<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------
Commission file number 0-21982
DIAMETRICS MEDICAL, INC.
Incorporated pursuant to the Laws of Minnesota
------------------
Internal Revenue Service -- Employer Identification No. 41-1663185
2658 Patton Road, Roseville, Minnesota 55113
(612) 639-8035
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on April 30, 1998, was 21,067,586.
================================================================================
1
<PAGE>
DIAMETRICS MEDICAL, INC.
PAGE
----
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS:
Three Months Ended March 31, 1998 and 1997.......................3
CONSOLIDATED BALANCE SHEETS as of March 31, 1998
and December 31, 1997............................................4
CONSOLIDATED STATEMENTS OF CASH FLOWS:
Three Months Ended March 31, 1998 and 1997.......................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..........................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.............................................7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........9
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................9
ITEM 2. CHANGES IN SECURITIES...............................................9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................9
ITEM 5. OTHER INFORMATION...................................................9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................10
SIGNATURES....................................................................11
2
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
------------ ------------
Net sales $ 2,416,703 $ 1,954,966
Cost of sales 2,402,690 2,827,946
------------ ------------
Gross profit (loss) 14,013 (872,980)
------------ ------------
Operating expenses:
Research and development 1,566,335 1,789,376
Sales and marketing 1,723,797 1,988,788
General and administrative 845,830 951,079
------------ ------------
Total operating expenses 4,135,962 4,729,243
------------ ------------
Operating loss (4,121,949) (5,602,223)
Other expense, net (181,244) (169,790)
------------ ------------
Net loss $ (4,303,193) $ (5,772,013)
============ ============
Basic and diluted net loss per common share $ (0.21) $ (0.38)
============ ============
Weighted average number of
common shares outstanding 20,906,421 15,226,559
============ ============
3
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,880,694 $ 3,358,684
Marketable securities -- 8,401,642
Accounts receivable:
Trade, net 3,670,914 3,653,196
Nontrade 100,795 115,332
Inventories 3,983,078 3,588,218
Prepaid expenses and other current assets 331,779 311,173
------------- -------------
Total current assets 13,967,260 19,428,245
------------- -------------
PROPERTY AND EQUIPMENT 18,460,390 18,060,127
Less accumulated depreciation and amortization (11,414,900) (10,674,155)
------------- -------------
7,045,490 7,385,972
------------- -------------
OTHER ASSETS 1,728,623 1,847,316
------------- -------------
$ 22,741,373 $ 28,661,533
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,022,257 $ 2,261,822
Accrued expenses 2,794,076 3,687,597
Current portion of long-term liabilities 760,649 969,950
------------- -------------
Total current liabilities 5,576,982 6,919,369
------------- -------------
LONG-TERM LIABILITIES:
Long-term liabilities, excluding current portion 8,402,275 8,477,821
Capital lease obligations, excluding current portion 9,407 59,921
Other liabilities, excluding current portion 61,445 61,372
------------- -------------
Total liabilities 14,050,109 15,518,483
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value: 35,000,000 authorized
20,997,761 and 20,889,945 shares issued and outstanding 209,978 208,899
Additional paid-in capital 114,527,217 113,970,247
Cumulative translation adjustment (9,993) 19,584
Accumulated deficit (106,035,938) (101,055,680)
------------- -------------
Total shareholders' equity 8,691,264 13,143,050
------------- -------------
$ 22,741,373 $ 28,661,533
============= =============
</TABLE>
4
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,303,193) $ (5,772,013)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 825,873 977,604
Common stock and options issued in lieu of cash compensation 3,150 --
Gain on disposal of property and equipment (1,556) (522)
Change in operating assets and liabilities:
Receivables, net (3,802) 42,197
Inventories (541,154) (431,867)
Prepaid expenses and other current assets 78,152 209,910
Accounts payable and accrued expenses (1,053,867) 187,312
------------ ------------
Net cash used in operating activities (4,996,397) (4,787,379)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (412,805) (552,394)
Proceeds from sales of property and equipment 5,735 --
Purchases of marketable securities -- (7,885,685)
Proceeds from maturities of marketable securities 8,401,642 3,400,000
Other -- (1,400)
------------ ------------
Net cash provided by (used in) investing activities 7,994,572 (5,039,479)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (53,702) (32,240)
Net proceeds from the issuance of preferred stock -- 11,900,000
Net proceeds from the issuance of common stock 554,899 153,359
Principal payments under capital lease obligations (281,659) (269,983)
------------ ------------
Net cash provided by financing activities 219,538 11,751,136
------------ ------------
Effect of subsidiary's year-end change on cash and cash equivalents (664,819) --
Effect of exchange rate changes on cash and cash equivalents (30,884) (90,827)
Net increase in cash and cash equivalents 2,522,010 1,833,451
Cash and cash equivalents at beginning of period 3,358,684 2,451,993
------------ ------------
Cash and cash equivalents at end of period $ 5,880,694 $ 4,285,444
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 794,277 $ 110,488
============ ============
</TABLE>
5
<PAGE>
DIAMETRICS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) UNAUDITED FINANCIAL STATEMENTS
The interim consolidated financial statements of Diametrics Medical, Inc.
(the "Company") are unaudited and have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such rules and regulations,
certain financial information and footnote disclosures normally included in
the financial statements have been condensed or omitted. However, in the
opinion of management, the financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation
of the interim periods presented. Operating results for these interim
periods are not necessarily indicative of results to be expected for the
entire year, due to seasonal, operating and other factors.
These statements should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(2) INVENTORIES
Inventories are summarized as follows:
March 31, December 31,
1998 1997
------------- -------------
Raw materials $ 766,088 $ 957,049
Work-in-process 615,465 442,527
Finished goods 2,601,525 2,188,642
------------- -------------
$ 3,983,078 $ 3,588,218
============= =============
(3) NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement does not change the reporting of net
income. However, it requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be reported in a separate financial statement that is displayed with the
same prominence as other financial statements. This statement also requires
that an enterprise display the accumulated balance of other comprehensive
income separately from retained earnings and paid-in-capital in the equity
section of a statement of financial position. The Company adopted this
statement on January 1, 1998, but does not have significant comprehensive
income components to report at March 31, 1998.
(4) CHANGE IN YEAR-END OF SUBSIDIARY
Effective January 1, 1998, the Company changed the year-end of its wholly-
owned subsidiary, Diametrics Medical, Ltd. (DML) to December 31 from
November 30 to produce a consistent reporting period for the consolidated
entity. As a result of this change in year-end, DML's net results of
operations for the month of December 1997 were closed to beginning
accumulated deficit on the balance sheet as of January 1, 1998. The impact
of this change was an increase in the beginning accumulated deficit of
approximately $677,000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Statements regarding the Company's expectations about new and existing products,
future financial performance and other forward looking statements are subject to
various risks and uncertainties, including, without limitation, demand and
acceptance of new and existing products, technological advances and product
obsolescence, competitive factors and the availability of capital to finance
growth. These and other risks are discussed in greater detail in Exhibit 99 to
the Company's Form 10-K filed with the Securities and Exchange Commission, with
respect to the Company's fiscal year ended December 31, 1997.
SUMMARY
Diametrics Medical, Inc. (the "Company"), which began operations in 1990, is
engaged in the development, manufacturing and marketing of critical care blood
and tissue analysis systems, which provide immediate or continuous diagnostic
results at the point of patient care.
Since its commencement of operations in 1990, the Company has transitioned from
a development stage company to a full-scale development, manufacturing and sales
organization. As of March 31, 1998, the primary funding for the operations of
the Company has been approximately $114 million raised through public and
private sales of its equity securities and issuance of convertible promissory
notes, all of which have been repaid or converted into common stock.
RESULTS OF OPERATIONS
SALES. Sales of the Company's products were $2,416,703 for the three months
ended March 31, 1998, compared to $1,954,966 for the same period last year, an
increase of 24%. The increase in sales over the prior year reflects an increase
in instrument sales of 30%, and an increase in disposable cartridge and sensor
sales of 19%.
