement shall be
applicable to and shall be binding upon each individual entity comprising the
Borrower, and shall be binding upon all such entities when taken together.
ARTICLE III
COLLATERAL
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SECTION 3.1. GENERALLY. As security for the payment of all liabilities of
Borrower to Lender under the Loan Documents, including without limitation: (i)
indebtedness evidenced under the Note, repayment of Revolving Credit Loans,
advances and other extensions of credit, all fees and charges owing by Borrower,
and all other liabilities and obligations of every kind or nature whatsoever of
Borrower to Lender under the Loan Documents, whether now existing or hereafter
incurred, joint or several, matured or unmatured, direct or indirect, primary or
secondary, related or unrelated, due or to become due, including but not limited
to any extensions, modifications, substitutions, increases and renewals thereof,
(ii) the payment of all amounts advanced by Lender to preserve, protect, defend,
and enforce its rights hereunder and in the following property in accordance
with the terms of this Agreement, and (iii) the payment of all reasonable out-
of-pocket expenses incurred by Lender in connection therewith (collectively, the
"Obligations"), Borrower hereby assigns and grants to Lender a continuing first
priority lien on and security interest in, upon, and to the following property
(the "Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or arising
Accounts, accounts receivable and rights to payment from Account Debtors of
every kind and description, and any contract rights, chattel paper, documents
and instruments with respect thereto;
(b) All of Borrower's now owned and hereafter acquired or arising
general intangibles of every kind and description pertaining to its Accounts,
accounts receivable and other rights to payment, including, but not limited to,
all existing and future customer lists, choses in action, claims, books,
records, contracts, licenses, and computer information, software, records, and
data relating to Borrower's Accounts;
(c) All of Borrower's now or hereafter acquired deposit accounts into
which payments on Borrower's Accounts are deposited, including the Concentration
Account;
(d) All of Borrower's monies and other property of every kind and
nature now or at any time or times hereafter in the possession of or under the
control of Lender or a bailee or Affiliate of Lender; and
(e) The proceeds (including, without limitation, insurance proceeds)
of all of the foregoing.
SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems
necessary in its sole discretion, Borrower shall execute and deliver to Lender,
or have executed and delivered (all in form and substance satisfactory to Lender
in its sole discretion):
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(a) UCC-1 financing statements pursuant to the Uniform Commercial Code
in effect in the jurisdiction(s) in which Borrower operates, which Lender may
file in any jurisdiction where any Collateral is or may be located and in any
other jurisdiction that Lender deems appropriate; PROVIDED that a carbon,
photographic, or other reproduction or other copy of this Agreement or of a
financing statement is sufficient as and may be filed in lieu of a financing
statement; and
(b) Any other agreements, documents, instruments, and writings deemed
necessary by Lender or as Lender may otherwise request from time to time in its
sole discretion to evidence, perfect, or protect Lender's lien and security
interest in the Collateral required hereunder.
SECTION 3.3. COLLATERAL ADMINISTRATION.
(a) All Collateral (except deposit accounts) will at all times be kept
by Borrower at its principal office(s) as set forth on EXHIBIT C hereto and
shall not, without the prior written approval of Lender (which shall not be
unreasonably withheld or delayed), be moved therefrom. In the case of Accounts,
such Collateral shall be deemed to be located where the books and records of the
Borrower relating thereto are kept.
(b) Borrower shall keep accurate and complete records of its Accounts
and all payments and collections thereon and shall submit to Lender on a monthly
(or other periodic basis as Lender shall reasonably request) a sales and
collections report for the preceding period, in form reasonably satisfactory to
Lender. In addition, if Accounts in an aggregate face amount in excess of
$250,000.00 in any calendar week become ineligible because they fall within one
of the specified categories of ineligibility set forth in the definition of
Qualified Accounts or otherwise, Borrower shall notify Lender of such occurrence
on the first Business Day following such occurrence and the Borrowing Base shall
thereupon be adjusted to reflect such occurrence. If requested by Lender,
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts weekly, which shall include all Accounts that have been created
since the date of the last assignment, together with copies of claims, invoices
or other information related thereto.
(c) Whether or not an Event of Default has occurred, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or Borrower, to verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender
in an effort to facilitate and promptly conclude such verification process.
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(d) To expedite collection, Borrower shall endeavor in the first
instance to make collection of its Accounts for Lender. Lender retains the
right at all times during the continuance of an Event of Default, subject to
applicable law regarding Medicaid/Medicare Account Debtors, to notify Account
Debtors that Accounts have been assigned to Lender and to collect Accounts
directly in its own name and to charge the collection costs and expenses,
including reasonable attorneys' fees, to Borrower.
SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i)
shall provide prompt written notice to each private indemnity, managed care or
other Insurer who either is currently an Account Debtor or becomes an Account
Debtor at any time following the date hereof to make payments to the Lockbox,
and at Lender's request will notify such Insurers in writing that the Lender has
been granted a first priority lien and security interest in, upon and to all
Accounts applicable to such Insurer, and (ii) shall do anything further that
may be lawfully required by Lender to secure Lender as herein provided and
effectuate the intentions and objects of this Agreement, including but not
limited to the execution and delivery of lockbox agreements, continuation
statements, amendments to financing statements, and any other documents required
hereunder. At Lender's request, Borrower shall also immediately deliver to
Lender all items for which Lender must receive possession to obtain a perfected
security interest. Borrower shall, on Lender's demand, deliver to Lender all
notes, certificates, and documents of title, chattel paper, warehouse receipts,
instruments, and any other similar instruments constituting Collateral.
SECTION 3.5. SEARCHES. Prior to Closing, and thereafter (as and when
requested by Lender in its reasonable discretion), Borrower shall obtain and
deliver to Lender the following searches against Borrower (the results of which
are to be consistent with Borrower's representations and warranties under this
Agreement), all at its own expense:
(a) Uniform Commercial Code searches with the Secretary of State and
local filing offices of each jurisdiction where Borrower maintains (or has in
the prior four months maintained) its executive offices, a place of business, or
assets;
(b) Judgment, federal tax lien and corporate tax lien searches, in
each jurisdiction searched under clause (a) above; and
(c) Good standing certificates showing Borrower to be in good standing
in its state of formation and in each other state in which it is doing and
presently intends to do business for which qualification is required.
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SECTION 3.6. POWER OF ATTORNEY. Each of the officers of Lender is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrower (without requiring any of them to act as such) with full power of
substitution to do the following: (a) endorse the name of Borrower upon any and
all checks, drafts, money orders, and other instruments for the payment of money
that are payable to Borrower and constitute collections on Borrower's Accounts;
(b) execute in the name of Borrower any financing statements, schedules,
assignments, instruments, documents, and statements that Borrower is obligated
to give Lender hereunder; and (c) upon the occurrence and during the continuance
of an Event of Default, do such other and further acts and deeds in the name of
Borrower that Lender may deem necessary or desirable to enforce any Account or
other Collateral or perfect Lender's security interest or lien in any
Collateral.
SECTION 3.7. RELEASE OF LIENS. Upon termination of this Agreement and
payment in full of the Obligations, Lender shall terminate and release all of
its liens and security interests hereunder, and in furtherance thereof, Lender
shall (a) execute and deliver to Borrower for filing UCC termination or
assignment statements, terminating all filings hereunder or assigning same to
the Person(s) designated by Borrowers, and (b) execute and deliver to the
Lockbox Bank and any other appropriate Person(s) such agreements and documents
as may be necessary or appropriate to release all of Lender's rights in respect
of the Lockbox and collections therein.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each entity comprising the Borrower represents and warrants to Lender,
and shall be deemed to represent and warrant on each day on which any
Obligations shall be outstanding hereunder, that:
SECTION 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, Borrower
has no subsidiaries.
SECTION 4.2. ORGANIZATION AND GOOD STANDING. Borrower (a) is a
corporation duly organized, validly existing, and in good standing under the
laws of its state of incorporation, (b) is in good standing as a foreign
corporation in each jurisdiction in which the character of the properties owned
or leased by it therein or the nature of its business makes such qualification
necessary and the failure to be so qualified would have a Material Adverse
Effect, (c) has the corporate power and authority to own its assets and transact
the business in which it is engaged, and (d) has obtained all certificates,
licenses and qualifications required under all laws, regulations, ordinances, or
orders of public authorities necessary for the ownership and operation of all of
its properties and transaction of all of its business, except where the failure
to do so would not have a Material Adverse Effect.
