Exhibit 10.18
$1,000,000.00
BRIDGE LOAN AND SECURITY AGREEMENT
by and among
EP MEDSYSTEMS, INC.
(the "Company")
and
EGS PRIVATE HEALTHCARE PARTNERSHIP, L.P.
(a "Lender")
and
EGS PRIVATE HEALTHCARE COUNTERPART, L.P.
(a "Lender")
December 30, 2002
BRIDGE LOAN AND SECURITY AGREEMENT
THIS BRIDGE LOAN AND SECURITY AGREEMENT (this "Agreement") is made as
of December 30, 2002 by and between EP MEDSYSTEMS, INC., a New Jersey
corporation (the "Company"), and EGS PRIVATE HEALTHCARE PARTNERSHIP, L.P., a
Delaware limited partnership ("EGSP"), and EGS PRIVATE HEALTHCARE COUNTERPART,
L.P., a Delaware limited partnership ("EGSC", and together with EGSP, the
"Lenders" and each, a "Lender").
RECITALS
A. The Company desires to borrow funds from each Lender, and each
Lender, severally, is willing to make a loan to the Company in the amounts, with
respect to each Lender, set forth on Schedule I hereto, and on the terms and
conditions set forth below.
B. In consideration of each Lender's agreement to make a loan on the
terms and condition set forth herein, the Company shall issue, and each Lender
will receive, a Warrant to purchase, subject to a specific condition to vesting
described therein, the number of shares of the Company's common stock, no par
value, stated value $0.001 per share (the "Common Stock"), set forth opposite
such Lender's name on Schedule I hereto.
C. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the promises and covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties covenant
and agree as follows:
Article 1
DEFINITIONS
As used in this Agreement, unless otherwise specified, all references
to "Sections" shall be deemed to refer to Sections of this Agreement, and the
following terms shall have the meanings set forth below:
Section 1.1 Account. "Account" means any right to payment of a monetary
obligation, whether or not earned by performance, other than the Excluded
Accounts. Without limiting the generality of the foregoing, the term "Account"
shall further include any "account" (as that term is defined in the Uniform
Commercial Code now or hereafter in effect), any accounts receivable, any
"health-care-insurance receivables" (as that term is defined in the Uniform
Commercial Code now or hereafter in effect), any "payment intangibles" (as that
term is defined in the Uniform Commercial Code now or hereafter in effect) and
all other rights to payment of every kind and description, whether or not earned
by performance.
Section 1.2 Account Debtor. "Account Debtor" means any Person
obligated on any Account of the Company.
Section 1.3 Affiliate. "Affiliate" means, with respect to a specified
Person, any Person directly or indirectly controlling, controlled by, or under
common control with the specified Person, including, without limitation their
stockholders and any Affiliates thereof. A Person shall be deemed to control a
corporation or other entity if the Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and business of the
corporation or other entity, whether through the ownership of voting securities,
by contract, or otherwise. The term "Affiliate" shall include, without
limitation, the Existing Subsidiaries.
Section 1.4 Agreement. "Agreement" means this Bridge Loan and Security
Agreement, as it may be amended or supplemented from time to time in accordance
with the terms herein, together with all attachments, exhibits, schedules,
riders and addenda, all of which are incorporated herein by this reference and
made a part hereof.
Section 1.5 Base Rate. "Base Rate" means 10.0% per annum.
Section 1.6 Borrowed Money. "Borrowed Money" means, with respect to any
Person, without duplication, (a) all indebtedness for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made,(c) that
portion of obligations with respect to capital leases that is properly
classified as a liability on a balance sheet conformity with GAAP, (d) any
obligations of such Person issued or assumed as the deferred purchase price of
property or services purchased by such Person (other than trade debt incurred in
the ordinary course of business and due within six (6) months of the incurrence
thereof or evidenced by a note or other instrument), (e) all Borrowed Money of
others secured by (or for which the holder of such Borrowed Money has an
existing right, contingent or otherwise, to be secured by) any Lien on, or
payable out of the proceeds of production from, any property or asset owned,
held or acquired by such Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person, (f) all guaranty obligations of such Person in respect of any
Borrowed Money of any other person,(g) the maximum amount of all standby letters
of credit issued or bankers' acceptances facilities created for the account of
such Person and, without duplication, all drafts drawn thereunder (to the extent
unreimbursed), (h) the principal balance outstanding under any synthetic lease,
tax retention operating lease, off-balance sheet loan or similar off-balance
sheet financing product plus any accrued interest thereon, and (i) the Borrowed
Money of any partnership or unincorporated joint venture in which such Person is
a general partner or joint venturer.
Section 1.7 Bridge Loan. "Bridge Loan" has the meaning set forth in
Section 2.1(a).
Section 1.8 Bridge Note. "Bridge Note" has the meaning set forth in
Section 2.1(a).
Section 1.9 Business Day. "Business Day" means any day on which
financial institutions are open for business in the State of New York
excluding Saturdays and Sundays.
Section 1.10 Closing; Closing Date. "Closing" and "Closing Date" have the
meanings set forth in Section 6.2.
Section 1.11 Collateral. "Collateral" has the meaning set forth in
Section 4.1.
Section 1.12 Common Stock. "Common Stock" has the meaning set forth in
the RECITALS hereto.
Section 1.13 Default Rate. Default Rate means 12.0% per annum.
Section 1.14 Event of Default. "Event of Default" and "Events of Default"
have the meanings set forth in Section 9.1.
Section 1.15 Excluded Accounts. "Excluded Accounts" means Accounts arising
out of any of the following: (a) the sale of securities of the Company, such as
stock sales, private placements and sums due in respect of the exercise of
warrants, options and convertible securities; (b) the sale of state tax losses;
(c) payments due to the Company in respect of the sublease of the Company's
office or warehouse space; (d) proceeds of financings or the sale of the
Company's real property (and related fixtures) in West Berlin, New Jersey; (e)
insurance proceeds in respect of damage or casualty to real property; and (f)
such other matters that Lenders may from time to time, exercising its sole and
absolute discretion and credit judgment, designate in writing as matters giving
rise to Excluded Accounts. Notwithstanding the foregoing, Excluded Accounts
shall in no event include any Accounts that arise directly or indirectly out of
the sale of goods and services or any other sale of the Collateral.
Section 1.16 Existing Subsidiaries. "Existing Subsidiaries" means EP
MEDSYSTEMS UK LTD, a New Jersey corporation, and EP MEDSYSTEMS FRANCE S.A.R.L.,
a New Jersey Corporation, and PROCATH CORPORATION, a New Jersey corporation.
Section 1.17 Facility. "Facility" or "Facilities" mean one or more of the
manufacturing, warehousing, distribution or other facilities operated by the
Company.
Section 1.18 GAAP. "GAAP" means generally accepted accounting principles
applied in a consistent manner.
Section 1.19 Governmental Authority. "Governmental Authority" means and
includes any federal, state, District of Columbia, county, municipal, or other
government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
Section 1.20 Guarantor. "Guarantor" means any Person who may from time to
time guaranty, pledge assets as security for, or otherwise become obligated in
respect of, the obligations of the Company under the Loan Documents, including,
but not limited to, the Existing Subsidiaries.
Section 1.21 Guaranty. "Guaranty" means any guaranty of the obligations of
the Company under the Loan Documents from time to time outstanding, as the same
may be amended, modified, or supplemented from time to time.
Section 1.22 HIPAA. "HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as the same may be amended, modified or supplemented
from time to time, and any successor statute thereto, and any and all rules or
regulations promulgated from time to time thereunder.
Section 1.23 Inventory. "Inventory" shall mean all of the Company's now
owned and hereafter existing or acquired goods, wherever located, which (a) are
leased by the Company as lessor; (b) are held by the Company for sale or lease
or to be furnished under a contract of service; (c) are furnished by the Company
under a contract of service; or (d) consist of raw materials, work in process,
finished goods or materials used or consumed in its business.
Section 1.24 Lender and Lenders. "Lender" and "Lenders" have the meanings
set forth in the Preamble.
Section 1.25 Lien. "Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge or other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement and any capital lease having substantially the same practical effect
as any of the foregoing).
Section 1.26 Loan Documents. "Loan Documents" means and includes this
Agreement, the Bridge Notes, any Guaranty, the Warrants and each and every other
document now or hereafter delivered by the Company or any Guarantor in
connection with this Agreement, as any of them may be amended, modified,
increased, renewed or restated from time to time.
Section 1.27 Maturity Date. Maturity Date has the meaning set forth in
Section 2.2.
Section 1.28 Obligations. "Obligations" has the meaning set forth in
Section 4.1.
Section 1.29 Permitted Liens. "Permitted Liens" means: (a) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance; (b) deposits or pledges to
secure bids, tenders, contracts (other than contracts for the payment of money)
, leases, statutory obligations, surety and appeal bonds and other obligations
of like nature arising in the ordinary course of business; (c) mechanic's,
workmen's, materialmen's or other like Liens arising in the ordinary course of
business with respect to obligations which are not due, or which are being
contested in good faith by appropriate proceedings which suspend the collection
thereof and in respect of which adequate reserves have been made (provided that
such proceedings do not, in Lenders' sole discretion, involve any substantial
risk of the sale, loss or forfeiture of such property or assets or any interest
therein); and (d) Liens and encumbrances in favor of Lender.
Section 1.30 Person. "Person" means an individual, partnership, corporation,
trust, joint venture, joint stock company, limited liability company,
association, unincorporated organization, Governmental Authority, or any other
entity.
Section 1.31 Warrants. "Warrants" shall mean the Warrants to be issued to
the Lenders on the Closing Date, substantially in the form attached hereto as
Exhibit B.
Article 2
BRIDGE LOANS
Section 2.1 Issuance and Terms of the Bridge Loans and the Bridge Notes.
(a) Subject to the terms and conditions herein contained, the aggregate
principal amount of the loans to be made by the Lenders to the Company pursuant
to this Agreement (each, a "Bridge Loan") shall be One Million and No/100
Dollars ($1,000,000.00). Each Bridge Loan shall be evidenced by a promissory
note substantially in the form of Exhibit A attached hereto, which promissory
note shall be deemed incorporated into and made part of this Agreement (each, a
"Bridge Note").
(b) Subject to the terms and conditions herein contained, the Company hereby
agrees to issue and sell the Bridge Notes to the Lenders, and the Lenders hereby
severally agree to purchase the Bridge Notes from the Company, in the principal
amounts and for the purchase price set forth opposite each Lender's name set
forth on Schedule I hereto.
