1
Exhibit 10.2
LOAN AGREEMENT
--------------
$5,000,000 Revolving Line of Credit
Agreement dated as of June 14, 1996 between ▇▇▇▇▇▇ and ▇▇▇▇▇▇, D.M.D.,
P.C., a Massachusetts Professional Corporation and First New England Dental
Centers, Inc., a Delaware Corporation both having a principal place of business
at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (collectively, the
"Borrower") and Fleet National Bank with a principal place of business at ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ (the "Bank").
WHEREAS, the Bank has agreed to extend to Borrower a revolving line of
credit in the amount of Five Million and 00/100 ($5,000,000) Dollars (the
"$5,000,000 Revolving Line of Credit") and Borrower has executed a Revolving
Credit Note of even date herewith, (the "$5,000,000 Note");
WHEREAS, Borrower has executed a Security Agreement (All Assets) also of
even date herewith (the "Security Agreement") in order to secure the loans
referenced above;
WHEREAS, Borrower and the Bank desire to set forth the manner and
circumstances in which Borrower may utilize the $5,000,000.00 Revolving Line of
Credit;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, Borrower and the Bank agree as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:
(a) ACCOUNT DEBTOR. The term "Account Debtor" shall mean the person
obligated on an Account Receivable.
(b) ACCOUNTS RECEIVABLE. Except as set forth below the term "Accounts
Receivable" shall mean and include Borrower's accounts receivable and notes,
drafts, acceptances and other instruments representing or evidencing a right to
payment for goods sold or leased or for services rendered whether or not earned
by performance.
(c) BORROWER'S MAIN OPERATING ACCOUNT. The term "Borrower's Main Operating
Account" shall mean the regular deposit account of the Borrower which it will
maintain with the Bank.
(d) BORROWING BASE. The term "Borrowing Base" as of any time shall mean the
amount of $3,000,000 plus the Security Value of Accounts Receivable as of such
time, as determined by the Bank in
1
2
its sole discretion which determination shall be final and binding upon the
Borrower.
(e) CERTIFICATE. The term "Certificate" shall refer to the certificate as
to collateral described in Section 2 hereof, and shall include any accompanying
certificates or documents.
(f) CERTIFIED ACCOUNTS. The term "Certified Account" shall mean an Account
Receivable which has been listed in a Certificate delivered by the Borrower to
the Bank pursuant to the provisions of Section 2 hereof.
(g) COLLATERAL. The term "Collateral" shall mean and include any and all
assets of the Borrower hereinbefore or hereinafter described which at the time
in question is subject to a security interest in favor of the Bank.
(h) DISQUALIFIED ACCOUNT. The term "Disqualified Account" shall mean a
Certified Account in respect of which any of the following events have occurred:
(i) such Certified Account shall have remained unpaid on the ninety-first (91st)
day from the billing invoice date, in the case of all Account Debtors; (ii) any
dispute with respect to such Certified Account or to such goods shall have
arisen between the Borrower and the Account Debtor thereon; (iii) any Account
Debtor thereon shall have become Insolvent (as hereinafter defined); (iv) any
Account Debtor thereon shall be located outside the United States or Canada; (v)
such Certified Account is to be paid by a third party payor and the Bank has not
received documentation satisfactory to the Bank that the right to payment from
said third party payor has been effectively assigned to the Bank; (vi) any
Account Debtor is a federal governmental entity, agency or is otherwise
administered by the federal government; or (vii) the Bank shall have otherwise
excluded such Certified Account in its reasonable discretion.
(i) INSOLVENT. The Borrower or any other person shall be considered to be
"Insolvent" when any of the following events shall have occurred in respect of
the Borrower or any other person: admission in writing of its inability, or be
generally unable, to pay its debts as they become due, dissolution, termination
of existence, cessation of normal business operations, appointment of a receiver
of any part of the property of, legal or equitable assignment, conveyance or
transfer of property for the benefit of creditors by, or the commencement of any
proceedings under any bankruptcy or insolvency laws by or against such person,
provided that if such proceedings are commenced against such person such
commencement shall not be deemed to render such person insolvent, if such
proceedings are dismissed, stayed or discharged within ninety (90) days of their
commencement.
2
3
(j) LOANS. The term "Loan or Loans" shall mean all extensions of credit or
advances made by the Bank to the Borrower referenced above.
(k) OBLIGATIONS. The terms "Obligation" and "Obligations" shall mean any
and all liabilities and obligations of the Borrower to the Bank of every kind
and description, direct or indirect, absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, and includes obligations to
perform acts and refrain from taking action as well as obligations to pay money.