SECTION 4.3. AUTHORITY. Borrower has full corporate power and authority
to enter into, execute, and deliver this Agreement and to perform its
obligations hereunder, to borrow the Loan, to execute and deliver the Note, and
to incur and perform the obligations provided for in the Loan Documents, all of
which have been duly authorized by all necessary corporate action on the part of
the Borrower. No consent or approval of the shareholders of, or lenders to,
Borrower and no consent, approval, filing or registration with any Governmental
Authority is required as a condition to the validity of the Loan Documents as
against Borrower or the performance by Borrower of its obligations thereunder.
SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan
Documents constitute, and the Note, when issued and delivered pursuant hereto
for value received, will constitute, the valid and legally binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
or other laws affecting creditors' rights generally, and except that the
availability of equitable remedies is subject to the discretion of the subject
court.
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SECTION 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are
no actions, suits, proceedings or investigations pending or threatened against
Borrower before any court or arbitrator or before or by any Governmental
Authority which, in any one case or in the aggregate, if determined adversely to
the interests of the Borrower, would have a Material Adverse Effect. Borrower
is not in default with respect to any order of any court, arbitrator, or
Governmental Authority applicable to Borrower or its properties.
SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of this
Agreement and the other Loan Documents do not, and the performance of its
obligations thereunder will not, violate, conflict with, constitute a default
under, or result in the creation of a lien or encumbrance upon the property of
Borrower under: (a) any provision of Borrower's articles of incorporation or
bylaws, (b) any provision of any law, rule, or regulation applicable to
Borrower, (c) any indenture or other agreement or instrument to which Borrower
is a party or by which Borrower or its property is bound, or (d) any judgment,
order or decree of any court, arbitration tribunal, or Governmental Authority
having jurisdiction over Borrower which is applicable to Borrower.
SECTION 4.7. FINANCIAL CONDITION. The audited consolidated financial
statements of the Borrower as of June 30, 1995, certified by Feldman Radin &
Co., and the unaudited consolidated financial statements of the Borrower as of
March 31, 1996, certified by the chief financial officer of the Borrower, which
have been delivered to Lender, fairly present the consolidated financial
condition of the Borrower and the consolidated results of its operations and
changes in financial condition as of the dates and for the periods referred to,
and have been prepared in accordance with GAAP (subject, in the case of
unaudited financial statements, to non-material audit adjustments and the
absence of full footnote disclosures). There are no material unrealized or
anticipated liabilities, direct or indirect, fixed or contingent, of the
Borrower as of the dates of such financial statements which are not reflected
therein or in the notes thereto to the extent required in accordance with GAAP.
There has been no material adverse change in the business, properties, condition
(financial or otherwise) or operations (present or prospective) of the Borrower
since March 31, 1996. The Borrower's fiscal year ends on June 30. The federal
tax identification numbers of each entity comprising the Borrower are as shown
on Schedule 4.7.
SECTION 4.8. NO DEFAULT. Except for the California Proceedings, Borrower
is not in default under or with respect to any obligation in any respect which
could have a Material Adverse Effect. No Event of Default or event which, with
the giving of notice or lapse of time, or both, could become an Event of
Default, has occurred and is continuing.
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SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title
to the Collateral, subject to no lien, mortgage, pledge, encumbrance or charge
of any kind, other than Permitted Liens. Borrower has not agreed or consented
to cause any Collateral, whether owned now or hereafter acquired, to be subject
in the future (upon the happening of a contingency or otherwise) to any lien,
mortgage, pledge, encumbrance or charge of any kind other than Permitted Liens.
SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for
the filing of, all federal, state and other tax returns which are required to be
filed, and has paid all taxes shown as due on those returns and all assessments,
fees and other amounts due as of the date hereof. All tax liabilities of
Borrower were, as of June 30, 1996, and are now, adequately provided for on
Borrower's books. Except for the California Proceedings, and certain payroll
taxes to be paid out of the initial Loans, no tax liability has been asserted by
the Internal Revenue Service or other taxing authority against Borrower for
taxes in excess of those already paid.
SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS.
(a) The use of the proceeds of the Loan and Borrower's issuance of the
Note will not directly or indirectly violate or result in a violation of the
Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, or Regulations U, T, G, or X of the
Board of Governors of the Federal Reserve System. Borrower is not engaged in
the business of extending credit for the purpose of the purchasing or carrying
"margin stock" within the meaning of those regulations. No part of the proceeds
of the Loan hereunder will be used to purchase or carry any margin stock or to
extend credit to others for such purpose.
(b) Borrower is not an investment company within the meaning of the
Investment Company Act of 1940, as amended, nor is it, directly or indirectly,
controlled by or acting on behalf of any Person which is an investment company
within the meaning of that Act.
SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued
pursuant thereto that is maintained by Borrower or under which Borrower could
have any liability under ERISA (a) has failed to meet minimum funding standards
established in Section 302 of ERISA, (b) has failed to comply with all
applicable requirements of ERISA and of the Internal Revenue Code, including all
applicable rulings and regulations thereunder, (c) has engaged in or been
involved in a prohibited transaction (as defined in ERISA) under ERISA or under
the Internal Revenue Code, or (d) has been terminated, which in
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any case or in the aggregate could have a Material Adverse Effect. Borrower has
not assumed, or received notice of a claim asserted against Borrower for,
withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments
Act of 1980, as amended) with respect to any multi-employer pension plan and is
not a member of any Controlled Group (as defined in ERISA)other than Borrower.
Borrower has timely made when due all contributions with respect to any multi-
employer pension plan in which it participates and no event has occurred
triggering a claim against Borrower for withdrawal liability with respect to any
multi-employer pension plan in which Borrower participates.
SECTION 4.13. COMPLIANCE WITH LAW. Except as described in SCHEDULE 4.13,
Borrower is not in violation of any statute, rule or regulation of any
Governmental Authority (including, without limitation, any statute, rule or
regulation relating to employment practices or to environmental, occupational
and health standards and controls), which in any case would have a Material
Adverse Effect. Borrower has obtained all licenses, permits, franchises, and
other governmental authorizations necessary for the ownership of its properties
and the conduct of its business, in each case in which the failure to comply
would have a Material Adverse Effect. Borrower is current with all reports and
documents required to be filed with any state or federal securities commission
or similar Governmental Authority and is in compliance in all material respects
with all applicable rules and regulations of such commissions.
SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release,
generation, manufacture, storage, treatment, transportation or disposal of
Hazardous Material has occurred or is occurring on or from any real property on
which the Collateral is located or which is owned, leased or otherwise occupied
by Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower, except as described in SCHEDULE 4.14. All Hazardous Material used,
treated, stored, transported to or from, generated or handled on the Premises,
or off the Premises by Borrower, has been disposed of on or off the Premises by
or on behalf of Borrower in a lawful manner. To the best of Borrower's
knowledge, there are no underground storage tanks present on or under the
Premises owned or leased by Borrower. No other environmental, public health or
safety hazards are known by Borrower to exist with respect to the Premises.
SECTION 4.15. PLACES OF BUSINESS. The only places of business of
Borrower, and the places where it keeps and intends to keep the Collateral and
records concerning the Collateral, are at the addresses set forth in SCHEDULE
4.15. SCHEDULE 4.15 also lists the owner of record of each such property.
SECTION 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns or
possesses licenses for all the patents, patent
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applications, trademarks, trademark applications, service marks, trade names,
copyrights, franchises, licenses, and rights with respect to the foregoing
necessary for the present and planned future conduct of its business, without
any known conflict with the rights of others. A list of all such intellectual
property (indicating the nature of Borrower's interest), as well as all
outstanding franchises and licenses given by or held by Borrower, is attached as
SCHEDULE 4.16. Borrower is not in default in any material respect of any
obligation or undertaking with respect to such intellectual property or rights.
SECTION 4.17. STOCK OWNERSHIP. The identity of the stockholders of record
of all classes of the outstanding stock of the Borrower, together with the
respective ownership percentages held by such stockholders, are as set forth on
SCHEDULE 4.17; PROVIDED that the Borrower will not be required to update such
SCHEDULE 4.17 except upon reasonable request of Lender.
SECTION 4.18. MATERIAL FACTS. Neither this Agreement nor any other Loan
Document nor any other agreement, document, certificate, or statement furnished
to Lender by or on behalf of Borrower in connection with the transactions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading under the circumstances. There is no fact known to
Borrower and not disclosed in this Agreement (or in any public filing of
Universal Self Care, Inc. previously provided to Lender)that would have a
Material Adverse Effect.
SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower
does not own or hold any equity or long-term debt investments in, have any
outstanding advances to, have any outstanding guarantees for the obligations of,
or have any outstanding borrowings from, any Person, except as described on
SCHEDULE 4.19. Borrower is not a party to any contract or agreement, or subject
to any partnership or corporate restriction, which adversely affects its
business.