(c) The outstanding principal amount of the Bridge Loans shall accrue interest
at the Base Rate from the date of issuance thereof through and including the
date of repayment in full of all principal and unpaid interest on the Bridge
Notes, based on a year of 360 days; provided, however, upon the occurrence and
during the continuance of an Event of Default, the Bridge Loans shall accrue
interest at the Default Rate.
Section 2.2 Maturity Date. Principal and interest on each Bridge Note shall be
payable by the Company to the Lenders immediately upon the earliest of (a) June
30, 2003; (b) subject to Section 2.3, the time of closing of the Company's next
offering and sale of equity securities as may be approved by the Company's Board
of Directors (the "Securities") providing the Company with gross proceeds of at
least $6 million, including the conversion of the aggregate outstanding
principal amount of Bridge Notes (the "Securities Closing"); and (c) the
occurrence of an Event of Default. All payments shall be made without deduction
for any set-off, recoupment, counterclaim or defense that the Company now has or
may have in the future.
Section 2.3 Bridge Note Conversion Mechanics. The outstanding principal of, and
accrued and unpaid interest on, each Bridge Note shall be converted at the
option of the Company or the Lenders, upon at least one Business Day prior
written or e-mailed notice to the other, into shares of the Securities, at the
time of the Securities Closing, in accordance with the following sentence. On
the date of the Securities Closing, each Lender shall surrender its Bridge Note
for conversion, and upon such surrender, such Lender will receive such number of
shares of the Securities equal to the quotient obtained by dividing (A) the
outstanding principal amount of, and accrued and unpaid interest on, its Bridge
Note by (B) the price per share paid by the purchasers of the Securities.
Section 2.4 Redemption and Optional Conversion. The Bridge Notes may be redeemed
by the Company at any time prior to the Maturity Date, in whole but not in part,
without payment of penalty or premium, by payment of the unpaid principal amount
of the Bridge Notes, plus the amount of all accrued and unpaid interest thereon
in cash to the Lenders; provided, however, the Company must provide notice to
each Lender not less than fifteen (15) days prior to effecting such redemption.
In the interim between the provision of such notice and the Company effecting
the redemption, each Lender may convert the outstanding principal amount and all
accrued and unpaid interest on its Bridge Note, in whole but not in part, into
Common Stock at a price per share equal to the lower of (i) the Exercise Price
(as defined in the Warrants) or (ii) Current Weighted Market Price (as defined
in the Warrants).
Section 2.5 Maturity Date Conversion. If no offering and sale of equity
securities of the Company approved by the Company's Board of Directors occurs on
or prior to the Maturity Date, then the Lenders shall have the right to convert,
on the Maturity Date, the outstanding principal amount of, and all accrued and
unpaid interest on, the Bridge Notes, in whole but not in part, into shares of
the Company's Common Stock, at a price per share equal to the lower of (i) the
Exercise Price (as defined in the Warrants) or (ii) the Current Weighted Market
Price (as defined in the Warrants) on the Maturity Date. If the Lenders exercise
such right, the Bridge Notes will be deemed to be paid in full on the Maturity
Date.
Section 2.6 Conversion Upon Closing of Other Securities Offerings. If, prior to
Maturity Date, an offering and sale of equity securities of the Company occurs
which does not meet the requirements of a Securities Offering (as defined
herein), the Lenders shall have the right to convert, on the closing date of
such offering and sale, the outstanding principal amount of, and all accrued and
unpaid interest on, the Bridge Notes, in whole but not in part, into shares of
the Company's Common Stock, at a price per share equal to the lower of (i) the
Exercise Price (as defined in the Warrants) or (ii) the price per share of
Common Stock paid by the investors in such offering. If the Lenders exercise
such right, the Bridge Notes will be deemed paid in full on the closing date of
such offering and sale.
Section 2.7 Issuance of Warrants. Subject to the terms and conditions hereof,
the Company agrees to issue the Warrants to the Lenders on the Closing Date as
described on Schedule I.
Article 3
REPRESENTATIONS AND WARRANTIES OF THE LENDERS
Each Lender hereby represents and warrants that:
Section 3.1 Authorization. Such Lender has full power and authority to enter
into this Agreement and purchase the Bridge Note to be purchased by it
hereunder, and this Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, or
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
Section 3.2 Purchase Entirely for Own Account. This Agreement is made with such
Lender in reliance upon such Lender's representations to the Company, which by
such Lender's execution of this Agreement, such Lender hereby confirms that the
Bridge Note to be purchased by it hereunder and the Warrant to be received by it
pursuant to the terms hereof will be acquired for investment for such Lender's
own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Lender has no present intention
of selling, granting any participation in or otherwise distributing the same. By
executing this Agreement, such Lender further represents that such Lender does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to the Bridge Note or such Warrant.
Section 3.3 Investment Experience. Such Lender is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in a Bridge Note and securities of the
Company. Such Lender also represents it has not been organized for the purpose
of acquiring the Bridge Note or the Warrants.
Section 3.4 Accredited Investor. Such Lender is an "accredited investor within
the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation
D, as presently in effect.
Section 3.5 Restricted Securities. Such Lender understands that the Bridge Note
it is purchasing, the Warrant it receives and the Securities it will purchase
upon conversion of the Bridge Note are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), only in certain limited circumstances. Such Lender further represents
that it is familiar with Rule 144 promulgated under the Securities Act ("SEC
Rule 144"), as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
Section 3.6 Further Limitations on Disposition. In addition to, and without
limiting any of the representations set forth herein, such Lender further agrees
not to make any disposition of all or any portion of the Bridge Note to be
purchased by it hereunder unless and until the transferee has agreed in writing
for the benefit of the Company to be bound by this Article III; provided that:
(a) there is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (A) such Lender shall have notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (B) if reasonably
requested by the Company, such Lender shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of the Bridge Note or such Warrant, as the case
may be, under the Securities Act.
(c) Notwithstanding the provisions of Sections 3.6(a) and (b) hereof, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Lender that is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if he or she were an original Lender hereunder.
Section 3.7 Legends. It is understood that the Bridge Notes and the
Warrants may bear one or all of the following legends:
(a) "This security has not been registered under the Securities Act of 1933, as
amended (the "Act"), or the securities law of any state and may not be sold,
offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act or an opinion
of counsel satisfactory to the Company that such registration is not required."
(b) Any legend required by the laws of any State.
Section 3.8 Removal of Legends. Any legend endorsed on a certificate evidencing
a Bridge Note shall be removed, and the Company shall issue a new Bridge Note
without such legend to the holder of the Bridge Note, if the Bridge Note is
being disposed of pursuant to a registration under the Securities Act or
pursuant to SEC Rule 144 or any similar rule then in effect or if such holder
provides the Company with an opinion of counsel satisfactory to the Company to
the effect that a transfer of the Bridge Note may be made without such
registration.
Article 4
COLLATERAL
Section 4.1 Generally. As security for the payment of all liabilities of the
Company to the Lenders, including, without limitation: (a) indebtedness
evidenced under the Bridge Note, repayment of the Bridge Loans, and all other
liabilities and obligations of every kind or nature whatsoever of the Company to
the Lenders, whether now existing or hereafter incurred, joint or several,
matured or unmatured, direct or indirect, primary or secondary, related or
unrelated, due or to become due, including but not limited to, any extensions,
modifications, substitutions, increases and renewals thereof, (b) the payment of
all amounts advanced by any Lender to preserve, protect, defend, and enforce its
rights under this Agreement and in the following property in accordance with the
terms of this Agreement, and (c) the payment of all expenses incurred by any
Lender in connection therewith (collectively, the "Obligations"), the Company
hereby assigns and grants to the Lenders a continuing first priority Lien on and
security interest in, upon, and to the following property whether now owned or
hereafter acquired or arising (the "Collateral"; unless otherwise defined in
this Agreement, all terms used in the following subparagraphs shall have the
meanings given them in the Uniform Commercial Code as now or hereafter in
effect):
(a) All of the Company's Accounts, and all of the Company's money, contract
rights, chattel paper, documents, deposit accounts, securities, investment
property and instruments with respect thereto, and all of the Company's rights,
remedies, security, Liens and supporting obligations, in, to and in respect of
the foregoing, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any Account Debtor, and credit and other insurance;
(b) To the extent not listed above, all of the Company's money, securities,
investment property, deposit accounts, instruments and other property and the
proceeds thereof in respect of the Accounts that are now or hereafter held or
received by, in transit to, in possession of, or under the control of any Lender
or a bailee or Affiliate of any Lender, whether for safekeeping, pledge,
custody, transmission, collection or otherwise;
(c) To the extent not listed above, all of the Company's now owned or hereafter
acquired deposit accounts into which Accounts or the proceeds of Accounts are
deposited;
(d) All of the Company's right, title and interest in, to and in respect of all
goods relating to, or which by sale have resulted in, Accounts, including,
without limitation, all goods described in invoices or other documents or
instruments with respect to, or otherwise representing or evidencing, any
Account, and all returned, reclaimed or repossessed goods;
(e) All of the Company's general intangibles (including, but not limited to,
payment intangibles) and other property of every kind and description with
respect to, evidencing or relating to its Accounts, including, but not limited
to, all existing and future customer lists, chooses in action, claims, books,
records, ledger cards, contracts, licenses, formulae, tax and other types of
refunds, returned and unearned insurance premiums, rights and claims under
insurance policies, and computer programs, information, software, records, and
data, as the same relates to the Accounts;
(f) All of the Company's now owned or hereafter acquired Inventory;
(g) All of the Company's now owned or hereafter acquired machinery, equipment,
computer equipment, tools, tooling, furniture, fixtures, goods, supplies,
materials, work in process, whether now owned or hereafter acquired, together
with all additions, parts, fittings, accessories, special tools, attachments,
and accessions now and hereafter affixed thereto and/or used in connection
therewith, all replacements thereof and substitutions therefor, and all cash and
non-cash proceeds and products thereof (collectively, "Equipment"); and
(h) To the extent not listed above as original collateral, the proceeds
(including, without limitation, insurance proceeds) and products of all of the
foregoing.
Section 4.2 Lien Documents. At Closing and thereafter as the Lenders deem
necessary in their sole discretion, the Company shall execute and deliver to the
Lenders, or have executed and delivered (all in form and substance satisfactory
to the Lenders in their sole discretion) any agreements, documents, instruments,
and writings deemed necessary by any Lender or as the Lenders may otherwise
request from time to time in their sole discretion to evidence, perfect, or
protect any Lender's Lien and security interest in the Collateral required under
this Agreement. The Company hereby authorizes each Lender to file one or more
financing statements and amendments thereto describing the Collateral and
describing any agricultural liens or other statutory liens held by Lender, and
providing any other notices deemed necessary by each Lender.
