Document:

Exhibit 10.12

 

OMTOOL, LTD.

 

                                                                                                July

30, 2002

 

Personal

and Confidential

 

Mr. Michael Sheehy

203 Pine Hill Road

Hollis, NH 03049

 

                Re:   Severance Eligibility

 

Dear Mike:

 

                In

connection with your “at-will” employment offer by Omtool, Ltd. (“Omtool” or the

“Company”), Omtool agrees to provide you with eligibility for the severance

benefits set forth in this letter agreement (the “Agreement”) if your

employment is terminated under the circumstances described below:

 

                1.             At-Will Employment. 

This Agreement is not a contract to employ you for a definite time

period, and is not intended to be and does not constitute a contract or part of

a contractual agreement for continued employment, either express or implied,

between the Company and you, it being acknowledged that your employment is “at

will” and that either you or Omtool may terminate the employment relationship

at any time, for any or no reason, with or without “Cause” (as defined herein)

and with or without prior notice.

 

                2.             Notice of Termination and other Matters.  Any termination of your employment, whether

by you or Omtool, will be communicated by written notice (“Notice of

Termination”) to the other party. All notices provided for in this Agreement

will be in writing and will be effective when delivered or mailed by U.S. mail,

postage prepaid, addressed to Omtool, Ltd., 8 Industrial Way, Salem, NH 03079,

and to you at the address shown above or to such other address as either Omtool

or you may have furnished to the other in writing.

 

                3.             Severance Payments and Benefits Upon a Qualified Termination.

                                (a)           Omtool will provide you with the

severance payments listed below only in the event of a Qualified Termination

and provided that you execute a general release agreement in a form acceptable

to the Company, except that the release will not effect your rights to

indemnification or vested Benefits, and provided that you continue to adhere to

any post-termination obligations including, but not limited to, any

non-competition, non-disclosure and non-solicitation covenants. A “Qualified

Termination” means your employment is terminated by the Company without “Cause”

or by you for “Good Reason” (i) within the first eighteen months of your

employment, or (ii) anytime after a Change of Control of the Company.  A termination of your employment will not

constitute a “Qualified Termination” if your employment is terminated because

(i) you die or become Disabled, (ii) Omtool terminates you for “Cause,” (iii)

you resign or retire without “Good Reason”, (iv) you resign with “Good Reason”

or you are terminated without “Cause” after the first eighteen months of your

employment but before a Change of Control, or (v) the Company files for

bankruptcy.

 

 

 

 

 

                                (b)

          If a Qualified Termination

occurs, you will be eligible to receive the following severance pay and

benfits:

 

                                                (i)            Severance Pay.  Severance pay, in equal monthly installments

at your monthly base salary rate in effect immediately prior to the Qualified

Termination, for twelve months from the date of the Qualified Termination. The

first severance payment will be made upon the first regularly scheduled Company

payday on or following your execution of the release agreement referenced

above, in accordance with the Company’s normal payroll practices as established

or modified from time to time, and will be subject to all federal, state and/or

local payroll and withholding taxes.

 

                                                (ii)           Payment of COBRA Premiums.   If you are eligible for and elect to

continue health and dental continuation coverage in accordance with the

Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company

will pay your COBRA premium (equal to the amount it paid during your

employment) until the earlier of (x) 12 months from the date of the Qualified

Termination, or (y) the date on which you become ineligible to receive COBRA

coverage. During the period in which the Company is providing this benefit, you

will be responsible for paying the portion of the premiums required for active

employees, which will be automatically deducted from the severance payments

referenced in Section 3(b)(i). Thereafter, you will be responsible for all

COBRA payments.

 

                                (c)           In addition to the amounts set forth

in Section 3(b), in the event a Qualified Termination occurs within one year

after a Change of Control, any unvested stock options issued to you will become

immediately vested and exercisable.

 

                                (d)           In the event it shall be determined

that any payment by the Company to you (or for your benefit pursuant to this

Agreement) is an “excess parachute payment” within the meaning of Section 280G

of the Internal Revenue Code of 1986, as amended (the “Code”), in connection

with, or arising out of, your employment with the Company or a Change in

Control of the Company or a substantial portion of its assets (a “Payment”),

and would be subject to the excise tax imposed by Section 4999 of the Code (the

“Excise Tax”), then the Company shall pay to you an additional payment (the

“Gross-Up Payment”) in an amount such that the amount paid to you, net of any

Excise Tax on such Payment and any additional Excise Tax or Income Tax on the

Gross-Up Payment, shall equal the amount of such Payment. Such Gross-Up Payment

shall be subject to and paid net of any applicable withholding. The amount of

any Gross-Up Payment or Excise Tax shall be reasonably determined by the

Company after consultation with its legal and tax advisors. In the event that

the Excise Tax with respect to the Payments is subsequently determined to be

less than the amount taken into account for purposes of calculating the

Gross-Up Payment, you shall promptly repay to the Company the portion of the

Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have

been payable in connection with the actual Excise Tax imposed on the Payments.

