-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AooVHNZcW1RAFUWGAk6hhzXW3DFIvqwSzALjPUPGG/1XgI40ukrdX8icRONOE91G r0fXDXbG3T38WqCokBHYqg== 0000950109-01-000804.txt : 20010402 0000950109-01-000804.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950109-01-000804 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE MEDICAL CORP CENTRAL INDEX KEY: 0000074691 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 221897821 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08903 FILM NUMBER: 1586528 BUSINESS ADDRESS: STREET 1: PO BOX 1500 STREET 2: 389 JOHN DOWNEY DR CITY: NEW BRITAIN STATE: CT ZIP: 06050 BUSINESS PHONE: 2038263600 MAIL ADDRESS: STREET 1: 389 JOHN DOWNEY DRIVE STREET 2: 389 JOHN DOWNEY DRIVE CITY: NEW BRITAIN STATE: CT ZIP: 06050 FORMER COMPANY: FORMER CONFORMED NAME: OPTEL CORP DATE OF NAME CHANGE: 19850611 10-K 1 0001.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________ FORM 10 - K FOR ANNUAL AND TRANSITION REPORTS [X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended December 30, 2000 or [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 MOORE MEDICAL CORP. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- Delaware 1-8903 (State of incorporation) (Commission File Number) P.O. Box 1500, New Britain, CT 06050 22-1897821 (Address of principal executive offices) (I.R.S. Employer Identification Number) 860-826-3600 (Registrant's telephone number) Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.01 Par Value) American Stock Exchange Rights to Purchase Series I Junior Preferred Stock American Stock Exchange (Title of Each Class) (Name of each exchange on which registered)
- -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ________ ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates (i.e. other than identified 5% holders, and holdings attributed to executive officers and directors) of the registrant as of March 2, 2001 was $10,611,059. Determination of affiliate status for such purpose is not a conclusive determination thereof for other purposes. Number of shares of Common Stock outstanding (exclusive of 94,596 treasury shares) as of March 2, 2001: 3,151,443. - -------------------------------------------------------------------------------- Documents Incorporated By Reference The portions of the registrant's proxy statement for its 2001 Annual Meeting of Shareholders referred to in Part III of this report are incorporated by reference. The exhibit index is located on pages 28-30. Total number of pages in the numbered original (including exhibits) is 143. This is page 1 of 32 pages. ================================================================================ 1 Moore Medical Corp. 2000 Annual Report on Form 10-K Table of Contents Part I - ----------------------------------------------------------------------------------------------------------------------- Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 8 Part II - ----------------------------------------------------------------------------------------------------------------------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 Part III - ----------------------------------------------------------------------------------------------------------------------- Item 10. Directors and Executive Officers of the Registrant 27 Item 11. Executive Compensation 27 Item 12. Security Ownership of Certain Beneficial Owners and Management 27 Item 13. Certain Relationships and Related Transactions 27 Part IV - ----------------------------------------------------------------------------------------------------------------------- Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 28 Signatures 31
2 ITEM 1. Business Overview Moore Medical Corp. is a multi-channel, Internet-enabled marketer and distributor of medical/surgical products and pharmaceuticals. We provide these products to nearly 100,000 health care professionals in non-hospital settings nationwide, including: physicians, podiatrists, surgeons, obstetricians, gynecologists, pediatricians, emergency medical technicians, medical departments at industrial sites, municipalities, university and school health services, correctional facilities and other specialty practice communities. We market and serve our customers through the Internet, direct mail, industry specialized telephone support representatives, and key opportunity sales representatives. Moore Medical's direct marketing and distribution business has more than fifty years of operating experience. Moore Medical's Mission & Key Initiatives Moore Medical's mission is to provide health care professionals with the supplies, tools and resources they need to improve the wellness of their patients and to save lives. We seek to achieve this goal by maintaining a reliable customer support infrastructure, implementing vigorous supply chain initiatives, and remaining dedicated to continuous improvement throughout the organization. Following are three key initiatives that are fundamental to all of our business activities and that enable us to develop solutions that will meet our customers' needs in a cost-efficient, innovative manner: 1. Maintain a strong customer focus. The customer is the focal point of our supply chain strategies, and we strive to solve complex customer problems with innovative and easy-to-use solutions. For example, our Customer Advisory Council and ongoing surveys enable customers to share their views and suggestions on how to improve their customer experience. 2. Provide a multi-channel direct marketing experience. We adopted a strategy in 1999 and updated it in 2000 to transform our business from an off-line- only model relying on catalogs, telesales, and key opportunity and field representatives, to a multi-channeled enabled model. Our strategy is three-fold: a) to increase our revenues and improve our operating results by attracting new customers and migrating existing customers to our web site; b) to continue offering quality catalogs and collateral, print and pictorial materials to customers who prefer to make product selections and order offline; and c) to build our customer base in specialized professional practice communities, including through the use of an affiliate network of online professional associations. 3. Strive for continuous improvement across the organization. In order to meet our quality improvement objectives, we contracted with Werner Consulting, LLC, Madison, Connecticut, a top-rated management consulting firm, to work with us to identify potential improvement opportunities and create an action plan for process improvement. Health Care Products Distribution Industry/Competition Industry: Current statistics from Hoover Online, an informational business - -------- network, report the $1 trillion health care industry is the largest segment of the U.S. economy, representing 14% of Gross Domestic Product (GDP). About $35 billion is spent annually on medical/surgical supplies. There are three primary types of purchasers of medical supplies: hospitals, large Integrated Delivery Networks (IDNs) and Independent Physician Associations (IPAs). Moore distributes its products to IPAs, individual physicians' offices and clinics, and emerging medical providers. The total physician market for these products is approximately $5 billion, per current HIDA (Health Industry Distributors Association) statistics. The physician supply market is quite fragmented: the four leading distributors control only 40% of the market. Most manufacturers will not sell directly to health care practitioners in non-hospital settings. Likewise, most health care practitioners/practices prefer to purchase from a few distributors rather than from hundreds of manufacturers. Customers find it efficient and convenient to rely on these distributors for product availability, competitive prices, prompt delivery and other services. 3 Over the last year and a half, Moore Medical has focused on applying Internet technology to our growth plans for distribution and fulfillment as well as marketing. While many businesses in and out of our industry chose to abandon their core infrastructure to concentrate solely on e-commerce, our assessment of the marketplace indicated that we should maintain a multi-channel focus. This logical evolution from "brick and mortar" to "brick and click" has enabled us to remain true to those customers not yet ready for e-commerce, or who simply prefer other means of communication such as by phone, fax or in person. Competition: The trend of health care product distributor consolidations - ----------- continues in an effort to realize economies of scale. Our competitors are large national distributors, regional distributors and local distributors. Some primarily use direct mail and telemarketing, some rely on the Internet, and others make sales and deliveries to their customers with a dedicated sales force and a fleet of distributor-operated delivery vehicles. Generally, we compete with other distributors on breadth of product line, brand recognition, delivery speed, price, order completion rates, and other value- added customer service factors. As more health care practices consolidate, we expect that a growing number of large customers will require their distributor to reliably service many delivery locations in different regions across the country. By providing a multi-channel distribution network, we expect that we will be able to meet the needs of our present and prospective customers. Marketing & Distribution Marketing: Moore Medical conducts business-to-business marketing of its medical, - --------- surgical and pharmaceutical products to existing and prospective customers nationwide. The Company employs various marketing vehicles and channels to reach its target market, including: direct mail catalogs, flyers and letters; e- marketing initiatives (including e-mail campaigns and web site promotions); a toll-free customer support center which takes inbound calls for ordering and requesting catalogs and provides product information; and outbound specialty practice sales representatives. The Company considers direct marketing to be one of its core competencies. An in-house creative department designs and produces marketing collateral, product packaging, web graphics, special offer coupons and trade show booth graphics. Marketing materials are mailed throughout the year, utilizing a schedule based on historic results and market segment buying patterns. In the third quarter of 2000, an Internet-focused catalog (designed to teach customers how to order through mooremedical.com) was produced and mailed to prospective customers. And in the fourth quarter of 2000, we created a new design template and color palette for our catalog and other marketing materials to provide a more professional and consistent look to support our corporate brand. Distribution: The Company distributes its products throughout the United States - ------------ and U.S. territories from its four distribution centers in Connecticut, Florida, Illinois and California. The distribution network has been designed with the objectives of delivering a completely satisfying purchasing experience to the customer, providing broader second-day delivery coverage, and minimizing inventory and transportation costs. We provide consistent, time-sensitive and high-quality order fulfillment services through sophisticated product allocation strategies, maintaining high standards of accuracy and fulfillment. Customer orders enter the enterprise resource planning (ERP) system via our web site, our market-specific sales representatives, or our customer support center. Order fulfillment is completed the same business day when the order is received by 4:00 p.m. United Parcel Services (UPS) is our preferred carrier and we enjoy national account status. UPS delivers over 90% of our package volume, with over 99% of orders filled to completion the same business day. With our national coverage, nearly 90% of our customers receive delivery within two business days. Moore Medical's customer community based e-business site went live on May 30, 2000. Our continuing commitment to e-commerce is fundamental to our strategy, and our goal is to rapidly grow the size and revenue of the Company through continued web enablement of customers and employees (e.g. through increased use of the Company's intranet), while maintaining our multi-channel commitment. E- commerce 4 is, in fact, steadily growing in acceptance among our customer base; in 2000, 4% (7% in fourth quarter) of Moore Medical's commerce was conducted over the Internet, and this percentage is projected to rise to 10% of 2001's revenue. We are benchmarking our service and fulfillment performance against a system of Perfect Order Metrics, which is the percentage of orders shipped complete, on- time, from customer's assigned primary shipping warehouse and received by the customer error free. We have also implemented a process mapping method to identify every one of the individual steps involved in taking and fulfilling an order, with a goal toward streamlining and/or eliminating steps to make the process flow more efficiently. Product Line/Suppliers Moore Medical's product line consists of over 10,000 of the most popular medical/surgical supplies and pharmaceutical products, encompassing a broad and diversified selection. Over 7,500 stock keeping units (SKUs) are carried in stock. We are one of the few distributors of medical/surgical products to non- hospital health care practitioners who also offer pharmaceuticals. Although many of our products are consumables and disposables, we also sell medical/surgical equipment such as the new portable AED's (Automated External Defibrillators) and other diagnostic tools. In 2000, we also began distributing basic office supplies and stationery products. We purchase our products primarily from manufacturers and to a lesser extent from other distributers and do not manufacture or assemble any products except for the assembly of medical and first aid kits. We maintain insurance coverage against potential losses due to product liability claims and we believe such coverage is adequate. In 2000, our largest product suppliers were 3M, Allied Healthcare Products, Inc., Aventis Pasteur, Banta Healthcare Products, Inc., Graham-Field Surgical Co., Johnson & Johnson Healthcare System, Laerdal Medical Corp., Microflex, SmithKline Beecham and Welch Allyn. We have several competing sources for many medical/surgical supplies and pharmaceuticals. Sales of products from our largest supplier in 2000 accounted for less than 5% of total sales. The pharmaceutical market continues to introduce alternative products affecting the product acquisition costs and obtainable margins. Our purchasing team also has ready access to several hundred additional industry manufacturers and suppliers, enabling us to meet customers' special requirements. We do not have any significant long-term purchase commitments with our suppliers, nor do we have any exclusive product rights, although we have preferred supplier status in a number of vertical markets and online health care communities for particular product offerings. Customers Typically, our customers order an average of five to six times a year, though some specialties order more frequently and order size may vary significantly from one specialty to another. Our customers are always the focal point of our supply chain strategies, and we strive to provide value-added services to the health care specialties we serve. For example, approximately 8,000 of the 12,000 active podiatrists in the United States are our customers. In order to better serve this specialty practice community, in June 2000, we acquired 51% of the outstanding shares of capital stock of Podiatry Online, a Florida-based Internet magazine serving 4,200 podiatrists for over four years. In addition, to meet the needs of our emergency medical services customers, in July 2000, we acquired 100% of the assets of MERGInet Medical Resources, the premier Internet magazine and the largest Internet resource for emergency medical services (EMS) and emergency medical professionals. We chose these sites based on their ability to 5 provide content and services to the communities they serve and for their reputation of dedication to their professional communities. Moore Medical has also formed a number of Internet alliances in order to extend our marketing resources, demonstrate our multi-channel direct marketing strategy, help new customers find us more easily and encourage existing customers to choose us more frequently. Types of Internet alliances include strategic partnerships, advertising sponsorships, preferred affiliates (collaborative joint marketing) and Internet affiliates. These alliances are designed to enable us to grow our revenue by linking sales from the affiliate's web site to mooremedical.com, encouraging direct sales through mooremedical.com, and establishing pre-conditioned sales through our customer support center. In order to keep abreast of the needs of the customer communities we serve, we have established a Customer Advisory Council through which customers can share their views on Moore Medical's support, service, products, terms, pricing and delivery, and make suggestions on ways to improve their customer experience. The Council was also instrumental in assisting us in the development of our web site. We have recently expanded the Customer Advisory Council to include ongoing participation by the customer community. To this end, we distribute regularly scheduled questionnaires and surveys to gain feedback on potential web site redesign, meaningful promotions and other enhancements. Sales Force Our sales efforts are designed to establish and strengthen our customers' allegiance to us through frequent direct marketing contact, supported by our inbound customer support representatives and outbound specialty-specific representatives. In 2000, our sales force consisted of market-specific outbound sales representatives, key opportunity sales representatives, national account representatives and inbound customer support representatives. We intend to strengthen our national accounts program in 2001 in order to attract and retain large national customers. For example, we have recently hired a Vice President of Strategic Sales, with a strong track record in multi-million dollar contract wins, who plans to raise the bar for our performance. With the launch of our online catalog and fully integrated web site, all sales staff have been trained on the functionality of the web site in order to encourage customers who prefer to move into online ordering. We also have a team of dedicated Net Agents who facilitate live, online chats with customers to assist with a variety of sales-focused issues. By concentrating on our multi-channel capabilities, Moore Medical ensures that no matter how our customers prefer to conduct business with us, our sales personnel can meet their health care supply requirements. Regulation The health care delivery industry in the United States continues to be under intensive scrutiny as a result of a wide variety of political, economic and regulatory influences. Because of uncertainty regarding the ultimate features of any future reform initiatives, the Company cannot predict the impact such proposals, should they be adopted, will have on its business. Moore Medical's business is subject to regulation under various local, state, and federal laws governing the sale, marketing, packaging and distribution of prescription drugs, including controlled substances, regulated chemicals and medical devices, as well as licensing requirements. Each of our distribution centers is registered with the Drug Enforcement Agency and as a wholesale distributor of prescription drugs and devices in each state that requires registration and/or licensure. In addition, we are registered with the Food and Drug Administration as a Drug Establishment and as a Device Establishment. We are mandated by the Prescription Drug Marketing Act of 1987 and the Controlled Substance Act to validate our customers for purchases of regulated products. We require documentary evidence of our customers' regulatory authority to purchase regulated products and we are in material compliance with 6 applicable federal and state statutes which protect against the diversion of those products. We maintain extremely tight standards and ensure that every transaction constitutes a legal sale prior to shipping. In our capacity as a distributor of prescription pharmaceuticals, the Company is also subject to Medicare, Medicaid and state health care fraud, abuse and anti- kickback laws and regulations. In order to remain current with the regulatory environment, Moore Medical employs an in-house pharmacist who serves as Manager of Regulatory Affairs as well as President of the Connecticut Pharmacists' Association. This individual is responsible for monitoring all pharmaceutical sales for compliance with state and federal regulations as well as with Company policy. He works closely with the U.S. Drug Enforcement Agency to help spot potential abuses, and serves as a source of information for our customers regarding regulations and recalls. Information Systems Moore Medical continues to invest in the technology, processes and infrastructure that will make it more competitive as a multi-channel direct marketer and distributor of medical supplies. Following a year of implementation experience with an ERP system, the Company is beginning to more fully realize the benefits of these investments, including the elimination of manual process jobs and the consolidation of some functions. For 2000, the primary focus of the Company was to continue to invest in technologies and e-commerce initiatives. With that, the Company invested approximately $1.5 million in capital expenditures related to the information systems group transitioning Moore Medical's web site from a transaction storefront site to a fully integrated e-business site. On May 30, 2000, this was accomplished utilizing a mechanism to electronically send order information, new customer information, and changes in customer information from the site to the JD Edwards ERP computer system. An "Advance Ship Notice" e-mail system has also been put in place, which e-mails shipping confirmation to customers once product has left the distribution center. In conjunction with the web site transition, Moore Medical's Information Systems department designed and implemented a web-enabled intranet site. The intranet is utilized to consolidate and facilitate communications across all areas of the business and to encourage all employees to become proficient in the use of technology. Employees We continue to hire individuals with the specific skills that complement our corporate growth strategy, and leverage current and future technological advances. As of December 30, 2000, the Company had 305 full-time employees and 15 part- time employees in four locations, none of whom had collective bargaining agreements. Overall, the Company considers its employee relations to be good. 7 ITEM 2. Properties The Company owns no real property and it leases all its operating facilities. Its distribution centers are located in New Britain, Connecticut (92,000 square feet), Jacksonville, Florida (60,000 square feet), Lemont, Illinois (58,000 square feet), and Visalia, California (51,000 square feet). The Company believes that its properties are generally in good condition. The Company's main offices are located in an industrial park in New Britain, Connecticut, where it occupies three buildings (41,000 square feet) adjacent to its main distribution center in a campus-like setting. In these offices, the business functions of order processing, telesales, marketing, purchasing, information services, finance, and administration are performed. Office space is adequate for the Company's present needs. ITEM 3. Legal Proceedings As of the date of this document there are no material legal proceedings which are material to the financial position, results of operations or cashflow of the Company. ITEM 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of shareholders during the fiscal fourth quarter of 2000. Executive Officers of the Registrant The following table shows our current executive officers and their areas of responsibility:
Name Age Position - ---- --- -------- Linda M. Autore 50 President and Chief Executive Officer Chad A. Roffers 30 Senior Executive Vice President Sales, Marketing and E business James R. Simpson 50 Executive Vice President and Chief Financial Officer Jerry Flasz 40 Executive Vice President and Chief Technology Officer
Kenneth S. Kollmeyer served as Executive Vice President of Operations until March 2, 2001. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock is listed on the American Stock Exchange (trading symbol "MMD"). The following sets forth, for each quarter since the beginning of 1999 the high and low sale prices of the common stock on the American Stock Exchange Composite Tape.
