Document:

ex_4-3.htm

 

EXHIBIT 4.3

 

 

AMENDED AND RESTATED

SECURED CONVERTIBLE PROMISSORY NOTE

THE SECURITIES REPRESENTED BY THIS CONVERTIBLE NOTE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. NEITHER THE SECURITIES REPRESENTED BY THIS CONVERTIBLE NOTE NOR THE SECURITIES THAT ARE ISSUABLE UPON CONVERSION OF THIS CONVERTIBLE NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED.

 

FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THIS CONVERTIBLE NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT.  BEGINNING NO LATER THAN 10 DAYS AFTER THE ISSUE DATE OF THIS CONVERTIBLE NOTE, THE CHIEF FINANCIAL OFFICER OF THE ISSUER, LOCATED AT 147 KEYSTONE DRIVE, MONTGOMERYVILLE, PA 18936, WILL PROMPTLY MAKE AVAILABLE TO HOLDER UPON REQUEST THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT AND THE YIELD TO MATURITY OF THIS CONVERTIBLE NOTE.

 

PHOTOMEDEX, INC.

 

AMENDED AND RESTATED SECURED CONVERTIBLE PROMISSORY NOTE

 

	
$2,800,406.00  (the “Principal Amount”)

	
March 19, 2010

	  	  

FOR VALUE RECEIVED, PHOTOMEDEX, INC., a Delaware corporation (the “Company”), promises to pay to the order of Perseus Partners VII, L.P., or its registered assigns (the “Holder”), the Principal Amount, or such lesser amount as shall then equal the outstanding Principal Amount, together with interest thereon at a rate equal to 10.0% per annum, and computed on the basis of a year consisting of 360 days in accordance with the terms set forth in Section 2 of this Secured Convertible Promissory Note (this “Convertible Note”).

 

This Convertible Note is an amendment and restatement of the terms governing a portion of the outstanding principal amount and accrued interest under (i) the Convertible Note issued pursuant to the Securities Purchase Agreement, dated as of August 4, 2008 (as amended by Amendment No. 1 thereto, dated as of February 27, 2009, and Amendment No. 2, consent of waiver thereto, dated as of March 19, 2010, and as the same may be further amended, modified, or supplemented from time to time, the ”Purchase Agreement”), by and between the Company and Perseus Partners VII, L.P, and (ii) the additional notes issued thereunder as payment of interest (the foregoing, collectively, the “Original Notes”).  Pursuant to the aforementioned Amendment No. 2, the Company agreed to amend and restate the terms governing a portion of such outstanding

  

  

  

principal amount and accrued interest in the form of this Convertible Note, and the terms governing the balance of such outstanding principal amount and accrued interest in the form of an Amended and Restated Secured Convertible Promissory Note having a conversion price equal to the conversion price in effect pursuant to the Original Notes as of immediately prior to such amendment and restatement (a “Series B-2 Note”).

The following is a statement of the rights of the Holder and the conditions to which this Convertible Note is subject, and to which the Holder hereof, by the acceptance of this Convertible Note, agrees:

 

1. Definitions.  Capitalized terms defined in the Purchase Agreement and used herein without definition have the same meaning herein as in the Purchase Agreement. In addition, as used in this Convertible Note, the following capitalized terms have the following meanings:

 

“Additional Note” shall have the meaning set forth in Section 2(a) of this Convertible Note.

 

“Conversion Price” means, initially, $11.25850, as adjusted from time to time pursuant to the terms of this Convertible Note.

 

“Date of Issuance” means the date of issuance of this Convertible Note on the first page hereof.

 

“Default Interest Rate” means the lesser of 16% or the maximum rate allowed by applicable Law.

 

“Event of Default” shall have the meaning set forth in Section 4 of this Convertible Note.

 

“Maturity Date” means February 27, 2014 (or, if such day is not a Business Day, on the next succeeding Business Day).

 

“Obligations” means the principal, interest and other amounts payable under this Convertible Note.

 

2. Maturity Date; Interest.

 

(a) All unpaid principal, together with any accrued but unpaid interest and other amounts payable under this Convertible Note, shall be due and payable on (i) the Maturity Date, or (ii) when such amounts are declared due and payable by the Holder or made automatically due and payable upon or after (A) the occurrence of an Event of Default, (B) the liquidation or dissolution of the Company, or (C) any Change of Control.  Interest on this Convertible Note shall be payable (and if not paid when due, shall be compounded) semi-annually in arrears on each September 1 and March 1 (or, if any such day is not a Business Day, on the next succeeding Business Day) after the Date of Issuance and shall be payable at the option of the Company either (i) in lawful money of the United States of America, or (ii) by the issuance of an additional Note (an “Additional Note”) identical in all respects to this Convertible

 

  

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Note except that it shall have (x) a principal amount equal to such interest payment, (y) an initial Conversion Price equal to the conversion price in effect under this Convertible Note at the date of issuance of such Additional Note and (z) a different date of issuance.

 

(b) If the Company elects to pay interest by issuing an Additional Note, it shall give notice to the Holder two Business Days prior to the day such payment is due and deliver such Additional Note to the Holder within three Business Days after such date.

 

(c) Interest shall be calculated based on the average principal outstanding under this Convertible Note for such period.  The first payment of interest shall be on September 1, 2010 (or, if such day is not a Business Day, on the next succeeding Business Day), and shall be calculated from the Date of Issuance to such date.

 

(d) Notwithstanding anything to the contrary contained in this Convertible Note, in addition to the rights of the Holder specified in Section 5 of this Convertible Note, for any period during which an Event of Default has occurred and is continuing, the interest rate on this Convertible Note shall increase to the Default Interest Rate and interest on this Convertible Note shall be payable solely in lawful money of the United States of America.

 

3. Secured Obligations; Collateral. In order to secure the Company’s payment and performance of the Obligations and the principal, interest and other amounts payable under the Series B-2 Note (collectively, the “Note Obligations”) and to secure the Company’s prompt, full and faithful performance and observance of all of the provisions under this Convertible Note, the Series B-2 Note and the other Transaction Documents, the Company has delivered to the Holder a certain Pledge and Security Agreement, dated as of February 27, 2009, and amended and restated as of March 19, 2010, (as the same may be further amended, modified or supplemented from time to time, the “Pledge Agreement”) among the Company, the other Grantors (as defined therein) and the Holder, individually and in its capacity as Collateral Agent (the “Collateral Agent”), pursuant to which the Company has granted to the Collateral Agent as security and collateral for the payment and performance of the Note Obligations, a security interest in the Collateral (as defined therein), whether now existing or hereafter arising, and all as more specifically described, and on the terms and conditions set forth in the Pledge Agreement.  The security interest granted by the Company under the Pledge Agreement, securing the indebtedness evidenced by this Convertible Note and the indebtedness evidenced by the Series B-2 Note, including all Note Obligations, is senior to all other liens, security interests or encumbrances securing any other indebtedness of the Company, except that the liens on any collateral pledged by the Company to Clutterbuck Funds LLC (“Clutterbuck”) are subject to the Intercreditor Agreement dated as of March 19, 2010 between the Holder and Clutterbuck.

 

4. Events of Default.  The occurrence of any of the following shall constitute an “Event of Default” under this Convertible Note:

 

(a) Failure to Pay this Convertible Note or other Notes.

 

(i) The Company shall fail to pay when due any principal payment on this Convertible Note or any other Note, and such failure continues for three Business Days thereafter; or

 

  

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(ii) The Company shall fail to pay when due any or any interest or other payment (other than principal) required under the terms of this Convertible Note or any other Note, and such failure continues for ten Business Days thereafter;

 

(b) Breaches of Representations and Warranties.  Any representation or warranty made by the Company or any Subsidiary in this Convertible Note or in any other Transaction Document shall not have been true and correct in any material respect when made; provided, that if the facts or events making such representation or warranty untrue are capable of correction or cure, then the Company or any Subsidiary shall have ten Business Days after notice of the breach is delivered to the Company to correct or cure such breach.  For purposes of this Section 4(b) only, breaches of the representations and warranties contained in the Purchase Agreement and made as of the First Tranche Closing Date shall be disregarded unless such breaches would, individually or in the aggregate, have given rise to a failure of the condition precedent set forth in Section 6.2(a) of the Purchase Agreement and the Company delivers the certificates required by Section 6.2(d) of the Purchase Agreement.

 

(c) Breaches of Other Covenants.  The Company or any Subsidiary shall fail to observe or to perform any covenant, obligation, condition or agreement contained in this Convertible Note or any other Transaction Document (other than those specified in Section 4(a) of this Convertible Note) in any material respect; provided, that if such breach is capable of correction or cure, then the Company or any Subsidiary shall have ten Business Days after notice of the breach is delivered to the Company to correct or cure such breach;

 

(d) Cross-Defaults.  (i)  The Company shall default under any Series B-2 Note or (ii) the Company or any of its Subsidiaries shall default under any other agreement, bond, debenture, note or other evidence of indebtedness for money borrowed (other than a Note), under any guaranty or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its Subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $250,000 being due and payable prior to the date on which it would otherwise become due and payable;

 

(e) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $250,000 in the aggregate shall be rendered against the Company or any of its Subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive Business Days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment;

 

(f) Voluntary Bankruptcy or Insolvency Proceedings.  The Company or any of its Subsidiaries shall: (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property; (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature; (iii) make a general assignment for the benefit of its or any of its creditors; (iv) be dissolved or liquidated in full or in part; (v) become insolvent (as such term may be defined or interpreted under any applicable statute); (vi) commence a voluntary case or other Proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar Law now or hereafter in effect or consent to any such relief or to the appointment of or taking

 

  

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possession of its property by any official in an involuntary case or other Proceeding commenced against it; or (vii) take any action for the purpose of effecting any of the foregoing; or

 

(g) Involuntary Bankruptcy or Insolvency Proceedings.  Any Proceeding for the appointment of a receiver, trustee, liquidator or custodian of the Company or any of its Subsidiaries or of all or a substantial part of the property thereof, or an involuntary case or other Proceeding seeking liquidation, reorganization or other relief with respect to the Company or any of its Subsidiaries or the debts thereof under any bankruptcy, insolvency or other similar Law now or hereafter in effect shall be commenced and an order for relief entered, or such case or Proceeding shall not be dismissed or discharged within 30 days of commencement.