If the actual Excise Tax imposed on the Payments is greater than originally

calculated by the Company the Company will promptly make any required

additional payments to fulfill its obligations under this section.

 

                                (e)

          You will not be entitled to any

of the severance payments and/or benefits set forth above in Sections 3(b) or

3(c) if your employment termination from Omtool is not a Qualified

Termination.  If your employment

termination is not a Qualified Termination, your employment and this Agreement

will automatically terminate and the Company will pay you (or in the case of

death, your designated beneficiary or, if no beneficiary has been designated by

you, your estate) your base salary earned but unpaid and vacation pay accrued

but unused as of the termination date.

 

                                (f)

           If Omtool determines that you

have violated the terms of any non-competition or confidentiality provision

contained in any employment, consulting, advisory, non-disclosure,

non-competition or other similar agreement between you and Omtool, then you

agree that Omtool, regardless of the manner of your employment termination, can

refuse to pay and/or cease paying and/or performing all severance-related

obligations under this Section 3 to the extent permitted by applicable law.  The cessation of these severance payments

and benefits shall be in addition to, and not as an alternative to, any other

remedies at law or in equity available to the Company, including the right to

seek an injunction, which you shall not oppose.

 

                4.             Definitions.  For

the purposes of this Agreement, the terms listed below are defined as follows:

 

                                (a)           Disabled. 

             You are “Disabled” for

the purposes of this Agreement if you have been absent from the full-time

performance of your duties with Omtool for 180 days, whether or not

consecutively, within a any consecutive 12-month period, because of incapacity

due to physical or mental impairment that substantially limits a major life

activity, and you fail to resume performance of your essential job duties, with

or without reasonable accommodation (provided that any such accommodation does

not cause the Company an undue hardship).

 

                                (b)           Cause.    “Cause,”

which shall be determined by the Company’s Board of Directors (the “Board”),

shall mean: (i) your failure or refusal to render services to the Company, (ii)

your failure to perform adequately the duties of your employment after you

receive written notice from the Board setting forth in reasonable detail the

nature of the performance inadequacies and you fail to cure such inadequacies

within 30 days from receiving such notice, (iii) your commission of any act of

gross negligence, dishonesty which materially adversely affects the company or

its employees, insubordination or breach of fiduciary duty, (iv) your material

breach of any term of this Agreement or any other agreement with Omtool, (v)

your conviction of or plea of nolo

contendere to (A) any felony or (B) any misdemeanor involving fraud,

deceit, moral turpitude or embezzlement, (vi) your disregard of or failure to

follow the Company’s rules or policies, or your commission of any other action

that may cause material injuries to the Company, including your

misappropriation of any money or other assets or property (tangible or

intangible) of the Company.

 

 

                                (c)           Change of Control.  A “Change of Control” shall mean the

occurrence of an “Acquisition” as defined in the Company’s 1997 Stock Plan, as

amended, during the period in which you are eligible to receive the severance

payments listed in Section 3.

 

 

                                (d)           Good Reason.  A termination by you for “Good Reason” will occur whenever any of

the following circumstances have taken place, without your written consent,

which the Company and the Board after receiving written notice thereof, have

failed to cure within 30 days of  receiving

such notice: (i) your position, duties and/or responsibilities are

significantly and materially diminished, such that you are effectively demoted;

(ii) your base salary is reduced; or (iii) in the event of a Change of Control,

Omtool or any person in control of Omtool requires you to perform your

principal duties in a new location outside of a radius of 30 miles from your

business location at the time of the Change of Control.

 

                5.             Assignment.  Omtool may assign this Agreement, which will inure to the benefit

of and be reinforced by Omtool’s successors and assigns.  You may not assign this Agreement.

 

                6.             Confidentiality.     The terms and conditions of

this Agreement are strictly confidential. 

You shall not discuss or reveal any information concerning this letter

agreement to any past or present Omtool employee or any third person or entity

other than your counsel and members of your immediate family.

 

                7.             Miscellaneous.

 

                                (a)           In

the event of any dispute, this Agreement will be construed as a whole, will be

interpreted in accordance with its fair meaning, and will not be construed

strictly for or against either you or the Company.  If one or more of the provisions contained in this Agreement

shall for any reason be held to be excessively broad as to scope, activity,

subject or otherwise so as to be un enforceable at law, such provision or

provisions shall be construed by the appropriate judicial body by limiting or

reducing it or them, so as to be enforceable to the maximum extent compatible

with the applicable law as it shall therein appear.