Section 4.3 Collateral Administration. All Collateral (except deposit accounts)
shall at all times be kept by the Company at its principal offices(s) as set
forth on Schedule 5.24 and shall not be moved from such locations without (i)
providing prior written notice to the Lenders in accordance with Section 10.4,
and (ii) obtaining the prior written consent of each Lender, which consent shall
not be unreasonably withheld.
Section 4.4 Accounts Records. The Company shall keep accurate and complete
records of its Accounts and all payments and collections thereon and shall
submit to the Lenders on such periodic basis as the Lenders shall request, a
sales and collections report for the preceding period, in form satisfactory to
the Lenders.
Section 4.5 Searches. Before Closing, and thereafter (as and when determined by
any Lender in its sole discretion), such Lender will perform the searches
described in clauses (a), (b) and (c) below against the Company (the results of
which are to be consistent with the Company's representations and warranties
under this Agreement), all at the Company's expense:
(a) Uniform Commercial Code searches with the Secretary of State and local
filing offices of each jurisdiction where the Company maintains its executive
offices, a place of business, or assets and the jurisdiction in which the
Company is organized;
(b) Judgment, federal tax lien and corporate and partnership tax lien searches,
in each jurisdiction searched under clause (a) above; and
(c) Searches of applicable corporate, limited liability company, partnership and
related records to confirm the continued existence, organization and good
standing of the Company and the exact legal name under which the Company is
organized.
Section 4.6 Power of Attorney. Each of the officers or managing members of each
Lender is hereby irrevocably made, constituted and appointed the true and lawful
attorney for the Company (without requiring any of them to act as such) with
full power of substitution to do the following: (a) endorse the name of the
Company upon any and all checks, drafts, money orders, and other instruments for
the payment of money that are payable to the Company and constitute collections
on the Company's Accounts; (b) execute in the name of the Company any financing
statements, schedules, assignments, instruments, documents, and statements that
the Company is obligated to give any Lender under this Agreement; (c) following
the occurrence of an Event of Default, do such acts and deeds in the name of the
Company that the Lenders may deem necessary or desirable to enforce any Account
or other Collateral; and (d) do such other and further acts and deeds in the
name of the Company that the Lenders may deem necessary or desirable to perfect
each Lender's security interest or Lien in any Collateral.
Article 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Lender, and shall be deemed
to represent and warrant on each day on which any Obligations shall be
outstanding under this Agreement, that:
Section 5.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has all requisite power and authority, and all necessary licenses
and permits, to own and lease its properties and assets and to Conduct its
business as now conducted. Each subsidiary as referred to in the SEC Reports (as
hereinafter defined) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite power and authority, and all necessary licenses and permits, to
own and lease its properties and assets and to conduct its business as now
conducted. The Company and its subsidiaries are each qualified to do business as
a foreign corporation and are in good standing in all states where the conduct
of their respective businesses or their ownership or leasing of property
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the Company's and the subsidiaries' business,
properties, assets, operations or condition (financial or otherwise), taken as a
whole.
Section 5.2 Authorization. The Company has all requisite power and authority to
execute and deliver this Agreement and each other Loan Document and to carry out
the transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement, and each other Loan Document have
been duly authorized by all requisite corporate action, and this Agreement has
been duly executed and delivered by the Company and constitutes (and, when
executed and delivered against payment therefor as contemplated herein, each
other Loan Document will constitute) the valid and binding obligation of the
Company, enforceable against the Company in accordance with their respective
terms.
Section 5.3 No Conflict with Law or Documents. The execution, delivery and
performance of this Agreement or any Loan Document Agreement by the Company, the
issuance of the Bridge Notes and the Warrants, the issuance of the Common Stock
upon exercise of the Warrants and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not violate any
provision of law, any rule or regulation of any governmental authority, or any
judgment, decree or order of any court binding on the Company and, do not and
will not conflict with or result in any material breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties, assets or outstanding stock of the Company under its Amended and
Restated Certificate of Incorporation or By-Laws, or any material indenture,
mortgage, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
under any such indenture, mortgage, lease, agreement or other instrument as
would not, individually or in the aggregate, have a material adverse effect on
the Company and its subsidiaries' business, properties, assets, operations or
condition (financial or otherwise) taken as a whole).
Section 5.4 Capital Stock of the Company.
(a) The authorized capital stock of the Company consists of: (i) 5,000,000
shares of preferred stock of the Company, no par value per share, of which
373,779 shares are issued and outstanding; and (ii) 25,000,000 shares of Common
Stock, no par value, $.001 stated value per share, of which 15,098,736 shares
are issued and outstanding and all such outstanding shares are validly issued,
fully paid and nonassessable; (iii) 1,000,000 shares of Common Stock reserved
for issuance pursuant to the Company's 1995 Long Term Incentive Plan; (iv)
540,000 shares of Common Stock reserved for issuance pursuant to the Company's
1995 Director Option Plan; and (v) 600,000 shares of Common Stock reserved for
issuance pursuant to the Company's 2002 Directors Plan. With respect to the 1995
Long Term Incentive Plan, the 1995 Director Option Plan, the 2002 Directors Plan
and other non-plan stock options and warrants, an aggregate of 2,911,129 options
and warrants have been granted or issued and are outstanding as of December 30,
2002.
(b) There are no preemptive or similar rights to purchase or otherwise acquire
shares of capital stock of the Company pursuant to any provision of law or the
Amended and Restated Certificate of Incorporation or By-Laws of the Company or
by agreement or otherwise. Except as set forth in this Section 5.4, there are no
outstanding subscriptions, warrants, options or other rights or commitments of
any character to subscribe for or purchase from the Company, or obligating the
Company to issue, any shares of capital stock of the Company or any securities
convertible into or exchangeable for such shares.
Section 5.5 Valid Issuance of the Warrants. The Warrants when issued, sold and
delivered to each Lender in accordance with this Agreement will be duly and
validly issued, fully paid and non-assessable. There are no New Jersey state or
city taxes, fees or other charges payable in connection with the execution or
delivery of the Loan Documents or the Warrants.
Section 5.6 Consents and Approvals. Except for filings under Federal and
applicable state securities laws, no permit, consent, approval or authorization
of, or declaration to or filing with, any federal, state, local or foreign
governmental or regulatory authority or other person, not made or obtained, is
required in connection with the execution or delivery of this Agreement or any
Loan Document by the Company, the offer, issuance, sale or delivery of the
Bridge Notes and the Warrants or the carrying out by the Company of the other
transactions contemplated hereby. The issuance and sale by the Company of the
Bridge Notes and the Warrants as contemplated hereby will not require compliance
with the notification or other requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder, nor require any action by or approval of the Company's shareholders
as such or of any other individual or entity which has not already been
obtained.
Section 5.7 Private Offering. Assuming the accuracy of the Lenders'
representations and warranties contained in Article III, the offer, issuance and
delivery to the Lenders' pursuant to the terms of this Agreement of the Bridge
Notes and the Warrants and, assuming compliance by the Lenders with the terms of
this Agreement and applicable law, Bridge Notes and the Warrants, are exempt
from registration under the Securities Act.
Section 5.8 Certificate of Incorporation and By-Laws. The copies of the
Company's Amended and Restated Certificate of Incorporation and By-Laws, as
amended, in the form delivered to the Lenders are true and correct copies of
such documents and are in full force and effect.
Section 5.9 SEC Filings. The Company has delivered to the Lenders, or has made
available, prior to the date hereof true and correct copies of (i) its Annual
Report on Form l0-KSB for its year ended December 31, 2001 and Quarterly Reports
on Form 10-QSB for the quarters ended March 31, 2002 and June 30 and September
30, 2002 and (ii) all other reports and documents filed with the Securities and
Exchange Commission (the "SEC") since January 1, 2002. All documents described
in this Section 5.9 are hereinafter referred to as the "SEC Reports." The
Company has made all filings required to be made by it under the Securities Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
securities laws of any state, and any rules and regulations promulgated
thereunder. The Company's reports and other documents filed with the SEC
pursuant to the Exchange Act conformed in all material respects to the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, and none of such documents contained any untrue statement of
material fact or omitted to state a material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made. not misleading.
Section 5.10 Litigation. Except as set forth in the SEC Reports, there is no
pending or, to the knowledge of the Company, threatened suit, action or
litigation, or administrative, arbitration or other proceeding or governmental
inquiry or investigation questioning the validity of this Agreement or the
transactions contemplated hereby, or affecting in any material adverse respect
the Company and its subsidiaries, taken as a whole.
Section 5.11 Compliance with Laws. The Company and each subsidiary is in
compliance with all laws, ordinances, rules and regulations of governmental
authorities applicable to or affecting it, its properties or its business,
except where non-compliance would not have a material adverse effect on the
business, properties, assets, operations or condition (financial or otherwise)
of the Company and its subsidiaries taken as a whole, and neither the Company
nor any subsidiary has received written notice of any claimed default with
respect to such laws, ordinances, rules and regulations.
Section 5.12 Patents. Trademarks. Proprietary Rights.
(a) To the Company's knowledge, each of the Company and its subsidiaries owns or
has the right to use all of the Intellectual Property Rights (as defined below),
except where such failure would not have a material adverse effect on the
business, properties or assets of the Company and its subsidiaries, taken as a
whole. For purposes of this Agreement, "Intellectual Property Rights" means all
patents, copyrights, trademarks, service marks, trade names, permits, trade
secrets, computer programs, software designs and related materials and other
intellectual property that are used by the Company or a subsidiary and are
material to the conduct of the Company's or a subsidiary's business.
(b) To the Company's knowledge, the Company's and each subsidiary's use and
enjoyment of the Intellectual Property Rights do not violate any license or
conflict with or infringe the intellectual property rights of others in a manner
which would materially and adversely affect the business, assets, properties,
operations or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole.
Section 5.13 Insurance. All the insurable properties of the Company and the
subsidiaries are insured for the benefit of the Company and its subsidiaries
against all risks usually insured against by persons operating similar
properties in the locality where such properties are located under valid and
enforceable policies issued by insurance companies of recognized responsibility
in reasonably sufficient amounts.
Section 5.14 Use of Proceeds. The proceeds from the sale of the Bridge Notes
will be used by the Company for working capital purposes including research and
development expenses.
Section 5.15 Environmental Compliance.