 

5. Rights of Holder upon Default.  Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Section 4(f) or Section 4(g) of this Convertible Note) and at any time thereafter during the continuance of such Event of Default, holders of a majority of the outstanding principal amount of the Note(s) may declare all outstanding Obligations payable by the Company under this Convertible Note to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained in this Convertible Note or in any other Transaction Document to the contrary notwithstanding.  Upon the occurrence or existence of any Event of Default described in Sections 4(f) or Section 4(g) of this Convertible Note, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained in this Convertible Note or in any other Transaction Document to the contrary notwithstanding.  In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it pursuant to any Transaction Document or otherwise permitted to it by Law, either by suit in equity or by action at Law, or both.

 

6. Covenants.  The Company hereby covenants and agrees for the benefit of the Holder as follows:

 

(a) Additional Notes.  Any Additional Notes issued pursuant to Section 2(a) of this Convertible Note will be, when issued, duly authorized, validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents and applicable federal and state securities laws.

 

(b) Conversion Shares.  All Conversion Shares that may be issued upon the conversion of this Convertible Note and any Additional Notes will be, when issued, duly authorized, validly issued, fully paid and nonassessable, and free from all preemptive rights and Liens other than restrictions on transfer provided for in the Transaction Documents and applicable federal and state securities laws and charges with respect to the issuance thereof.  The Company will at all times have authorized and reserved and kept available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Convertible Note and any Additional Notes, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Convertible Note and all Additional Notes.  If at any time the number of authorized but unissued shares of Common Stock

 

  

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shall not be sufficient to effect the conversion of this Convertible Note and all Additional Notes, the Company will take all such corporate actions as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

 

(c) Charges, Taxes and Expenses.  Issuance and delivery of the Conversion Shares shall be made without charge to the Holder for any issue or transfer tax, withholding tax (other than related to the income of the Holder), transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Conversion Shares in a name other than that of the Holder.  The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Convertible Note or receiving Conversion Shares.

 

7. Prepayment.

 

(a) Except as provided in this Section 7, the Company shall have no right to prepay the principal amount of this Convertible Note prior to the Maturity Date, or any interest accruing under this Convertible Note prior to the scheduled date for payment of such interest.

 

(b) If the Market Price as of the fourth anniversary of the First Tranche Closing Date shall be no less than 200% of the conversion price then in effect under the First Tranche Note, then the Company shall have the one-time option to prepay up to one half of the aggregate outstanding principal amount of the Notes, together with accrued but unpaid interest thereon, on the terms and subject to the conditions set forth in Section 5.25 of the Purchase Agreement.

 

8. Conversion.

 

(a) Optional Conversion.  At any time, or from time to time, prior to the Maturity Date, the Holder shall have the option to convert up to the entire amount outstanding under this Convertible Note (including accrued but unpaid interest) into a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount to be converted by (ii) the Conversion Price then in effect.

 

(b) Mandatory Conversion.  If on any date occurring at least 31 Trading Days following the Date of Issuance, the Market Price as of such date exceeds 300% of the then-effective Conversion Price, then the entire amount outstanding under this Convertible Note (including accrued but unpaid interest) shall be automatically converted into a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount outstanding under this Convertible Note (including accrued but unpaid interest) by (ii) the Conversion Price then in effect.  The Company shall notify the Holder promptly (and in any event not later than three Business Days) following any mandatory conversion of this Convertible Note pursuant to this Section 8(b).

 

(c) Mechanics and Effect of Conversion.  No fractional shares of Common Stock shall be issued upon conversion of this Convertible Note.  Upon the conversion of all of

 

  

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the principal and accrued interest outstanding under this Convertible Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal and accrued interest that is not so converted.  Upon any partial conversion of this Convertible Note, the Company shall issue to the Holder (i) the shares of Common Stock into which the applicable portion of the principal and accrued interest under this Convertible Note is converted and (ii) a new Note identical in all respects to this Convertible Note except that it shall have a principal amount equal to the difference between (1) the outstanding principal amount of this Convertible Note immediately prior to such conversion minus (2) the portion of such outstanding principal amount converted into shares of Common Stock.  Upon any conversion of this Convertible Note pursuant to this Section 8, the Holder shall surrender this Convertible Note, duly endorsed, at the principal office of the Company.  At the Company’s expense, the Company shall, as soon as practicable thereafter, and in any event within three (3) Business Days of such surrender, issue and deliver to the Holder at such principal office a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled upon such conversion (bearing such legends as are required by the Purchase Agreement and applicable securities Laws), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Convertible Note.  Issuance of this Convertible Note shall constitute full authority to the Company’s officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock issuable upon the conversion of this Convertible Note.

 

(d) Payment of Taxes.  The Company will pay all transfer taxes or charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of this Convertible Note, except for any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Conversion Shares in a name other than that in which this Convertible Note was registered.

 

(e) Withholding Taxes.  Notwithstanding any other provision of this Convertible Note, the Company shall: (i) not be obliged to reimburse, indemnify, make whole or otherwise pay to the Holder, and (ii) be entitled to deduct and withhold from all amounts payable pursuant to this Convertible Note, any amounts required by applicable Law to be deducted or withheld for any and all taxes, so long as the Company promptly pays the full amount deducted or withheld to the applicable Governmental Entity in accordance with applicable Law. Any such amounts deducted and not owed or paid to the applicable Governmental Entity in accordance with applicable Law shall be returned to the Holder promptly. The Holder shall provide any information reasonably requested by the Company to enable it to determine whether taxes must be withheld or deducted and the amount of such withholding or deduction.

 

9. Conversion Price Adjustments.

 

(a) Adjustments for Splits and Combinations.  If the Company shall at any time or from time to time after the Date of Issuance effect a stock split of the outstanding shares of Common Stock, the Conversion Price in effect immediately before that stock split shall be proportionately decreased, and, conversely, if the Company shall at any time or from time to time after the Date of Issuance combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately before the combination shall be proportionately increased.  In each such case, the Conversion Price shall be adjusted by

 

  

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multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such subdivision, combination or reclassification and the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such subdivision or combination.  Any adjustment under this Section 9(a) shall become effective immediately after the opening of business on the date the stock split or combination becomes effective.

 

(b) Adjustment for Dividends and Distributions of Common Stock.  If the Company at any time or from time to time after the Date of Issuance issues, or fixes a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable solely in additional shares of Common Stock, in each such event the Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the sum of the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 9(b) to reflect the actual payment of such dividend or distribution.

 

(c) Adjustments for Other Dividends and Distributions.  If the Company at any time or from time to time after the Date of Issuance issues, or fixes a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable in any securities of the Company (other than shares of Common Stock) or in other property, in each such event provision shall be made so that the Holder of this Convertible Note shall receive upon conversion of this Convertible Note, in addition to the number of shares of Common Stock receivable hereupon, the amount of securities of the Company or other property that such Holder would have received had this Convertible Note been converted into shares of Common Stock immediately prior to the date of such event and had such Holder thereafter, during the period from the date of such event to and including the conversion date, retained such securities or other property receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 9 with respect to the rights of the Holder or with respect to such other securities or other property by their terms.

 

(d) [This section intentionally omitted.]

 

(e) Adjustment for Reclassification, Exchange and Substitution.  If at any time or from time to time after the Date of Issuance, the shares of Common Stock issuable upon the conversion of this Convertible Note are changed into the same or a different number of shares of any class or series of stock of the Company, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 9), then in any such event the Holder shall have the right thereafter to convert this Convertible

 

  

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Note into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by the holder of the number of shares of Common Stock into which this Convertible Note could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided in this Convertible Note or with respect to such other securities or property by the terms thereof.

