Exhibit 10.1

LOAN AND SECURITY AGREEMENT

This Loan and Security Agreement (this “Agreement”) is executed by and between
Doral Healthcare Finance, 10300 SW Greenburg Rd., Ste 465, Portland, OR 97223, a
division of Doral Money, Inc., a Delaware corporation (“Lender”), and Zynex
Medical, Inc., Zynex, Inc., Zynex NeuroDiagnostics, Inc., and Zynex Monitoring
Solutions Inc. (collectively, and jointly and severally, “Borrower”), effective
as of December 19, 2011. Lender and Borrower hereby agree as follows:

Section 1. DEFINITIONS

1.1 Definitions. When used in this Agreement, the capitalized terms set forth
below shall have the definitions assigned to such terms below:

“ACH” means automated clearing house.

“Accounts” means all accounts, including, without limitation, all health care
receivables, all governmental health care receivables, and health care insurance
receivables, and all other forms of obligations owing to Borrower, whether
billed or unbilled, arising out of the provision of services or the sale, lease,
license, or assignment of goods or other property, including all receivables,
and all proceeds of the foregoing.

“Account Debtor” means a Person who is obligated on an Account.

“Acquisition” has the meaning set forth in Section 9.6(b).

“Advance” means any advance of funds by Lender to Borrower under this Agreement.

“Advance Rate” means the percentages specified in Schedule A for Eligible
Accounts and unbilled Accounts.

“Advance Request” means a written request by Borrower for an Advance signed by
an Authorized Representative in form and content of Exhibit C attached hereto.

“Affiliate” of a Person means another Person which, directly or indirectly,
Controls, is Controlled by, or is under common Control with, such former Person,
including without limitation any subsidiary of Borrower.

“Authorized Representative” means any officer or employee of Borrower designated
by Borrower for purposes of giving and receiving notices hereunder, requesting
and repaying Loans, agreeing to rates of interest and otherwise transacting
business with Lender hereunder.

“Base Rate” means the per annum rate of interest specified on Schedule A. Any
change in the Base Rate shall become effective on the day such change occurs. If
The Wall Street Journal stops publication of the LIBOR Rate, then Lender shall,
in its Permitted Discretion, substitute the LIBOR Rate published in another
leading business publication.

“Benefit Plan” means a defined benefit plan as defined in Section 3(35) of ERISA
(other than a Multiemployer Plan) in respect of which a Person or any Related
Company is, or within the immediately preceding six (6) years was, an “employer”
as defined in Section 3(5) of ERISA, including such plans as may be established
after the date hereof.

 

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“Borrowing Base” means, as of any date, the amount equal to (a) the face amount
of Eligible Accounts multiplied by the applicable NCV by payor class, multiplied
by the Advance Rate for Eligible Accounts, minus (b) the Reserve. In Lender’s
Permitted Discretion, the Borrowing Base may be increased to include an amount
equal to estimated unbilled Accounts multiplied by the applicable NCV by payor
class, multiplied by the Advance Rate for unbilled Accounts.

“Borrowing Base Certificate” means a certificate in the form of Exhibit A
attached hereto.

“Business Associate Agreement” means a business associate agreement in form and
content acceptable to Lender executed by Borrower and Lender pursuant to the
requirements of HIPAA.

“Business Day” means any day that is not a Saturday, Sunday, the day after
Thanksgiving, any legal holiday under the laws of the United States, any holiday
observed by Lender, or day on which commercial banks in Portland, Oregon are
authorized or required by law to remain closed.

“Capital Expenditures” means, with respect to any Person, expenditures made and
liabilities incurred for the acquisition of assets, whether financed or
unfinanced, which are required to be capitalized in accordance with GAAP,
including (without limitation) expenditures incurred in connection with any
lease that is required to be capitalized in accordance with GAAP, provided that
obligations for payment of rent under operating leases if and to the extent such
leases are or would be classified as operating leases under Financial Accounting
Standards Board Accounting Standards Codification 840 as in effect as of the
date of this Agreement but are required to be reclassified as capital leases as
a result of amendments to Financial Accounting Standards Board Accounting
Standards Codification 840 made in accordance with those accounting standards
proposed in the Proposed Accounting Standards Update exposure draft issued on
August 17, 2010 shall not constitute Capital Expenditures hereunder.

“Capitated Contracts” means all of Borrower’s contracts whether presently
existing or hereafter executed between Borrower and various health maintenance
organizations and all proceeds therefrom.

“Capitated Contract Rights” means all of Borrower’s rights to payment of any
kind arising from or out of Capitated Contracts or any other contracts or rights
to payment from health service contracts whether presently existing or hereafter
executed between Borrower and various health maintenance organizations.

“Change of Control” means the time at which:

(a) Any Person (other than a Person who is or becomes a Borrower or guarantor
hereunder) who on the Closing Date does not have voting control subsequently
obtains voting Control, either directly or through proxy, of Borrower;

(b) There shall be consummated any consolidation or merger of Borrower pursuant
to which Borrower’s common stock (or other capital stock) would be converted
into cash, securities, or other property, other than a merger or consolidation
of Borrower (i) with or into a Person who becomes a Borrower hereunder, or
(ii) in which the holders of such common stock (or other capital stock)
immediately prior to the merger have the same proportionate ownership, directly
or indirectly, of common stock of the surviving corporation immediately after
the merger as they had of the Borrower’s common stock (or other capital stock)
immediately prior to such merger;

(c) All or substantially all of Borrower’s assets shall be sold, leased,
conveyed, or otherwise disposed of as an entirety or substantially as an
entirety to any Person (other than a Person who is or becomes a Borrower or
guarantor hereunder and other than sales of inventory in the ordinary course of
business) in one or a series of transactions; or

 

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(d) The then-current Chief Executive Officer and the then-current Chief Financil
Officer both become inactive whether by reason of death, disability,
resignation, action by the board of directors, and such inactivity causes Lender
in its Permitted Discretion to conclude that such inactivity is a Material
Adverse Change.

“CHAMPUS” has the meaning set forth in Section 7.14(b).

“Closing Date” means the date on which each of the conditions set forth in
Section 4.1 are satisfied and Lender funds the initial Loan(s) hereunder.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means and includes all of Borrower’s now owned or hereafter
acquired assets, whether tangible or intangible, including without limitation
all of Borrower’s right, title, and interest in and to each of the following,
wherever located and whether now existing or hereafter arising or acquired,
including, without limitation, all of the following:

(a) all Accounts;

(b) all contract rights, including all Capitated Contract Rights and all
proceeds therefrom;

(c) all rights to payment for services rendered or work performed, but not yet
billed;

(d) all Patient Lists;

(e) all inventory;

(f) all equipment and fixtures;

(g) all federal, state, and local tax refunds;

(h) all general intangibles, including without limitation payment intangibles
and software;

(i) all Intellectual Property;

(j) all Deposit Accounts, cash, drafts, certificates of deposit, and general and
special deposits;

(k) all investment property and financial assets (other than margin stock within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System);

(l) all instruments;

(m) all chattel paper, including, without limitation, electronic chattel paper;

(n) all goods and all accessions thereto;

(o) all documents;

(p) all letter of credit rights;

 

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(q) all insurance and certificates of insurance pertaining to any and all items
of Collateral;

(r) all books and records;

(s) all files, correspondence, computer programs, tapes, disks, and related data
processing software and other media which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof;

(t) all cash deposited with any Affiliate of Lender or with Doral Bank;

(u) those commercial tort claims, if any, described on Schedule 1.1 hereto;

(v) any and all products and replacements of the foregoing; and

(w) all cash and non-cash proceeds of the foregoing (including, but not limited
to, any claims to any items referred to in this definition and any claims
against third parties for loss of, damage to, or destruction of any or all of
the Collateral or for proceeds payable under or unearned premiums with respect
to policies of insurance) in whatever form.

“Collateral Monitoring Fee” means the amount shown on Schedule A due from
Borrower on a monthly basis.

“Collecting Bank” means Doral Bank, FSB pursuant to which a Lockbox Account has
been established under a Lockbox Agreement.

“Collection Clearance Days” means the number of Business Days shown on Schedule
A. Interest on the Loans accrues during the Collection Clearance Days.

“Concentration Limit” means the percent specified on Schedule A of total
Accounts of Borrower deemed Eligible Accounts other than with respect to clause
(l) of the definition of Eligible Accounts.

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. The
terms “Controlling” and “Controlled” have meanings correlative thereto.

“Control Agreement” means an agreement that satisfies the requirements of
control in favor of Lender within the meaning of the UCC over Borrower’s Deposit
Accounts, investment property, electronic chattel paper or letter of credit
rights.

“Current Ratio” means the sum of current assets divided by current liabilities
determined in accordance with GAAP.

“Cut-Off Date” means the number of days specified on Schedule A after the date
of invoice.

“Debt Service Coverage Ratio” means the ratio determined as of the end of each
fiscal quarter for the twelve consecutive months then ending of Borrower’s
(a) EBITDA for such period, to (b) the sum of principal and interest paid on
Indebtedness during such period plus cash taxes paid during such period.

“Default” means any of the events specified in Section 10.1 that, with the
passage of time or giving of notice or both, would constitute an Event of
Default.

 

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“Default Rate” means the annual rate of interest shown on Schedule A.

“Deposit Account” means any demand, Lockbox, time, savings, passbook or similar
account now or hereafter maintained by or for the benefit of Borrower, with an
organization that is engaged in the business of banking (including, without
limitation, banks, savings banks, savings and loan associations, credit unions,
and trust companies), and all funds and amounts therein, whether or not
restricted or designated for a particular purpose, including without limitation,
all “deposit accounts” as defined in the UCC.

“Dollar” and “$” means freely transferable United States dollars.

“Early Termination Fee” means the amount shown on Schedule A due from Borrower
if this Agreement terminates for any reason prior to the Termination Date.

“EBITDA” means, for any period, the sum of (a) Net Income (or Net Loss)
(including gains and losses from the sales of assets in the ordinary course of
business) for such period, (b) the interest expense for such period, (c) the
provision for income taxes allocable to such period, (d) any depreciation or
amortization expenses incurred in determining Net Income (or Net Loss) for such
period , (e) losses arising from the write-down of assets (including any
impairment charges), (f) non-cash equity-based compensation expense,
(g) non-recurring transaction fees, charges and expenses, including fees,
charges and expenses incurred in connection with the transactions contemplated
in this Agreement and the termination of Borrower’s existing credit facilities,
(h) any extraordinary losses, (i) non-recurring transaction fees, charges and
expenses incurred in connection with Permitted Acquisitions, (j) non-cash
dividends accrued with respect to equity interests of Borrower, (k) amounts
actually paid in respect of documented severance payments, (l) non-recurring
documented cash charges related to merger and integration costs in connection
with Permitted Acquisitions, (m) non-recurring transaction fees, charges and
expenses incurred in connection with secondary offerings of equity interests of
Borrower, (n) cash expenses or charges related to dispositions or
restructurings, (o) changes in the fair value of earnout obligations and any
equity-related liabilities, (p) amounts received constituting proceeds of
business interruption insurance, (q) losses on dispositions of capital assets,
(r) the amount of any earnout obligations paid in cash, and (s) any other
non-cash, non-recurring charge or expense made in the ordinary course of
business (where the items set forth in sections (a) – (s) above are determined
without duplication and on a consolidated basis and, where applicable, in
accordance with GAAP).

“Eligible Accounts” shall mean all Accounts of Borrower which are deemed by
Lender in the exercise of its Permitted Discretion to be eligible for inclusion
in the calculation of the Borrowing Base, net of any and all interest, finance
charges, sales tax, fees, returns, discounts, claims, credits, charges, contra
accounts, exchange contracts or other allowances, offsets and rights of offset,
deductions, counterclaims, disputes, rejections, shortages, or other defenses,
and all credits owed or allowed by Borrower upon any of its Accounts and further
reduced by the aggregate amount of all reserves, limits, and deductions provided
for in this definition and elsewhere in this Agreement. In no event shall
Eligible Accounts include the following:

(a) Accounts which remain unpaid in whole or in part after the Cut-Off Date;

(b) Accounts with respect to which the Account Debtor is an Affiliate of
Borrower;

(c) Accounts with respect to which the obligation of payment by the Account
Debtor is or may be conditional for any reason whatsoever, including, without
limitation, accounts arising with respect to goods that were (i) not sold on an
absolute basis, (ii) sold on a bill-and-hold sale basis, (iii) sold on a
consignment sale basis, (iv) sold on a guaranteed sale basis, (v) sold on a sale
or return basis, or (vi) sold on the basis of any other similar understanding;

 

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(d) Accounts with respect to which the Account Debtor is not a resident or
citizen of, or otherwise located in, the United States of America, unless such
Accounts are backed in full by irrevocable letters of credit or credit insurance
in form and substance satisfactory to Lender issued or confirmed by a domestic
commercial bank reasonably acceptable to Lender and which, if a letter of
credit, is in the possession of Lender and which, if credit insurance, is
payable to Lender;

(e) Accounts with respect to which the Account Debtor is the United States of
America or any other federal governmental body unless such Accounts are duly
assigned to Lender in compliance with all applicable governmental requirements
(including, without limitation, the Federal Assignment of Claims Act of 1940, as
amended, if applicable);

(f) Accounts (i) with respect to which Borrower is or may be liable to the
Account Debtor for goods sold or services rendered by such Account Debtor, but
only to the extent of such liability to such Account Debtor or (ii) with respect
to which such Account Debtor disputes the amount owed but only that portion of
such Accounts which such Account Debtor disputes;

(g) Accounts with respect to which the goods giving rise thereto have not been
shipped and delivered to and accepted as satisfactory by the applicable Account
Debtor or with respect to which the services performed giving rise thereto have
not been completed and accepted as satisfactory by the applicable Account
Debtor;

(h) Accounts which are not invoiced within thirty (30) days after the date of
service or the date of shipment of the goods giving rise to the account;

(i) Accounts which are not subject to a first priority perfected security
interest in favor of Lender;

(j) Accounts where the account balance owed by an Account Debtor exceeds the
Concentration Limit;

(k) Accounts which represent a progress billing; and

(l) Accounts that Lender, in its Permitted Discretion, has determined to be
ineligible. Without limiting the generality of the foregoing, Lender’s Permitted
Discretion will determine which Accounts, if any, of Zynex NeuroDiagnostics,
Inc., Zynex Monitoring Solutions Inc., or in connection with any Permitted
Acquisition are Eligible Accounts.

“Environmental Laws” means all federal, state, local, and foreign laws now or
hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, chemicals, or industrial, toxic, or
hazardous substances or wastes or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, removal, transport,
or handling of pollutants, contaminants, chemicals, or industrial, toxic, or
hazardous substances or wastes, and any and all regulations, notices, or demand
letters issued, entered, promulgated, or approved thereunder.

“ERISA” means the Employee Retirement Income Security Act of 1974, as in effect
from time to time, and any successor statute, and any rule or regulation issued
thereunder.

“Event of Default” means any of the events specified in Section 10.1.

“Expenses and Fees” means all expenses and fees invoiced by Lender that arise
out of or under with this Agreement and the Loans shown on Schedule A and
including, without limitation, (i) the reasonable fees and expenses of counsel
in connection with the negotiation, preparation, execution,

 

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delivery, amendment, enforcement, and termination of this Agreement and each of
the other Loan Documents, (ii) the out-of-pocket costs and expenses incurred in
connection with the administration and interpretation of this Agreement and the
other Loan Documents, (iii) the costs and expenses of appraisals of the
Collateral, provided, however, that absent a change in Lender’s risk rating of
Borrower, or Lender’s good faith belief that there has been material diminution
in the Collateral, or the occurrence and continuance of an Event of Default,
Borrower shall not be obligated to pay the costs and expenses of more than two
(2) appraisals of Collateral per fiscal year, (iv) the costs and expenses of
lien searches, and of perfecting Lender’s security interest in the Collateral,
(v) all stamp, registration, recordation, and similar taxes, fees, or charges
related to the Collateral and charges of filing financing statements and
continuations and the costs and expenses of taking other actions to perfect,
protect, and continue the security interest of Lender, (vi) costs and expenses
related to the preparation, execution, and delivery of any waiver, amendment,
supplement, or consent by Lender relating to this Agreement or any of the Loan
Documents, (vii) sums paid or obligations incurred in connection with the
payment of any amount or taking any action required of Borrower under the Loan
Documents that Borrower fails to pay or take, (viii) costs of inspections and
verifications of the Collateral, plus out-of-pocket expenses for travel,
lodging, and meals arising in connection with inspections and verifications of
the Collateral and Borrower’s operations and books and records by Lender’s
employees and agents, provided, however, that absent the occurrence and
continuance of an Event of Default, Borrower shall not be obligated to pay the
costs of more than two (2) inspections or verifications of Collateral per fiscal
year, (ix) costs and expenses of forwarding Loan proceeds, collecting checks and
other items of payment, and establishing and maintaining each account of
Borrower maintained with Lender or owned by Lender for the benefit of Borrower
and each Lockbox, (x) costs and expenses of preserving and protecting the
Collateral, (xi) audit fees charged by Lender for audits by Lender or a
third-party’s auditor of Borrower, which, absent the occurrence and continuance
of an Event of Default, will not exceed $10,000 per audit for Zynex Medical,
Inc., and Zynex, Inc. (exclusive of out-of-pocket costs and exclusive of the
audit expense for any of the other Borrowers or any Person that becomes a
Borrower), (xii) costs and expenses related to consulting with and obtaining
opinions and appraisals from one or more Persons, including personal property
appraisers, accountants, and lawyers, concerning the value of any Collateral for
the Obligations or related to the nature, scope, or value of any right or remedy
of Lender hereunder or under any of the Loan Documents, including any review of
factual matters in connection therewith, which expenses shall include the fees
and disbursements of such Persons, (xiii) Lender’s administrative fees arising
from or associated with the maintenance and administration of Lockboxes, audits
and other ancillary services, and (xiv) costs and expenses paid or incurred to
obtain payment of the Obligations, enforce the security interest of Lender, sell
or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents, or to prosecute or defend any claim in any way arising
out of, related to, or connected with, this Agreement or any of the Loan
Documents, which expenses shall include the reasonable fees and disbursements of
counsel and of experts and other consultants retained by Lender.

“Facility Availability” means, as of any date, the difference between (i) the
Borrowing Base on such date and (ii) the outstanding principal amount of the
Loans, together with all accrued interest, fees, costs and any other amounts
then due from Borrower under this Agreement on such date.

“Facility Limit” means the maximum amount of the Loan to be made under this
Agreement. The Facility Limit amount is specified on Schedule A.

“Fiscal Year-End” means Borrower’s fiscal year-end specified on Schedule 5.1

“Floor Rate” means the per annum rate of interest specified on Schedule A.

“GAAP” means generally accepted accounting principles in the United States in
effect from time to time.