2000 1999 -------------------------------------- ------------------------------------- Quarters: High Low High Low ---- --- ---- --- First........................ $ 13.063 $ 9.313 $ 13.875 $ 10.500 Second....................... 11.625 6.000 12.625 9.500 Third........................ 8.375 5.125 14.875 7.375 Fourth....................... 7.625 3.875 10.688 7.000
The high and low sale prices of the common stock on March 2, 2001 were $7.830 and $7.500, respectively. The estimated number of holders (including estimated beneficial holders) of the Company's common stock as of March 2, 2001 was approximately 1,100. The Company has paid no cash dividends and has no plans to do so in the foreseeable future. Its loan agreement contains restrictions on dividend payments. 8 ITEM 6. Selected Financial Data
- ---------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands, except per share data 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Net sales $ 123,555 $ 118,454 $ 120,846 $ 288,513 $ 286,349 Cost of products sold 86,712 81,573 83,143 249,451 243,949 --------- --------- --------- --------- --------- Gross profit 36,843 36,881 37,703 39,062 42,400 Selling, general and administrative expenses 43,039 34,465 33,326 41,857 41,481 --------- --------- --------- --------- --------- Operating (loss) income (6,196) 2,416 4,377 (2,795) 919 Interest (income) expense, net (228) (8) (82) 1,898 1,813 --------- --------- --------- --------- --------- (Loss) income before income taxes (5,968) 2,424 4,459 (4,693) (894) Income tax (benefit) provision (1,432) 572 1,650 (1,772) (329) --------- --------- --------- --------- --------- Net (loss) income $ (4,536) $ 1,852 $ 2,809 $ (2,921) $ (565) ========= ========= ========= ========= ========= Basic net (loss) income per share $ (1.49) $ 0.63 $ 0.96 $ (1.00) $ (0.19) Diluted net (loss) income per share $ (1.49) $ 0.63 $ 0.95 $ (1.00) $ (0.19) Basic weighted average shares outstanding 3,050 2,939 2,932 2,921 2,910 Diluted weighted average shares outstanding 3,052 2,943 2,949 2,923 2,921 BALANCE SHEET DATA Working capital $ 19,781 $ 18,508 $ 18,521 $ 20,142 $ 42,985 Total assets $ 45,129 $ 41,966 $ 38,481 $ 39,203 $ 81,541 Debt $ 5,208 $ - $ - $ 1,512 $ 22,726 Shareholders' equity $ 24,358 $ 27,450 $ 25,553 $ 22,623 $ 25,376
9 ITEM 7. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations 2000 Compared with 1999 Revenue for fiscal 2000 was $123.6 million, compared to $118.5 million in fiscal 1999, representing growth of 4%, which was primarily volume driven. The Company distributes their products through such communities as health care professionals in non-hospital settings, emergency medical technicians, medical departments at industrial sites, municipalities, educational and correctional facilities and other specialty practice communities as well as other resale distributors. The Company's growth reflected strength in key communities, including a 28.5% increase in the reseller community, as well as an 8.2% increase in our public community, and a 5.5% increase in our EMS community. Results for fiscal 2000 were significantly affected by a one-time charge of $2.5 million, reflected in selling, general and administrative expenses or ($.79) per share, related to a matter the Company settled with the U.S. Government in the fourth quarter. Earnings per share decreased to ($1.49) from $0.63 a year ago. 2000 earnings per share would have been ($0.70) without giving effect to the one-time charge from $0.63 a year ago. Gross profit margins were almost 30% for the year, which was marginally lower than in the prior year. This was primarily due to the increased volume in the reseller community, which typically reflects lower margins. Selling, general and administrative expenses increased to 34.8% of revenue as compared to 29.1% in the prior year. These expenses included incremental costs such as higher depreciation and amortization due to investments in technology, increased advertising and promotional costs associated with media initiatives, and outside consulting costs associated with the transformation to a "bricks and clicks" enterprise. The Company believes the existing cost structure is adequate to support future growth. Interest income was $0.2 million in 2000, an increase of over 100% from the prior year. The increase was due to the Company maintaining favorable cash investments for eleven months of the year. The effective income tax provision rate of 24% was lower than the federal statutory tax rate due primarily to a net income tax benefit from the settlement of the government contract. 1999 Compared with 1998 Net sales for the year declined 2% to $118.5 million from $120.8 million in the prior year. Net income for the year decreased to $1.9 million compared with $2.8 million. Earnings per share decreased to $.63 from $.96 a year ago. The 1999 decrease in sales and net income is attributable to installation and implementation of the ERP system, which is designed to enable Moore Medical to utilize advanced technologies to provide greater responsiveness to our customers' needs. We lost no sales days as a result of the implementation. However, the transition did adversely impact our day-to-day sales operations, as customers experienced some delays in reaching customer support representatives. The transition, whose impact on revenues and income cannot be quantified, was completed in 1999. The 1999 results follow five year record earnings in 1998, which benefited from non-recurring inventory disposition sales in our discontinued wholesale drug distribution business which was disposed of in 1997. The gross profit margin rate was above 31% for both years. However, the gross profit dollars decreased slightly due to lower volumes, as well as greater competitive pricing on certain pharmaceutical products. Selling, general and administrative expenses increased 3% compared to 1998. During 1999, we made investments in our staff to broaden the breadth of its abilities, our technology and technological applications to more effectively and efficiently serve our customers, and in our marketing resource so that we could more effectively compete in our changing industry. The increase in selling, general and administrative expense was primarily due to increased freight as well as increases in depreciation, consulting and legal expenses associated with the Company's investment in technology. 10 We ended the year with no debt, while investing over $5.3 million on technology capital. Further, at year-end 1999, we invested approximately $0.7 million in cash and equivalents. Our effective income tax provision rate of 23.6% was lower than the federal statutory tax rate due primarily to a net income tax benefit of $0.3 million recorded from the favorable settlement of a prior year's tax matter. Liquidity and Capital Resources At December 30, 2000, the Company's cash and cash equivalents totaled $5.2 million, a $4.5 million increase from January 1, 2000. The Company's operations provided $1.4 million during the fiscal year 2000 compared to $2.5 million and $9.6 million in 1999 and 1998, respectively. In 2000, primary components of cash from operations were net income adjustments made from non-cash expenses such as depreciation and the changes in working capital. The source of working capital resulted from a reduction of inventory levels of $4.7 million due to improved inventory turns, and an increase in accounts payable, partially offset by an $0.8 million increase in trade receivables that is consistent with the Company's revenue growth. Additionally, a reclassification of $2.0 million from current liabilities to long term notes payable related to the settlement of a legal matter in 2000. In 1999, operating activities generated cash sources of $5.8 million of which $3.9 million was from net non-cash elements in earnings, partially offset by a use of $2.9 million in working capital. In 1998, the net cash from operating activities was primarily attributed to a $5.8 million decrease in accounts receivable as a result of the withdrawal from the wholesale business. Investing activities used $3.5 million during the year 2000 compared to $5.3 million and $4.8 million in 1999 and 1998, respectively. The primary use of cash for investing was strategic acquisitions in key communities. The Company used $1.25 million to acquire a controlling interest in Podiatry Online and $0.4 million to acquire MERGInet Medical Resources. The Company also purchased $1.6 million in equipment and software as a result of the company's ongoing investment in multi-channeled marketing and e-commerce initiatives. The $5.3 million in 1999 was used for capital expenditures, primarily in technology such as the remaining investment of the ERP system as well as e-commerce initiatives. In 1998, approximately $4.5 million of the $4.8 million in capital expenditure related to the initial implementation to the new ERP system. Financing activities provided $6.7 million during 2000, compared to zero in 1999 and $1.4 million used in 1998. In 2000, $5.2 million was primarily attributed to an increase in long term notes payable relating to a settlement of a legal matter and the minimum purchase cost for the remaining minority interest in Podiatry Online. The Company also received $1.0 million in proceeds from the sale of treasury stock. The Company was able to satisfy its cash requirements in 1999 without using its line of credit, but used $1.5 million from a line of credit in 1998. As the business grows, the Company believes that the funding needs for our operating working capital and investments will continue to be met through cashflow from operations and financing under our line of credit. On January 26, 2001, the Company entered into a three-year bank financing agreement which will provide up to $15 million in a revolving credit line. The credit line provides the Company with the latitude it needs to implement strategic initiatives as they arise. Our business continues not to be materially impacted by seasonal factors. The Company believes it has adequate capital resources at its disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements. Forward-Looking Information From time to time, the Company or its representatives may have made or may make forward-looking statements, orally or in writing. Forward-looking statements may be included in, but, not limited to, press releases, oral statements made by or with the approval of an authorized executive officer, or in this report or other filings made by the Company with the Securities and Exchange Commission. The words or phrases "trend," "expects," "grow," "will," "could," "likely result," "transform," "planned," "continued," "anticipated," "estimated," "believes," "continuing," "considers," "may be," "assessed," "contingency," "projected," "scheduled," "could have," "intended," or similar expressions are intended to identify "forward- 11 looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to maximize to the fullest extent possible the protections of the safe harbor established in the said Act. Accordingly, such statements are qualified in their entirety by reference to and are accompanied by the following important factors that could cause actual results to differ materially from such forward-looking statements: . we could be adversely affected if our strategy to transform ourselves to a multi-channel e-commerce enabled business does not generate adequate revenues and income; . we have had limited experience as an online marketer and there may be developments which affect us which we may not foresee; . period-to-period comparisons of our financial results are not necessarily meaningful; . our common stock has been volatile; . our web sites have had disruption, and if we do not continue with our present hosting service we may become subject to host-transfer costs and disruptions; . we are subject to online security breach risks; . we may not be able to keep up with rapidly changing technological and Internet developments; . we may have difficulties in attracting and retaining qualified personnel; . we are subject to online credit card fraud risks; . our internal systems are located in a single facility; . intellectual property claims against us can be costly; . we may become subject to additional governmental regulation of the Internet; . contracting-out functions have risks; . we may be subject to new sales tax collection obligations; . we have intense competition in health care products distribution, for example, from distributor consolidations, new online entrants or pricing pressures from larger distributors able to benefit from economies of scale or other operating efficiencies; . we have pressures on revenues resulting, for example, from customer consolidations or changes in customer buying patterns; . changes in the availability or saleability of products could affect us; . our operations are subject to governmental regulation, for example, reductions in healthcare funding affecting its customers' services or revenues; . we may face disruptions in or cost increases for services or systems on which the Company is dependent, such as by truckers in deliveries from its suppliers, by UPS or other common carriers in deliveries to its customers, by its catalog printers or in telecommunications services, or relating to its computer systems; and . our change of control provisions may also discourage third party offers to acquire us. 12 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk We have no material market risk exposure associated with activities in derivative financial statements, other financial instruments, or derivative commodity instruments. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 2001, although there can be no assurances that interest rates will not significantly change. ITEM 8. Financial Statements and Supplementary Data The financial statements and supplementary data have been filed as part of this Annual Report as indicated in the index to Financial Statements and Financial Statement Schedule appearing on page 14. 13 MOORE MEDICAL CORP. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page No. Report of Independent Accountants 15 Balance Sheets at the end of years 2000 and 1999 16 Statements of Operations for the years 2000, 1999 and 1998 17 Statements of Cash Flows for the years 2000, 1999 and 1998 18 Notes to Financial Statements 19-26 Financial Statement Schedule II - Valuation and Qualifying Accounts 32 for the years ended 2000, 1999 and 1998
14 Report of Independent Accountants To the Board of Directors and Shareholders of Moore Medical Corp. In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Moore Medical Corp. and its subsidiary at December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Hartford, Connecticut February 25, 2001 15 MOORE MEDICAL CORP. Balance Sheets at End of Years
- ---------------------------------------------------------------------------------------------------------------- (Amounts in thousands, except par value) 2000 1999 - ---------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash............................................................ $ 5,233 $ 744 Accounts receivable, less allowances of $201 and $200.......................................... 12,326 11,488 Inventories................................................ 9,554 14,242 Prepaid expenses and other current assets.................. 2,152 1,852 Deferred income taxes...................................... 3,692 2,330 -------- -------- Total Current Assets..................................... 32,957 30,656 -------- -------- Noncurrent Assets Equipment and leasehold improvements, net.................. 9,672 10,641 Other assets............................................... 2,500 669 -------- -------- Total Noncurrent Assets.................................. 12,172 11,310 -------- -------- $ 45,129 $ 41,966 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable........................................... $ 10,192 $ 7,483 Accrued expenses........................................... 2,984 4,665 -------- -------- Total Current Liabilities................................ 13,176 12,148 -------- -------- Deferred Income Taxes.............................................. 2,387 2,368 Long Term Notes Payable............................................ 5,208 - Shareholders' Equity Preferred stock, no shares outstanding..................... - - Common stock-$.01 par value; Shares authorized - 10,000 and 5,000 Shares issued - 3,246 ..................................... 32 33 Capital in excess of par value............................. 21,700 21,675 Retained earnings.......................................... 3,913 8,449 -------- -------- 25,645 30,157 Less treasury shares, at cost, 145 and 305 shares.......... ( 1,287) ( 2,707) -------- -------- Total Shareholders' Equity............................... 24,358 27,450 -------- -------- $ 45,129 $ 41,966 ======== ========
________________________________________________________________________________ The accompanying notes are an integral part of the financial statements. 16 MOORE MEDICAL CORP. Statements of Operations for the Years
- ------------------------------------------------------------------------------------------------------------------------ (Amounts in thousands, except per share data) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Net sales........................................................ $123,555 $118,454 $120,846 Cost of products sold............................................ 86,712 81,573 83,143 -------- -------- -------- Gross profit..................................................... 36,843 36,881 37,703 Selling, general and administrative expenses..................... 43,039 34,465 33,326 -------- -------- -------- Operating (loss) income.......................................... (6,196) 2,416 4,377 Interest (income), net........................................... (228) (8) (82) -------- -------- -------- (Loss) income before income taxes................................ (5,968) 2,424 4,459 Income tax (benefit) provision................................... (1,432) 572 1,650 -------- -------- -------- Net (loss) income................................................ $ (4,536) $ 1,852 $ 2,809 ======== ======== ======== Basic net (loss) income per share................................ $ (1.49) $ 0.63 $ 0.96 Diluted net (loss) income per share.............................. $ (1.49) $ 0.63 $ 0.95
________________________________________________________________________________ The accompanying notes are an integral part of the financial statements. 17 MOORE MEDICAL CORP. Statements of Cash Flows for the Years
- ------------------------------------------------------------------------------------------------------------------------------ (Amounts in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net (loss) income........................................... $ (4,536) $ 1,852 $ 2,809 Adjustments to reconcile net (loss) income to net cash flows provided by (used in) operating activities: Depreciation and amortization........................... 2,641 1,733 1,251 Deferred income taxes................................... (1,343) 2,170 1,008 Other................................................... 30 (307) 334 Changes in operating assets and liabilities Accounts receivable.................................. (838) (2,103) 5,827 Inventories.......................................... 4,688 (558) (268) Other current assets................................. (300) 140 968 Accounts payable..................................... 2,709 2,062 (3,632) Other current liabilities............................ (1,681) (2,474) 1,338 ---------- ---------- ---------- Net cash flows provided by operating activities. ........... 1,370 2,515 9,635 ---------- ---------- ---------- Cash Flows From Investing Activities Equipment and leasehold improvements acquired............... (1,599) (5,336) (4,778) Acquisition of (1,934) - - business........................................... ---------- ---------- ---------- Net cashflows (used in) investing activities................ (3,533) (5,336) (4,778) ---------- ---------- ---------- Cash Flows From Financing Activities Revolving credit financing decrease, net.................... - - (1,512) Sale of treasury 1,444 45 121 stock....................................................... Long term notes 5,208 - - payable........................................ ---------- ---------- ---------- Net cash flows provided by (used in) financing activities.................................................. 6,652 45 (1,391) ---------- ---------- ---------- Increase (decrease) in cash................................. 4,489 (2,766) 3,466 Cash at the beginning of year............................... 744 3,520 54 ---------- ---------- ---------- Cash At End Of Year......................................... $ 5,233 $ 744 $ 3,520 ========== ========== ==========
________________________________________________________________________________ The accompanying notes are an integral part of the financial statements. 18 MOORE MEDICAL CORP. Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies General - Moore Medical Corp. is a multi-channel, Internet-enabled marketer and distributor of medical/surgical products and pharmaceuticals. We provide these products to nearly 100,000 health care professionals in non-hospital settings nationwide, including: physicians, podiatrists, surgeons, obstetricians, gynecologists, pediatricians, emergency medical technicians, medical departments at industrial sites, municipalities, university and school health services and correctional facilities and other specialty practice communities. We market and serve our customers through the Internet, direct mail, industry specialized telephone support representatives, and key opportunity sales representatives. Moore Medical's direct marketing and distribution business has more than fifty years of operating experience. Fiscal Year - The Company's fiscal year ends on the Saturday closest to December 31. The fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 were comprised of 52 weeks in 2000, 1999 and 1998. Inventories - Inventories, consisting of products purchased for resale, are stated at the lower of average cost or market value. Market values are based on estimated sales prices of products. Equipment and Leasehold Improvements - Equipment is recorded at cost. Depreciation and amortization is provided on the straight-line method over the estimated useful lives (3-7 years) of the assets. Leasehold improvements are depreciated over the useful life of the asset or the term of the lease, whichever is shorter. Additionally, in 1999, the Company adopted AICPA Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of certain costs incurred in the development of internal-use software. Expenditures for maintenance and repairs are charged to expense as incurred. Major improvements to equipment are capitalized. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal, and any resulting gain or loss is included in income. Sales Recognition Policy and Customers - Sales are recorded upon shipment of products to customers. Accounts receivable have been reduced by estimated amounts for allowances related to future charges for uncollected accounts and product returns. Advertising - The cost of direct response catalog advertising is deferred and amortized over the period of expected revenues. Direct response catalog advertising consists primarily of catalog production expenses and related postage costs. Catalogs are effective for varying time periods but the largest catalogs are generally effective for less than a year. At December 30, 2000 and January 1, 2000, $639,000 and $669,000, respectively, of direct response catalog advertising expenses were deferred. Catalog advertising expense totaled $4,527,000, $2,485,000 and $2,881,000 in 2000, 1999 and 1998, respectively. Income Taxes - The liability method is used to calculate deferred income taxes. Under this method, deferred income tax assets and liabilities are recognized on temporary differences between the financial statement and tax bases of assets and liabilities, using applicable tax rates, and on tax carryforwards. Basic and Diluted Net Income (Loss) Per Share - Basic earnings per share computations are determined based on the weighted average number of shares outstanding during the period. The effect of the exercise and conversion of all diluted securities, including stock options are included in the diluted earnings per share calculation. 19 Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Subsequent actual outcomes could differ from those estimated and assumed. Reclassification - Certain prior year amounts have been reclassified to conform with the current year presentation. Note 2 - Income Taxes The income tax (benefit) provision consists of the following:
- ------------------------------------------------------------------------------------------------------------- Amounts in thousands 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------- Current Federal $ (94) $ (1,554) $ 625 State 5 (44) 17 -------- -------- -------- Total current (89) (1,598) 642 -------- -------- -------- Deferred (1,343) 2,170 1,008 -------- -------- -------- Total (benefit) provision $ (1,432) $ 572 $ 1,650 ======== ======== ========
A reconciliation of the statutory federal income tax rate and the effective income tax rate as a percentage of pretax income is as follows:
- --------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal tax benefit 2.7 3.8 3.8 Valuation allowance (1.5) 2.8 (2.2) Other - net (11.2) (17.0) 1.4 ----- ----- ---- Effective income tax rate 24.0% 23.6% 37.0% ===== ===== ====
The effective income tax provision rate of 24.0% was lower than the federal statutory tax rate due primarily to a net income tax benefit of 12.5% from the settlement of the government contract. The effective income tax provision of 23.6% in 1999 included an income tax benefit of $0.3 million or 12% recorded from a favorable settlement of a tax matter relating to 1998. Deferred income tax assets and liabilities at the end of each year consist of the tax effects of temporary differences related to the following: - ---------------------------------------------------------------------------------------------- Amounts in thousands 2000 1999 - ---------------------------------------------------------------------------------------------- Allowance for doubtful accounts $ 249 $ 360 Inventories 734 463 Accrued expenses 1,368 1,216 Other 1,816 209 ------- ------- Deferred Tax Assets 4,167 2,248 ------- ------- Accumulated depreciation/amortization (2,513) (1,937) Prepaid pension expense (350) (350) ------- ------- Deferred Tax Liabilities (2,863) (2,287) ------- ------- $ 1,304 $ (39) ======= =======
Income tax payments totaled $31,000, $1,004,000 and $1,091,000 in 2000, 1999 and 1998, respectively. 20 Note 3 - Equipment and Leasehold Improvements Equipment, leasehold improvements and accumulated depreciation are summarized as follows:
- ---------------------------------------------------------------------------------------------- Amounts in thousands 2000 1999 - ---------------------------------------------------------------------------------------------- Equipment $ 6,048 $ 6,030 Computer equipment and software 15,558 13,995 Leasehold improvements 3,214 3,196 -------- -------- 24,820 23,221 Less accumulated depreciation (15,148) (12,580) -------- -------- $ 9,672 $ 10,641 ======== ========
Note 4 - Revolving Credit Financing On January 26, 2001, the Company entered into a secured bank financing agreement which provides up to $15 million revolving line of credit through January 26, 2004. Interest on loans is charged at the prime rate or, at the option of the Company, at the LIBOR rate plus a margin ranging from 0% to 2.75% depending on the financial leverage of the Company. In addition, the Company pays a commitment fee on the unused line of credit. The Company previously had an unsecured bank financing agreement which provided up to $10 million revolving line of credit which ended on March 31, 2000.
- ---------------------------------------------------------------------------------------------------------------- Amounts in thousands 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Borrowings Average $ 10 $ 545 $ 149 Maximum $ 361 $2,661 $1,859 Weighted daily average interest rate For the year 1.6% 8.1% 0.0% At year end 0.0% 0.0% 0.0%
Cash payments for interest on revolving credit financing totaled $1,000, $44,000, and $55,000 in 2000, 1999 and 1998, respectively. 21 Note 5 - Employee Benefits All employees meeting eligibility requirements participate in the Company's defined benefit pension plan under which pension benefits are based on the employee's highest consecutive five year average annual compensation. The Company's funding policy is to comply with the minimum funding requirements set by the Employee Retirement Income Security Act of 1974 (ERISA). Pension disclosure requirements of Financial Accounting Standards No. 132:
- -------------------------------------------------------------------------------------------------------------------- Amounts in thousands 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Change in Benefit Obligation Benefit obligation at beginning of year $ 3,722 $ 3,670 $ 3,467 Service cost 342 327 333 Interest cost 279 275 260 Actuarial gain 191 262 317 Benefits paid (557) (812) (707) ---------- ---------- ---------- Benefit obligation at end of year $ 3,977 $ 3,722 $ 3,670 ========== ========== ========== Change in plan assets Fair value of plan assets at beginning of year $ 5,218 $ 4,840 $ 4,865 Actual return on plan assets 15 1,061 682 Employer contribution 149 129 - Benefits paid (557) (812) (707) ---------- ---------- ---------- Fair value of plan assets at end of year $ 4,825 $ 5,218 $ 4,840 ========== ========== ========== Funded Status $ 847 $ 1,497 $ 1,170 Unrecognized net actuarial gain (loss) 34 (613) (314) Unrecognized prior service cost 32 37 41 Unrecognized transition cost - 12 25 ---------- ---------- ---------- Prepaid benefit cost $ 913 $ 933 $ 922 ========== ========== ========== Weighted-Average Assumptions as of Period Ending Discount Rate 7.50% 7.50% 7.50% Expected return on plan assets 9.00% 9.00% 9.00% Rate of compensation increases 5.00% 5.00% 5.00% Components of Net Periodic Benefit Cost Service cost $ 342 $ 327 $ 333 Interest cost 279 275 260 Expected return on plan assets (470) (436) (438) Amortization prior service cost 5 5 5 Amortization transition cost 12 12 12 Recognized net actuarial loss - (65) - ---------- ---------- ---------- Net periodic benefit cost $ 168 $ 118 $ 172 ========== ========== ==========
22 The present value of the projected benefit obligation was determined using a discount rate of 7.5% in 2000, 1999 and 1998. The present value of the projected benefit obligation is based on actuarial assumptions and on estimates, including an assumed discount rate which may change in the future and significantly affect the amount of this obligation. The compensation rate increase assumption for all years was 5%. The assumed long-term rate of return on plan assets, which consist primarily of investments in various marketable securities, was 9% for all years presented. In addition to the pension plan, the Company has a 401(k) defined contribution retirement plan available to employees meeting eligibility requirements. This plan provides for Company contributions of up to 3% of employees' compensation. In 1999 and 1998, the Company provided additional Company contributions to partially match employee contributions. The Company's expense in connection with this plan for the years 2000, 1999 and 1998 amounted to $288,000, $622,000 and $469,000, respectively. Note 6 - Shareholders' Equity The Company's Board of Directors, with shareholders' approval, adopted an "Amendment of Certificate of Incorporation to increase authorized Common Stock". Shares of Common Stock were increased to 10 million shares and the authorization of Class A Preferred Stock and Class B Preferred Stock were deleted. At December 30, 2000, the Company had Class C Preferred Stock, $1.00 par value, 1,000,000 shares authorized of which 35,000 shares have been designated as a Series I Junior Participating Preferred Stock. Net income (loss) does not include any comprehensive income; Changes in Shareholders' Equity for the three years ended December 30, 2000 are as follows:
- --------------------------------------------------------------------------------------------------------------------------- Common Stock Capital $.01 par value in Excess -------------- Shares Par of Par Retained Treasury Stock -------------- Amounts in thousands Issued Value Value Earnings Shares Cost - --------------------------------------------------------------------------------------------------------------------------- 1998 - ---- Beginning balance 3,246 $ 32 $ 21,644 $ 3,788 (319) $ (2,841) Net income 2,809 Stock options/stock compensation 1 23 11 97 --------- --------- --------- --------- --------- --------- Ending balance 3,246 33 21,667 6,597 (308) (2,744) 1999 - ---- Net income 1,852 Stock options/stock compensation 8 3 37 --------- --------- --------- --------- --------- --------- Ending balance 3,246 33 21,675 8,449 (305) (2,707) 2000 - ---- Net (loss) (4,536) Stock options/stock compensation (1) 25 160 1,420 --------- --------- --------- --------- --------- --------- Ending Balance 3,246 $ 32 $ 21,700 $ 3,913 (145) $ (1,287) ========= ========= ========= ========= ========= =========
23 The Shareholder Rights Plan which the Company adopted in March 1989 expired on March 16, 1999. In November 1998, the Company adopted a successor Shareholder Rights Plan and declared a dividend distribution, effective March 17, 1999, of one Preferred Stock Purchase Right (the "Rights") for each outstanding share of common stock. The Rights will become exercisable, with certain exceptions, only if a party or group acquires 15% or more of the Company's common stock or announces an offer to acquire 15% or more. When exercisable, with some exceptions, each Right will entitle its holder (other than the party or group acquiring 15% or more or offering to acquire 15% or more of the common stock) to buy one one-hundredth of a share of a Series I Junior Participating Preferred Stock at a purchase price of $70.00. Upon the occurrence of certain events, Rightsholders (other than such party or group) will be entitled to purchase either preferred stock of the Company or shares of the acquiring company at half of their market value. The Company will generally be entitled to redeem the Rights at $.01 per Right at any time prior to the earlier of the expiration of the Rights in March, 2009 or ten days following the acquisition of or offer for 15% of the Company's common stock. Note 7 - Stock Options In 2000, the Company's Board of Directors, with the shareholders' approval, adopted the "2000 Incentive Compensation Program" for directors, officers, employees, consultants, independent contractors and agents of the Company. Stock options awarded under the "program" shall be a "non-qualified stock option". The new program may not exceed 505,000 shares, a total increase of 350,000 shares over the number of shares available for the grant of new options under the present program, including 155,000 shares issued from prior plan which were available for grant. Effective from the date of said approval, no new options shall be granted under a "prior plan" (1992 incentive stock plan and 1998 non-qualified plans) of Moore Medical. The 1992 Incentive Stock Option Plan authorized stock option grants for 200,000 shares. Under the plan, options were granted for ten years at prices not less than 100% of the fair market value of the common stock on the date of grant. The options were exercisable as determined by the Stock Option Committee of the Board of Directors at the time of grant and were typically exercisable in four or five cumulative annual installments beginning one year after the date of grant and expiring five to ten years from the date of grant. The Company's Board of Directors adopted and approved the 1998 Stock Incentive Plan for directors, officers and key employees. The Plan permitted the granting of non-qualified stock options of the Company's stock exercisable in four cumulative annual installments commencing one year from the date of the grant and expiring five years from the grant date. 24 Stock option transactions for all three plans summarized as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- 1992 Incentive 2000 Incentive Stock Option Plan 1998 Stock Incentive Plan Compensation Program - ----------------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Number of Average Number of Average Number of Exercise Options Exercise Price Options Exercise Price Options Price - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding at end of 1998 48,400 $11.65 141,200 $12.08 - $ 0.00 Granted - - 41,000 11.23 - - Canceled (17,750) 11.76 (67,700) 12.49 - - Exercised (2,750) 11.95 - - - - -------- -------- ------- Outstanding at end of 1999 27,900 11.55 114,500 11.54 - - Granted 69,000 10.21 - - 98,000 7.83 Canceled (25,300) 10.80 (12,750) 11.35 - Exercised (2,500) 10.63 (1,250) 10.88 - -------- -------- ------- Outstanding at end of 2000 69,100 $10.53 100,500 $11.54 98,000 $ 7.83 ======== ======== ======= Exercisable 2000 20,100 $11.56 40,750 $11.59 7,000 $11.00 Exercisable 1999 23,925 $11.44 18,375 $11.54 - -
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees". If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and earnings per share, basic and diluted, would have been reduced to pro forma amounts of ($4.6) million and ($1.51) per share, $1.8 million and $.61 per share, and $2.8 million and $.94 per share for 2000, 1999, and 1998, respectively. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for grants during the year ended December 30, 2000: dividend yield of 0%; risk-free rates ranging from 4.7% to 5.4%, expected volatility factors ranging from 34% to 38%; and an expected option term of a five year period. Note 8 - Commitments and Contingencies The Company leases its various facilities such as its distribution centers, office facilities and certain equipment. Certain lease commitments provide that the Company pay taxes, insurance, and maintenance expenses relating to the leased assets. Rental expense approximated $1,240,000, $1,218,000, and $1,416,000 in 2000, 1999, and 1998, respectively. As of December 30, 2000, future minimum payments, for all leases are as follows: 2001, $1,141,000; 2002, $725,000; 2003, $322,000; 2004, $241,000; thereafter, $361,000. On February 1, 2001, the Company signed an agreement with the U.S. Government settling a pricing error by its former wholesale division under federal supply contracts entered into in 1991. In 1997, the Company voluntarily disclosed the error to the Government and established a $3.8 million reserve for 1996. In settlement, the Company agreed to pay the government a total of $5.2 million, including $0.5 million on signing, and $4.7 million over five years. The settlement is an interest bearing note ranging 25 from 5.25% to 7.25%. In the fourth quarter of 2000, it recorded an additional $2.5 million reserve for the liability and associated legal costs. As of December 30, 2000, $4.5 million of the government settlement was recorded in Long term notes payable along with $0.7 million of the rights to acquire the remaining 49% in Podiatry Online. The remaining portion of the government settlement is in other accrued expenses. Note 9 - Selected Quarterly Information (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------- Amounts in thousand, Net Sales Gross Profit Net Income Net Income Except per share data (Loss) (Loss) Per Share - -------------------------------------------------------------------------------------------------------------------------- 1998 - ---- First $ 30,939 $ 9,338 $ 405 $ 0.14 Second 30,042 9,357 709 0.24 Third 32,529 10,207 1,056 0.36 Fourth 27,336 8,801 639 0.21 --------- --------- --------- --------- Year $ 120,846 $ 37,703 $ 2,809 $ 0.95 ========= ========= ========= ========= 1999 - ---- First $ 29,055 $ 9,509 $ 477 $ 0.16 Second 29,367 9,215 428 0.15 Third 31,077 9,446 803 0.27 Fourth 28,955 8,711 144 0.05 --------- --------- --------- --------- Year $ 118,454 $ 36,881 $ 1,852 $ 0.63 ========= ========= ========= ========= 2000 - ---- First $ 29,517 $ 8,673 $ (255) $ (0.09) Second 30,253 9,078 79 0.03 Third 33,038 9,911 (567) (0.18) Fourth 30,747 9,181 (3,793) (1.25) --------- --------- --------- --------- Year $ 123,555 $ 36,843 $ (4,536) $ (1.49) ========= ========= ========= =========
___________________________________________________________________ ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None 26 PART III ITEM 10. Directors and Executive Officers of the Registrant Incorporated by reference to information under the caption "Certain Information Regarding Management's Nominees" and "Executive Officers" in the Company's 2001 definitive proxy statement to be filed pursuant to Regulation 14A. ITEM 11. Executive Compensation Incorporated by reference to information under the caption "Executive Compensation," "Defined Benefit Plans," "Stock Options," "Compensation Committee Interlocks and Insider Participation," "Compensation Committee's Report," "Performance Graph," and "Fees Paid to Directors" in the Company's 2001 definitive proxy statement to be filed pursuant to Regulation 14A. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Incorporated by reference to information under the caption "Principal Holders of Common Stock," "Certain Information Regarding Management's Nominees," and "Executive Officers" in the Company's 2001 definitive proxy statement to be filed pursuant to Regulation 14A. ITEM 13. Certain Relationships and Related Transactions Incorporated by reference to information under the captions "Fees Paid to Directors," "Executive Compensation," and "Defined Benefit Plans" in the Company's 2001 definitive proxy statement to be filed pursuant to Regulation 14A. 27 PART IV ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K (a) Documents filed as part of this Form 10-K. 1. Financial Statements. The financial statements filed as part of this Form 10-K are listed in the index on page 14. 2. Financial Statement Schedule. The financial statement schedule filed as part of this Form 10-K is listed in the index on page 14. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits Filed Under Item 601 of Regulation Filed Herewith or Incorporated by Reference To: S-K 3. Articles of Incorporation and By-Laws .1 Certificate of Incorporation, as Exhibit 3.1 to Form 10-K for the fiscal year ended Amended. January 3, 1981, Exhibit 1 to Form 10-Q for the quarter ended June 29, 1985, Exhibit 3.1 to Form 10-K for the fiscal year ended January 2, 1988, Exhibit 3.1 to Form 10-K for the fiscal year ended January 2, 1999, Exhibit 3.4 to Form 10-Q for the quarter ended July 1, 2000. .2 Certificate of Designation under Exhibit 3 to Form 8-A filed December 30, 1998. Delaware General Corporation Law. .3 By-law, as amended. Exhibit 3.3 to Form 10-K for the fiscal year ended January 3, 1981, Exhibit 3.3 to Form 10-K for the fiscal year ended December 30, 1989, and Exhibit 3.3 to Form 10-K for the fiscal year ended January 2, 1999. 4. Instruments Defining the Rights of Security Holders .2 Rights Agreement, between the Company and American Exhibit 4 to Form 8-K dated December 22, 1998. Stock Transfer & Trust Co., dated November 18, 1998 (includes as Exhibit B the forms of Rights Certificate and Election to Purchase, and as Exhibit C the form of Amended and Restated Certificate of Designations of Series I Junior Preferred Stock Certificate).