(l) PRIME RATE. The term "Prime Rate" shall mean the rate of interest
announced by the Bank in Boston from time to time as its "Prime Rate."
(m) SECURITY VALUE OF ACCOUNTS RECEIVABLE. The term "Security Value of
Accounts Receivable" as of any time shall mean an amount equal to sixty (60%)
percent of the amounts owing as of that time on all Certified Accounts
(exclusive of Disqualified Accounts). For such purpose, the amount so owing on
Certified Accounts shall mean the face amount of all Certified Accounts in U.S.
Dollars (exclusive of Disqualified Accounts), less all payments thereon, all
allowances, adjustments, discounts and other credits applicable thereto and all
amounts owing by the Borrower to any Account Debtor thereon, all as determined
by the Bank in its sole discretion, which determination shall be final and
binding upon the Borrower.
2. CERTIFICATION OF COLLATERAL. Prior to the making of any Loans beyond an
aggregate total of $3,000,000, the Borrower will deliver to the Bank a
Certificate, in form attached hereto as Exhibit A, or such other form as
approved by the Bank: (a) listing the Borrower's then existing Accounts
Receivable as to which rights have been earned by performance; (b) containing
such information in respect of such Accounts Receivable and any other Collateral
as the Bank may reasonably request; and (c) containing a calculation of the
Borrowing Base as of the date of the Certificate, including information to
support the computation of the Security Value of Accounts Receivable.
Thereafter, at the time the Borrower shall request any Loan and at such times as
the Bank may reasonably request, the Borrower will deliver to the Bank similar
Certificates in respect of all Accounts Receivable of the Borrower as to which
rights have been earned by performance not previously certified to the Bank, and
other information requested by Bank. With each such Certificate, the Borrower
will if requested by the Bank furnish to the Bank a confirmatory assignment of
all or any part of the Collateral described on the Certificate, and such
information as to each Account Receivable identified on the Certificate as the
Bank
3
4
may request, together with a duplicate of the invoice, if any, and all
contracts, guaranties, orders and other documents in respect thereof, or, if the
Bank at any time shall relieve the Borrower of the obligation to furnish such
documents with such Certificates,the Borrower will keep all such documents
segregated and available for inspection by the Bank and will furnish the same to
the Bank upon request.
3. LOANS UNDER THE $5,OOO,OOO.OO REVOLVING LINE OF CREDIT:
(a) Subject to the terms hereof, from time to time the Bank shall, upon
request of Borrower, make Loans to the Borrower under the $5,000,000.00
Revolving Line of Credit in such amounts as the Borrower may request, provided,
however, that the aggregate principal amount of all Loans under the $5,000,000
Revolving Line of Credit at any time outstanding shall not exceed the amount of
$3,000,000.00 until such time as the Bank has received and approved: (i) audited
financial statements for fiscal year 1995; (ii) quarterly financials for the
first quarter of 1996; (iii) revenue/expense breakdowns for all
locations/practices for fiscal year 1995 and the first quarter of fiscal 1996;
(iv) current accounts receivable aging report; (v) fiscal 1996 pro formal income
statement, balance sheet and cash flow statements; and (vi) the Bank and the
Borrower have negotiated mutually satisfactory negotiation of financial
covenants. At such time that the foregoing have been satisfied, the aggregate
principal amount of all Loans under the $5,000,000 Revolving Line of Credit
shall not exceed the amount of the Borrowing Base or $5,000,000, whichever is
less.
(b) Requests for a Loan must be submitted to the Bank and Loan proceeds
shall be deposited by the Bank in Borrower's Main Operating Account.
(c) The outstanding amount of Loans, absent manifest error, shall be
conclusively evidenced by the Bank's records of disbursements and repayments.
4. INTEREST, SERVICE CHARGES, EXPENSES, PAYMENTS UNDER THE $5,000,000.00
REVOLVING LINE OF CREDIT. (a) The Borrower shall pay to the Bank:
(i) Monthly, on the first day of each month, commencing on the first day
of the month next succeeding the month in which this Agreement shall
be entered into, interest at a per annum rate equal to the Prime Rate
in effect from time to time plus two and one-half percent, computed on
a daily basis for the period on the outstanding principal balance
under the $5,000,000.00 Note. Each change in such interest rate shall
take effect simultaneously with the corresponding change in such Prime
Rate. Outstanding principal amounts with interest
4
5
then accrued shall be repaid in full in one (1)year from the date
hereof.