 

(f) Fundamental Transactions.  If at any time or from time to time after the Date of Issuance (i) the Company effects any merger or consolidation of the Company with or into (whether or not the Company is the surviving corporation) another Person, (ii) the Company effects any sale, assignment, transfer, conveyance or other disposition of all or substantially all its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of more than 50% of the outstanding shares of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property, (iv) the Company consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or other Persons or (v) the Company effects a capital reorganization of the shares of Common Stock (other than a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 9) pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each of the foregoing, a “Fundamental Transaction”), then as a part of such Fundamental Transaction provision shall be made so that the Holder shall thereafter be entitled to receive upon conversion of this Convertible Note the same amount and kind of securities, cash or other property as it would have been entitled to receive if it had been, immediately prior to such Fundamental Transaction, the holder of the number of shares of Common Stock then deliverable upon the conversion in full of this Convertible Note, subject to adjustment in respect of such securities by their terms (the “Alternate Consideration”).  In any such case, (i) the aggregate Conversion Price under this Convertible Note will not be affected, but the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration, (ii) if holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Convertible Note following such Fundamental Transaction, and (iii) appropriate adjustment shall be made in the application of the provisions of this Section 9 with respect to the rights of the Holder after such Fundamental Transaction to the end that the provisions of this Section 9 (including adjustment of the Conversion Price then in effect and the number of shares of common stock, securities or other property issuable upon conversion of this Convertible Note) shall be applicable after that event and be as nearly equivalent as practicable.  At the Holder’s request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new secured convertible note consistent with the foregoing provisions and evidencing the Holder’s right to convert such secured convertible note into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 9(f) and insuring that this Convertible Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

  

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(g) Certificate of Adjustment.  In each case of an adjustment or readjustment of the Conversion Price for the number of shares of Common Stock or other securities or property issuable upon conversion of this Convertible Note, the Company, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions of this Convertible Note and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder at the Holder’s address as shown in the Company’s books.  The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based.  No adjustment in the Conversion Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder.

 

(h) Notices of Record Date.  Upon (i) the establishment by the Company of a record of the holders of any class of securities for the purpose of determining the holders of such securities who are entitled to receive any dividend or other distribution, or (ii) any capital reorganization of the Company, any reclassification or recapitalization of the shares of the Company, any merger or consolidation of the Company with or into any other Company, or any transfer of all or substantially all the assets of the Company to any other Person or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder at least 20 Business Days prior to the record date specified therein a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of shares of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

 

(i) Certain Issues Excepted.  Notwithstanding anything herein to the contrary set forth herein, the following issuances of securities will not trigger an adjustment to the Conversion Price: (i) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the First Tranche Closing Date, and (ii) Common Stock issued or options to purchase Common Stock granted or issued pursuant to the Company’s equity compensation plans and employee stock purchase plans as they now exist or are hereafter approved by the Company’s Board of Directors.

 

(j) No Impairment.  The Company shall not amend its Certificate of Incorporation or Bylaws or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the Holder of this Convertible Note against dilution or other impairment as provided herein. If the Company takes any action in breach of this Convertible Note, the Holder shall be entitled to any and all remedies available at Law or in equity.

 

  

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(k) Fractional Share.  No fractional share of Common Stock shall be issuable upon conversion of this Convertible Note and the number of Conversion Shares to be issued shall be rounded down to the nearest whole share. If the conversion of this Convertible Note shall result in the issuance of any fractional Conversion share, the Company shall eliminate such fractional share by paying the Holder an amount computed by multiplying such fraction by the fair market value of a full share.

 

(l) Other Adjustments.  If and whenever the Company shall take any action affecting or relating to the shares of Common Stock, other than any action described in this Section 9, which in the opinion of the Board would prejudicially affect the rights of the Holder, the Conversion Price and, if required, the number of shares of Common Stock or other securities or property to be issued upon conversion of this Convertible Note will be adjusted by the Board in such manner, and at such time, as the Board may, subject to the approval of any stock exchange(s) on which the shares of Common Stock are listed and posted for trading, reasonably determine to be equitable in the circumstances to such Holder.

 

10. Priority of Obligations.  The Obligations shall not be junior or subordinate to any other Indebtedness of the Company, except for such de facto subordination as may result from Permitted Liens or Liens in existence as of the date hereof that secure Permitted Indebtedness.  The Company shall not issue any Indebtedness that by its terms is subordinate or junior in any respect to any other Indebtedness of the Company, unless such Indebtedness provides that it is subordinate and junior on the same terms to the Obligations.

 

11. Waiver and Amendment.  Any provision of this Convertible Note may be amended, waived or modified upon the written consent of both the Company and the holders of a majority of the outstanding principal amount of the Note(s).

 

12. Transfer of this Convertible Note or Securities Issuable on Conversion or Payment Hereunder.  This Convertible Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Convertible Note or securities issuable on conversion of this Convertible Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Convertible Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company.  Prior to presentation of this Convertible Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Convertible Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Convertible Note shall be overdue and the Company shall not be affected by notice to the contrary.

 

13. Assignment. Neither this Convertible Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, as a whole or in part, by the Company without the prior written consent of the Holder.  The Holder may assign the rights, interests or obligations under this Convertible Note, as a whole or in part, at any time, subject to compliance with Section 12 of this Convertible Note, upon written notice to the

 

  

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Company of such assignment.  Upon request, the Company shall, as soon as practicable (and in any event within three Business Days) following such request, provide any assignee of all or a portion of this Convertible Note a new Note having terms and conditions identical in all respects to this Convertible Note except that it shall identify the assignee as the payee, and it shall have (x) a principal amount equal to principal amount of this Convertible Note that was assigned, (y) an initial Conversion Price equal to the conversion price in effect under this Convertible Note as of the date of assignment and (z) a different date of issuance.  Notwithstanding the foregoing, until the Company receives notice in accordance with Section 14, the Company shall treat the registered holder hereof as the owner and holder of this Convertible Note for the purpose of receiving all payments of principal and interest on this Convertible Note and for all other purposes whatsoever, whether or not this Convertible Note shall be overdue.

 

14. Notices.  Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in or otherwise designated by either party pursuant to the Purchase Agreement or on the register maintained by the Company.  Any party hereto may by notice so given change its address or facsimile number for future notice hereunder.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section prior to 6:30 p.m. (Eastern time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (Eastern time) on any Trading Day, (c) the Trading Day following the date of deposit with a nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.

 

15. Successors and Assigns. Subject to the restrictions on transfer described in Section 12 of this Convertible Note, the rights and obligations of the Company and the Holder of this Convertible Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

16. Expenses; Waivers.  If action is instituted to collect this Convertible Note, the Company shall pay all costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

17. Governing Law; Venue; Waiver of Jury Trial.  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,

 

  

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BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO THE COMPANY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THE PURCHASE AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

 

  

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ISSUED as of the date first above written.

 

 

 

 

 

	 	PHOTOMEDEX, INC. 	 
	 	 	 	 
	
 

	
By: 

	/s/ Dennis M. McGrath	 
	 	 	Name : Dennis M. McGrath	 
	 	 	Title :  Chief Executive Officer	 
	 	 	 	 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Amended and Restated Note 1]ex_10-1.htm

 

 

 

EXHIBIT 10.1

 

 

 

TERM LOAN AND SECURITY AGREEMENT

 

 

between

 

 

PHOTOMEDEX, INC., as Borrower

 

and

 

 

CLUTTERBUCK FUNDS LLC, as Lender

 

Dated as of March 19, 2010

 

                                                                  

  

  

  

TERM LOAN AND SECURITY AGREEMENT

 

THIS TERM LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of March 19, 2010, is entered into by and between PHOTOMEDEX, INC., a Delaware corporation, with its principal office 147 Keystone Drive, Montgomeryville, Pennsylvania 18936 (the “Borrower”), and CLUTTERBUCK FUNDS LLC, a Delaware limited liability company, with an office at 200 Public Square, Suite 2910, Cleveland, Ohio 44114 (the “Lender”).

 

W I T N E S S E T H:

 

WHEREAS, the Borrower is in the business of developing, manufacturing and marketing proprietary excimer laser equipment and, in connection therewith, enters into leases and consignments with dermatologists and other commercial users of such laser equipment; and

 

WHEREAS, the Borrower has requested and the Lender has agreed to make a secured term loan on the terms set forth in this Agreement and the other Credit Documents (as defined below).

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

SECTION 1. Definitions.

 

1.1 Certain Defined Terms.  For the purposes of this Agreement the following terms will have the following meanings:

 

“Accounts Receivable” means all presently existing and hereafter arising accounts, accounts receivable, contract rights, payment intangibles and all other forms of obligations owing to Borrower pursuant to the sale or lease of the Pledged Units (including, without limitation, pursuant to the Transaction Documents).

 

“Affiliate” means, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

 

“Bankruptcy Exception” has the meaning set forth in Section 3.1(a)(iii).

 

“Business Day” shall mean any day other than a Saturday or a Sunday on which commercial banks are open for business in Cleveland, Ohio.

 

“Collateral” shall mean all of Borrower’s right, title and interest in and to the following personal property:

 

	
1.  

	
the Pledged Units;

 

	
2.  

	
the Transaction Documents;

 

  

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3.  

	
all payments made to the Borrower pursuant to the Transaction Documents;

 

	
4.  

	
all funds deposited in the Controlled Account;

 

	
5.  

	
all Accounts Receivable;

 

	
6.  

	
upon the release of the security interests granted by the Borrower to CIT Healthcare, LLC, as agent for the lenders set forth in the Master Term Loan and Security Agreement, dated as of December 31, 2007, as amended, by and among the Borrower, CIT Healthcare, LLC, as agent, and the lenders set forth therein  (the “Master Term Loan and Security Agreement”), the “Collateral” (as defined in the Master Term Loan and Security Agreement);

 

	
7.  

	
all of the Borrower’s books and records relating to the foregoing; and

 

	
8.  

	
any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, proceeds and insurance proceeds of any of the foregoing.

 

“Controlled Account” shall mean a depository account with Wachovia Bank, National Association (the “Controlled Account Bank”) that shall be used by the Borrower to deposit all payments made to the Borrower pursuant to the Transaction Documents.

 

“Credit Documents” shall mean this Agreement, the Term Note and the Warrant.