The Company's revenues are affected principally by the number of instruments,
both monitors and IRMA analyzers, placed with customers and the rate at which
disposable sensors and cartridges are used in connection with these products. As
of March 31, 1998, the Company has sold over 2,300 instruments. Disposable
sensor and cartridge units sold for the three months ended March 31, 1998
increased 48% over unit sales for the same period in 1997.
The Company has targeted 1998 full year revenue growth in excess of 50% relative
to 1997 as a result of further planned expansion of the blood and tissue
analysis product lines and continued market penetration of existing products.
COST OF SALES. Cost of sales totaled $2,402,690, or 99% of revenue for the three
months ended March 31, 1998, compared to $2,827,946 or 145% of revenue for the
same period last year. The significant quarter-to-quarter improvement in the
Company's cost of sales as a percentage of revenue reflects increased cartridge
volumes and the impact of cost controls and manufacturing process changes. These
improvements resulted in the achievement in the first quarter of 1998 of the
Company's second consecutive positive quarterly gross margin. The Company is
targeting a positive gross margin for the full year 1998, as a result of new
product introductions and continued reductions in unit product costs, stemming
from increased sales volumes and further expected improvements in manufacturing
yields, processes and costs.
OPERATING EXPENSES. Research and development expenditures were $1,566,335 and
$1,789,376 for the three months ended March 31, 1998 and 1997, respectively. The
12% decline in expenses is the result of the impact of work force reductions,
primarily in the Company's U.S. operations, and cost and process improvements
implemented during 1997.
7
<PAGE>
Sales and marketing expenses totaled $1,723,797 and $1,988,788 for the three
months ended March 31, 1998 and 1997, respectively. The 13% reduction in
expenses is due to organizational efficiencies and better deployment of
resources.
General and administrative expenses totaled $845,830 and $951,079 for the three
months ended March 31, 1998 and 1997, respectively. The 11% period-to-period
expense reduction reflects the impact of work force reductions, primarily in the
Company's U.S. operations, and cost improvements implemented during 1997.
Operating expense run rates for the remaining three quarters of 1998 are
targeted to approximate or moderately exceed first quarter levels.
OTHER INCOME (EXPENSE). Net other expense totaled $181,244 and $169,790 for the
three months ended March 31, 1998 and 1997, respectively. The Company realized
interest income of $110,870 for the three months ended March 31, 1998, compared
to $132,234 for the same period in 1997. The period-to-period decrease reflects
the impact of lower average cash balances, primarily due to the timing of the
Company's private equity placement in January 1997, resulting in proceeds to the
Company of approximately $11.9 million.
Interest expense totaled $225,701 and $271,725 for the three months ended March
31, 1998 and 1997, respectively. The period-to-period decrease reflects the
impact of a reduction in the amount of higher interest bearing capital lease
debt relative to total debt outstanding.
NET LOSS . The net loss for the three months ended March 31, 1998 and 1997 was
$4,303,193 and $5,772,013, respectively. The 25% reduction in net loss between
periods reflects the revenue growth previously discussed, coupled with the
impact of extensive cost and process improvements implemented during 1997 and
increased production volumes. The Company is targeting continued improvements in
the net loss in future quarters.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $8,390,278, a decrease of
$4,118,598 from the working capital reported at December 31, 1997. The decrease
primarily reflects the impact of net cash used in operating activities for the
three months ended March 31, 1998, partially offset by proceeds from the
issuance of Common Stock from warrant and option exercises.
At March 31, 1998, the Company had property and equipment of $18,460,390, up
from $18,060,127 at December 31, 1997, less accumulated depreciation of
$11,414,900 and $10,674,155 at March 31, 1998 and December 31, 1997,
respectively. The $400,263 net increase in the cost of property and equipment is
primarily the result of approximately $413,000 of capital additions, consisting
primarily of investments in development and production equipment and instruments
for internal use in R&D and sales. Approximately $3,000,000 of the Company's
property and equipment were financed through capital lease obligations at March
31, 1998. In 1998, the Company expects capital expenditures and new lease
commitments to approximate $2.4 million, primarily reflecting investments to
support new product development and production.
At March 31, 1998, the Company had U.S. net operating loss and research and
development tax credit carryforwards for income tax purposes of approximately
$93,000,000 and $900,000, respectively. Pursuant to the Tax Reform Act of 1986,
use of the Company's net operating loss carryforwards may be limited if a
cumulative "change in ownership" of more than 50 percent occurs within any three
year period. In connection with prior sales by the Company of its securities in
public and private offerings, the Company has experienced a "change in
ownership." As a result, the utilization of the Company's net operating loss and
certain credit carryforwards incurred prior to these changes are subject to
annual limitations.
The Company's foreign subsidiary also has net operating loss carryforwards of
approximately $42,000,000 which can be carried forward indefinitely.
8
<PAGE>
As reflected in the accompanying consolidated financial statements, the Company
has incurred a net loss of $4,303,193 for the three months ended March 31, 1998.
In addition, the Company has incurred net losses and has had negative cash flows
from operating activities since inception. The Company believes currently
available funds and cash generated from 1998 projected operating revenues,
supplemented by proceeds from employee stock plans, warrant exercises, asset
based credit and corporate alliances, will meet the Company's working capital
needs through most of 1998. If the amount or timing of funding from these
sources or cash requirements vary materially from those currently planned, the
Company could require additional capital at an earlier time. As a result, the
Company has and will continue to evaluate raising additional capital through,
but not limited to, sales of equity or debt securities. While there can be no
assurance that adequate funds will be available when needed or on acceptable
terms, management believes that the Company will be able to raise adequate
funding as needed. The Company's long-term capital requirements will depend upon
numerous factors, including the rate of market acceptance of the Company's
products and the level of resources devoted to expanding the sales and marketing
organization, manufacturing capabilities and research and development
activities.
Effective March 31, 1998, the Company secured a $1,000,000 receivable backed
credit line with DVI Business Credit Corporation. The loan agreement requires
the Company's accounts receivable collections to be applied to reduce the loan
balance, including advances, interest and fees. All advances under the line of
credit bear interest on the unpaid principal amount at a fluctuating rate equal
to the Prime Rate plus three percent. Interest is payable monthly in arrears.
The loan agreement requires the monthly payment of an annualized unutilized loan
fee equal to one half of one percent (.5%) of the difference between the
committed available loan amount and the average outstanding loan balance. The
Company had not drawn on the line of credit as of March 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
The Company issued stock warrants in 1993 as part of a financial advisory
relationship with Vector Securities International, Inc. The warrants are
exercisable up to five years from the date of grant at an exercise price of
$6.13 per share. During the quarter ended March 31, 1998, 29,360 shares of
the Company's common stock were issued in connection with such warrants,
with proceeds amounting to $180,000. The securities were sold pursuant to
Rule 506 under Regulation D of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT METHOD
NO. DESCRIPTION OF FILING
------- --------------- -------------
10.1 Loan and Security Agreement, dated March 31, 1998, Filed herewith
between DVI Business Credit and the Company
27 Financial Data Schedule Filed herewith
B. REPORTS ON FORM 8-K.
None
10
<PAGE>
DIAMETRICS MEDICAL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIAMETRICS MEDICAL, INC.
By: /s/ Laurence L. Betterley
------------------------------------
Laurence L. Betterley
Senior Vice President
and Chief Financial Officer
(and Duly Authorized Officer)
Dated: May 14, 1998
11
<PAGE>
DIAMETRICS MEDICAL, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
10.1 Loan and Security Agreement, dated March 31, 1998, between DVI
Business Credit and the Company
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
---------------------------
No. 97-12-108
THIS LOAN AND SECURITY AGREEMENT ("AGREEMENT") is dated and effective as of
March 31, 1998 ("EFFECTIVE DATE") by and between DVI Business Credit
Corporation, a Delaware corporation ("LENDER"), Diametrics Medical, Inc.
("BORROWER") .