SECTION 4.20. BUSINESS INTERRUPTIONS. Within five years prior to the date
hereof, neither the business, property or assets, or operations of Borrower has
been materially adversely affected by any casualty, strike, lockout,
combination of workers, or order of the United States of America or other
Governmental Authority, directed against Borrower. There are no pending or
threatened labor disputes, strikes, lockouts, or similar occurrences or
grievances against Borrower or its business.
SECTION 4.21. NAMES. Within five years prior to the date hereof, Borrower
has not conducted business under or used any other name (whether corporate,
partnership or assumed) other than
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as shown on SCHEDULE 4.21. Borrower is ( or was, up to the time of abandonment
of prior names) the sole owner of all names listed on that Schedule and any and
all business done and invoices issued in such names are Borrower's sales,
business, and invoices. Each trade name of Borrower represents a division or
trading style of Borrower and not a separate Person or independent Affiliate.
SECTION 4.22 JOINT VENTURES. Borrower is not engaged in any joint venture
or partnership with any other Person, except as set forth on SCHEDULE 4.22.
SECTION 4.23 ACCOUNTS. Lender may rely, in determining which Accounts are
Qualified Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(a) It is genuine and in all respects what it purports to be, and is
not evidenced by a judgment;
(b) It arises out of a completed, BONA FIDE sale and delivery of goods
or rendition of services by Borrower in the ordinary course of its business and
in accordance with the terms and conditions of all purchase orders, contracts,
certification, participation, certificate of need, or other documents relating
thereto and forming a part of the contract between Borrower and the Account
Debtor;
(c) It is for a liquidated amount maturing as stated in a duplicate
claim or invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to Lender;
(d) Subject to matters arising out of the California Proceedings, such
Account, and Lender's security interest therein, is not, and will not (by
voluntary act or omission by Borrower), be in the future, subject to any offset,
lien, deduction, defense, dispute, counterclaim or any other adverse condition,
and each such Account is absolutely owing to Borrower and is not contingent in
any respect or for any reason;
(e) Subject to matters arising out of the California Proceedings,
there are no facts, events or occurrences which in any way impair the validity
or enforceability of any Accounts or tend to reduce the amount payable
thereunder from the face amount of the claim or invoice and statements delivered
to Lender with respect thereto;
(f) To the best of Borrower's knowledge, (i) the Account Debtor
thereunder had the capacity to contract at the
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time any contract or other document giving rise to the Account was executed and
(ii) such Account Debtor is solvent;
(g) To the best of Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debt thereunder
which might result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account;
(h) It has been billed and forwarded to the Account Debtor for payment
in accordance with applicable laws and compliance and conformance with any and
requisite procedures, requirements and regulations governing payment by such
Account Debtor with respect to such Account, and such Account if due from a
Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and
(i) Borrower has obtained and currently has all certificates of need,
Medicaid and Medicare provider numbers, licenses, permits and authorizations as
necessary in the generation of such Accounts.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender
to enter into and perform this Agreement and to make the initial Revolving
Credit Loan is subject to the following conditions precedent:
(a) Lender shall have received two (2) originals of this Agreement and
all other Loan Documents required to be executed and delivered at or prior to
Closing (other than the Note, as to which Lender shall receive only one
original), executed by Borrower and any other required Persons, as applicable.
(b) Lender shall have received all searches and good standing
certificates required by Section 3.5.
(c) Borrower shall have complied and shall then be in compliance with
all the terms, covenants and conditions of the Loan Documents.
(d) There shall not exist any Event of Default or any event which,
with the giving of notice or the lapse of time, or both, could constitute such
an Event of Default.
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(e) The representations and warranties contained in Article IV shall
be true and correct.
(f) Lender shall have received copies of all board of directors
resolutions of each corporation comprising the Borrower and other corporate
action taken by Borrower to authorize the execution, delivery and performance of
the Loan Documents and the borrowing of the Loan thereunder, as well as the
names and signatures of the officers of Borrower authorized to execute documents
on its behalf in connection herewith, all as also certified as of the date
hereof by Borrower's secretary or assistant secretary, and such other papers as
Lender may require.
(g) Lender shall have received copies, certified as true, correct and
complete by a corporate officer of each Borrower, of the articles of
incorporation and by-laws of each Borrower, with any amendments to any of the
foregoing, and all other documents necessary for performance of the obligations
of Borrower under this Agreement and the other Loan Documents.
(h) Lender shall have received a written opinion of counsel for
Borrower, dated the date hereof, in the form of EXHIBIT D.
(i) Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered
hereunder, including without limitation an initial borrowing base certificate
calculating the Borrowing Base.
(j) Lender shall have received the Commitment Fee.
(k) The Lockbox and the Concentration Account shall have been
established.
(l) Lender shall have received a certificate of Borrower's chief
operating officer or chief financial officer, dated the Closing Date, certifying
that all of the conditions specified in this Section have been fulfilled.
SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other
provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances
or other extensions of credit under the Loan shall be disbursed hereunder unless
the following conditions have been satisfied or waived immediately prior to such
disbursement:
(a) The representations and warranties on the part of Borrower
contained in Article IV of this Agreement shall be true and correct in all
material respects at and as of the date of disbursement or advance, as though
made on and as of such date (except to the extent that such representations and
warranties
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expressly relate solely to an earlier date and except that the references in
Section 4.7 to financial statements shall be deemed to be a reference to the
then most recent annual and interim financial statements of Borrower furnished
to Lender pursuant to Section 6.1 hereof).
(b) No Event of Default or event which, with the giving of notice of
the lapse of time, or both, could become an Event of Default shall have occurred
and be continuing or would result from the making of the disbursement or
advance.
(c) No Material Adverse Change shall have occurred and be continuing
from the state of facts on the date hereof.
(d) The making of the Revolving Credit Loan shall not be subject to
any penalty or special tax, shall not be prohibited by any governmental order or
regulation applicable to Borrower, and shall not violate any rule or regulation
of any Governmental Authority, and necessary consents, approvals and
authorizations of any Governmental Authority to or of any such disbursement or
advance shall have been obtained.
SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the
initial funding under the Loan shall be made available on the date as is
mutually agreed by the parties (the "Closing Date") at such time as may be
mutually agreeable to the parties upon the execution hereof (the "Closing") at
such place as may be requested by Lender.
SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing hereunder, or by
making advances under the Loan, Lender does not waive a breach of any
representation or warranty of Borrower hereunder or under any other Loan
Document, and all of Lender's claims and rights resulting from any breach or
misrepresentation by Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each entity comprising the Borrower covenants and agrees that for so long
as Borrower may borrow hereunder and until payment in full of the Note and
performance of all other obligations of Borrower under the Loan Documents:
SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower will
furnish to Lender (a) a sales and collections report and accounts receivable
aging schedule on a form reasonably acceptable to Lender within fifteen (15)
days after the end of each calendar month, which shall include, but not be
limited to, a report of sales, credits issued, and collections
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received; (b) payable aging schedules within twenty (20) days after the end of
each calendar month; (c) internally prepared monthly consolidated financial
statements for Borrower, certified by the chief financial officer of Borrower,
within forty-five (45) days of the end of each calendar month; (d) to the extent
prepared by Borrower, annual projections, profit and loss statements, balance
sheets, and cash flow reports (prepared on a monthly basis) for the succeeding
fiscal year within thirty (30) days before the end of each of Borrower's fiscal
years; (e) internally prepared annual consolidated financial statements for
Borrower within sixty (60) days after the end of each of Borrower's fiscal
years; (f) annual audited consolidated financial statements for the Borrower
prepared by Feldman Radin & Co. for fiscal year ending June 30, 1996, and by a
"Big 6" accounting firm for all subsequent fiscal years, within one hundred
thirty-five (135) days after the end of each of Borrower's fiscal years; (g)
promptly upon receipt thereof, copies of any reports submitted to Borrower by
independent accountants in connection with any interim audit of the books of
Borrower and copies of each management control letter provided to Borrower by
independent accountants; (h) as soon as available, copies of all financial
statements and notices provided by Borrower to all of its stockholders; and (i)
such additional information, reports or statements as Lender may from time to
time reasonably request. Annual financial statements shall set forth in
comparative form figures for the corresponding periods in the prior fiscal year.
All financial statements shall include a balance sheet and statement of earnings
and shall be prepared in accordance with GAAP, subject (in the case of unaudited
financial statements) to non-material audit adjustments and the absence of full
footnote disclosures.