(a) Neither the Company nor any of its subsidiaries has generated, stored,
treated, discharged or disposed of any hazardous substances or hazardous waste
in violation of any applicable law or regulation, nor is the Company or any of
its subsidiaries aware of any allegations that any such violations have
occurred. Neither the Company nor any of its subsidiaries is aware of any
claims, investigations, litigation or administrative proceedings, whether actual
or threatened, against the Company or any of its subsidiaries relating to any
environmental contamination of any property owned, used or leased by any of them
or arising out of any alleged violation of any environmental law or regulation.
(b) To the Company's knowledge, none of the real property owned and/or occupied
by the Company or any of its subsidiaries has ever been used by previous owners
and/or operators to generate, manufacture, refine, transport, treat, store,
handle or dispose of "Hazardous Substances" or "Hazardous wastes," as such terms
are defined in the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. 6901, et seq., or applicable state and local laws, or any
regulations issued under any such laws.
Section 5.16 Third Party Consents: Business Not in Violation. The Company has
obtained from third parties all consents necessary to consummate the
transactions contemplated hereby and by the other Loan Documents. The business
of the Company and its subsidiaries is not being conducted in violation of any
law, ordinance or regulations of any governmental entity, except for violations
or potential violations which either individually or in the aggregate do not and
will not have a material adverse effect on the Company and the subsidiaries
business, properties, assets, operations or condition (financial or otherwise)
taken as a whole.
Section 5.17 Investment Company. The Company is not, and is not controlled by or
under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
Section 5.18 Permits. Each of the Company and its subsidiaries possesses all
franchises, certificates, licenses, authorizations and permits or similar
authority necessary to conduct its business as described in the SEC Reports,
except where the failure to possess such permits would not, individually or in
the aggregate, have a material adverse effect on the Company or its
subsidiaries, or their businesses, properties, assets, operations or condition
(financial or otherwise) taken as a whole ("Material Permits"), and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
Section 5.19 Financial Condition. The financial statements of the Company which
have been delivered to the Lenders fairly present the financial condition of the
Company and the results of its operations and changes in financial condition as
of the dates and for the periods referred to, and have been prepared in
accordance with GAAP. There are no material unrealized or anticipated
liabilities, direct or indirect, fixed or contingent, of the Company as of the
dates of such financial statements which are not reflected in such financial
statements or in the notes to such financial statements. There has been no
adverse change in the business, properties, condition (financial or otherwise)
or operations (current or prospective) of the Company since the date of the last
financial statement delivered to the Lenders.
Section 5.20 No Default. The Company is not in default under or with respect to
any obligation in any respect which could be materially adverse to its business,
operations, property or financial condition, or which could adversely affect the
ability of the Company to perform its obligations under the Loan Documents. No
Event of Default or event that, with the giving of notice or lapse of time, or
both, could become an Event of Default, has occurred and is continuing.
Section 5.21 Title to Properties. The Company has good, marketable and
indefeasible title to, rights in and the power to transfer its properties and
assets, including the Collateral and the properties and assets reflected in the
financial statements described in Section 5.19, subject to no Lien, mortgage,
pledge, encumbrance or charge of any kind, other than Permitted Liens. The
Company has not agreed or consented to cause any of its properties or assets
whether owned now or hereafter acquired to be subject in the future (upon the
happening of a contingency or otherwise) to any Lien, mortgage, pledge,
encumbrance or charge of any kind other than Permitted Liens. All of the
Collateral, and all other property and assets of the Company that are necessary
to the conduct of the Company's business, is owned by the Company or the rights
to same are held by the Company in its name, and none of the Collateral, or any
such property or assets are owned or the rights thereto held in the name of any
other entity.
Section 5.22 Taxes. The Company has filed, or has obtained extensions for the
filing of, all federal, state and other tax returns which are required to be
filed, and has paid all taxes shown as due on those returns and all assessments,
fees and other amounts due as of the date of this Agreement. All tax liabilities
of the Company are adequately provided for on the Company's books. No tax
liability has been asserted by the Internal Revenue Service or other taxing
authority against the Company for taxes in excess of those already paid.
Section 5.23 Securities and Banking Laws and Regulations. The use of the
proceeds of the Bridge Loans and the Company's issuance of the Bridge Notes will
not directly or indirectly violate or result in a violation of the Securities
Act, or the Exchange Act, or any regulations issued pursuant thereto, including
without limitation Regulations U, T or X of the Board of Governors of the
Federal Reserve System. The Company is not engaged in the business of extending
credit for the purpose of the purchasing or carrying "margin stock" within the
meaning of those regulations. No part of the proceeds of the Loan under this
Agreement will be used to purchase or carry any margin stock or to extend credit
to others for such purpose.
Section 5.24 Places of Business. As of the Closing Date, the only places of
business of the Company, and the places where it keeps and intends to keep the
Collateral and records concerning the Collateral, are at the addresses set forth
in Schedule 5.24. Schedule 5.24 also lists the owner of record of each such
property. The Company's Chief Executive Office is located in the state and at
the address shown in Schedule 5.24.
Section 5.25 Material Facts. Neither this Agreement nor any other Loan Document
nor any other agreement, document, certificate, or statement furnished to the
Lenders by or on behalf of the Company in connection with the transactions
contemplated by this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements contained in
this Agreement or other Loan Document not misleading. There is no fact known to
the Company that adversely affects or in the future may adversely affect the
business, operations, affairs or financial condition of the Company, or any of
its properties or assets.
Section 5.26 Investments, Guarantees, and Certain Contracts. The Company does
not own or hold any equity or long-term debt investments in, have any
outstanding advances to, have any outstanding guarantees for the obligations of,
or have any outstanding borrowings from, any Person, except to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, with respect to the loan, and the mortgage securing, the
Company's real property in West Berlin, New Jersey and, as described in the SEC
Reports. The Company is not a party to any contract or agreement, or subject to
any corporate restriction, which adversely affects its business.
Section 5.27 Names. Within five years before the date of this Agreement, the
Company has not conducted business under or used any other name (whether
corporate, partnership or assumed) other than as shown on Schedule 5.24. The
Company is the sole owner of all names listed on that Schedule and any and all
business done and invoices issued in such names are the Company's sales,
business, and invoices. Each trade name of the Company represents a division or
trading style of the Company and not a separate Person or independent Affiliate.
Section 5.28 Accounts. Each Lender may rely, on all statements and
representations made by the Company with respect to any Account or Accounts.
Unless otherwise indicated in writing to the Lenders, with respect to each
Account, the Company represents that:
(a) The Account is genuine and in all respects what it purports to be, and is
not evidenced by a judgment;
(b) The Account arises out of a completed, bona fide sale and delivery of goods
or rendition of services by the Company in the ordinary course of its business
and in accordance with the terms and conditions of all purchase orders,
contracts, certification, participation, certificate of need, or other documents
relating thereto and forming a part of the contract between the Company and the
Account Debtor;
(c) The Account is for a liquidated amount maturing as stated in a duplicate
claim or invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to the Lenders;
(d) The Account, and each Lender's security interest in such Account, is not,
and will not (by voluntary act or omission by the Company), be in the future,
subject to any offset, Lien, deduction, defense, dispute, counterclaim or any
other adverse condition, and each such Account is absolutely owing to the
Company and is not contingent in any respect or for any reason;
(e) There are no facts, events or occurrences which in any way impair the
validity or enforceability of any Accounts or tend to reduce the amount payable
thereunder from the face amount of the claim or invoice and statements delivered
to the Lenders with respect thereto;
(f) To the best of the Company's knowledge, (i) the Account Debtor under the
Account had the capacity to contract at the time any contract or other document
giving rise to the Account was executed and (ii) such Account Debtor is solvent;
(g) To the best of the Company's knowledge, there are no proceedings or actions
which are threatened or pending against any Account Debtor under the Account
which might result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account;
(h) The Account has been billed and forwarded to the Account Debtor for payment
in accordance with applicable laws and compliance and conformance with any and
requisite procedures, requirements and regulations governing payment by such
Account Debtor with respect to such Account is properly payable directly to the
Company; and
(i) The Company has obtained and currently has all licenses, permits and
authorizations that are necessary in the generation of such Accounts.
(j) The sale of goods and services giving rise to the Account have been
delivered and completed by the Company (with no ongoing service or other ongoing
obligations of the Company other than fulfillment of the Company's standard
warranties) and the Account is not part of a "progressive billing" arrangement.
Section 5.29 Solvency. Both before and after giving effect to the transactions
contemplated by the terms and provisions of this Agreement, the Company (a) owns
property whose fair saleable value is greater than the amount required to pay
all of the Company's Indebtedness (including contingent debts), (b) was and is
able to pay all of its Indebtedness as such Indebtedness matures, and (c) had
and has capital sufficient to carry on its business and transactions and all
business and transactions in which it about to engage. For purposes of this
Agreement, the term "Indebtedness" means, without duplication (x) all items
which in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet of the Company as of the date
on which Indebtedness is to be determined, (y) all obligations of any other
person or entity which the Company has guaranteed, and (z) the Obligations.
Section 5.30 FDA Compliance. Without limiting the generality of Section 5.11 or
any other provision hereof, the Company (a) has cured all deficiencies,
violations and failures detailed in the letter dated July 10, 2001 from the Food
and Drug Administration ("FDA") to the Company and all subsequent correspondence
from the FDA related thereto, (b) is not aware of any facts, events or
circumstances that, with the giving of notice or the passage of time, or both,
could cause the Company to fail to be in compliance with all matters raised by
the FDA in such July 10, 2001 letter, (c) the Company has received no further
notices of deficiencies, violations or failures from the FDA, and (d) no
customer of the Company has threatened or asserted any right of offset,
recoupment or other defense to its payment obligations to the Company by reason
of the matters cited by the FDA in the letter dated July 10, 2001.
Section 5.31 Reports. The Company has timely filed or caused to be timely filed,
all cost reports and other reports of every kind whatsoever required by law or
by written or oral contracts or otherwise to have been filed or made with
respect to the Company, the Collateral and the Company's products and services.
Except as disclosed in the SEC Reports, there are no claims, actions or appeals
pending (and the Company has not filed any claims or reports which should result
in any such claims, actions or appeals) before any commission, board, agency or
other Governmental Authority, including, without limitation, any intermediary or
carrier, the Provider Reimbursement Review Board, the Administrator of the
Centers for Medicare and Medicaid Services (formerly known as the Health Care
Financing Administration) or the Food and Drug Administration, with respect to
the Company, its products or services, or any state or federal reports or claims
filed by the Company, or any disallowance or assertion of a violation, failure
or deficiency by any commission, board, agency or other Governmental Authority
in connection with any audit of such reports. Except as disclosed in the SEC
Reports, no validation review, program integrity review or other review,
inspection or investigation related to the Company, its products or services or
the consummation of the transactions contemplated herein, or related to the
Facility or the Collateral, have been conducted by any commission, board, agency
or other Governmental Authority, and to the knowledge of the Company, no such
reviews, inspections or investigations are scheduled, pending or threatened
against or affecting the Company, its products or services, any of the
providers, or any of the Facility or the Collateral, or the consummation of the
transactions contemplated hereby.