(ii) On demand, all reasonable costs and expenses in connection with the
preparation, execution, delivery, administration and modification of
this Agreement, including the reasonable fees and out-of-pocket
expenses of counsel for the Bank with respect thereto and with respect
to advising the Bank as to its rights and responsibilities under this
Agreement, and all costs and expenses, if any, in connection with the
enforcement of this Agreement or the collection or attempted
collection of any Obligations, any Accounts Receivable or any other
Collateral.
(b) The Borrower shall make each payment required pursuant to this
Agreement on the day when due in lawful money of the United States of America to
the Bank at its address referred to at the beginning of this Agreement in
immediately available funds.
(c) The Borrower hereby authorizes the Bank to charge such payments as they
become due (as well as any and all other amounts at any time owing from the
Borrower to the Bank), if not otherwise paid by the Borrower, to the Borrower's
Main Operating Account or any other account of the Borrower with the Bank as the
Bank may elect.
(d) Interest and other charges shall be paid on the basis of actual days
elapsed and a 360-day year.
(e) An annual facility fee equal to Fifty (50) Basis Points per annum shall
be charged on the Revolving Line of Credit. As of the date hereof $15,000 has
been paid against this fee.
(f) In the event (i) this Revolving Line of Credit is terminated or
cancelled by either Borrower or the Bank; (ii) Borrower refinances with another
lender; or (iii) an initial public offering of stock in either or both Borrowers
is consummated, then Borrower shall pay to the Bank a fee equal to two and
one-half (2.5%) percent of the aggregate amount available to Borrower hereunder
(either $3,000,000 or $5,000,000) with a minimum payment of $75,000 and a
maximum payment of $125,000.
7. AMOUNTS IN EXCESS OF BORROWING BASE. If any time the aggregate amount
owed under the $5,000,000 Revolving Line of Credit exceeds the Borrowing Base,
Borrower shall immediately pay an amount equal to said excess to the Bank, to be
applied against principal amounts due under the $5,000,000 Revolving Line of
Credit in Bank's discretion.
5
6
8. COLLECTIONS OF ACCOUNTS RECEIVABLE, PROCEEDS OF COLLATERAL:
(a) Except as hereinafter provided and as provided in the Security
Agreement of even date entered into in connection herewith, the Borrower is
authorized to collect all Accounts Receivable of the Borrower. Borrower shall
promptly remit all such collections, on the day of receipt thereof, to the Bank
for deposit in Borrower's Main Operating Account.
(b) At such time as there is no availability of funds hereunder, in case of
any return to or repossession by the Borrower of any goods which have given rise
to a Certified Account Receivable, whether or not such goods are damaged, the
Borrower will, with its next report of credits and charge-offs or next Aging
Report delivered to the Bank, also deliver to the Bank either additional
Collateral or Borrower's check in the full face amount of such Account
Receivable.
(c) Without the prior consent of the Bank, the Borrower will not grant any
allowances, adjustments or discounts (other than normal cash discounts on its
invoices not in excess of 15% thereof) or other credits in respect of any
Account Receivable or enter into any agreement or take any other action in
respect thereof except as directed or approved by the Bank, and if any such
allowance, adjustment, discount or other credit is made or granted for any
reasons with respect to any Certified Account, the amount thereof will be
immediately reflected in the Security Value of Accounts Receivable.
9. AGING REPORTS AND OFF-SET REPORTS. At the time the first Certificate is
delivered to the Bank pursuant to the provisions of Section 2 hereof, the
Borrower will also deliver to the Bank an aging report, in form reasonably
approved by the Bank (an "Aging Report"), giving an analysis by months (or such
other periods as may be requested by the Bank) of the age of the Accounts
Receivable listed in such Certificate. Thereafter the Borrower shall furnish
monthly similar Aging Reports covering all Accounts Receivable outstanding as of
the date of such Aging Report. At such times as the Bank shall request, the
Borrower will also furnish to the Bank an off-set report, in form approved by
the Bank, setting forth all amounts owing by the Borrower to any Account Debtor
listed in any Aging Report. Such reports for a calendar month shall be delivered
to the Bank not later than the fifteenth (15th) business day of the succeeding
calendar month.
10. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower
covenants with the Bank that:
6
7
(a) ▇▇▇▇▇▇ and ▇▇▇▇▇▇, D.M.D., P.C. is and shall be duly organized and
validly existing under the laws of the State of Massachusetts.
(b) First New England Dental Centers, Inc. is and shall be duly organized
and validly existing under the laws of the State of Delaware.
(c) The Borrower is duly qualified and in good standing in every state in
which it is doing business.