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS The following definitions shall
apply:
(a) "Account Debtors" shall mean Borrower's customers and all other
persons who are obligated or indebted to Borrower in any manner, whether
directly or indirectly, primarily or secondarily, contingently or otherwise,
with respect to Accounts.
(b) "Accounts" shall mean all accounts, accounts receivable, monies
and debt obligations in any form owing to Borrower (whether arising in
connection with contracts, contract rights, instruments, general intangibles or
chattel paper) arising out of the rendition of services by Borrower whether or
not earned by performance; all deposit accounts, credit insurance, guaranties,
letters of credit, advises of credit and other security for any of the above;
Borrower's Books relating to any of the foregoing.
(c) "Advance" shall mean an advance of loan proceeds constituting all
or a part of the Loan.
(d) "Borrower's Books" shall mean all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
(e) "Borrowing Base" shall mean, on the date of determination thereof,
an amount equal to the sum of eighty percent (80%) of the Net Collectible Value
for each type of Eligible Account.
(g) "Closing Date" shall mean the date of the first Advance of the
Loan.
(h) "Collateral" shall have the meaning specified in Section 3.1
hereof.
(i) "Commitment Amount" shall have the meaning set forth in Section
2.1.
(j) "Diametrics Medical Limited Loan" shall mean the Loan and
Security Agreement between Diametrics Medical Limited and Lender.
(k) "Distribution" shall mean, with respect to any shares of capital
stock or any warrant or right to acquire shares of capital stock or any other
equity security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
(l) "Eligible Accounts" shall mean Borrower's accounts receivable
under contracts with hospitals, universities, other similar health service
providers (referred to as "INSTITUTIONAL ACCOUNTS") and distributors which have
been due and payable for ninety (90) or fewer days from the date of service. The
accounts receivable generated from the services provided by Diametrics
MedicalLimited shall be excluded.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all references to sections thereof shall include such sections
and any predecessor provisions thereto, including any rules or regulations
issued in connection therewith.
1
<PAGE>
(n) "Event of Default" shall have the meaning specified in Section 10
hereof.
(o) "GAAP" means generally accepted accounting principles set forth in
the opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial Accounting
Standards Board, consistently applied.
(p) "Governmental Authority" shall mean any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
(q) "Health Care Laws" shall mean all federal, state and local laws
specifically relating to health care providers and health care services,
including, but not limited to, Section 1877(a) of the Social Security Act as
amended by the Omnibus Budget Reconciliation Act of 1993, 42 USC (S) 1395nn.
(r) "Indebtedness" of a Person shall mean (i) all items (except items
of capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as of the date
as of which Indebtedness is to be determined, including any lease which, in
accordance with GAAP would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise than for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock or equity purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable, provided that,
in computing the amount of any indebtedness described in this clause (iii) at
any time in connection with this definition, it is intended that such
indebtedness will be computed at the amount which, in light of all facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured obligations as determined in
accordance with GAAP.
(s) "Lender Expenses" shall mean (i) all costs or expenses (including,
without limitation, taxes and insurance premiums) required to be paid by
Borrower under this Agreement or under any of the other Loan Documents that are
paid or advanced by Lender; (ii) filing, recording, publication and search fees
paid or incurred by Lender in connection with Lender's transactions with
Borrower; (iii) costs and expenses incurred by Lender to correct any Event of
Default or enforce any provision of the Loan Documents or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, and preparing
for sale or advertising to sell the Collateral, whether or not a sale is
consummated, after the occurrence of an Event of Default; (iv) costs and
expenses of suit incurred by Lender in enforcing or defending the Loan Documents
or any portion thereof; (v) costs and expenses incurred by Lender to convert any
data submitted to Lender by Borrower to an acceptable form; and (vi) Lender's
reasonable attorney fees and expenses incurred (before or after execution of
this Agreement) in advising Lender with respect to, or in structuring, drafting,
reviewing, negotiating, amending, terminating, enforcing, defending or otherwise
concerning, the Loan Documents or any portion thereof, irrespective of whether
suit is brought.
(t) "Lien" shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
(u) "Loan" shall mean each loan or any other loan or loans made by
Lender to Borrower pursuant to this Agreement.
(v) "Loan Availability" shall mean the lesser of (a) the Commitment
Amount or (b) the Borrowing Base minus the aggregate Advances and other
Obligations outstanding under this Agreement.
(w) "Loan Documents" shall mean (i) this Agreement; (ii) the Note;
(iii) any other agreements or documents hereafter delivered to secure repayment
of the Loan; (iv) the Lock Box Agreement and (v) any other certificates,
documents, instruments, or financing statements delivered by Borrower to Lender
pursuant to the terms of this Agreement.
2
<PAGE>
(x) "Lock Box Agreement" shall mean those certain Lock Box Agreements
between Borrower and lock box servicer(s) ("Servicer(s)") chosen by Lender and
Borrower and the letter of instructions with respect thereto among Lender,
Borrower and Servicer.
(y) "Material Contracts" shall mean all contracts and agreements that
pertain to or would affect the Collateral.
(z) "Net Collectible Percentage" shall mean the percentages described
on Exhibit A attached hereto. The Net Collectible Percentage may change from
time to time in accordance with Section 5.4, written notification of which
shall be given to Borrower by Lender.
(aa) "Net Collectible Value" shall mean, for each type of Eligible
Account, the Net Collectible Percentage times the aggregate current outstanding
amount for such type of Eligible Account.
(bb) "Note" shall mean the Secured Promissory Note executed by
Borrower pursuant to the terms of this Agreement.
(cc) "Obligations" means (i) all obligations (monetary or otherwise)
of Borrower arising under or in connection with this Agreement, the Note and all
other Loan Documents.
(dd) "Permitted Liens" shall mean (i) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; (iv) encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower; and (v) Liens existing on the date of this Agreement
that secure Indebtedness of Borrower outstanding on such date and that are
disclosed on Schedule 1.1 hereto;
(ee) "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), Governmental
Authority or any other entity.
(ff) "Prime Rate" shall mean the rate of interest announced publicly
by Bank of America from time to time as its prime rate.
(gg) "Proceeds" shall mean all proceeds and products of Collateral and
documents covering Collateral; all property received wholly or partly in trade
or exchange for Collateral; all claims against third parties arising out of
damage, destruction or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
(hh) "Subordinate Obligations" shall mean all Indebtedness of Borrower
subordinated to the Obligations pursuant to subordination and/or intercreditor
agreements in form satisfactory to Lender.
(ii) "Termination Date" shall mean the last day of any term as to
which a written notice of non-renewal pursuant to Section 2.7 has been received.
(jj) "Unmatured Default" shall mean any event or condition that, with
notice, passage of time, or
3
<PAGE>
a determination by Lender or any combination of the foregoing would constitute
an Event of Default.
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND UNIFORM
COMMERCIAL CODE
All financial terms used in this Agreement, other than those defined
in this Section 1, have the meanings accorded to them under GAAP. All other
terms used in this Agreement, other than those defined in this Section 1, have
the meanings accorded to them in the Uniform Commercial Code as enacted in any
applicable jurisdiction.
SECTION 1.3. CONSTRUCTION
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder" and other similar terms in this Agreement refer to this Agreement as
a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Lender or Borrower, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and its counsel and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
SECTION 2.1. THE LOAN Subject to the terms and conditions and relying
on the representations and warranties set forth herein, Lender agrees to make
Advances to Borrower from time to time in an aggregate amount not to exceed the
least of (i) One Million Dollars ($1,000,000) (the "COMMITMENT AMOUNT"), or (ii)
the Borrowing Base. Within the limits of the Loan Availability, Borrower may
borrow, make repayments pursuant to Section 2.4 and reborrow. If, at any time,
the aggregate Advances and other Obligations outstanding exceed the then Loan
Availability, then Borrower shall pay to Lender a sum sufficient to reduce the
Advances and other Obligations outstanding to an amount not greater than the
Loan Availability. Lender's commitment to make Advances shall expire, and the
amount of the Loan then outstanding shall mature and be repaid by Borrower,
without further action on the part of Lender, on the Termination Date.