 

“Eligible Account Receivable” shall mean an Account Receivable of Borrower to the extent arising out of complete sales by Borrower in accordance with the terms and conditions of all purchase orders, contracts and other documents relating thereto, which, at all times until it is collected in full, continuously meets the following requirements:  (a) to the extent that it is not subject to any claim for credit, allowance, or adjustment by the Obligor or any set off or counter claim, but such Account Receivable shall only be ineligible to the extent of such credit, allowance, adjustment, set off or counter claim; (b) arose in the ordinary course of Borrower’s business and not more than (i) ninety (90) days have elapsed since the invoice date (i.e. the date of completing performance of services sufficient to justify the rendition of the invoice or the sale of goods to the Obligor), or (ii) sixty (60) days have elapsed since the payment due date for the applicable invoice with respect to the performance (fully completed) of services or the sale of goods for or to the Obligor; (c) is not due from any Obligor with respect to which Borrower has received any notice of, has any knowledge of any bankruptcy or insolvency action or proceeding concerning the Obligor; (d) is not an Account Receivable due from any Affiliate, shareholder or employee of Borrower; (e) is not an Account Receivable which Lender has deemed to be ineligible, in the exercise of its good faith, reasonable credit judgment (using standards and exclusion criteria consistently applied to all other borrowers similarly situated).

 

“GAAP” shall mean United States generally accepted accounting principles.

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether incurred or arising by operation of law or otherwise against any property.

 

  

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“Maturity Date” shall mean the date that is eighteen months after the Closing Date.

 

“Obligors” shall mean each party to the Transaction Documents, other than the Borrower.

 

“Permitted Lien” shall mean (a) Liens in favor of the Lender; (b) Liens for Taxes, assessments or other governmental charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by the Borrower; provided that a stay of enforcement of any such Lien shall be in effect; (c) deposits or pledges to secure obligations under worker's compensation, social security or similar laws, or under unemployment insurance; (d) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (e) Liens arising by virtue of the rendition, entry or issuance against Borrower or any property of Borrower of any judgment, writ, order, or decree for so long as each such Lien (i) is in existence for less than twenty (20) consecutive days after it first arises or is being properly contested and (ii) is at all times junior in priority to any Liens in favor of the Lender; (f) mechanics', workers', materialmen's or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith by the Borrower; (g) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided that any such lien shall not encumber any other property of the Borrower (whether structured as a purchase money security interest or a capital lease); (h) Liens granted to CIT Healthcare, LLC, as agent, under or in connection with the Master Term Loan and Security Agreement; and (i) Liens granted to Perseus Partners, VII, L.P. (it being acknowledged that Liens granted to Perseus Partners, VII, L.P. on Collateral shall be subordinate to Liens granted to the Lender  to the extent  provided in the Intercreditor Agreement date as of even date herewith among Borrower, Lender and Perseus Partners, VII, L.P.).

 

“Person” is any individual, sole proprietorship, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, association or government entity.

 

“Pledged Units” shall mean the XTRAC laser units and related equipment set forth in Schedule 1 hereto (as such schedule may be amended, modified, or restated from time to time by mutual agreement of the Borrower and the Lender).

 

“Taxes” means all federal, state and local customs, duties, taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto.

 

“Transactions” shall mean the lease and consignment transactions entered into by the Borrower with respect to the Pledged Units.

 

“Transaction Documents” shall mean the documents entered into between the Borrower and the Obligors in connection with the Transactions, including without limitation usage or membership agreements, equipment leases, consignments, promissory notes, security agreements, and guarantees.

 

  

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“Warrant” shall mean the Warrant issued by Borrower to Lender on the date hereof.

 

SECTION 2. The Term Loan.

 

2.1 The Term Loan.

 

(a) Loan.  Subject to the conditions set forth in this Agreement, the Lender agrees to loan to the Borrower the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the “Term Loan”). The Term Loan will be evidenced by a Promissory Note in substantially the form attached hereto as Exhibit A (the “Term Note”).

 

(b) Closing.  Subject to the conditions set forth herein, the closing for the Term Loan (the “Closing”) shall take place contemporaneously with the execution and delivery of the Credit Documents or such date as such conditions are satisfied or waived (the date of such Closing, the “Closing Date”).  The Closing shall take place via telecopier (or similar means of electronic transmission) and overnight mail at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103 at 11:00 a.m. eastern time or at such other place as the Lender and the Borrower may agree.

 

(c) Payment.  Interest shall accrue on any unpaid principal balance of the Term Note at the rate of twelve percent (12%) per year; provided, however, that such rate shall increase to eighteen percent (18%) per year upon an Event of Default and remain at such increased rate until such Event of Default is cured or waived.  All accrued and unpaid interest shall be paid monthly in arrears on the first day of each month and all unpaid principal, together with any accrued and unpaid interest at such time, shall be paid on the Maturity Date. All computations of interest shall be made by the Lender on the basis of a year of 365 or 366 days, as the case may be, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable.

 

2.2 Collateral for Term Loans. To secure the repayment of the Term Loan and all other obligations of Borrower to Lender hereunder, Borrower hereby assigns and grants to Lender a first priority lien on and security interest in and to the Collateral, subject to the Permitted Liens, and upon satisfaction of Borrower’s obligations under this Agreement, Lender shall release such lien and security interest.

 

2.3 Prepayment. Upon thirty days prior written notice to the Lender, Borrower may prepay the Term Loan in whole or in part without payment of penalty or unearned interest; provided, however, that any such prepayment of principal shall be accompanied by the payment of interest accrued to the date of such prepayment and all costs, expenses or charges then owed to Lender pursuant to the Term Note.

 

2.4 Time of Payments.  Maker shall make each payment hereunder not later than 4:00 p.m. (Cleveland, Ohio time) on the day when due in U.S. Dollars to the Lender at its offices in same day funds.  Whenever any payment under the Term Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest.

 

  

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2.5 Application of Payments. Prior to an Event of Default, all payments and prepayments shall be applied in the following order of priority: (i) first to fees, costs and expenses owing to Lender, (ii) second to any accrued and unpaid interest, (iii) third to the principal of the Term Loan, and (iii) fourth to other amounts due and owing to Lender from Borrower hereunder. Following an Event of Default, payments and prepayments shall be applied as provided for in Section 5.3 herein.

 

SECTION 3. Representations and Warranties; Covenants.

 

3.1 Representation and Warranties of Borrower. Borrower hereby makes, as of the Closing Date, the following representations, warranties and covenants to the Lender:

 

(a) Organization, Power and Qualification.

 

(i) Borrower is a corporation that is duly organized and validly existing under the laws of the State of Delaware, and is qualified and in good standing to engage in its regular course of business in each jurisdiction in which the character of its properties or the nature of its activities requires such qualifications, except where the failure to be so qualified, licensed or in good standing would not, individually or in the aggregate, have or reasonably be expected to result in a material adverse effect;

 

(ii) Each of this Agreement and the Term Note has been duly authorized by all necessary proceedings of Borrower, has been duly and validly executed and delivered by Borrower, and, assuming due authorization, execution and delivery by Lender, is a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with the terms hereof and thereof, except as such enforcement may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws, now or hereafter in effect, relating to or affecting the rights, powers, privileges, remedies or interests of creditors generally, (b) rules or principles of equity affecting enforcement of obligations generally, whether at law, in equity or otherwise, or (c) the exercise of the discretionary powers of any court or other authority before which a proceeding may be brought seeking equitable remedies, including, without limitation, specific performance and injunctive relief (each, a “Bankruptcy Exception”);

 

(iii) No consent, approval, authorization, order, registration or qualification of, or with, any person, or of, or with, any court or regulatory authority or other governmental body having jurisdiction over Borrower, the absence of which would adversely affect the legal and valid execution, delivery and performance by Borrower of this Agreement, the Term Note, or the documents and instruments contemplated hereby or thereby or the taking by Borrower of any actions contemplated herein or therein, is required except for (a) the filing of a notice on Form D under the Securities Act of 1933, as amended and (b) the compliance with applicable state securities laws, (c) the consent of Perseus Partners VII, L.P. to the Term Loan and the liens granted under this Agreement,

 

  

5

  

and (d) the listing of the shares of the Borrower’s common stock issuable upon exercise of the Warrant on Nasdaq;

 

(iv) Neither the execution and delivery of this Agreement, the Term Note, the consummation of the transactions contemplated hereby or thereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement and the Term Note by Borrower, conflict with or result in a breach of or a default under any of the terms, conditions or provisions of any legal restriction (including, without limitation, any judgment, order, injunction, decree or ruling of any court or governmental authority, or any federal, state, local or other law, statute, rule or regulation) or any covenant or agreement or instrument to which Borrower is now a party, or by which Borrower or any of Borrower’s property is bound, nor does such execution, delivery, consummation or compliance violate or result in the violation of the Restated Certificate of Incorporation, as amended, Bylaws or any other organizational documents of Borrower (in each case as in effect on the date hereof);

 

(v) There is no pending or threatened claim or proceeding by or before any court or governmental agency against or affecting the Borrower which, if adversely decided would have a material adverse effect on the business, operations or financial condition of the Borrower or on the ability of the Borrower to perform its obligations under this Agreement, the Term Note, or the documents and instruments contemplated hereby or thereby; and

 

(vi) The principal executive office of Borrower is the address stated herein.