(d) The execution, delivery and performance of this Agreement and all other
notes, agreements and documents contemplated by this Agreement are valid, legal
and binding obligations of the Borrower, if the Borrower is a corporation are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and are not and will not be in contravention of law,
or will not result in any event of default under the terms of the Borrower's
charter, by-laws, or other corporate powers, or of any indenture, agreement, or
undertaking to which the Borrower is or may be a party or by which it is or may
be bound.
(e) The consent or approval of any governmental body, agency, or authority
is not required in order for the Borrower to execute, deliver and perform this
Agreement and all other notes, agreements and documents contemplated by this
Agreement.
(f) All issued and outstanding capital stock has been properly issued, and
all books and records, particularly minute books, by-laws and books of account
are accurate, and up to date and will be so maintained.
(g) All the representations, warranties and covenants made by Borrower in
the Security Agreement are incorporated herein by reference.
(h) Borrower shall maintain its primary operating deposit account at the
Bank.
(i) The Borrower will maintain and provide the Bank with records and
information as follows:
(i) The Borrower shall permit the Bank and the Bank's
representatives from time to time as the Bank and its
representatives may reasonably request, at the Borrower's
reasonable expense, to examine, inspect, copy and make extracts
from any and all of the Borrower's books, records,
electronically stored data, papers and files in the custody or
control of the Bank or of others, relating to any
7
8
Collateral or relating to the Borrower's financial or business
condition.
(ii) The Borrower will furnish the Bank within ninety (90) days after
the close of each fiscal year: audited fiscal year end
statements for the Borrower including a balance sheet, an income
statement and statement of cash flows (including reasonably
detailed schedules of Cost of Goods Sold and Sales, and General
and Administrative Expenses and sales), and a reconciliation of
surplus and capital accounts by independent certified public
accountants reasonably approved by the Bank, (the current
certified public accountant of the Borrower has been approved by
the Bank) and Personal Property Insurance Binder(s) evidencing
policy renewal (as more fully set forth in the Security
Agreement of even date).
(iii) The Borrower will furnish the Bank, within forty-five (45) days
after the close of each calendar quarter, updated accountant
prepared compilation quality financial statements for the
Borrower similar to those referred to in Subsection (ii) above,
unaudited but certified by the principal financial officer of
the Borrower.
(iv) The Borrower will furnish the Bank on the fifteenth (15th) of
each month an updated Certificate relating to Collateral.
(v) The Borrower will furnish all other information, financial or
otherwise, that a duly authorized lending officer of the Bank
reasonably deems necessary to inform the Bank properly with
respect to Collateral or the condition of the Borrower. The
Borrower will inform the Bank promptly in the event of any
adverse material change in the Borrower's financial condition or
in the event of any breach of this Agreement or in the event
that any of the representations and warranties herein contained
do not continue to be true and correct as though continuously
made to the Bank or in the event of a change in the terms of
sale granted to Borrower's customers.
(j) The Borrower has filed all federal and state tax returns or extensions
therefor required by law to be filed by it as of the date hereof and has paid
all taxes shown to be due thereon which are required to have been paid and has
paid all other taxes known to be due and payable, and all additional assessments
except for
8
9
such as are being contested in good faith by appropriate legal or administrative
proceedings, and there shall be set aside on the books of the Borrower such
reserves as may be deemed adequate by independent certified public accountants
with respect thereto.
(k) The Borrower is not in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in any agreement, instrument, judgment, order, decree, writ, rule or
regulation to which it is a party or by which it or any of its property is
subject which would have a material adverse impact on the business of the
Borrower.
(l) Except as otherwise disclosed to Bank, there are no actions, suits, or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting the Borrower, at law or in equity, or before or by a federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
instrumentality any of which is reasonably likely to result in material adverse
change in the business, properties, or assets, in the condition, financial or
otherwise, of the Borrower, Borrower agrees to notify the Bank of any actions,
suits or proceedings brought against the Borrower involving a claim in excess of
$100,000.
(m) Other than as provided for herein or in the Security Agreement, the
Borrower will not, without the prior written consent of the Bank, incur, create,
assume, or permit to exist other indebtedness for borrowed money ("Other
Indebtedness"), or sell any accounts receivable; or lend money, including loans
to officers, directors, shareholders or partners, or mortgage, assign, or
encumber any of its assets except to the Bank; or guaranty, endorse, or
otherwise become surety for or upon the obligations of others, except endorsing
instruments for deposit or collection in the ordinary course of business and
except for purchase money security interests.
(n) Neither this Agreement nor any financial statements, reports,
schedules, certificates or other documents which have been or will be delivered
to the Bank contain any misrepresentation or untrue statement of fact or omit to
state any material facts necessary to make this Agreement or such financial
statements, reports, schedules, certificates or other documents not misleading.