SECTION 2.2. NOTE All Loans made by the Lender under this Agreement
shall be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in substantially the form of Exhibit 2.02 duly
completed, in the original principal amount equal to the initial Commitment
Amount, dated the Effective Date, payable to the Lender and maturing as to
principal on the Termination Date (the "Note"). The amount of each Advance and
payment of principal amount received by the Lender shall be recorded in the
books and records of the Lender, which books and records shall, in the absence
of manifest error, be conclusive as to the outstanding balance of and other
information related to the Loan. Lender shall be entitled at any time to endorse
on a schedule attached to the Note the amount and type of each Advance and
information relating thereto.
SECTION 2.3. THE BORROWING BASE On a weekly basis the Borrowing Base
will be recalculated by adding weekly billings to the prior week's Eligible
Accounts and subtracting deposits and adjustments, and then multiplying this
amount by the Net Collectible Percentage. The Borrowing Base shall be calculated
on the basis of the reports delivered to Lender pursuant to Section 5.4.
SECTION 2.4. NOTICE OF BORROWING Whenever Borrower desires to borrow
under Section 2.1, Borrower shall deliver to Lender a Drawdown Request Form, in
a form reasonably satisfactory to Lender, signed by an authorized officer no
later than 2:00 p.m. Pacific Standard Time at least one (1) business day in
advance of the proposed funding date. The Drawdown Request Form shall specify
(i) the funding date (which shall be a business day) with respect to the
requested Loan and (ii) the amount of the proposed Advance.
SECTION 2.5. USE OF PROCEEDS The proceeds of the Loan shall be used by
Borrower to provide general working capital.
SECTION 2.6. LOAN REPAYMENT VIA LOCK BOX/SERVICER ACCOUNT. Upon the
execution hereof, Borrower shall become a party to the Lock Box Agreement which
provides for the receipt and processing of Account
4
<PAGE>
payments. Borrower shall irrevocably direct all payors to remit payment to the
Servicer's post office box in Lender's name and control. Prior to funding and
upon receipt of the lock box post office box number(s), Borrower shall provide
Lender re-direct letters (in a form satisfactory to Lender) to all of Borrower's
payors on Borrower's letterhead, including envelopes for Lender to process and
mail (Lender will add postage which shall be charged to Borrower). The Lock Box
Agreement provides for the Servicer to deposit daily all receipts of the post
office boxes into deposit accounts, with all payor receipts paid into an account
subject to Lender's control; such accounts shall be (i) at a financial
institution acceptable to Lender, and (ii) governed by terms and conditions
acceptable to Lender. Borrower agrees and acknowledges that all payor receipts
will be immediately transferred to an account in the name and control of Lender.
Upon collectibility, deposits (net of fees) shall be applied to reduce the Loan
balance including Advances, interest, fees, all charges and other payments, if
applicable. Deposits/receipts will reduce the Borrowing Base in accordance with
Section 2.3 above. Any receipts (net of such Servicer's usual and customary
fees) remaining after all such payments to Lender will be paid to Borrower
within 24 hours of availability. Borrower shall bear all usual and customary
charges for establishing and maintaining the post office box accounts and all
usual and customary bank charges for such deposit accounts. Lender shall deduct
from the deposit accounts all sums Borrower owes to it hereunder, including
fees, interest, reimbursements and principal payments. Any Obligations not paid
by such deduction shall be satisfied by direct payment to Lender at 4041
MacArthur Blvd., Suite 401, Newport Beach, California 92660. Any amounts
hereunder not paid as agreed shall be assessed a late payment penalty of five
percent (5%).
SECTION 2.7. TERM OF AGREEMENT. The Term of this Agreement is two
(2) years from the Effective Date and is non-cancelable. This Agreement shall be
renewed for consecutive one (1) year terms unless this Agreement is terminated,
effective as of the last day of a term, by written notice by Lender or Borrower
no later than thirty (30) days before the expiration of such term. All of
Lender's obligations, responsibilities and duties shall cease upon the date of
termination of this Agreement, except for its obligation to remit excess
receipts from the lock box deposit accounts in accordance with the terms of this
Agreement.
SECTION 2.8. LENDER'S FEES Upon execution hereof, Lender shall be
entitled to an origination fee equal to one percent (1%) of the Commitment
Amount, less $10,000 currently on deposit. Increases to the Commitment Amount
during the term will be charged on the incremental increase at the same
origination percentage. On or before the first day of each month following the
Effective Date, Borrower shall pay Lender a monthly maintenance fee of One
Thousand One Hundred and Ninety-seven Dollars ($1,197). On or before the first
day of each month following the Effective Date, Borrower shall pay Lender an
annualized unutilized loan fee of equal to one half of one percent (.5%) of the
difference between the Commitment Amount and the average outstanding Loan amount
as of the previous month. Lender's fees will be deducted, when due, directly
from receipts deposited in accordance with Section 2.6.
SECTION 2.9. INTEREST ON THE LOANS All Advances shall bear interest on
the unpaid principal amount thereof from the date made until paid in full at a
fluctuating rate equal to the Prime Rate plus three percent (3%). Interest shall
be payable monthly in arrears on the first day of each month for the preceding
month. Interest shall be calculated on the basis of a year of 360 days, but for
the actual number of days elapsed. Interest accrued but not paid pursuant to
Section 2.6 shall be treated as an Advance if not otherwise paid within five (5)
days of the end of the month in which it accrues.
SECTION 2.10. CONDITIONS TO THE CLOSING Lender's obligation to make
the initial Advance hereunder on the Closing Date is subject to Lender's
determination that Borrower as of the date of the Advance has satisfied, and
continues to satisfy, the following conditions:
(a) The representations and warranties set forth in this Agreement and
in the other Loan Documents shall be true and correct on and as of the date
hereof and shall be true and correct in all material respects as of the Closing
Date and Borrower shall have performed all obligations which were to have been
performed by it hereunder.
(b) Borrower shall have executed and delivered to Lender (or shall
cause to be executed and delivered to Lender by the appropriate Persons) the
following:
(i) this Agreement;
(ii) the Note;
5
<PAGE>
(iii) UCC-1 Financing Statements;
(iv) the Lock Box Agreement;
(v) Payor redirect letters;
(vi) pay-off letters, UCC Termination Statements and Lien
Releases as required to grant Lender a first priority security interest other
than Permitted Liens in Collateral pledged as security for repayment of the
Loan;
(vii) certified copies of resolutions of the Board of
Directors of Borrower authorizing the execution and delivery of Loan Documents
to be executed by Borrower; and
(viii) copies of the Articles of Incorporation of Borrower
certified by the Secretary of State of the applicable issuing state.
(ix) a certificate from an officer of Borrower indicating
that the representations and warranties contained herein are true and correct as
of the Closing Date.
(c) Neither an Event of Default nor an Unmatured Default shall have
occurred and be continuing as of the Closing Date,
(d) Borrower shall not have suffered a material adverse change in its
business, operations or financial condition from that reflected in the Financial
Statements of Borrower delivered to Lender or otherwise.
(e) Lender shall have received such additional supporting documents,
certificates and assurances as Lender shall reasonably request which shall be
satisfactory to Lender in form and substance.
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST In order to secure prompt
payment and performance of all Obligations under this Agreement and all
obligations under the Diametrics Medical Limited Loan, Borrower hereby grants to
Lender a continuing first-priority pledge and security interest in the following
property of Borrower (the "COLLATERAL"), whether now owned or existing or
hereafter acquired or arising and regardless of where located, subject only to
Permitted Liens. This security interest in the Collateral shall attach to all
Collateral without further action on the part of Lender or Borrower. The
Collateral shall consist of the following, subject in each case only to
Permitted Liens together with such third-party consents, lien waivers and
estoppel certificates as Lender shall reasonably require: All of Borrower's
present and future Accounts.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF BORROWER
(a) The exact name of Borrower is Diametrics Medical, Inc. organized
under the laws of the State of Minnesota. The following are all previous legal
names of Borrower. Diametrics Medical, Inc., ______________________________.