 

                                (b)           This

Agreement shall be deemed to be made and entered into in the State of New

Hampshire.  This Agreement and any

claims arising out of this Agreement (or any other claims arising out of the

relationship between the parties) shall be governed by and construed in

accordance with the laws of the State of New Hampshire and shall in all

respects be interpreted, enforced and governed under the internal and domestic

laws of such State, without giving effect to the principles of conflicts of

laws of such State.

 

                                (c)           No

waiver by the Company of any breach by you of any provision hereof shall be

deemed to be a waiver of any later or other breach thereof or as a waiver of

any other provision of this Agreement. 

This Agreement may not be waived, changed, discharged or terminated

orally or by any course of dealing between the parties, but only by an

instrument in writing signed by you and either the Company’s Chief Executive or

a designated, disinterested member of the Company’s Board of Directors.

 

                                (d)           You

must execute a legally enforceable separation agreement and general release in

a form acceptable to Omtool prior to the receipt of any payments set forth

above.

 

 

 

                                 (e) This Agreement is the exclusive agreement

with respect to the severance benefits payable to you in the event of a

termination of your employment.  All

prior negotiations and agreements regarding severance benefits, whether oral or

written, express or implied, are hereby superseded and cancelled.

 

                If

this letter sets forth our agreement, kindly sign and return to Omtool the

enclosed copy of this letter.

 

                                                                                                Sincerely,

 

                                                                                                OMTOOL, LTD.

 

                                                                                                By:       /s/ Timothy P. Losik

 

                                                                                                Title:     Chief Operating Officer & CFO

 

Accepted and agreed to this

5th day of August, 2002

 

                                                                

                Michael Sheehy

 

                /s/ Michael Sheehy              

SignatureExhibit 10.1

 

THIRD AMENDED AND

RESTATED FORBEARANCE AGREEMENT

                This

Third Amended and Restated Forbearance Agreement (the “Agreement”) is made

effective the 30th day of October, 2002, and is by and among

American Medical Technologies, Inc. a Delaware corporation (the “Borrower”) and

Bank One, N. A. (formerly known as Bank One, Michigan and collectively with its predecessors and

assignors shall be referred to herein as the “Lender”).

 

W I T N E S S E T

H:

 

                In

consideration of the sum of Ten Dollars ($10.00), the mutual covenants and

agreements contained herein and other valuable consideration, the receipt and

sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.             Recitations.

 

1.1           The

Credit Agreement.  On or about September 21, 2000, the Lender

and the Borrower executed a certain Line of Credit Agreement (the “Credit

Agreement”) providing for certain loans made by Lender to Borrower and

evidenced by a Revolving Business Credit Note (the “Note”). Among other

documents executed contemporaneously with the Credit Agreement were a

Continuing Security Agreement and UCC-1 Financing Statements (collectively, the

“Loan Documents”).

 

1.2           The

First Amendment.  On or about March 20, 2001, the Lender and

Borrower executed that certain letter agreement constituting an amendment to

the Credit Agreement (the “First Amendment”) providing for certain amendments

to the Credit Agreement as set forth therein.

 

1.3           The Second Amendment. 

On or about June 25, 2001, the Lender and Borrower executed that certain

letter agreement constituting an amendment to the Credit Agreement (the “Second

Amendment”) providing for certain amendments to the Credit Agreement as set

forth therein.

 

1.4           The

Credit Card Balance.  Borrower is

further indebted to Lender in the approximate amount of $140,722.61 resulting

from charges made by Borrower utilizing a business charge card line of credit

(the “Credit Card Balance”).

 

1.5           Payable Status.  All obligations of Borrower are in default

and are presently due and payable and Borrower has requested that Lender: (a)

forbear from taking any actions to collect the amounts due under the Loan

Documents, and (b) agree to the other terms and conditions set forth herein.

The Lender is 

 

 

 

willing to agree to the

Borrower’s request on the condition that the Borrower fully and faithfully

perform its obligations under the Loan Documents, including but not limited to,

the Credit Agreement, as amended.

 

1.6    The Forbearance Agreement.  At Borrower’s request, Borrower and Lender entered into that certain

Forbearance Agreement dated November 6, 2001 (the “Forbearance Agreement”)

whereby the Lender agreed to forbear from exercising certain of its rights and

remedies under the Loan Documents for a period ending on December 20, 2001 in

reliance upon the covenants, representations, and warranties of Borrower

contained in the Forbearance Agreement.

 

1.7    The Amended &

Restated Forbearance Agreement.  At Borrower’s request, Borrower and Lender entered into that certain

Amended and Restated Forbearance Agreement dated December 20, 2001 (the

“A&R Forbearance Agreement”) whereby the Lender agreed to forbear from

exercising certain of its rights and remedies under the Loan Documents for a

period ending on February 18, 2002 in reliance upon the covenants,

representations, and warranties of Borrower contained in the A&R Forbearance Agreement.  The

A&R Forbearance Agreement

amended and restated the terms and provisions of the Forbearance

Agreement.