Section 5.32 Compliance With Health Care Laws. Except as disclosed in the SEC
Reports, without limiting the generality of Section 5.11 or any other
representation or warranty made herein, to the Company's knowledge, the
Facility, and each of its licensed employees and contractors (other than
contracted agencies) in the exercise of their respective duties on behalf of the
Facility, and the Company's products and services, are in compliance with all
applicable statutes, laws, ordinances, rules and regulations of any Governmental
Authority pertaining to or in any way governing the Company, the Facilities and
the Company's products and services (including without limitation Section
1128B(b) of the Social Security Act, as amended, 42 U.S.C. Section 1320a-7(b)
(Criminal Penalties Involving Medicare or State Health Care Programs), commonly
referred to as the "Federal Anti-Kickback Statute," and the Social Security Act,
as amended, Section 1877, 42 U.S.C Section 1395nn (Prohibition Against Certain
Referrals), commonly referred to as "▇▇▇▇▇ Statute" (collectively, "Healthcare
Laws")). Except as disclosed in the SEC Reports, the Company has maintained in
all material respects all records required to be maintained by the Joint
Commission on Accreditation of Healthcare Organizations, the Food and Drug
Administration, Drug Enforcement Agency and State Boards of Pharmacy and the
federal and state Medicare and Medicaid programs as required by the Healthcare
Laws and, to the knowledge of the Company, there are no presently existing
circumstances which would result or likely would result in material violations
of the Healthcare Laws. Except as disclosed in the SEC Reports, the Company and
its Affiliates and the owners of the facilities and other businesses managed by
the Company or its Affiliates have such permits, licenses, franchises,
certificates and other approvals or authorizations of governmental or regulatory
authorities as are necessary under applicable law to own their respective
properties and to conduct their respective business and sell their respective
products and services (including without limitation such permits as are required
under such federal, state and other health care laws, and under such HMO or
similar licensure laws and such insurance laws and regulations, as are
applicable thereto), and with respect to those facilities and other businesses
that participate in Medicare and/or Medicaid, to receive reimbursement under
Medicare and Medicaid. Except as disclosed in the SEC Reports, to the Company's
knowledge, there currently exist no material restrictions, deficiencies,
required plans of correction actions or other such remedial measures with
respect to federal and state certifications or licensure.
Section 5.33 HIPAA Compliance. To the extent that and for so long as the Company
is a "covered entity" within the meaning of HIPAA, the Company (i) has
undertaken or will promptly undertake all necessary surveys, audits,
inventories, reviews, analyses and/or assessments (including any necessary risk
assessments) of all areas of its business and operations required by HIPAA
and/or that could be adversely affected by the failure of the Company to be
HIPAA Compliant (as defined below); (ii) has developed or will promptly develop
a detailed plan and time line for becoming HIPAA Compliant (a "HIPAA Compliance
Plan"); and (iii) has implemented or will implement those provisions of such
HIPAA Compliance Plan in all material respects necessary to ensure that the
Company is or becomes HIPAA Compliant. For purposes hereof, "HIPAA Compliant"
shall mean that the Company (x) is or will be in compliance with each of the
applicable requirements of the so-called "Administrative Simplification"
provisions of HIPAA on and as of each date that any part thereof, or any final
rule or regulation thereunder, becomes effective in accordance with its or their
terms, as the case may be (each such date, a "HIPAA Compliance Date") and (y) is
not and could not reasonably be expected to become, as of any date following any
such HIPAA Compliance Date, the subject of any civil or criminal penalty,
process, claim, action or proceeding, or any administrative or other regulatory
review, survey, process or proceeding (other than routine surveys or reviews
conducted by any government health plan or other accreditation entity) that
could result in any of the foregoing or that could reasonably be expected to
adversely affect the Company's business, operations, assets, properties or
condition (financial or otherwise), in connection with any actual or potential
violation by the Company of the then effective provisions of HIPAA.
Article 6
CLOSING AND CONDITIONS OF LENDING
Section 6.1 Conditions Precedent to Agreement. The obligation of each
Lender to make a Bridge Loan is subject to the following conditions precedent:
(a) The Lenders shall have received one (1) original of this Agreement, any
Guaranty and all other Loan Documents required to be executed and delivered at
or before Closing, executed by the Company.
(b) Each Lender shall have received all searches required by Section 4.5.
(c) The Company shall have complied and shall then be in compliance with all the
terms, covenants and conditions of the Loan Documents.
(d) There shall have occurred and be continuing no Event of Default and no event
that, with the giving of notice or the lapse of time, or both, could constitute
such an Event of Default.
(e) Lenders shall have received copies of all board of directors resolutions,
consents of members and managers and consents of partners of the Company, and
other action taken by the Company to authorize the execution, delivery and
performance of the Loan Documents and the borrowing of the Bridge Loan under the
Loan Documents, as well as the names and signatures of the officers of, members
and managers of and partners of the Company authorized to execute documents on
its behalf in connection with the transactions contemplated hereby, all as also
certified as of the date of this Agreement by the Company's chief financial
officer, or equivalent, and such other papers as Lender may require.
(f) Each Lender shall have received (i) copies, certified as true, correct and
complete by the applicable state of organization of the Company, of the
certificate of incorporation, certificate of formation or certificate of limited
liability partnership of the Company, with any amendments to any of the
foregoing, (ii) copies, certified as true, correct and complete by an authorized
officer, member or partner of the Company, of all other documents necessary for
performance of the obligations of the Company under this Agreement and the other
Loan Documents, and (iii) certificates of good standing for the Company issued
by the state of organization of the Company and Guarantor and by each state in
which the Company is doing and currently intends to do business for which
qualification is required.
(g) The Company shall have delivered to each Lender reports and lists
satisfactory to the Lender in their sole discretion, with respect to the value
and nature of any property which is Collateral, including, without limitation,
the Accounts, the Inventory and the Equipment.
(h) Each Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered under
this Agreement, or with respect to the Collateral, such additional information
as may be reasonably requested by a Lender.
(i) The representations and warranties on the part of the Company contained in
Article V of this Agreement shall be true and correct in all respects (except to
the extent that such representations and warranties expressly relate solely to
an earlier date).
(j) No adverse change in the condition (financial or otherwise), properties,
business, or operations of the Company shall have occurred and be continuing
with respect to the Company since the date of this Agreement.
(k) The Company shall have duly authorized and issued the Warrants and shall
have executed and delivered the Warrants to each Lender.
Section 6.2 Closing. Subject to the conditions of this Article VI, the Bridge
Loans shall be made on the date as is mutually agreed by the parties (the
"Closing Date"), at such time as may be mutually agreeable to the parties upon
the execution of this Agreement (the "Closing") and at such place as may be
requested by the Lenders.
Section 6.3 Waiver of Rights. By completing the Closing under this Agreement,
neither Lender waives a breach of any representation or warranty of the Company
under this Agreement or under any other Loan Document, and all of each Lender's
claims and rights resulting from any breach or misrepresentation by the Company
are specifically reserved the Lenders.
Article 7
AFFIRMATIVE COVENANTS
Section 7.1 Maintenance of Existence.
(a) The Company shall at all times preserve, renew and keep in full, force and
effect its corporate existence and rights and franchises with respect thereto
and maintain in full force and effect all permits, licenses, trademarks,
tradenames, approvals, authorizations, leases and contracts necessary to carry
on the business as presently or proposed to be conducted.
(b) The Company shall not change its name unless each of the following
conditions is satisfied: (i) each Lender shall have received not less than
thirty (30) days prior written notice from the Company of such proposed change
in its corporate name, which notice shall accurately set forth the new name; and
(ii) each Lender shall have received a copy of the amendment to the Certificate
of Incorporation of the Company providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation or organization of the
Company as soon as it is available.
(c) The Company shall not change its chief executive office or its mailing
address or organizational identification number (or if it does not have one,
shall not acquire one) unless each Lender shall have received not less than
thirty (30) days' prior written notice from the Company of such proposed change,
which notice shall set forth such information with respect thereto as the
Lenders may require and the Lender shall have received such agreements as each
Lender may reasonably require in connection therewith. The Company shall not
change its type of organization, jurisdiction of organization or other legal
structure.
Section 7.2 New Collateral Locations. The Company may only open any new location
within the continental United States provided the Company (a) gives Lender
thirty (30) days prior written notice from Borrower of the intended opening of
any such new location and (b) executes and delivers, or causes to be executed
and delivered, to each Lender such agreements, documents, and instruments as
Lender may deem necessary or desirable to protect its interests in the
Collateral at such location.
Section 7.3 Insurance. The Company shall, and shall cause any of its
subsidiaries to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
satisfactory to the Lenders as to form, amount and insurer. The Company shall
furnish certificates, policies or endorsements to the Lenders as the Lenders
shall require as proof of such insurance, and, if the Company fails to do so,
each Lender is authorized, but not required, to obtain such insurance at the
expense of the Company. All policies shall provide for at least thirty (30) days
prior written notice to Lenders of any cancellation or reduction of coverage and
that each Lender may act as attorney for the Company in obtaining, and at any
time an Event of Default exists or has occurred and is continuing, adjusting,
settling, amending and canceling such insurance. The Company shall cause each
Lender to be named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and the Company shall
obtain non-contributory lender's loss payable endorsements to all insurance
policies in form and substance satisfactory to Lender. Such Lender's loss
payable endorsements shall specify that the proceeds of such insurance shall be
payable to each Lender as its interests may appear and further specify that each
Lender shall be paid regardless of any act or omission by the Company or any of
its Affiliates. At its option, each Lender may apply any insurance proceeds
received by such Lender at any time to the cost of repairs or replacement of
Collateral and/or to payment of the Obligations, whether or not then due, in any
order and in such manner as Lender may determine or hold such proceeds as cash
collateral for the Obligations.