SECTION 6.2. PAYMENTS HEREUNDER. Borrower will make all payments of
principal, interest, fees, and all other payments required hereunder, under the
Loan, and under any other agreements with Lender to which Borrower is a party,
as and when due.
SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower
will do or cause to be done all things necessary (a) to obtain and keep in full
force and effect all corporate existence, rights, licenses, privileges, and
franchises of Borrower necessary to the ownership of its property or the conduct
of its business, and comply with all applicable present and future laws,
ordinances, rules, regulations, orders and decrees of any Governmental Authority
having or claiming jurisdiction over Borrower, except where the failure to do so
would not have a Material Adverse Effect; and (b) to maintain and protect the
properties used or useful in the conduct of the operations of Borrower, in a
prudent manner, including without limitation the maintenance at all times of
such insurance upon
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its insurable property and operations as required by law or by Section 6.7
hereof.
SECTION 6.4. INTENTIONALLY OMITTED.
SECTION 6.5. INTENTIONALLY OMITTED.
SECTION 6.6. TAXES AND CHARGES. Borrower will timely file all tax reports
and pay and discharge all taxes, assessments and governmental charges or levies
imposed upon Borrower, or its income or profits or upon its properties or any
part thereof, before the same shall be in default and prior to the date on which
penalties attach thereto, as well as all lawful claims for labor, material,
supplies or otherwise which, if unpaid, might become a lien or charge upon any
of the Collateral; PROVIDED, HOWEVER, that the Borrower shall not be required to
pay and discharge or cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith and by appropriate proceedings by Borrower, and the
Borrower shall have set aside on their books adequate reserve therefor; and
PROVIDED FURTHER, that such deferment of payment is permissible only so long as
Borrower's title to, and its right to use, the Collateral is not adversely
affected thereby and Lender's lien and priority on the Collateral are not
adversely affected, altered or impaired thereby.
SECTION 6.7. INSURANCE. Borrower will carry adequate public liability
insurance with responsible companies reasonably satisfactory to Lender in such
amounts and against such risks as is customarily maintained by similar
businesses and by owners of similar property in the same general area.
SECTION 6.8. GENERAL INFORMATION. Borrower will (a) furnish to Lender
such information as Lender may, from time to time, reasonably request with
respect to the business or financial affairs of Borrower, and (b) subject to
Section 2.4(d) above, permit any officer, employee or agent of Lender, upon
reasonable notice and during normal business hours, to visit and inspect any of
the properties, to examine the minute books, books of account and other records,
including management letters prepared by Borrower's auditors, of Borrower, and
make copies thereof or extracts therefrom, and to discuss its and their business
affairs, finances and accounts with, and be advised as to the same by, the
accountants and officers of Borrower.
SECTION 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep and
preserve all of its properties in good repair, working order and condition and
from time to time make all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
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connection therewith may be properly and advantageously conducted at all times.
SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS.
Borrower promptly will notify Lender upon the occurrence of: (a) any Event of
Default; (b) any event which, with the giving of notice or lapse of time, or
both, could constitute an Event of Default; (c) any event, development or
circumstance whereby the financial statements previously furnished to Lender
fail in any material respect to present fairly, in accordance with GAAP, the
financial condition and operational results of Borrower; (d) any judicial,
administrative or arbitration proceeding pending against Borrower, and any
judicial or administrative proceeding known by Borrower to be threatened against
it which, if adversely decided, could have a Material Adverse Effect; (e) any
default claimed by any other creditor for Borrowed Money of Borrower other than
Lender; and (f) any other development in the business or affairs of Borrower
which could have a Material Adverse Effect; in each case describing the nature
thereof and (in the case of notification under clauses (a) and (b)) the action
Borrower proposes to take with respect thereto.
SECTION 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (a) comply with the
funding requirements of ERISA with respect to the Plans for its employees, or
will promptly satisfy any accumulated funding deficiency that arises under
Section 302 of ERISA; (b) furnish Lender, promptly after filing the same, with
copies of all reports or other statements filed with the United States
Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal
Revenue Service with respect to all Plans, or which Borrower, or any member of a
Controlled Group of which Borrower is a part, may receive from such Governmental
Authority with respect to any such Plans, and (c) promptly advise Lender of the
occurrence of any Reportable Event or Prohibited Transaction with respect to any
such Plan and the action which Borrower proposes to take with respect thereto.
Borrower will make all contributions when due with respect to any multi-employer
pension plan in which it participates and will promptly advise Lender: (a) upon
its receipt of notice of the assertion against Borrower of a claim for
withdrawal liability; (b) upon the occurrence of any event which could trigger
the assertion of a claim for withdrawal liability against Borrower; and (c) upon
the occurrence of any event which would place Borrower in a Controlled Group as
a result of which any member (including Borrower) thereof may be subject to a
claim for withdrawal liability, whether liquidated or contingent.
SECTION 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender
evidence satisfactory to Lender as to the due recording of termination
statements, releases of collateral, and Forms UCC-3, and shall cause to be
recorded financing statements on Form
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UCC-1, duly executed by Borrower and Lender, in all places necessary to release
all existing security interests and other liens in the Collateral (other than as
permitted hereby) and to perfect and protect Lender's first priority lien and
security interest in the Collateral, as Lender may request.
SECTION 6.13. FINANCIAL RECORDS. Borrower shall keep current and accurate
books of records and accounts in which full and correct entries will be made of
all of its business transactions, and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance with GAAP.
SECTION 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to collect
its Accounts in the ordinary course of business.
SECTION 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30) days'
prior written notice to Lender of any change in the location of any of its
executive offices, of the places where its records concerning its Accounts are
kept, or of the places where the Collateral is kept.
SECTION 6.16. BUSINESS CONDUCTED. Borrower shall continue in the business
presently conducted by it using its best efforts to maintain its customers and
goodwill. Borrower shall not engage, directly or indirectly, in any line of
business substantially different from the business conducted by it immediately
prior to the Closing Date, or engage in business or lines of business which are
not reasonably related thereto.
SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give
prompt notice to Lender of any litigation, arbitration, or other proceeding
before any Governmental Authority against or affecting Borrower if the amount
claimed is more than $50,000.00
SECTION 6.18. BANK ACCOUNTS. Borrower shall assign to Lender all of its
depository and disbursement accounts into which any proceeds of Accounts are
initially deposited upon receipt.
SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on
demand of Lender, make available to Lender copies of shipping and delivery
receipts evidencing the shipment of goods that gave rise to an Account, medical
records, insurance verification forms, assignment of benefits, in-take forms or
other proof of the satisfactory performance of services that gave rise to an
Account, a copy of the claim or invoice for each Account and copies of any
written contract or order from which the Account arose. Borrower shall promptly
notify Lender if an Account becomes evidenced or secured by an instrument or
chattel
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paper and upon request of Lender, will promptly deliver any such instrument or
chattel paper to Lender.
SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will
maintain all certificates of need, provider numbers and licenses necessary to
conduct its business as presently conducted, and take any steps required to
comply with any such new or additional requirements that may be imposed on
providers of medical products and services. If required, all Medicaid/Medicare
costs reports will be properly filed.
SECTION 6.21. OFFICER'S CERTIFICATES. Together with the monthly financial
statements delivered pursuant to clause (c) of Section 6.1, and together with
the audited annual financial statements delivered pursuant to clause (f) of that
Section, Borrower shall deliver to Lender a certificate signed on Borrower's
behalf by its chief financial officer in form and substance reasonably
satisfactory to Lender setting forth:
(a) The information (including detailed calculations where
appropriate) required in order to establish whether Borrower is in compliance
with the requirements of Articles VI and VII as of the end of the period covered
by the financial statements then being furnished; and
(b) That the signer has reviewed the relevant terms of this Agreement,
and has made (or caused to be made under his supervision) a review of the
transactions and conditions of Borrower from the beginning of the accounting
period covered by the income statements being delivered to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or which
is then, or with the passage of time or giving of notice or both, could become
an Event of Default, and if any such condition or event existed during such
period or now exists, specifying the nature and period of existence thereof and
what action Borrower has taken or proposes to take with respect thereto.
SECTION 6.22. RETENTION OF KEY OFFICERS. Absent death or disability,
Brian D. Bookmeier and Richard R. Hough shall serve without interruption as
President and Chief Executive Officer, and Chief Operating Officer,
respectively, of Universal Self Care, Inc.