Borrower uses the following trade names: Diametrics Medical, Inc. The following
are all other trade names used by Borrower in the past:_____________________.
SECTION 4.2. MERGERS AND CONSOLIDATIONS Except as disclosed on
Schedule 4.2, no entity has merged into any of Borrower or been consolidated
with Borrower.
SECTION 4.3. PURCHASE OF ASSETS Except as disclosed on Schedule 4.3 no
entity has sold substantially all of its assets to Borrower or sold assets to
Borrower outside the ordinary course of such seller's business at any time in
the past.
SECTION 4.4. CHANGE OF NAME OR IDENTITY Borrower shall not change its
name, business structure or
6
<PAGE>
identity, use a new trade name, or merge into or consolidate with any other
entity, without prior notification to Lender .
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
SECTION 5.1. OFFICE AND RECORDS OF BORROWER Borrower's chief executive
offices are located at: 2658 Patton Road, Roseville, MN 55113. Borrower
maintains all of its records with respect to Accounts at 2658 Patton Road,
Roseville, MN 55113. Borrower has not at any time within the past four (4)
months maintained their chief executive office or their records with respect to
Accounts at any other location and shall not do so hereafter without sixty (60)
days prior written notice to Lender.
SECTION 5.2. REPRESENTATIONS Borrower represents and warrants that
each Account at the time of its assignment to Lender (a) will be owned solely by
Borrower, (b) will be for a liquidated amount maturing as stated in Borrower's
Books; (c) will be a bona fide existing obligation created by the rendition of
services to Account Debtors or their insured by Borrower in the ordinary course
of its business; and (d) will not be subject to any known deduction, offset,
counterclaim, return privilege, or other condition, except as reflected on
Borrower's Books. Borrower shall neither redate any invoices nor reissue new
invoices in full or partial satisfaction of old invoices. Allowances, if any, as
between Borrower and its customers will be on the same basis and in accordance
with the usual customary practices of Borrower as they exist on the date of this
Agreement.
SECTION 5.3. RETURNS AND REPOSSESSIONS Borrower shall notify Lender
within five (5) business days of occurrence of all material claims asserted by
Account Debtors.
SECTION 5.4. BORROWING BASE REPORTS Borrower shall, on no less than a
monthly basis, deliver to Lender by Internet E-Mail or in a computer disc or
tape format acceptable to Lender, and in form and content satisfactory to Lender
(i) a Borrowing Base report updated to reflect billings, adjustments and
deposits; (ii) a summary by payor class aging of Accounts; (iii) a charges,
collections and adjustment summary for the week; and (iv) all of Borrower's
accounts receivable data in a computer disc or tape format acceptable to Lender.
On a monthly basis, and no later than the 10th day of each month, Borrower shall
submit to Lender by Internet E-Mail or in a computer disc format or tape format
acceptable to Lender, and in form and content satisfactory to Lender (i) a
month-end Borrowing Base Report; (ii) a detailed accounts receivable aging
report as of the last day of the preceding month; (iii) charges, collections and
adjustments summary for the preceding month; and (iv) a payor concentration
schedule. Lender shall periodically review Borrower's actual billings,
adjustments and cash receipts, as well as Borrower's payor profile. To the
extent Borrower's method of handling billings, collections and adjustments
changes and/or Borrower's payor profile materially changes, Lender may, in its
sole discretion, change the Net Collectible Percentage attributable to each type
of Account by written notice to Borrower of such change.
SECTION 5.5. COMPLIANCE CERTIFICATE. With each final month-end
Borrowing Base report which Borrower delivers to Lender, Borrower also shall
deliver to Lender a Compliance Certificate in the form of Exhibit 5.5 attached
hereto, which Compliance Certificate shall be completed and signed by an officer
of Borrower.
SECTION 5.6. LENDER'S RIGHTS Any officer, employee or agent of Lender
shall have the right, at any time or times hereafter, in the name of Lender or
its nominee (including Borrower), to verify the validity, amount or any other
matter relating to any Accounts by mail, telephone or otherwise; and all
reasonable costs thereof shall be payable by Borrower to Lender. Lender, or its
designee may at any time after an Event of Default has occurred and is
continuing notify customers or Account Debtors that Accounts have been assigned
to Lender or of Lender's security interest therein and, after an Event of
Default has occurred and is continuing, collect the same directly and charge all
reasonable collection costs and expenses to Borrower's account.
SECTION 5.7. DISCLAIMER OF LIABILITY Lender shall not be liable to
Borrower or any third person for the correctness, validity or genuineness of any
instruments or documents released or endorsed to Borrower by Lender (which shall
automatically be deemed to be without recourse to Lender in any event) or for
the existence, character, quantity, quality, condition, value or delivery of any
goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.7, except
such matters arising from Lender's gross negligence or willful misconduct.
7
<PAGE>
SECTION 5.8. POST DEFAULT RIGHTS If an Event of Default has occurred
and is continuing hereunder, no discount, credit or allowance shall be granted
or permitted by Borrower to any Account Debtor; provided, however, that,
notwithstanding the existence of an Event of Default, (i) Borrower may continue
to invoice and bill Account Debtors under discount, credit and allowance
arrangements that Borrower maintained in the ordinary course of business prior
to such Event of Default occurring, and (ii) Account Debtors may, during the
continuance of an Event of Default, utilize discount, credit and allowance
arrangements that Borrower extended to them in the ordinary course of business.
Lender may, after an Event of Default has occurred and its continuing, settle or
adjust disputes and claims directly with Account Debtors for amounts and upon
terms that Lender considers advisable, and in such cases, Lender will credit
Borrower's account with only the net amounts received by Lender in payment of
such disputed Accounts, after deducting all Lender Expenses incurred in
connection therewith.
SECTION 5.9. ACCOUNTS OWED BY FEDERAL GOVERNMENT If any Accounts shall
arise out of a contract with the United States of America or any department,
agency, subdivision or instrumentality thereof, Borrower shall promptly notify
Lender thereof in writing and take all other action requested by Lender to
protect Lender's Lien on such Accounts under the provisions of the federal laws
on assignment of claims.
SECTION 5.10. BUSINESS ACTIVITY REPORTS Borrower has filed and shall
file all legally required notices and reports of its business activities with
all the appropriate taxing authorities and the appropriate Governmental
Authority of each jurisdiction in which Borrower is legally required to file
such a notice or report.
SECTION 6
PROVISIONS CONCERNING MATERIAL CONTRACTS
SECTION 6.1. CONTRACTS
(a) Schedule 6.1. is a true and complete list of all Material
Contracts to which Borrower is a party.
(b) Borrower shall not amend, modify or supplement any Material
Contract, including, but not limited to, professional services agreements,
management agreements or any other agreements pertaining to the Collateral or
waive any provision thereof other than in accordance with Borrower's standard
business practice, nor shall such standard business practice be materially
changed without Lender's consent, which shall not be unreasonably withheld.
(c) Borrower shall remain liable to perform all of its duties and
obligations under the Material Contracts to the same extent as if this Agreement
had not been executed; and Lender shall not have any obligation or liability
under the Material Contracts by reason of this Agreement or otherwise.