28 10. Material Contracts .3 Leases of property located in New Exhibit 10.3A to Form 10-K for the fiscal year Britain, Connecticut, as amended. ended December 28, 1985 and Exhibit 10.3 to Form 10-K for the fiscal year ended December 30, 1989. .4A MetLife Savings Plan Program - Exhibit 10.4A to Form 10-K for the fiscal year Defined Contribution Basic Plan ended December 31, 1994. Document dated March 30, 1994. .4B MetLife Savings Plan Program - Exhibit 10.4B to Form 10-K for the fiscal year 401(k) Plan Adoption Agreement dated ended December 31, 1994. October 20, 1994. .4C MetLife Savings Plan Program - Exhibit 10.4C to Form 10-K for the fiscal year Prototype Plan Amended & Restated ended January 1, 1994. Trust Agreement. .4D MetLife Savings Plan Program - Exhibit 10.4D to Form 10-K for the fiscal year Service Agreement. ended January 1, 1994. .5 Defined Benefit Pension Plan and Trust Exhibits 10.5A, 10.5B and 10.5C to Form 10-K for Agreement dated September 26, 1994, as the fiscal year ended December 31, 1994 and amended. Exhibit 10.5D to Form 10-K for the fiscal year ended January 1, 2000. .6 Incentive Stock Option Plan, as amended. Exhibit A to the 1982 Proxy Statement, Exhibit 10.2 to Form 10-K for the fiscal year ended January 1, 1983 and Exhibit 4(d) to a Registration statement on Form S-8 (commission file No. 33-20037) effective February 29, 1988 and Exhibit A to the 1992 Proxy Statement. .7 Non-qualified Stock Option Plan. Exhibit 10.7 to Form 10-K for fiscal year ended January 2, 1999. .8 2001 - 2002 Change of Control and Position Payment Filed herewith. Plan. .9 Employment Agreement between the Company Filed herewith. and Jerry Flasz, effective January 15, 2001. .10 Employment Agreement between the Company Filed herewith. and James R. Simpson, effective March 5, 2001. .11 Loan and Security Agreement between the Company and Filed herewith. Fleet Capital Corporation dated January 26, 2001.
29 .12 Appendix A to Security Agreement, dated January 26, Filed herewith. 2001, between the Company and Fleet Capital Corporation. .13 2000 Incentive Compensation Program Exhibit A to the 2000 Proxy Statement. .20 Amended and Restated Employment Agreement between Filed herewith, Exhibit 10.20 to form 10-Q for the Company and Linda M. Autore, effective March 1, period ended April 1, 2000. 2001. .21 Subscription Agreement between the Company Exhibit 10.21 to form 10-Q for period ended April and Vantage Venture Partners, LP, dated 1, 2000. February 28, 2000. .22 Website Development and Hosting Agreement Exhibit 10.22 to form 10-Q for period ended April between the Company and e-Media, LLC, 1, 2000. dated January 21, 2000. .23 Executive Officer Bonus Program between the Filed herewith. Company and Executive Officers of the Company effective for the year ended December 31, 2001. .24 Amended and Restated Employment Agreement between Filed herewith, Exhibit 10.24 to form 10-Q for the Company and Chad A. Roffers, effective March 1, period ended September 30, 2000. 2001. .25 Executive Subscription Agreement between the Filed herewith. Company and Linda M. Autore dated January 11, 2001. .26 Pledge Agreement between the Company and Linda M. Filed herewith. Autore dated January 11, 2001. .27 Recourse Promissory Note between the Company and Filed herewith. Linda M. Autore dated January 11, 2001. 21. Subsidiaries .1 Subsidiaries, identifiable pursuant to Item Exhibit 22 to Form 10-K for the fiscal year ended 601 (21) of Regulation S-K. December 28, 1991. 23. Consent of Expert .1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
(b) Reports on Form 8-K: The Company filed no Current Report on Form 8-K during the quarter ended December 30, 2000. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOORE MEDICAL CORP. BY: /s/ Linda M. Autore BY: /s/ James R. Simpson - ------------------------------------------ -------------------------------------------- Linda M. Autore, President and Chief James R. Simpson, Executive Vice Executive Officer President and Chief Financial Officer March 29, 2001 March 29, 2001 BY: /s/ Susan G. D'Amato -------------------------------------------- Susan G. D'Amato, Vice President - Finance and Chief Accounting Officer March 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Linda M. Autore /s/ Peter C. Sutro - ------------------------------------------- ------------------------------------------- Linda M. Autore, President and Chief Peter C. Sutro, Director Executive Officer March 26, 2001 March 29, 2001 /s/ Christopher W. Brody /s/ Wilmer J. Thomas, Jr. - ------------------------------------------- ------------------------------------------- Christopher W. Brody, Director Wilmer J. Thomas, Jr., Director March 27, 2001 March 28, 2001 /s/ Steven Kotler /s/ Dan K. Wassong - ------------------------------------------- ------------------------------------------- Steven Kotler, Director Dan K. Wassong, Director March 28, 2001 March 28, 2001 /s/ Robert H. Steele - ------------------------------------------- Robert H. Steele, Director March 28, 2001
31 SCHEDULE II MOORE MEDICAL CORP. VALUATION AND QUALIFYING ACCOUNTS ALLOWANCES FOR RETURNS AND UNCOLLECTIBLES
Balance at Additions Balance at Beginning of Charged to End of Period Expenses Deductions Period ---------------- ----------------- ------------------- ---------------- Allowance for Returns and Uncollectibles Fiscal Year End December 30, 2000 $ 200 $ 89 $ (88) $ 201 Fiscal Year End January 1, 2000 $ 372 $ 16 $ (188) $ 200 Fiscal Year End January 2, 1999 $ 891 $ 112 $ (631) $ 372
32 EX-10.8 2 0002.txt CHANGE OF CONTROL AND POSITION PAYMENT PLAN Exhibit 10.8 MOORE MEDICAL CORP. 2001-2002 CHANGE OF CONTROL AND POSITION PAYMENT PLAN 1. Purpose ------- The plan is designed to offer an incentive to participants to continue in the Company's employ by providing for severance payments if they should be affected by a "change in position" as a result of a "Change of Control." 2. Eligibility ----------- The participants under this plan are the key employees of the Company entitled to participate pursuant to their employment agreements with the Company or otherwise selected as participants by the Compensation Committee of the Board of Directors or the Board of Directors of the Company. 3. Severance Payment Conditions ---------------------------- (a) Severance will be payable to a participant only if there is a "Change of Control" on or before December 31, 2002, followed within twelve months by the participant's "change in position." (b) A "Change of Control" is: ----------------- (i) any merger or consolidation of the Company into or with another corporation (other than a subsidiary of the Company) or entity, whether the acquirer is privately-held or publicly traded, unless, immediately thereafter, the holders of common stock of the Company immediately prior thereto hold more than 50% of the voting capital stock of such other corporation or the voting equity interests of such entity, or (ii) the acquisition by another person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934), whether the acquirer is privately-held or publicly traded, of beneficial ownership (as defined in Rule 13d-3 under said Act) of 50% or more of the common stock of the Company, or (iii) the sale by the Company of substantially all of its assets, whether the acquirer is privately-held or publicly traded, unless, immediately after such sale, the holders of common stock of the Company immediately prior thereto hold more than 50% of the voting capital stock of the acquiring corporation or, if the acquiring person or entity is not a corporation, more than 50% of the voting equity interests of such acquiring person or entity; or (iv) the election or removal of directors constituting a majority of the directors of the Company (x) as a result of a solicitation subject to Rule 14a-11 (or successor Rule) under the Securities Exchange Act of 1934 relating to the election or removal of directors, or (y) other than a result of the action of directors a majority to whom consist of Continuing Directors; (z) for purposes hereof, a "Continuing Director" means a director (i) for whose election the Company solicited proxies pursuant to a proxy statement under Regulation 14A of said Act, or (ii) who was elected by action of the directors a majority of whom were elected as described in clause (i) hereof, or (iii) who was elected by action of directors a majority of whom were elected as described in clause (i) and/or clause (ii) hereof. (c) A participant's "Change of Position" is ------------------ (i) the termination of his or her employment by the Company (other than by reason of death, disability, or a material breach by the participant of his or her duties as an employee of the Company), or (ii) a substantial change in his or her duties. A participant will be considered to have had a substantial change in his or her duties only if: (x) the duties of the participant are changed to (i) primarily consist of new duties not based upon his or her training or experience, or (ii) include substantial duties performed immediately prior to the Change of Control by employees of the Company previously subordinate to the participant, or (y) the principal place of employment by the Company of the participant is changed to a location both more than travel 75 miles from his or her residence and more; and (z) within 90 days after the occurrence of any of the events referred to in clause (x) or (y) of Section 3(c)(ii) hereof, he or she terminates his or her employment by the Company. 4. Severance Amount; Etc. ---------------------- Each participant's severance amount will be an amount equal to the percentage of the sum of participant's annualized W-2 gross salary plus pro rata bonus, but not including Company-401(k) contribution, car allowance, or other Company provided benefits. Said percentage will be in accordance with the participant's employment agreement with the Company and otherwise as determined by the Executive or Compensation Committee when it designates an employee as a participant. For purposes hereof, the term "pro rata bonus" means the amount of any bonus that the participant would have been entitled to as of the end of the year of his termination pursuant to Section 3(c)(i) or 3(c)(ii)(z) hereof, assuming annualization of the Company's operating performance (as reported its quarterly reports on Form 10-Q filed with the Securities and Exchange Commission), multiplied by a fraction the numerator of which is the number of calendar days elapsed during the year of termination to the date of termination and the denominator of which is 365. All participations under this plan shall terminate on December 31, 2002, when this plan terminates, unless the Compensation Committee provides for an earlier participation termination date when it designates an employee as a participant. An employee's participation will also terminate in the event of a material breach of his or her duties to the Company. Payment of severance amounts will be made within 45 days after the quarter-end during which the two conditions described in paragraph 3(a), above, occur. In no event shall the amount payable under this paragraph exceed an amount which would (when aggregated with any other amounts which would be subject to the Section 280G or Section 162(m) provisions hereinafter referred to) result in any part of a payment otherwise to be made under this paragraph constituting a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended, or a payment which, pursuant to Section 162(m) of said Code, would not be deductible by the Company as compensation for federal income tax purposes. 5. Administration; Determinations ------------------------------ The plan will be administered by the Board's Compensation Committee. All interpretations and implementations of the plan by the Committee not expressly inconsistent with the plan will be final and binding on the Company and all participants. Neither this plan nor any participant's rights or Company obligations thereunder can be changed orally. EX-10.9 3 0003.txt AGREEMENT WITH JERRY FLASZ Exhibit 10.9 EMPLOYMENT AGREEMENT, executed on November 22, 2000 (the "Execution Date"), -------------- effective as of January 15, 2001 (the "Effective Date"), by and between MOORE -------------- MEDICAL CORP., a Delaware corporation (the "Employer"), and JERRY FLASZ of 22 -------- Peach Brook Lane, Brewster New York 10509 (the "Employee"). -------- The Employer and Employee hereby agree as follows: 1. Term; Duties. For the period from January 15, 2001 through December ------------ 31, 2002 (or earlier, pursuant to paragraphs 7, 8, 15 or 16) (the "Term"), the ---- Employer will employ the Employee, and the Employee will serve the Employer, as its Chief Technology Officer, reporting to its President and subject at all times to the direction of its Board of Directors and Executive Committee. The Employee's office will be at such office of the Employer in Connecticut as the Employer may designate. The Employee agrees that during the Term he will devote his entire working time and give his best efforts and attention to the business of the Employer. 2. Salary. As compensation for his services during the Term, the Employer ------ will pay the Employee, in installments on the Employer's regular payroll payment dates and subject to statutory withholding amounts, a salary: (a) for the period from January 15, 2001 through December 31, 2001, at the annual rate of $210,000; and (b) for 2002, at the annual rate of $210,000 plus an inflationary adjustment for any increase during 2001 in the Consumer Price Index. 3. Bonus Compensation. As additional compensation for his services during ------------------- the Term, the Employer will pay the Employee such bonus compensation as may become due to senior executive officers of the Employer under the 2001 Executive Officers' Bonus Plan of the Employer. The Employee has received a copy of said Plan. 4. Resettlement Allowance. The Employer will pay the Employee relocation ---------------------- reimbursement of up to $40,000 for his reasonable and customary moving expenses, within 30 days of his relocation of his residence to Connecticut. 5. Vacation; Benefits. The Employee will be entitled to three weeks ------------------ vacation during each calendar year in the Term. The Employee has received a list of the Employer's current benefit plans and policies regarding severance, sick leave and the like, available or applicable to the Employer's executives, including the Employee. The Employee acknowledges that said list does not set forth all material terms and conditions of these plans and policies, and that they are subject to modification or 1 elimination by the Employer. If a new benefit plan is made available to officers of the Employer generally, the Employee will be a participant thereunder. 6. Non-Competition. The Employee covenants and agrees that during the --------------- Term, and thereafter until June 30, 2003, he will not, directly or indirectly, engage or own any interest in any business competing with or planning to compete with any business or (if the Employee is aware thereof) planned business of the Employer, whether as principal, agent, partner, director, officer, stockholder, investor, lender, consultant, employee, or in any other capacity. The Employee agrees that a remedy at law for any breach or threatened breach of the foregoing covenant will be inadequate, and that Employer will be entitled to temporary and permanent injunctive relief in respect thereof without the necessity of posting a bond or proving actual damage to Employer. 7. Death. The death of the Employee will terminate the Term. ----- 8. Incapacity. If during the Term the Employee is unable, on account of ---------- illness or other incapacity, to perform his duties for a total of more than 45 days during any twelve month period, the Employer has the right to terminate the Term on ten days' written notice to the Employee, and the Employee will thereafter be entitled to receive only one-half of his salary installments otherwise payable until the earlier of the last day of (i) the month-end after the delivery of said notice, or (ii) the Term (determined without giving effect to such termination). 9. Employer Information. All information and materials disclosed by the -------------------- Employer to the Employee or acquired at the Employer's expense by the Employee or acquired or developed by the Employee in connection with his services under this Agreement, all trade secrets of the Employer and all Work-Product (hereinafter defined) (herein collectively "Employer Information") shall be and -------------------- remain the sole property of the Employer. The Employee shall protect all Employer Information which may be in his possession or custody and shall deliver all such Information (and all copies thereof, in any media) to the Employer at its request. Notwithstanding the foregoing, Employment Information shall not include information that the Employee can demonstrate (i) was known to him prior to the disclosure to him by the Employer, or (ii) was publicly known at the time of the disclosure or which thereafter became publicly known without fault of the Employee. 10. Work-Product. All right, title and interest in and to any ------------ work-product which the Employee acquires, compiles, authors, invents, makes or otherwise generates, in whole or in part, including all works authored and all inventions made, for use in connection with or arising out of or in relation to his services under this Agreement, whether or not copyrightable or patentable (herein collectively "Work-Product"), shall belong exclusively to the Employer. ------------ During and after the Term of this Agreement, the Employee shall execute, acknowledge, and deliver all documents, including, without limitation, all instruments of assignment, and perform all acts, which the Employer may reasonably request to secure its rights hereunder. 2 11. Confidentiality; Non-use. During and after the Term, the Employee ------------------------ shall not, without first obtaining the written consent of the Employer, divulge or disclose to anyone outside the Employer, whether by private or public communication or publication or otherwise, or use except pursuant to this Agreement, any Employer Information; however, an incidental non-derogatory disclosure by the Employee of Employer Information (other than trade secret or Work Product information) after 18 months following the end of the Term will not breach this provision. 12. Conflicts of Interest; Conflicting Obligations. The Employee agrees ---------------------------------------------- that it is his responsibility to recognize and avoid, and disclose to the President of the Employer in writing, any situation which might, either directly or indirectly, adversely affect his judgment in serving the Employer or which might otherwise involve a conflict between his personal interests and the interests of the Employer. The Employee represents and warrants to the Employer that at the date hereof no such situation exists or is contemplated or anticipated. The Employee agrees not to disclose or use in the course of his services for the Employer any trade secret, confidential or proprietary information, or work-product of any party other than the Employer. The Employee represents and warrants to the Employer that his entry into and performance of this Agreement do not and will not conflict with any obligation by which he is or may become bound or any right of a third party to which or he is or may become subject. The Employee will not serve as a Board member of another company unless he seeks and obtains the Employer's approval prior to making a commitment to do so. 13. Non Solicitation. The Employee agrees that, until one year after the ---------------- Term, he will not solicit, induce, attempt to hire, or hire any employee of the Employer, or assist in such hiring by any other party, or encourage any such employee to terminate his or her employment with the Employer. 14. Stock Option as an Inducement. As an inducement to the Employee to ----------------------------- enter into this Agreement, on November 22, 2000 the Compensation Committee of the Employer's Board of Directors authorized the grant to the Employee on the Effective Date of a non-qualified stock option pursuant to the Employer's 2000 Incentive Compensation Program to purchase 20,000 shares of the common stock of the Employer at an exercise price equal to the closing market price of said stock on the Effective Date; the option to be subject to the Employee's execution and delivery of this Agreement and his commencement of employment of employment pursuant thereto on the said Date and it to become exercisable in four cumulative annual installments commencing on January 15, 2002, and to expire on January 14, 2006 Although the option will have the tax treatment of a non-qualified, non-incentive option, it will be subject to the terms and conditions required for an incentive stock option and to the condition that the Employee not be in material breach of this Agreement ; also, it will be subject to acceleration of exercisability of 50% of all otherwise non-exercisable installments in the event the Employee becomes entitled to a severance payment under paragraph 15. 3 15. Effect of "Change of Control"; Termination; Severance. The Employer ----------------------------------------------------- or Employee may terminate the Term on written notice to the other within 30 days after a "Change of Control" (as defined in Section 3(b) of the Employer's Change of Control and Change of Position Payment Plan). The Employee has received a copy of said Plan. The Employee may also terminate the Term on written notice to the Employer within 30 days after "Change of Position" (as defined in Section 3(c)(ii) of the Plan)) occurring within twelve months after a Change of Control. A termination will be effective 30 days after the delivery of the notice. In the event of a termination by the Employer, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 100% of the "Base Amount" (as defined in Section 4 of the Plan). In the event of a termination by the Employee after a Change of Position within twelve months of a Change of Control, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 75% of said Base Amount. 16. Termination. The Employer will have the right to terminate the Term ----------- for cause. However, in the event the Employee's employment is terminated by the Employer without cause, the Employee will be entitled to receive his salary payments through the end of the Term, less the compensation earned and consideration received by the Employee from any subsequent employment or for otherwise providing services. However, the Employee will not have an affirmative duty to seek employment not consistent with his experience (including prior levels of responsibility) and expertise. "Cause" shall include ----- material breach of this Agreement not cured within 10 days, breach of fiduciary duty, gross insubordination, willful neglect of duties, habitual unreliability, personal conduct in material violation of the Employer's written policies, and other matters of comparable severity, but it shall not consist of dissatisfaction with job performance. 17. Governing Law; Etc. This Agreement is governed by the laws of ------------------ Connecticut. It represents the entire agreement of the parties and it can not be changed except by a writing signed by the President of the Employer and the Employee. All notices by the Employee to the Employer under this Agreement shall be delivered to the President of the Employer. IN WITNESS WHEREOF, the parties have signed and delivered this Employment Agreement, effective as of the Effective Date. MOORE MEDICAL CORP. /s/ Jerry Flasz By: /s/ Linda M. Autore JERRY FLASZ Linda M. Autore, President President 4 EX-10.10 4 0004.txt AGREEMENT WITH JAMES R. SIMPSON Exhibit 10.10 EMPLOYMENT AGREEMENT, agreed to be entered into on February 20, 2001 (the "Execution Date"), effective as of March 5, 2001 (the "Effective Date"), by and -------------- -------------- between MOORE MEDICAL CORP., a Delaware corporation with an office in New Britain, Connecticut (the "Employer"), and JAMES R. SIMPSON of 107 Dogwood Lane, -------- Stamford, CT 06903 (the "Employee"). -------- The Employer and Employee hereby agree as follows: 1. Term; Duties. For the period from March 5, 2001 through December 31, ------------ 2002 (or earlier, pursuant to paragraphs 6, 7, 15 or 16) (the "Term"), the ---- Employer will employ the Employee, and the Employee will serve the Employer, as its Chief Financial Officer, reporting to its President and subject at all times to the direction of its Board of Directors and Executive Committee. During the Term the Employee's office will only be at such office of the Employer in Connecticut as the Employer may designate. The Employee agrees that during the Term he will devote his entire working time and give his best efforts and attention to the business of the Employer. The Employee shall not be required to perform duties inconsistent with those normally assigned by the Employer to its executive level employees. 2. Salary. As compensation for his services during the Term, the Employer ------ will pay the Employee, in installments on the Employer's regular payroll payment dates and subject to statutory withholding amounts, a salary: (a) for the period from March 5, 2001 through December 31, 2001, at the annual rate of $235,000; and (b) for 2002, at the annual rate of $235,000 plus an inflationary adjustment for any increase during 2001 in the Consumer Price Index. 3. Bonus Compensation. As additional compensation for his services during ------------------- the Term, the Employer will pay the Employee such bonus compensation as may become due to senior executive officers of the Employer under the 2001 Executive Officers' Bonus Plan of the Employer. The Employee has received a copy of said Plan. 4. Vacation; Benefits. The Employee will be entitled to four weeks ------------------- vacation during each calendar year in the Term. The Employee has received a list of the Employer's current benefit plans and policies regarding severance, sick leave and the like, available or applicable to the Employer's executives, including the Employee. The Employee acknowledges that said list does not set forth all material terms and conditions of these plans and policies, and that they are subject to modification or elimination by the Employer. If a new benefit plan is made available to officers of the Employer generally, the Employee will be a participant thereunder. 1 5. Non-Competition. The Employee covenants and agrees that during the --------------- Term, and thereafter until June 30, 2003, he will not, directly or indirectly, engage or own any interest in any business competing with or planning to compete with any business or (if the Employee is aware thereof) planned business of the Employer, whether as principal, agent, partner, director, officer, stockholder, investor, lender, consultant, employee, or in any other capacity. The Employee agrees that a remedy at law for any breach or threatened breach of the foregoing covenant will be inadequate, and that Employer will be entitled to temporary and permanent injunctive relief in respect thereof without the necessity of posting a bond or proving actual damage to Employer. 6. Death. The death of the Employee will terminate the Term. ----- 7. Incapacity. If during the Term the Employee is unable, on account of ---------- illness or other incapacity, to perform his duties for a total of more than 45 consecutive, or an aggregate of 90, days during any twelve month period, the Employer has the right (subject to compliance with applicable law) to terminate the Term on ten days' written notice to the Employee, and the Employee will thereafter be entitled to receive only one-half of his salary installments otherwise payable until the earlier of the last day of (i) the month-end after the delivery of said notice, or (ii) the Term (determined without giving effect to such termination). 8. Employer Information. All information and materials disclosed by the -------------------- Employer to the Employee or acquired at the Employer's expense by the Employee or acquired or developed by the Employee in connection with his services under this Agreement, all trade secrets of the Employer and all Work-Product (hereinafter defined) (herein collectively "Employer Information") shall be and -------------------- remain the sole property of the Employer. The Employee shall protect all Employer Information which may be in his possession or custody and shall deliver all such Information (and all copies thereof, in any media) to the Employer at its request. Notwithstanding the foregoing, Employment Information shall not include information that the Employee can demonstrate (i) was known to him prior to the disclosure to him by the Employer, or (ii) was publicly known at the time of the disclosure or which thereafter became publicly known without fault of the Employee. 9. Work-Product. All right, title and interest in and to any work-product ------------ which the Employee acquires, compiles, authors, invents, makes or otherwise generates, in whole or in part, including all works authored and all inventions made, for use in connection with or arising out of or in relation to his services under this Agreement, whether or not copyrightable or patentable (herein collectively "Work-Product"), shall belong exclusively to the Employer. ------------ During and after the Term of this Agreement, the Employee shall execute, acknowledge, and deliver all documents, including, without limitation, all instruments of assignment, and perform all acts, which the Employer may reasonably request to secure its rights hereunder. 10. Confidentiality; Non-use. During and after the Term, the Employee ------------------------ shall not, without first obtaining the written consent of the Employer, divulge or disclose to anyone outside the Employer, whether by private or public communication or publication or otherwise, or use except 2 pursuant to this Agreement, any Employer Information; however, an incidental non-derogatory disclosure by the Employee of Employer Information (other than trade secret or Work Product information) after 18 months following the end of the Term will not breach this provision. 