 

1.8    The Second Amended

& Restated Forbearance Agreement. 

At Borrower’s

request, Borrower and Lender entered into

that certain Second Amended and Restated Forbearance Agreement dated February

18, 2002 (the “Second A&R Forbearance Agreement”) whereby the Lender agreed

to forbear from exercising certain of its rights and remedies under the Loan

Documents for a period ending on September 15, 2002 in reliance upon the covenants,

representations, and warranties of Borrower contained in the Second A&R Forbearance Agreement.  The

Second A&R Forbearance Agreement amended and restated the A & R

Forbearance Agreement.  This Agreement

is intended to amend and restate the terms and provisions of the Second A&R

Forbearance Agreement.

 

1.9   Borrower’s Request.  Borrower continues to be in default

in the payment and/or performance of the Note and other Loan Documents.  Borrower acknowledges that the indebtedness

evidenced by the Note is due and owing to the Lender without right of setoff,

and such indebtedness has not been paid in accordance with the terms of the

Loan Documents.  Borrower has requested

that the Lender forebear from exercising its rights and remedies under the Loan

Documents for a period of time as specified herein in reliance upon the

covenants, representations, and warranties of Borrower and for other good and

valuable consideration.

 

The term “Loan Documents”

shall include the Credit Agreement, the Note, the First Amendment, the Second

Amendment, the Credit Card Balance, the Forbearance Agreement, the A&R

Forbearance Agreement, the Second A&R Forbearance Agreement, this Agreement

and all guaranties and other writings, documents, 

 

 

2

 

instruments, security

agreements contemplated herein or therein, respectively.  The term “Obligations” shall include the

Note, the Credit Card Balance and all other obligations pursuant to which

Borrower or any guarantor may owe performance or payment to Lender.  The term “Indebtedness” shall include the

Note, the Credit Card Balance and all other indebtedness owing from Borrower or

any guarantor to Lender.

 

2.             Acknowledgment of Amounts Due

and Maturity Date.   Lender and

Borrower acknowledge that as of the beginning of business on October 15, 2002,

the outstanding balance in respect of the Indebtedness was as follows:

 

	

   

  	

   

  	

  Principal

  	

   

  	

  Accrued and Unpaid Interest

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Note:

  	

   

  	

  $

  	

  1,655,656.25

  	

   

  	

  $

  	

  7,848.12

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Credit Card

  Balance:

  	

   

  	

  $

  	

  140,722.61

  	

   

  	

   

  	

   

  
								

 

Subject to Section 20

hereof, Borrower waives any and all rights to notice of payment default or any

other default, protest and notice of protest, dishonor, diligence in collecting

and the bringing of suit against any party, notice of intention to accelerate,

notice of acceleration, demand for payment and other notices whatsoever

regarding the Credit Agreement, as amended, the Indebtedness, or any other Loan

Documents, and further waives any claims that any notices previously given are

insufficient for any reason.  Borrower

further agrees that the Indebtedness set forth above is presently due and

payable in full to Lender without discount or offset, and any claims or

defenses thereto are waived and released herein.

 

3.             No Further Advances.  Borrower acknowledges and agrees that it

shall not be entitled to, nor shall Borrower request, any additional advances

under the Credit Agreement, the Note, or any other Loan Documents.  Furthermore, Borrower shall not request nor

shall Lender be obligated to issue any further or additional letters of credit.

 

4.             No Waiver. The execution, delivery and performance of this

Agreement by Lender and the acceptance by Lender of performance of Borrower

hereunder (a) shall not constitute a waiver or release by Lender of any default

that may now or hereafter exist under the Loan Documents, (b) shall not

constitute a novation of the Loan Documents as it is the intent of the parties

to modify the Loan Documents as expressly set out herein, and (c) except as

expressly provided in this Agreement, shall be without prejudice to, and is not

a waiver or release of, Lender’s rights at any time in the future to exercise

any and all rights conferred upon Lender by the Loan Documents or otherwise at

law or in equity, including but not limited to the right to accelerate the

Indebtedness, if not already accelerated, and to institute collection

proceedings against Borrower and/or any right against any other person or

entity not a party to this Agreement. 

Similarly, the execution, delivery, and performance of this Agreement by

Borrower and the acceptance by Borrower of the performance by Lender hereunder

shall not, subject to the express provisions of this Agreement, constitute a

waiver or release of any of Borrower’s rights under the Loan Documents;

provided, however, that Borrower waives any and all claims now or hereafter 

 

 

3

 

 

arising

from or related to any delay by Lender in exercising any rights or remedies

under the Loan Documents, including, without limitation, any delay in

foreclosing on any collateral securing the Indebtedness.