(d) Borrower need not pay any amount due under the Material Contracts
listed on Schedule 6.1, nor otherwise perform any action required under the
terms of the Material Contracts, if such payment or performance is being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted, if Lender is notified in advance of such contest, and if
Borrower establishes any reserve or other appropriate provision required by
GAAP.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
SECTION 7.1. FURTHER ASSURANCES
Borrower shall execute and deliver to Lender, concurrent with
Borrower's execution of this Agreement and at any time or times hereafter at the
request of Lender, all financing statements, continuation financing statements,
security agreements, chattel mortgages, assignments, endorsements of
certificates of title, applications for titles, affidavits, reports, notices,
schedules of Accounts, letters of authority and all other documents Lender may
reasonably request, in form satisfactory to Lender, to perfect and maintain
perfected Lender's Liens in the Collateral and in order to consummate fully all
of the transactions contemplated under the Loan Documents. Borrower, until all
Obligations are paid in full, hereby irrevocably makes, constitutes and appoints
Lender (and any of Lender's officers, employees or agents designated by Lender)
as Borrower's true and lawful attorney with
8
<PAGE>
power to sign the name of Borrower on any of the above-described documents or on
any other similar documents that need to be executed, recorded or filed in order
to perfect or continue to be perfected Lender's Liens in the Collateral.
SECTION 7.2. LENDER'S DUTY OF CARE Lender shall have no duty of care
with respect to the Collateral except that Lender shall exercise reasonable care
with respect to the Collateral in Lender's custody. Lender shall be deemed to
have exercised reasonable care if such property is accorded treatment
substantially equal to that which Lender accords its own property or if Lender
takes such action with respect to the Collateral as Borrower shall request or
agree to in writing provided that neither failure to comply with any such
request nor any omission to do any such act requested by Borrower shall be
deemed a failure to exercise reasonable care. Lender's failure to take steps to
preserve rights against any parties or property shall not be deemed to be
failure to exercise reasonable care with respect to the Collateral in Lender's
custody. All risk, loss, damage or destruction of the Collateral shall be borne
by Borrower.
SECTION 7.3. REINSTATEMENT OF LIENS If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy, or reorganization of Borrower or such other Person),
this Agreement and Lender's Liens granted hereunder shall be reinstated as to
all disgorged payments as though such payments had not been made, and Borrower
shall sign and deliver to Lender all documents and other items necessary to
perfect all terminated Liens.
SECTION 7.4. LENDER EXPENSES If Borrower fails, as required by the
terms hereof, (i) to pay any moneys (whether taxes, assessments, insurance
premiums or otherwise) due to third persons or entities, (ii) to make any
deposits or furnish any required proof of payment or deposit or (iii) to
discharge any Lien not permitted hereby, then Lender may, to the extent that it
determines that such failure by Borrower could have a material adverse effect on
Lender's interests in the Collateral, in its discretion and without prior notice
to Borrower, make payment of the same or any part thereof. Any amounts paid or
deposited by Lender shall constitute Lender Expenses, shall become part of the
Obligations, shall bear interest at the rate of eighteen percent (18%) per
annum, and shall be secured by the Collateral. Any payments made by Lender shall
not constitute (a) an agreement by Lender to make similar payments in the future
or (b) a waiver by Lender of any Event of Default under this Agreement. Lender
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance or Lien and the receipt of the usual official
notice for the payment of moneys to a governmental entity shall be conclusive
evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments reasonably made by Lender for
items constituting Lender Expenses.
SECTION 7.5. INSPECTION OF RECORDS Upon three (3) days prior notice to
Borrower, Lender shall have the right to inspect Borrower's Books and records
during usual business hours in order to verify the amount or condition of, or
any other matter relating to, the Collateral and Borrower's financial condition
and to copy and make extracts therefrom. Borrower waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information related to the Collateral
requested by Lender pursuant to this Agreement and agrees that Lender may
directly contact any such accounting firm or service bureau in order to obtain
such information.
SECTION 7.6. WAIVERS Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper and guaranties
at any time held by Lender on which Borrower may in any way be liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Borrower hereby warrants and represents to
Lender the following:
SECTION 8.1. CORPORATE STATUS Borrower is a corporation validly
existing and in good standing under the laws of the state of its incorporation;
and is qualified and licensed to do business and is in good standing in any
state in which the conduct of its business or its ownership of property requires
that it be so qualified or licensed, and has the
9
<PAGE>
power and authority (corporate and otherwise) to execute and carry out the terms
of the Loan Documents to which it is a party, to own its assets and to carry on
its business as currently conducted.
SECTION 8.2. AUTHORIZATION The execution, delivery, and performance by
Borrower of this Agreement and each other Loan Document have been duly
authorized by all necessary corporate or partnership action. Borrower, has duly
executed and delivered this Agreement and each other Loan Document to which it
is a party, and each of them constitutes a valid and binding obligation of
Borrower, as applicable, enforceable according to its terms except as such
enforceability may be limited by equitable principles and by bankruptcy,
insolvency or similar laws affecting the rights of creditors generally.
SECTION 8.3. NO BREACH The execution, delivery and performance by
Borrower of this Agreement and each other Loan Document to which they are a
party (a) will not contravene any law or any governmental rule or order binding
on Collateral; (b) will not violate any provision of the articles of
incorporation, bylaws or partnership agreement, as applicable, of Borrower; (c)
will not violate any agreement or instrument by which Borrower, as applicable,
is bound; (d) do not require any notice to or consent by any Governmental
Authority; and (e) will not result in the creation of a Lien on any assets of
Borrower except the Lien to Lender granted herein.
SECTION 8.4. TAXES All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower
or any of its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
SECTION 8.5. DEFERRED COMPENSATION PLANS Borrower has made all
required contributions to all deferred compensation plans to which it is
required to contribute, and Borrower has no liability for any unfunded benefits
of any single-employer or multi-employer plans. Borrower is not and at no time
has been a sponsor of, provided, or maintained for any employees any defined
benefit plan.
SECTION 8.6. LITIGATION AND PROCEEDINGS Except as set forth on
Schedule 8.6 attached hereto, there are no outstanding judgments against
Borrower or any of its assets and there are no actions or proceedings pending by
or against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 8.6 hereto.
SECTION 8.7. BUSINESS Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to advantageously
conduct its business. They are all in full force and effect and are not in known
conflict with the rights of others. Borrower is not a party to or subject to any
agreement or restriction that is so unusual or burdensome that it might have a
material adverse effect on Borrower's business, properties or prospects.
SECTION 8.8. LAWS AND AGREEMENTS Borrower is in compliance with all
material agreements applicable to it, including obligations to contribute to any
employee benefit plan or pension plan regulated by ERISA. Borrower is in
material compliance with all laws applicable to it.
SECTION 8.9. OWNERSHIP OF ACCOUNTS Prior to the Lender making any Loan
as set forth herein, the Borrower will be the sole owner of, and have good and
marketable title to the Accounts pledged as security for such Loan.
SECTION 8.10. NO CONFLICT The granting of a security interest in the
pledged Accounts to the Lender will not violate the terms or provisions of any
loan document or any other agreement to which the Borrower then is a party or by
which it is bound.
SECTION 8.11. SECURITY INTEREST After giving effect to each Loan
contemplated by this Agreement, the Lender will be the holder of a valid
perfected first priority security interest in the pledged Accounts. Accounts
pledged to the lender in connection with any Loan will be free and clear of all
liens except Permitted Liens.
SECTION 8.12. NO DEFAULTS As of the date on which an Account is
pledged to the Lender pursuant to the terms hereof there shall have been no
default under such Account.
10
<PAGE>
SECTION 8.13. ORIGINATION Each Account will have been originated by
the Borrower in the ordinary course of its business in accordance with the
Borrower's regular credit approval process and does not contravene any laws,
rules or regulations applicable thereto. No pledged Account will have been
selected on any basis which would have any adverse effect on the Lender.
SECTION 8.14. LEGALITY No pledged Account will have been originated
in, or be subject to the laws of, any jurisdiction whose laws would make the
terms hereof or any transaction contemplated hereby unlawful.
SECTION 8.15. CONSENTS No consent or approval is required for the
pledging of any Accounts to the Lender pursuant to the terms of this Agreement,
except for such consents or approvals as have been obtained.
SECTION 8.16. FINANCIAL CONDITION All financial statements and
information relating to Borrower that have been or may hereafter be delivered by
Borrower to Lender are accurate and complete and have been prepared in
accordance with GAAP. Borrower has no material obligations or liabilities of any
kind not disclosed in that financial information, and there has been no material
adverse change in the financial condition of Borrower since the date of the most
recent financial statements submitted to Lender.