 

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“Health Care Law” means any and all federal, state, and local laws and
regulations governing (i) the manufacture, testing, distribution, possession,
assembly, repackaging, sale, administration, or dispensing of health care or
medical devices, equipment or supplies, products, biologicals, drugs, or goods,
or (ii) the rendering, provision, delivery, or supply of health care services,
or (iii) the ownership or operation of a health care facility or business, or
assets used in connection therewith, or (iv) the billing or submission of
claims, collection of accounts receivable, the handling of Protected Health
Information, and underwriting the cost of, or provision of management or
administrative services in connection with any and all of the foregoing, by
Borrower and its subsidiaries, including, but not limited to, laws and
regulations under HIPAA and the Privacy Rule, and laws and regulations relating
to practice of medicine and other health care professions, professional fee
splitting, tax-exempt organization and charitable trust law applicable to health
care organizations, certificates of need, certificates of operations and
authority, fraud and abuse, kickbacks and rebates, false claims, physician
self-referral arrangements, fraudulent billing practices, payment under the
Medicare and Medicaid programs, and the federal Food, Drug & Cosmetic Act.

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996,
Pub. L. No. 104-191 and any revisions and amendments.

“Indebtedness” means, without duplication, (a) all obligations for Money
Borrowed or for the deferred purchase price of property or services or in
respect of reimbursement obligations under letters of credit, (b) all
obligations represented by bonds, debentures, notes, and accepted drafts that
represent extensions of credit, (c) all obligations (including capital lease
obligations) that are required to be capitalized under GAAP (but excluding
(i) expenditures made in connection with the replacement, substitution or
restoration of assets to the extent financed (A) from insurance proceeds (or
other similar recoveries) paid on account of the loss of or damage to the assets
being replaced or restored or (B) with awards of compensation arising from the
taking by eminent domain or condemnation of the assets being replaced and
(ii) obligations for payment of rent under operating leases if and to the extent
such leases are or would be classified as operating leases under Financial
Accounting Standards Board Accounting Standards Codification 840 as in effect as
of the date of this Agreement but are required to be reclassified as capital
leases as a result of amendments to Financial Accounting Standards Board
Accounting Standards Codification 840 made in accordance with those accounting
standards proposed in the Proposed Accounting Standards Update exposure draft
issued on August 17, 2010), (d) all obligations (including, during the
noncancellable term of any lease in the nature of a title retention agreement,
all future payment obligations under such lease discounted to their present
value in accordance with GAAP) secured by any Lien to which any property or
asset owned or held by a Person is subject, whether or not the obligation
secured thereby shall have been assumed by such Person, (e) all guarantees of a
Person for any Indebtedness described in clauses (a) through (d) above, (f) all
obligations of a Person consisting of recourse liability with respect to
Accounts sold or otherwise disposed of by such Person, and (g) in the case of
Borrower, the Loans.

“Indemnified Party” has the meaning set forth in Section 11.10.

“Information” has the meaning set forth in Section 11.18.

“Intellectual Property” means, as to any Person, all of such Person’s then owned
and existing and future acquired or arising patents, patent rights, copyrights,
works which are the subject of copyrights, trademarks, service marks, trade
names, trade styles, patent, trademark and service mark applications, and all
licenses and rights related to any of the foregoing, and all rights to sue for
past, present, and future infringements of any of the foregoing.

“Interest Rate” means the Base Rate plus Margin.

 

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“LIBOR Rate” means, on any date of determination, the British Bankers’
Association LIBOR Rate, as published by The Wall Street Journal in the Money
Section (or other commercially available, generally recognized financial
information source providing quotations of British Bankers’ Association LIBOR
Rate as determined by Lender from time to time) at approximately 11:00 a.m.,
London time, on such day (or, if such day is not a Business Day, on the
preceding Business Day) for dollar deposits in the amount of $1,000,000 with a
maturity of one month.

“Lender’s Office” means the office of Lender designated as Lender’s address for
notices in Section 11.1(b), or such other office as Lender may designate from
time to time.

“Liabilities” means all liabilities of a Person determined in accordance with
GAAP.

“Lien” means, with respect to any Person, any security interest, chattel
mortgage, charge, mortgage, deed to secure any debt, deed of trust, lien,
pledge, conditional sale or other title retention agreement, or other security
interest or encumbrance of any kind in respect of any property of such Person or
upon the income or profits therefrom.

“Loan” or “Loans” means all Advances and loans made to Borrower by Lender under
this Agreement.

“Loan Documents” means, collectively, this Agreement, each agreement or document
now or hereafter executed and delivered by any Person to evidence or secure the
Obligations, and each other instrument, agreement, and document now or hereafter
executed and delivered in connection with this Agreement or the Loans.

“Lockbox” or “Lockbox Account” means one or more lockbox accounts maintained
with a bank specified by Lender into which collections from Accounts and other
Collateral, including governmental healthcare receivables, are to be deposited.

“Lockbox Agreement” means one or more agreements among Borrower, Lender, and a
Collecting Bank concerning the collection of payments which represent the
proceeds of Accounts or of any other Collateral.

“Margin” means the percent per annum specified on Schedule A and which is added
to the Base Rate.

“Material Adverse Change” means any act, omission, event, or undertaking which
would, singly or in the aggregate, have a materially adverse effect upon (a) the
business, assets, properties, liabilities, condition (financial or otherwise),
results of operations, or business prospects of Borrower or any of its
subsidiaries taken as a whole, (b) Borrower’s prospect of fully and completely
paying all of the Loan, (c) the ability of Borrower or any of its subsidiaries
to materially perform any obligations under this Agreement or any other Loan
Document to which it is a party, or (d) the legality, validity, binding effect,
enforceability, or admissibility into evidence of any Loan Document or the
ability of Lender to enforce its rights or remedies, taken as a whole, under or
in connection with the Loan Documents.

“Maximum Rate” means the maximum nonusurious interest rate, if any, that at any
time, or from time to time, may be contracted for, taken, reserved, charged, or
received on the Loans under the laws which are presently in effect of the United
States and the State of Oregon applicable to Lender and such indebtedness or, to
the extent permitted by law, under such applicable laws of the United States and
the State of Oregon (or if applicable, the laws any other state) which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow. To the extent federal law (including,
without limitation, 12 U.S.C. Section 85, as now enacted or hereafter amended)
permits Lender to contract for, charge, or receive a higher rate of interest or
permits Lender to contract for, charge, or receive interest at a higher rate
permitted by the laws of another jurisdiction, such federal law (and, if
appropriate, the law of such other jurisdiction) will be applicable in
determining the Maximum Rate, instead of the laws of the State of Oregon.

 

 

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“Minimum Closing Availability” means the minimum amount specified on Schedule A
of the Facility Availability immediately upon the first Advance at Closing.

“Minimum Current Ratio” means the minimum Current Ratio shown on Schedule A,
measured quarterly.

“Money Borrowed” means Indebtedness (i) that is represented by notes payable,
drafts accepted, bonds, debentures, or similar instruments that represent
extensions of credit, (ii) upon which interest charges are customarily paid
(other than trade Indebtedness), (iii) that was issued or assumed as full or
partial payment for property, or (iv) that is evidenced by a guarantee (but only
if the obligations guaranteed would otherwise qualify as Money Borrowed).

“Multiemployer Plan” means a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA to which Borrower or a Related Company is required
to contribute or has contributed within the immediately preceding six (6) years.

“Net Collectible Value” or “NCV” means the percentage by payor class, as
determined by Lender from time to time to be applied against Eligible Accounts.
The initial NCV for each payor class is shown on Schedule A.

“Net Income” or “Net Loss” means, with respect to any Person, the net income or
net loss of such Person for the period in question (after provision for income
taxes) determined in accordance with GAAP, provided that the impact of any
extraordinary gains, determined in accordance with GAAP, shall be excluded from
the determination of “Net Income” and “Net Loss.”

“Obligations” shall mean (i) all Loans or Advances made by Lender to Borrower
pursuant to this Agreement or otherwise, and interest thereon; (ii) all future
advances or other value, of whatever class or for whatever purpose, at any time
hereafter made or given by Lender to Borrower, whether or not the advances or
value are given pursuant to a commitment and whether or not Borrower is indebted
to Lender at the time of such advance; (iii) any and all other debts,
liabilities and obligations of every kind and character of Borrower to Lender,
whether now or hereafter existing, and regardless of whether such present or
future debts, liabilities, or obligations are direct or indirect, primary or
secondary, joint, several, or joint and several, fixed, or contingent, and
regardless of whether such present or future debts, liabilities or obligations
may, prior to their acquisition by Lender, be or have been payable to, or be or
have been in favor of, some other Person or have been acquired by Lender in a
transaction with one other than Borrower (it being contemplated that Lender may
make such acquisitions from others), howsoever such debts, liabilities, or
obligations shall arise or be incurred or evidenced; (iv) any and all other
debts, liabilities, and obligations of every kind and character of Borrower to
any Affiliate of Lender, whether now or hereafter existing, and regardless of
whether such present or future debts, liabilities, or obligations are direct or
indirect, primary or secondary, joint, several, or joint and several, fixed, or
contingent, and regardless of whether such present or future debts, liabilities,
or obligations may, prior to their acquisition by such Affiliate, be or have
been payable to, or be or have been in favor of, some other Person or have been
acquired by such Affiliate in a transaction with one other than Borrower (it
being contemplated that Affiliates of Lender may make such acquisitions from
others), howsoever such debts, liabilities, or obligations shall arise or be
incurred or evidenced; (v) all Expenses and Fees payable by Borrower to Lender
or any Affiliate of Lender pursuant to any of the Loan Documents; and (vi) any
and all renewals, extensions, modifications, and increases of the debts,
liabilities, and obligations set forth above, or any part thereof.

 

LOAN AND SECURITY AGREEMENT – PAGE 10

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“Obligors” means Borrower and all other Persons obligated to Lender in respect
of the Obligations, and “Obligor” means any of them.

“Operating Account” means the Deposit Account designated by Borrower for the
deposit of Advances.

“Operating Lease” means any lease for any real or personal property, other than
a lease that is required to be capitalized under GAAP, provided that obligations
for payment of rent under operating leases if and to the extent such leases are
or would be classified as operating leases under Financial Accounting Standards
Board Accounting Standards Codification 840 as in effect as of the date of this
Agreement but are required to be reclassified as capital leases as a result of
amendments to Financial Accounting Standards Board Accounting Standards
Codification 840 made in accordance with those accounting standards proposed in
the Proposed Accounting Standards Update exposure draft issued on August 17,
2010 shall constitute Operating Leases hereunder.

“Origination Fee” means the amount shown on Schedule A due from Borrower on the
Closing Date.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor agency.

“Patient Lists” means all records, documents, lists, electronic media, or any
other method of recordation that shows in any way any Person to whom Borrower
supplies medical services, medical supplies, or medication, the name and mailing
address of such Person, a complete and accurate description of such medical
services, supplies, or medication that is supplied to such Person, the physician
at whose direction such medical services, supplies, or medication is delivered,
and all other information Borrower uses in the course of Borrower’s ordinary
course of business to supply such Person.

“Permitted Acquisition” has the meaning set forth in Section 9.6(b).

“Permitted Discretion” means Lender’s discretion, exercised consistent with
Lender’s experience, prudent business judgment of a secured lender, and
standards of good faith and commercial reasonableness applicable to asset-based
credit facilities.

“Permitted Indebtedness” means:

(i) purchase money indebtedness, Capital Expenditures and Operating Leases in
amounts no greater than reasonably necessary for Borrower’s operations;

(ii) the Indebtedness described on Schedule 5.1 attached hereto and made a part
hereof and extensions, renewals and replacements of any such Indebtedness with
Indebtedness of a similar type that does not increase the outstanding principal
amount thereof;

(iii) trade debt incurred in the ordinary course of Borrower’s business none of
which shall be past due;

(iv) obligations of Borrower or its subsidiaries arising out of interest rate,
foreign currency and commodity hedging agreements entered into with financial
institutions in connection with bona fide hedging activities in the ordinary
course of business and not for speculative purposes;

(v) endorsement of items for deposit or collection of commercial paper received
in the ordinary course of business;

 

LOAN AND SECURITY AGREEMENT – PAGE 11

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(vi) intercompany loans and advances from time to time to another Borrower;

(vii) guaranties by Borrower of Indebtedness of another Borrower;

(viii) Indebtedness of Borrower as an account party in respect of trade letters
of credit;

(ix) earnout obligations incurred in connection with Permitted Acquisitions;

(x) indebtedness issued in the ordinary course of business solely to support any
Borrower’s or its subsidiaries’ insurance or self-insurance obligations
(including to secure workers’ compensation and other similar insurance
coverage);

(xi) indebtedness in respect of netting services, cash management, overdraft
protections and otherwise in connection with deposit accounts;

(xii) unsecured indebtedness of Borrower to evidence the purchase price of
capital stock, options or warrants purchased by Borrower from current or former
officers, directors and employees of Borrower or its subsidiaries;

(xiii) indebtedness consisting of reimbursement obligations under surety,
indemnity, performance, release and appeal bonds and guarantees thereof and
letters of credit required in the ordinary course of business or in connection
with the enforcement of rights or claims of Borrower or its subsidiaries, in
each case to the extent a letter of credit supports in whole or in part the
obligations of Borrower or any of its subsidiaries with respect to such bonds,
guarantee and letters of credit;

(xiv) obligations for payment of rent under operating leases if and to the
extent such leases are or would be classified as operating leases under
Financial Accounting Standards Board Accounting Standards Codification 840 as in
effect as of the date of this Agreement but are required to be reclassified as
capital leases as a result of amendments to Financial Accounting Standards Board
Accounting Standards Codification 840 made in accordance with those accounting
standards proposed in the Proposed Accounting Standards Update exposure draft
issued on August 17, 2010; and

(ix) the Obligations.

“Permitted Liens” means:

(i) Liens imposed by law for taxes not yet due or which are being contested in
good faith by appropriate proceedings diligently conducted and with respect to
which adequate reserves are being maintained in accordance with GAAP;

(ii) statutory Liens of carriers, warehousemen, mechanics, materialmen,
repairmen and other Liens imposed by law in the ordinary course of business for
amounts not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves are being maintained in
accordance with GAAP;

(iii) pledges and deposits made in the ordinary course of business in compliance
with workers’ compensation, unemployment insurance and other social security
laws or regulations;

(iv) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;

 

LOAN AND SECURITY AGREEMENT – PAGE 12

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(v) judgment and attachment liens not giving rise to an Event of Default;

(vi) customary rights of set-off, revocation, refund or chargeback under deposit
agreements or under the UCC or common law of banks or other financial
institutions where Borrower or any of its subsidiaries maintains deposits (other
than deposits intended as cash collateral) in the ordinary course of business;

(vii) easements, zoning restrictions, rights-of-way and similar encumbrances on
real property imposed by law or arising in the ordinary course of business that
do not secure any monetary obligations and do not materially detract from the
value of the affected property or materially interfere with the ordinary conduct
of business of Borrower and its subsidiaries taken as a whole;

(viii) any interest or title of a lessor under any Operating Lease;

(ix) Liens securing reimbursement obligations under commercial letters of
credit, but only in or upon the goods the purchase of which were financed by
such letters of credit;

(x) Liens solely on any cash earnest money deposits made by Borrower or any of
its subsidiaries in connection with any letter of intent or purchase agreement
permitted hereunder;

(xi) purported Liens evidenced by the filing of precautionary UCC financing
statements relating solely to operating leases of personal property entered into
in the ordinary course of business;

(xii) any interest or title of a lessor or sublessor, licensor or sublicensor
under any lease or license not prohibited by this Agreement;

(xiii) Liens on assets and Persons acquired in connection with a Permitted
Acquisition, provided such Liens will not encumber any additional property
following such acquisition other than the proceeds of such assets or Persons,
and such assets are not part of the Borrowing Base;

(xiv) Liens described on Schedule 5.1 attached hereto and made a part hereof;
and

(xv) Liens in favor of Lender.

“Person” means an individual, corporation, limited liability company,
partnership, joint venture, association, trust, or unincorporated organization
or a government or any agency or political subdivision thereof.

“Privacy Rule” means 45 CFR Part 160 and Part 164, Subparts A and E, which
implement certain provisions of HIPAA and any revision, amendments, or updates.

“Prohibited Distribution” by any Person means (a) the retirement, redemption,
purchase, or other acquisition for value of any capital stock or other equity
securities or partnership interests issued by such Person, (b) the declaration
or payment of any dividend or distribution on or with respect to any such
securities (excluding distributions made solely in shares of stock of the same
class) or partnership interests, and (c) any other payment by such Person in
respect of such securities or partnership interests.

“Prohibited Payment” means (a) any redemption, repurchase, or prepayment or
other retirement, prior to the stated maturity thereof or prior to the due date
of any regularly scheduled installment or amortization payment with respect
thereto, of any Indebtedness of a Person (other than the Obligations and trade
debt), (b) the payment by any Person of the principal amount of or interest on
any Indebtedness (other than Permitted Indebtedness) owing to an Affiliate of
such Person, and (c) any payment with respect to any Subordinated Indebtedness
that is made in violation of the subordination agreement relating thereto.

 

 

LOAN AND SECURITY AGREEMENT – PAGE 13

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“Protected Health Information” means protected health information subject to the
HIPAA Privacy Rule.

“Related Company” means, as to any Person, any (a) corporation which is a member
of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in clause (a) above or any partnership,
trade, or business described in clause (b) above.

“Requirements of Law” means, any and all laws, regulations, codes, or ordinances
applicable to any Person, or any Person’s assets, including, without limitation,
the Securities Act, the Securities Exchange Act, Regulations T, U, and X of the
Federal Reserve Board, ERISA, the Fair Labor Standards Act, the Worker
Adjustment and Retraining Notification Act, Americans with Disabilities Act of
1990, the Social Security Act, Environmental Laws, Health Care Law, and any
certificate of occupancy, zoning ordinance, building, environmental, or land use
requirement or permit, or any other environmental, labor, employment,
occupational safety, or health law, rule, or regulation.

“Reserve” at any time shall mean an amount from time to time established by
Lender in its Permitted Discretion as a reserve in reduction of the Borrowing
Base in respect of contingencies or other potential factors (such as, without
limitation, rebates, sales taxes, property taxes, installation and delivery
expenses, and warranties) which could adversely affect or otherwise reduce the
anticipated amount of timely collections in payment of Eligible Accounts. The
“Reserve,” if any from time to time, does not represent cash funds. The initial
amount of the Reserve is shown on Schedule A.

“Schedule of Accounts” means a detailed schedule of Accounts delivered by
Borrower to Lender in a form acceptable to Lender that shall contain account
balance and aging information listed by Account Debtor name, class and type,
together with a reconciliation of the Schedule of Accounts to the Borrowing Base
Certificate for the most recent month end, and any other information concerning
Borrower’s Accounts as Lender may reasonably request from time to time.