 

5.             Forbearance.

So long as this Agreement is not terminated as provided herein, the Lender

agrees not to foreclose or attempt to foreclose any collateral securing the

Indebtedness, institute suit for collection of the Indebtedness against

Borrower or any guarantor, or exercise any other remedies available to it under

the Loan Documents or under applicable law for a period of time commencing on

the date hereof and extending through and including January 31, 2003 at 5:00

p.m. (the “Forbearance Period”).  Upon

termination of the Forbearance Period, or otherwise under the provisions of

this Agreement, or if all amounts due and owing under the Credit Agreement, the

Indebtedness or other Loan Documents including, without limitation, the Second

A&R Forbearance Agreement, are not paid in full on or before the expiration

of the Forbearance Period, Lender may seek to foreclose upon any collateral and

to exercise any other remedies to which Lender may be entitled under the Loan

Documents, or applicable law to collect amounts due under the Indebtedness, the

Credit Agreement or any other Loan Documents. 

Borrower agrees that Borrower will not during the Forbearance Period,

initiate any action of any kind against Lender with respect to the Loan

Documents, exercise any remedy available under the Loan Documents or otherwise,

or make or suffer to exist any type of demand upon Lender with respect to the

Obligations.

 

6.             Intentionally Left Blank.

 

                7.             Interest Rate. 

During the Forbearance Period, all Indebtedness owed by Borrower to

Lender under the Loan Documents shall

continue to bear interest at the per annum rate equal to the sum of the Prime

Rate plus four percent (4.0%).  The

Prime Rate shall be that variable per annum rate announced, from time to time,

by the Lender as its Prime Rate.

 

                8.             Interest Payments. Borrower shall continue to

make the interest payments required by the Forbearance Agreement.  Such payments shall begin on November 15,

2002, at which time the Borrower shall pay all accrued and unpaid interest due

on the Indebtedness.  All accrued and unpaid

interest thereafter shall be paid on or before the 15th day of each

month thereafter until the Indebtedness is paid in full.

 

9.             Final Payment.  The Borrower shall pay all outstanding

principal and all accrued and unpaid interest on or before the end of the

Forbearance Period.

 

10.           Loan Fee.  Borrower acknowledges and affirms that a

loan fee in the amount of $50,000.00 is due and owing to the Lender pursuant to

the terms of the Second A&R Forbearance Agreement (the “Loan Fee”).  Borrower shall pay the Loan Fee on or before

the expiration of the Forbearance Period.

 

 

4

 

 

                11.           Forbearance Fee.  The

Borrower shall pay the Lender a $25,000.00 forbearance fee on December 31, 2002

(the “Forbearance Fee”), and such payment shall not be applied to the payment

of the Indebtedness.  Notwithstanding

the foregoing, if the Borrower pays the

Lender the entire outstanding principal balance and accrued and unpaid interest

of all Indebtedness on or before December 31, 2002, the Lender agrees to waive

the payment of the Forbearance Fee.

 

                12.           Second Forbearance Fee.   The Borrower shall pay the Lender a second forbearance fee of

$75,000.00 on January 31, 2003 (the “Second Forbearance Fee”), and such payment

shall not be applied to the payment of the Indebtedness.  Notwithstanding the foregoing, if the Borrower pays the Lender the entire outstanding

principal balance and accrued and unpaid interest of all Indebtedness on or

before January 31, 2003, the Lender agrees to waive the payment of the Second

Forbearance Fee.

 

13.           Tangible Net Worth.   Paragraph 6.3(H) of the Credit Agreement is

amended to read as follows:  “Permit its

Tangible Net Worth plus Subordinated Debt to be less than $2,000,000.00.”

 

14.           Junior Liens.  Notwithstanding the terms of the Loan

Documents, the Borrower may grant a lien on its Accounts and Inventory so long

as: (a) such lien is second in priority and junior to that of the Lender; (b)

no later than the time that such lien is granted, Borrower pays to Lender the

sum of One Hundred Thousand and no\100s Dollars ($100,000.00); and (c) the

holder of any such junior lien executes a subordination agreement in favor of

Lender prior to such lien being granted that is acceptable in form to Lender

and that provides, at a minimum, that no payments shall be made to the holder

of the junior lien until the Indebtedness is paid in full.  Until the Indebtedness is paid in full,

Borrower shall make no such payments to any junior lien holder.