11. Conflicts of Interest; Conflicting Obligations. The Employee agrees ---------------------------------------------- that it is his responsibility to recognize and avoid, and disclose to the President of the Employer in writing, any situation which might, either directly or indirectly, adversely affect his judgment in serving the Employer or which might otherwise involve a conflict between his personal interests and the interests of the Employer. The Employee represents and warrants to the Employer that at the date hereof no such situation exists or is contemplated or anticipated. The Employee agrees not to disclose or use in the course of his services for the Employer any trade secret, confidential or proprietary information, or work-product of any party other than the Employer. The Employee represents and warrants to the Employer that his entry into and performance of this Agreement do not and will not conflict with any obligation by which he is or may become bound or any right of a third party to which or he is or may become subject. The Employee will not serve as a Board member of another company unless he seeks and obtains the Employer's approval prior to making a commitment to do so. 12. Non-Solicitation. The Employee agrees that, until one year after the ---------------- Term, he will not solicit, induce, attempt to hire, or hire any employee of the Employer, or assist in such hiring by any other party, or encourage any such employee to terminate his or her employment with the Employer. 13. Standard Intellectual Property Agreement. The Employee agrees to ---------------------------------------- execute the Employer's standard employee agreement relating to intellectual property and employment information. To the extent any of the provisions of this Agreement are in conflict with any of the provisions of such standard agreement, the provisions of this Agreement will control. 14. Stock Option as an Inducement. As an inducement to the Employee to ----------------------------- enter into this Agreement, his execution thereof is subject to the Compensation Committee of the Employer's Board of Directors authorizing, on the Effective Date, the grant to him of a non-qualified stock option pursuant to the Employer's 2000 Incentive Compensation Program to purchase 30,000 shares of the common stock of the Employer at an exercise price equal to the closing market price of said stock on the Effective Date; said option to become exercisable in four cumulative annual installments commencing on March 5, 2002 and to expire on March 4, 2006. Employee has received a copy of said Program and of the form of option used by the Employer. Although the option will have the tax treatment of a non-qualified, non-incentive option, it will be subject to terms and conditions required for an incentive stock option, and to the condition that the Employee not be in material breach of this Agreement. It will be subject to acceleration of exercisability of 50% of all otherwise non-exercisable installments in the event the Employee becomes entitled to a severance payment under paragraph 15. 15. Effect of "Change of Control"; Termination; Severance. The Employer ----------------------------------------------------- or Employee may terminate the Term on written notice to the other within 30 days after a "Change of Control" (as defined in Section 3(b) of the Employer's Change of Control and Change of Position Payment Plan). 3 The Employee has received a copy of said Plan. The Employee may also terminate the Term on written notice to the Employer within 30 days after "Change of Position" (as defined in Section 3(c)(ii) of the Plan)) occurring within twelve months after a Change of Control. A termination will be effective 30 days after the delivery of the notice. In the event of a termination by the Employer, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 100% of the "Base Amount" (as defined in Section 4 of the Plan). In the event of a termination by the Employee after a Change of Position within twelve months of a Change of Control, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 75% of said Base Amount. 16. Termination. The Employer will have the right to terminate the Term ----------- for cause. However, in the event the Employee's employment is terminated by the Employer without cause, the Employee will be entitled to receive his salary payments through the end of the Term, less the compensation earned and consideration received by the Employee from any subsequent employment or for otherwise providing services. However, the Employee will not have an affirmative duty to seek employment not consistent with his experience (including prior levels of responsibility) and expertise. "Cause" shall include ----- material breach of this Agreement not cured within 10 days, breach of fiduciary duty, gross insubordination, willful neglect of duties, habitual unreliability, personal conduct in material violation of the Employer's written policies, and other matters of comparable severity, but it shall not consist of dissatisfaction with job performance. 17. Governing Law; Etc. This Agreement is governed by the laws of ------------------ Connecticut. It represents the entire agreement of the parties and it can not be changed except by a writing signed by the President of the Employer and the Employee. All notices by the Employee to the Employer under this Agreement shall be delivered to the President of the Employer. IN WITNESS WHEREOF, the parties have signed and delivered this Employment Agreement, effective as of the Effective Date. MOORE MEDICAL CORP. /s/ James R. Simpson By: /s/ Linda M. Autore ------------------------------ JAMES R. SIMPSON Linda M.. Autore, President 4 EX-10.11 5 0005.txt LOAN AND SECURITY AGREEMENT Exhibit 10.11 LOAN AND SECURITY AGREEMENT Dated: January 26, 2001 $15,000,000 between FLEET CAPITAL CORPORATION, as Lender and MOORE MEDICAL CORP., as Borrower -2- TABLE OF CONTENTS LOAN AND SECURITY AGREEMENT................................................................................. 1 SECTION 1. CREDIT FACILITY................................................................................. 1 1.1. Revolving Credit Loans.......................................................................... 1 ---------------------- 1.1.1. Loans and Reserves...................................................................... 1 ------------------ 1.1.2. Use of Proceeds......................................................................... 1 --------------- 1.2. Letters of Credit; LC Guaranties................................................................ 1 -------------------------------- SECTION 2. INTEREST, FEES AND CHARGES...................................................................... 3 2.1. Interest........................................................................................ 3 -------- 2.1.1. Rate of Interest........................................................................ 3 ---------------- 2.1.2. Default Rate of Interest................................................................ 3 ------------------------ 2.1.3. Maximum Interest........................................................................ 3 ---------------- 2.2. Computation of Interest and Fees................................................................ 3 -------------------------------- 2.3. LIBOR Option.................................................................................... 3 ------------ 2.4. Closing Fee..................................................................................... 6 ----------- 2.5. Letter of Credit and LC Guaranty Fees........................................................... 6 ------------------------------------- 2.6. Unused Line Fee................................................................................. 7 --------------- 2.7. Reimbursement of Expenses....................................................................... 7 ------------------------- 2.7.1. Administration and Enforcement Expenses................................................. 7 --------------------------------------- 2.7.2. Collateral Protection Expenses.......................................................... 7 ------------------------------ 2.8. Bank Charges.................................................................................... 8 ------------ 2.9. Payment of Charges.............................................................................. 8 ------------------ SECTION 3. LOAN ADMINISTRATION............................................................................. 8 3.1. Manner of Borrowing Loans....................................................................... 8 ------------------------- 3.1.1. Loan Requests........................................................................... 8 ------------- 3.1.2. Disbursement............................................................................ 8 ------------ 3.1.3. Authorization........................................................................... 9 ------------- 3.1.4. Letter of Credit and LC Guaranty Requests............................................... 9 ----------------------------------------- 3.1.5. Method of Making Requests............................................................... 9 ------------------------- 3.2. Payments........................................................................................ 9 -------- 3.2.1. Principal............................................................................... 10 --------- 3.2.2. Interest................................................................................ 10 -------- 3.2.3. Revolving Credit Maturity Date.......................................................... 10 ------------------------------ 3.2.4. Costs, Fees and Charges................................................................. 10 ----------------------- 3.2.5. Other Obligations....................................................................... 10 ----------------- 3.3. Mandatory Payments; Proceeds of Sale, Loss, Destruction or Condemnation of Collateral........... 11 ------------------------------------------------------------------------------------- 3.4. Accounts Receivable Management.................................................................. 11 ------------------------------ 3.4.1. Account Verification.................................................................... 11 -------------------- 3.4.2. Dominion of Cash........................................................................ 11 ---------------- 3.4.3. Collection of Accounts Proceeds of Collateral........................................... 11 --------------------------------------------- 3.5. Application of Payments and Collections......................................................... 12 --------------------------------------- 3.6. All Loans to Constitute One Obligation.......................................................... 12 -------------------------------------- 3.7. Loan Account.................................................................................... 12 ------------ 3.8. Statement of Account............................................................................ 12 -------------------- SECTION 4. TERM AND TERMINATION............................................................................ 12 4.1. Term of Agreement............................................................................... 12 ----------------- 4.2. Termination..................................................................................... 13 -----------
-3- 4.2.1. Termination by Lender................................................................... 13 --------------------- 4.2.2. Termination by Borrower................................................................. 13 ----------------------- 4.2.3. Termination Charges..................................................................... 13 ------------------- 4.2.4. Effect of Termination................................................................... 13 --------------------- SECTION 5. SECURITY INTERESTS.............................................................................. 14 5.1. Security Interest in Collateral................................................................. 14 ------------------------------- 5.2. Lien Perfection; Further Assurances............................................................. 15 ----------------------------------- 5.3. Safekeeping of Collateral....................................................................... 15 ------------------------- 5.4. Intentionally Omitted........................................................................... 15 --------------------- 5.5. Administration of Accounts...................................................................... 15 -------------------------- 5.5.1. Records, Schedules and Assignments of Accounts.......................................... 15 ---------------------------------------------- 5.5.2. Discounts, Allowances, Disputes......................................................... 15 ------------------------------- 5.5.3. Taxes................................................................................... 16 ----- 5.5.4. Account Verification.................................................................... 16 -------------------- 5.6. Administration of Inventory..................................................................... 16 --------------------------- 5.6.1. Records and Reports of Inventory........................................................ 16 -------------------------------- 5.6.2. Returns of Inventory.................................................................... 16 -------------------- 5.7. Records and Schedules of Equipment.............................................................. 17 ---------------------------------- SECTION 6. REPRESENTATIONS AND WARRANTIES 17 6.1. General Representations and Warranties.......................................................... 17 -------------------------------------- 6.1.1. Organization and Qualification.......................................................... 17 ------------------------------ 6.1.2. Corporate Power and Authority........................................................... 17 ----------------------------- 6.1.3. Legally Enforceable Agreement........................................................... 17 ----------------------------- 6.1.4. Capital Structure....................................................................... 18 ----------------- 6.1.5. Corporate Names......................................................................... 18 --------------- 6.1.6. Business Locations; Agent for Process................................................... 18 ------------------------------------- 6.1.7. Title to Properties; Priority of Liens.................................................. 18 -------------------------------------- 6.1.8. Accounts................................................................................ 19 -------- 6.1.9. Equipment............................................................................... 20 --------- 6.1.10. Financial Statements; Fiscal Year....................................................... 20 --------------------------------- 6.1.11. Regulations U and X..................................................................... 20 ------------------- 6.1.12. Solvent Financial Condition............................................................. 20 --------------------------- 6.1.13. Surety Obligations...................................................................... 21 ------------------ 6.1.14. Taxes................................................................................... 21 ----- 6.1.15. Brokers................................................................................. 21 ------- 6.1.16. Patents, Trademarks, Copyrights and License............................................. 21 ------------------------------------------- 6.1.17. Governmental Consents................................................................... 21 --------------------- 6.1.18. Compliance with Laws.................................................................... 21 -------------------- 6.1.19. Restrictions............................................................................ 22 ------------ 6.1.20. Litigation.............................................................................. 22 ---------- 6.1.21. No Defaults............................................................................. 22 ----------- 6.1.22. Leases.................................................................................. 22 ------ 6.1.23. Pension Plans........................................................................... 22 ------------- 6.1.24. Trade Relations......................................................................... 22 --------------- 6.1.25. Labor Relations......................................................................... 23 --------------- 6.1.26. Certain Transactions.................................................................... 23 -------------------- 6.1.27. Environmental Compliance................................................................ 23 ------------------------ 6.1.28. Holding Company and Investment Company Acts............................................. 24 ------------------------------------------- 6.1.29. Insurance............................................................................... 24 --------- 6.1.30. Disclosure.............................................................................. 24 ---------- 6.1.31. Business Activity....................................................................... 24 ----------------- 6.2. Continuous Nature of Representations and Warranties............................................. 25 ---------------------------------------------------
-4- 6.3. Survival of Representations and Warranties...................................................... 25 ------------------------------------------ SECTION 7. COVENANTS AND CONTINUING AGREEMENTS............................................................. 25 7.1. Affirmative Covenants........................................................................... 25 --------------------- 7.1.1. Visits and Inspections.................................................................. 25 ---------------------- 7.1.2. Notices................................................................................. 25 ------- 7.1.3. Financial Statements.................................................................... 26 -------------------- 7.1.4. Borrowing Base Certificates............................................................. 27 --------------------------- 7.1.5. Landlord and Storage Agreements......................................................... 27 ------------------------------- 7.1.6. Projections............................................................................. 27 ----------- 7.1.7. Insurance on Collateral................................................................. 27 ----------------------- 7.1.8. Guarantors.............................................................................. 28 ---------- 7.1.9. Cash Management Services................................................................ 28 ------------------------ 7.1.10. Employee Benefit Plans.................................................................. 28 ---------------------- 7.1.11. Compliance with Laws, Contracts, Licenses and Permits................................... 29 ----------------------------------------------------- 7.1.12. Use of Proceeds......................................................................... 30 --------------- 7.1.13. Regulations U and X..................................................................... 30 ------------------- 7.1.14. Records and Accounts.................................................................... 30 -------------------- 7.1.15. Corporate Existence; Maintenance of Properties.......................................... 30 ---------------------------------------------- 7.1.16. Taxes................................................................................... 31 ----- 7.1.17. Cross Aging and Aged Credit Reports..................................................... 31 ----------------------------------- 7.1.18. Further Assurances...................................................................... 31 ------------------ 7.2. Negative Covenants.............................................................................. 32 ------------------ 7.2.1. Mergers; Consolidations; Acquisitions................................................... 32 ------------------------------------- 7.2.2. Loans................................................................................... 32 ----- 7.2.3. Total Indebtedness...................................................................... 32 ------------------ 7.2.4. Affiliate Transactions.................................................................. 33 ---------------------- 7.2.5. Limitation on Liens..................................................................... 33 ------------------- 7.2.6. Distributions........................................................................... 34 ------------- 7.2.7. Capital Expenditures.................................................................... 34 -------------------- 7.2.8. Disposition of Assets................................................................... 34 --------------------- 7.2.9. Stock of Subsidiaries................................................................... 35 --------------------- 7.2.10. Issuance of Borrower.................................................................... 35 -------------------- 7.2.11. Bill-and-Hold Sales, Etc................................................................ 35 ------------------------ 7.2.12. Restricted Investment................................................................... 35 --------------------- 7.2.13. Leases.................................................................................. 35 ------ 7.2.14. Tax Consolidation....................................................................... 35 ----------------- 7.2.15. Business Activities..................................................................... 35 ------------------- 7.2.16. Management and Consulting Fees.......................................................... 35 ------------------------------ 7.2.17. Subsidiary Business..................................................................... 36 ------------------- 7.2.18. Subordinated Debt....................................................................... 36 ----------------- 7.3. Specific Financial Covenants.................................................................... 36 ---------------------------- SECTION 8. CONDITIONS PRECEDENT............................................................................ 36 8.1. Documentation................................................................................... 36 ------------- 8.2. No Default...................................................................................... 38 ---------- 8.3. Other Conditions................................................................................ 38 ---------------- 8.4. Availability.................................................................................... 38 ------------ 8.5. No Litigation................................................................................... 38 ------------- 8.6. Financials; Projections......................................................................... 38 ----------------------- SECTION 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT............................................... 39 9.1. Events of Default............................................................................... 39 ----------------- 9.1.1. Payment................................................................................. 39 -------
-5- 9.1.2. Misrepresentations...................................................................... 39 ------------------ 9.1.3. Breach of Specific Covenants............................................................ 39 ---------------------------- 9.1.4. Breach of Other Covenants............................................................... 39 ------------------------- 9.1.5. Default Under Security Documents/Other Agreements....................................... 39 ------------------------------------------------- 9.1.6. Other Defaults.......................................................................... 39 -------------- 9.1.7. Uninsured Losses........................................................................ 40 ---------------- 9.1.8. Insolvency and Related Proceedings...................................................... 40 ---------------------------------- 9.1.9. Adverse Changes......................................................................... 40 --------------- 9.1.10. Business Disruption; Condemnation....................................................... 40 --------------------------------- 9.1.11. Change of Ownership..................................................................... 40 ------------------- 9.1.12. ERISA................................................................................... 41 ----- 9.1.13. Challenge to Agreement.................................................................. 41 ---------------------- 9.1.14. Criminal Forfeiture..................................................................... 41 ------------------- 9.1.15. Judgments............................................................................... 41 --------- 9.1.16. VA Liability........................................................................... 41 ------------ 9.2. Acceleration of the Obligations................................................................ 41 ------------------------------- 9.3. Other Remedies................................................................................. 42 -------------- 9.4. Remedies Cumulative; No Waiver................................................................. 43 ------------------------------ 9.5. Marshalling.................................................................................... 44 ----------- SECTION 10. MISCELLANEOUS................................................................................. 44 10.1. Power of Attorney.............................................................................. 44 ----------------- 10.2. Indemnity...................................................................................... 46 --------- 10.3. Modification of Agreement; Sale of Interest.................................................... 46 ------------------------------------------- 10.4. Severability................................................................................... 47 ------------ 10.5. Successors and Assigns......................................................................... 47 ---------------------- 10.6. Cumulative Effect; Conflict of Terms........................................................... 47 ------------------------------------ 10.7. Execution in Counterparts...................................................................... 47 ------------------------- 10.8. Notice......................................................................................... 47 ------ 10.9. Lender's Consent............................................................................... 48 ---------------- 10.10. Credit Inquiries............................................................................... 48 ---------------- 10.11. Time of Essence................................................................................ 49 --------------- 10.12. Entire Agreement............................................................................... 49 ---------------- 10.13. Setoff......................................................................................... 49 ------ 10.14. Interest Rate.................................................................................. 49 ------------- 10.15. Loss of Revolving Credit Note, etc............................................................. 49 ---------------------------------- 10.16. Interpretation................................................................................. 50 -------------- 10.17. Further Assurances............................................................................. 50 ------------------ 10.18. Concerning Revised Article 9 of the Code....................................................... 50 ---------------------------------------- 10.18.1. Attachment............................................................................ 50 ----------- 10.18.2. Perfection by Filing.................................................................. 51 -------------------- 10.18.3. Other Perfection, etc................................................................. 51 --------------------- 10.18.4. Other Provisions...................................................................... 51 ---------------- 10.18.5. Savings Clause........................................................................ 51 -------------- 10.19. Information and Confidentiality................................................................ 51 ------------------------------- 10.20. GOVERNING LAW; CONSENT TO FORUM................................................................ 52 ------------------------------- 10.21. WAIVERS BY BORROWER............................................................................ 53 -------------------
LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is made this 26/th/ day of January, 2001, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation with an office at 200 Glastonbury Boulevard, Glastonbury, Connecticut 06033, and MOORE MEDICAL CORP. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 389 John Downey Drive, New Britain, Connecticut 06050. Capitalized terms used in this Agreement have the meanings assigned to them in Appendix A, General Definitions, attached hereto. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP consistently applied. SECTION 1. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lender agrees to make the Maximum Revolving Loan Amount available upon Borrower's request therefor, as follows: 1.1. Revolving Credit Loans. ---------------------- 1.1.1. Loans and Reserves. Lender agrees, for so long as no Default ------------------ or Event of Default exists, to make Revolving Credit Loans to Borrower from time to time from the Closing Date up to but not including the Revolving Credit Maturity Date, as requested by Borrower in the manner set forth in Section 3.1 hereof, up to a maximum principal amount at any time outstanding (after giving effect to all amounts requested) equal to the Borrowing Base at such time minus (without duplication) the LC Amount and such Reserves, if any, as may be required by Lender in addition to the Reserve Amount. Lender shall have the right to establish, in addition to the Reserve Amount, reserves in such amounts, and with respect to such matters, as Lender shall reasonably deem necessary or appropriate in its credit judgment, against the amount of Revolving Credit Loans which Borrower may otherwise request under this subsection 1.1.1 ("Reserves"), including, without limitation, with respect to (i) sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement; (ii) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Collateral of Borrower which Lender deems eligible under the definition of the term Borrowing Base; and (iii) any liability or obligation of Borrower in respect to interest rate protection agreements that Lender is required to guarantee. 1.1.2. Use of Proceeds. The Revolving Credit Loans shall be used --------------- solely (i) to fund Borrower's Permitted Acquisitions, and (ii) for Borrower's general working capital needs and all other general corporate purposes of the Borrower in a manner consistent with the provisions of this Agreement and all applicable laws. 1.2. Letters of Credit; LC Guaranties. -------------------------------- (A) Subject to all of the terms and conditions of this Agreement, if requested to do so by Borrower, Lender shall issue its Letters of Credit, or cause to be issued Bank's Letters of Credit, for the account of Borrower or shall execute LC Guaranties by which Lender shall agree to reimburse the issuer for the Letters of Credit for amounts drawn thereon or shall guaranty the payment or performance by Borrower of its reimbursement obligation with respect to Letters of Credit issued for Borrower's account by Bank or Lender; provided that the aggregate amount available to be drawn under all Letters of Credit and LC Guaranties outstanding at any time shall not exceed Three Million Five Hundred Thousand -2- Dollars ($3,500,000) and no Letter of Credit may have an expiration date that is after fourteen (14) days prior to the Revolving Credit Maturity Date unless Borrower provides Lender with cash collateral for said Letter of Credit or LC Guaranty, in a manner and amount acceptable to Lender; provided, that the VA Letter of Credit may have an expiration date not to exceed five (5) years beyond the Closing Date so long as the Collateral continues to secure such Obligation in a manner and amount acceptable to the Lender. Further, the expiration date of any Letter of Credit (other than the VA Letter of Credit) shall not be more than one year after the day of issuance thereof (although any such Letter of Credit may be renewable for additional one-year periods in accordance with the terms thereof). Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs. Any amounts paid by Lender under any Letter of Credit or LC Guaranty or in connection with any Letter of Credit (i) shall become part of the proceeds of a Revolving Credit Loan requested pursuant to subsection 3.1.1 below, to the extent Lender is required to make Revolving Credit Loans pursuant to the terms hereof and (ii) otherwise, shall by payable by Borrower on demand. In no event shall Bank or Lender be required to issue or cause to be issued Letters of Credit or LC Guaranties at any time there exists a Default or an Event of Default. (B) Borrower agrees, unconditionally, irrevocably and absolutely, to pay immediately to Lender on demand the amount drawn under a Letter of Credit or paid pursuant to a LC Guaranty, and (ii) the amount of any taxes, fees, charges or other reasonable costs and expenses whatsoever incurred by the Lender or the Bank in connection with any payment made by the Lender or the Bank with respect to such Letter of Credit or the drawing thereon. If Borrower at any time fails to make such payment in accordance with the terms of this Agreement, Borrower shall be deemed to have elected to borrow from the Lender on such date Revolving Credit Loans equal in aggregate amount to the amount paid by Lender under such Letter of Credit or LC Guaranty. The Borrower's obligations under this Section 1.2 shall be absolute and unconditional under any and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Lender, the Bank, or any beneficiary of a Letter of Credit. The Borrower further agrees with the Lender that the Lender and the Bank shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit or any draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document delivered in connection with any Letter of Credit believed by the Lender or the Bank to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and in relying upon advice and statements of legal counsel, independent accountants and other experts selected by the Lender or the Bank. Neither the Lender nor the Bank shall be responsible for, and the Borrower's obligations under Section 1.2 shall not be affected by, among other things, the validity or genuineness of any documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrower, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrower against the beneficiary of any Letter of Credit or any such transferee. The Lender and the Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrower agrees that any action taken or omitted by the Lender or the Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon the Borrower and shall not result in any liability on the part of the Lender or the Bank to the Borrower. SECTION 2. INTEREST, FEES AND CHARGES 2.1. Interest. -------- 2.1.1. Rate of Interest. Interest shall accrue on the principal ---------------- amount of the Base Rate Portion outstanding at the end of each day at a fluctuating rate per annum equal to the Base Rate -3- plus the Applicable Margin for Base Rate Portions. Said rate of interest shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that such change in the Base Rate occurs. If Borrower properly exercises its LIBOR Option as provided in Section 2.3, interest shall accrue on the principal amount of the LIBOR Portion outstanding at the end of each day at the rate of the applicable LIBOR Rate for such LIBOR Portion plus the Applicable Margin for LIBOR Loans. 2.1.2. Default Rate of Interest. Upon and after the occurrence of an ------------------------ Event of Default, and during the continuation thereof, at the option of the Lender, the principal amount of all Loans shall bear interest at a rate per annum equal to 2.0% plus the interest rate otherwise applicable thereto ---- (the "Default Rate"). 2.1.3. Maximum Interest. In no event whatsoever shall the aggregate ---------------- of all amounts deemed interest hereunder or under the Notes and charged or collected pursuant to the terms of this Agreement or pursuant to the Notes exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement or the Notes is in contravention of any such law, such provisions shall be deemed amended to conform thereto. 2.2. Computation of Interest and Fees. -------------------------------- Interest, Letter of Credit fees, LC Guaranty fees and Unused Line Fees hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of (i) in the case of Base Rate Portion, Letter of Credit fees, LC Guaranty fees and Unused Line Fees hereunder, 365 days and (ii) in the case of a LIBOR Portion, 360 days. For the purpose of computing interest hereunder, all items of payment received by Lender shall be deemed applied by Lender on account of the Obligations (subject to final payment of such items) on the first Business Day after receipt by Lender of such items in Lender's account located in Glastonbury, Connecticut. 2.3. LIBOR Option. ------------ (i) Upon the conditions that: (1) Lender shall have received a LIBOR Request from Borrower no later than 11:00 a.m. (Hartford, Connecticut time) at least 3 Business Days prior to the first day of the LIBOR Period requested, (2) there shall have occurred no change in applicable law which would make is unlawful for Lender to obtain deposits of U.S. dollars in the London interbank foreign currency deposits market, (3) as of the date of the LIBOR Request and the first day of the LIBOR Period, there shall exist no Default or Event of Default, (4) Lender is able to determine the LIBOR Rate in respect of the requested LIBOR Period or Lender is able to obtain deposits of U.S. dollars in the London interbank foreign currency deposits market in the applicable amounts and for the requested LIBOR Period, and (5) as of the first date of the LIBOR Period, there are no more than three (3) outstanding LIBOR Portions including the LIBOR Portion being requested; then interest on the LIBOR Portion requested during the LIBOR Period requested will be based on the applicable LIBOR Rate. (ii) Each LIBOR Request shall be irrevocable and binding on Borrower. Borrower shall indemnify Lender for any loss, penalty or expense incurred by Lender due to failure on the part of Borrower to fulfill, on or before the date specified in any LIBOR Request, the applicable conditions set forth in this Agreement or due to the prepayment of the applicable LIBOR Portion prior to the last day of the applicable LIBOR period or due to any default by Borrower in the payment of the principal of or interest on any -4- LIBOR Portion, including, without limitation any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by Lender to fund or maintain the requested LIBOR Portion. (iii) If any Legal Requirement shall (1) make it unlawful for Lender to fund through the purchase of U.S. dollar deposits any LIBOR Portion or otherwise give effect to its obligations as contemplated under this Section 2.3, or (2) shall impose on Lender any costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of Lender which includes deposits by reference to which the LIBOR Rate is determined as provided herein or a category of extensions of credit or other assets of Lender which includes any LIBOR Portion or (3) shall impose on Lender any restrictions not already taken into account under statutory reserves on the amount of such a category of liabilities or assets which Lender may hold, then, in each such case, Lender may, by notice thereof to Borrower, terminate the LIBOR Option. Any LIBOR Portion subject thereto shall immediately bear interest thereafter at the rate and in the manner provided for Base Rate Portions pursuant to subsection 2.1.1. Borrower shall indemnify Lender against any loss, penalty or expense incurred by Lender due to liquidation or redeployment of deposits or other funds acquired Lender to fund or maintain any LIBOR Portion that is terminated under this paragraph. (iv) If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to Lender or any corporation controlling Lender by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject Lender or such corporation to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Agreement, the other Loan Documents, any Letters of Credit or LC Guaranty, Lender's commitment hereunder or the Revolving Credit Loans (other than taxes based upon or measured by the income or profits of Lender or such corporation and other than franchise taxes), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to Lender or such corporation of the principal of or the interest on any Revolving Credit Loans or any other amounts payable to Lender under this Agreement or any of the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of Lender or such corporation, or (d) impose on Lender or such corporation any other conditions or requirements (other than franchise taxes) with respect to this Agreement, the other Loan Documents, any Letters of Credit or LC Guaranties, the Revolving Credit Loans, Lender's commitment hereunder, or any class of loans, letters of -5- credit or commitments of which any of the Revolving Credit Loans or such commitment forms a part, and the result of any of the foregoing is (x) to increase the cost to Lender or such corporation of making, funding, issuing, renewing, extending or maintaining any of the Revolving Credit Loans or Lender's commitment hereunder or any Letter of Credit or LC Guaranty, or (y) to reduce the amount of principal, interest, reimbursement obligation or other amount payable to Lender hereunder on account of Lender's commitment hereunder, any Letter of Credit or LC Guaranty or any of the Revolving Credit Loans, or (z) to require Lender to make any payment or to forego any interest or reimbursement obligation or other sum payable hereunder, the amount of which payment or foregone interest or reimbursement obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by Lender from Borrower hereunder, then, and in each such case, Borrower will, upon demand made by Lender at any time and from time to time and as often as the occasion therefor may arise, pay to Lender such additional amounts as will be sufficient to compensate Lender for such additional cost, reduction, payment or foregone interest or reimbursement obligation or other sum, as set forth in reasonable detail in a certificate executed by Lender accompanying such demand. If the amount of any tax, levy, impost, duty, charge, fee deduction or withholding is paid by Borrower to Lender pursuant to this clause (iv) and is thereafter refunded to Lender in whole or in part by the jurisdiction or agency to which such amount was paid, Lender will promptly refund to Borrower (without interest, except to the extent that the jurisdiction or agency pays interest to Lender on such refund) the amount of such refund of the amount paid by Borrower. (v) Borrower may elect from time to time to convert any outstanding Base Rate Portion to a LIBOR Portion, and Borrower may elect to continue a LIBOR Portion as a LIBOR Portion, by causing Lender to receive a LIBOR Request from Borrower, no later than 11:00 a.m. (Hartford, Connecticut time) at least 3 Business Days prior to the first day of the LIBOR Period (or new LIBOR Period) requested, in accordance with each of the terms and conditions set forth in clause (i) of this Section 2.3 and except as otherwise provided in clause of this Section 2.3. If Lender does not receive a LIBOR Request from Borrower with respect to a LIBOR Portion on or before 11:00 a.m. (Hartford, Connecticut time) at least 3 Business Days prior to the end of the LIBOR Period with respect thereto, such LIBOR Portion shall automatically convert to a Base Rate Portion on the last day of such LIBOR Period, provided that no Base Rate Portion may be converted to a -------- LIBOR Portion, and no LIBOR Portion may be continued as a LIBOR Portion, when any Event of Default has occurred and is continuing or when any Default (which is not yet an Event of Default) has occurred and is continuing. All or any part of outstanding Base Rate Portions may be converted into LIBOR Portions in accordance with the foregoing provisions of this clause (v), provided that any partial conversion of -------- a Base Rate Portion to a LIBOR Portion shall be in the aggregate principal amount of $500,000 or an integral multiple of $100,000 in excess thereof. -6- (vi) If after the date hereof Lender reasonably determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction or (ii) compliance by Lender or any corporation controlling Lender with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on Lender's commitment herein with respect to any Revolving Credit Loans or Letters of Credit to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's (and any corporation controlling Lender's) then existing policies with respect to capital adequacy and assuming full utilization of Lender's or such corporation's capital) by any amount deemed by Lender to be material, then Lender may notify Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate or the LIBOR Rate, as the case may be, Borrower agrees to pay Lender the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by Lender of a certificate in accordance with clause (vii) of this Section 2.3. Lender shall allocate such cost increases among its customers in its discretion in good faith and on an equitable basis. (vii) A certificate setting forth in reasonable detail any additional amounts payable pursuant to clauses (iv) and (vi) of this Section 2.3 and the calculation of and basis on which such amounts which are due, submitted by Lender to Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. 2.4. Closing Fee. ----------- Borrower shall pay to lender a closing fee of Seventy Thousand Dollars ($70,000), which shall be fully earned and nonrefundable on the Closing Date and shall be paid concurrently with the advance of the first Revolving Credit Loan hereunder. 2.5. Letter of Credit and LC Guaranty Fees. ------------------------------------- Borrower shall pay to Lender for each Letter of Credit and LC Guaranty of a Letter of Credit, a fee equal to the Applicable Margin for LIBOR Portions at the time that the applicable Letter of Credit or LC Guaranty is issued, multiplied by the aggregate face amount of such Letter of Credit and LC Guaranty outstanding from time to time during the term of this Agreement, payable quarterly in arrears, plus all normal and customary charges associated with the ---- administration of such Letter of Credit (other than issuance fees associated with the VA Letter of Credit) and LC Guaranty, including, without limitation, reasonable charges relating to the issuance, amendment and negotiation thereof, which charges shall be payable upon the issuance of such Letter of Credit or LC Guaranty or as advised by Lender or Bank. All such charges shall be deemed fully earned and shall be due and payable upon issuance of each such Letter of Credit or LC Guaranty and shall not be subject to rebate or proration upon the termination of this Agreement for any reason. 2.6. Unused Line Fee. --------------- Borrower shall pay to Lender a fee (the "Unused Line Fee") equal to the product of (a) the average daily amount of Excess Availability, multiplied by (b) the Applicable Margin. Although the Unused Line Fee is payable monthly and is based upon the average daily amount of Excess Availability -7- during the month preceding each payment, the Applicable Margin is determined, as set forth in the definition of Applicable Margin, based upon the average daily amount of Excess Availability during the preceding fiscal quarter. The Unused Line Fee shall be payable monthly in arrears on the first day of each calendar month hereafter with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Revolving Credit Loan shall terminate. 2.7. Reimbursement of Expenses. ------------------------- 2.7.1. Administration and Enforcement Expenses. --------------------------------------- If, at any time or times regardless of whether or not an Event of Default then exists, Lender or any Participating Lender incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (i) the negotiation and preparation of this Agreement or any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents (ii) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any rights of Lender or any Participating Lender against Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (v) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then all such legal and accounting expenses, other costs and out-of-pocket expenses of Lender, to the extent reasonable, shall be charged to Borrower. All amounts chargeable to Borrower under this Section 2.7 shall be Obligations secured by all of the Collateral, shall be payable on demand to Lender or to such Participating Lender as the case may be, and shall bear interest from the date such demand is made until paid in full at the rate applicable to Base Rate Portions from time to time. Borrower shall also reimburse Lender for expenses incurred by Lender in its administration of the Collateral to the extent and in the manner provided in Section 2.9 hereof. 2.7.2. Collateral Protection Expenses. All reasonable expenses of ------------------------------ protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral and any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly pay any portion thereof when due, Lender may, at its option, but shall not be required to, pay the same and charge Borrower therefor. 2.8. Bank Charges. ------------ Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender or any Participating Lender pays to a bank or other similar institution (including, without limitation, any fees paid by Lender to any Participating Lender) arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender or any Participating Lender, of proceeds of loans made by Lender to Borrower pursuant to this Agreement and (ii) the depositing for collection, by Lender or any Participating Lender, of any check or item of payment received or delivered to Lender or any Participating Lender on account of the Obligations. -8- 2.9. Payment of Charges. ------------------ All amounts chargeable to or payable by Borrower under Section 2 and under Section 7.18 hereof shall be Obligations secured by all of the Collateral, shall be payable on demand and shall bear interest from the date such advance was made until paid in full at the rate applicable to Base Rate Portions from time to time. SECTION 3. LOAN ADMINISTRATION 3.1. Manner of Borrowing Loans. ------------------------- Borrowings under the credit facility established pursuant to Section 1 hereof shall be as follows: 3.1.1. Loan Requests. A request for a Revolving Credit Loan shall be ------------- made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice, together with an updated Borrowing Base certificate, no later than 11:00 a.m. Hartford, Connecticut, time on the proposed borrowing date (or in accordance with Section 2.3 hereof in the case of a request for a LIBOR Portion), of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing (which shall be no less than $100,000 with respect to a Base Rate Portion and $500,000 with respect to a LIBOR Portion), the proposed borrowing date, the amount, if any, of such Revolving Credit Loan that will be used to fund Permitted Acquisitions, and the name of the entity from which assets are being acquired with respect to any such Permitted Acquisition, provided, -------- however, that no such request may be made at a time when there exists a Default or an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan, which shall be a Base Rate Portion, on the due date in the amount required to pay such interest or other Obligation. 3.1.2. Disbursement. Borrower hereby irrevocably authorizes Lender to ------------ disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(i) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to a written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan deemed to be requested under subsection 3.1.1(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. 3.1.3. Authorization. Borrower hereby irrevocably authorizes Lender to ------------- advance to Borrower in accordance with subsection 3.1.1 hereof, and to charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all interest accrued on the Obligations during the immediately preceding month and to pay all reasonable costs, fees and expenses at any time owed by Borrower to Lender hereunder. 3.1.4. Letter of Credit and LC Guaranty Requests. A request for a ----------------------------------------- Letter of Credit or LC Guaranty shall be made in the following manner: Borrower may give Lender (and Bank, if Bank is the proposed issuer) a written notice of its request for the issuance of a Letter of Credit or LC Guaranty, not later than 11:00 a.m. Hartford, Connecticut time, one Business Day before the proposed issuance date thereof, in which notice Borrower shall specify the proposed issuer and issuance date; provided, -------- that no such request may be made at a time when there exists a Default -9- or Event of Default. Such request shall be accompanied by an executed application and reimbursement agreement in form and substance satisfactory to the proposed issuer of the Letter of Credit or LC Guaranty, as well as any required corporate resolutions. 3.1.5. Method of Making Requests. As an accommodation to Borrower, ------------------------- unless a Default or an Event of Default is then in existence, (i) Lender may permit telephonic requests for Revolving Credit Loans to Lender, (ii) Lender and Bank may, in their discretion, permit electronic transmittal of requests for Letters of Credit and LC Guaranties to them, and (iii) Lender may, in Lender's discretion, permit electronic transmittal of instructions, authorizations, agreements or reports to Lender. Unless Borrower specifically directs Lender or Bank in writing not to accept or act upon telephonic or electronic communications from Borrower, neither Lender nor Bank shall have any liability to Borrower for any loss or damage suffered by Borrower as a result of Lender's or Bank's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Lender or Bank by Borrower and neither Lender nor Bank shall have any duty to verify the origin of any such communication or the authority of the person sending it. Each telephonic request for a Loan, Letter of Credit, or LC Guaranty accepted by Lender and Bank, if applicable, hereunder shall be promptly followed by a written confirmation of such request from Borrower to Lender and Bank, if applicable. 3.2. Payments. -------- All payments shall be in lawful money of the United States in immediately available funds. All payments of the Obligations shall be made to the Lender at 200 Glastonbury Boulevard, Glastonbury, Connecticut 06033 or such other location that the Lender may designate in writing from time to time. Except where evidenced by notes or other instruments issued or made by Borrower to Lender and accepted by Lender specifically containing payment provisions which are in conflict with this Section 3.2 (in which event the conflicting provisions of said notes or other instruments shall govern and control), the Obligations shall be payable as follows: 3.2.1. Principal. Principal payable on account of Revolving Credit --------- Loans shall be payable by Borrower to Lender immediately upon the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the Collateral, to the extent of said proceeds, except that, so long as no Default or Event of Default exists, if, after application of the proceeds to Base Rate Portions, any remaining Loans outstanding at the time of receipt by Borrower of any such proceeds are LIBOR Portions, then Borrower may at its option direct that such proceeds be held by Lender in a non- interest bearing cash collateral account maintained by Lender to be applied to the payment of principal on the last day of the LIBOR Period applicable to each LIBOR Portion in the order of maturity or Borrower may place such proceeds in an interest bearing account at a financial institution acceptable to Lender provided that such account is pledged to Lender in a manner satisfactory to Lender; (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof; provided, however, that if a Revolving Credit Loan -------- ------- Overadvance shall exist at any time, Borrower shall immediately repay the Revolving Credit Loan Overadvance on demand. 3.2.2. Interest. -------- (i) Base Rate Portion. Interest accrued on Base Rate Portions ----------------- shall be due and payable on the earliest of (1) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding -10- month, (2) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (3) termination of this Agreement pursuant to Section 4 hereof. (ii) LIBOR Portion. Interest accrued on each LIBOR Portion shall ------------- be due and payable on the earliest of (1) each LIBOR Interest Payment Date applicable to such LIBOR Portion, (2) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (3) termination of this Agreement pursuant to Section 4 hereof. 3.2.3. Revolving Credit Maturity Date. On the Revolving Credit ------------------------------ Maturity Date, all of the Revolving Credit Loans outstanding on such date, together with any and all accrued and unpaid interest thereon and all other amounts payable hereunder and under the other Loan Documents shall become absolutely due and payable, and the Borrower promises to pay all such amounts on such date. 3.2.4. Costs, Fees and Charges. Costs, fees and charges payable ----------------------- pursuant to this Agreement shall be payable by Borrower as and when provided in Section 2 hereof, to Lender or to any other Person designated by Lender in writing. 3.2.5. Other Obligations. The balance of the Obligations requiring the ----------------- payment of money, if any, shall be payable by Borrower to Lender on demand (or, if otherwise provided in this Agreement, the Other Agreements or the Security Documents, in accordance with such other provision). 3.3. Mandatory Payments; Proceeds of Sale, Loss, Destruction or ---------------------------------------------------------- Condemnation of Collateral. Except as provided in subsection 7.2.8 hereof, -------------------------- if Borrower sells any of its Equipment or real Property, or if any of the Collateral is lost or destroyed or taken by condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender, as and when received by Borrower and as a mandatory payment of the Obligations, as herein provided, a sum equal to the proceeds (including insurance payments) or, in the case of real property, net proceeds received by Borrower from such sale, loss, destruction or condemnation. At the time of each such payment, the Maximum Revolving Loan Amount shall thereby automatically be reduced by the amount of such payment. 3.4. Accounts Receivable Management. ------------------------------ 3.4.1. Account Verification. Any of Lender's officers, employees or -------------------- agents shall have the right, at any time or times hereafter during normal business hours, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process. Lender will notify Borrower of the procedure or procedures Lender intends to use in making such verification during any period when no Default or Event of Default exists and will only use such procedures during such periods. Lender will not be obligated to notify Borrower of such Account verification, and Lender may use any method or procedure for Account verification, at any time a Default of Event of Default exists. 3.4.2. Dominion of Cash. On and anytime after Borrower requests any ---------------- Revolving Credit Loan, Letter of Credit (other than with respect to the VA Letter of Credit) or LC Guaranty Borrower shall at all times thereafter maintain the written arrangement with respect to the Dominion Account entered into on or about the Closing Date, and any changes with respect -11- thereto shall be made with the consent of Borrower, Lender and the Bank. Borrower shall issue, pursuant to such agreement, to the Bank an irrevocable letter of instruction directing it to deposit all payments or other remittances received to the Dominion Account for application on account of the Obligations. All funds deposited in the Dominion Account shall immediately become the property of Lender and Borrower shall obtain the agreement by Bank in favor of Lender to waive any offset rights against the funds so deposited. All funds in the Dominion Account shall be transferred to the Loan Account. 3.4.3. Collection of Accounts Proceeds of Collateral. To expedite --------------------------------------------- collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. All remittances received by Borrower on account of Accounts, together with the proceeds of any other Collateral, shall be held as Lender's property by Borrower as trustee of an express trust for Lender's benefit and Borrower shall immediately deposit same in kind in the Dominion Account. Lender retains the right at all times after the occurrence of an Event of Default to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge the collection costs and expenses, including attorneys' fees, to Borrower. 