“Solvent” means, when used in connection with any Person, that such Person has
assets of a fair value, at a fair valuation, which exceeds the amount required
to pay its debts (including contingent, subordinated, unmatured, and
unliquidated liabilities) as they become absolute and matured, and that such
Person is able to meet its debts as they mature and has adequate capital to
conduct the business in which it is or proposes to be engaged.

“Stated Rate” has the meaning set forth in Section 3.8.

“Subordinated Indebtedness” means Indebtedness of Borrower to a third Person
(i) that has been approved in writing by Lender and (ii) that has been
subordinated to the payment of the Obligations pursuant to a written
subordination agreement executed by Lender and the holder of such Indebtedness
containing terms acceptable to Lender in its Permitted Discretion.

“Termination Date” means the date on which the Loan shall terminate and the
entire outstanding balance of the Loan and all Obligations shall be due and
payable. The Termination Date is shown on Schedule A.

 

LOAN AND SECURITY AGREEMENT – PAGE 14

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“Termination Event” means (a) a “Reportable Event” as defined in Section 4043 of
ERISA, but excluding any such event as to which the PBGC has by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified within
thirty (30) days of the occurrence of such event, provided however, that a
failure to meet the minimum funding standard of Section 412 of the Code and of
Section 302 of ERISA shall be a Reportable Event regardless of the issuance of
any such waiver of the notice requirement in accordance with either
Section 4043(a) of ERISA or Section 412(d) of the Code, (b) the filing of a
notice of intent to terminate a Benefit Plan or the treatment of a Benefit Plan
amendment as a termination under Section 4041 of ERISA, or (c) the institution
of proceedings to terminate a Benefit Plan by the PBGC under Section 4042 of
ERISA or the appointment of a trustee to administer any Benefit Plan.

“TTM” means trailing twelve months.

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of Oregon, including, without limitation, any amendments thereto which are
effective after the date hereof.

“Unfunded Vested Liabilities” shall mean the amount (if any) by which (i) the
actuarial present value of accumulated benefits under a Benefit Plan which are
vested exceeds (ii) such Benefit Plan’s net assets available for benefits (all
as determined in connection with the filing of the Borrower’s most recent Annual
Report on Form 5500) but only to the extent such excess would, if such Benefit
Plan were to terminate as of such date, represent a liability of the Borrower or
any ERISA Affiliate to the PBGC under Title IV of ERISA. In each case the
foregoing determination shall be made as of the most recent date prior to the
filing of said Annual Report as of which such actuarial present value of
accumulated Plan benefits is determined.

“Unused Line Fee” means the amount shown on Schedule A due from Borrower on a
monthly basis.

“Zero Balance Account Agreement” means deposit account instruction and service
agreements in form and content acceptable to Lender executed by Borrower and
Wells Fargo Bank, N.A. from which collections from Accounts and other
Collateral, including governmental healthcare receivables, are to be deposited
and subsequently swept into the Lockbox Accounts on a daily basis.

1.2 UCC Terms. Terms defined in the UCC (such as, but not limited to, accounts,
chattel paper, commercial tort claims, contract rights, deposit account,
documents, equipment, financial assets, general intangibles, goods, instruments,
investment property, inventory, and proceeds), as and when used (without being
capitalized) in this Agreement or the Loan Documents, shall have the meanings
given to such terms in the UCC.

1.3 Accounting Terms and Determinations. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and all other certificates and reports as to any financial matters
required to be furnished to the Lender hereunder shall be prepared in accordance
with GAAP applied on a consistent basis with the most recent audited financial
statements of Borrower; provided that, if Borrower notifies Lender that Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision, regardless of whether any such notice is given
before or after such change in GAAP or in the application thereof, then such
provision shall be interpreted on the basis of GAAP as in effect and applied
immediately before such change shall have become effective until such notice
shall have been withdrawn or such provision amended in accordance herewith. No
delay by Borrower in requiring such an amendment shall limit their right to
require such an amendment at any time after such a change in accounting
principles.

 

LOAN AND SECURITY AGREEMENT – PAGE 15

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Section 2. REVOLVING CREDIT FACILITY

2.1 Loan. Subject to the terms and conditions of this Agreement, and on the
express condition that there exists no Event of Default, then prior to the
Termination Date, Lender will make Advances to Borrower under the Loan in an
amount not to exceed outstanding at any time the lesser of (a) the Facility
Limit, and (b) the Borrowing Base. Borrower may borrow, repay, and reborrow the
principal of the Loan in accordance with the terms of this Agreement.

2.2 Advances under the Loan. Borrower may request an Advance under the Loan by
making an Advance Request. Advances made available by Lender will be deposited
by wire transfer into Borrower’s Operating Account. Advances will be made
available by Lender no earlier than the first Business Day following an Advance
Request received by Lender prior to 10:00 a.m. Pacific Time and two (2) Business
Days following an Advance Request received after 10:00 a.m. Pacific Time. Any
change in Borrower’s wiring instructions shall be made in writing at least three
(3) Business Days prior to the date of an Advance. Any updates to the Collateral
affecting the amount of Borrower’s Advance Request must be completed two
(2) Business Days prior to submission of the Advance Request. For purposes of
calculating amounts available for Advances, collections into the Lockbox
Accounts will be credited the Business Day following receipt, and effective as
of the date of receipt. However, for purposes of calculating the actual
outstanding balance of the Loans and interest due on the Loans, collections into
the Lockbox Accounts shall be applied after the Collection Clearance
Days. Interest on the Loans accrues during the Collection Clearance Days.

2.3 Repayment of the Loan. The Loan shall be repaid as follows: (a) unless
accelerated in accordance with the terms hereof, the outstanding principal
amount of, and all accrued and unpaid interest on, the Loan is due and payable,
without demand, on the Termination Date; (b) if at any time the principal of,
and interest upon, the Loan exceeds the lesser of (i) the Facility Limit or
(ii) the Borrowing Base, Borrower shall immediately repay the Loan in the amount
of such excess, unless the Borrowing Base has been reduced by a reduction by
Lender of NCVs, in which case Borrower will repay the excess within five
(5) Business Days; and (c) Borrower hereby instructs Lender to repay the Loan on
any day in an amount equal to the amount received by Lender on such day pursuant
to Section 6.2.

2.4 Disbursement of Loans. Borrower hereby irrevocably authorizes Lender to
disburse the proceeds of Loans requested, or deemed to be requested, pursuant to
this Section 2 as follows: (i) each Advance requested shall be disbursed by the
Lender in lawful money of the United States of America in immediately available
funds, (a) in the case of the initial Advance under the Loan, in accordance with
the written instructions from Borrower to Lender, and (b) in the case of each
subsequent Advance, to a Deposit Account designated in writing by Borrower to
Lender.

2.5 Authorized Representatives. Borrower shall act hereunder through the
Authorized Representatives designated from time to time by Borrower, and all
notices and requests to be given and received by Borrower, including requests
for Loans, shall be given by and directed to such Authorized Representatives.
Lender may rely on the authority or apparent authority of any officer or
employee of Borrower whom Lender in good faith believes to be an Authorized
Representative unless Borrower expressly notifies Lender that such officer or
employee has been terminated or is otherwise no longer an Authorized
Representative.

Section 3. GENERAL LOAN PROVISIONS; FEES AND EXPENSES

3.1 Interest.

(a) Loans. Borrower shall pay interest on the unpaid principal amount of the
Obligations at a rate per annum equal to the sum of the Base Rate plus the
Margin (or, if such amount were ever to exceed the Maximum Rate, then the
Maximum Rate) payable monthly in arrears on the first day of each calendar month
and on the Termination Date. Any change in the rate of interest resulting from a
change in the Base Rate shall become effective on the day such change in the
Base Rate is published.

 

 

LOAN AND SECURITY AGREEMENT – PAGE 16

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(b) Default Rate. From and after the occurrence of an Event of Default, the
unpaid principal amount of all Obligations and all accrued interest thereon
shall, at the option of Lender, bear interest until paid in full (or, if
earlier, until such Event of Default is cured or waived in writing by Lender) at
a rate per annum equal to the lesser of (i) the Default Rate, or (ii) the
Maximum Rate. Lender will provide notice to Borrower prior to the implementation
of the Default Rate.

(c) Computation of Interest. Interest shall be computed on the basis of a year
of 360 days and the actual number of days elapsed.

3.2 Fees and Expenses.

(a) Origination Fee. In consideration for Lender’s agreement to make the Loan in
accordance with the terms of this Agreement and in order to compensate Lender in
part for the costs associated with the Loan, Borrower shall pay to Lender on the
Closing Date an origination fee in the amount shown on Schedule A. Such fee is
in addition to the expenses that Borrower has agreed to pay elsewhere in this
Agreement.

(b) Unused Line Fee. Borrower shall pay to Lender an Unused Line Fee for the
period from the date hereof through the Termination Date calculated as shown on
Schedule A. The parties hereto agree that such Unused Line Fee constitutes
reasonable consideration for Lender’s taking of appropriate actions to be able
to make available to Borrower the amount of the Facility Limit for such period.

(c) Collateral Monitoring Fee. Lender shall be entitled to charge Borrower, and,
if so charged, Borrower agrees to pay, a monthly Collateral Monitoring Fee in
the amount shown on Schedule A. The Collateral Monitoring Fee for each calendar
month shall be due and payable on the first day of the next calendar month, and
shall be prorated for any partial calendar month until the Termination Date.

(d) Early Termination Fee. If this Agreement terminates for any reason prior to
the Termination Date, Borrower acknowledges that such termination would result
in the loss to Lender of the benefits of this Agreement and, as a result
thereof, Borrower shall pay to Lender the Early Termination Fee in the amount
shown on Schedule A.

(e) Expenses and Fees. All Expenses and Fees shall be paid by Borrower. Lender
may cause such Expenses and Fees to be paid by debiting Borrower’s Loan by
increasing the principal amount of the Loan, or deducting from Borrower’s
accounts maintained with any Affiliate of Lender, the amount of any Expenses and
Fees. At Lender’s discretion, Lender may invoice Borrower for such Expenses and
Fees and Borrower shall pay such invoice within five (5) days after the date of
the invoice.

3.3 Manner of Payment.

(a) Timing. Each payment by Borrower on account of the principal of or interest
on the Loans or of any fee or other amount payable to Lender shall be made not
later than 12:00 p.m. (Pacific Time) on the applicable due date (or if such day
is not a Business Day, the next succeeding Business Day, provided that interest
shall continue to accrue until such payment is made). All payments shall be made
to Lender at Lender’s Office or by wire transfer to an account designated by
Lender in Dollars in immediately available funds, and shall be made without any
setoff, counterclaim, or deduction whatsoever.

 

LOAN AND SECURITY AGREEMENT – PAGE 17

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(b) Charging Accounts. Borrower hereby irrevocably authorizes Lender and each
Affiliate of Lender to charge any account of Borrower maintained with Lender or
such Affiliate with such amounts as may be necessary from time to time to pay
any Obligations which are not paid when due.

(c) Termination Reserve. The amount of the Termination Reserve, less any and all
fees, costs, interest, or other charges incurred by Lender in the performance of
this Agreement after Borrower’s payment of all amounts described above, shall be
returned to Borrower within thirty (30) days following such payment.

3.4 Termination of Agreement.

(a) Required Payments. On the Termination Date and upon any early termination of
this Agreement, Borrower shall pay to Lender (i) the principal of, and accrued
and unpaid interest on, all Loans outstanding on such date, (ii) all fees
accrued and unpaid, (iii) any amounts payable to Lender pursuant to the other
provisions of this Agreement or any other Loan Document, (iv) the amount of the
Termination Reserve provided in Schedule A, and (v) any and all other
Obligations then outstanding.

(b) Early Termination. Borrower may terminate this Agreement at any time prior
to the Termination Date upon thirty (30) days’ prior written notice to Lender of
Borrower’s intention to terminate this Agreement prior to the Termination Date.
Borrower’s exercise of its right to early termination, however, shall not
relieve Borrower of its obligations upon termination, including without
limitation payment of the Early Termination Fee.

3.5 Evidence of Indebtedness.

(a) At the request of Lender, the Loans shall be evidenced by one or more
promissory notes.

(b) Lender shall maintain accounts in which it will record (i) the amount of
each Loan extended hereunder, (ii) the amount of any principal or interest due
and payable or to become due and payable from Borrower to Lender hereunder, and
(iii) the amount of any sum received by Lender hereunder from Borrower.

(c) The entries in the accounts maintained pursuant to subsection (b) above
shall be prima facie evidence of the existence and amounts of the Obligations
therein recorded, provided, however, that the failure of the Lender to maintain
such accounts or any error therein shall not in any manner affect the obligation
of Borrower to repay the Obligations in accordance with their terms.

3.6 Adjustments by Lender. Lender may in its Permitted Discretion change from
time to time the Advance Rate, Concentration Limit, and Reserve, and may revise
Schedule A accordingly. Lender may change the NCVs in its sole discretion
exercised in good faith.

3.7 Application of Payments. Lender may, in its discretion, apply payments as
follows:

(a) First, to all fees and costs incurred by Lender for which Borrower is
responsible to reimburse Lender under this Agreement or any of the Loan
Documents;

(b) next, to any accrued but unpaid interest on the Loan;

(c) next, to the outstanding principal balance due on the Loan;

(d) next, to any other amounts due Lender under this Agreement or any other
agreement between Lender and Borrower.

 

LOAN AND SECURITY AGREEMENT – PAGE 18

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3.8 Maximum Interest. Borrower and Lender intend to strictly comply with any
applicable usury laws. Accordingly, in no event shall Borrower or any Obligor be
obligated to pay, or Lender have any right or privilege to reserve, receive, or
retain, any interest in excess of the Maximum Rate. On each day, if any, that
the interest rate charged under this Agreement (the “Stated Rate”) exceeds the
Maximum Rate, the rate at which interest shall accrue shall automatically be
fixed by operation of this sentence at the Maximum Rate for that day, and shall
remain fixed at the Maximum Rate for each day thereafter until the total amount
of interest accrued equals the total amount of interest which would have accrued
if there were no such ceiling rate as is imposed by this sentence. Thereafter,
interest shall accrue at the Stated Rate unless and until the Stated Rate again
exceeds the Maximum Rate when the provisions of the immediately preceding
sentence shall again automatically operate to limit the interest accrual rate.

3.9 Negative Provisions.

(a) Lender shall not require Borrower to maintain a minimum Loan balance;
however, the Unused Line Fee shall apply.

(b) Upon any expiration or termination of this Agreement Borrower shall not be
required to offer to Lender a first right of refusal regarding any of Borrower’s
post-expiration or post-termination borrowings. For avoidance of doubt, Lender
shall not have a first right of refusal regarding any future financing of
Borrower.

Section 4. CONDITIONS PRECEDENT

4.1 Conditions Precedent. Lender shall not be obligated to make any Loan or
Advance hereunder (including the first) until all of the following have been
fully performed or satisfied to Lender’s satisfaction, or waived by Lender, as
determined in its sole discretion:

(a) Borrower has executed and delivered to Lender this Agreement and a
promissory note evidencing the Loan;

(b) Borrower has executed and delivered to Lender the Business Associate
Agreement;

(c) Borrower has submitted a certificate executed by the President and the Chief
Financial Officer of Borrower certifying (i) the names and signatures of the
officers of such Person authorized to execute Loan Documents, (ii) the
resolutions duly adopted by the Board of Directors of such Person authorizing
the execution of this Agreement and the other Loan Documents, as appropriate,
and (iii) correctness and completeness of the copy of the bylaws of such Person
attached thereto;

(d) Borrower has submitted a good standing certificate of Borrower in the state
of its organization issued by the appropriate governmental authorities in such
jurisdiction and copies of its organizational documents certified by such
authorities;

(e) Borrower has executed in favor of Lender and submitted to Lender an
authorization to file financing statements;

(f) Borrower has submitted to Lender a payoff letter executed by any Person to
whom Borrower owes money and designated by Lender (other than Indebtedness
permitted under Section 9.3), including without limitation CapitalSource;

(g) Borrower has caused to be executed a landlord’s or mortgagee’s waiver in a
form acceptable to Lender with respect to Borrower’s facility located at 9990
Park Meadows Drive, Lone Tree, Colorado 80124;

 

LOAN AND SECURITY AGREEMENT – PAGE 19

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(h) Borrower has submitted to Lender endorsements naming Lender as an additional
insured and loss payee on all liability insurance and all property insurance
policies of Borrower;

(i) Borrower has submitted to Lender an opinion of counsel for Borrower in form
and content acceptable to Lender covering such matters as Lender may request;

(j) Borrower has caused the judgments and liens listed in Schedule 4.1 to have
been paid in full;

(k) Borrower has established a Lockbox Account for receipts of proceeds of
Collateral, and a Lockbox Account for the receipt of any governmental healthcare
receivables;

(l) Borrower has submitted to Lender Lockbox Agreements in form and content
acceptable to Lender;

(m) Borrower has prepared and sent to each Account Debtor written notice in form
and content acceptable to Lender as shown on Exhibit D directing each Account
Debtor to send to the Lockbox address specified by Lender all remittances with
respect to all amounts payable by the Account Debtors, and copies of such
notices have been submitted to Lender;

(n) Borrower has executed and delivered to Lender Deposit Account Control
Agreements executed by Wells Fargo Bank, N.A., and any other depository banks
designated by Lender in form and content acceptable to Lender;

(o) Borrower has submitted to Lender fully executed Zero Balance Account
Agreements;

(p) after giving effect to the first Advance of the Loan and the Reserve
established by Lender, Borrower shall have the Minimum Closing Availability of
at least the amount shown on Schedule A, plus an amount sufficient so that no
trade payables are overdue, plus an amount sufficient to pay all book
overdrafts;

(q) The Reserve shall be no less than the amount shown on Schedule A;

(r) no Default or Event of Default shall have occurred and be continuing;

(s) Borrower has submitted copies of Borrower’s filed 2010 federal income
returns to Lender; and

(t) Borrower has submitted or executed such other documents, certificates,
opinions, and information that Lender may reasonably require.

4.2 Conditions to Subsequent Advances. The obligation of Lender to make any
Advance subsequent to the initial Advance on the Loan is subject to the
following conditions precedent:

(a) Conditions to First Advance. All of the conditions precedent set forth in
Section 4.1 have been satisfied.

(b) Borrowing Base Certificate. Lender shall have received from Borrower a
Borrowing Base Certificate acceptable to Lender executed by an Authorized
Representative (i) prior to the date of the requested Advance, and (ii) no less
than monthly.

 

LOAN AND SECURITY AGREEMENT – PAGE 20

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(c) Representations and Warranties. The representations and warranties contained
in each of the Loan Documents shall be true in all material respects with the
same force and effect as though made on and as of such date (unless made as of a
specified date, in which case such representation and warranty shall be true in
all material respects as of such date and except for such changes thereto
resulting from actions, events, occurrences or circumstances not prohibited
hereunder).