Section 7.4 Inventory Covenants. With respect to the Inventory: (a) the Company
shall at all times maintain inventory records reasonably satisfactory to the
Lenders, keeping correct and accurate records itemizing and describing the kind,
type, quality and quantity of Inventory, the Company's cost therefor and daily
withdrawals therefrom and additions thereto; (b) the Company shall conduct a
physical count of the Inventory at any time or times as a Lender may request on
or after an Event of Default, and promptly following such physical inventory
shall supply each Lender with a report in the form and with such specificity as
may be reasonably satisfactory to each Lender concerning such physical count;
(c) the Company shall not remove any Inventory from the locations set forth or
permitted herein, without the prior written consent of the Lenders, except for
sales of Inventory in the ordinary course of the Company's business and except
to move Inventory directly from one location set forth or permitted herein to
another such location and except for Inventory shipped from the manufacturer
thereof to the Company which is in transit to the locations set forth or
permitted herein; (d) the Company shall produce, use, store and maintain the
Inventory with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto); (e) none of the Inventory or
other Collateral constitutes farm products or the proceeds thereof; (f) the
Company assumes all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (g) the Company
shall keep the Inventory in good and marketable condition.
Section 7.5 Equipment Covenants. With respect to the Equipment: (a) the Company
shall keep the Equipment in good order, repair, running and marketable condition
(ordinary wear and tear excepted); (b) the Company shall use the Equipment with
all reasonable care and caution and in accordance with applicable standards of
any insurance and in conformity with all applicable laws; (c) the Equipment is
and shall be used in the Company's business and not for personal, family,
household or farming use; (d) the Company shall not remove any Equipment from
the locations set forth or permitted herein, except to the extent necessary to
have any Equipment repaired or maintained in the ordinary course of the business
of the Company or to move Equipment directly from one location set forth or
permitted herein to another such location and except for the movement of motor
vehicles used by or for the benefit of the Company in the ordinary course of
business; (e) the Equipment is now and shall remain personal property and the
Company shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (f) the Company assumes all responsibility and
liability arising from the use of the Equipment.
Section 7.6 Financing Statements. The Company shall provide to each Lender
evidence satisfactory to each Lender as to the due recording of termination
statements, releases of collateral, and Forms UCC-3, and shall cause to be
recorded financing statements on Form UCC-1, duly executed by the Company and
each Lender, in all places necessary to release all existing security interests
and other Liens in the Collateral (other than as permitted by this Agreement)
and to perfect and protect each Lender's first priority Lien and security
interest in the Collateral, as the Lenders may request.
Section 7.7 Further Assurances. At the request of any Lender at any time and
from time to time, the Company shall, at its expense, duly execute and deliver,
or cause to be duly executed and delivered, such further agreements, documents
and instruments, and do or cause to be done such further acts as may be
necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Loan Documents.
Article 8
NEGATIVE COVENANTS
The Company covenants and agrees that until payment in full of the
Bridge Notes and performance of all other obligations of the Company under the
Loan Documents:
Section 8.1 Borrowing. The Company will not create, incur or assume any
liability for Borrowed Money except: (a) indebtedness to a Lender; (b)
borrowings incurred in the ordinary course of its business and not exceeding
$100,000.00 in the aggregate outstanding at any one time; (c) indebtedness
secured by Permitted Liens; (d) any financing secured solely by the Company's
real property in West Berlin, New Jersey provided that such financing does not
exceed $750,000 in principal amount and provides for a maturity date of no
earlier than that date which is one year after the latest expiration date of
this Agreement; and (e) any refinancing of the Company's outstanding
indebtedness to Medtronic which increases the principal amount of such
indebtedness by not more than the amount of accrued and unpaid interest thereon,
which indebtedness, in any event, shall not exceed $4 million in the aggregate.
Section 8.2 No Liens and Encumbrances; No Disposition of the Collateral. Neither
Lender authorizes, and the Company agrees not to: (a) create, incur or assume
any mortgage, pledge, Lien or other encumbrance of any kind (including the
charge upon property purchased under a conditional sale or other title retention
agreement) upon, or any security interest in, any of its Collateral, whether now
owned or hereafter acquired, except for Permitted Liens; (b) make any sale or
leases of any of the Collateral (except in the ordinary course of its business);
or (c) license any of the Collateral.
Section 8.3 Sale and Leaseback. The Company will not, directly or indirectly,
enter into any arrangement whereby the Company sells or transfers all or any
part of its assets and thereupon and within one year thereafter rents or leases
the assets so sold or transferred without prior written notice to and the prior
written consent of the Lenders, which consent shall not be unreasonably
withheld.
Section 8.4 Contingent Liabilities. The Company will not assume, guarantee,
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
Section 8.5 Subsidiaries. The Company will not form any subsidiary (other than
the Existing Subsidiaries), or make any investment in or any loan in the nature
of an investment to, any other Person (other than investments already existing
in the Existing Subsidiaries).
Section 8.6 Contracts and Agreements. The Company will not become or be a party
to any contract or agreement which would breach this Agreement, or breach any
other instrument, agreement, or document to which the Company is a party or by
which it is or may be bound.
Section 8.7 Certain Fundamental Changes. The Company will not, without providing
the Lenders with thirty (30) days' prior written notice, change the state of its
formation or change its legal name.
Article 9
EVENTS OF DEFAULT
Section 9.1 Events of Default. Each of the following (individually, an "Event of
Default" and collectively, the "Events of Default") shall constitute an event of
default under this Agreement:
(a) A default in the payment of any principal of, or interest upon, any Bridge
Note when due and payable, whether at maturity or otherwise, which default or
breach, as applicable, shall have continued unremedied for a period of five (5)
days after written notice of the default or breach from any Lender to the
Company;
(b) A default in the due observance or performance by the Company of the other
Obligations or any other term, covenant or agreement contained in any of the
Loan Documents, which default shall have continued unremedied for a period of
fifteen (15) days after written notice of the default from any Lender to the
Company;
(c) Any representation or warranty made by the Company in this Agreement or in
any of the other Loan Documents, any financial statement, or any statement or
representation made in any other certificate, report or opinion delivered in
connection with this Agreement or the other Loan Documents proves to have been
incorrect or misleading in any material respect when made;
(d) Any obligation of the Company (other than its Obligations under this
Agreement) for the payment of Borrowed Money is not paid when due or within any
applicable grace period, or such obligation becomes or is declared to be due and
payable before the expressed maturity of the obligation, or there shall have
occurred an event that after expiration of any applicable grace period remains
uncured;
(e) The Company makes an assignment for the benefit of creditors, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter conducted by the Company;
(f) The Company or any Guarantor (i) files a petition in bankruptcy, (ii) is
adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any
receiver of or any trustee for itself or any substantial part of its property,
(iii) commences any proceeding relating to itself under any reorganization,
arrangement, readjustment or debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or any such proceeding is
commenced against the Company or any Guarantor and such proceeding remains
undismissed for a period of sixty (60) days, (iv) by any act indicates its
consent to, approval of, or acquiescence in, any such proceeding or the
appointment of any receiver of or any trustee for the Company or Guarantor or
any substantial part of its property, or suffers any such receivership or
trusteeship to continue undischarged for a period of sixty (60) days, or (v)
admits in writing its inability to pay its debts as they become due;
(g) One or more (i) final judgments against the Company or attachments against
its property in each case, obligating the Company to pay in excess of $100,000
in the aggregate, shall be rendered by a court, arbitrator, arbitration panel,
mediator or any individual(s) or entity with the authority to issue binding
judgments against the Company or (ii) final settlements by or on behalf of the
Company of any pending litigation, arbitration or other claim or otherwise
disputed matter, which obligate the Company to pay in excess of $100,000 in the
aggregate and which are not otherwise fully covered by insurance with respect to
the amount in excess of $100,000, shall remain unpaid, unstayed on appeal,
undischarged, unbonded and undismissed for a period of twenty (20) days;
(h) There shall occur any uninsured damage to or loss, theft or destruction of
any portion of the tangible Collateral that exceeds $500,000 in the aggregate;
(i) The Company ceases any material portion of its business operations as
currently conducted, it being acknowledged and agreed that closing of its
Existing Subsidiaries at any time hereafter shall not be deemed to be a ceasing
of a material portion of its business;
(j) Any indication or evidence is received by any Lender that the Company may
have directly or indirectly been engaged in any type of activity which, in a
Lender's discretion, may result in the forfeiture of any property of the Company
to any Governmental Authority, which default shall have continued unremedied for
a period of sixty (60) days after written notice from Lender;
(k) The Company or any Affiliate of the Company, shall challenge or contest, in
any action, suit or proceeding, the validity or enforceability of this
Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to any Lender;
(l) The Company shall be criminally indicted or convicted under any law that
could lead to a forfeiture of any Collateral; or
(m) There shall occur a material adverse change in the financial condition or
business prospects of the Company, or if a Lender in good ▇▇▇▇▇ ▇▇▇▇▇ itself
insecure as a result of acts or events bearing upon the financial condition of
the Company or the repayment of the Bridge Notes, which default shall have
continued unremedied for a period of twenty (20) days after written notice from
Lender.
Section 9.2 Acceleration. Upon the occurrence of any of the foregoing Events of
Default, the Obligations under the Bridge Notes shall become and be immediately
due and payable upon declaration to that effect delivered by a Lender to the
Company.
Section 9.3 Remedies.
(a) Upon the occurrence of and during the continuance of an Event of Default
under this Agreement or the other Loan Documents, each Lender, in addition to
all other rights, options, and remedies granted to the Lenders under this
Agreement or at law or in equity, may take any of the following steps (which
list is given by way of example and is not intended to be an exhaustive list of
all such rights and remedies):
(i) Exercise all other rights granted to it under this Agreement and all rights
under the UCC in effect in the applicable jurisdiction(s) and under any other
applicable law; and
(ii) Exercise all rights and remedies under all Loan Documents now or hereafter
in effect, including but not limited to:
(A) The right to take possession of, send notices regarding, and collect
directly the Collateral, with or without judicial process;
(B) The right to (by its own means or with judicial assistance) enter any of the
Company's premises and take possession of the Collateral, or render it unusable,
or dispose of the Collateral on such premises in compliance with subsection (C)
below, without any liability for rent, storage, utilities, or other sums, and
the Company shall not resist or interfere with such action;
(C) The right to require the Company at the Company's expense to assemble all or
any part of the Collateral and make it available to each Lender at any place
designated by the Lenders; and
(D) The right to enforce the Company's rights against Account Debtors and other
obligors, including, but not limited to, the right to collect Accounts directly
in Lender's own name and to charge the collection costs and expenses, including
attorneys' fees, to the Company.