 

                15.           Borrowing Base. 

Notwithstanding any other provision of this Agreement or the Loan

Documents, the aggregate principal amount of the Indebtedness  outstanding at any one time shall not exceed

the Borrowing Base.   Should the

Indebtedness exceed the Borrowing Base, Borrower shall immediately prepay the

excess amount to Lender.  “Borrowing

Base” means the sum of 75% of Eligible Accounts and 40% of Eligible

Inventory.  “Eligible Accounts” means an

Account of the Borrower: (i) which arises from a bona fide, outright sale of

inventory or for services performed, or expenses incurred in the normal course

of business; (ii) which is based upon a valid, enforceable and legally binding

order or contract; (iii) as to which an invoice for payment has been sent to

the account debtor and for which the account debtor is unconditionally

obligated and liable to make payment thereof; (iv) in and to which the rights

of the Borrower are absolute and not subject to any assignment, claim, lien or

security interest (except in favor of Lender); (v) except as otherwise agreed

by Lender, which is not an intracompany account or an account receivable

between the Borrower and any affiliate of the Borrower; (vi) which is not

evidenced by any note, chattel paper, trade acceptance, draft, check or other

instrument with respect thereto 

 

 

5

 

or in payment

thereof; (vii) except as otherwise agreed by Lender, as to which the account

Borrower thereof has not died and is not the subject of dissolution,

liquidation, termination of existence, insolvency, business failure,

receivership, bankruptcy, readjustment of debt, assignment for the benefit of

creditors or similar proceedings; (viii) which has not been outstanding for

more than 90 days from date of invoice; (ix) which is not owed by an account

debtor not a resident of the United States; (x) which is not an account owed by

a debtor from which 20% or more of the aggregate amount owed from such debtor

is more than 90 days past due from the date of invoice; (xi) which is not owed

by any governmental entity; (xii) which is not owed by a contractor; (xiii)

which is not an account that is bonded or secured by a bond; and (xiv) which is

not an account otherwise unacceptable to Lender.  At any particular date, the Eligible Accounts shall be the sum of

the unpaid principal balance of all of the Eligible Accounts, as defined

above.  “Eligible Inventory” shall mean

that Inventory physically located in the United States owned by the Borrower

and in which Lender holds a perfected first priority security interest that

constitutes: (a) finished goods in marketable condition; and (b) raw materials

reasonably necessary to meet the Borrower’s production requirements for a

period of twelve (12) months.  For purposes

hereof, Eligible Inventory shall be valued at the lower of cost or market

value.

 

16.           Borrowing Base Certificate and

Compliance Statement.   Prior to the

20th day of each and every month hereafter, the Borrower shall

provide to Lender a Borrowing Base Certificate and Compliance Statement in the

form attached as Exhibit “A” to the A&R Forbearance Agreement signed by an

officer of Borrower.

 

17.           Tax Refunds.  In addition to the other payments required

herein, should the Borrower receive any federal or state tax refunds from any

governmental entity (the “Refunds”), it shall pay 50% of the Refunds to Lender

for application to the Indebtedness (the “Refund Payment”).  Borrower shall pay the Refund Payment to

Lender within ten (10) days of the Borrower’s receipt of the Refunds.  If the Borrower fails to pay Lender the

Refund Payment within the ten (10) day period, the Forbearance Fee and the

Second Forbearance Fee shall become immediately due and payable to Lender.

 

                18.           Accounts Receivable.  The Borrower shall be permitted for a period

ending on the twelfth (12th) day of December, 2002, to factor up to

$600,000.00 of accounts receivables, free and clear of any lien or security

interest of Lender.  The proceeds of

such factoring arrangement may be used by Borrower for working capital.

 

19.           Warrants.  In consideration of all rights and

obligations set forth herein, the Borrower shall grant to Lender or a

designated subsidiary of Lender (for purposes of this Section 19, Lender and

the designated subsidiary shall be collectively referred to as the “Lender”),

on the date of this Agreement a stock purchase warrant in form and substance

acceptable to Lender, which shall grant the Lender the right to purchase

721,510 shares of the Borrower’s common stock, at an exercise price of $0.11

per share (which is the market price as quoted on the OTCBB at the close of

business on October 30, 2002).  The

stock purchase warrant shall also provide that after the one 

 

 

6

 

year anniversary of the date of its issuance, the Lender

shall have the right to request that the Borrower register the shares

underlying the stock purchase warrant on Form S-3 with the SEC, as defined

below, in accordance with the terms and conditions set forth in the stock

purchase warrant.  Borrower shall be

responsible at its sole expense for the preparation of the stock purchase

warrant.  The Borrower and Lender

recognize that the grant of the stock purchase warrant will trigger compliance

with certain rules and regulations of the Securities and Exchange Commission

(the “SEC”) and that certain forms will be required to be filed by Lender with

the SEC, and Borrower shall assist Lender in the preparation and timely filing

thereof at Borrower’s sole expense.  Borrower, at its sole expense, shall comply with all federal and

state laws, and all rules and regulations of the SEC, any other governmental

agency or any exchange that the Borrower’s common stock is listed, with respect

to the grant of the stock

purchase warrant including, without limitation, the timely filing of any forms

or notices with the SEC.  With

respect to the grant of the stock purchase warrant, the Borrower shall, to the

fullest extent permissible under applicable law, indemnify and hold the Lender

harmless from and against any claims, damages, losses, obligations,

liabilities, costs and expenses including, without limitation, reasonable

attorneys’ fees and other costs and expenses incident to any suit, action,

investigation, claim or proceeding to the extent such is related in any manner

to: (i) the failure to properly prepare or file the required forms to be filed

with the SEC, or (ii) any other claim related to the grant of the stock

purchase warrant to the Lender, but only to the extent such claims, damages, losses, obligations, liabilities, costs and

expenses arise out of or are based upon inaccurate or incomplete information

furnished by Borrower with respect thereto.