(d) Defaults and Events of Default. No Default or Event of Default shall have
occurred and be continuing.

(e) Adverse Change. No Material Adverse Change (or event or condition that could
reasonably be expected to cause or have a Material Adverse Change) has occurred
since the date of the Borrower’s most recently delivered financial statements
pursuant to Section 8.1.

(f) Legal Restriction. The Advance shall not be prohibited by any law or
regulation or any order of any court or governmental agency or authority.

(g) No Repudiation. Neither Borrower nor any Obligor shall have repudiated or
made any anticipatory breach of any of its obligations under any Loan Document.

Section 5. REPRESENTATIONS AND WARRANTIES OF BORROWER

5.1 Representations and Warranties. Borrower represents and warrants to Lender
as follows:

(a) Organization; Power; Qualification. Borrower is duly organized, validly
existing, and in good standing under the laws of its state of organization, and
is authorized to do business in each state in which the nature of its properties
or its activities requires such authorization, except where failure to be so
authorized to do business would not reasonably be expected to result in a
Material Adverse Change.

(b) Authorization; Enforceability. Borrower has the power and authority to, and
is duly authorized to, execute and deliver the Loan Documents to be executed by
Borrower. All of the Loan Documents to which Borrower is a party constitute the
legal, valid, and binding obligations of Borrower, enforceable in accordance
with their terms, except as limited by bankruptcy, insolvency, or similar laws
of general application relating to the enforcement of creditors’ rights
generally.

(c) Subsidiaries; Ownership. Except as shown on Schedule 5.1, Borrower does not
have any subsidiaries. The outstanding capital stock of Borrower have been duly
and validly issued and are fully paid and nonassessable.

(d) Conflicts. Neither the execution and delivery of the Loan Documents, nor
consummation of any of the transactions therein contemplated nor compliance with
the terms and provisions thereof, will contravene any provision of law or any
judgment, decree, license, order, or permit applicable to Borrower or will
conflict with, or will result in any breach of, any agreement to which Borrower
is a party or by which Borrower may be bound or subject, or violate any
provision of the organizational documents of Borrower, except where such
conflict or violation would not reasonably be expected to result in a Material
Adverse Change.

(e) Consents, Governmental Approvals, Etc. No governmental approval nor any
consent or approval of any third Person (other than those which have been
obtained prior to the date hereof, where the failure to obtain such consent or
approval would not reasonably be expected to result in a Material Adverse
Change) is required in connection with the execution, delivery, and performance
by Borrower of the Loan Documents. Borrower is in compliance with all applicable
governmental approvals and all applicable laws, except where non-compliance
would not reasonably be expected to result in a Material Adverse Change.

 

LOAN AND SECURITY AGREEMENT – PAGE 21

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(f) Borrower Information. Borrower has delivered to Lender a completed form of
Schedule 5.1, and all of the information contained in Schedule 5.1 is complete,
correct, accurate, and does not fail to state a material fact necessary for
Lender to complete its due diligence with respect to Borrower.

(g) Title; Liens. Except for items described in Schedule 5.1 and for Permitted
Liens, all of the properties and assets of Borrower are free and clear of all
Liens, and Borrower has good and marketable title to such properties and assets.
Each Lien granted, or intended to be granted, to Lender pursuant to the Loan
Documents is a valid, enforceable, perfected, first priority Lien and security
interest.

(h) Indebtedness and Guaranties. Set forth on Schedule 5.1 is a complete and
correct listing of all of Borrower’s (i) Indebtedness for Money Borrowed, and
(ii) guaranties and other contingent obligations.

(i) Litigation, Suits, Actions, Etc. Except as disclosed on Schedule 5.1, as of
the Closing Date no litigation, arbitration, governmental investigation,
proceeding, or inquiry is pending or, to the knowledge of Borrower, threatened
against Borrower or that could affect any of the Collateral.

(j) Tax Returns and Payments. All tax returns required to be filed by Borrower
in any jurisdiction have been filed and all taxes (including property taxes)
have been paid prior to the time that such taxes could give rise to any lien,
except taxes that are being contested in good faith by appropriate proceedings
and for which Borrower has (i) set aside on its books reserves in amounts no
less than required by GAAP, and (ii) notified Lender of the amount of tax in
dispute. Upon Lender’s request , Borrower will provide Lender with a written
analysis of the method by which the reserve has been determined.

(k) Financial Condition. Borrower has delivered to Lender copies of Borrower’s
(i) audited consolidated balance sheet and Borrower’s subsidiaries as of the
most recent Fiscal Year-End and the related audited consolidated statements of
operations, shareholders’ equity and cash flow, and (ii) unaudited consolidated
balance sheet of Borrower’s subsidiaries as of the most recently completed month
and the related unaudited consolidated statements of operations, shareholders’
equity and cash flow. The financial statements submitted shall fairly present
the financial condition of Borrower as of the respective dates and shall have
been prepared in accordance with GAAP (except, with respect to the unaudited
statements, for the presentation of footnotes and for applicable normal year-end
audit adjustments). There is no Indebtedness of Borrower which is not reflected
in the financial statements, and no event or circumstance has occurred since the
date of the financial statements which has had or could result in a Material
Adverse Change.

(l) ERISA. Neither Borrower nor any Related Company maintains or contributes to
any Benefit Plan other than those listed on Schedule 5.1. Further, (i) no
Reportable Event (as defined in ERISA) has occurred and is continuing with
respect to any Benefit Plan that when taken together with all other such
Reportable Events for which liability is reasonably expected by Borrower to
occur would reasonably be expected to result in a Material Adverse Change, and
(ii) the PBGC has not instituted proceedings to terminate any Benefit Plan. The
Borrower and each Related Company has satisfied the minimum funding standards
under ERISA with respect to its Benefit Plans and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code, and has not incurred any liability to the PBGC or a Benefit Plan under
Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.

(m) Capitalization. Borrower’s capital stock issued is correctly listed on
Schedule 5.1.

 

LOAN AND SECURITY AGREEMENT – PAGE 22

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(n) Defaults. No Default or Event of Default has occurred and is continuing.

(o) Borrowing Base Reports. All Accounts included in any Borrowing Base
Certificate constitute Eligible Accounts, except as disclosed in such Borrowing
Base Certificate.

(p) Payroll Taxes. Borrower has made all payroll tax deposits for all of its
employees on or before the date when due.

(q) Solvency. Borrower is Solvent. No transfer of property is being made by
Borrower and no obligation is being incurred by Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of
Borrower.

5.2 Survival of Representations. All representations and warranties by Borrower
herein shall be deemed to have been made on the date hereof and the date of each
Advance of a Loan, except where such representation or warranty is as of a
specified date, in which case, as of such specified date and except for such
changes thereto resulting from actions, events, occurrences or circumstances not
prohibited hereunder.

Section 6. SECURITY INTEREST AND COLLATERAL COVENANTS

6.1 Security Interest. To secure the payment and performance of the Obligations,
Borrower hereby mortgages, pledges, and assigns to Lender for itself, and as
agent for its Affiliates, all of the Collateral and grants to Lender for itself,
and as agent for its Affiliates, a security interest and Lien in and upon all of
the Collateral.

6.2 Collection of Accounts.

(a) If Borrower receives any monies, checks, notes, drafts, and other payments
relating to or constituting proceeds of Accounts or of any other Collateral,
Borrower shall immediately deposit all such items in kind in the appropriate
Lockbox Account, fully endorsed. Borrower shall advise each Account Debtor that
remits amounts payable on the Accounts or any other Person that remits amounts
to Borrower in respect of any of the Collateral by wire transfer or ACH to make
such remittances directly to the Lockbox Account.

(b) Borrower shall enter into Lockbox Agreements and shall cause all moneys,
checks, notes, drafts, and other payments relating to or constituting proceeds
of Accounts, including all governmental healthcare receivables, or of any other
Collateral, to be forwarded to a Lockbox Account for deposit.

(c) Deposits in the Lockbox Accounts shall be credited, subject to final
payment, to the payment of the Obligations after receipt and deposit into the
Lockbox Accounts plus the Collection Clearance Days shown on Schedule A. The
delay in applying funds held in the Lockbox Accounts to the Obligations shall in
all respects be limited so that interest on the Obligations is at all times less
than interest calculated at the Maximum Rate.

(d) Any payments which are received by Borrower (including any payment evidenced
by a promissory note or other instrument) shall be held in trust for Lender and
shall be (i) deposited in the Lockbox Accounts, or (ii) delivered to Lender, as
promptly as possible in the exact form received, together with any necessary
endorsements.

 

LOAN AND SECURITY AGREEMENT – PAGE 23

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6.3 Disputes, Returns and Adjustments.

(a) Borrower shall provide Lender with prompt written notice of amounts in
excess of the amount shown on Schedule A that are in dispute between any Account
Debtor and Borrower.

(b) Borrower shall notify Lender promptly of all returns and credits in respect
of any Account in excess of the amount shown on Schedule A, which notice shall
specify the Accounts affected and be included in the Borrowing Base Certificate
delivered to Lender. Borrower shall notify Lender promptly of any pending return
or credit in excess of the amount shown on Schedule A, and shall specify the
Account affected, the related Account Debtor, and the goods to be returned.

(c) Borrower may, in the ordinary course of business and absent the occurrence
and continuance of an Event of Default, grant any extension of time for payment
of any Account or compromise, compound, or settle the same for less than the
full amount thereof or release wholly or partly any Person liable for the
payment thereof or allow any credit or discount whatsoever thereon, provided
that (i) Borrower shall not have taken any such action that results in the
reduction of more than the amount shown on Schedule A with respect to any
account or more than the amount shown on Schedule A with respect to all Accounts
of Borrower in any fiscal year, and (ii) Borrower shall promptly notify Lender
(but not less often than ten (10) days after the end of each month) of the
amount of such adjustments and the Account(s) affected thereby.

6.4 Verification and Notice. Lender shall have the right at any time at
Borrower’s expense and in Lender’s own name, Borrower’s name, or an assumed name
(a) to verify the validity, amount, or any other matter relating to any
Accounts, provided, however, that absent a change in Lender’s risk rating of
Borrower, or Lender’s good faith belief that there has been material diminution
in the Collateral, Borrower shall not be obligated to pay that costs of more
than two (2) such verifications of Accounts per fiscal year, and (b) after the
occurrence and during the continuance of an Event of Default, and upon giving
written notice to Borrower, to notify Account Debtors to make payment of all
amounts directly to Lender and enforce collection of any such Accounts and to
adjust, settle, or compromise the amount or payment thereof, in the same manner
as Borrower.

6.5 Ownership; Defense of Title.

(a) Borrower shall defend its title in and to the Collateral and shall defend
the security interest of Lender in the Collateral against the claims and demands
of all Persons, provided that Borrower will not be required to defend title
(i) to immaterial assets and (ii) in instances where Lender has determined in
consultation with Borrower that the burden or costs of defending title to such
asset is excessive in view of the benefits to be obtained by Lender.

(b) Borrower shall (i) protect and preserve all properties material to its
business, including Intellectual Property, and maintain all tangible property in
good and workable condition in all material respects, with reasonable allowance
for wear and tear, and (ii) from time to time make or cause to be made all
needed and appropriate repairs, renewals, replacements, and additions to such
properties necessary for the conduct of its business.

6.6 Location of Offices and Collateral; Organizational Information. Borrower
shall not change the location of its place of business (or, if it has more than
one place of business, its chief executive office) or the place where it keeps
its books and records relating to the Collateral or change its name, identity,
corporate structure, or jurisdiction of organization without giving Lender at
least thirty (30) days’ prior written notice thereof. All inventory, other than
inventory in transit to any such location and inventory held by third-party
sales representatives in the ordinary course of business, shall at all times be
kept by Borrower at one or more of the locations set forth in Schedule 5.1.

 

LOAN AND SECURITY AGREEMENT – PAGE 24

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6.7 Records Relating to Collateral. Borrower shall at all times keep and
maintain complete and accurate records with respect to the Collateral on a basis
consistent with past practices of Borrower, and shall furnish such reports to
Lender upon reasonable request.

6.8 Inspection. Lender (by any of its officers, employees, or agents) shall have
the right at any time or times to (a) visit the properties of Borrower, inspect
the Collateral and the other assets of Borrower, and inspect and make extracts
from the books and records of Borrower, all during customary business hours,
(b) discuss Borrower’s business, financial condition, results of operations, and
business prospects with Borrower’s (i) principal officers, (ii) independent
accountants and other professionals providing services to Borrower, and
(iii) any other Person (except that any such discussion with any third parties
shall be conducted only in accordance with Lender’s standard operating
procedures relating to the maintenance of confidentiality of confidential
information of Borrower), (c) verify the amount, quantity, value, and condition
of, or any other matter relating to, any of the Collateral and, in this
connection, review, audit, and make extracts from all records and files related
to any of the Collateral, and (d) access and copy the records, lists, reports,
and data bases referred to in Section 6.8; provided, however, that absent a
change in Lender’s risk rating of Borrower, or Lender’s good faith belief that
there has been material diminution in the Collateral, or the occurrence and
continuance of an Event of Default, Borrower shall not be obligated to pay the
Expenses and Fees of more than two (2) such inspections, verifications or
appraisals of Collateral per fiscal year. Borrower will deliver to the Lender
upon reasonable request any instrument necessary to authorize an independent
accountant or other professional to have discussions of the type outlined above
with the Lender or for the Lender to obtain records from any service bureau
maintaining records on behalf of Borrower.

6.9 Maintenance. Other than with respect to any tangible personal property that
in the reasonable business judgment of Borrower has become obsolete or worn out
or is no longer necessary for the proper conduct of Borrower’s business or
otherwise consistent with past business practice, Borrower shall maintain all
tangible personal property of Borrower in good and working order and condition,
ordinary wear and tear excepted.

6.10 Power of Attorney. Borrower hereby appoints Lender as its attorney, with
power (a) to endorse the name of Borrower on any checks, notes, acceptances,
money orders, drafts, or other forms of payment or security that may come into
Lender’s possession, and (b) after the occurrence and during the continuance of
an Event of Default, to sign the name of Borrower on any invoice or bill of
lading relating to any Accounts, inventory, or other Collateral. Borrower also
authorizes Lender to file financing statements, without Borrower’s signature,
covering part or all of the Collateral in such jurisdictions as Lender shall
determine to be advisable.

Section 7. AFFIRMATIVE COVENANTS

So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, Borrower covenants and agrees as follows:

7.1 Preservation of Corporate Existence and Similar Matters. Borrower shall
preserve and maintain its existence as a corporation. Borrower shall remain
qualified as a foreign entity authorized to do business in each jurisdiction in
which the character of its properties or the nature of its business requires
such qualification or authorization, except where failure to do so would not
reasonably be expected to result in a Material Adverse Change.

7.2 Compliance with Requirements of Law. Borrower shall continuously comply with
all Requirements of Law, except where failure to do so would not reasonably be
expected to result in a Material Adverse Change.

 

LOAN AND SECURITY AGREEMENT – PAGE 25

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7.3 Conduct of Business. Borrower shall engage only in substantially the same
businesses conducted by Borrower on the date hereof.

7.4 Payment of Taxes and Claims. Borrower shall pay or discharge when due
(a) all taxes, assessments, and governmental charges imposed upon it or its
properties and (b) all lawful claims which, if unpaid, might become a Lien on
any properties of Borrower, except that this Section 7.4 shall not require the
payment or discharge of any such tax, assessment, charge, levy, or claim which
is being contested in good faith by appropriate proceedings and for which
adequate reserves have been established on the appropriate books of Borrower.

7.5 Accounting Methods and Financial Records. Borrower shall maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP.

7.6 Use of Proceeds. Borrower shall (a) use the proceeds of the Loan for (i) the
repayment of its outstanding bank debt, (ii) working capital and general
business purposes, (iii) financing Permitted Acquisitions (including fees and
expenses related to Permitted Acquisitions), (iv) payment of fees and expenses
incurred in connection with this Agreement, and (b) not use any part of such
proceeds to purchase or carry, or to reduce or retire or refinance any credit
incurred to purchase or carry, any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System) or for any
other purpose which would violate Regulation U or Regulation T or X of such
Board of Governors or for any other purpose prohibited by law or by the terms
and conditions of this Agreement.

7.7 Hazardous Waste and Substances; Environmental Requirements. Borrower shall
comply with all occupational health and safety laws and Environmental Laws in
all material respects, except where non-compliance would not reasonably expected
to result in a Material Adverse Change.

7.8 Accuracy of Information. All written information, reports, statements, and
other papers and data furnished to Lender shall be, at the time the same is so
furnished, complete and correct in all material respects.

7.9 Revisions or Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules attached hereto become outdated or
incorrect in any material respect, Borrower shall provide promptly to Lender
such revisions or updates to such Schedule(s) as may be necessary or appropriate
to update, or correct and update, such Schedule(s). Notwithstanding the
foregoing, the delivery to Lender of a revised or updated schedule shall not
constitute a waiver of, or consent to, any Default or Event of Default arising
as a result of any erroneous or incorrect information provided in any Schedule
previously delivered to Lender.

7.10 ERISA. Borrower shall provide to Lender, as soon as possible and in any
event within thirty (30) days after the date that (a) any Termination Event with
respect to a Benefit Plan has occurred or will occur, (b) the aggregate present
value of the Unfunded Vested Liabilities under all Benefit Plans has increased
to an amount in excess of $0, or (c) Borrower is in “default” (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
required by reason of its complete or partial withdrawal (as described in
Section 4203 or 4205 of ERISA) from such Multiemployer Plan, a certificate of
the president or the chief financial officer of Borrower setting forth the
details of such of the events described in clauses (a) through (c) as applicable
and the action which is proposed to be taken with respect thereto and,
simultaneously with the filing thereof, copies of any notice or filing which may
be required by the PBGC or other agency of the United States government with
respect to such of the events described in clauses (a) through (c) as
applicable.

 

LOAN AND SECURITY AGREEMENT – PAGE 26

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7.11 Insurance.

(a) Borrower shall keep or cause to be kept adequately insured by financially
sound and reputable insurers all of its property usually insured by Persons
engaged in the same or similar businesses. Without limiting the foregoing,
Borrower shall insure the Collateral of Borrower against loss or damage by fire,
theft, burglary, pilferage, loss in transit, business interruption, and such
other hazards as usual and customary in Borrower’s industry or as Lender may
specify in amounts and under policies by insurers acceptable to Lender, and all
premiums thereon shall be paid by Borrower and copies of the policies delivered
to Lender. If Borrower fails to do so, Lender may procure such insurance and
charge the cost to Borrower’s account. Each policy of insurance covering the
Collateral shall provide that at least ten (10) days’ prior written notice of
cancellation or notice of lapse must be given to Lender by the insurer. All
insurance policies required under this Section 7.11 shall name Lender as an
additional named insured and as a loss payee. Any proceeds of insurance referred
to in this Section 7.11 which are paid to Lender shall be, at the option of
Lender in its Permitted Discretion, either (i) applied to rebuild, restore, or
replace the damaged or destroyed property, or (ii) applied to the payment or
prepayment of the Obligations.