3.5. Application of Payments and Collections. --------------------------------------- All items of payment received by Lender by 2:00 p.m., Hartford, Connecticut, time, on any Business Day shall be deemed received on that Business Day. All items of payment received after 2:00 p.m., Hartford, Connecticut, time, on any Business Day shall be deemed received on the following Business Day. Notwithstanding the foregoing, although all items of payment will be deemed received in accordance with the previous two sentences, for the purposes of computations of interest, items of payment shall not be deemed to be collected until one (1) day after they are deemed received by Lender. During any period in which an Event of Default exists, Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree that, subject to subsection 3.2.1(i), Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or its agent against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records. If as the result of collections of Accounts as authorized by subsection 3.4.3 hereof a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower and transferred from time to time and/or at Borrower's request to Borrower's operating account at any time or times for so long as no Default or Event of Default exists. 3.6. All Loans to Constitute One Obligation. -------------------------------------- The Revolving Credit Loans shall constitute one general Obligation of Borrower, and shall be secured by Lender's Lien upon all of the Collateral. 3.7. Loan Account. ------------ Lender shall enter all Loans as debits to the Loan Account and shall also record in the Loan Account all payments made by Borrower on any Obligations and all proceeds of Collateral which are finally paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower. -12- 3.8. Statement of Account. -------------------- Lender will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrower absent manifest error unless Lender is notified by Borrower in writing to the contrary within 30 days of the date each accounting is mailed to Borrower in accordance with (S)10.8. Such notice shall only be deemed an objection to those items specifically objected to therein. SECTION 4. TERM AND TERMINATION 4.1. Term of Agreement. ----------------- Subject to Lender's right to cease making Loans to Borrower upon or after the occurrence of any Default or Event of Default, Revolving Credit Loans, Letters of Credit and LC Guaranties will be available under this Agreement, on the terms and conditions set forth herein, from the date hereof through and including the Revolving Credit Maturity Date (the "Term"), unless earlier terminated as provided in Section 4.2 hereof. 4.2. Termination. ----------- 4.2.1. Termination by Lender. Lender may terminate this Agreement --------------------- without notice upon or after the occurrence of an Event of Default. 4.2.2. Termination by Borrower. Upon at least 30 days prior written ----------------------- notice to Lender, Borrower may, at its option, terminate this Agreement; provided, however, no such termination shall be effective until Borrower -------- ------- has paid all of the Obligations in immediately available funds and all Letters of Credit and LC Guaranties have expired or have been cash collateralized to Lender's satisfaction. Any notice of termination given by Borrower shall be irrevocable unless Lender otherwise agrees in writing, and Lender shall have no obligation to make any Revolving Credit Loans or issue or procure any Letters of Credit or LC Guaranties on or after the termination date stated in such notice. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. 4.2.3. Termination Charges. At the effective date of termination of ------------------- this Agreement for any reason, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest, fees, charges and other Obligations owing under the terms of this Agreement and any of the other Loan Documents) as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to (i) one and one-half of one percent (1.5%) of the Maximum Revolving Loan Amount if termination occurs during the first 12-month period of the Term, (ii) one percent (1%) of the Maximum Revolving Loan Amount if termination occurs during the second 12-month period of the Term and (iii) one-half of one percent (0.5%) of the Maximum Revolving Loan Amount if termination occurs during the third 12-month period of the Term. 4.2.4. Effect of Termination. All of the Obligations shall be --------------------- immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such termination and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrower has paid the Obligations to Lender, in full, in immediately available funds, together with the applicable termination charge, if any, and all Letters of Credit and LC -13- Guaranties have expired or have been cash collateralized to Lender's satisfaction. Notwithstanding the payment in full of the Obligations and the expiration or cash collateralization of all Letters of Credit and LC Guaranties, Lender shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage Lender may incur as a result of dishonored checks or other items of payment received by Lender from Borrower or any Account Debtor and applied to the Obligations, Lenders shall, at its option, (i) have received a written agreement, executed by Borrower and by any Person whose loans or other advances to Borrower are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such loss or damage; or (ii) have retained such reasonable monetary reserves for such period of time as Lender, in its reasonable discretion, may deem necessary to protect Lender from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1. Security Interest in Collateral. ------------------------------- To secure the prompt payment and performance to Lender of the Obligations, Borrower hereby grants to Lender a continuing Lien upon all of Borrower's assets, including all of the following Property and interests in Property of Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (i) Accounts; (ii) Inventory; (iii) Equipment; (iv) General Intangibles; (v) Fixtures; (vi) Deposit Accounts; (vii) Investment Property; (viii) Chattel Paper; (ix) Instruments; (x) Documents; (xi) All monies and other Property of any kind now or at any time or times hereafter in the possession or under the control of Lender or a bailee or Affiliate of Lender; (xii) All books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of Borrower pertaining to any of (i) through (xi) above; and (xiii) All accessories to, substitutions for and all replacements, products and cash and non-cash proceeds of (i) through (xii) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the -14- Collateral. Notwithstanding the foregoing provisions of this (S)5.1, such grant of security interest shall not extend to, and the term "Collateral" shall not include any chattel paper and general intangibles which are now or hereafter held by the Borrower as licensee, lessee or otherwise, to the extent that (x) such chattel paper and general intangibles are not assignable or capable of being encumbered as a matter of law or under the terms of the license, lease or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto and (y) such consent has not been obtained; provided, however, that the foregoing grant of security interest shall -------- ------- extend to, and the term "Collateral" shall include, (A) any and all proceeds of such chattel paper and general intangibles to the extent that the assignment or encumbering of such proceeds is not so restricted and (B) upon any such licensor, lessor or other applicable party consent with respect to any such otherwise excluded chattel paper or general intangibles being obtained, thereafter such chattel paper or general intangibles as well as any and all proceeds thereof that might have therefore have been excluded from such grant of a security interest and the term "Collateral". 5.2. Lien Perfection; Further Assurances. ----------------------------------- Borrower shall execute such UCC-1 financing statements as are required by the Code and such other instruments, assignments or documents as are necessary to perfect Lender's Lien upon any of the Collateral and shall take such other action as may be required to perfect or to continue the perfection of Lender's Lien upon the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes Lender to execute and file any such financing statements and other documents on Borrower's behalf. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement or as any such other document and may be filed in any appropriate office in lieu thereof. At Lender's request, Borrower shall also promptly execute or cause to be executed and shall deliver to Lender any and all documents, instruments and agreements deemed necessary by Lender to give effect to or carry out the terms or intent of the Loan Documents. 5.3. Safekeeping of Collateral. ------------------------- Lender shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency or other person whomsoever, but the same shall be at Borrower's sole risk. 5.4. Intentionally Omitted. --------------------- 5.5. Administration of Accounts. -------------------------- 5.5.1. Records, Schedules and Assignments of Accounts. Borrower shall ---------------------------------------------- keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall request a sales and collections report for the preceding period, in form satisfactory to Lender. Upon Lender's request, Borrower shall deliver to Lender, in form acceptable to Lender, a detailed aged trial balance of all Accounts existing as of the last day of the month preceding such request, specifying the names, addresses, face value, dates of invoices and due dates for each Account Debtor obligated on an Account so listed, and, upon Lender's request therefor, copies of proof of delivery, copies of invoices and the original copy of all documents, including, without limitation, repayment histories and present status -15- reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Lender shall reasonably request. In addition, if Accounts in an aggregate face amount in excess of $50,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts or otherwise established by Lender, Borrower shall notify Lender of such occurrence no later than the seventh calendar day following such occurrence and the Borrowing Base shall thereupon be automatically and immediately adjusted to reflect such occurrence. 5.5.2. Discounts, Allowances, Disputes. If Borrower grants any ------------------------------- discounts, allowances or credits that are not shown on the face of the invoice for the Account involved, Borrower shall report such discounts, allowances or credits, as the case may be, to Lender as part of the next required accounts receivable aging schedule under (S)7.1.3(v). If any amounts due and owing in excess of $10,000 in respect of any individual Account or $20,000 in the aggregate are in dispute between Borrower and any Account Debtor, Borrower shall provide Lender with written notice thereof at the time of submission of the next accounts receivable aging schedule under (S)7.1.3(v), explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. Upon an Event of Default, Lender shall have the right to settle or adjust all disputes and claims directly with the Account Debtor on any Account or with the obligor on any General Intangible and to compromise the amount or extend the time for payment of any Accounts or General Intangibles upon such terms and conditions as Lender may deem advisable, and to charge the deficiencies, reasonable costs and expenses thereof, including reasonable attorneys' fees, to Borrower. 5.5.3. Taxes. If an Account includes a charge for any tax payable to ----- any governmental taxing authority, and such tax is not being actively contested in good faith and by appropriate proceedings by Borrower and Borrower fails to maintain reasonable reserves on its books in accordance with GAAP, Lender is authorized (without any obligation or duty on Lender's part), in its sole discretion, after the occurrence and continuance of an Event of Default, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor (in which event such amount shall be payable by Borrower to Lender on demand), provided, however that Lender shall not be liable for any taxes to any governmental taxing authority that may be due by Borrower. 5.5.4. Account Verification. Whether or not a Default or an Event of -------------------- Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter but without causing any unreasonable disruption to Borrower's business, in the name of Lender, any designee of Lender or the Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process. 5.6. Administration of Inventory. --------------------------- 5.6.1. Records and Reports of Inventory. Borrower shall keep accurate -------------------------------- and complete records of its Inventory. Borrower shall furnish to Lender Inventory reports in form and detail satisfactory to Lender at such times as Lender may request, but at least once each month, not later than the thirtieth day after the end of each month. Borrower shall conduct a physical inventory at least once a year in accordance with its accountant's guidelines and shall provide to Lender a report based on such physical inventory not later than the thirtieth day of the following month, together with such supporting information as Lender shall request. -16- 5.6.2. Returns of Inventory. If at any time or times hereafter, any -------------------- Account Debtor returns any Inventory to the Borrower in an amount in excess of $50,000 during any two (2) week period, Borrowers shall immediately notify Lender of the same, specifying the reason for such return and the location, condition and intended disposition of the returned Inventory. 5.7. Records and Schedules of Equipment. Borrower shall keep accurate ---------------------------------- records itemizing and describing the kind, type, quality, quantity and value of its Equipment and all dispositions and acquisitions made in accordance with subsection 7.2.8 hereof, and shall furnish Lender with a current schedule containing the foregoing information on at least an annual basis and more often if requested by Lender. Immediately on request therefor by Lender, Borrowers shall deliver to Lender any and all evidence of ownership of the Equipment. SECTION 6. REPRESENTATIONS AND WARRANTIES 6.1. General Representations and Warranties. -------------------------------------- To induce Lender to enter into this Agreement and to make Revolving Credit Loans hereunder, Borrower warrants, represents and covenants to Lender that: 6.1.1. Organization and Qualification. Each of Borrower and its ------------------------------ Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of Borrower and its Subsidiaries is duly qualified and is authorized to do business and is in good standing in all states and jurisdictions in which the failure of Borrower or any of its Subsidiaries to be so qualified would have a Material Adverse Effect, which states and jurisdictions include those listed on Schedule 6.1.1 hereto. -------------- 6.1.2. Corporate Power and Authority. Each of Borrower and its ----------------------------- Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate and other entity action and do not and will not (i) require any consent or approval of the shareholders or other equity holders of Borrower or any of its Subsidiaries; (ii) contravene Borrower's or any of its Subsidiaries' charter or by-laws or other organizational documents; (iii) violate, or cause Borrower or any of its Subsidiaries to be in default under any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Borrower or any of its Subsidiaries; (iv) result in a material breach of or constitute a material default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower or any of its Subsidiaries is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by Borrower or any of its Subsidiaries. 6.1.3. Legally Enforceable Agreement. This Agreement is, and each of ----------------------------- the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of Borrower and each of its Subsidiaries party thereto, enforceable against it and each of them in accordance with its and their respective terms, except to the extent limited by bankruptcy, insolvency, or other similar laws. 6.1.4. Capital Structure. Schedule 6.1.4 hereto states (i) the correct ----------------- -------------- name of each of the Subsidiaries of Borrower, its jurisdiction of incorporation or organization and the percentage of its Voting Stock owned by Borrower, (ii) the name of each of Borrower's corporate or joint -17- venture Affiliates and the nature of the affiliation, (iii) the number, nature and holder (except, with respect to stock of Borrower, for holders who are Persons who are not (x) officers, directors or beneficial owners of 5% of more of the outstanding Voting Stock of Borrower or (y) Affiliates of any of such Persons) of all outstanding Securities of Borrower and each Subsidiary of Borrower and (iv) the number of authorized and issued shares each class of Securities of Borrower and each Subsidiary of Borrower. Borrower has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Liens. All such shares have been duly issued and are fully paid and non- assessable. There are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any power of attorney relating to, shares of the capital stock or other equity interests of Borrower or any of its Subsidiaries. There are no outstanding agreements or instruments binding upon any of Borrower's shareholders relating to the ownership of its shares of capital stock. 6.1.5. Corporate Names. Neither Borrower nor any of its Subsidiaries --------------- has been known as or used any corporate, fictitious or trade names except those listed on Schedule 6.1.5 hereto. Except as set forth on Schedule -------------- -------- 6.1.5, neither Borrower nor any of its Subsidiaries has been the surviving ----- corporation of a merger or consolidation or has acquired all or substantially all of the assets of any Person. 6.1.6. Business Locations; Agent for Process. Each of Borrower's and ------------------------------------- its Subsidiaries' chief executive office and other places of business are as listed on Schedule 6.1.6 hereto, as updated from time to time by --------------------- Borrower. During the preceding one-year period, neither Borrower nor any of its Subsidiaries has had an office, place of business or agent for service of process other than as listed on Schedule 6.1.6. All Collateral other --------------- than Inventory in transit and motor vehicles, is and will at all times be kept by Borrower and its Subsidiaries at one or more of the locations set forth in Schedule 6.1.6, as updated from time to time by Borrower, and -------------- shall not, without the prior written approval of Lender, be moved therefrom except, prior to any Event of Default and Lender's acceleration of the maturity of the Obligations in consequence thereof, for sales of Inventory in the ordinary course of business. Except as shown on Schedule 6.1.6, as -------------- updated from time to time by Borrower, no Inventory is stored with a bailee, warehouseman or similar party, nor is any Inventory consigned to any Person. Any update of Schedule 6.1.6 that is delivered by Borrower to -------------- Lender shall be effective to update the representations and warranties in this paragraph only from the date that such update is received by Lender. 6.1.7. Title to Properties; Priority of Liens. Each of Borrower and -------------------------------------- its Subsidiaries has good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its real Property, and good title to all of the Collateral and all of its other Property, in each case, free and clear of all Liens except Permitted Liens. Borrower has paid or discharged all lawful claims which, if unpaid, might become a Lien against any of Borrower's Properties that is not a Permitted Lien. The Liens granted to Lender under Section 5 hereof are first priority Liens, subject only to Permitted Liens. 6.1.8. Accounts. Lender may rely, in determining which Accounts are -------- Eligible Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts, and, with respect to Accounts shown on any borrowing base certificate as Eligible Accounts. Unless otherwise indicated in writing to Lender, with respect to each Eligible Account: (i) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; -18- (ii) It arises out of a completed, bona fide sale and delivery ---- ---- of goods or rendition of services by Borrower in the ordinary course of its business and in accordance, in all material respects, with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor, and the Account Debtor is not an Affiliate of Borrower; (iii) It is for a liquidated amount maturing as stated in the duplicate invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender; (iv) To the best knowledge of the Borrower, such Account, and Lender's Lien therein, is not, and will not (by voluntary act or omission of Borrower) be in the future, subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (v) Borrower has not made any agreement with any Account Debtor thereunder for any extension, compromise, settlement or modification of any such Account or any deduction therefrom, except discounts or allowances which are granted by Borrower in the ordinary course of its business and which are reflected in the calculation of the net amount of each respective invoice related thereto and are reflected in the most recent borrowing base certificates submitted to Lender pursuant to subsection 7.1.4 hereof; (vi) There are no facts, events or occurrences which in any way impair the validity or enforceability of such Account or tend to reduce the amount payable thereunder from the face amount of the invoice and statements delivered to Lender (or represented to exist) with respect thereto unless the full amount of such potential defect or reduction has been reserved for; (vii) To the best of Borrower's knowledge, the Account Debtor thereunder (1) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (2) such Account Debtor is Solvent; and (viii) To the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against the Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. 6.1.9. Equipment. The Equipment is in good operating condition and --------- repair, and all necessary replacements of and repairs thereto will be made so that the value and operating efficiency of the Equipment will be maintained and preserved, reasonable wear and tear excepted. Borrower will not permit any material portion of the Equipment to become affixed to any real Property leased to Borrower so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a landlord waiver or leasehold mortgage in favor of and in form acceptable to Lender, and Borrower will not permit any material portion of the Equipment to become an accession to any personal Property other than Equipment that is subject to first priority (except for Permitted Liens) Liens in favor of Lender. -19- 6.1.10. Financial Statements; Fiscal Year. The balance sheets of --------------------------------- Borrower and its Subsidiaries as of September 30, 2000, and the related statements of income, changes in stockholder's equity, and cash flow statements for the periods ended on such dates, have been prepared in accordance with GAAP, and present fairly, in all material respects, the financial position of Borrower and its Subsidiaries at such dates and the results of Borrower's and its Subsidiaries' operations for such periods. Since September 30, 2000, there has been no material adverse change in the condition, financial or otherwise, of Borrower or its Subsidiaries and no change in the aggregate value of Equipment and real Property owned by Borrower, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. The fiscal year of Borrower ends on the Saturday closest to December 31. 6.1.11. Regulations U and X. No portion of any Loan is to be used, and ------------------- no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.1.12. Solvent Financial Condition. The Borrower and its --------------------------- Subsidiaries, taken as a whole, are and, after giving effect to the Loans to be made and the Letters of Credit and LC Guaranties to be issued hereunder, at all times will be, Solvent. 6.1.13. Surety Obligations. Neither Borrower nor any of its ------------------ Subsidiaries is obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into to assure payment, performance or completion of performance of any undertaking or obligation of any Person. 6.1.14. Taxes. Borrower's federal tax identification number is as set ----- forth in the Perfection Certificate. Borrower and each of its Subsidiaries has filed all federal, state and local tax returns and other reports it is required by law to file, and has paid, or made provision for the payment of, all taxes, assessments, fees, levies and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies and charges are due and payable, unless and to the extent any thereof are being actively contested in good faith and by appropriate proceedings and Borrower maintains reasonable reserves on its books therefor. The provision for taxes on the books of Borrower and its Subsidiaries are adequate for all years not closed by applicable statutes, and for its current fiscal year. 6.1.15. Brokers. There are no claims for brokerage commissions, ------- finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. 6.1.16. Patents, Trademarks, Copyrights and License. Each of Borrower ------------------------------------------- and its Subsidiaries owns or possesses all the patents, trademarks, service marks, tradenames, domain names, copyrights and licenses necessary for the present and planned future conduct of its business without any known conflict with the rights of others. All such patents, trademarks, service marks, tradenames, domain names, copyrights, licenses and other similar rights are listed on Schedule 6.1.16. --------------- 6.1.17. Governmental Consents. Each of Borrower and its Subsidiaries --------------------- has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections and franchises necessary to continue to conduct its business as -20- heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it. 6.1.18. Compliance with Laws. Each of Borrower and its Subsidiaries -------------------- has duly complied in all material respects with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to Borrower or such Subsidiary, as applicable, its Properties or the conduct of its business and there have been no citations, notices or orders of noncompliance issued to Borrower or any of its Subsidiaries under any such law, rule or regulation. Each of Borrower and its Subsidiaries has established and maintains an adequate monitoring system to insure that it remains in compliance with all federal, state and local laws rules and regulations applicable to it. No Inventory has been produced in violation of the Fair Labor Standards Act (29 U.S.C. (S) 201 et -- seq.), as amended. --- 6.1.19. Restrictions. Neither Borrower nor any of its Subsidiaries is ------------ a party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects its business or the use or ownership of any of its Properties. Neither Borrower nor any of its Subsidiaries is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Schedule 6.1.19 hereto, none of which prohibit the execution --------------- of or compliance with this Agreement or the other Loan Documents by Borrower or any of its Subsidiaries, as applicable. 6.1.20. Litigation. Except as set forth on Schedule 6.1.20 hereto, ---------- --------------- there are no actions, suits, proceedings or investigations pending, or to the knowledge of Borrower, threatened, against or affecting Borrower or any of its Subsidiaries, or the business, operations, Properties, prospects, profits or condition of Borrower or any of its Subsidiaries that, if adversely determined, might, either in any case or in the aggregate, have a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal. 6.1.21. No Defaults. No event has occurred and no condition exists ----------- which would, upon or after the execution and delivery of this Agreement or Borrower's performance hereunder, constitute a Default or an Event of Default. Neither Borrower nor any of its Subsidiaries is in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default, with respect to any Indebtedness of the Borrower or any of its Subsidiaries for Money Borrowed. 6.1.22. Leases. Schedule 6.1.22(a) hereto is a complete listing of all ------ ------------------ capitalized leases of Borrower and its Subsidiaries and Schedule 6.1.22(b) ------------------ hereto is a complete listing of all operating leases of Borrower and its Subsidiaries. Each of Borrower and its Subsidiaries is in full compliance with all of the terms of each of its respective capitalized and operating leases. 6.1.23. Pension Plans. Except as disclosed on Schedule 6.1.23 hereto, ------------- --------------- neither Borrower nor any of its Subsidiaries has any Plan. Borrower and each of its Subsidiaries is in compliance with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan. No fact or situation that could result in a material adverse change in the financial condition of Borrower and its Subsidiaries exists in connection with any Plan. Neither Borrower nor any of its Subsidiaries has any withdrawal liability in connection with a Multiemployer Plan. 6.1.24. Trade Relations. There exists no actual or threatened --------------- termination, cancellation or limitation of, or any modification or change in, the business relationship between Borrower or -21- any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of Borrower and its Subsidiaries, taken as a whole, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially affect adversely Borrower or any of its Subsidiaries or prevent Borrower or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 6.1.25. Labor Relations. Except as described on Schedule 6.1.25 --------------- --------------- hereto, neither Borrower nor any of its Subsidiaries is a party to any collective bargaining agreement. There are no material grievances, disputes or controversies with any union or any other organization of Borrower's or any of its Subsidiaries' employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 6.1.26. Certain Transactions. Except for the Permitted Officer -------------------- Indebtedness, none of the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, limited liability company, trust or other entity in which any officer, director, or any such employee has an equity interest or is an officer, director, trustee, member or partner. 