 

(b) Accuracy of Information. All information, in whatever form, provided by Borrower to Lender concerning the Transactions, including, without limitation: (i) the legal names and addresses of Obligors, (ii) the amount, due dates and payments due under the Transaction Documents, (iii) the description of the Pledged Units, (iv) the description of the Transaction Documents, (v) cash flows, and (vi) delinquencies has been provided with the knowledge that the Lender has been induced to enter into this Agreement in reliance on such information, and Borrower warrants that all such information is accurate and correct in all material respects.

 

(c) Transaction Representations.

 

(i) Each Transaction Document is genuine and, to the Borrower’s knowledge, represents a valid obligation of the Obligor named therein, and each such Transaction Document is and will continue to be enforceable against each Obligor in accordance with the terms thereof, without defense, offset or counterclaim, subject to the Bankruptcy Exception;

 

(ii) Each Transaction is denominated in United States dollars and has been entered into by Obligors domiciled in the United States of America;

 

  

6

  

(iii) Each Transaction Document contains an obligation of the applicable Obligor to pay for the use of the Pledged Units in accordance with the terms of the applicable usage agreement;

 

(iv) Each Transaction was originated in the ordinary course of Borrower’s business in connection with the sale, lease or consignment of one or more Pledged Units in accordance with Borrower’s customary credit policies, and the Pledged Units that are the subject thereof are intended for the Obligors’ professional, commercial or other business  use;

 

(v) The terms and conditions contained in the Transaction Documents correctly reflect the entire agreement between the parties thereto and there are no other written agreements or representations, or any oral agreements by Borrower, in connection therewith;

 

(vi) Borrower has not, directly, or indirectly, in any material way not in the ordinary course of business extended or otherwise restructured the payment terms or any other term or condition of any Transaction Document or made any extension or other accommodation to any Obligor for purposes of changing or beneficially affecting the delinquency status of any Transaction;

 

(vii) Each Transaction complies in all material respects with all applicable state, federal, local and other laws, rules, regulations and requirements in effect as of the Closing Date with respect to the creation of such obligations, the billing or collection, of discounts, fees or similar charges;

 

(viii) All Pledged Units leased or consigned (as the case may be) to the Obligors have been delivered to, and unconditionally accepted by, the Obligors in writing, in accordance with the applicable usage agreement or other applicable Transaction Document;

 

(ix) Except for the rights either granted to or provided to the Obligors under the applicable Transaction Documents, Borrower owns the Collateral, free and clear of any Liens other than Permitted Liens, and Borrower has not previously assigned, sold or hypothecated any interest that it may have to or under any Transaction or any Pledged Unit which has not heretofore been, or will be prior to the Closing Date, reassigned or released to Borrower, and upon the consummation of the transactions contemplated hereby, Lender will be vested with such security interests, and all right, title and interest of Borrower in and to the Collateral free and clear of any Lien thereon (other than Permitted Liens), except in favor of Lender, and will be entitled to all of the benefits due and owing to Borrower (but none of the obligations) under the Transaction Documents;

 

(x) The Pledged Units relating to any Transaction will be properly insured as required by the terms of the Transaction Documents. There are, to the best of Borrower’s knowledge, no pending claims by any Obligor against Borrower, any other the manufacturer of any of the Pledged Units or other

 

  

7

  

supplier of any of the Pledged Units based on express or implied warranties, product liability or otherwise;

 

(xi) As of the Closing Date, all outstanding material Taxes, fees, charges or assessments levied or assessed in connection with each Transaction (or Pledged Unit that is the subject of such Transaction) have been fully paid or reserved by Borrower or by the Obligor, as the case may be;

 

(xii) There are no oral or written agreements of any kind between Borrower and any other person, company or entity (including, without limitation, brokers, vendors, Obligors and governmental bodies) which will or may materially and adversely affect Lender’s interests in or to any of the Collateral, other than Permitted Liens;

 

(xiii) Within the last six (6) years, Borrower has not conducted business under any other trade name, fictitious name or any other legal name, except such vestigial uses under the names of Laser Photonics, Inc. and Acculase, Inc.;

 

(xiv) Borrower has not assigned its rights under any Transaction Document;

 

(xv) Borrower has all regulatory licenses, permits, approvals and clearances, including, without limitation, approvals by the United States Food and Drug Administration, to enter into the Transactions; and

 

(xvi) Borrower’s insurance policy, naming Lender as lender loss payee and additional insured, is in full force and effect.

 

3.2 Covenants of Borrower. Borrower hereby covenants and agrees that until the Term Loan has been paid and performed in full and this Agreement shall have terminated:

 

(a) all financial information shall be prepared in accordance with GAAP applied on a consistent basis with prior periods;

 

(b) Borrower shall give Lender at least thirty (30) days’ prior written notice of any relocation of its state of organization or its chief executive office, and shall at all times maintain its place of organization and its chief executive office within the United States;

 

(c) Borrower agrees to maintain product liability insurance reasonably acceptable to Lender and agrees to require Obligors to maintain professional liability and personal injury insurance on the Pledged Units as required in the Transaction Documents. Borrower agrees not to waive the requirement of any insurance coverage under policies maintained by an Obligor pursuant to any Transaction Document.

 

(d) Borrower shall at all times take all acts necessary to obtain and maintain the first priority Lien of Lender or its designated assignee on the Collateral, subject to Permitted Liens;

 

  

8

  

(e) Borrower shall, for the term of any Transaction Document, promptly advise Lender of any matter of which Borrower has knowledge which may be detrimental in any material respect to an Obligor’s financial condition or Lender’s first priority Lien on the Collateral (other than the Permitted Liens):

 

(f) Borrower shall furnish to Lender a certificate of an authorized officer of Borrower stating that he or she has reviewed the activities of Borrower and that, to the best of his or her knowledge, there exists no Event of Default or event which with notice or lapse of time (or both) would become an Event of Default, substantially in the form of the certificate attached hereto as Exhibit C (the “Officer’s Certificate”) within thirty (30) days after any request by Lender;

 

(g) Borrower shall provide to Lender (i) within sixty (60) days following the end of each fiscal quarter, a balance sheet as of the end of such fiscal quarter, and statements of income and cash flows for such fiscal quarter and for the year to date, certified by Borrower’s Chief Financial Officer as being prepared in accordance with GAAP (subject to normal year-end adjustments and the absence of footnotes); (ii) within ninety (90) days after the end of each fiscal year, audited financial statements certified by an independent certified public accountant selected by Borrower; (iii) within five (5) days of the filing thereof, all reports required to be filed with the Securities Exchange Commission; (iv) within thirty (30) days following the end of each quarter, the quarterly report for Pledged Unit placements and usage in the form of Exhibit B attached hereto; (v) within thirty (30) days following the end of each quarter, the quarterly historical chart of total Pledged Units placements and treatments detailing the average daily usage per Pledged Unit; (vi) within twenty (20) days after the end of each month, summaries of the monthly aging and the status of any charge-offs of receivable balances in which Lender has an interest, by usage or services contracts accounts, as well as in the aggregate, and other source information from which the aforementioned, summaries are prepared; (vii) within twenty (20) days after the end of each month, a monthly report, including the summary of billings to each Obligor and the status of each Transaction, on locations of Pledged Units; and (viii) within twenty (20) days after the end of each month, monthly listing of cancelled or expired Transactions, in each instance, by name, location and reason.  Each of the financial statements delivered pursuant to clauses (i) or (ii) shall be accompanied by an Officer’s Certificate in the form of Exhibit C hereto of the Borrower’s Chief Financial Officer, stating that as of the date thereof there exists no Event of Default or event which, with the giving of notice or passage of time or both would become an Event of Default or, if such Event of Default or event exists, describing such occurrence and the steps being taken by Borrower in respect thereof;

 

(h) Borrower shall, at all reasonable times and upon reasonable notice, allow Lender by or through any of its officers, agents, employees, attorneys, or accountants to (i) examine, inspect, and make extracts from Borrower’s books and other records, including, without limitation, the tax returns of Borrower; (ii) arrange for verification of Borrower’s accounts, under reasonable procedures coordinated with Borrower or Borrower’s auditors; and (iii) examine and inspect the Collateral, wherever located; provided, however, unless an Event of Default occurs and is continuing Bank shall be limited to one inspection of such books and records during any calendar quarter.

 

  

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(i) Borrower shall promptly and fully report to Lender in writing if any Pledged Unit is lost or damaged (where the estimated repair costs would exceed the greater of ten percent (10%) of the original Pledged Unit cost or Ten Thousand Dollars ($10,000)), or is otherwise involved in an accident causing personal injury or property damage;

 

(j) Borrower shall make or cause to be made all filings in respect of, and pay or cause to be paid when due, all taxes, assessments, fines, fees and other liabilities (including all taxes and other claims in respect of the Transactions and the related Pledged Units) unless being reasonably contested;

 

(k) Borrower shall remain in full compliance with all laws and regulations applicable to it including, without limitation:  (a) ensuring that no person who owns a controlling interest in or otherwise controls Borrower is or shall be (I) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation, or (II) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and (b) compliance with all applicable Bank Secrecy Act (“BSA”) laws, regulations and government guidelines on BSA compliance and on the prevention and detection of money laundering violations;

 

(l) Borrower shall, within thirty (30) days from the date hereof establish and thereafter maintain a lockbox account (the “Controlled Account”) with a bank satisfactory to Lender into which all Payments shall be made and shall cause such bank to enter into a control agreement with Lender (a “Control Agreement”), in form and substance satisfactory to Lender.