(b) The Company agrees that a notice received by it at least five (5) days
before the time of any intended public sale, or the time after which any private
sale or other disposition of the Collateral is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. If permitted by applicable
law, any perishable Collateral which threatens to speedily decline in value or
which is sold on a recognized market may be sold immediately by the Lenders
without prior notice to the Company. At any sale or disposition of Collateral,
Lenders may (to the extent permitted by applicable law) purchase all or any part
of the Collateral, free from any right of redemption by the Company, which right
is hereby waived and released. The Company covenants and agrees not to interfere
with or impose any obstacle to any Lender's exercise of its rights and remedies
with respect to the Collateral. Lenders shall have no obligation to clean-up or
otherwise prepare the Collateral for sale. Lenders may comply with any
applicable state or federal law requirements in connection with a disposition of
the Collateral and compliance will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral. Lenders may sell the
Collateral without giving any warranties as to the Collateral. Lenders may
specifically disclaim any warranties of title or the like. This procedure will
not be considered to adversely affect the commercial reasonableness of any sale
of the Collateral. If any Lender sells any of the Collateral upon credit, the
Company will be credited only with payments actually made to the Lenders,
received by Lenders and applied to the indebtedness of the Lenders. In the event
the Lenders fail to pay for the Collateral, Lenders may resell the Collateral,
and the Company shall be credited with the proceeds of the sale.
(c) Neither Lender shall have any obligation to marshal any assets in favor of
the Company, or against or in payment of the Bridge Notes, any of the other
Obligations or any other obligation owed to a Lender by the Company or any other
person.
Section 9.4 Nature of Remedies. Each Lender shall have the right to proceed
against all or any portion of the Collateral to satisfy in any order the
liabilities and Obligations of the Company or any of its subsidiaries or
Affiliates to a Lender or any Affiliate of a Lender under this Agreement or any
other loan documents evidencing financings provided to the Company. All rights
and remedies granted to the Lenders under this Agreement and under any agreement
referred to in this Agreement, or otherwise available at law or in equity, shall
be deemed concurrent and cumulative, and not alternative remedies, and each
Lender may proceed with any number of remedies at the same time until the Bridge
Loans, and all other existing and future liabilities and obligations of the
Company to the Lenders, are satisfied in full. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy, and
each Lender, upon the occurrence of an Event of Default, may proceed against the
Company, and/or the Collateral, at any time, under any agreement, with any
available remedy and in any order. All sums received from the Company and/or the
Collateral in respect of the Bridge Loans may be applied by a Lender to the any
other liabilities and obligations of the Company under the Loan Documents in
such order of application and in such amounts as the Lenders shall deem
appropriate in their sole and absolute discretion. The Company waives any right
it may have to require a Lender to pursue any Person for any of the Obligations.
Article 10
MISCELLANEOUS
Section 10.1 Expenses and Taxes.
(a) The Company agrees to pay, whether or not the Closing occurs, a reasonable
documentation preparation fee, together with actual legal, audit and appraisal
fees and all other out-of-pocket charges and expenses incurred by the Lenders in
connection with the negotiation, preparation, legal review and execution of each
of the Loan Documents, including but not limited to UCC and judgment lien
searches and UCC and other lien filings and fees for post-Closing UCC and
judgment lien searches. In addition, the Company shall pay all such fees
associated with any amendments, modifications and terminations to the Loan
Documents following Closing.
(b) The Company also agrees to pay all out-of-pocket charges and expenses
incurred by each Lender (including the fees and expenses of Lenders' counsel) in
connection with the enforcement, protection or preservation of any right or
claim of each Lender, the termination of this Agreement, the termination of any
Liens of the Lenders on the Collateral, or the collection of any amounts due
under the Loan Documents.
(c) The Company shall pay all taxes (other than taxes based upon or measured by
a Lender's income or revenues or any personal property tax), if any, in
connection with the issuance of the Bridge Notes and the recording of the
security documents therefor. The obligations of the Company under this clause
(c) shall survive the payment of the Company's indebtedness under this Agreement
and the termination of this Agreement.
Section 10.2 Entire Agreement; Amendments. This Agreement and the other Loan
Documents constitute the full and entire understanding and agreement among the
parties with regard to their subject matter and supersede all prior written or
oral agreements, understandings, representations and warranties made with
respect thereto. No amendment, supplement or modification of this Agreement nor
any waiver of any provision thereof shall be made except in writing executed by
the party against whom enforcement is sought.
Section 10.3 No Waiver; Cumulative Rights. No waiver by any party to this
Agreement of any one or more defaults by the other party in the performance of
any of the provisions of this Agreement shall operate or be construed as a
waiver of any future default or defaults, whether of a like or different nature.
No failure or delay on the part of any party in exercising any right, power or
remedy under this Agreement, nor acceptance of partial performance or partial
payment, shall operate as a waiver of such right, power or remedy nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise of such right, power or remedy or the exercise of any other
right, power or remedy. The remedies provided for in this Agreement are
cumulative and are not exclusive of any remedies that may be available to any
party to this Agreement at law, in equity or otherwise.
Section 10.4 Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and personally delivered, mailed by
registered or certified mail (return receipt requested and postage prepaid),
sent by telecopier (with a confirming copy sent by regular mail), or sent by
prepaid overnight courier service, and addressed to the relevant party at its
address set forth below, or at such other address as such party may, by written
notice, designate as its address for purposes of notice under this Agreement:
(a) If to the Lenders, at:
c/o EGS Private Healthcare Associates, LLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Abhiject Lele
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
(b) If to the Company, at:
EP MedSystems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ - ▇▇▇▇. D
West Berlin, New Jersey 08091-9293
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
If mailed, notice shall be deemed to be given five (5) days after being sent,
and if sent by personal delivery, telecopier or prepaid courier, notice shall be
deemed to be given when delivered.
Section 10.5 Severability. If any term, covenant or condition of this Agreement,
or the application of such term, covenant or condition to any party or
circumstance shall be found by a court of competent jurisdiction to be, to any
extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall be valid and
enforced to the fullest extent permitted by law.
Section 10.6 Successors and Assigns. This Agreement, the Bridge Notes, the
Warrants, and the other Loan Documents shall be binding upon and inure to the
benefit of the Company and each Lender and their respective successors and
assigns and shall bind all Persons who become bound as a debtor to this
Agreement. Notwithstanding the foregoing, the Company may not assign any of its
rights or delegate any of its obligations under this Agreement without the prior
written consent of the Lenders, which may be withheld in their sole discretion.
Subject to the terms hereof, each Lender may sell, assign, transfer, or
participate any or all of its rights or obligations under this Agreement without
notice to or consent of the Company.
Section 10.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
Section 10.8 Interpretation. No provision of this Agreement or any other Loan
Document shall be interpreted or construed against any party because that party
or its legal representative drafted that provision. The titles of the paragraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. Any pronoun used in this Agreement
shall be deemed to include singular and plural and masculine, feminine and
neuter gender as the case may be. The words "herein," "hereof," and "hereunder"
shall be deemed to refer to this entire Agreement, except as the context
otherwise requires.
Section 10.9 Survival of Terms. All covenants, agreements, representations and
warranties made in this Agreement, any other Loan Document, and in any
certificates and other instruments delivered in connection with this Agreement
shall be considered to have been relied upon by each Lender and shall survive
the making by each Lender of the Bridge Loans contemplated by this Agreement and
the execution and delivery to each Lender of the Bridge Notes, and shall
continue in full force and effect until all liabilities and obligations of the
Company to the Lenders are satisfied in full.
Section 10.10 Release of Lenders. For and in consideration of the Bridge Loans,
the Company, voluntarily, knowingly, unconditionally, and irrevocably, with
specific and express intent, for and on behalf of itself and its agents,
attorneys, heirs, successors, and assigns (collectively the "Releasing Parties")
does hereby fully and completely release, acquit and forever discharge each
Lender, and its successors, assigns, heirs, affiliates, subsidiaries, parent
companies, principals, directors, officers, employees, shareholders and agents
(hereinafter called the "Lender Parties"), and any other person, firm, business,
corporation, insurer, or association which may be responsible or liable for the
acts or omissions of the Lender Parties, or who may be liable for the injury or
damage resulting therefrom (collectively the "Released Parties"), of and from
any and all actions, causes of action, suits, debts, disputes, damages, claims,
obligations, liabilities, costs, expenses and demands of any kind whatsoever, at
law or in equity, whether matured or unmatured, liquidated or unliquidated,
vested or contingent, ▇▇▇▇▇▇ or inchoate, known or unknown that the Releasing
Parties (or any of them) have or may have, against the Released Parties or any
of them (whether directly or indirectly). The Company acknowledges that the
foregoing release is a material inducement to each Lender's decision to extend
to the Company the financial accommodations hereunder and has been relied upon
by each Lender in agreeing to make the Bridge Loans. The foregoing release is
not intended to apply to misappropriation of the Company's funds or failure to
apply the Company's funds to sums due under this Agreement.
Section 10.11 Time. Whenever the Company is required to make any payment or
perform any act on a Saturday, Sunday, or a legal holiday under the laws of the
State of New York (or other jurisdiction where the Company is required to make
the payment or perform the act), the payment may be made or the act performed on
the next Business Day. Time is of the essence in the Company's performance under
this Agreement and all other Loan Documents.
Section 10.12 Commissions. The transactions contemplated by this Agreement was
brought about by the Lenders and the Company acting as principals and without
any brokers, agents, or finders being the effective procuring cause. The Company
represents that it has not committed any Lender to the payment of any brokerage
fee, commission, or charge in connection with this transaction. If any such
claim is made on a Lender by any broker, finder, or agent or other person, the
Company will indemnify, defend, and hold Lender harmless from and against the
claim and will defend any action to recover on that claim, at the Company's cost
and expense, including each Lender's counsel's fees. The Company further agrees
that until any such claim or demand is adjudicated in a Lender's favor, the
amount demanded will be deemed a liability of the Company under this Agreement,
secured by the Collateral.
Section 10.13 Third Parties. No rights are intended to be created under this
Agreement or under any other Loan Document for the benefit of any third party
donee, creditor, or incidental beneficiary of the Company. Nothing contained in
this Agreement shall be construed as a delegation to any Lender of the Company's
duty of performance, including, without limitation, the Company's duties under
any account or contract in which any Lender has a security interest.
Section 10.14 Discharge of the Company's Obligations. Each Lender, in its sole
discretion, shall have the right at any time, and from time to time, without
prior notice to the Company if the Company fails to do so, to: (a) obtain
insurance covering any of the Collateral as required under this Agreement; (b)
pay for the performance of any of the Company's obligations under this
Agreement; (c) discharge taxes, Liens, security interests, or other encumbrances
at any time levied or placed on any of the Collateral in violation of this
Agreement unless the Company is in good faith with due diligence by appropriate
proceedings contesting those items; and (d) pay for the maintenance and
preservation of any of the Collateral. Expenses and advances shall be added to
the Bridge Loans, until reimbursed to the Lenders and shall be secured by the
Collateral. Any such payments and advances by a Lender shall not be construed as
a waiver by a Lender of an Event of Default.