 

20.           Compliance

with Loan Documents. During the term of this Agreement, Borrower shall

fully and faithfully comply with all of the terms of the Loan Documents

including the Forbearance Agreement, the A&R Forbearance Agreement and the

Second A&R Forbearance Agreement, the terms of which shall remain in full

effect unless modified herein.  Upon

Borrower’s failure to fully and faithfully timely pay Lender any of the

payments set forth in this Agreement, the term of this Agreement shall

immediately end and terminate without the necessity of notice or demand, and

Lender shall be entitled to pursue any and all remedies.  Upon the occurrence of Borrower’s failure to

fully and faithfully perform any other obligation with respect to the Loan

Documents, the Borrower shall be entitled to such notice and opportunity to

cure, if any, as provided in the Loan Documents.

 

21.           Representations

and Warranties. In order to induce

Lender to execute, deliver, and perform this Agreement, Borrower warrants and

represents to Lender that:

 

(a)           this Agreement is not being made or entered into with the

actual intent to hinder, delay, or defraud any entity or person;

 

(b)           this Agreement is not intended by the parties to be a

novation of the Loan Documents and, except as expressly modified herein, all

terms, conditions, rights and obligations as set out in the Loan Documents are

hereby reaffirmed and shall otherwise remain in full force

 

 

7

 

 

 

and

effect as originally written and agreed;

 

(c)           no action or proceeding, including, without limitation, a

voluntary or involuntary petition for bankruptcy under any chapter of the

Federal Bankruptcy Code, has been instituted by or against the Borrower;

 

(d)           to the best of Borrower’s knowledge,

and with the sole exception of financial statements projecting profitability

for the periods ending September 30, 2002, and December 31, 2002, all balance

sheets, and cash flow statements, and all information provided by Borrower to

Lender prior to the date hereof, including, without limitation, all financial

statements, balance sheets, and cash flow statements, were, at the date of delivery,

and are, as of the date hereof, true and correct in all material respects.  Borrower recognizes and acknowledges that

Lender is entering into this Agreement based in part on the financial

information provided to Lender by Borrower and that the truth and correctness

of that financial information is a material inducement to Lender in entering

into this Agreement.  During the term of

this Agreement, Borrower agrees to advise Lender promptly in writing of any and

all new information, facts, or occurrences that would in any way materially

supplement, contradict, or affect any financial statements, balance sheets,

cash flow statements, or similar items furnished to Lender.

 

(e)                                  this Agreement and the Loan Documents

constitute the entire agreement among Lender and Borrower with respect to this

matter.

 

                22.           Bankruptcy.   In entering into this Agreement, Borrower

and Lender hereby stipulate, acknowledge and agree that Lender gave up valuable

rights and agreed to forbear from exercising legal remedies available to it in

exchange for the promises, representations, acknowledgments and warranties of

Borrower as contained herein and that Lender would not have entered into this

Agreement but for such promises, representations, acknowledgments, agreements,

and warranties, all of which have been accepted by Lender in good faith, the

breach of which by Borrower in any way, at any time, now or in the future,

would admittedly and confessedly constitute cause for dismissal of any such

bankruptcy petition pursuant to 11 U.S.C. § 1112(b).  As additional consideration for Lender agreeing to forbear from

immediately enforcing its rights and remedies under this Agreement and in the

Loan Documents, including but not limited to the institution of foreclosure or

collection proceedings, Borrower agrees that in the event a bankruptcy petition

under any Chapter of the Bankruptcy Code (11 U.S.C. §101, et  seq.)

is filed by or against any Borrower at any time after the execution of this

Agreement, Lender shall be entitled to the immediate entry of an order from the

appropriate bankruptcy court granting Lender complete relief from the automatic

stay imposed by §362 of the 

 

 

8

 