 

(m) Borrower shall within sixty (60) days upon the return of any Pledged Unit by an Obligor either (i) have delivered such Pledged Unit to a new Obligor pursuant to a usage agreement or other Transaction Document pledged to Lender hereunder, or (ii) have delivered to Lender as replacement collateral for the obligations of Borrower hereunder, substitute Transaction Documents and Pledged Units.

 

(n) Borrower shall perform in all material respects all of its obligations arising by contract, agreement, or imposed by applicable law, rule or regulation with respect to any of the Pledged Units;

 

(o) The proceeds of the Term Loan shall be used for working capital and general corporate purposes of the Borrower, but shall not be used for (i) distributions to the holders of the Company’s equity or (ii) the non-scheduled payment of funded indebtedness.

 

(p) Borrower shall maintain, as of the end of each calendar quarter, a minimum aggregate amount of $500,000 of Eligible Accounts Receivable and Borrower shall provide Lender with a quarterly statement evidencing the same within 20 days following the end of each calendar quarter.

 

(q) Borrower shall not sell, lease, transfer or dispose of any of its properties or assets, except in the ordinary course of business;

 

  

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(r) Borrower shall not create or suffer to exist any Lien upon or against any of its property or assets, whether now owned or hereafter acquired, except for Permitted Liens;

 

(s) Borrower shall not create, incur or have outstanding any obligation for borrowed money, or any indebtedness of any kind, that will mature prior to the Maturity Date; provided, that this Section shall not apply to (i) the indebtedness to the Lender or any affiliate of the Lender; (ii) the indebtedness existing on the Closing Date; and (iii) indebtedness to trade creditors incurred in the ordinary course of business.

 

(t) Borrower shall provide written notice to Lender of any request to Perseus Partners VII, L.P. for its consent to create, incur or have outstanding any obligation for borrowed money or any indebtedness of any kind; provided, that this Section shall not apply to (i) the indebtedness to the Lender or any affiliate of the Lender; (ii) the indebtedness existing on the Closing Date.

 

(u) Borrower shall not modify the terms of its existing indebtedness to mature on or prior to the Maturity Date.

 

(v) Borrower shall not directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms-length transaction with a non-affiliated Person;

 

(w) Borrower shall not pay any dividends or make any distribution or payment on account of or in redemption, retirement or repurchase of any capital stock;

 

(x) Borrower shall file (within forty-five (45) days from the date hereof with respect to current Pledged Units and within fifteen (15) days for new Pledged Units), a UCC-1 Financing Statement for each Obligor (in the state of organization or residence for such Obligor) providing notice that the Pledged Units remain the property of the Borrower and subject to a lien in favor of the Lender and subject to the Permitted Liens;

 

(y) Borrower shall from time to time execute and deliver such further documents and do such further acts and things as Lender may reasonably request in order to fully effect the purposes of this Agreement and to protect Lenders’ interest in the Transaction Documents and Pledged Units; and

 

(z) Borrower shall provide such other information as Lender may reasonably request.

 

SECTION 4. Conditions to Term Loan.

 

4.1 Conditions Precedent to each Term Loan.  Lender’s obligation to make the Term Loan hereunder is subject to the fulfillment or prior written waiver of each of the following conditions precedent, each in form and substance satisfactory to Lender and its counsel.

 

(a) Borrower shall have duly executed and delivered to Lender the Term Note evidencing the Term Loan;

 

  

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(b) Borrower shall not be in breach in any material respect of any of its representations herein;

 

(c) Borrower shall not be in default in any material respect in the performance of any obligation hereunder, including, without limitation, Section 3.2(k) above;

 

(d) If requested by Lender, Borrower shall have delivered to Lender original Transaction Documents for each relevant Transaction, which shall consist of the following documents:

 

(i) a certified copy of each Transaction Document, together with all schedules, amendments, riders and supplements thereto identified on a Schedule;

 

(ii) all such UCC-1 financing statements as may exist, designating the relevant Obligor, as debtor, and Borrower, as secured party, filed by Borrower at its expense in Obligor’s state of organization;

 

(iii) copies of insurance certificates required by Borrower and, to the extent available, Obligor pursuant to the Transaction Documents;

 

(iv) original certificate, executed by the Borrower, evidencing its report of installation and acceptance by the Obligor of the Pledged Unit(s); and

 

(v) any other documents relating: to any of the foregoing or otherwise evidencing a payment obligation under, providing security for, or otherwise relating to a Transaction.

 

(e) Borrower shall have delivered to Lender a copy of appropriate resolutions of its board of directors, in form and substance satisfactory to Lender, authorizing the execution, delivery and performance of this Agreement, the Term Note, and the other Credit Documents;

 

(f) Borrower shall have delivered to Lender a UCC-1 financing statement naming Borrower as debtor and Lender as secured party;

 

(g) Borrower shall have delivered to Lender, and/or caused to be performed, such other items that may be reasonably requested by Lender;

 

(h) Borrower shall not have suffered any material adverse change, nor shall any material adverse change be threatened, in its financial condition, business or operations since the date of Borrower’s most recent financial statement delivered to Lender;

 

(i) Borrower shall have delivered to Lender evidence of Borrower’s insurance policy with policy limits acceptable to Lender naming Lender and its assignees as lender loss payees and additional insureds;

 

(j) Borrower shall have delivered to Lender all information necessary for Lender to issue wire transfer instructions on behalf of Borrower for the Term Loan to be made under this Agreement, including disbursement authorizations in form acceptable to Lender;

 

  

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(k) Borrower shall have delivered the Warrant to Lender;

 

(l) Borrower shall have reimbursed Lender for its legal costs and expenses, the amount of which shall not exceed Twenty-Five Thousand Dollars ($25,000); and

 

(m) Lender shall have received the favorable opinion (addressed to Lender and dated as of the closing date) of Morgan, Lewis & Bockius, LLP, counsel for Borrower in the form and substance acceptable to Lender, and covering such other matters relating to Borrower, this Agreement or the Credit Documents as Lender shall reasonably request.

 

SECTION 5. Events of Default and Remedies.

 

(a) Events of Default.  Each of the following shall constitute an “Event of Default”:  (i) Borrower fails to pay when due any of the obligations owing to Lender and such failure is not remedied within ten (10) days of the applicable due date; (ii) Borrower breaches any of its insurance obligations under the Transaction Documents and fails to cure the breach within five (5) days from the earlier of (A) Borrower’s knowledge thereof and (B) Borrower’s receipt of notice from Lender; (iii) Borrower breaches any of its other obligations and fails to cure that breach within thirty (30) days from the earlier of (A) Borrower’s knowledge thereof and (B) Borrower’s receipt of notice from Lender, (iv) any representation or warranty made by Borrower in connection with this Agreement shall be false or misleading in any material respect; (v) Borrower becomes insolvent or ceases to do business as a going concern; (vi) a petition is filed by or against Borrower under any bankruptcy or insolvency laws and in the event of an involuntary petition, the petition is not dismissed within forty-five (45) days of the filing date; (vii) Borrower defaults under any other material obligation for (A) borrowed money, (B) the deferred purchase price of property, or (C) payments due under lease agreements and the same are not cured within the applicable cure periods; (viii) there is any dissolution, termination of existence, merger, consolidation or change in controlling ownership of Borrower, where the term “change of controlling ownership” shall be defined and interpreted in accordance with the rules and regulations of the SEC, provided, however, that a change of controlling ownership of the Borrower shall not be deemed in any case to result from the issuance by the Borrower of shares of its common stock in a bona fide underwritten public offering; (ix) Borrower cancels or changes the terms of the Lockbox Agreement or moves the Controlled Account related thereto without Lender’s prior written consent; (x) an event of default shall occur and continue beyond any applicable period of notice and/or grace under the Master Term Loan and Security Agreement or any other document executed in connection therewith; or (xi) there is a material adverse change in the Borrower’s financial condition as determined solely by Lender.  An Event of Default declaration shall apply to all Schedules unless specifically excepted by Lender.

 

5.2 Remedies.  Upon the occurrence and during the continuance of an Event of Default (a) Lender may declare all obligations of Borrower under this Agreement and the Term Note immediately due and payable without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Borrower (provided, however, if an Event of Default occurs with respect to Section 5.1(v), all obligations of Borrower under this Agreement and the Term Note shall automatically become immediately due and payable without further action of the Lender), (b) at the request of Lender, Borrower shall assign to Lender such licenses, certificates and authorizations, including all applicable treatment access codes,

 

  

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necessary for the operation of the Pledged Units by the Obligors, (c) the Lender shall have the rights and remedies of a secured party under the Ohio Revised Code, in addition to the rights and remedies of a secured party provided elsewhere within this Agreement, (d) collect, compromise, take, sell or otherwise deal with the Collateral and proceeds thereof in its own name or in the name of the Borrower, (e) sell, assign, transfer or otherwise dispose of all or any part of the Collateral in any manner permitted by law and do any other thing and exercise any other right or remedy which the Lender may, with or without judicial process, do or exercise under applicable law, and in any such sale the Lender may sell, assign, transfer or otherwise dispose of all or any part of the Collateral without giving any warranties and the Lender may specifically disclaim any warranties of title and the like, (f) enforce the obligations of an account debtor, Obligor or other person obligated on the Collateral and exercise the rights of the debtor with respect to the obligation of the account debtor, Obligor or other person obligated on collateral to make payment or otherwise render performance to the Borrower, and with respect to any property that secures the obligations of the account debtor, Obligor or other person obligated on the Collateral, in any case directly or through collection agencies or other collection specialists.