(b) Warning. Unless Borrower provides Lender with evidence of the insurance
coverage as required by this Agreement, Lender may purchase insurance at
Borrower’s expense to protect Lender’s interest. This insurance may, but need
not, also protect Borrower’s interest. If the Collateral becomes damaged, the
coverage Lender purchases may not pay any claim Borrower makes or any claim made
against Borrower. Borrower may later cancel this coverage by providing evidence
that Borrower has obtained property coverage elsewhere. Borrower is responsible
for the cost of any insurance purchased by Lender. The cost of this insurance
may be added to Borrower’s Loan balance. If the cost is added to Borrower’s Loan
balance, the interest rate on Loan will apply to this added amount. The
effective date of coverage may be the date Borrower’s prior coverage lapsed or
the date Borrower failed to provide proof of coverage. The coverage Lender
purchases may be considerably more expensive than insurance Borrower can obtain
on its own and may not satisfy any need for property damage coverage or any
mandatory liability insurance requirements imposed by applicable law.

7.12 Payroll Taxes. Borrower shall at all times make all payroll tax deposits
for all of its employees on or before the date when due.

7.13 Notice of Litigation, Claims Against the Collateral, and Other Matters.
Borrower shall promptly provide to Lender written notice of any of the
following:

(a) the commencement, to the extent Borrower is aware of the same, of all
actions and proceedings in any court against Borrower or any of the Collateral;

(b) any Lien, material claim, attachment, or material legal process asserted or
levied against Borrower or any material item of the Collateral;

(c) the commencement against any Obligor of any audit, investigation, judicial
or administrative proceeding, or any criminal or civil investigation initiated,
or claim filed against any Obligor by the Office of Inspector General, the
Department of Justice, Center for Medicare and Medicaid Services (CMS) (formerly
HCFA), or any other governmental authority, or any claim filed under the False
Claims Act or any other Requirement of Law;

(d) any amendment of any of the organizational documents of Borrower, including,
but not limited to, articles of incorporation or bylaws;

 

LOAN AND SECURITY AGREEMENT – PAGE 27

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(e) any change in the business, financial condition, results of operations, or
business prospects of Borrower that would reasonably be expected to result in a
Material Adverse Change;

(f) any change in the executive officers of Borrower;

(g) copies of all reports, audits, or investigations that Borrower sends to or
receives from any governmental authority;

(h) any Default or Event of Default, or event that would constitute a default or
event of default by Borrower under any material agreement (other than this
Agreement) to which Borrower is a party; and

(i) the occurrence of any other event which could reasonably be expected to have
a Material Adverse Change.

7.14 Notice of Healthcare Matters. Borrower shall promptly provide to Lender
written notice of any of the following:

(a) any investigation or pending or threatened proceedings relating to any
violation by Borrower, any Affiliate of Borrower, or any health care facility to
which Borrower or Affiliate provides services, of any Health Care Laws
(including, without limitation, any investigation or proceeding involving
violation of any of the Medicare and/or Medicaid fraud and abuse provisions);

(b) copies of any written recommendation from any governmental authority or
other regulatory body that Borrower, any Affiliate of Borrower, or any Obligor
to which Borrower or any Affiliate of Borrower provides services should have its
licensure or accreditation revoked, or have its eligibility to participate in
the Civilian Health and Medical Program of the Uniformed Services (“CHAMPUS”),
Medicare or Medicaid or to accept assignments or rights to reimbursement under
CHAMPUS, Medicaid or Medicare regulations revoked;

(c) notice of any claim to recover any alleged material overpayments with
respect to any receivables including, without limitation, payments received from
CHAMPUS, Medicare, Medicaid or from any private insurance carrier;

(d) notice of termination of eligibility of Borrower, Affiliate of Borrower, or
any health care facility to which Borrower provides services to participate in
any reimbursement program of any private insurance carrier or other Obligor
applicable to it;

(e) notice of any material reduction in the level of reimbursement expected to
be received with respect to any receivables;

(f) notice of any reimbursement payment contract or process that results or may
result in any material claim against Borrower or Affiliate of Borrower
(including on account of overpayments, settlement payments, appeals, repayment
plan requests); and

(g) copies of any report or communication from any governmental authority in
connection with any inspection of any facility of Borrower or any Affiliate of
Borrower.

7.15 Post-Closing Obligations. Subsequent to the Closing Date, Borrower shall
submit copies of its 2011 federal income tax returns within fifteen (15) days
after filing with the Internal Revenue Service, but in no event later than
October 15, 2012.

 

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Section 8. FINANCIAL AND COLLATERAL REPORTING

So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, Borrower covenants and agrees as follows:

8.1 Financial Statements.

(a) Audited Year-End Financial Statements. As soon as available, but in any
event within ninety (90) days after Borrower’s Fiscal Year-End, Borrower shall
furnish to Lender copies of Borrower’s Fiscal Year-End audited consolidated
balance sheet of Borrower and its subsidiaries as of the Fiscal Year-End and the
related audited consolidated statements of operations, shareholders’ equity and
cash flow for such fiscal year, in each case setting forth in comparative form
the figures for the previous year of Borrower and its subsidiaries, together
with an unqualified audit report and all notes to the financial statements
certified by independent certified public accountants selected by Borrower and
reasonably acceptable to Lender. In addition, on or before such date, Borrower
shall provide Lender with copies of all management reports received from its
certified public accountants.

(b) Monthly Financial Statements. As soon as available, but in any event within
twenty (20) days after the end of each month, Borrower shall furnish to Lender
copies of the unaudited consolidated balance sheet of Borrower and its
subsidiaries as of the end of such month and the related unaudited consolidated
statement of operations and statement of cash flow of Borrower and its
subsidiaries for such month and for the portion of the fiscal year of Borrower
through such month, certified by the chief financial officer of Borrower as
presenting fairly the financial condition and results of operations of Borrower
and its subsidiaries as of the date thereof and for the periods ended on such
date, subject to normal year-end adjustments and the absence of footnotes.

(c) Projected Financial Statements. At least thirty (30) but not more than sixty
(60) days prior to the Fiscal Year-End of Borrower, Borrower shall furnish to
Lender forecasted financial statements, prepared by Borrower, consisting of
consolidated balance sheets, cash flow statements and statements of operations
of Borrower and its subsidiaries, reflecting projected borrowing hereunder and
setting forth the assumptions on which such forecasted financial statements were
prepared, covering the one-year period until the next fiscal year end.

All such financial statements shall be complete and correct in all material
respects and all such financial statements referred to in clauses (a) and
(b) shall be prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein. Further, all such financial statements
shall be in a form reasonably acceptable to Lender.

8.2 Compliance Certificate. Borrower shall furnish to Lender quarterly a
covenant and compliance certificate of Borrower’s president or chief financial
officer in the form of Exhibit B.

8.3 Collateral Information and Reports.

(a) Schedules of Accounts. Within ten (10) days after the end of each month,
Borrower shall furnish to Lender a Schedule of Accounts. Lender must receive the
Schedule of Accounts no later than 5:00 p.m. Pacific Time at least two
(2) Business Days prior to the receipt of the Borrowing Base Certificate for
purposes of determining the amount of any Advance.

(b) Schedules of Accounts Payable. Within ten (10) days after the end of each
month, Borrower shall furnish to Lender a schedule of accounts payable of
Borrower and aging information as of the last Business Day of such month setting
forth (i) a detailed aged trial balance of all of Borrower’s then existing
accounts payable, specifying the name of and the balance due to each creditor,
and (ii) a reconciliation to the schedule of accounts payable to Borrower’s
general ledger as of such month end.

 

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(c) Borrowing Base Certificate. Not less often than monthly or such other period
of time as specified by Lender, Borrower shall furnish to Lender a Borrowing
Base Certificate, along with supporting documentation, in form and substance
satisfactory to Lender (including but not limited to information on sales,
credits, collections, adjustments, and Accounts).

(d) Reconciliation. Not less than monthly Borrower shall prepare and submit to
Lender a reconciliation of the most recently submitted Borrowing Base
Certificate to the Borrower’s most recently submitted month-end unaudited
consolidated balance sheet of Borrower and its subsidiaries.

(e) Tax Returns. Borrower shall within fifteen (15) days after filing, provide
Lender a copy of all federal, state and local income tax returns, all payroll
tax returns, all sales tax returns or any other tax return or filing filed by
Borrower or any of its subsidiaries.

(f) Other Information. Lender may, in its Permitted Discretion, from time to
time require Borrower to deliver the schedules and certificates described in
Section 8.3 more or less often and on different schedules than specified in such
Section. Borrower shall also furnish to Lender such other additional information
as Lender may from time to time reasonably request.

(g) Certification. Each of the schedules and certificates delivered to Lender by
Borrower pursuant to this Section 8.3 shall be in a form reasonably acceptable
to Lender and shall be signed and certified by the president, chief financial
officer, or treasurer of Borrower to be true, correct, and complete as of the
date indicated thereon. In the event any of such schedules or certificates are
delivered electronically or without signature by the president, chief financial
officer or treasurer, such schedules and/or certificates shall, by virtue of
their delivery, be deemed to have been signed and certified by such officer of
Borrower to be true, correct, and complete as of the date indicated thereon.

Section 9. NEGATIVE COVENANTS

So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, Borrower covenants and agrees as follows:

9.1 Financial Covenants.

(a) Debt Service Coverage Ratio. Borrower’s Debt Service Coverage Ratio measured
quarterly on a TTM basis shall be no less than the minimum ratio shown on
Schedule A.

(b) Minimum Current Ratio. Borrower’s Minimum Current Ratio measured quarterly
shall be no less than the minimum ratio shown on Schedule A

(c) Permitted Indebtedness, Permitted Liens and Permitted Acquisitions.
Notwithstanding anything to the contrary in this Agreement, no Permitted
Indebtedness, Permitted Lien, or Permitted Acquisition (defined below) shall
relieve Borrower from complying with Borrower’s obligations respecting
Borrower’s Debt Service Coverage Ratio and Borrower’s Minimum Current Ratio as
specified above.

9.2 Prohibited Distributions and Payments, Etc. Borrower shall not, directly or
indirectly, declare or make any Prohibited Distribution or Prohibited Payment,
except, (i) dividends or distributions declared, paid or made in favor of
another Borrower or its subsidiaries, (ii) any purchase, redemption or
retirement of equity interests of Borrower so long as the amount of such
purchases, redemptions or retirements does not exceed $750,000 in the aggregate
in any calendar year, (iii) payments with respect to

 

LOAN AND SECURITY AGREEMENT – PAGE 30

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any Permitted Acquisitions, (iv) payments for any earnout obligations incurred
in connection with Permitted Acquisitions, and (v) Borrow may make any
Prohibited Distribution or Prohibited Payment pursuant to and in accordance with
equity incentive plans or other benefit plans for directors, management or
employees.

9.3 Indebtedness. Except as disclosed on Schedule 5.1, Borrower shall not,
directly or indirectly, create, assume, or otherwise become or remain obligated
in respect of, or permit or suffer to exist or to be created, assumed, or
incurred or to be outstanding, any Indebtedness, except for Permitted
Indebtedness.

9.4 Liens. Borrower shall not, directly or indirectly, create, assume, or permit
or suffer to exist or to be created or assumed any Lien on any of the property
or assets of Borrower, real, personal or mixed, tangible or intangible, except
for Permitted Liens or the liens identified on Schedule 5.1.

9.5 Loans. Borrower shall not make any loans or advances to or for the benefit
of any officer, director, manager, shareholder, member, or partner of Borrower
except advances for routine expense allowances in the ordinary course of
business. Borrower shall not make or suffer to exist any loans or advances to or
for the benefit of any Affiliate of Borrower, except for intercompany loans or
advances to or for the benefit of another Borrower or its subsidiaries and
Permitted Indebtedness. Borrower shall not make any payment on any obligation
owing to any officer, director, manager, shareholder, member, partner, or
Affiliate of Borrower, except (i) payments of salary and payments to the holder
of any Subordinated Indebtedness, if any, in accordance with the terms of the
subordination agreement among such subordinated creditor, Borrower, and Lender
or (ii) repayments of intercompany loans or advances with another Borrower or
its subsidiaries.

9.6 Merger, Consolidation, Sale of Assets, Acquisitions.

(a) Borrower shall not, directly or indirectly, sell, lease, transfer or
otherwise dispose of any assets to any Person, except (i) the sale of inventory
in the ordinary course of business, (ii) the sale, transfer or other disposition
of assets that, in the reasonable business judgment of Borrower, are no longer
necessary for Borrower’s operations or has become obsolete or worn out, and
which is disposed of in the ordinary course of business, and (iii) absent the
occurrence and continuance of an Event of Default, any Borrower or any of its
subsidiaries may sell, lease, transfer or otherwise dispose of any assets to
another Borrower.

(b) Borrower shall not merge or consolidate with any other Person, or acquire
all or substantially all of the assets of any Person or the assets constituting
the business or a division or operating unit of any Person except (i) any
Borrower or any of its subsidiaries may merge into or consolidate with another
Borrower in a transaction in which Borrower is the surviving corporation,
(ii) any Borrower may acquire all or substantially all of the assets or another
Borrower or its subsidiaries, or (iii) on the express condition that no Default
or Event of Default has occurred and is continuing or would result therefrom,
Borrower may merge, consolidate or acquire the assets of another medical service
or manufacturing company or division of a company, or form a subsidiary company
(an “Acquisition”) upon completion of all of the following (a “Permitted
Acquisition”):

(i) Borrower has provided written notice to Lender of the proposed Acquisition
at least fifteen (15) Business Days prior to completing the Acquisition and has
disclosed to Lender all of the material terms of the proposed Acquisition;

(ii) Borrower has delivered to Lender at least fifteen (15) Business Days prior
to completing the Acquisition (other than the formation of a new subsidiary) a
pro forma covenant and compliance certificate showing the pro forma effect of
the Acquisition;

 

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(iii) Borrower shall cause no later than upon closing of the Acquisition for
Lender to have assigned to it, or otherwise obtain for Lender the beneficial
interest in and of, all transaction documents, perfection of liens, lien
searches, payoff letters, landlord waivers and collateral assignments;

(iv) The aggregate cash consideration for any Acquisition (other than the
formation of a new subsidiary), excluding any earnout payments and working
capital purchase price adjustments, shall not exceed six hundred fifty thousand
dollars ($650,000.00) in aggregate for all Acquisitions in each fiscal year; and

(v) Lender is granted not later than upon closing of the Acquisition a first
position security interest in the acquired entity or subsidiary’s assets as
security for the Obligations.

(c) Any Account in connection with a Permitted Acquisition that Borrower wishes
to be added to the Borrowing Base as an Eligible Account will be upon Lender’s
Permitted Discretion, and after Lender’s examination, review or audit at
Borrower’s expense and exclusive of any cost limitations for Expenses and Fees
for such examination, review or audit contained elsewhere in this Agreement.

9.7 Transactions with Affiliates. Borrower shall not, directly or indirectly,
effect any transaction with any Affiliate on a basis less favorable to Borrower
than would be the case if such transaction had been effected with a Person not
an Affiliate, except (i) transactions between or among Borrower and its
subsidiaries, (ii) employment and equity compensation arrangements with
employees and management of Borrower and its subsidiaries and payment of fees to
and reimbursement of member of the board of directors of Borrower and its
subsidiaries, (iii) any transaction permitted by Sections 9.2, 9.3, 9.5 or 9.6,
and (iv) the transactions disclosed on Schedule 9.7; provided that Borrower
shall not enter into any lease with any Affiliate.

9.8 Deposit Accounts. Borrower shall not establish any Deposit Account other
than those described on Schedule 5.1.

9.9 Guaranties. Borrower shall not, directly or indirectly, become or remain
liable with respect to any guaranty of any obligation of any other Person,
except guaranties of Permitted Indebtedness.

9.10 Benefit Plans. Borrower shall not, directly or indirectly, permit, or take
any action which would cause, the Unfunded Vested Liabilities under all Benefit
Plans of Borrower to exceed $0.

9.11 Sales and Leasebacks. Borrower shall not, directly or indirectly, enter
into any arrangement with any Person providing for the leasing from such Person
of real or personal property which has been or is to be sold or transferred,
directly or indirectly, by Borrower to such Person.

9.12 Amendments. Borrower shall not amend or modify, or permit any amendment or
modification to, whether orally, in writing, or otherwise, any agreement
evidencing or relating to Subordinated Indebtedness where such amendment or
modification provides for the following or which has any of the following
effects:

(a) increases the overall principal amount of any such Subordinated Indebtedness
or increases the amount of any single scheduled installment of principal or
interest;

(b) shortens or accelerates the date upon which any installment of principal or
interest becomes due or adds any additional mandatory redemption provisions;

 

LOAN AND SECURITY AGREEMENT – PAGE 32

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(c) shortens the final maturity date of such Subordinated Indebtedness or
otherwise accelerates the amortization schedule with respect to such
Subordinated Indebtedness;

(d) increases the rate of interest accruing on such Subordinated Indebtedness;

(e) provides for the payment of additional fees or increases existing fees; or

(f) amends or modifies any financial or negative covenant (or covenant which
prohibits or restricts Borrower from taking certain actions) in a manner which
is more onerous or more restrictive in any material respect to Borrower or which
is otherwise materially adverse to Borrower and/or Lender or, in the case of any
such covenant, which places material additional restrictions on Borrower or
which requires Borrower to comply with more restrictive financial ratios or
which requires Borrower to better its financial performance, in each case from
that set forth in the existing applicable covenants in the agreement evidencing
or relating to the Subordinated Indebtedness or the applicable covenants in this
Agreement.