ARTICLE VII
NEGATIVE COVENANTS
Each entity comprising the Borrower covenants and agrees that so long as
Borrower may borrow hereunder and until payment
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in full of the Note and performance of all other obligations of the Borrower
under the Loan Documents:
SECTION 7.1. BORROWING. Borrower will not create, incur, assume or suffer
to exist any liability for Borrowed Money except: (a) indebtedness to Lender;
(b) indebtedness of Borrower secured by mortgages, encumbrances or liens
expressly permitted by Section 7.3 hereof or subordinated to the Obligations in
a manner satisfactory to Lender in its sole discretion following written
notification from Borrower; (c) accounts payable to trade creditors and current
operating expenses (other than for borrowed money) which are not aged more than
one hundred twenty (120) days from the billing date or more than thirty (30)
days from the due date, in each case incurred in the ordinary course of business
and paid within such time period, unless the same are being contested in good
faith and by appropriate and lawful proceedings, and Borrower shall have set
aside such reserves, if any, with respect thereto as are required by GAAP and
deemed adequate by Borrower and its independent accountants; (d) borrowings from
Borrower's then existing equity investors or members of its board of directors
in the aggregate amount not to exceed $5,000,000.00; or (e) other borrowings
incurred in the ordinary course of its business and not exceeding $250,000.00 in
the aggregate principal amount outstanding at any one time. Borrower will not,
except out of the proceeds of equity issuances by Borrower, make voluntary
prepayments on any existing or future indebtedness for Borrowed Money to any
Person (other than Lender, to the extent permitted by this Agreement or any
subsequent agreement between Borrower and Lender).
SECTION 7.2. JOINT VENTURES. Except for joint venture transactions with
Johnson & Johnson or one of Borrower's other suppliers, Borrower will not invest
directly or indirectly in any joint venture for any purpose without the prior
written notice to, and the express written consent of, Lender, which consent may
be withheld in Lender's sole discretion.
SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur,
assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any
kind (including the charge upon property purchased under a conditional sale or
other title retention agreement) upon, or any security interest in, any of its
Collateral, whether now owned or hereafter acquired, except for Permitted Liens.
SECTION 7.4. MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will not
(a) without Lender's prior written consent, which shall not be unreasonably
withheld, enter into any merger or consolidation in which one entity included in
the Borrower is not the surviving entity, or (b) without Lender's prior written
consent, which shall not be unreasonably withheld, acquire all or substantially
all of the assets of any Person for a total
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consideration in excess of $500,000.00, and will not sell, lease, or otherwise
dispose of any of its assets except in the ordinary course of its business.
SECTION 7.5. SALE AND LEASEBACK. Borrower will not, directly or
indirectly, enter into any arrangement whereby Borrower sells or transfers all
or any part of its assets and thereupon and within one year thereafter rents or
leases the assets so sold or transferred without the prior written notice to,
and the express written consent of, Lender, which consent shall not be
unreasonably withheld or delayed.
SECTION 7.6. DISTRIBUTIONS AND MANAGEMENT FEES. Borrower will not declare
or pay any dividends or other distributions with respect to, purchase, redeem or
otherwise acquire for value any of its outstanding stock now or hereafter
outstanding, or return any capital of its stockholders, or pay or become
obligated to pay management fees or fees of a similar nature to any Person;
PROVIDED, HOWEVER, that so long as no Event of Default is then continuing,
Borrower may make any such dividends or other distributions or purchase, redeem
or otherwise acquire such interest, return any such capital, or pay any such
management fees subject any other terms and conditions of this Agreement.
SECTION 7.7. LOANS. Borrower will not make loans or advances to any
Person, other than (i) trade credit extended in the ordinary course of its
business (ii) advances for business expenses and other temporary advances in
the ordinary course of business to officers, stockholders, directors, and
employees, and (iii) loans to employees for personal needs not to exceed
$50,000.00 in the aggregate at any time outstanding, and (iv) loans to other
entities constituting part of Borrower.
SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume, guarantee,
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, or guarantees of obligations of other entities constituting part of
Borrower.
SECTION 7.9. INVESTMENTS. Borrower will not make any investment in or any
loan in the nature of an investment to, any other Person.
SECTION 7.10. COMPLIANCE WITH ERISA. Borrower will not permit, with
respect to any Plan covered by Title IV of ERISA as to which Borrower could be
liable, any Prohibited Transaction or any Reportable Event.
SECTION 7.11. CERTIFICATES OF NEED. Borrower will not amend, alter or
suspend or terminate or make provisional in any
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material way, any certificate of need or provider number required in Borrower's
business.
SECTION 7.12. TRANSACTIONS WITH AFFILIATES. Borrower will not enter into
any transaction (including without limitation the purchase, sale, or exchange of
property, or the loaning or giving of funds) with any Affiliate or subsidiary,
except in the ordinary course of business and pursuant to the reasonable
requirements of Borrower's business and upon terms no less favorable to Borrower
as it would obtain in a comparable arm's length transaction with any Person not
an Affiliate or subsidiary, and so long as the transaction is not otherwise
prohibited hereunder. For purposes of the foregoing, Lender consents to the
transactions described on SCHEDULE 7.12.
SECTION 7.13. USE OF LENDER'S NAME. Borrower will not use Lender's name
(or the name of any of Lender's affiliates) in connection with any of its
business operations. Borrower may disclose to third parties and in public
filings that Borrower has a borrowing relationship with Lender. Nothing herein
contained is intended to permit or authorize Borrower to make any contract on
behalf of Lender.
SECTION 7.14. CHANGE IN CAPITAL STRUCTURE. There shall occur no change in
Borrower's capital structure as set forth in SCHEDULE 4.17, except that (a)
Universal Self Care, Inc. may authorize, create and issue additional capital
stock and securities at any time and from time to time, (b) any other member of
Borrower may do the foregoing so long as Universal Self Care, Inc. remains the
controlling shareholder of such entity, and (c) any other member of Borrower may
merge into or dissolve into another member of Borrower.
SECTION 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or be a
party to any contract or agreement which would breach this Agreement, or breach
any other material instrument, agreement, or document to which Borrower is a
party or by which it is or may be bound.
SECTION 7.16. MARGIN STOCK. Borrower will not carry or purchase any
"margin security" within the meaning of Regulations U, G, T or X of the Board of
Governors of the Federal Reserve System.
SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not
furnish to Lender any certificate or other document that contains any untrue
statement of a material fact or that omits to state a material fact necessary to
make it not misleading in light of the circumstances under which it was
furnished.
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ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an
"Event of Default" and collectively, the "Events of Default") shall constitute
an event of default hereunder:
(a) A default in the payment of any principal of, or interest upon,
the Note when due and payable, whether at maturity or otherwise, which default
shall have continued unremedied for a period of five (5) days after written
notice thereof from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or other
monetary obligations payable by Borrower to Lender arising out of or incurred in
connection with this Agreement when such payment is due and payable, which
default shall have continued unremedied for a period of five (5) days after
written notice thereof to Borrower from Lender;
(c) A default in the due observance or performance by Borrower of any
other term, covenant or agreement contained in any of the Loan Documents, which
default shall have continued unremedied for a period of thirty (30) days after
written notice thereof to Borrower from Lender;
(d) Except for factual changes occurring after the date of this
Agreement respecting any of the representations and warranties in Article IV
hereof that do not either (x) have a Material Adverse Effect, individually or
collectively, and (y) cause Borrower to be in violation of any of its covenants
contained in Articles VI and VII hereof, if any representation or warranty made
by Borrower herein or in any of the other Loan Documents, any financial
statement, or any statement or representation made in any other certificate,
report or opinion delivered in connection herewith or therewith proves to have
been incorrect or misleading in any material respect when made, which default
shall have continued unremedied for a period of ten (10) days after written
notice thereof to Borrower from Lender;
(e) If any obligation of Borrower (other than its Obligations
hereunder) for the payment of Borrowed Money in a principal amount in excess of
$500,000 is not paid when due or within any applicable grace period, or such
obligation becomes or is declared to be due and payable prior to the expressed
maturity thereof;
(f) If Borrower makes an assignment for the benefit of creditors,
offers a composition or extension to creditors, or
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makes or sends notice of an intended bulk sale of any business or assets now or
hereafter conducted by Borrower;
(g) If Borrower files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for any receiver of
or any trustee for itself or any substantial part of its property, commences any
proceeding relating to itself under any reorganization, arrangement,
readjustment or debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced against
Borrower any such proceeding which remains undismissed for a period of sixty
(60) days, or any Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
any trustee for a Borrower or any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of
sixty (60) days;
(h) If one or more final judgments against Borrower or attachments
against its property (i) in excess of $1,500,000 with respect to either of the
California Proceedings, or in excess of $$2,300,000 in the aggregate with
respect to both of the California Proceedings, or (ii) otherwise in an amount
which is more than $500,000 in excess of applicable insurance limits, shall be
rendered by a court of record and shall remain unpaid, unstayed on appeal,
undischarged, unbonded and undismissed for a period of thirty (30) days;
(i) If, with respect to any Plan to which Borrower may be liable, a
Reportable Event which might constitute grounds for termination of any Plan
covered by Title IV of ERISA or for the appointment by the appropriate United
States District Court of a trustee to administer any such Plan or for the entry
of a lien or encumbrance to secure any deficiency, has occurred and is
continuing thirty (30) days after its occurrence, or any such Plan is
terminated, or a trustee is appointed by an appropriate United States District
Court to administer any such Plan, or the Pension Benefit Guaranty Corporation
institutes proceedings to terminate any such Plan or to appoint a trustee to
administer any such Plan, or a lien or encumbrance is entered to secure any
deficiency or claim, which in any case gives rise to liability of Borrower in an
amount in excess of $100,000.00;
(j) If Universal Self Care, Inc. shall no longer be the controlling
shareholder of any other member of Borrower;
(k) If Borrower breaches or violates the terms of, or if a default or
an event which could, whether with notice or the passage of time, or both,
constitute a default, occurs under any other existing or future agreement
(related or unrelated) between Borrower and Lender, and same continues beyond
applicable grace period provided therefor;
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(l) Upon the issuance of any execution or distraint process against
Collateral having an aggregate book value in excess of $100,000;
(m) If Borrower ceases any material portion of its business operations
as presently conducted;
(n) If any evidence is received by Lender that Borrower may have
directly or indirectly been engaged in any type of activity which, in Lender's
good faith judgment, might result in the forfeiture to any Governmental
Authority of Collateral having an aggregate book value in excess of $100,000,
which default shall have continued unremedied for a period of thirty (30) days
after written notice thereof to Borrower from Lender;
(o) Borrower or any Affiliate of Borrower, shall challenge or contest,
in any action, suit or proceeding, the validity or enforceability of this
Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
lien granted to Lender;
(p) Borrower shall be criminally indicted or convicted under any law
if the effect thereof would be a forfeiture of Collateral having an aggregate
book value in excess of $100,000.