 

5.3 Right of Entry; Possession of Pledged Units.  Upon the occurrence and during the continuance of an Event of Default, Borrower hereby, and to the extent it may have such authority, authorizes Lender to peacefully enter any premises where any Pledged Unit may be and take possession of such Pledged Unit.  Lender may, but shall not be required to, sell Pledged Units at private or public sale, in bulk or in parcels, with or without notice, and without having the Pledged Unit present at the place of sale.  Lender may also, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Pledged Units.  Lender may use Borrower’s premises for a reasonable period of time for any or all of the purposes stated above without liability for rent, costs, damages or otherwise.  The proceeds of sale, lease or other disposition, if any, shall be applied on the following order of priorities:  (a) to pay all of Lenders’ costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of the Pledged Units; then, (b) to the extent not previously paid by Borrower, to pay Lender all sums due from Borrower under this Agreement; then (c) to reimburse to Borrower any sums previously paid by Borrower as liquidated damages; and then (d) to Borrower, if there exists any surplus.  Borrower shall immediately pay any deficiency in (a) and (b) above.

 

5.4 Notice of Disposition.  If any notice is required by law to effectuate any sale or other disposition of the Collateral, (a) Lender will give Borrower written notice of the time and place of any public sale or of the time after which any private sale or other intended disposition thereof will be made, and at any such public or private sale, Lender may purchase all or any of the Collateral; and (b) Lender and Borrower agree that such notice will not be unreasonable as to time if given in compliance with this Agreement ten days prior to any sale or other disposition.

 

5.5 Late Charges.  In the event Borrower fails to make any payment under the Term Note within ten (10) days of the applicable payment Due Date, Borrower shall also pay to Lender, in addition to principal and interest a late charge equal to 5% of the amount of such missed payment.

 

5.6 Remedies Cumulative.  All rights and remedies granted Lender hereunder and under the Term Note and other agreements, instruments and documents associated herewith and therewith, or otherwise available at law or in equity, shall be deemed concurrent and cumulative,

 

  

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and not alternative remedies, and Lender may proceed with any number of remedies at the same time until all obligations and liabilities of Borrower are satisfied in full.  The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon or at any time after the occurrence of an Event of Default, may proceed against Borrower, at any time, under any agreement, with any available remedy and in any order.

 

5.7 Set-Off.  If any bank account or other property held by or with Lender, or any Affiliate of Lender, or any participant is attached or otherwise liened or levied upon by any third party, Lender (and such participant) shall have and be deemed to have, without notice to Borrower, the immediate right of set-off and may apply the funds or other amounts or property thus set off against any of Borrower’s obligations and liabilities hereunder.

 

SECTION 6. Collection Costs; Indemnification Obligations.

 

6.1 Collection Costs.  If Borrower fails to pay any amount that may become due to Lender hereunder or under the Term Note, then Borrower shall reimburse Lender upon demand for all collection costs hereunder (including reasonable attorneys’ fees and expenses).

 

6.2 General Indemnification.  Borrower indemnifies, defends and holds harmless Lender, its successors and assigns, from and against any and all suits, claims, liabilities, counterclaims, actions, damages, penalties, losses, costs or expenses (including, without limitation, attorneys’ fees, expenses and court costs) of any kind Lender shall suffer as a direct result of or arising out of (a) any breach by Borrower of any warranty, representation, covenant or agreement contained herein, or other document executed by Borrower in connection herewith, or contained in any Transaction Document, (b) any intentional misrepresentation in, or material omission from, any statement, certificate, Exhibit, Schedule or other agreement, instrument or document prepared and delivered or to be delivered by Borrower pursuant to this Agreement, (c) any negligence of Borrower or of any agent or employee of Borrower or any warranty given by Borrower in respect of the purchase, installation, delivery, maintenance and condition of any Pledged Unit, (d) any Taxes and any governmental charges, fees, fines or penalties whatsoever, levied against any Transaction or any Pledged Unit for any periods prior to the applicable Closing Date and not paid by Borrower in the event Borrower is liable for such Taxes, (e) any Transaction or Transaction Document being unenforceable by reason of the failure of Borrower (or any predecessor-in-interest to Borrower) to have qualified to do business or to have any license or permit required by any state or other governmental entity, (f) the failure of Borrower to have or have obtained from an Obligor effective insurance coverage as required pursuant to the Transaction Documents, or (g) the failure of Lender to have a first priority perfected security interest in and Lien on the Collateral, subject to the Permitted Liens.  Borrower further indemnifies and holds harmless Lender, its successors and assigns, from and against any and all liabilities (including interest and penalties) with respect to any Taxes required to be collected in respect of any Transaction or any Pledged Units after the Closing Date if such Taxes had not been collected by Borrower prior to the Closing Date on reliance of any exemption being available or otherwise applicable and it is subsequently determined by Lender that no exemption is available.

 

6.3 Environmental Indemnification.  Borrower shall fully and promptly pay, perform, discharge, defend and indemnify and hold harmless Lender, its successors and assigns from and

 

  

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against any and all claims, loss or damage, including the costs of any remedial action arising from any breach of any environmental law in connection with a Transaction, including, without limitation, any claim arising under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et. seq.).

 

6.4 Survival.  The obligations of Borrower under this Section 6 shall survive the execution of this Agreement and the Term Note, the Closing and any payment of any amount owing under the Term Note.

 

6.5 Continuation of Interest Charges.  All contractual rates of interest chargeable on the Term Loan shall continue to accrue and be paid even after default, acceleration, termination of this Agreement, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.

 

6.6 Applicable Interest Limitations.  In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement or the Term Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto.  In the event that such court determines Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall apply and set off such excess interest received by Lender against other obligations and liabilities due or to become due and such rate shall automatically be reduced to the maximum rate permitted by such law.

 

SECTION 7. Administration and Servicing of Term Loan.

 

7.1 Servicing of Transactions.  Until the Term Loan hereunder has been paid and performed in full and this Agreement shall have been terminated, Borrower will, unless and until replaced:

 

(a) Perform all servicing responsibilities with respect to the Transactions;

 

(b) Bill Obligors in accordance with the terms of the applicable Transaction Document and otherwise in accordance with Borrower’s standard billing procedures, and use its best efforts to collect all payments due under the Transaction Documents, including all taxes, but in no event less diligently and appropriately than in accordance with generally accepted servicing practices in the financial services industry.  All billing with respect to Transactions shall be accomplished by separate invoices (i.e. not included in invoices to the same Obligor for payments due under any other agreements between Borrower and Obligor) or by invoices clearly describing the Transactions to which payments due an applicable.  To the extent payments from Obligors include sales, use and personal property taxes such amounts will be received in trust by Borrower and paid promptly to the authority entitled thereto.

 

(c) Maintain books and records pertaining to all the Transactions and provide Lender or its appointee on-site access to same, on an annual basis during the term of the Term Loan, with the cost of out-of-pocket expenses actually incurred to be borne by Borrower in an amount not to exceed $900.00 in conjunction with a review of collection and administration of the Transactions in order to assess compliance with the written policy and procedure of Borrower in relation to the servicing responsibilities of Borrower as well as review of Transaction

 

  

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Documents, and on or before the twentieth (20th) day of each month.  Borrower shall provide a report, in form and substance satisfactory to Lender, by electronic transmission, of all payments due under the Transaction Documents as of the last day of the preceding month, all payments received, payments advanced by Borrower, and any amounts for which a payment is overdue and the period for which such amount is overdue, any recoveries and any other information Lender requests.

 

(d) Make or cause to be made all filings in respect of, and pay and discharge or cause to be paid and discharged when due, any and all personal property taxes, license fees, sales, use, excise, or similar taxes now or hereafter imposed by any state, Federal or other government or agency on any Transactions, Pledged Units or payments due under any Transaction, whether the same shall be payable by or billed or assessed to the Obligor or Borrower, together with any penalties and/or interest in connection therewith.

 

7.2 Required Consent of Lender to Certain Matters.  Borrower may not, without the prior written consent of Lender, take any action with respect to the following (unless such action is required by the terms of the applicable Transaction Documents):

 

(a) enter into a waiver or consent or permit any material modification with respect to any executed Transaction Document;

 

(b) release, or agree to the substitution or exchange of any Pledged Unit or release the liability, in whole or in part, of any person or entity liable for any payment owing under any Transaction Document, except with respect to upgrades as may occur in the ordinary course of Borrower’s business;

 

(c) grant any concession with respect to the compliance with any material obligations imposed by the Transaction Documents, if such concession could materially adversely affect the value of the Collateral;

 

(d) accelerate or extend the maturity date of a Transaction Document, commence any action, terminate any Transaction Document or repossess and resell any Pledged Units except in the ordinary course of business; or

 

(e) consent to any encumbrance on, or any subordinate financing of, any Pledged Unit in which Lender holds a security interest (other than Permitted Liens).