9.13 USA Patriot Act. Borrower shall not (a) be or become subject at any time to
any law, regulation, or list of any government agency (including, without
limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Lender from making any advance or extension of credit to Borrower or from
otherwise conducting business with Borrower, or (b) fail to provide documentary
and other evidence of Borrower’s or its corporate officers’ identities as may be
requested by Lender at any time to enable Lender to verify Borrower’s identity
or to comply with any applicable law or regulation, including, without
limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. §5318

Section 10. DEFAULT

10.1 Events of Default. Each of the following events shall constitute an Event
of Default:

(a) Borrower fails to pay any principal or interest of any Loan when due and
payable;

(b) Borrower fails to pay any fee or other amount (other than principal or
interest of any Loan) payable under this Agreement or any other Loan Document
when due an payable, and such failure shall continue unremedied for a period of
five (5) days;

(c) Borrower fails to continuously observe, meet, or perform any term, covenant
obligation, or duty contained in this Agreement or any of the Loan Documents,
and such breach or failure is not cured within fifteen (15) days after Borrower
receives notice thereof from Lender;

(d) Any Obligor fails to timely perform properly any covenant in this Agreement
or in any of the other Loan Documents, and such breach or failure is not cured
within fifteen (15) days after Borrower receives notice thereof from Lender;

(e) Any Lockbox Agreement is breached or terminated, and such breach or failure
is not cured within fifteen (15) days after Borrower receives notice thereof
from Lender;

(f) There is an occurrence of any default or event of default under any of the
other Loan Documents, and such default is not cured within fifteen (15) days
after Borrower receives notice thereof from Lender;

(g) Borrower defaults under any other agreement with Lender, and such default is
not cured within fifteen (15) days after Borrower receives notice thereof from
Lender;

 

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(h) Any representation or warranty contained herein or in any of the other Loan
Documents is false or misleading in any material respect when made or deemed
made;

(i) Borrower shall (i) apply for or consent to the appointment of a receiver,
trustee, custodian, intervenor, or liquidator of Borrower or of all or a
substantial part of Borrower’s assets, (ii) file a voluntary petition in
bankruptcy, (iii) admit in writing that Borrower is unable to pay its debts as
they become due, (iv) make a general assignment for the benefit of creditors,
(v) file a petition or answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy or insolvency proceeding, or
(vii) take corporate, company, or partnership action for the purpose of
effecting any of the foregoing;

(j) Either (i) an involuntary petition or complaint shall be filed against
Borrower seeking bankruptcy or reorganization of Borrower or the appointment of
a receiver, custodian, trustee, intervenor, or liquidator of Borrower, or of all
or substantially all of Borrower’s assets, and such petition or complaint shall
continue undismissed for sixty (60) days or (ii) an order, order for relief,
judgment, or decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of Borrower or appointing an intervenor or liquidator of
Borrower, or of all or substantially all of Borrower’s assets;

(k) Any Obligor other than Borrower shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor, or liquidator of such
Obligor or of all or a substantial part of such Obligor’s assets, (ii) file a
voluntary petition in bankruptcy, (iii) admit in writing that such Obligor is
unable to pay its debts as they become due, (iv) make a general assignment for
the benefit of creditors, (v) file a petition or answer seeking reorganization
or an arrangement with creditors or to take advantage of any bankruptcy or
insolvency proceeding, or (vii) take corporate, company, or partnership action
for the purpose of effecting any of the foregoing;

(l) An involuntary petition or complaint shall be filed against any Obligor
other than Borrower seeking bankruptcy or reorganization of such Obligor or the
appointment of a receiver, custodian, trustee, intervenor, or liquidator of such
Obligor, or of all or substantially all of such Obligor’s assets, and such
petition or complaint shall continue undismissed for sixty (60) days; or an
order, order for relief, judgment, or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a petition or
complaint seeking reorganization of such Obligor or appointing an intervenor or
liquidator of such Obligor, or of all or substantially all of such Obligor’s
assets;

(m) Any money judgment is rendered against Borrower in an amount that exceeds,
individually or cumulatively with all unsatisfied judgments, $25,000 and that is
not paid within thirty (30) days, or the failure, within a period of ten
(10) days after the commencement thereof, to have discharged any attachment,
sequestration, or similar proceedings against Borrower’s assets;

(n) There is any default under any agreement concerning Subordinated
Indebtedness (subject to any applicable notice or grace periods).

(o) Lender shall cease to have a valid, perfected, and first priority Lien on
any Account or material item of the other Collateral, except as otherwise
expressly permitted herein or consented to in writing by Lender;

(p) There shall be any Material Adverse Change; or

(q) There shall be any Change of Control.

10.2 Remedies.

 

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(a) Automatic Acceleration and Termination of Facilities. Upon the occurrence
and during the continuance of an Event of Default, (i) the principal of and the
accrued interest on the Loans at the time outstanding, the Termination Fee, and
all other amounts owed to Lender under this Agreement or any of the Loan
Documents and all other Obligations, shall thereupon become due and payable
without presentment, demand, protest, notice of protest and non-payment, notice
of default, notice of acceleration or intention to accelerate, or other notice
of any kind, all of which are expressly waived, anything in this Agreement or
any of the Loan Documents to the contrary notwithstanding, and (ii) the
commitment of Lender to make Loans hereunder shall immediately terminate.

(b) Other Remedies. Without limiting the terms of Section 10.2(a) above, if any
Event of Default shall have occurred and be continuing, Lender, in its sole and
absolute discretion, may:

(i) declare the principal of and accrued interest on the Loans at the time
outstanding, and all other amounts owed to Lender under this Agreement or any of
the Loan Documents and all other Obligations, to be forthwith due and payable,
whereupon the same shall immediately become due and payable without presentment,
demand, protest, notice of protest and non-payment, notice of default, notice of
acceleration or intention to accelerate, or other notice of any kind, all of
which are expressly waived, anything in this Agreement or the Loan Documents to
the contrary notwithstanding;

(ii) terminate any commitment of Lender to make Loans hereunder;

(iii) enter upon any premises where Collateral is located and take possession of
the Collateral;

(iv) collect any Accounts from any Account Debtor;

(v) require Borrower to assemble the Collateral and make it immediately
available to Lender. Without limiting the generality of the foregoing with
respect to that portion of the Collateral that is comprised of Patient Lists,
Borrower shall make immediately available all Patient Lists to Lender;

(vi) sell all or any part of the Collateral at either a public or private sale
or both, by way of one or more contracts or transactions, for cash or on terms,
in a commercially reasonable manner and at such places (including Borrower’s
premises) as Lender reasonably determines;

(vii) collect, foreclose, receive, appropriate, set off, and realize upon any
and all Collateral;

(viii) without notice to Borrower (such notice being expressly waived), and
without constituting an acceptance of any Collateral in satisfaction of an
obligation (within the meaning of the UCC or any successor statute or law of
similar effect), set off and apply to the Obligations any and all balances and
deposits of Borrower held by Lender (including any amounts received in the
Lockboxes), or indebtedness at any time owing to or for the credit or the
account of Borrower held by Lender;

(ix) obtain the appointment of a receiver, trustee, or similar official over
Borrower to manage all of Borrower’s affairs and to effect all transactions
contemplated by this Agreement, realize upon the Collateral, or as is otherwise
necessary to perform or enforce this Agreement;

 

LOAN AND SECURITY AGREEMENT – PAGE 35

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(x) declare a default on any other contract or agreement between Borrower and
Lender; and

(xi) exercise any or all rights and remedies available under the Loan Documents,
at law and/or in equity including, without limitation, the rights and remedies
of a secured party under the UCC (whether or not the UCC is applicable).
Borrower agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days’ notice to Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notice, but notice given in any other reasonable manner or at any
other reasonable time shall also constitute reasonable notice.

10.3 Application of Proceeds. All proceeds from each sale of, or other
realization upon, all or any part of the Collateral following an Event of
Default shall be applied to the payment of the Obligations (with Borrower
remaining liable for any deficiency) in any order which Lender may elect with
the balance (if any) paid to Borrower or to whomsoever is entitled thereto.

10.4 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes, and appoints Lender (and all Persons designated by Lender from time
to time) as Borrower’s true and lawful attorney and agent in fact to act in the
name of Borrower to effectuate any term in this Agreement after the occurrence
and during the continuation of any Event of Default. Without limiting the
generality of the foregoing, Borrower’s power of attorney to Lender authorizes
Lender to:

(a) demand payment of the Accounts, enforce payment thereof by legal proceedings
or otherwise, settle, adjust, compromise, extend, or renew any or all of the
Accounts or any legal proceedings brought to collect the Accounts, discharge and
release the Accounts or any of them, and exercise all of Borrower’s rights and
remedies with respect to the collection of Accounts;

(b) prepare, file, and sign the name of Borrower on any proof of claim in
bankruptcy or any similar document against any Account Debtor or any notice of
Lien, assignment, or satisfaction of Lien or similar document in connection with
any of the Collateral;

(c) use the stationery of Borrower, open Borrower’s mail, notify the post office
authorities to change the address for delivery of Borrower’s mail to an address
designated by Lender, and sign the name of Borrower to verifications of the
Accounts and on any notice to the Account Debtors; and

(d) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts,
inventory, or other Collateral.

10.5 Additional Provisions Concerning Rights and Remedies.

(a) Time Essence. Time is of the essence of all of Borrower’s obligations under
this Agreement.

(b) Rights Cumulative. The rights and remedies of Lender under the Loan
Documents shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. In exercising such rights and remedies, Lender may be
selective and no failure or delay by Lender in exercising any right shall
operate as a waiver of such right nor shall any single or partial exercise of
any power or right preclude its other or further exercise or the exercise of any
other power or right.

(c) Waiver of Marshaling. Borrower hereby waives any right to require any
marshaling of assets and any similar right.

 

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10.6 Trademark License. All trademarks, patents, copyrights, service marks and
licenses owned by Borrower, and all trademarks, patents, copyrights, service
marks, and software licensed by Borrower, are listed on Schedule 5.1. Following
the occurrence and during the continuance of an Event of Default, Borrower
hereby grants to Lender the nonexclusive right and license to use all of
Borrower’s trademarks, patents, copyrights, service marks, and licenses and any
other trademarks, patents, copyrights, service marks, and licenses now or
hereafter used by Borrower to realize on the Collateral and to permit any
purchaser of any portion of the Collateral through a foreclosure sale or any
other exercise of Lender’s rights and remedies under the Loan Documents to use,
sell, or otherwise dispose of the Collateral bearing any such trademarks,
patents, copyrights, service marks, and licenses. Such right and license is
granted free of charge, without the requirement that any monetary payment
whatsoever be made to Borrower or any other Person by Lender.

Section 11. MISCELLANEOUS

11.1 Notices.

(a) Method of Communication. All notices and the communications hereunder and
thereunder shall be in writing. Notices in writing shall be delivered personally
or sent by overnight courier service, first class mail, postage pre-paid,
e-mail, or by facsimile transmission, and shall be deemed received, in the case
of personal delivery, when delivered, in the case of overnight courier service,
on the next Business Day after delivery to such service, in the case of mailing,
on the third day after mailing (or, if such day is a day on which deliveries of
mail are not made, on the next succeeding day on which deliveries of mail are
made) and, in the case of e-mail or facsimile transmission, upon transmittal.

(b) Addresses for Notices. Notices to any party shall be sent to it at the
following addresses, or any other address of which all the other parties are
notified in writing.

 

September 30, September 30,

            If to Borrower:

 

See Schedule 5.1 for Borrower’s address and

contact information.

 

with copy to

 

Perkins Coie LLP

1900 Sixteenth Street, Suite 1400

Denver, CO 80202

Attention: Jeffrey A. Beuche

Facsimile No.: 303-291-2400

JBeuche@perkinscoie.com

 

    

 

 

LOAN AND SECURITY AGREEMENT – PAGE 37

--------------------------------------------------------------------------------

September 30, September 30,       

            If to Lender:

 

Doral Healthcare Finance

10300 SW Greenburg Rd., Ste 465

Portland, OR 97223

 

Attention: Jennifer Sheasgreen or Jonathan Kott

Facsimile No.: 503-764-9760

jsheasgreen@doralbankusa.com

jkott@doralbankusa.com

and

 

Doral Money, Inc.

623 Fifth Avenue, 13th Floor

New York, NY 10022

 

Attention: Penko Ivanov, CFO

 

    

11.2 Press Releases. Lender may make press releases or other public disclosure
concerning this Agreement, including without limitation the execution of this
Agreement, and a description of the amount of credit facilities made available
to Borrower. Borrower authorizes Lender to use any of Borrower’s trademarks,
trade names or logos in such press releases or other public disclosure.

11.3 Setoff. In addition to any rights now or hereafter granted under applicable
law, and not by way of limitation of any such rights, after the occurrence and
during the continuance of any Event of Default, Lender and any participant with
Lender in the Loans are hereby authorized, but only to the extent permitted by
Requirements of Law (including without limitation, any Health Care Law governing
prohibiting setoff of certain governmental healthcare receivables), at any time
or from time to time, without notice to Borrower or to any other Person, any
such notice being hereby expressly waived, to setoff and to appropriate and to
apply any and all deposits (general or special, time or demand, including, but
not limited to, indebtedness evidenced by certificates of deposit, whether
matured or unmatured), but exclusive of any governmental healthcare receivables
that are not subject to setoff under Requirements of Law, and any other
indebtedness at any time held or owing by Lender or any participant to or for
the credit or the account of Borrower against and on account of the Obligations,
irrespective or whether or not (a) Lender shall have made any demand under this
Agreement or any of the Loan Documents, or (b) Lender shall have declared any or
all of the Obligations to be due and payable as permitted by Section 10.2 and
although such Obligations shall be contingent or unmatured.

11.4 Venue; Service of Process. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN MULTNOMAH
COUNTY, OREGON, and agrees and consents that service of process may be made upon
it in any legal proceeding relating to this Agreement, any borrowing hereunder,
or any other relationship between Lender and Borrower by any means allowed under
state or federal law. Any legal proceeding arising out of or in any way related
to this Agreement, any borrowing hereunder, or any other relationship between
Lender and Borrower may be brought and litigated in any one of the state or
federal courts located in Multnomah County, Oregon. Borrower and Lender waive
and agree not to assert, by way of motion, as a defense or otherwise, that any
such proceeding is brought in an inconvenient forum or that the venue thereof is
improper. Nothing herein shall limit the right of the Lender to bring
proceedings against Borrower in the courts of any other jurisdiction. Any
judicial proceeding by Borrower against the Lender involving, directly or
indirectly, any matter in any way arising out of, related to, or in connection
with this Agreement shall be brought only in a court in Portland, Oregon.
Borrower expressly waives personal service of the summons and complaint or other
process or papers issued therein and agrees that service of such summons and
complaint or other

 

LOAN AND SECURITY AGREEMENT – PAGE 38

--------------------------------------------------------------------------------

process or papers may be made by registered or certified mail addressed to
Borrower at the address referenced in Section 11.1, which service shall be
deemed to have been made on the date that receipt is deemed to have occurred for
registered or certified mail as provided in Section 11.1.

11.5 Assignment; Participation. All the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations under this Agreement. Lender may assign to one or more
Persons, or sell participations to one or more Persons in, all or a portion of
its rights and obligations hereunder and under this Agreement and any promissory
notes issued pursuant hereto and, in connection with any such assignment or sale
of a participation, may assign its rights and obligations under the Loan
Documents. Borrower agrees that Lender may provide any information that Lender
may have about Borrower or about any matter relating to this Agreement to any of
its Affiliates or their successors, or to any one or more purchasers or
potential purchasers of any of its rights under this Agreement or any one or
more participants or potential participants.

11.6 Amendments. Any term, covenant, agreement, or condition of this Agreement
or any of the other Loan Documents may be amended or waived, and any departure
therefrom may be consented to if, but only if, such amendment, waiver, or
consent is in writing signed by Lender and, in the case of an amendment, by
Borrower. Unless otherwise specified in such waiver or consent, a waiver or
consent given hereunder shall be effective only in the specific instance and for
the specific purpose for which given.

11.7 Further Cooperation. Borrower shall further cooperate with Lender’s
reasonable requests for additional documents Lender reasonably deems necessary
or desirable to effectuate the Loans, the security interest in the Collateral,
or any other term of this Agreement.

11.8 Expenses and Fees Earned when Paid. Expenses and Fees paid by Borrower
shall be earned by Lender when paid or charged to the Loans in accordance with
this Agreement.

11.9 Performance of Borrower’s Duties. If Borrower shall fail to do any act or
thing which it has covenanted to do under this Agreement or any of the Loan
Documents, Lender may (but shall not be obligated to) do the same or cause it to
be done either in the name of Lender or in the name and on behalf of Borrower,
and Borrower hereby irrevocably authorizes Lender so to act.

11.10 Indemnification. Borrower shall indemnify Lender and its Affiliates and
their officers, employees, directors, shareholders, agents, and legal counsel
(collectively, the “Indemnified Parties” and individually, an “Indemnified
Party”) and hold the Indemnified Parties harmless from and against all losses,
claims, damages, liabilities and related expenses (including reasonable
attorneys’ fees) suffered by any Indemnified Party, other than losses resulting
from an Indemnified Party’s gross negligence or willful misconduct, in
connection with (a) the exercise by Lender or any of its Affiliates of any right
or remedy granted to it under this Agreement or any of the Loan Documents or at
law, (b) any claim, and the prosecution or defense thereof, arising out of or in
any way connected with this Agreement or any of the Loan Documents, except in
the case of a dispute between Borrower and Lender in which Borrower prevails in
a final unappealed or unappealable judgment, and (c) the collection or
enforcement of the Obligations or any of them. BORROWER AND LENDER EXPRESSLY
INTEND THAT THE FOREGOING INDEMNITY SHALL COVER, AND THAT BORROWER SHALL
INDEMNIFY AND HOLD THE INDEMNIFIED PARTIES HARMLESS FROM AND AGAINST, COSTS,
EXPENSES, AND LOSSES SUFFERED AS A RESULT OF THE NEGLIGENCE OF ANY INDEMNIFIED
PARTY.

 

LOAN AND SECURITY AGREEMENT – PAGE 39

--------------------------------------------------------------------------------

11.11 All Powers Coupled with Interest. All powers of attorney and other
authorizations granted to Lender and any Persons designated by Lender pursuant
to any provisions of this Agreement or any of the Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or Lender has any obligations to make
Advances hereunder.

11.12 Severability of Provisions. Any provision of this Agreement or any other
Loan Document which is held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such invalidity, illegality or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

11.13 Governing Law. This Agreement and the promissory notes issued pursuant
hereto shall be construed in accordance with and governed by the laws of the
State of Oregon other than its conflict of laws principles.

11.14 Jury Waiver. BORROWER AND LENDER HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY, AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) BETWEEN
OR AMONG BORROWER AND LENDER AND LENDER’S AFFILIATES ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY RELATIONSHIP
BETWEEN LENDER AND BORROWER OR BETWEEN BORROWER AND ANY AFFILIATE OF LENDER.
THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING
DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS.

11.15 Attorney Fees and Costs. The prevailing party in any litigation arising
under or related to this Agreement shall be entitled to recover from the
non-prevailing party all of the prevailing party’s reasonable attorney fees
incurred in connection with such litigation, together with all costs, deposition
costs, court fees and other costs and expenses of such litigation.

11.16 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and shall be binding upon all
parties, their successors and assigns, and all of which taken together shall
constitute one and the same agreement. A facsimile or digital copy of any signed
Loan Document, including this Agreement, shall be deemed to be an original
thereof.