Section 10.15 Indemnity. The Company hereby indemnifies and agrees to defend
(with counsel acceptable to the Lenders) and hold harmless Lender, its partners,
officers, agents and employees (collectively, "Indemnitee") from and against any
liability, loss, cost, expense (including reasonable attorneys' fees and
expenses for both in-house and outside counsel), claim, damage, suit, action or
proceeding ever suffered or incurred by a Lender or in which a Lender may ever
be or become involved (whether as a party, witness or otherwise) (a) arising
from the Company's failure to observe, perform or discharge any of its
covenants, obligations, agreements or duties under this Agreement, (b) arising
from the breach of any of the representations or warranties contained in Article
V of this Agreement, (c) by reason of this Agreement, the other Loan Documents
or the transactions contemplated hereby or thereby, or (d) relating to claims of
any Person with respect to the Collateral. Notwithstanding any contrary
provision in this Agreement, the obligation of the Company under this Section
10.15 shall survive the payment in full of the Obligations and the termination
of this Agreement.
Section 10.16 Lender Approvals. Unless expressly provided herein to the
contrary, any approval, consent, waiver or satisfaction of the Lenders with
respect to any matter that is the subject of this Agreement, the other Loan
Documents may be granted or withheld by the Lenders in their sole and absolute
discretion, and the Lender holding the larger principal amount of a Bridge Loan
made pursuant to the terms hereof shall have the right, as between the Lenders,
to make all decisions on behalf of such Lenders with respect to any such
approval, waiver, satisfaction or consent.
Section 10.17 Further Assurances. The Company hereby agrees that at any time and
from time to time, at the expense of the Company, the Company will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or that the Lenders may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Lender or any of its agents to exercise and enforce
its rights and remedies under this Agreement with respect to any portion of such
Collateral.
Section 10.18 Choice of Law. EXCEPT TO THE EXTENT THAT THE UCC PROVIDES FOR THE
APPLICATION OF THE LAW OF THE COMPANY'S STATE OF ORGANIZATION, THIS AGREEMENT
AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS.
IN WITNESS WHEREOF, intending to be legally bound, and intending that
this Agreement constitutes an instrument executed under seal, the parties have
caused this Agreement to be executed under seal as of the date first written
above.
LENDER:
EGS PRIVATE HEALTHCARE PARTNERSHIP, L.P.
By: EGS Private Healthcare Associates, LLC,
its general partner
By:
------------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: Managing Member
LENDER:
EGS PRIVATE HEALTHCARE COUNTERPART, L.P.
By: EGS Private Healthcare Associates, LLC,
its general partner
By:
------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: Managing Member
THE COMPANY:
EP MEDSYSTEMS, INC.
By: __________________________________________
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
LIST OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Bridge Note
Exhibit B - Form of Warrant
Schedule I - Principal Amount Bridge Loans and Warrants to be
Issued
Schedule 5.24 - Principal Offices; Places of Business; Record Owner;
Chief Executive Office; Names
Schedule I
Principal Amount
of Number of
Bridge Loan Warrants
EGS Private Healthcare Partnership, L.P. $ 875,000 43,750
EGS Private Healthcare Counterpart, L.P. $ 125,000 6,250
--------- -- -----
Total: $1,000,000 50,000
iv
Article 1 DEFINITIONS...................................................................................1
Section 1.1 Account...............................................................................1
Section 1.2 Account Debtor........................................................................1
Section 1.3 Affiliate.............................................................................1
Section 1.4 Agreement.............................................................................1
Section 1.5 Base Rate.............................................................................2
Section 1.6 Borrowed Money........................................................................2
Section 1.7 Bridge Loan...........................................................................2
Section 1.8 Bridge Note...........................................................................2
Section 1.9 Business Day..........................................................................2
Section 1.10 Closing; Closing Date.................................................................2
Section 1.11 Collateral............................................................................2
Section 1.12 Common Stock..........................................................................2
Section 1.13 Default Rate..........................................................................2
Section 1.14 Event of Default......................................................................2
Section 1.15 Excluded Accounts.....................................................................2
Section 1.16 Existing Subsidiaries.................................................................2
Section 1.17 Facility..............................................................................3
Section 1.18 GAAP..................................................................................3
Section 1.19 Governmental Authority................................................................3
Section 1.20 Guarantor.............................................................................3
Section 1.21 Guaranty..............................................................................3
Section 1.22 HIPAA.................................................................................3
Section 1.23 Inventory.............................................................................3
Section 1.24 Lender and Lenders....................................................................3
Section 1.25 Lien..................................................................................3
Section 1.26 Loan Documents........................................................................3
Section 1.27 Maturity Date.........................................................................3
Section 1.28 Obligations...........................................................................3
Section 1.29 Permitted Liens.......................................................................3
Section 1.30 Person................................................................................4
Section 1.31 Warrants..............................................................................4
Article 2 BIDGE LOANS.....................................................................................4
Section 2.1 Issuance and Terms of the Bridge Loans and the Bridge Notes...........................4
Section 2.2 Maturity Date.........................................................................4
Section 2.3 Bridge Note Conversion Mechanics......................................................4
Section 2.4 Redemption and Optional Conversion....................................................4
Section 2.5 Maturity Date Conversion..............................................................5
Section 2.6 Conversion Upon Closing of Other Securities Offerings.................................5
Section 2.7 Issuance of Warrants..................................................................5
Article 3 REPRESENTATIONS AND WARRANTIES OF THE LENDERS..................................................5
Section 3.1 Authorization.........................................................................5
Section 3.2 Purchase Entirely for Own Account.....................................................5
Section 3.3 Investment Experience.................................................................5
Section 3.4 Accredited Investor...................................................................5
Section 3.5 Restricted Securities.................................................................6
Section 3.6 Further Limitations on Disposition....................................................6
Section 3.7 Legends...............................................................................6
Section 3.8 Removal of Legends....................................................................6
Article 4 COLLATERAL.....................................................................................6
Section 4.1 Generally.............................................................................6
Section 4.2 Lien Documents........................................................................7
Section 4.3 Collateral Administration.............................................................8
Section 4.4 Accounts Records......................................................................8
Section 4.5 Searches..............................................................................8
Section 4.6 Power of Attorney.....................................................................8
Article 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................8
Section 5.1 Organization and Good Standing........................................................8
Section 5.2 Authorization.........................................................................9
Section 5.3 No Conflict with Law or Documents.....................................................9
Section 5.4 Capital Stock of the Company..........................................................9
Section 5.5 Valid Issuance of the Warrants........................................................9
Section 5.6 Consents and Approvals................................................................9
Section 5.7 Private Offering.....................................................................10
Section 5.8 Certificate of Incorporation and By-Laws.............................................10
Section 5.9 SEC Filings..........................................................................10
Section 5.10 Litigation...........................................................................10
Section 5.11 Compliance with Laws.................................................................10
Section 5.12 Patents..............................................................................10
Section 5.13 Insurance............................................................................11
Section 5.14 Use of Proceeds......................................................................11
Section 5.15 Environmental Compliance.............................................................11
Section 5.16 Third Party Consents: Business Not in Violation......................................11
Section 5.17 Investment Company...................................................................11
Section 5.18 Permits..............................................................................11
Section 5.19 Financial Condition..................................................................11
Section 5.20 No Default...........................................................................11
Section 5.21 Title to Properties..................................................................12
Section 5.22 Taxes................................................................................12
Section 5.23 Securities and Banking Laws and Regulations..........................................12
Section 5.24 Places of Business...................................................................12
Section 5.25 Material Facts.......................................................................12
Section 5.26 Investments, Guarantees, and Certain Contracts.......................................12
Section 5.27 Names................................................................................12
Section 5.28 Accounts.............................................................................13
Section 5.29 Solvency.............................................................................13
Section 5.30 FDA Compliance.......................................................................14
Section 5.31 Reports..............................................................................14
Section 5.32 Compliance With Health Care Laws.....................................................14
Section 5.33 HIPAA Compliance.....................................................................15
Article 6 CLOSING AND CONDITIONS OF LENDING.............................................................15
Section 6.1 Conditions Precedent to Agreement....................................................15
Section 6.2 Closing..............................................................................16
Section 6.3 Waiver of Rights.....................................................................16
Article 7 AFFIRMATIVE COVENANTS.........................................................................16
Section 7.1 Maintenance of Existence.............................................................16
Section 7.2 New Collateral Locations.............................................................17
Section 7.3 Insurance............................................................................17
Section 7.4 Inventory Covenants..................................................................17
Section 7.5 Equipment Covenants..................................................................17
Section 7.6 Financing Statements.................................................................18
Section 7.7 Further Assurances...................................................................18
Article 8 NEGATIVE COVENANTS............................................................................18
Section 8.1 Borrowing............................................................................18
Section 8.2 No Liens and Encumbrances; No Disposition of the Collateral..........................18
Section 8.3 Sale and Leaseback...................................................................18
Section 8.4 Contingent Liabilities...............................................................18
Section 8.5 Subsidiaries.........................................................................18
Section 8.6 Contracts and Agreements.............................................................19
Section 8.7 Certain Fundamental Changes..........................................................19
Article 9 EVENTS OF DEFAULT.............................................................................19
Section 9.1 Events of Default....................................................................19
Section 9.2 Acceleration.........................................................................20
Section 9.3 Remedies.............................................................................20
Section 9.4 Nature of Remedies...................................................................21
Article 10 MISCELLANEOUS.................................................................................21
Section 10.1 Expenses and Taxes...................................................................21
Section 10.2 Entire Agreement; Amendments.........................................................22
Section 10.3 No Waiver; Cumulative Rights.........................................................22
Section 10.4 Notices..............................................................................22
Section 10.5 Severability.........................................................................23
Section 10.6 Successors and Assigns...............................................................23
Section 10.7 Counterparts.........................................................................23
Section 10.8 Interpretation.......................................................................23
Section 10.9 Survival of Terms....................................................................23
Section 10.10 Release of Lenders...................................................................23
Section 10.11 Time.................................................................................24
Section 10.12 Commissions..........................................................................24
Section 10.13 Third Parties........................................................................24
Section 10.14 Discharge of the Company's Obligations...............................................24
Section 10.15 Indemnity............................................................................24
Section 10.16 Lender Approvals.....................................................................24
Section 10.17 Further Assurances...................................................................25
Section 10.18 Choice of Law........................................................................25