 

Borrower shall promptly provide Lender with notice of any request by an Obligor for an act which would require the consent of Lender, and unless Lender consents in writing within ten (10) business days of such request, the request shall be deemed denied; provided, however, that notwithstanding the foregoing, so long as no Event of Default or event which with the passage of time and/or the giving of notice would constitute an Event of Default, upon the request of an Obligor, Borrower may sell items of Pledged Units from time to time to such Obligors without the prior consent of Lender (and Lender shall release its Lien thereon), subject to the following conditions:  (i) Borrower shall not be permitted to sell a Pledged Unit unless the remaining time under the corresponding Transaction Documents is less than twelve (12) months, (ii) Borrower shall in no event be permitted to sell more than twenty (20) such Pledged Units during the term of this Agreement (as extended, if applicable), unless Borrower substitutes the corresponding

 

  

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Transaction Documents and Pledged Units with new Transaction Documents and Pledged Units pledged as replacement Collateral (in amounts and on terms satisfactory to Lender and Borrower, it being understood that the substitution of a new Transaction Document for a new item (not refurbished) of Pledged Unit shall suffice to redress three (3) such items of sold Pledged Unit, and (iii) Borrower shall continue to provide written notice to Lender (x) of each sale of Pledged Unit and (y) upon reaching twenty (20) items of Pledged Units sold in accordance with the terms hereof, that it has reached the twenty (20) item threshold.

 

7.3 Notice to Obligors.  Upon the occurrence of an Event of Default, Lender shall have the right to terminate Borrower as servicer and engage a replacement servicer or act as servicer itself and may notify the Obligors of the assignment of such Obligor’s Transaction to Lender.  If Lender or its designee assumes billing and collection responsibility, Borrower shall not interfere, attempt to interfere, or initiate communication in any way with an Obligor concerning the notices, billing and collection of payments and other amounts as provided in this Agreement.  Borrower agrees, at its sole cost and expense, to cooperate and assist Lender or its designee in efforts with respect to billing and collection as Lender may request and to turn over all documents and information in its possession with respect to the Transactions.  If, following such termination Borrower receives a payment, Borrower agrees to immediately forward the payment to Lender, in kind, and until such payment is forwarded to Lender, to hold the payment in trust for Lender.

 

7.4 Lender Billing and Collecting.  Upon Lender’s or its designee’s undertaking to bill and collect for payments under any Transactions, Lender or its designee may take or fail to take whatever action with respect to the collection of such payments as Lender, in its sole discretion, shall deem proper.  Borrower hereby waives any objection to and hereby consents that, without affecting any of Borrower’s liabilities or obligations hereunder or under any assignment, Lender or its designee may, after Lender’s or its designee’s undertaking to bill and collect, agree with any Obligor under any Transaction as to any modification, alteration, release, compromise, extension, waiver, consent, or other similar or dissimilar indulgence of or with respect to any such Transaction without relieving Borrower from any of its obligations hereunder.

 

SECTION 8. Miscellaneous.

 

8.1 Costs, Recording and Other Fees.  On the Closing Date, and from time to time thereafter, Borrower shall pay (i) all reasonable expenses of Lender on demand (including, without limitation, search costs, audit fees, appraisal fees, and the reasonable fees and expenses of legal counsel for Lender) relating to this Agreement and the transactions contemplated by the Agreement, the Transaction Documents and all related agreements and documents, including, without limitation, (A) all expenses incurred in the analysis, negotiation, preparation, closing, administration and enforcement of this Agreement and the other documents associated herewith, (B) all expenses incurred in the enforcement, protection and defense of the rights of Lender in and to the Term Loan and Collateral, including without limitation, all recording fees, assessments or other statutory fees necessary to perfect Lender’s first priority security interest in and Lien on the Collateral, subject to the Permitted Liens, or otherwise hereunder, (C) all Taxes, if any, payable upon or in connection with the conveyance and transfer contemplated hereunder, and (ii) any reasonable expenses of Lender relating to extensions, amendments, waivers or

 

  

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consents pursuant to the provisions hereof, or any related agreements and documents or relating to agreements with other creditors or termination of this Agreement, provided, however, that legal fees shall not exceed $25,000 (collectively, the “Expenses”).  Any Expenses not paid upon demand by Lender shall bear interest at the highest per annum rate of interest applicable to the Term Loan.

 

8.2 Power of Attorney.  Borrower hereby irrevocably constitutes and appoints Lender as Borrower’s attorney-in-fact with full power of substitution, for Borrower and in Borrower’s name to do, at Lender’s option and at Borrower’s expense, all lawful acts and things which Lender may deem necessary to perfect and continue the perfection of any security interest or Lien created hereunder and to ask, demand, collect (including, but not limited to, the execution, in Borrower’s name, of assignment notification letters), receipt for, sue for, compound and give acquittance for any and all payments assigned hereunder and to endorse, in writing or by stamp, Borrower’s name or otherwise on all checks for any monies in respect of the Transactions in which Lender holds a security interest.

 

8.3 Successor and Assigns.  Lender shall have the absolute right, without requiring Borrower’s consent, to assign all or any of its rights or delegate all or any of its duties hereunder.  Borrower may not assign all or any or its rights or delegate all or any of its duties hereunder without the prior written consent of Lender, provided no such assignment shall relieve Borrower of any of its obligations hereunder or any Term Note executed hereunder.

 

8.4 Payments In Immediately Available Funds.  Each payment to be made hereunder or any Term Note shall be made on the required payment date in lawful money of the United States or other funds immediately available to the Lender.

 

8.5 Rights Cumulative.  All rights, remedies and powers granted to Lender hereunder are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all other rights, remedies and powers given hereunder and thereunder, or in or by any other instrument, or available in law or equity.

 

8.6 Waivers.  No failure or delay on the part of Borrower or Lender in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy.

 

8.7 Notices.  All notices, requests or other communications desired or required to be given under this Agreement shall be in writing and shall be sent by (a) certified or registered mail, return receipt requested, postage prepaid, (b) national prepaid overnight delivery service, (c) telecopy or other facsimile transmission (following with hard copies to be sent by national prepaid overnight delivery service) or (d) personal delivery with receipt acknowledged in writing, as follows:  if to Borrower or Lender at the address set forth on the signature page hereto.  All notices and demands shall be deemed to have been given either at the time of the delivery thereof to any officer of the person entitled to receive such notices and demands at the address of such person for notices hereunder, or on the third day after the mailing thereof to such address, as the case may be.

 

  

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8.8 Deliveries to Lender.  All items to be delivered, remitted or otherwise to be furnished by Borrower to Lender pursuant hereto or in connection herewith shall, except as otherwise provided for herein, be delivered to Lender at its office at the address set forth herein and therein or at such other place as the Lender may direct.

 

8.9 Merger and Integration; Amendments. Etc.  This Agreement and any documents executed in connection herewith set forth the entire understanding of the parties relating to the subject matter hereof, and all other and/or prior understandings, written or oral, are hereby superseded.  This Agreement may not be modified, amended, waived, terminated or supplemented, except in accordance with its express terms and in a writing executed by Borrower and Lender.

 

8.10 Headings and Cross-References.  The various headings in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement.  References to any Section are to such Section of this Agreement.

 

8.11 Governing Law.  This Agreement shall be governed by the internal substantive laws of the State of Delaware, without regard to principles of conflicts of law or choice of law.

 

8.12 Counterparts.  This Agreement may be signed in one or more counterparts (and by different parties on separate counterparts), each of which shall be an original and all of which shall be taken together as one and the same agreement.

 

8.13 Severability.  If any provision hereof is void or unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision herein in such or any other jurisdiction.

 

8.14 Survival of Duties, Warranties and Representations.  Each party hereto covenants that its respective duties, warranties and representations set forth in this Agreement and in any document delivered or to be delivered in connection herewith or therewith, shall survive the execution of this Agreement and the closing of the transactions contemplated hereunder and thereunder.

 

8.15 Jurisdiction, Forum Selection Venue; Jury Trial Waivers.  BORROWER AND LENDER (A) AGREE TO SUBMIT THEMSELVES IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY SCHEDULE OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF OR THEREOF, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF OHIO, AND APPELLATE COURTS FROM ANY SUCH FEDERAL COURT, (B) CONSENT THAT ANY ACTION OR PROCEEDING SHALL BE BROUGHT IN SUCH COURTS, AND WAIVE ANY OBJECTION THAT EACH MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT, (C) AGREE THAT SERVICE OF PROCESS OF ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE APPROPRIATE PARTY AT ITS ADDRESS AS SET FORTH HEREIN,

 

  

20

  

AND SERVICE MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED AS AFORESAID, AND (D) AGREE THAT NOTHING HEREIN OR IN ANY SCHEDULE SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BORROWER AND LENDER EACH HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY SCHEDULE AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN BORROWER AND LENDER.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written.

 

 

 

	 	
 PHOTOMEDEX, INC., as Borrower

 

	 
	  	
By:

	
/s/ Dennis M. McGrath

	  
	  	
Name:

	
Dennis M. McGrath

	  
	  	
Title:

	
Chief Executive Officer

	  
	  	  	  	  
	  	
Address:

	
147 Keystone Drive

	  
	  	  	
Montgomeryville, PA 18936

	  
	  	
Attn:

	
Chief Executive Officer and Chief Financial Officer

	  
	  	
Facsimile:

	
215-619-3209

	  

 

 

 

	 	
 CLUTTERBUCK FUNDS LLC, as Lender

 

	 
	 	
By:

	
/s/ Robert T. Clutterbuck

	  
	  	
Name:

	
Robert T. Clutterbuck

	  
	  	
Title:

	
Managing Partner

	  
	  	  	  	  
	  	
Address:

	
200 Public Square, Suite 2910

	  
	  	  	
Cleveland, OH  44114

	  
	  	
Attn:

	
Robert T. Clutterbuck

	  
	  	
Facsimile:

	
216-803-1199

 

	  

 

 

 

 

 

 

 

 

 

   S-1

[Signature Page to Term Loan and Security Agreement]

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