6.1.27. Environmental Compliance. The Borrower has taken all necessary ------------------------ steps to investigate the past and present condition and usage of the real Properties of Borrower and its Subsidiaries and the operations conducted thereon and, based upon such diligent investigation, has determined that except as to any matter that has been previously disclosed in writing by Borrower to Lender: (i) Borrower and the Subsidiaries have obtained all permits, licenses and other authorization permits that are required under all Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect; (ii) Borrower and the Subsidiaries are in compliance in all material respects with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance in all material respects with all other provisions of any applicable Environmental Law or any order, judgment, injunction, notice or demand letter issued or entered thereunder, except to the extent failure to comply would not have a Material Adverse Effect; and (iii) neither the Borrower nor any of its Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (A) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (B) that any hazardous waste, as defined by 42 U.S.C. (S)6903(5), any hazardous substances as defined by 42 U.S.C. (S)9601(14), any pollutant or contaminant as defined by 42 U.S.C. (S)9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous -22- Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Borrower or any of its Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (C) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances. 6.1.28. Holding Company and Investment Company Acts. Neither the ------------------------------------------- Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company, as such terms are defined in the Investment Company Act of 1940. 6.1.29. Insurance. Each of Borrower and its Subsidiaries maintains --------- with financially sound and reputable insurers insurance with respect to its Properties and businesses against such casualties and contingencies, and in amounts, containing such terms, in such forms and for such periods, as may be reasonable and prudent and in accordance with the terms of the Security Documents or as may otherwise be reasonably required from time to time by the Lender. 6.1.30. Disclosure. The financial statements referred to in subsection ---------- 6.1.10 hereof and in the Settlement Agreement do not, nor do this Agreement or any other Loan Documents or any other written statement of Borrower to Lender, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which Borrower has failed to disclose to Lender in writing which is reasonably likely to have a Material Adverse Effect. 6.1.31. Business Activity. Neither Evans nor WW Supply owns any assets ----------------- or conducts any business whatsoever other than maintaining its corporate organization. 6.2. Continuous Nature of Representations and Warranties. --------------------------------------------------- Each representation and warranty contained in this Agreement and the other Loan Documents shall be continuous in nature and shall remain in effect at all times during the term of this Agreement, and each Loan Request pursuant to subsection 3.1.1 hereof shall constitute a representation, warranty and certification by Borrower that each representation and warranty contained in this Agreement and/or in any other Loan Documents remains accurate, complete and not misleading at the time of such Loan Request. 6.3. Survival of Representations and Warranties. ------------------------------------------ All representations and warranties of Borrower contained in this Agreement or any of the other Loan Documents shall survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 7. COVENANTS AND CONTINUING AGREEMENTS 7.1. Affirmative Covenants. --------------------- -23- During the term of this Agreement, and thereafter for so long as there are any Obligations outstanding, Borrower covenants that, unless otherwise consented to by Lender in writing, it shall: 7.1.1. Visits and Inspections. Permit representatives of Lender, from ---------------------- time to time, as often as may be reasonably requested, but only upon prior notice and during normal business hours if no Event of Default then exists, to visit and inspect the Properties of Borrower and each of its Subsidiaries, inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, Borrower's and each of its Subsidiaries' business assets, liabilities, financial condition, business prospects and results of operations. 7.1.2. Notices. Borrower shall immediately notify the Lender in ------- writing of the occurrence of (i) any Default or Event of Default; (ii) Borrower's receipt of any notice of (or Borrower's becoming aware of any Person's taking any other action in respect of) a claimed default (whether or not constituting an Event of Default) under any note, evidence of indebtedness, indenture or other obligation or agreement to which or with respect to which Borrower or any of its Subsidiaries is a party or obligor, whether as principal, surety or otherwise; (iii) (A) any violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or that is reportable by such Person in writing and of which such Person has or should have knowledge (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency, and (B) upon becoming aware thereof, any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, in each case that has the likelihood to have a Material Adverse Effect or materially and adversely affect the Lender's Liens pursuant to the Security Documents; (iv) immediately upon becoming aware thereof, any setoff, claim (including, with respect to any real Property, environmental claims), withholdings or other defenses to which any of the Collateral, or the Lender's rights with respect to the Collateral, are subject; (v) the commencement of, or the receipt of a written threat to commence, any litigation or proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or becomes a party involving an uninsured claim against the Borrower or any of its Subsidiaries that could have a Material Adverse Effect or which questions the validity of this Agreement or any of the other Loan Documents or the Liens granted therein, and stating the nature and status of such litigation or proceedings; (vi) immediately upon Borrower's becoming aware thereof (and in any event within five (5) Business Days of Borrower's becoming aware thereof), any change or event that could have a Material Adverse Effect. 7.1.3. Financial Statements. Keep, and cause each Subsidiary to keep, -------------------- adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Lender the following (all to be prepared in accordance with GAAP applied on a consistent basis): (i) not later than 90 days after the close of each fiscal year of Borrower, unqualified audited financial statements of Borrower and its Subsidiaries as of the end of such year, on a Consolidated and consolidating basis certified by a firm of independent certified public accountants of recognized standing selected by Borrower and acceptable to Lender (it being understood that Borrower's existing accountants in their existing capacities are acceptable to the Lender), together with a copy of any management letter issued in connection therewith; -24- (ii) not later than 45 days after the end of each fiscal quarter of Borrower, including the last fiscal quarter of Borrower's fiscal year, unaudited interim financial statements of Borrower and its Subsidiaries as of the end of such fiscal quarter and of the portion of Borrower's fiscal year then elapsed, on a Consolidated and consolidating basis, certified by the chief financial officer of Borrower as prepared in accordance with GAAP and fairly presenting, in all material respects, the Consolidated financial position and results of operations of Borrower and its Subsidiaries for such quarter and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (iii) together with each delivery of financial statements pursuant to clauses (i) and (ii) of this subsection 7.1.3, a management report (a) describing the operation and financial condition of Borrower and its Subsidiaries as of the end of the fiscal quarter then ended and for the portion of the current fiscal year then elapsed (or for the fiscal year then ended in the case of year-end financials), (b) setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year and the corresponding figures from the most recent Projections for the current fiscal year delivered to Lender pursuant to subsection 7.1.6 and (c) discussing the reasons for any significant variations. The information above shall be presented in reasonable detail and shall be certified by the chief financial officer of Borrower to the effect that such information fairly presents the results of operation and financial condition of Borrower and its Subsidiaries as at the dates and for the periods indicated; (iv) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (v) not later than 30 days after the end of each month, accounts receivable aging schedule, accounts payable aging schedule, detailed inventory report and updated collateral certificates, all in form and detail satisfactory to the Lender; (vi) not later than 60 days after the end of each fiscal year of the Borrower, an updated copy of the Borrower's customer list (in hardcopy or on disk in a format acceptable to the Lender) as of the end of such fiscal year; (vii) upon request by Lender, copies of any annual report to be filed pursuant to the requirements of ERISA in connection with each Plan; and (viii) such other data and information (financial and otherwise) as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral or Borrower's and each of its Subsidiaries' financial condition or results of operations. Concurrently with the delivery of the financial statements described in clauses (i) and (ii) of this subsection 7.1.3, or more frequently if requested by Lender, Borrower shall cause to be prepared and furnished to Lender a Compliance Certificate in the form of Exhibit B hereto executed by the chief --------- financial officer of Borrower (a "Compliance Certificate"). -25- 7.1.4. Borrowing Base Certificates. On the date of any request for a --------------------------- Revolving Credit Loan by the Borrower, Borrower shall deliver to Lender, in form acceptable to Lender, a Borrowing Base certificate, certified by the chief financial officer of the Borrower, relating to Eligible Accounts and Eligible Inventory as of the last day of the immediately preceding month, with such supporting materials as Lender shall reasonably request, all in form and detail satisfactory to the Lender. 7.1.5. Landlord and Storage Agreements. Provide Lender with copies of ------------------------------- all material written agreements between Borrower or any of its Subsidiaries and any landlord or warehouseman which owns any premises at which any Inventory may, from time to time, be kept, as well as waivers, in form and substance acceptable to Lender, from landlords and warehousemen for any locations where Collateral is located as Lender reasonably may require. It is understood that Lender may establish reserves, and thereby reduce the amount of Revolving Credit Loans available hereunder, to cover some or all of the Inventory or Equipment located at any premises not owned by Borrower for which a landlord's or warehousemen's waiver has not been obtained. 7.1.6. Projections. No later than 60 days after the beginning of each ----------- fiscal year of Borrower, deliver to Lender Projections of Borrower for such fiscal year, month by month, in form and detail acceptable to Lender. 7.1.7. Insurance on Collateral. Borrower shall maintain and pay for ----------------------- insurance upon all Collateral wherever located and with respect to Borrower's business, covering casualty, hazard, public liability and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Lender. Borrower shall deliver certified copies of such policies to Lender with lender's loss payable endorsements reasonably satisfactory to Lender, naming Lender as loss payee, mortgagee, assignee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance, Lender may, at its option, but shall not be required to, procure the same and charge Borrower therefor. Borrower agrees to deliver to Lender, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. All proceeds of Borrower's business interruption insurance (if any) shall be remitted to Lender for application to the outstanding balance of the Revolving Credit Loans; provided that, unless (i) an Event of Default is then in existence or (ii) the amount of such proceeds exceeds $100,000, Borrower may settle or adjust any claim with respect to such insurance and Lender shall remit such proceeds to Borrower for use in the ordinary course of its business. 7.1.8. Guarantors. The Borrower will cause each Subsidiary of the ---------- Borrower and its Subsidiaries which is existing on the Closing Date (other than Podiatry Online) to become a Guarantor on the Closing Date. The Borrower will also (i) cause each Wholly-Owned Subsidiary of the Borrower or its Subsidiaries which is created or acquired (or which becomes a Wholly-Owned Subsidiary) after the Closing Date to become a Guarantor at or before the time that it becomes a Wholly-Owned Subsidiary, and (ii) use its best reasonable efforts to have any other Subsidiary of the Borrower or its Subsidiaries which is created or acquired after the Closing Date to become a Guarantor promptly upon becoming a Subsidiary of the Borrower or any of its Subsidiaries, and Borrower will cause each such current or future Subsidiary which becomes a Guarantor to execute and deliver to the Lender such Security Documents and other instruments -26- and documents as the Lender may reasonably require in order to grant to the Lender a first priority perfected lien on and security interest in all of such Subsidiary's assets, together with legal opinions in form and substance reasonably satisfactory to the Lender to be delivered to the Lender opining as to the authorization, validity and enforceability of such Subsidiary's Guaranty and Security Documents and (as to the applicable Security Documents) the perfection of such liens and security interests. 7.1.9. Cash Management Services. Borrower will maintain its primary ------------------------ depository and disbursement accounts at the Bank and will use the Bank as its primary source of its cash management services. 7.1.10. Employee Benefit Plans. Borrower will (i) promptly upon filing ---------------------- the same with the Department of Labor or Internal Revenue Service furnish to the Lender a copy of the most recent actuarial statement required to be submitted under (S)103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Lender any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under (S)(S)302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under (S)(S)4041A, 4202, 4219, 4242, or 4245 of ERISA. 7.1.11. Compliance with Laws, Contracts, Licenses and Permits. The ----------------------------------------------------- Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with (i) the applicable laws and regulations wherever its business is conducted, including ERISA and all Environmental Laws, (ii) the provisions of its charter documents and by-laws, (iii) all agreements and instruments by which it or any of its Properties may be bound, and (iv) all applicable decrees, orders, and judgments. If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower or any of its Subsidiaries may fulfill any of its obligations hereunder or any of the other Loan Documents to which the Borrower or such Subsidiary is a party, the Borrower will, or (as the case may be) will cause such Subsidiary to, immediately take or cause to be taken all reasonable steps within the power of the Borrower or such Subsidiary to obtain such authorization, consent, approval, permit or license and furnish the Lender with evidence thereof. 7.1.12. Use of Proceeds. The Revolving Credit Loans shall be used, and --------------- the Letters of Credit shall be obtained, solely (i) to fund Borrower's Permitted Acquisitions, and (ii) for Borrower's general working capital needs and other general corporate purposes of the Borrower in a manner consistent with the provisions of this Agreement and all applicable laws. 7.1.13. Regulations U and X. No portion of any Revolving Credit Loan ------------------- shall be used, and no portion of any Letter of Credit shall be obtained, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 7.1.14. Records and Accounts. Borrower will (i) keep, and cause each -------------------- of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP, (ii) maintain adequate accounts and reserves for all Taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its Properties and the Properties of its Subsidiaries, contingencies, and other reserves and (iii) at all times, engage such independent certified public accountants as shall be reasonably satisfactory to the Lender (it being understood that any of the present so-called "Big 5" accounting firms shall be acceptable to the Lender), as their independent certified public accountants and will not permit -27- more than thirty (30) days to elapse between the cessation of any such firm's engagement as the independent certified public accountants of the Borrower and the appointment to such capacity of a successor firm that is satisfactory to the Agent. 7.1.15. Corporate Existence; Maintenance of Properties. Borrower will ---------------------------------------------- do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and material rights and franchises and those of its Subsidiaries, and Borrower will not, and will not cause or permit any of its Subsidiaries to, convert to a limited liability company or partnership. Borrower (i) will cause all of its Properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and except as otherwise expressly permitted herein, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; provided that -------- nothing in this subsection 7.1.15 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties or any of those of its Subsidiaries or from dissolving any Subsidiary of the Borrower if such discontinuance or dissolution is, in the judgment of the Borrower, desirable in the conduct of its or their business and would not have a Material Adverse Effect (other than with respect to such dissolved Subsidiary). 7.1.16. Taxes. Borrower will, and will cause each of its Subsidiaries ----- to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments, governmental charges, levies and claims upon it and its Properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a Lien or charge upon any of its Property; provided that any such tax, -------- assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto (or if the Borrower has reasonably determined that such tax, assessment, levy or charge is not payable by the Borrower or such Subsidiary); and provided further that the -------- ------- Borrower and each of its Subsidiaries will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any Lien that may have attached as security therefor. 7.1.17. Cross Aging and Aged Credit Reports. Borrower will use ----------------------------------- commercially reasonable efforts to develop the capacity to deliver to the Lender cross-aging and aged credit reports in form and substance reasonably satisfactory to the Lender and will use commercially reasonable efforts to deliver such reports to the Lender within twelve months after the Closing Date. On the sixth month anniversary of the Closing Date, Borrower will provide to the Lender an update regarding Borrower's capacity to deliver such reports. After developing the capacity to deliver such reports, Borrower shall deliver such reports to the Lender as and when, and with such frequency, as reasonably requested by the Lender. 7.1.18. Further Assurances. Borrower will, and will cause each of its ------------------ Subsidiaries to, cooperate with the Lender and execute such further instruments and documents as the Lender may reasonably request to carry out to its satisfaction the transactions contemplated by this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) on or before the date that the Borrower or any Guarantor locates any assets in a state or country in -28- which no material amount of assets of the Borrower are located on the date hereof, the Borrower will give notice thereof to the Lender, (b) on or before the date that the Borrower or any Guarantor locates any assets in a state or country in which there are not of record Code filings sufficient to perfect the security interest of the Lender therein, the Borrower will execute and deliver (or cause such Guarantor to execute and deliver) to the Lender Code filings sufficient to perfect the security interest of the Lender with respect to such assets, and (c) on or before the date that the Borrower or any Guarantor acquires any assets as to which action other than the filing of Code financing statements is required in order to perfect the security interest of the Lender therein, Borrower will execute and deliver (or cause such Guarantor to execute and deliver) to the Lender such documents as the Lender may reasonably deem to be necessary to perfect the security interest of the Lender in such assets. 7.2. Negative Covenants. ------------------ During the term of this Agreement, and thereafter for so long as there are any Obligations outstanding, Borrower covenants that, unless Lender has first consented thereto in writing, it will not: 7.2.1. Mergers; Consolidations; Acquisitions. Merge or consolidate, ------------------------------------- or permit any Subsidiary of Borrower to merge or consolidate, with any Person; or acquire, or permit any of its Subsidiaries to acquire, all or any substantial part of the Voting Stock or other equity interests or Properties of any Person or any business entity or division of a business entity except for Permitted Acquisitions. 7.2.2. Loans. Except as otherwise permitted by Section 7.2.12 and ----- other than Permitted Officer Indebtedness, make, or permit any Subsidiary of Borrower to make, any loans or other advances of money (other than for salary, travel advances, advances against commissions and other similar advances in the ordinary course of business) to any Person, except for loans or other advances of money consisting of loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business not to exceed $100,000 in the aggregate at any time outstanding. 7.2.3. Total Indebtedness. Create, incur, assume, or suffer to exist, ------------------ or permit any Subsidiary of Borrower to create, incur or suffer to exist, any Indebtedness, except: (i) Obligations owing to Lender, (ii) accounts payable to trade creditors and current operating expenses (including taxes but excluding Money Borrowed) which are not aged more than 60 days from billing date or more than 30 days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being actively contested in good faith and by appropriate and lawful proceedings; and Borrower or such Subsidiary shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower or such Subsidiary and its interdependent accountants; (iii) Obligations to pay Rentals permitted by subsection 7.2.12; (iv) Permitted Purchase Money Indebtedness and Capitalized Lease Obligations, provided that the aggregate total thereof does not exceed the limitation set forth for Permitted Purchase Money Indebtedness in the definition of Permitted Purchase Money Indebtedness; -29- (v) contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; (vi) the VA Debt; (vii) unsecured Indebtedness of any wholly-owned Subsidiary of Borrower that is a Guarantor; (viii) the Podiatry Online Subordinated Debt; (ix) Subordinated Debt (other than the Podiatry Online Subordinated Debt) in an aggregate amount not to exceed $5,000,000 at any time; (x) Rebates payable in the ordinary course of business to account debtors of Borrower based upon the volume of purchases by such account debtors, which rebates are based upon percentages and/or formulas no more favorable to such account debtors than the percentages and/or formulas in effect on the Closing Date; (xi) the Merginet Debt; and (xii) Indebtedness existing on the date hereof and listed and described on Schedule 7.2.3 hereto. -------------- 7.2.4. Affiliate Transactions. Except for transactions otherwise ---------------------- expressly permitted hereunder, enter into, or be a party to, or permit any Subsidiary of Borrower to enter into or be a party to, any transaction with any Subsidiary, Affiliate or stockholder of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's or such Subsidiary's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to Borrower or such Subsidiary than would obtain in a comparable arm's length transaction with a Person not a Subsidiary, Affiliate or stockholder of Borrower or such Subsidiary. 7.2.5. Limitation on Liens. Create or suffer to exist, or permit any ------------------- Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, or enter into or permit to exist any arrangement or agreement, which directly or indirectly (a) prohibits the Borrower or any of its Subsidiaries from creating or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest or (b) prohibits a Subsidiary from transferring funds or other assets to Borrower or limits the amount that may be transferred, except that Borrower or a Subsidiary may create or suffer to exist the following: (i) Liens at any time granted in favor of Lender; (ii) Liens for taxes, assessments or governmental charges (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being contested in the manner described in subsection 6.1.14 hereto, but only if in Lender's judgment such Lien does not adversely affect Lender's rights or the priority of Lender's Lien in the Collateral; (iii) Liens arising in the ordinary course of Borrower's business by operation of law or regulation, but only if the payment in respect of any such Lien is not at the time -30- required and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business; (iv) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (v) Liens incurred or deposits made in the ordinary course of business pursuant to worker's compensation, social security, and unemployment insurance laws; (vi) Liens arising in connection with Capitalized Lease Obligations permitted hereunder; provided, that no such Lien shall -------- extend to or cover any assets other than the assets subject to such Capitalized Lease Obligations; (vii) Such existing Liens as are listed on Schedule 7.2.5 -------------- hereto; and (viii) Such other Liens as Lender may hereafter approve in writing. 7.2.6. Distributions. Declare or make, or permit any Subsidiary of ------------- Borrower to declare or make, any Distributions, except (i) Distributions by a Subsidiary to the Borrower or (ii) repurchases by the Borrower of its capital stock in excess of $3,000,000 in the aggregate so long as (i) no Default or Event of Default has occurred (or would result therefrom); (ii) after giving effect to such repurchase, there is not less than $4,000,000 of Availability (after taking into account any anticipated use of Revolving Credit Loans and/or Letters of Credit in connection with all pending acquisitions evidenced by a letter of intent, purchase and sale agreement or similar agreement) and (iii) no more than $1,500,000 of such repurchases occur during any twelve (12) consecutive calendar month period. 7.2.7. Capital Expenditures. Make Capital Expenditures (including, -------------------- without limitation, by way of capitalized leases) which, in the aggregate, as to Borrower and its Subsidiaries, exceed $6,500,000 during any twelve month period, as tested at the end of each fiscal quarter of Borrower on a rolling twelve month basis. 7.2.8. Disposition of Assets. Sell, lease or otherwise dispose of, or --------------------- permit any Subsidiary of Borrower to sell, lease or otherwise dispose of, any of its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except (i) sales of Inventory in the ordinary course of business for so long as no Event of Default exists hereunder, (ii) dispositions of Property which are expressly permitted by this Agreement or which are consented to in writing by Lender, and (iii) transfers to Borrower by any Subsidiary. 7.2.9. Stock of Subsidiaries. Permit any of its Subsidiaries to issue --------------------- any additional shares of its capital stock except director's qualifying shares. 7.2.10. Issuance of Borrower. Issue any interests in or shares of its -------------------- capital stock, except for common stock. 7.2.11. Bill-and-Hold Sales, Etc. Make a sale to any customer on a ------------------------ bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment basis, or any sale on a repurchase or return basis. -31- 7.2.12. Restricted Investment. Make or have, or permit any Subsidiary --------------------- of Borrower to make or have, any Restricted Investment. 7.2.13. Leases. Become, or permit any of its Subsidiaries to become, a ------ lessee under any operating lease (other than a lease under which Borrower or any of its Subsidiaries is lessor) of Property, including, without limitation, real estate operating leases, if the aggregate Rentals payable during any current or future period of 12 consecutive months under the lease in question and all other leases under which Borrower or any of its Subsidiaries is then lessee would exceed reasonable market value for such region. The term "Rentals", means as of the date of determination, all payments which the lessee is required to make by the terms of any lease. 7.2.14. Tax Consolidation. File or consent to the filing of any ----------------- consolidated income tax return with any Person other than a Subsidiary of Borrower. 7.2.15. Business Activities. Engage directly or indirectly, and will ------------------- not permit any of its Subsidiaries to, engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of business other than the businesses conducted by them on the Closing Date and in related or complimentary businesses. 7.2.16. Management and Consulting Fees. Make or permit any of its ------------------------------ Subsidiaries to make, any payments in respect of management and/or consulting fees associated with any acquisitions, joint ventures and joint marketing arrangements in excess of $500,000 in the aggregate during any twelve month period (exclusive of existing consulting arrangements with Michael Shore, Alan Sherman and Bilger Consulting, Inc. each as in effect on the Closing Date and with Brenda Smith as in effect from time to time, with total payments under such arrangements not to exceed $100,000 each during each twelve month period with respect to Michael Shore, Alan Sherman and Bilger Consulting, Inc. and $175,000 with respect to Brenda Smith). 