(q) There shall occur a change in the financial condition of Borrower
that has a Material Adverse Effect, or a change in the business prospects of
Borrower taken as a whole that Lender, in its reasonable business judgment
determines is reasonably likely to have a Material Adverse Effect, which
condition shall have continued unremedied for a period of ten (10) days after
written notice from Lender.
(r) Borrower's net loss reflected on the audited consolidated
financial statements for fiscal year ended June 30, 1996, after excluding (i)
bad debt expenses relating to the write-off of Accounts that were more than
ninety (90) days past the claim or invoice date, and (ii) the write-off of
capitalized costs and expenses and termination fees relating to Borrower's
financing arrangements with Daiwa Healthco-1, Inc., shall be in excess of Two
Hundred Thousand and No/100 Dollars ($200,000.00).
SECTION 8.2. ACCELERATION. Upon the occurrence and during the continuance
of any of the foregoing Events of Default, the Note shall become and be
immediately due and payable upon declaration to that effect delivered by Lender
to Borrower; provided that, upon the happening of any event specified in Section
8.1 (g) hereof, the Note shall be immediately due and payable without
declaration or other notice to Borrower.
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SECTION 8.3. REMEDIES.
(a) In addition to all other rights, options, and remedies granted to
Lender under this Agreement, upon the occurrence and during the continuance of
an Event of Default, Lender may (i) terminate the Loan, whereupon all
outstanding Obligations shall be immediately due and payable, (ii) exercise all
other rights granted to it hereunder and all rights of a secured party in
respect of the Collateral under the Uniform Commercial Code in effect in the
applicable jurisdiction(s) and under any other applicable law, and (iii)
exercise all rights and remedies under all Loan Documents now or hereafter in
effect, including the following rights and remedies (which list is given by way
of example and is not intended to be an exhaustive list of all such rights and
remedies):
(i) The right to take possession of, send notices regarding, and
collect directly the Collateral, with or without judicial process, and to
exercise all rights and remedies available to Lender as a secured party with
respect to the Collateral under the Uniform Commercial Code in effect in the
jurisdiction(s) in which such Collateral is located;
(ii) The right to (by its own means or with judicial assistance)
enter any of Borrower's premises and take possession of the Collateral, or
dispose of the Collateral on such premises in compliance with subsection (b),
without any liability for rent, storage, utilities, or other sums, and Borrower
shall not resist or interfere with such action;
(iii) The right to require Borrower at Borrower's expense to
assemble all or any part of the Collateral and make it available to Lender at
any place designated by Lender;
(iv) The right to reduce the Maximum Loan Amount or to use the
Collateral and/or funds in the Concentration Account in amounts up to the amount
of the outstanding Obligations for any reason; and
(v) The right to relinquish or abandon any Collateral or any
security interest therein.
(b) Borrower agrees that a notice received by it at least ten (10)
days before the time of any intended public sale, or the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Collateral which threatens to speedily decline
in value or which is sold on a recognized marked may be sold immediately by
Lender without prior notice to Borrower. At any sale or disposition of
Collateral, Lender may (to the extent permitted by applicable law) purchase all
or any
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part of the Collateral, free from any right of redemption by Borrower, which
right is hereby waived and released. Borrower covenants and agrees not to
interfere with or impose any obstacle to Lender's exercise of its rights and
remedies with respect to the Collateral.
SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed
against all or any portion of the Collateral and to apply the proceeds thereof
to the Obligations in any order. All rights and remedies granted Lender
hereunder and under any agreement referred to herein, or otherwise available at
law or in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Lender may proceed with any number of remedies at the same time
until the Loans and all other existing and future Obligations are satisfied in
full. The exercise of any one right or remedy shall not be deemed a waiver or
release of any other right or remedy, and Lender, upon the occurrence and during
the continuance of an Event of Default, may proceed against Borrower, and/or the
Collateral, at any time, under any agreement, with any available remedy and in
any order.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. EXPENSES AND TAXES.
(a) Borrower agrees to pay, whether or not the Closing occurs, all
reasonable out-of-pocket charges and expenses incurred by Lender (including,
without limitation, Lender's reasonable legal fees and expenses) in connection
with the negotiation, preparation and execution of each of the Loan Documents.
Borrower also agrees to pay all reasonable out-of-pocket charges and expenses
incurred by Lender (including the reasonable fees and expenses of Lender's
counsel) in connection with the enforcement, protection or preservation of any
right or claim of Lender and the collection of any amounts due under the Loan
Documents.
(b) Borrower shall pay all taxes (other than taxes based upon or
measured by Lender's income or revenues or any personal property tax), if any,
in connection with the issuance of the Note and the recording of the security
documents therefor. The obligations of Borrower under this clause (b) shall
survive the payment of Borrower's indebtedness hereunder and the termination of
this Agreement.
SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other
Loan Documents constitute the full and entire understanding and agreement among
the parties with regard to
39
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their subject matter and supersede all prior written or oral agreements,
understandings, representations and warranties made with respect thereto. No
amendment, supplement or modification of this Agreement nor any waiver of any
provision thereof shall be made except in writing executed by the party against
whom enforcement is sought.
SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto
of any one or more defaults by the other party in the performance of any of the
provisions of this Agreement shall operate or be construed as a waiver of any
future default or defaults, whether of a like or different nature. No failure
or delay on the part of any party in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party hereto at law, in equity or
otherwise.
SECTION 9.4. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and personally delivered, mailed by
registered or certified mail (return receipt requested and postage prepaid),
sent by telecopier (with a confirming copy sent by regular mail), or sent by
prepaid (or billed to sender's account) overnight courier service, and addressed
to the relevant party at its address set forth below, or at such other address
as such party may, by written notice, designate as its address for purposes of
notice hereunder:
(a) If to Lender, at:
HealthPartners Funding, L.P.
c/o HealthPartners Financial Corporation
2 Wisconsin Circle, Suite 320
Chevy Chase, Maryland 20815
Attn: John K. Delaney, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860
(b) If to Borrower, at:
c/o Universal Self Care, Inc.
3601 Thirlane Road
Suite 4
Roanoke, Virginia 24019
Attn: Richard R. Hough, Chief Operating Officer
Telephone: (540) 366-5250
Telecopier: (540) 366-7913
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With a copy to:
Diabetes Self Care, Inc.
11585 Farmington Road
Livonia, Michigan 48150
Attn: Brian Bookmeier
Telephone: (313)261-2988
Telecopier: (313)261-5358
If mailed, notice shall be deemed to be given five (5) days after being sent, if
sent by personal delivery or telecopier, notice shall be deemed to be given when
delivered, and if sent by prepaid courier, notice shall be deemed to be given on
the next Business Day following deposit with the courier.
SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this
Agreement, or the application of such term, covenant or condition to any party
or circumstance shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall be valid and
enforced to the fullest extent permitted by law. Upon determination that any
such term is invalid, illegal or unenforceable, the parties hereto shall amend
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner.
SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the
other Loan Documents shall be binding upon and inure to the benefit of Borrower
and Lender and their respective successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights or delegate any of its
obligations hereunder without the prior written consent of Lender, which may be
withheld in its sole discretion. Lender may sell, assign, transfer, or
participate any or all of its rights or obligations hereunder without notice to
or consent of Borrower, so long as such assignee is at least as creditworthy as
Lender, or is an Affiliate of Lender. Any other assignment by Lender shall
require Borrower's prior written consent, which shall not be unreasonably
withheld.
SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any party because that
party or its legal representative drafted that provision. The titles of the
paragraphs of this
41
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Agreement are for convenience of reference only and are not to be considered in
construing this Agreement. Any pronoun used in this Agreement shall be deemed
to include singular and plural and masculine, feminine and neuter gender as the
case may be. The words "herein," "hereof," and "hereunder" shall be deemed to
refer to this entire Agreement, except as the context otherwise requires.
SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements,
representations and warranties made in this Agreement, any other Loan Document,
and in any certificates and other instruments delivered in connection therewith
shall be considered to have been relied upon by Lender and shall survive the
making by Lender of the Loans herein contemplated and the execution and delivery
to Lender of the Note, and shall continue in full force and effect until all
Obligations of Borrower to Lender are satisfied in full.
SECTION 9.10. RELEASE OF LENDER. Borrower releases Lender, its officers,
employees, and agents, of and from any claims for loss or damage resulting from
acts or conduct of any or all of them, unless caused by Lender's or its agent's
recklessness, gross negligence, or willful misconduct.
SECTION 9.11. TIME. Whenever Borrower is required to make any payment or
perform any act on a Saturday, Sunday, or a legal holiday under the laws of the
State of Maryland (or other jurisdiction where Borrower is required to make the
payment or perform the act), the payment may be made or the act performed on the
next Business Day. Time is of the essence in Borrower's performance under this
Agreement and all other Loan Documents.
SECTION 9.12. COMMISSIONS. The transaction contemplated by this Agreement
was brought about by Lender and Borrower acting as principals and without any
brokers, agents, or finders being the effective procuring cause. Borrower
represents that it has not committed Lender to the payment of any brokerage fee,
commission, or charge in connection with this transaction. If any such claim is
made on Lender by any broker, finder, or agent or other person, Borrower will,
unless the claim is caused or created by act or statement of Lender or its
agents, indemnify, defend, and hold Lender harmless from and against the claim
and will defend any action to recover on that claim, at Borrower's cost and
expense, including Lender's reasonable counsel fees. Borrower further agrees
that until any such claim or demand is adjudicated in Lender's favor, the amount
demanded will be deemed a liability of Borrower under this Agreement, secured by
the Collateral.
SECTION 9.13. THIRD PARTIES. No rights are intended to be created
hereunder or under any other Loan Document for the benefit of any third party
donee, creditor, or incidental beneficiary of Borrower. Nothing contained in
this Agreement
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shall be construed as a delegation to Lender of Borrower's duty of performance,
including without limitation Borrower's duties under any account or contract in
which Lender has a security interest.
SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. If Borrower fails to
do so, Lender, in its sole discretion, shall have the right at any time and from
time to time without prior notice to Borrower, to: (a) obtain insurance covering
any of the Collateral as required hereunder; (b) pay for the performance of any
of Borrower's obligations hereunder; (c) discharge taxes, liens, security
interests, or other encumbrances at any time levied or placed on any of the
Collateral in violation of this Agreement unless Borrower is in good faith with
due diligence by appropriate proceedings contesting those items; and (d) pay for
the maintenance and preservation of any of the Collateral. Any reasonable
expenses and advances so incurred shall be added to the Loan, until reimbursed
to Lender and shall be secured by the Collateral. Such payments and advances by
Lender shall not be construed as a waiver by Lender of an Event of Default.
SECTION 9.15. INFORMATION TO PARTICIPANTS. Lender may divulge to any
participant it may obtain in the Loan, or any portion thereof, all information,
and furnish to such participant copies of reports, financial statements,
certificates, and documents obtained under any provision of this Agreement or
any other Loan Document.
SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold
harmless Lender, its partners, officers, agents and employees (collectively,
"Indemnitee") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties hereunder, or from the breach of any of the representations
or warranties contained in Article IV hereof. In addition, Borrower shall
defend Indemnitee against and save it harmless from all claims of any Person
with respect to the Collateral. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 9.16 shall survive the
payment in full of the Obligations and the termination of this Agreement.
SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND
THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS
COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE
STATE OF MARYLAND, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION AND TO THE
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LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL
BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO THE BORROWER AT
ITS ADDRESS DESCRIBED IN SECTION 9.4 HEREOF.
SECTION 9.18. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS AND
AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND
(B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT
SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND
REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF
BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL)
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK
TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
ATTEST: HEALTHPARTNERS FUNDING, L.P.
(Seal)
By: HealthPartners Financial
Corporation
By: By:
--------------------------- -------------------------------------
Name: Name:
Title: Title:
ATTEST: UNIVERSAL SELF CARE, INC.,
(Seal) a Delaware corporation
By: By:
--------------------------- -------------------------------------
Name: Name:
Title: Title:
ATTEST: DIABETES SELF CARE, INC.
(Seal) a Virginia corporation
By: By:
--------------------------- -------------------------------------
Name: Name:
Title: Title:
ATTEST: PCS, INC.-WEST,
(Seal) a Michigan corporation
By: By:
--------------------------- -------------------------------------
Name: Name:
Title: Title:
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ATTEST: PHYSICIANS SUPPORT SERVICES, INC.
(Seal) a California corporation
By: By:
--------------------------- -------------------------------------
Name: Name:
Title: Title:
46
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LIST OF EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Lockbox Agreement
Exhibit C - Locations of Collateral
Exhibit D - Form of Legal Opinion
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LIST OF SCHEDULES
Schedule 1.37 - Permitted Liens
Schedule 2.6 - Use of Proceeds
Schedule 4.1 - Subsidiaries
Schedule 4.5 - Litigation
Schedule 4.7 - Tax Identification Numbers
Schedule 4.13 - Non-Compliance with Law
Schedule 4.14 - Environmental Matters
Schedule 4.15 - Places of Business
Schedule 4.16 - Licenses
Schedule 4.17 - Stock Ownership
Schedule 4.19 - Borrowings and Guarantees
Schedule 4.21 - Trade Names
Schedule 4.22 - Joint Ventures
Schedule 7.12 - Transactions with Affiliates
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EXHIBIT 2
FRED KASSNER
69 SPRING STREET
RAMSEY, NEW JERSEY 07446
August 15, 1996
HealthPartners Funding, L.P.
c/o HealthPartners Financial Corporation
2 Wisconsin Circle
Suite 320
Chevy Chase, MD 20815
Dear Sirs:
Reference is made to (i) the Loan Agreement dated as of July 14, 1995
by and among Universal Self Care, Inc. ("USC"), USC-Michigan, Inc. ("USCM"),
PCS, Inc.-West ("PCS") and the undersigned, Fred Kassner ("Kassner"), the
$2,000,000 Credit Facility Promissory Note issued thereunder, and all security
agreements, financing statements and other collateral documents relating
thereto, and (ii) the $250,000 Promissory Note dated June 28, 1995 issued to
Kassner by USC and all security agreements, financing statements and other
collateral documents relating thereto, all as amended to the dated hereof
(including but not limited to the amendments pursuant to the Amendment to Loan
Agreement and the letter agreement each dated January 17, 1996). Such loan
agreements, promissory notes, security agreements, financing statements and
other collateral documents are herein collectively referred to as the "Kassner
Documents", and the indebtedness and obligations thereunder from time to time
are herein collectively referred to as the "Debt". USC, USCM and PCS, together
with their affiliates Diabetes Self Care, Inc. ("DSC"), Physicians Support
Services, Inc. ("PSS") and Apperson Pharmacy, Inc., are herein collectively
referred to as the "Borrowers".