SECTION 8.17. HEALTH CARE LAWS
(a) Borrower has obtained all material permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and it is in compliance in all material respects with all terms and conditions
of the required permits, licenses and authorizations, and is also in compliance
in all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against Borrower, relating in
any way to Health Care Laws.
SECTION 8.18. CUMULATIVE REPRESENTATIONS The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements that
Borrower shall give, or cause to be given, to Lender, either now or hereafter.
SECTION 9
COVENANTS
SECTION 9.1. ENCUMBRANCE OF COLLATERAL Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower, except for Liens to Lender and Permitted Liens.
SECTION 9.2. BUSINESS Borrower shall engage primarily in business of
the same general character as that now conducted by Borrower.
SECTION 9.3. CONDITION AND REPAIR Borrower shall maintain in good
repair and working order all properties used in their business and from time to
time shall make all appropriate repairs and replacements thereof.
SECTION 9.4. TAXES Borrower shall pay all taxes, assessments and other
governmental charges imposed upon it or any of its assets or in respect of any
of its franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
11
<PAGE>
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by GAAP. Borrower shall make timely payment or deposit of all
FICA payments and withholding taxes required of it by applicable laws and will,
upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
SECTION 9.5. ACCOUNTING SYSTEM Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP,
with ledger and account cards or computer tapes, disks, printouts and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower shall not enter into any agreement hereafter
with any third-party accounting firm or service bureau for the preparation or
storage of Borrower's accounting records without said accounting firm's or
service bureau's agreeing to provide to Lender information regarding the
Collateral and Borrower's financial condition.
SECTION 9.6. QUARTERLY FINANCIAL STATEMENTS. Borrower shall furnish
Lender as soon as practicable but in no event later than forty-five (45) days
after the end of each of the first three quarterly fiscal periods of each fiscal
year with unaudited quarterly financial statements in form and substance as
required by Lender, including a balance sheet, an income statement and a
statement of cash flows, prepared in accordance with GAAP together with a
certificate executed by the chief financial officer of Borrower stating that the
financial statements fairly present the financial condition of Borrower as of
the date and for the periods covered and that as of the date of such certificate
there has not been any violation of any provision of this Agreement or the
happening of any Event of Default or Unmatured Default hereunder.
SECTION 9.7. ANNUAL FINANCIAL STATEMENTS. Borrower shall furnish
Lender as soon as practicable but in no event later than ninety (90) days after
the close of each fiscal year with audited annual financial statements, which
financial statements shall be prepared in accordance with GAAP and shall be
certified without qualification by an independent certified public accounting
firm satisfactory to Lender. With all financial statements, Borrower will also
deliver a certificate of its chief financial officer attesting that no Event of
Default or Unmatured Default under the Agreement has occurred and is continuing.
SECTION 9.8. FURTHER INFORMATION Borrower shall promptly supply Lender
with such other information concerning its affairs as Lender may reasonably
request from time to time hereafter and shall promptly notify Lender of any
material adverse change in Borrower's financial condition and any condition or
event that constitutes a breach of or event that constitutes an Event of Default
under this Agreement. In addition, Borrower authorizes Lender to contact credit
reporting agencies concerning, Borrower's credit standing. Borrower also
authorizes Lender to utilize Borrower's name in Lender's marketing materials.
SECTION 9.9. ERISA COVENANTS Borrower shall comply with all applicable
provisions of ERISA and all other laws applicable to any deferred compensation
plans with which or Borrower is associated, and shall promptly notify Lender of
the occurrence of any event that could result in any material liability of
Borrower to any person to any person whatsoever with respect to any such plan.
SECTION 9.10. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF ASSETS,
ISSUANCE OF STOCK, ETC
(a) Without prior notice to Lender, Borrower shall not:
(i) merge or consolidate with any Person;
(ii) acquire interests of any business in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(iii) authorize or issue any additional stock or equity
interest.
(b) Without prior written consent of Lender, which consent shall not
be unreasonably withheld, Borrower shall not:
(i) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
12
<PAGE>
(ii) become subject to any agreement or instrument which by its
terms would restrict Borrower's right or ability to perform any of its
obligations to Lender pursuant to the terms of the Loan Documents; or
(iii) sell, lease or otherwise dispose of its assets in any
transaction or series of related transactions (other than sales in the ordinary
course of business) other than as outlined in 9.10(a)(i).
SECTION 9.11. HEALTH CARE COVENANTS
(a) Borrower shall comply in all material respects with, and shall
obtain all permits required by, all Health Care Laws applicable to Borrower.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any Governmental Authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
SECTION 9.12. DISTRIBUTIONS Borrower shall not make any Distributions
except as (i) set forth on Schedule 9.12 hereto, and (ii) authorized by Lender,
upon Borrower's request, which authorization shall not be unreasonably withheld
and which authorization shall not be deemed to authorize any Distributions while
an Event of Default is continuing or if such Distribution would cause an Event
of Default to occur.
SECTION 9.13. SUBORDINATE OBLIGATIONS Borrower shall not voluntarily
prepay any principal (including the making of any sinking fund payment),
interest or any other amount in respect of Subordinate Obligations, without
prior written notice to Lender.
SECTION 9.14. AMENDMENTS Borrower shall not amend any provision of any
Subordinate Obligation if such amendment would have a material adverse effect on
the interests of Lender, without prior written consent of Lender.
SECTION 10
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the following
events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure shall continue for five (5) business
days after the payment is due;
(b) Borrower fails to observe or perform any covenant, condition or
agreement to be observed or performed pursuant to the terms hereof or any other
Loan Document to which it is a party and such failure is not cured as soon as
reasonably practicable and in any event within thirty (30) days after written
notice thereof by Lender;
(c) A court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(e) Final judgment for the payment of money on any claim in excess of
$250,000 is rendered against Borrower and remains undischarged for twenty (20)
days during which execution is not effectively stayed;
(f) Borrower makes any payment on account of any Subordinate
Obligations, other than payments specifically permitted by the terms of such
subordination or this Agreement, without written notification to Lender;
13
<PAGE>
(g) Any Person holding any Subordinate Obligations becomes the subject
of any proceeding resulting in the termination of the subordination arrangement,
terminates the subordination arrangement or asserts that it is terminated.
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise;
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal or other Government Authority; or any tax or debt
owing at any time hereafter to any one or more of such entities becomes a Lien
upon any or all of Borrower's assets and the same is not paid on the payment
date thereof, except to the extent such tax or debt is being contested by
Borrower as permitted in Section 8.4;
(n) There is a material impairment of the value of the Collateral or
priority of Lender's Liens on the Collateral;
(o) Lender believes in good faith that the prospect of payment or
performance of the Obligations by Borrower has been impaired; and there has been
a material adverse change in the financial and or business condition of the
Borrower; or that payment or performance will be impaired and a material adverse
change will occur upon completion of actions under Section 9.10(a) to which
Lender has been advised in writing;
(p) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(q) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transactions contemplated in this
Agreement is materially incorrect when made;
(r) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (e), (j), (k), (m) and (n) hereof
exceeds $100,000;
(s) Borrower shall fail to direct all receipts for Accounts to the
Lock Box; or
(t) an event of default under the Diametrics Medical Limited Loan.
14
<PAGE>
SECTION 11
REMEDIES
SECTION 11.1. SPECIFIC REMEDIES Upon the occurrence of any Event of
Default:
(a) Lender may cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any other Loan Document, or
under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by Borrower.
(c) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(d) Until all Obligations are paid, Lender may pay, purchase, contest
or compromise any encumbrance, charge or Lien that, in the opinion of Lender,
appears to be prior or superior to its Lien and pay all reasonable expenses
incurred in connection therewith.