11.17 Patriot Act Notice. IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A
NEW ACCOUNT. To help the government fight the funding of terrorism and money-
laundering activities, Federal law requires all financial institutions to
obtain, verify, and record information that identifies each person or entity
that opens an account, including any deposit account, treasury management
account, loan, other extension of credit, or other financial services product.
What this means for Borrower: When Borrower opens an account, if Borrower is an
individual, Lender will ask for Borrower’s name, residential address, date of
birth, and other information that will allow Lender to identify Borrower, and if
Borrower is not an individual, Lender will ask for Borrower’s name, employer
identification number, business address, and other information that will allow
Lender to identify Borrower. Lender may also ask, if Borrower is an individual,
to see Borrower’s driver’s license or other identifying documents, and if
Borrower is not an individual, to see Borrower’s legal organizational documents
or other identifying documents.

11.18 Confidentiality. Lender agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates’ directors, officers, employees and agents, including
accountants, auditors, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature

 

LOAN AND SECURITY AGREEMENT – PAGE 40

--------------------------------------------------------------------------------

of such Information and instructed to keep such Information confidential),
(b) to the extent requested by any regulatory authority (including any
self-regulatory authority, such as the National Association of Insurance
Commissioners), (c) to the extent required by applicable laws or regulations or
by any subpoena or similar legal process, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies under this
Agreement or any other Loan Document or any suit, action or proceeding relating
to this Agreement or any other Loan Document or the enforcement of rights
hereunder or thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section 11.18, to (i) any assignee of or
participant in, or any prospective assignee of or participant in, any of its
rights or obligations under this Agreement or (ii) any actual or prospective
counterparty (or its advisors) to any swap or derivative transaction relating to
Borrower and its obligations, (g) with the prior written consent of Borrower or
(h) to the extent such Information (i) becomes publicly available other than as
a result of a breach of this Section or (ii) becomes available to Lender on a
nonconfidential basis from a source other than Borrower. For the purposes of
this Section 11.18, “Information” means all information received from Borrower
relating to Borrower or its business, other than any such information that is
available to Lender on a nonconfidential basis prior to disclosure by Borrower.
Any Person required to maintain the confidentiality of Information as provided
in this Section shall be considered to have complied with its obligation to do
so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information, but at a minimum such Person must exercise reasonable
care to maintain the confidentiality of such Information.

11.19 Statutory Disclaimer. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND
COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWER’S RESIDENCE, MUST BE IN WRITING, EXPRESS
CONSIDERATION, AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.

THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

 

   

Zynex Medical, Inc.

    By:  

/s/ Anthony Scalese         

      Name: Anthony Scalese       Title: Chief Financial Officer

 

   

Zynex, Inc.

    By:  

/s/ Thomas Sandgaard         

      Name: Thomas Sandgaard       Title: Chief Executive Officer

 

LOAN AND SECURITY AGREEMENT – PAGE 41

--------------------------------------------------------------------------------

   

Zynex NeuroDiagnostics, Inc.

    By:   /s/ Anthony Scalese       Name: Anthony Scalese       Title: Chief
Financial Officer

 

   

Zynex Monitoring Solutions Inc.

    By:   /s/ Anthony Scalese       Name: Anthony Scalese       Title: Chief
Financial Officer

 

   

DORAL HEALTHCARE FINANCE, a division of Doral Money, Inc.

    By:   /s/ Jennifer Sheasgreen       Name: Jennifer Sheasgreen       Title:
Managing Director

 

LOAN AND SECURITY AGREEMENT – PAGE 42

--------------------------------------------------------------------------------

EXHIBITS AND SCHEDULES

 

EXHIBIT A    FORM OF BORROWING BASE CERTIFICATE EXHIBIT B    FORM OF COVENANT
AND COMPLIANCE CERTIFICATE EXHIBIT C    FORM OF ADVANCE REQUEST EXHIBIT D-1   
FORM OF OBLIGOR NOTICE (NON-GOVERNMENTAL) EXHIBIT D-2    FORM OF OBLIGOR NOTICE
(GOVERNMENTAL) SCHEDULE A    Supplemental Terms and Conditions SCHEDULE 1.1   
Commercial Tort Claims SCHEDULE 4.1    Required Payoffs and Judgments and Liens
SCHEDULE 5.1    Borrower Information, Liens, Indebtedness for Money Borrowed,
Guaranties, Litigation, ERISA Benefit Plans

 

LOAN AND SECURITY AGREEMENT – PAGE 43

--------------------------------------------------------------------------------

Exhibit A

Borrowing Base Certificate

LOGO [g272479g49x84.jpg]

 

BORROWING BASE CERTIFICATE

Date:                                         

BBC #:                                         

Company: Zynex, Inc.

 

September 30, September 30, September 30, September 30, September 30, September
30, September 30,              Total     Commercial     BCBS     Medicare    
Workers
Comp     Self-Pay /
Attorney     1         Beginning Collateral     0.00        0.00        0.00   
    0.00        0.00        0.00         As of:               2         Plus:
Invoices/Claims (per attached report)     0.00        0.00        0.00       
0.00        0.00        0.00      3         Plus or Minus: Adjustments     0.00
       0.00        0.00        0.00        0.00        0.00      4         Less:
Collections     0.00        0.00        0.00        0.00        0.00        0.00
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    5         Total Collateral per this report     0.00        0.00        0.00
       0.00        0.00        0.00          

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    6         Ineligible Collateral               7             a. Over Cutoff
Period     0.00        0.00        0.00        0.00        0.00        0.00     
8             b. NCV Ineligible     0.00        0.00        0.00        0.00   
    0.00        0.00      9             c. Payor Class     0.00        0.00     
  0.00        0.00        0.00        0.00      10             d. Credits > 150
    0.00        0.00        0.00        0.00        0.00        0.00      11   
         e. Other     0.00        0.00        0.00        0.00        0.00     
  0.00          

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    12         Total Ineligibles     0.00        0.00        0.00        0.00   
    0.00        0.00          

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    13         Total Eligible Collateral per this report     0.00        0.00   
    0.00        0.00        0.00        0.00          

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    14         Advance Rates     85 %                  

 

 

              15         Borrowing Base Before Reserves     0.00             

 

LOAN AND SECURITY AGREEMENT – PAGE 44

--------------------------------------------------------------------------------

September 30, September 30, 16   Maximum Facility Limit        7,000,000.00     
    

 

 

  17   Availability, before reserves        0.00          

 

 

  18   Reserve: BCBS Repayment Plan        41,499          

 

 

  19   TOTAL Borrowing Base        0.00          

 

 

  20   Beginning Loan Balance        0.00          

 

 

  21   Plus: Advances Month-to-Date        0.00          

 

 

  22   Plus: Current Advance Requested        0.00          

 

 

  23   Less: Collections Month-to-Date (show as negative)        0.00          

 

 

  24   Plus: Interest and Adjustments Month-to-Date        0.00          

 

 

  25   Ending Loan Balance        0.00          

 

 

  26   Ending Availability        0.00          

 

 

 

The undersigned hereby certifies to Doral Healthcare Finance (“DHF”) that:

 

            Signature:  

 

              Name / Title:  

 

              Company Name:  

 

 

 

1.

I am authorized to certify such facts and make and deliver this Borrowing Base
Certificate for and on behalf of Borrower pursuant to that certain Loan and
Security Agreement, dated as of December 19, 2011 (as the same may be, amended,
restated, supplemented, or otherwise modified from time to time, the “Loan
Agreement”) between Borrower and DHF.

 

2.

All representations and warranties made by Borrower in the Loan Documents are
true and correct on and as of the date hereof as if such representations and
warranties had been made as of the date hereof.

 

3.

No Default or Event of Default has occurred and is continuing.

 

4.

Borrower has performed and complied with all agreements and conditions required
in the Loan Documents to be performed or complied with by it on or prior to the
funding of the advance requested hereby.

 

5.

There have been no modifications in the form of reimbursement rates, offsets, or
other contractual arrangements that would adversely affect the valuation or
collectibility of the Receivables. All Receivables listed in the Borrowing Base
Certificate are properly classified as Eligible and Ineligible.

 

6.

The Borrower has directed all Obligors to deliver all Receivable payments to the
proper account (including any Lockbox Account) as specified in the Loan
Agreement. All Receivables reflected in the Borrower’s most recently submitted
Accounts Receivable Aging Report are the subject of properly and validly billed
invoices for services provided and goods sold by the applicable Borrower in the
ordinary course of business. All Collections have been applied to the proper
invoices resulting in accurate aging totals for each aging bucket. There are no
known duplicate or fictitious claims or invoices included in the Receivables.
The Borrower has not diverted or permitted to be diverted any such payments on
Receivables and no Collections have been received that have not been applied to
reduce the Receivables.

 

LOAN AND SECURITY AGREEMENT – PAGE 45

--------------------------------------------------------------------------------

7.

The Borrower has paid all State and Federal payroll withholding taxes
immediately due and payable through the most recent payroll period.

 

8.

After DHF makes the advance requested hereby, the aggregate amount of the Loan
will not exceed the lesser of (i) the Borrowing Base and (ii) the Revolving
Credit Limit.

 

9.

All information contained in this Borrowing Base Certificate is true, correct,
and complete.

 

10.

Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Loan Documents.

 

LOAN AND SECURITY AGREEMENT – PAGE 46

--------------------------------------------------------------------------------

Exhibit B

Covenant and Compliance Certificate

Zynex, Inc. and Subsidiaries

Preparation date: (date)

As of date: (date)

This Covenant and Compliance certificate (“Certificate”) is delivered by Zynex
Medical, Inc., Zynex, Inc., Zynex NeuroDiagnostic, Inc., and Zynex Monitoring
Solutions Inc., (collectively, the “Borrower”) listed on the Loan and Security
Agreement between Borrower and Doral Healthcare Finance as may be amended,
restated, supplemented, or other modified from time to time, (“Agreement”).
Capitalized terms used but not defined herein shall have the meaning ascribed to
them in the Agreement. Any attached sheets reflecting additional items or
subsequent information will be incorporated herein by reference thereto. The
undersigned Authorized Officer certifies:

1. The submitted financial statements, reports, and information submitted to
Lender are complete, accurate and true and are otherwise in accordance with the
Agreement. The financial statements have been prepared consistently with past
periods and in accordance with GAAP. Such financial statements present fairly
the Borrower’s financial condition and results of operations as of the date
thereof and there are no material changes therein through the date of this
Certificate. There have been no modifications in the form of reimbursement
rates, offset or other contractual arrangements that would adversely impact the
valuation of the accounts receivable.

2. The persons identified in the most recent Incumbency Certificate or
Authorization Letter delivered by the Borrower to Lender have not changed.

3. The trade names or other names including addresses under which the Borrower
conducts business, disclosed in the Agreement, or in the most recently delivered
Certificate, have not changed.

4. The Deposit Accounts disclosed in the Agreement or in the most recently
delivered Certificate have not changed.

5. As of the date of this Certificate and since the date of the last
Certificate, the Borrower a) has not incurred, assumed, endorsed or otherwise
become responsible for obligations that would be in violation of the Agreement,
b) has not made any Restricted Payments, except for those Restricted Payments
expressly permitted as defined in the Agreement, and c) has not made any payment
of any Indebtedness owed to any officer, employee, shareholder, director or
other Affiliate of any Borrower that would be in violation of the Agreement, and
d) no event or condition that constitutes a Material Adverse Change has
occurred.

6. The Borrower is current on all State and Federal payroll withholding taxes
immediately due and payable as of the most recent payroll or reporting period.

7. All representations and warranties made by the Borrower in the Agreement or
any Loan document delivered on or before the date hereof are true and correct
and in all material respects on and as of the date hereof as if such
representations and warranties had been made as of the date hereof. No Default
or Event of Default is known to exist on the date hereof unless indicated below.

 

LOAN AND SECURITY AGREEMENT – PAGE 47

--------------------------------------------------------------------------------

Covenant Calculations:

Loan and Security Agreement Covenants (as identified in Section 9.1):

 

1)

Borrower shall maintain a Minimum TTM Debt Service Coverage Ratio, defined as
trailing twelve month EBITDA to the sum of principal and interest paid on
Indebtedness during such period plus cash taxes paid during such period,
measured quarterly of:

Covenant requirement: 1.1

Covenant actual:         Other addbacks include:  

Net Income

      Losses arising from the write-down of assets (incl impairment)  

Interest

      Non-cash equity-based compensation expense  

Taxes

      Non-recurring transaction fees, charges & exp (incl loan agmt)  

Depr

      Any extraordinary losses  

Amort

      Non-recurring transaction fees, chg, exp (permitted acquisitions)  

Other

      Non-cash dividends accrued with respect to equity interests   EBITDA     
—       Amounts actually paid in respect of documented severance pmt        
Non-recurring doc cash chgs related to merger & integration        
Non-recurring transaction fees, chgs, exp (secondary equity offer)         Cash
expense or chgs related to dispositions or restructurings         Chgs in the
fair value of earnout obligations & equity related liab         Amounts rec’d
constituting business interruption insurance         Losses on dispositions of
capital assets         Amount of any earnout obligations paid in cash        
Other non-cash, non-recurring chg or exp made in ordinary course         Total
Other:

To the sum of:

         

TTM Principal

       

TTM Interest

       

Cash Taxes

       

Total

             

Covenant actual:

       —        

 

LOAN AND SECURITY AGREEMENT – PAGE 48

--------------------------------------------------------------------------------

September 30, September 30, September 30, September 30, September 30, September
30, September 30,     

Covenant requirement met:

 

      

Yes or No

                 If covenant was not met, describe action
plan:                                             _____________________________

2)

    

Borrower shall maintain a Current Ratio, defined as the sum of Current Assets
divided by Current Liabilities determined in accordance with GAAP.

    

 

Covenant requirement:

            1.5           Current Assets             _________________________
         

Current Liabilities

            _______________________      Covenant actual:                     
Covenant requirement met:        Yes or No                If covenant was not
met, describe action plan:                                                     
        

3)

     Certification: I certify that these calculations are accurate.          
       Name:                                      Title:                       
              Date:                         

 

LOAN AND SECURITY AGREEMENT – PAGE 49

--------------------------------------------------------------------------------

Exhibit C

Form of Advance Request

Advance Request

 

Date of request:

  

Borrower:

  

Advance requested for:

   (date)

Amount:

  

The undersigned hereby certifies to Doral Healthcare Finance (“Doral”) in
his/her capacity as an officer of Borrower and not in his/her individual
capacity that:

I am the duly elected, qualified and acting Chief Financial Officer or other
officially authorized representative of the Company. All representations and
warranties made by Borrower in the Loan Documents are true and correct as
specified in Section 4.2 of the Loan and Security Agreement on and as of the
date hereof as if such representations and warranties had been made as of the
date hereof (unless made as of a specified date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date and except for such changes thereto resulting from
actions, events, occurrences or circumstances not prohibited hereunder). No
Default or Event of Default has occurred and is continuing. Borrower has
performed and complied with all agreements and conditions required in the Loan
Documents to be performed or complied with by it on or prior to the funding of
the advance requested hereby. After Doral makes the advance requested hereby,
the aggregate amount of the Loan will not exceed the lesser of (i) the Borrowing
Base and (ii) the Revolving Facility Limit. Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Loan Documents.

 

 

 

  Signature  

 

  Name  

 

  Title

 

LOAN AND SECURITY AGREEMENT – PAGE 50

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Exhibit D-1

NOTICE TO OBLIGORS

(NON-GOVERNMENTAL)

Re:                                                                 
                                                                             
(“Borrower”)

To Whom It May Concern:

The purpose of this letter is to notify you that Borrower has entered into a
financing arrangement with Doral Healthcare Finance that requires the remittance
of all payments on outstanding accounts receivable in accordance with the
following directions:

 

  (1)

All wire transfers directly to the following account:

_________________________ (bank)

_____________________ (address)

_____________________ (address)

Account Number: ____________________

ABA / Routing Number: __________

Confirm Phone Number: __________

Reference: ________________________________ (Borrower)

 

  (2)

All checks, remittance advices and other forms of payment to the following
address:

Borrower

c/o Collection Bank

_______________________ (address)

_______________________ (address)

Account Number: ____________________

Reference: ________________________________ (Borrower)

This direction may not be changed, modified, or rescinded other than by written
instrument executed by Doral Healthcare Finance.

This notice may contain both printed and typed information. Inquiries regarding
this notice may be directed to the undersigned at:
_____________________________(Borrower); Telephone No: _____________.

 

 

By: _____________________________________

Name: __________________________________

Title:____________________________________

 

LOAN AND SECURITY AGREEMENT – PAGE 51

--------------------------------------------------------------------------------

Exhibit D-2

NOTICE TO OBLIGORS

(GOVERNMENTAL)

Re: _________________________________________________ (“Borrower”)

To Whom It May Concern:

The purpose of this letter is to notify you that Borrower has entered into a
financing arrangement with Doral Healthcare Finance that requires the remittance
of all payments on outstanding accounts receivable in accordance with the
following directions:

 

  (3)

All wire transfers directly to the following account:

_______________________ (bank)

_____________________ (address)

_____________________ (address)

Account Number: _______________

ABA / Routing Number: __________

Confirm Phone Number: __________

Reference: _____________________________________ (Borrower)

 

  (4)

All checks, remittance advices and other forms of payment to the following
address:

Borrower

c/o Collecting Bank

_______________________ (address)

_______________________ (address)

Account Number: ____________________

Reference: ________________________________ (Borrower)

This notice may contain both printed and typed information. Inquiries regarding
this notice may be directed to the undersigned at: _____________________________
(Borrower); Telephone No: _____________.

___________________________________ (Borrower)

By: _____________________________________

Name: __________________________________

Title:____________________________________

 

LOAN AND SECURITY AGREEMENT – PAGE 52

--------------------------------------------------------------------------------

Schedule A

Supplemental Terms and Conditions

 

Facility Limit:

 

Seven million dollars ($7,000,000.00).

Interest Rate:

 

Base Rate plus Margin.

Base Rate:

 

The greater of: (a) LIBOR Rate, or (b) the Floor Rate.

Floor Rate:

 

3%

Margin:

 

3.75%

Default Rate:

 

Interest Rate, plus 4%.

Concentration Limit*:

 

N/A at Closing.

Advance Rate for Eligible Accounts*:

 

Eighty-five percent (85%) for Eligible Accounts not more than 150 days after the
date of invoice.

Advance Rate for Unbilled Accounts*:

 

N/A.

Cut-Off Date:

 

Billed: 150 days after the date of invoice.

NCV (by Account Debtor type)**:

 

HMO/PPO/Commercial

 

Twenty and seven tenths percent (20.70%)

Blue Cross/Blue Shield

 

Ten and six tenths percent (10.60%)

Medicare

 

Twenty-six and three tenths percent (26.30%)

Workers Compensation

 

Forty-four percent (44%)

Individual/self-pay/attorneys

 

Zero percent (0.00%)

Minimum Closing Availability:

 

$700,000.00

Reserve*:

 

N/A at Closing.