All such financial statements have been prepared in accordance with generally
accepted accounting principles.
(o) Except as approved by the Bank in writing, the Borrower will not, other
than in the ordinary course of business or in connection with normal replacement
of equipment, sell, lease, transfer or otherwise dispose of (whether in one or a
series of transactions) all or any substantial part of its assets, whether
9
10
now owned or hereafter acquired. It will not without the prior written consent
of the Bank, pay any dividends (except stock dividends) on any outstanding
shares, or make any other distribution on or in respect to any of its shares, or
redeem, purchase or otherwise acquire, directly or indirectly, any of its shares
now or hereafter outstanding, or alter or amend its capital structure, or become
a party to any merger or consolidation (in which the Borrower is not the
surviving corporation AND which is not undertaken as an acquisition or merger in
the ordinary course of Borrower's business, which shall include by definition
the acquisition of dental practices) or make any change in its senior
management.
(p) The Borrower has not incurred nor will it incur any material
accumulated funding deficiency within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA") or any liability to the Pension Benefit
Guaranty Corporation ("PBGC") established under ERISA, or to any successor to
PBGC under ERISA, in connection with any employee benefit plan established or
maintained by the Borrower. No Reportable Event (as defined in ERISA) has
occurred. The Borrower will comply with all requirements of ERISA applicable to
it and will furnish to the Bank as soon as possible and in any event within
thirty days after the Borrower or any plan administrator know or has any reason
to know that any Reportable Event has occurred, a statement describing the
Reportable Event and any action the Borrower proposes to take with respect
thereto.
(q) The terms and conditions of this Loan Agreement shall apply to all
loans from the Bank to the Borrower, including without limitation, all of the
loans referenced on Page 1 of this Loan Agreement and any loans hereinafter
entered into.
11. DEFAULT. The following shall constitute events of default hereunder
(subject to any cure or grace periods provided in the $5,000,000 Note, which
cure or grace periods shall apply hereto):
(a) default of any liability, obligation or undertaking of the Borrower,
hereunder or otherwise, including failure to pay in full and when due
any sum due under either the $5,000,000.00 Note, of any endorser or
guarantor of any liability, obligation or undertaking of the Borrower,
hereunder or otherwise, to the Bank;
(b) default of any liability, obligation or undertaking of the Borrower or
any endorser or guarantor hereof under the provisions of any other
agreement, including any security agreement between the Borrower or
any endorser hereof and the Bank which by its terms relates to the
10
11
obligations of the Borrower or any endorser hereof to the Bank;
(c) if any statement, representation or warranty made in or in connection
with the application for the loans evidenced hereby or in any
supporting financial statement of the Borrower or any endorser hereof
shall be found to have been false in any material respect when made;
(d) if the Borrower or any endorser or guarantor hereof is a corporation,
trust or partnership, the liquidation, termination or dissolution of
any such organization or its ceasing to carry on actively its present
business or the appointment of a receiver of its property;
(e) the institution by or against the Borrower or any guarantor or any
endorser hereof of any proceedings under the Bankruptcy Act or any
other law in which the Borrower, any guarantor or any endorser hereof
is alleged to be insolvent or unable to pay their respective debts as
they mature or the making by the Borrower any guarantor or any
endorser hereof of an assignment for the benefit of creditors provided
the institution of such proceedings against the Borrower shall not be
a default hereunder if such proceedings are stayed, terminated or
dismissed within ninety (90) days of being instituted.
12. REMEDIES. Upon the occurrence of any default hereunder, all
Obligations of Borrower hereunder shall become immediately due and payable and
the Bank shall be entitled to all other rights and remedies, at law or in
equity, available to it pursuant to any document executed in connection
herewith, or under federal or state law.
13. MISCELLANEOUS.
(a) Headings preceding the text of the several sections hereof are for the
convenience of reference only and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction, or effect.
(b) It is intended that this Agreement take effect as a sealed instrument.
(c) This Agreement, including modifications or additions thereto, will be
governed, interpreted, and construed in accordance with the laws of the
Commonwealth of Massachusetts.
11
12
(d) This Agreement shall be binding upon Borrower and its successors,
assigns, executors and administrators, and shall inure to the benefit of the
Bank and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals, all
as of the day and year first written above.
BORROWER:
▇▇▇▇▇▇ and ▇▇▇▇▇▇, D.M.D., P.C.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Its: Treasurer
First New England Dental Centers, Inc.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Its: President and Treasurer
FLEET NATIONAL BANK
By: /s/ Illegible
----------------------------------
Its: Vice President
12