(e) Until all Obligations are paid, Lender may (i) notify Account
Debtors to make payment on Accounts directly to Lender; (ii) settle, adjust,
compromise, extend or renew Accounts, whether before or after legal proceedings
to collect such Accounts have commenced; (iii) prepare and file any bankruptcy
proofs of claim or similar documents against any Account Debtor; (iv) prepare
and file any notice, assignment, satisfaction, or release of Lien, UCC
termination statement or any similar document; (v) sell or assign Accounts,
individually or in bulk, upon such terms, for such amounts, and at such time or
times as Lender deems advisable; and (vi) complete the performance required of
Borrower under any contract or agreement to which Borrower is a party and out of
which Accounts arise or may arise.
(f) Until all Obligations are paid, Lender may (i) endorse Borrower's
name on all checks, notes, drafts, money orders or other forms of payment of or
security for Accounts or other Collateral; (ii) sign Borrower's name on drafts
drawn on Account Debtors or issuers of letters of credit; and (iii) notify the
postal authorities in Borrower's name to change the address for delivery of
Borrower's mail to an address designated by Lender, receive and open all mail
addressed to Borrower, copy all mail other than mail marked "CONFIDENTIAL",
return all mail relating to Collateral, and hold all other mail available for
pickup by Borrower.
SECTION 11.2. POWER OF ATTORNEY Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power whether before or after the occurrence of an
Event of Default which is continuing: (a) to endorse Borrower's name on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Lender's possession; (b) to sign Borrower's name on
drafts against Account Debtors, on schedules and assignments of Accounts, on
verifications of Accounts, and on notices to Account Debtors; (c) to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by Lender, to receive and open all mail addressed to
Borrower and to retain all mail relating to the Collateral and forward all other
mail to Borrower; (d) to send requests for verification of Accounts; (e) to
execute UCC Financing Statements; and (f) to do all things necessary to carry
out this Agreement. The appointment of Lender as Borrower's attorney and each
and every one of Lender's rights and powers, being coupled with an interest, are
irrevocable as long as any Obligations are outstanding. Lender agrees not to
exercise the power granted in clause 11.2(b) and 11.2(c) prior to the occurrence
of an Event of Default and agrees not to exercise the power granted in clause
11.2(d) prior to notification of Borrower of its intent to do so, but such
limitations do not limit the effectiveness of such power of attorney at any
time. Any person dealing with Lender shall be entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect. Lender may also use Borrower's stationery in connection with exercising
its rights and remedies and performing the Obligations of Borrower.
SECTION 11.3. EXPENSES SECURED All direct expenses paid to third
parties, including attorney fees, incurred by Lender in the exercise of its
rights and remedies provided in this Agreement, in the other Loan Documents or
by law shall be payable by Borrower to Lender, shall be part of the Obligations,
and shall be secured by the Collateral.
15
<PAGE>
SECTION 11.4. EQUITABLE RELIEF Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, no remedy of law will provide adequate relief
to Lender, and Borrower agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
SECTION 11.5. REMEDIES ARE CUMULATIVE No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or now or hereafter existing at
law or in equity or by statute. Lender may pursue its rights and remedies
concurrently or in any sequence, and no exercise of one right or remedy shall be
deemed to be an election. No delay by Lender shall constitute a waiver, election
or acquiescence by it.
SECTION 12
INDEMNITY
SECTION 12.1. GENERAL INDEMNITY Borrower shall protect, indemnify and
defend and save harmless Lender and its directors, officers, agents and
employees from and against any and all loss, cost, liability (including
negligence, tort and strict liability), expense, damage, suits or demands
(including fees and disbursements of counsel) on account of any suit or
proceeding before any Governmental Authority which arises from the transactions
contemplated in this Agreement or otherwise arising in connection with or
relating to the Loan and any security therefor, unless such suit, claim or
damages are caused by the negligence or intentional malfeasance of Lender or its
directors, officer, agents or employees. Upon receiving knowledge of any suit,
claim or demand asserted by a third-party that Lender believes is covered by
this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower shall survive
the termination of this Agreement and the repayment of the Note.
SECTION 13
MISCELLANEOUS
SECTION 13.1. DELAY AND WAIVER No delay or omission to exercise any
right shall impair any such right or be a waiver thereof, but any such right may
be exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion shall be limited to that particular occasion.
SECTION 13.2. COMPLETE AGREEMENT This Agreement and the Schedules are
the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
SECTION 13.3. SEVERABILITY; HEADINGS If any part of this Agreement or
the application thereof to any Person or circumstance is held invalid, the
remainder of this Agreement shall not be affected thereby. The section headings
herein are included for convenience only and shall not be deemed to be a part of
this Agreement.
SECTION 13.4. BINDING EFFECT This Agreement shall be binding upon and
inure to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; however, Borrower may not assign any of its
rights or delegate any of its Obligations hereunder. Lender (and any subsequent
assignee) may transfer and assign this Agreement and deliver the Collateral to
the assignee, who shall thereupon have all of the rights of Lender; and Lender
(or such subsequent assignee who in turn assigns as aforesaid) shall then be
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
SECTION 13.5. NOTICES Any notices under or pursuant to this Agreement
shall be deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, or when delivered by courier or when
transmitted by telex, telecopy, or similar electronic medium to the following
addresses:
16
<PAGE>
To Borrower: Diametrics Medical, Inc.
2658 Patton Road
Roseville, MN 55113
Attention: Larry Betterley, Senior Vice President
Telephone: (612) 639-8035
Telecopier: (612) 639-8549
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn, Executive Vice President
Telephone: (714) 474-6100
Telecopier: (714) 474-6199
Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, General Counsel
Telephone: (215) 230-2931
Telecopier: (215) 230-3537
Either party may change such address by sending notice of the change to the
other party; such change of address shall be effective only upon actual receipt
of the notice by the other party.
SECTION 13.6. GOVERNING LAW ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA, WITHOUT GIVING EFFECT
TO CONFLICTS OF LAW PRINCIPLES.
SECTION 13.7. WAIVER OF TRIAL BY JURY LENDER AND BORROWER HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER AND BORROWER.
SECTION 13.8. SUBMISSION TO JURISDICTION. (a) BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA OR FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT. BORROWER HEREBY AGREES THAT SERVICE OF COPIES
OF SUMMONS AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY
ACTION OR PROCEEDING ARISING HEREUNDER MAY BE MADE BY MAILING OR DELIVERING A
COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF THIS AGREEMENT.
(b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS
PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (I) ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH
COURT (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN
INCONVENIENT FORUM OF ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA
OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN
ACCORDANCE WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY OR OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE LOANS.
17
<PAGE>
THIS AGREEMENT SHALL BECOME EFFECTIVE ONLY UPON WRITTEN ACCEPTANCE BY LENDER.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement by
their duly authorized officers as of the date first above written.
BORROWER: LENDER:
DIAMETRICS MEDICAL, INC. DVI BUSINESS CREDIT CORPORATION
By: /s/ David Giddings By:
------------------------------------ ------------------------------
Print Name: David Giddings Print Name:
--------------------------- -----------------------
Title: President, CEO, & Chairman Title:
-------------------------------- ---------------------------
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,880,694
<SECURITIES> 0
<RECEIVABLES> 4,060,308
<ALLOWANCES> 288,599
<INVENTORY> 3,983,078
<CURRENT-ASSETS> 13,967,260
<PP&E> 18,460,390
<DEPRECIATION> 11,414,900
<TOTAL-ASSETS> 22,741,373
<CURRENT-LIABILITIES> 5,576,982
<BONDS> 8,411,682
0
0
<COMMON> 209,978
<OTHER-SE> 8,481,286
<TOTAL-LIABILITY-AND-EQUITY> 22,741,373
<SALES> 2,416,703
<TOTAL-REVENUES> 2,416,703
<CGS> 2,402,690
<TOTAL-COSTS> 4,135,962
<OTHER-EXPENSES> (162,515)
<LOSS-PROVISION> 118,058
<INTEREST-EXPENSE> 225,701
<INCOME-PRETAX> (4,303,193)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,303,193)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,303,193)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