Origination Fee:

 

Three quarters of one percent (0.75%) of the Facility Limit due no later than
January 1, 2012.

Termination Date:

 

Third anniversary of the Closing Date.

 

*

Subject to change from time to time in Lender’s Permitted Discretion.

 

**

Subject to change from time to time in Lender’s sole discretion exercised in
good faith.

 

LOAN AND SECURITY AGREEMENT – PAGE 53

--------------------------------------------------------------------------------

Schedule A (continued)

Supplemental Terms and Conditions

 

Debt Service Coverage Ratio:

  

Borrower’s Debt Service Coverage Ratio as of each quarter-end shall be at least
1.10 to 1.00.

Minimum Current Ratio:

  

Borrower’s Minimum Current Ratio shall be at least 1.50 to 1.00, measured
quarterly.

Early Termination Fee:

  

Closing Date to the first anniversary of the Closing Date: 0.0% of the Facility
Limit; thereafter, 0.50% of the Facility Limit until the day immediately prior
to the third anniversary of the Closing Date.

Unused Line Fee:

  

0.50% per annum payable monthly in arrears on the first day of each month,
calculated on the difference between the average daily outstanding Loan balance
and the Facility Limit.

Collateral Monitoring Fee:

  

$1,500.00 per month payable monthly in arrears on the first day of each month.

Collection Clearance Days:

  

Four (4) Business Days clearance on all items deposited into all Lockbox
Accounts.

Over Advance Fee:

  

TBD at time of request.

Irregular Advance Request Fee:

  

1% of the amount of Borrower’s Advance Request not submitted in conformance with
the requirements of this Agreement.

Closing and legal fees:

  

All closing and legal fees incurred by Lender in connection with the Loan and
the Agreement, less any deposits previously made by Borrower to Lender.

Mailing Charges:

  

All costs and expenses of Lender.

Wire Transfer Fees:

  

$40.00 per wire.

Waiver Fee:

  

TBD at time of request.

Termination Reserve:

  

$10,000.00

Amount for notices in connection with Section 6.3 of the Agreement (Disputes,
Returns and Adjustments):

  

$25,000.00

 

LOAN AND SECURITY AGREEMENT – PAGE 54

--------------------------------------------------------------------------------

Schedule 1.1

Commercial Tort Claims

None.

 

LOAN AND SECURITY AGREEMENT – PAGE 55

--------------------------------------------------------------------------------

Schedule 4.1

Required Payoffs and Judgments and Liens

CapitalSourceBank

 

LOAN AND SECURITY AGREEMENT – PAGE 56

--------------------------------------------------------------------------------

Schedule 5.1

Borrower Information, Liens, Indebtedness for Money Borrowed and Guaranties,
Litigation,

ERISA Benefit Plans

 

Borrower’s legal name:

  

Zynex, Inc.

Zynex Medical, Inc.

Zynex NeuroDiagnostics, Inc.

Zynex Monitoring Solutions Inc.

 

Type of organization (e.g., corporation, partnership, limited liability
company):

  

Zynex, Inc. – Corporation

Zynex Medical, Inc. – Corporation

Zynex NeuroDiagnostics, Inc. – Corporation

Zynex Monitoring Solutions Inc. – Corporation

 

Trade names, fictitious names, assumed names, “doing business as” names, and
other legal names used by Borrower in preceding six (6) years:

  

Stroke Recovery Systems (no longer used)

Zynex Medical Holdings

Borrower’s state of incorporation or formation:

  

Zynex, Inc. – Nevada

Zynex Medical, Inc. – Colorado

Zynex NeuroDiagnostics, Inc. – Colorado

Zynex Monitoring Solutions Inc. – Colorado

 

Borrower’s taxpayer identification number:

  

Zynex, Inc. – 90-0214497

Zynex Medical, Inc. – 84-1451963

Zynex NeuroDiagnostics, Inc. – 27-2414415

Zynex Monitoring Solutions Inc. – 27-2414516

 

Jurisdictions in which Borrower is qualified to do business as a foreign entity:

  

Zynex, Inc. – None

 

Zynex Medical, Inc. – Alabama, Alaska, Arizona, California, Connecticut,
Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois,
Indiana, Kansas, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Missouri,
Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma,
Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Texas, Utah,
Virginia, Washington, West Virginia and Wyoming

 

Zynex NeuroDiagnostics, Inc. – None

 

Zynex Monitoring Solutions Inc. – None

 

Borrower’s federal employer identification number:

  

See tax identification numbers above.

 

LOAN AND SECURITY AGREEMENT – PAGE 57

--------------------------------------------------------------------------------

Borrower’s subsidiaries and affiliates:

  

Zynex Medical, Inc. (subsidiary of Zynex, Inc.)

Zynex NeuroDiagnostics, Inc. (subsidiary of Zynex, Inc.)

Zynex Monitoring Solutions Inc. (subsidiary of Zynex, Inc.)

 

Aggregate number of outstanding shares of capital stock:

  

Zynex, Inc. – 30,816,631 outstanding shares of Common Stock, $0.001 par value;
No shares of Preferred Stock outstanding (As of November 21, 2011)

 

Zynex Medical, Inc. – 1,000,000 outstanding shares of Common Stock, $0.000001
par value (100% owned by Zynex, Inc.)

 

Zynex NeuroDiagnostics, Inc. – 1,000,000 outstanding shares of Common Stock, no
par value (100% owned by Zynex, Inc.)

 

Zynex Monitoring Solutions Inc. – 1,000,000 outstanding shares of Common Stock,
no par value (100% owned by Zynex, Inc.)

 

Liens against Borrower or any of Borrower’s assets:

  

1. All assets lien by CapitalSource Bank (to be released at closing of this
Agreement).

 

2. The following Uniform Commercial Code liens that exist on the assets of the
Borrowers:

 

•    Debtor: Zynex Medical, Inc.

Security Party: CIT Technology Financing Services, Inc.

State/UCC No./Filing Date: Colorado/2008F044486/April 30, 2008

 

•    Debtor: Zynex, Inc.

Security Party: Xerox Corporation

State/UCC No./Filing Date: Nevada/201001250-9/May 18, 2010

 

•    Debtor: Zynex, Inc.

Security Party: Xerox Corporation

State/UCC No./Filing Date: Nevada/2010028638-6/November 12, 2010

 

Borrower’s Fiscal Year-End

  

December 31

 

Borrower addresses for notices:

  

9990 Park Meadows Drive

Lone Tree, CO 80124

Attention: Anthony Scalese

Fax: (800) 495-6695

ascalese@zynexmed.com

 

LOAN AND SECURITY AGREEMENT – PAGE 58

--------------------------------------------------------------------------------

Address of principal place of business or chief executive office of Borrower:

  

9990 Park Meadows Drive

Lone Tree, CO 80124

 

Location of Borrower’s receivable files, Patient Lists, and books and records:

  

9990 Park Meadows Drive

Lone Tree, CO 80124

 

List names, addresses, and states of incorporation or formation of all
Subsidiaries:

  

Zynex Medical, Inc. – Colorado

 

9990 Park Meadows Drive

Lone Tree, CO 80124

 

Zynex Monitoring Solutions Inc. – Colorado

 

9990 Park Meadows Drive

Lone Tree, CO 80124

 

Zynex NeuroDiagnostics, Inc. – Colorado

 

9990 Park Meadows Drive

Lone Tree, CO 80124

 

Names and titles of Authorized Representative:

  

Zynex, Inc. – Thomas Sandgaard (President and Chief Executive Officer), Anthony
Scalese (Chief Financial Officer)

 

Zynex Medical, Inc. – Thomas Sandgaard (President), Anthony Scalese (Chief
Financial Officer)

 

Zynex NeuroDiagnostics, Inc. – Thomas Sandgaard (President), Anthony Scalese
(Chief Financial Officer)

 

Zynex Monitoring Solutions Inc. – Thomas Sandgaard (President), Anthony Scalese
(Chief Financial Officer)

 

Addresses of all operating facilities of Borrower:

  

9990 Park Meadows Drive

Lone Tree, CO 80124

 

Names and addresses of all landlords for any office, facility, or building
leased by Borrower:

  

Spiral Lone Tree LLC

6909 West Ray Road, Suite 9

Chandler, AZ 85663

 

Addresses of all locations of Collateral (if different or additional to above
addresses):

  

9990 Park Meadows Drive

Lone Tree, CO 80124

 

Note: Inventory is also held by numerous sales representatives in multiple
locations/states

 

LOAN AND SECURITY AGREEMENT – PAGE 59

--------------------------------------------------------------------------------

List of all of Borrower’s Intellectual Property (include all trademarks,
patents, copyrights, service marks, and licenses):

  

Trademarks:

 

•     NEUROMOVE (trademark pending with USPTO – filed 9/29/2011 – Serial No.
85435694)

•     NEUROMOVE (Reg. No. 003146784, filed with EU-OHIM by Stroke Recovery
Systems on 5/19/2005)

•     Zynex Medical (Reg. No. 3,005,711, filed with USPTO by Zynex Medical, Inc.
on 10/11/2005)

•     Zynex (Reg. No. 3,167,369, filed with USPTO by Zynex, Inc. on 11/7/2006)

 

Service Marks:

 

•     TruWave

•     E-Wave

•     ValuTENS

•     ValuTENS II

•     IF 8000

•     IF 8100

•     NexWave

 

Copyrights:

 

•     Firmware used in Zynex products

•     Promotional and instructional materials relating to products

 

Patent:

 

•     Provisional patent for the development blood volume monitor

 

List all of Borrower’s Deposit Accounts (bank, account number, account name,
authorized signers):

  

See attached Annex 1 (Bank Accounts) to Schedule 5.1.

 

Lockbox Account information:

  

See attached Annex 1 (Bank Accounts) to Schedule 5.1.

Name and Address of Borrower’s attorneys:

  

Perkins Coie LLP

1900 Sixteenth Street, Suite 1400

Denver, CO 80202

Attention: Jeffrey A. Beuche

 

Name and Address of Borrower’s accountants:

  

GHP Horwath, P.C.

1670 Broadway, Suite 3000

Denver, CO 80202

 

LOAN AND SECURITY AGREEMENT – PAGE 60

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List all material contracts held by Borrower [For purposes of this response,
list any agreement affecting the cash flow of Borrower’s business in an amount
equal to or exceeding 0.25% of net annualized revenues]:

  

1.      Revolving Credit and Security Agreement, dated March 19, 2010, among
Zynex, Inc., Zynex Medical, Inc., Zynex NueroDiagnostic Inc., Zynex Monitoring
Solutions Inc. and CapitalSource Bank, as amended on February 11, 2011.

 

2.      Premise Lease, dated November 12, 2009, between Zynex Medical, Inc. and
Spiral Lone Tree, LLC.

 

3.      Amended and Restated Employment Agreement, dated August 11, 2011,
between Zynex, Inc. and Thomas Sandgaard.

 

4.      Various employment agreements with consultants, independent contractors
and sales representatives.

 

5.      Various purchase orders payable by the Borrowers for inventory and other
operating and fixed assets.

 

6.      Lease Agreement, dated February 16, 2010, between Zynex Medical, Inc.
and XEROX Corporation.

 

7.      Lease Agreement, dated May 11, 2010, between Zynex Medical, Inc. and
XEROX Corporation.

 

8.      Lease Agreement, dated November 9, 2010, between Zynex Medical, Inc. and
XEROX Corporation.

 

9.      Employee health insurance plan with Anthem Blue Cross.

 

10.    Premium Finance Agreement, dated December 1, 2010, between Zynex Medical,
Inc. and Premium Financing Specialists Corp. (financing of D&O insurance)
(agreement renewed as of December 1, 2011).

 

11.    Audit Request Settlement, dated September 22, 2011, between Zynex
Medical, Inc. and Rocky Mountain Hospital and Medical Service Inc. (Anthem).

 

12.    Lease Agreement, dated July 19, 2011, between Zynex, Inc. and
Mercedes-Benz of Denver (Mercedes-Benz Financial Services USA LLC).

 

13.    Lease Agreement, dated September 26, 2008, between Zynex Medical, Inc.
and Pitney Bowes Global Financial Services (mail equipment).

 

LOAN AND SECURITY AGREEMENT – PAGE 61

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List all Indebtedness for Money Borrowed: all of Borrower’s (i) Indebtedness for
Money Borrowed, and (ii) guaranties and other contingent obligations:

    

1.      Revolving Credit and Security Agreement, dated March 19, 2010, among
Zynex, Inc., Zynex Medical, Inc., Zynex NueroDiagnostic Inc., Zynex Monitoring
Solutions Inc. and CapitalSource Bank, as amended on February 11, 2011.

 

2.      Various purchase orders payable by the Borrowers for inventory and other
operating and fixed assets.

 

3.      Lease Agreement, dated February 16, 2010, between Zynex Medical, Inc.
and XEROX Corporation.

 

4.      Lease Agreement, dated May 11, 2010, between Zynex Medical, Inc. and
XEROX Corporation.

 

5.      Lease Agreement, dated November 9, 2010, between Zynex Medical, Inc. and
XEROX Corporation.

 

6.      Premium Finance Agreement, dated December 1, 2010, between Zynex
Medical, Inc. and Premium Financing Specialists Corp. (financing of D&O
insurance) (agreement renewed as of December 1, 2011).

 

7.      Lease Agreement, dated July 19, 2011, between Zynex, Inc. and
Mercedes-Benz of Denver (Mercedes-Benz Financial Services USA LLC).

 

8.      Lease Agreement, dated September 26, 2008, between Zynex Medical, Inc.
and Pitney Bowes Global Financial Services (mail equipment).

 

9.      Line of Credit with Micro Center for the purchase of computer equipment.

 

10.    Wells Fargo corporate credit card.

 

List all guaranties and other contingent obligations of Borrower:

    

 

Absolute Unconditional Lease Guaranty, dated November 12, 2009, between Zynex,
Inc. and Spiral Lone Tree, LLC.

 

LOAN AND SECURITY AGREEMENT – PAGE 62

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List all litigation, arbitrations, governmental investigations, proceedings, or
inquiries pending or, to the knowledge of Borrower, existing or threatened
against Borrower or that could affect any of the Collateral:

    

1. IRS - Throughout the later part of 2010, the Company received notices from
the IRS requesting varying amounts due for income taxes, interest and penalties
for failure to file an extension for 2010 income taxes. The Company engaged its
tax accountants Grant Thornton, LLP (“GT”) to resolve the issue. The Company has
provided power of attorney to GT to fully resolve. GT has appealed the notice
with the IRS in an effort to abate some or all of the interest/penalties, based
on, among other things, the transition of CFO. As of November 21, 2011, GT and
the Company have not received notice from the IRS regarding its final decision.
The Company has recorded a liability for the full amount of penalties and
interest on its balance sheet.

 

2. Litigation - A lawsuit was filed against the Company, its President and Chief
Executive Officer and its former Chief Financial Officer on April 6, 2009, in
the United States District Court for the District of Colorado (Marjorie and
David Mishkin v. Zynex, Inc. et al.). On April 9 and 10, 2009, two other
lawsuits were filed in the same court against the same defendants. These
lawsuits alleged substantially the same matters and have been consolidated. On
April 19, 2010, the plaintiffs filed a Consolidated Class Action Complaint
(Civil Action No. 09-cv-00780-REB-KLM). The consolidated lawsuit refers to the
April 1, 2009 announcement by the Company that it would restate its unaudited
interim financial statements for the first three quarters of 2008. The lawsuit
purports to be a class action on behalf of purchasers of the Company’s
securities between May 21, 2008 and March 31, 2009. The lawsuit alleges, among
other things, that the defendants violated Section 10 and Rule 10b-5 of the
Securities Exchange Act of 1934 by making intentionally or recklessly untrue
statements of material fact and/or failing to disclose material facts regarding
the financial results and operating conditions for the first three quarters of
2008. The plaintiffs asked for a determination of class action status,
unspecified damages and costs of the legal action.

 

On May 17, 2010, the Company filed a Motion to Dismiss. The plaintiffs filed an
Opposition to Defendant’s Motion to Dismiss, and on July 5, 2010, the Company
filed a Reply in Support of Defendant’s Motion to Dismiss. On March 30, 2011,
the United States District Court of Colorado entered an Order denying the
Company’s motion to dismiss. On November 8, 2011, the parties entered into an
agreement to settle the lawsuit for a payment of $2.5 million to the plaintiff
class in exchange for the dismissal with prejudice of all claims against all
defendants in the litigation. The settlement is expected to be fully funded by
insurance and is subject to final approval of the court. We cannot predict with
certainty the outcome of the litigation, and if the settlement is not finally
approved by the Court, we believe that we have meritorious defenses to the
claims in the complaint.

 

On July 28, 2011, a stockholder derivative suit was filed purportedly on behalf
of the Company in the United States District Court for the District of Colorado
against the Company’s President and Chief Executive Officer, its former Chief
Financial Officer and certain of its directors (Stephen Hatch, derivatively, on
behalf of Zynex Inc. v. Thomas Sandgaard et. al., 11-CV-01964). The lawsuit
alleges breach of fiduciary duty by the Company’s officers and directors in
connection with the restatement of the Company’s unaudited interim financial
statements for the first three quarters of 2008. The plaintiff is seeking, on
behalf of the Company, an undisclosed amount of damages and equitable relief. On
October 11, 2011, the Company and the individual defendants filed a motion to
dismiss, which is currently pending before the Court. On October 18, 2011,
certain individual defendants filed a motion requesting the plaintiff to post a
security bond pursuant to Nevada law.

 

LOAN AND SECURITY AGREEMENT – PAGE 63

--------------------------------------------------------------------------------

    

The Company has notified its directors and officers liability insurer of this
claim. At this time, the Company and its counsel are in settlement discussions
with the Plantiffs, however, the Company is not able to determine the likely
outcome of the legal matter, nor can it estimate its potential financial
exposure. Litigation is subject to inherent uncertainties, and if an unfavorable
resolution of this matter occurs, the Company’s business, results of operations,
and financial condition could be adversely affected.

 

3. EEOC investigation - The Company is currently under investigation from the
Equal Employment Opportunity Commission (EEOC) for an employee that was
terminated for performance (“Termed Employee”). The Company has filed the claim
with its insurance carrier and is currently working with Minor and Brown
attorneys at law. The Company presented an offer to settle for $30,000 to the
Termed Employee, in which the Termed Employee rejected and presented a counter
offer of $64,000. As of December 9, 2010, the EEOC was still in the process of
investigating the claim and the offer to settle has not been concluded. As of
November 21, 2011 offer still pending.

List all ERISA Benefit Plans of Borrower and Related Companies:

    

Zynex Inc. 401(k) Plan

Notice of HIPAA Audit

    

On December 2, 2011, the Borrower received notice from the Department of Health
and Human Services of an upcoming routine HIPAA audit.

 

LOAN AND SECURITY AGREEMENT – PAGE 64