The Borrowers have advised Kassner that, on or about the date hereof,
USC, PCS, DSC and PSS are entering into a Loan and Security Agreement and
related agreements and instruments (collectively, the "Lender Documents") with
HealthPartners Funding, L.P. (the "Lender"), pursuant to which the Lender will
provide to such Borrowers a revolving line of credit which will be secured by
liens and security interests in the collateral described in the attached EXHIBIT
A (collectively, the "Collateral"). In connection with such transactions, the
Borrowers have further advised Kassner that they have repurchased from Daiwa
Healthco-1, Inc. ("Daiwa") all accounts receivable previously purchased by Daiwa
from the Borrowers, and that the Borrowers will be obtaining a release from
Daiwa HealthCo-1, Inc. ("Daiwa") of all liens and security interests heretofore
held by Daiwa in any assets or property of the
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Borrowers; and such releases are a condition precedent to the effectiveness of
the transactions pursuant to the Lender Documents.
In furtherance of the foregoing, and in order to enable the Borrowers
to obtain access to the funding pursuant to the Lender Documents, Kassner hereby
confirms and agrees that, effective upon his execution and delivery hereof, (a)
all liens and security interests which Kassner may hold (or claim to hold) in
any of the Collateral (the "Kassner Liens") shall, without necessity of any
further action by the Lender, the Borrowers or Kassner, automatically be and
become junior and subordinate to all liens and security interests granted to the
Lender in the Collateral at any time and from time to time (the "Senior Liens"),
regardless of the time or order of filing of financing statements or any failure
of perfection of the Senior Liens, and (b) pursuant to such subordination,
Kassner will not be permitted to take (and Kassner hereby agrees not to take)
any action in respect of the Kassner Liens or the Collateral or retain or apply
any proceeds of any Collateral unless and until all obligations of the Borrowers
to the Lender have been paid in full and the Borrowers have no further
contractual right to borrow from the Lender. It is expressly understood that
the Lender shall be under no obligation to Kassner with respect to any
enforcement action in respect of the Collateral or any proceeds thereof, and
Kassner hereby acknowledges that he is not relying upon the Lender with respect
to any such matters.
Kassner hereby further agrees that, until such time as all obligations
of the Borrowers to the Lender have been paid in full and the Borrowers have no
further contractual right to borrow from the Lender, except with the prior
written consent of the Lender in each instance, (i) Kassner will not receive or
accept, in any manner (including, without limitation, by set-off) any
prepayments in respect of the Debt other than (A) scheduled payments of
principal and interest thereon in accordance with the Kassner Documents as in
effect on the date hereof, including any and all mandatory prepayments provided
for therein, (B) set-off against the Debt for and in respect of the exercise
price of common stock purchase warrants in USC held by Kassner, and (C) any
voluntary prepayments made solely out of the net proceeds received by USC from
any sale of its equity securities subsequent to the date hereof, (ii) Kassner
will not require or accept any additional collateral or security for the Debt
from the Borrowers or any of their corporate affiliates, (iii) Kassner shall not
file or join in the filing, as a petitioning creditor, of any bankruptcy or
insolvency proceeding filed against USC or any of its subsidiaries, and (iv) in
the event and to the extent that Kassner shall receive any payment in respect of
the Debt or the Collateral in violation of this agreement (including, without
limitation, in violation of clause (b) above and/or in violation of this
paragraph of this agreement), Kassner shall be deemed to have received such
payments solely as the Lender's agent and shall immediately turn the same over
in the form received (subject to endorsement where
2
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appropriate) to the Lender for application to the obligations of the Borrowers
to the Lender, and until so turned over, such payments shall be held by Kassner
in trust for the benefit of the Lender.
By their acceptance hereof, the Borrowers hereby (i) acknowledge that
Kassner has to the date hereof performed all of his obligations to date under
all heretofore outstanding agreements relative to the outstanding loan
arrangements between Kassner and the Borrowers, and Kassner shall be released
and held harmless by the Borrowers from all claims, demands and liabilities
hereunder and in respect thereof, (ii) agree that the Borrowers will not,
without the prior written consent of Kassner, enter into any amendment or
modification of their agreements with the Lender which would impair the validity
or relative priority of Kassner's liens and security interests pursuant to the
Kassner Documents (subject to the provisions of this agreement) and/or
materially expand the categories of accounts receivable or lower the minimum
requirements for accounts receivable which constitute "Qualified Accounts" under
the Lender Documents, (iii) reaffirm their representations and warranties in the
Kassner Documents, and the validity of all of the liens and security interests
heretofore granted to Kassner as collateral security for the Debt (all of which
collateral continues to be and remain collateral for the Debt from and after the
effectiveness of this agreement), (iv) confirm the ongoing validity of the Debt,
and that none of the amendments effected and to be effected by this agreement
constitutes or shall constitute a novation of any of the Debt, and (v) confirm
and agree that, except as and to the extent expressly provided in this
agreement, all covenants, terms and conditions of the Kassner Documents shall
remain unchanged and in full force and effect.
In furtherance of the foregoing, Kassner will, from time to time upon
request of the Lender or the Borrowers, execute and deliver to the Lender or the
Borrowers, and at the Borrowers' sole cost and expense, (i) for filing, executed
UCC-2 and UCC-3 amendments confirming, in respect of all recorded Kassner Liens,
the subordination of the Kassner Liens as contemplated by clauses (a) and (b)
above, (ii) for filing, UCC-2 and UCC-3 termination statements in respect of the
existing lien filings in respect of the Kassner Liens, subject to the filing of
new UCC-1 financing statements in replacement of the terminated filings (to be
filed following the filing of the Lender's UCC-1 financing statements in the
subject jurisdictions), and (iii) any and all further amendments, agreements and
subordinations as may reasonably be required by the Borrowers or the Lender to
confirm or evidence the subordination of the Kassner Liens.
Anything elsewhere contained herein to the contrary notwithstanding,
the subordination hereunder shall not in any manner affect or impair (i) the
obligations of the Borrowers (to the extent provided in the Kassner Documents)
to pay the
3
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obligations under the Debt in accordance with the stated payment terms thereof
(including mandatory prepayments as currently provided in the Kassner
Documents), and (ii) any of the equity interests that Kassner holds in USC,
including but not limited to any outstanding common stock, common stock purchase
warrants, and registration rights relating thereto, all of which shall continue
in full force and effect in accordance with the terms thereof.
Very truly yours,
Fred Kassner
Accepted, Confirmed and Agreed:
UNIVERSAL SELF CARE, INC.
By:
--------------------------------
(Title)
USC-MICHIGAN, INC.
By:
--------------------------------
(Title)
PCS, INC.-WEST
By:
--------------------------------
(Title)
PHYSICIANS SUPPORT SERVICES, INC.
By:
--------------------------------
(Title)
DIABETES SELF CARE, INC.
By:
--------------------------------
(Title)
APPERSON PHARMACY, INC.
By:
--------------------------------
(Title)
4
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EXHIBIT 3
UNIVERSAL SELF CARE, INC.
3601 THIRLANE ROAD, SUITE 4
ROANOKE, VA 24019
August 29, 1996
Mr. Fred Kassner
69 Spring Street
Ramsey, New Jersey 07446
Dear Fred:
This will confirm our agreement whereby (a) you have agreed to waive
the outstanding Events of Default under the outstanding loan agreements between
yourself and Universal Self Care, Inc. ("USC") and its subsidiaries, such Events
of Default consisting of the failure by USC to make mandatory prepayments to you
out of warrant exercise proceeds received by USC between January 17, 1996 and
the date hereof, and (b) in consideration of such waiver, USC has agreed to
issue to you five-year common stock purchase warrants entitling you to purchase
up to 100,000 shares of common stock of USC at a price of $2.50 per share (such
number of shares and exercise price to be subject to adjustment in respect of
any stock dividends, stock splits, combinations of shares, recapitalizations or
other such events relating to the common stock of USC) at any time and from
time to time during the five (5) year period from and after the date hereof.
Such warrants will be in substantially the same form as all previous warrants
issued by USC to you, and will enjoy the same rights and attributes as such
prior warrants, subject to the specific terms stated herein.
It is USC's understanding that you have instructed your counsel to
prepare a warrant certificate representing these warrants, in substantially the
form of the warrant certificates previously prepared by such counsel and
executed and delivered by USC to you. USC hereby agrees that it will promptly
execute and deliver such warrant certificate upon receipt thereof in the form
contemplated hereby.
Kindly confirm your agreement to the foregoing by countersigning in
the space provided below. A fax signature shall be deemed equivalent to an
original for both parties.
Very truly yours,
UNIVERSAL SELF CARE, INC.
By:
--------------------------------
<PAGE>
Acknowledged, Confirmed
and Agreed to:
- ------------------------------
Fred Kassner