Bankruptcy Code (11 U.S.C. §362) to exercise its foreclosure and other

rights, including but not limited to obtaining a foreclosure judgment and

foreclosure sale, upon the filing with the appropriate court of a motion for

relief from the automatic stay with a copy of this Agreement attached thereto.  Borrower specifically agrees (i) that upon

filing a motion for relief from the automatic stay, Lender shall be entitled to

relief from the stay without the necessity of an evidentiary hearing and

without the necessity or requirement of the Lender to establish or prove the value

of any collateral, the lack of adequate protection of its interest in any

collateral, or the lack of equity in any collateral; (ii) that the lifting of

the automatic stay hereunder by the appropriate bankruptcy court shall be

deemed to be “for cause” pursuant to §362(d)(1) of the Bankruptcy Code (11

U.S.C. §362 (d)(1); and (iii) that Borrower will not directly or indirectly

oppose or otherwise defend against Lender’s efforts to gain relief from the

automatic stay. This provision is not intended to preclude Borrower from filing

for protection under any Chapter of the Bankruptcy Code.  The remedies prescribed in this paragraph

are not exclusive and shall not limit Lender’s rights under the Loan Documents,

this Agreement or under any law.  All of

the above terms and conditions have been freely bargained for and are all

supported by reasonable and adequate consideration and the provisions herein

are material inducements for Lender entering into this Agreement.

 

                23.           Release.  Borrower hereby remises, releases, and

forever discharges Lender, its successors and assigns, its officers, directors,

employees, agents and attorneys (collectively, “Released Parties”) of and from

all actions, causes of action, suits, proceedings, debts, contracts, claims,

damages, liability and demands whatsoever, known or unknown, in law or equity,

which Borrower ever had or now has, by reason of any matter, cause, or thing

whatsoever arising from the actions or inactions of the Released Parties prior

to the date hereof including any matter relating to the Agreement, the Loan

Documents (collectively, “Released Matters”); and Borrower covenants not to sue

any of the Released Parties with respect to the Released Matters.  The release and covenant not to sue set

forth in this Section are intended by the parties to be as broad and

comprehensive as possible.  However,

this release will not cover any intentional torts or acts of gross negligence.

 

                24.           Default. 

Lender shall be entitled to pursue each and every remedy hereunder and

under the Loan Documents, at Lender’s sole option, upon the occurrence of any

of the following:

 

(a)           Borrower files a petition for bankruptcy under any chapter

of the Federal Bankruptcy Code or takes advantage of any other debtor relief

law, or an involuntary petition for bankruptcy under any chapter of the Federal

Bankruptcy Code is filed against Borrower, or any other judicial action is

taken with respect to Borrower by any creditor;

 

(b)           Lender discovers that any representation or warranty made

herein by Borrower was or is untrue, incorrect or misleading in any material

respect;

 

(c)           After the date of this Agreement, and

except for the financial covenants

 

9

 

 

forth in Section 6.3 (I) and (J) of the Credit

Agreement, Borrower’s breach or default in the performance of any covenant or

agreement contained in this Agreement or the Loan Documents;

 

                                                (d)           Lender

receives any draft or request for payment in respect of any letter of credit.

 

25.           Miscellaneous.

 

                                                                25.1         Successors and Assigns. All of the grants, covenants,

terms, conditions and agreements hereof shall be binding upon and inure to the

benefit of all of the assigns and successors in interest of the parties hereto.

 

                                                                25.2         Modification. 

Neither this Agreement nor any provision hereof may be changed,

altered, waived, amended, or discharged orally, but only by an instrument

reduced to writing, signed by all parties hereto.

 

                                                                25.3         Choice of Law. 

It is the intention of the parties hereto that the laws of the State of Michigan

shall govern the validity of this Agreement,

construction of its terms and the interpretation of the rights and duties of

the parties.

 

                                                                25.4         Paragraph Headings. 

Headings contained in this Agreement are for

reference purposes only and shall not affect in any way the meaning or

interpretation of this agreement.

 

                                                                25.5         Authority. 

Each party, for itself, its successors and assigns, hereby represents

and warrants that it has the full capacity and authority to enter into,

execute, deliver and perform this Agreement, and

that such execution, delivery and performance does not violate any contractual

or other obligation by which it is bound.

 

                                                                25.6         Controlling Agreement.  This Agreement shall be construed to govern and control over any

inconsistent provisions that may be contained in the Agreement or any other

Loan Documents.

 

                                                                25.7         Expenses. 

Borrower agrees to pay all costs and expenses incurred by Lender in

connection with this Agreement, including charges for recording, filing,

appraisal and legal fees including, without limitation, all legal fees incurred

by Lender with respect to the grant of the stock purchase warrant as set forth

in Section 19.

 

 

10

 

 

 

[Signature page immediately follows.]

 

 

 

THIS AGREEMENT

REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE SUBJECT

MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR ORAL OR WRITTEN,

CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG

THE PARTIES.

 

                IN WITNESS WHEREOF, the parties

have executed this agreement as of the date and year first above written.

 

	

   

  	

   

  	

  BORROWER:

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  AMERICAN MEDICAL

  TECHNOLOGIES, INC.

  a Delaware corporation

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Roger W. Dartt

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  LENDER:

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  BANK ONE, N.A.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Tipton J.

  Burch

  

 

 

 

11

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