7.2.17. Subsidiary Business. Permit Evans or WW Supply to own any ------------------- assets or engage in any business whatsoever other than maintaining its corporate organization. 7.2.18. Subordinated Debt. Amend, supplement or otherwise modify the ----------------- terms of any of the Subordinated Debt and/or the VA Debt or prepay, redeem or repurchase any of the Subordinated Debt. 7.3. Specific Financial Covenants. ---------------------------- During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that it will be in full compliance with each of the financial covenants set forth on Schedule 7.3 hereto. If GAAP ------------ changes from the basis used in preparing the audited financial statements delivered to Lender by Borrower on or before the Closing Date, Borrower will provide Lender with certificates demonstrating compliance with such financial covenants and will include with each delivery of financial statements to Lender hereunder, upon the request of Lender, calculations setting forth the adjustments necessary to demonstrate that Borrower is in compliance with such financial covenants based upon GAAP as in effect on the Closing Date. SECTION 8. CONDITIONS PRECEDENT Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, Lender -32- shall not be required to make any Revolving Credit Loan or issue or procure any Letter of Credit or LC Guaranty under this Agreement unless and until each of the following conditions has been and continues to be satisfied: 8.1. Documentation. ------------- Lender shall have received, in form and substance satisfactory to Lender and its counsel, a duly executed copy of this Agreement and the other Loan Documents, together with such additional documents, instruments and certificates as Lender and its counsel shall require in connection therewith from time to time, all in form and substance satisfactory to Lender and its counsel, including, without limitation, the following: (A) Copies of Borrower's casualty insurance policies, together with loss payable endorsements on Lender's standard form of Lender Loss Payee Endorsement naming Lender as lender loss payee and copies of Borrower's liability insurance policies, together with endorsements naming Lender as additional insured; (B) Landlords' waivers with respect to all locations leased by Borrower or any of its Subsidiaries, and warehousemen's waivers for locations at which any Property of Borrower or any Subsidiary of Borrower is warehoused, to the extent reasonably required by Lender; (C) Certified copies of (i) resolutions of the Board of Directors of Borrower and each of its Subsidiaries authorizing the execution and delivery of the Loan Documents to which each such entity is a party and the performance of all transactions contemplated thereby, (ii) the by-laws of Borrower and each of its Subsidiaries, and any amendments thereto, and (iii) an incumbency certificate with respect to Borrower and each of its Subsidiaries; (D) Good standing certificates for Borrower and each of its Subsidiaries issued by the Secretary of State or other appropriate official of Borrower's and each Subsidiary's jurisdiction of incorporation, and of each jurisdiction where the conduct of Borrower's or any Subsidiary's business activities or the ownership of its Properties necessitate qualification, and a certified copy of the Articles or Certificate of Incorporation for Borrower and each of its Subsidiaries, and any amendments thereto, certified by the Secretary of State or other appropriate official of its jurisdiction of incorporation; (E) A closing certificate signed by the chief executive officer or chief operating officer of Borrower, dated as of the date hereof, stating that (i) the representations and warranties set forth in Section 6 hereof are true and correct on and as of such date, (ii) Borrower is on such date in compliance with all the terms and provisions set forth in this Agreement and (iii) on such date no Default or Event of Default has occurred and is continuing; (F) The Security Documents, duly executed, accepted and acknowledged by or on behalf of each of the signatories thereto; (G) The Other Agreements, duly executed, accepted and acknowledged by or on behalf of each of the signatories thereto; (H) The favorable written opinion of Borrower's counsel, as to the transactions contemplated by this Agreement and any of the other Loan Documents, including without limitation the due consummation of the transactions, the legality, validity and enforceability of all Loan Documents, the perfection of all Liens, and the absence of any violation of any law or -33- regulation applicable to the Borrower or any of its Subsidiaries, and such other opinions as Lender may reasonably require; (I) Written instruction from Borrower directing the application of proceeds of the initial Revolving Credit Loans made pursuant to this Agreement, and an initial borrowing base certificate from Borrower; (J) UCC, state and federal tax lien and judgment searches; (K) Payment of all fees and expenses owing hereunder; (L) Evidence that all conditions set forth in Lender's commitment letter of November 14, 2000 issued to Borrower have been satisfied or fulfilled (unless waived or amended in writing by Lender in its sole discretion), including without limitation (i) receipt by the Lender of information regarding the Borrower's Veterans Administration liabilities, and determination by the Lender in its discretion that such liabilities will not have a Material Adverse Effect; (ii) absence of any material adverse change in the condition (financial or otherwise) of the operations, assets, income and/or prospects of the Borrower or its Subsidiaries since the dates as of which information was provided to the Lender prior to the execution of such commitment letter; (iii) absence of any default under any material contract or agreement of the Borrower or any of its subsidiaries (iv) Lender's receipt of evidence satisfactory to it as to the perfection and priority of all Liens granted to the Lender pursuant to the Loan Documents, (v) receipt by all parties to the Loan Documents of all necessary regulatory, creditor and other third party consents to the execution, delivery and performance of such Loan Documents, and (vi) completion of testing by Lender of all due date aging and the results of such testing being satisfactory to the Lender in all respects in its sole discretion; (M) Certified copies of the Settlement Agreement and all other documents, agreements and/or instruments evidencing the Borrower's settlement of the dispute described therein, on terms and conditions and pursuant to documentation satisfactory to Lender; and (N) Such other documents, instruments and agreements as Lender shall reasonably request in connection with the foregoing matters. 8.2. No Default. ---------- No Default or Event of Default shall have occurred and be continuing. 8.3. Other Conditions. ---------------- Each of the conditions precedent set forth in the Loan Documents shall have been satisfied. 8.4. Availability. ------------ On the Closing Date, Lender shall have determined that Availability shall not be less than Ten Million Dollars ($10,000,000). 8.5. No Litigation. ------------- No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or -34- prohibit, or to obtain damages in respect of, or which is related to or arises out of, this Agreement or the consummation of the transactions contemplated hereby. 8.6. Financials; Projections. ----------------------- Lender shall have received, in form and detail satisfactory to Lender, the consolidated balance sheets of Borrower and its Subsidiaries as of September 30, 2000 and the related statements of income, changes in stockholder's equity, and cash flow statements for the periods ended on such dates, prepared in accordance with GAAP, and presenting fairly, in all material respects, the financial position of Borrower at such dates and the results of Borrower's operations for such periods. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, Lender shall not be required to make any Revolving Credit Loan or issue or procure any Letter of Credit or LC Guaranty under this Agreement after the initial Revolving Credit Loan unless, at the time of each such subsequent Revolving Credit Loan, (i) the representations and warranties herein and each other Loan Document shall be correct in all material respects on and as of the date of such Revolving Credit Loan, Letter of Credit or LC Guaranty, both before and after giving effect thereto and to the application of the proceeds therefrom;, (ii) no event shall have occurred and be continuing, or would result from such Revolving Credit Loan, Letter of Credit or LC Guaranty or from the application of the proceeds therefrom, that constitutes a Default or Event of Default;, and (iii) there shall have occurred no material adverse change in the business condition or prospects (financial or otherwise), operations, performance or properties of the Borrower or any of its Subsidiaries. SECTION 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 9.1. Events of Default. ----------------- The occurrence of one or more of the following events shall constitute an "Event of Default": 9.1.1. Payment. Borrower shall fail to pay any of the Obligations on ------- the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise), whether as mandatory prepayments, as payments necessary to eliminate a Revolving Credit Loan Overadvance, or otherwise. 9.1.2. Misrepresentations. Any representation, warranty or other ------------------ statement made or furnished to Lender by or on behalf of Borrower or any Subsidiary of Borrower in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto is determined by Lender to have been false or misleading in any material respect when made or furnished or when deemed to be remade pursuant to Section 6.2 hereof. 9.1.3. Breach of Specific Covenants. Borrower shall fail or neglect ---------------------------- to perform, keep or observe any covenant contained in (i) Sections 3.4, 5.2, 7.1, 7.2 or 7.3 hereof on the date that Borrower is required to perform, keep or observe such covenant or (ii) Sections 5.5 or 5.6 hereof within 10 days of the date that Borrower is required to perform, keep or observe such covenant. 9.1.4. Breach of Other Covenants. Borrower shall fail or neglect to ------------------------- perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in Section 9.1 hereof) and the breach of such other covenant is not cured to Lender's satisfaction within 20 days after the sooner to occur of Borrower's receipt of notice of -35- such breach from Lender or the date on which such failure or neglect first becomes known to any officer of Borrower. 9.1.5. Default Under Security Documents/Other Agreements. Any event ------------------------------------------------- of default shall occur under, or Borrower or any Subsidiary of Borrower shall default in the performance or observance of any material term, covenant, condition or agreement contained in, any of the Security Documents or the Other Agreements and such default shall continue beyond any applicable grace period. 9.1.6. Other Defaults. There shall occur any default or event of -------------- default on the part of Borrower, any Guarantor or any Material Subsidiary under any agreement, document or instrument to which such Person is a party or by which such Person or any of its Property is bound, creating or relating to any Indebtedness in a principal amount in excess of $250,000 (other than the Obligations) if the holder of such Indebtedness would be entitled to payment or to accelerate such Indebtedness as a consequence of such default or event of default. 9.1.7. Uninsured Losses. There shall occur any loss, theft, damage or ---------------- destruction of any portion of the Collateral having a fair market value of $250,000, in the aggregate, if not fully covered (subject to such deductibles as Lender shall have permitted) by insurance. 9.1.8. Insolvency and Related Proceedings. Borrower, any Guarantor or ---------------------------------- any Material Subsidiary shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against Borrower, any Guarantor or any Material Subsidiary under the federal bankruptcy laws (if against the Borrower, any Guarantor or any Material Subsidiary, the continuation of such proceeding for more than 60 days), or Borrower, any Guarantor or any Material Subsidiary shall make any offer of settlement, extension or composition to their respective unsecured creditors generally. 9.1.9. Adverse Changes. There shall occur any material adverse change --------------- in the financial condition or business prospects of Borrower or the Borrower and its Subsidiaries taken as a whole. 9.1.10. Business Disruption; Condemnation. There shall occur a --------------------------------- cessation of a substantial part of the business of Borrower, any Guarantor or any Material Subsidiary for a period which significantly affects Borrower's capacity to continue its business on a profitable basis; or Borrower, any Guarantor or any Material Subsidiary shall suffer the loss or revocation of any material license or permit now held or hereafter acquired by such Person which is necessary to the continued or lawful operation of its business; or Borrower, any Guarantor or any Material Subsidiary shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs; or any material lease or agreement pursuant to which such Person leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term; or any material portion of the Collateral shall be taken through condemnation or the value of such Property shall be impaired through condemnation. 9.1.11. Change of Ownership. Any person or group of persons (within ------------------- the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 25% or more of the outstanding shares of common stock of the Borrower; or, during any period of twenty-four consecutive calendar months ending -36- after the date hereof, individuals who were directors of the Borrower on the first day of such period and other Approved Directors shall cease to constitute a majority of the board of directors of the Borrower, or any Person other than Borrower shall beneficially own (or have any option, warrant or other right to beneficially own) any of the equity interests of any of the Guarantors. For the purposes of this subsection 9.1.11, "Approved Directors" means directors who were nominated or appointed by individuals a majority of whom were directors of the Borrower on the first day of the applicable twenty-four month period. 9.1.12. ERISA. A Reportable Event shall occur which Lender, in its ----- sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if Borrower, any Guarantor or any Material Subsidiary is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's or such Subsidiary's complete or partial withdrawal from such Plan and any such event would be reasonably likely to have a Material Adverse Effect. 9.1.13. Challenge to Agreement. Borrower, any Guarantor or any ---------------------- Material Subsidiary or any Affiliate of any of them shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender. 9.1.14. Criminal Forfeiture. Borrower, any Guarantor or any Material ------------------- Subsidiary shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of Borrower, any Guarantor or any Material Subsidiary or that could have a Material Adverse Effect. 9.1.15. Judgments. One or more money judgments, writs of attachment or --------- similar processes are issued or rendered against Borrower, any Guarantor or any Material Subsidiary or any Material Subsidiary or any of their respective Property in an amount of $250,000 or more for any single judgment, attachment or process or $500,000 or more for all such judgments, attachments or processes in the aggregate, in each case in excess of any applicable insurance with respect to which the insurer has admitted liability and which judgments, attachments or processes are not stayed, released or discharged within 30 days. 9.1.16. VA Liability. Either judgement is entered, arbitration ------------ settlement is awarded or a settlement is entered into with respect to the Borrower's Veteran's Affairs liabilities in excess of the amounts (including, without limitation, principal and interest) and/or containing terms materially different than the terms set forth in the Settlement Agreement or (ii) the Borrower is unable to enter into a settlement regarding its Veterans Affairs liabilities on or before that date which is six (6) months after the Closing Date. 9.2. Acceleration of the Obligations. ------------------------------- Without in any way limiting the right of Lender to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence and during the continuance of an Event of Default, all or any portion of the Obligations shall, at the option of Lender and without presentment, demand, protest or further notice by Lender, become at once due and payable and Borrower shall forthwith pay to Lender the full amount of such Obligations, provided, that upon the occurrence of an Event -------- of Default specified in Section 9.1.8 hereof, all of the -37- Obligations shall become automatically due and payable without declaration, notice or demand by Lender. 9.3. Other Remedies. -------------- Upon the occurrence and during the continuance of an Event of Default, Lender shall have and may exercise from time to time the following rights and remedies: 9.3.1 All of the rights and remedies of a secured party under the Code or under other applicable law, and all other legal and equitable rights to which Lender may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 9.3.2 The right to take immediate possession of the Collateral, and to (i) require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Lender at a place designated by Lender which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of Borrower or any Subsidiary of Borrower, Borrower agrees not to charge, and to cause such Subsidiary not to charge, Lender for storage thereof). 9.3.3 Without limiting the generality of the foregoing, at the request of the Lender, the Borrower shall notify account debtors on accounts, chattel paper and general intangibles of the Borrower and obligors on instruments for which the Borrower is an obligee of the security interest of the Lender in any account, chattel paper, general intangible or instrument and that payment thereof is to be made directly to the Lender or to any financial institution designated by the Lender as the Lender's agent therefor, and the Lender may itself, if an Event of Default shall have occurred and be continuing, without notice to or demand upon the Borrower, so notify account debtors and obligors. After the making of such a request or the giving of any such notification, the Borrower shall hold any proceeds of collection of accounts, chattel paper, general intangibles and instruments received by the Borrower as trustee for the Lender without commingling the same with other funds of the Borrower and shall turn the same over to the Lender in the identical form received, together with any necessary endorsements or assignments. The Lender shall apply the proceeds of collection of accounts, chattel paper, general intangibles and instruments received by the Lender to the Obligations, such proceeds to be immediately entered after final payment in cash or solvent credits of the items giving rise to them. 9.3.4 The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Lender, in its sole discretion, may deem advisable. Borrower agrees that 10 days written notice to Borrower of any public sale other disposition of Collateral, or of the time after which there may be a private sale of other disposition of Collateral, shall be reasonable notice thereof, and any such public sale shall be at such locations as Lender may designate in said notice. Lender shall have the right to conduct such sales on Borrower's premises or on the premises of any Subsidiary of Borrower, without charge therefor, and such sales may be adjourned from to time in accordance with applicable law. Lender shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The -38- proceeds realized from the sale of any Collateral may be applied, after allowing 2 Business Days for collection, first to the costs, expenses and attorneys' fees incurred by Lender in collecting the Obligations, in enforcing the rights of Lender under the Loan Documents and in collecting, taking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral, second to the interest and fees due upon any of the Obligations; and third, to the principal of the Obligations. If there shall be any deficiency, Borrower and all Guarantors shall remain liable to Lender therefor. 9.3.5 Lender is hereby granted a license and other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks, domain names and advertising matter, and any Property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit. 9.3.6 Lender may, at its option, require Borrower to deposit with Lender funds equal to the LC Amount plus fifty percent (50%) of the face amount of all outstanding Letters of Credit and LC Guaranties of Letters of Credit and, if Borrower fails to promptly make such deposit, Lender may advance such amount as a Revolving Credit Loan (whether or not a Revolving Credit Loan Overadvance is created thereby). Each such Revolving Credit Loan shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Base Rate Portions. Any such deposit or advance shall be held by Lender in a non-interest bearing account as a reserve to fund future payments on such LC Guaranties and future drawings against such Letters of Credit. At such time as all LC Guaranties have been paid or terminated and all Letters of Credit have been drawn upon or expired, any amounts remaining in such reserve shall be applied against any outstanding Obligations, or, if all Obligations have been indefeasibly paid in full, returned to Borrower. 9.4. Remedies Cumulative; No Waiver. ------------------------------ All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule or in any guaranty given to Lender or contained in any other agreement between Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Lender to require strict performance by Borrower of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Lender shall have been fully and indefeasibly satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default by Borrower under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrower. 9.5. Marshalling. ----------- The Lender shall not be required to marshal any present or future collateral security (including but not limited to this Agreement and the Collateral) for, or other assurances of payment of, the -39- Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that it lawfully may, the Borrower hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Lender's rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Borrower hereby irrevocably waives the benefits of all such laws. SECTION 10. MISCELLANEOUS 10.1. Power of Attorney. ----------------- Borrower hereby irrevocably designates, makes, constitutes and appoints Lender (and all Persons designated by Lender) as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's agent, may, without notice to Borrower and in either Borrower's or Lender's name, but at the cost and expense of Borrower: 10.1.1 At such time or times after the occurrence and during the continuance of an Event of Default as Lender or said agent, in its sole discretion, may determine, endorse Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Lender or under Lender's control. 10.1.2 Upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral in such manner as is consistent with the Code and as fully and completely as though the Lender were the absolute owner thereof for all purposes, and to do at the Borrower's expense, at any time, or from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender's security interest therein, in order to effect the intent of this Agreement, all as fully and effectively as the Company might do, including, without limitation, (i) the filing and prosecuting of registration and transfer applications with the appropriate federal or local agencies or authorities with respect to trademarks, copyrights and patentable inventions and processes, (ii) upon written notice to the Company, the exercise of voting rights with respect to voting securities, which rights may be exercised, if the Lender so elects, with a view to causing the liquidation in a commercially reasonable manner of assets of the issuer of any such securities and (iii) the execution, delivery and recording, in connection with any sale or other disposition of any Collateral, of the endorsements, assignments or other instruments of conveyance or transfer with respect to such Collateral. 10.1.3 Without limiting the generality of the foregoing, at such time or times upon or after the occurrence and during the continuance of an Event of Default as Lender or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral, each in a commercially reasonable manner under the circumstances; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Lender -40- deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to Borrower and notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (vii) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Lender on account of the Obligations; (viii) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use Borrower's stationery and sign the name of Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement. The power of attorney granted hereby shall constitute a power coupled with an interest and shall be irrevocable. 10.2. Indemnity. --------- Borrower hereby agrees to indemnify Lender and hold Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys fees and legal expenses) as the result of Borrower's failure to observe, perform or discharge Borrower's duties hereunder. In addition, Borrower shall defend Lender against and save it harmless from all claims of any Person with respect to the Collateral (except those resulting from the gross negligence or intentional misconduct of Lender). Without limiting the generality of the foregoing, these indemnities shall extend to any claims asserted against Lender by any Person under any Environmental Laws or similar laws by reason of Borrower's or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. Notwithstanding any contrary provision in this Agreement, the obligations of Borrower under this Section 10.2 shall survive the payment in full of the Obligations and the termination of this Agreement. 10.3. Modification of Agreement; Sale of Interest. ------------------------------------------- This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Borrower and Lender. Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including, without limitation, Borrower's rights, title, interests, remedies, powers, and duties hereunder or thereunder. Lender may participate, sell, assign, transfer or effectuate any other disposition of Lender's rights, title, interests, remedies, powers and duties hereunder or under any of the Loan Documents or any portion hereof or thereof at any time or times hereafter with the consent of the Borrower, such consent not to be unreasonably withheld or delayed; provided that after the occurrence of a Default or Event of Default, no such consent of the Borrower shall be required. In the case of an assignment, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were "Lender" hereunder and Lender shall be relieved of all obligations hereunder upon any such assignments. Borrower agrees that it will use its best efforts to assist and cooperate with Lender in any manner reasonably requested by Lender to effect the sale of participations in or assignments of any of the Loan Documents or any portion thereof or interest therein, including, without limitation, assisting in the preparation of appropriate disclosure documents. Borrower further agrees that Lender may disclose credit -41- information regarding Borrower and its Subsidiaries to any potential participant or assignee. Lender may also at any time pledge all or any portion of its rights under the Loan Documents including any portion of the Revolving Credit Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release Lender from its obligations under any of the Loan Documents. 10.4. Severability. ------------ Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 10.5. Successors and Assigns. ---------------------- This Agreement, the Other Agreements and the Security Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Lender permitted under Section 10.3 hereof. 10.6. Cumulative Effect; Conflict of Terms. ------------------------------------ The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof and except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 10.7. Execution in Counterparts. ------------------------- This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. A facsimile of an executed counterpart of this Agreement or of any other Loan Document shall have the same effect as the original executed counterpart thereof. 10.8. Notice. ------ Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered immediately when delivered against receipt; three Business Days after deposit of certified mail or registered mail in the mail, postage prepaid; one Business Day after delivery to an overnight courier; or, in the case of notice sent by confirmed facsimile, when sent notice back received (or, if sent on a day that is not a Business Day or after 3:00 on a Business Day, on the next Business Day), addressed as follows: If to Lender: Fleet Capital Corporation 200 Glastonbury Boulevard Glastonbury, Connecticut 06033 -42- Attention: Edgar Ezerins Facsimile No.: (860) 368-6029 With a copy to: Bingham Dana LLP One State Street Hartford, Connecticut 06103 Attention: Daniel I. Papermaster Facsimile No.: (860) 240-2800 If to Borrower: Moore Medical Corp. 389 John Downey Drive New Britain, Connecticut Attention: Susan D'Amato, Vice President Facsimile No.: (860) 826-3653 With a copy to: Joseph Greenberger, Esq. 111 East 61/st/ Street New York, New York 10021 Facsimile No.: (212) 644-3858 or to such other address as each party may designate for itself by notice given in accordance with this Section 10.8; provided, however, that any notice, -------- ------- request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof shall not be effective until received by Lender. 10.9. Lender's Consent. ---------------- Whenever Lender's consent, satisfaction or acceptance is required to be obtained under this Agreement, any of the Other Agreements or any of the Security Documents as a condition to any action, inaction, condition or event (unless such agreement or document otherwise expressly provides), and whenever any matter is to be determined in Lender's discretion or judgment under this Agreement, any of the Other Agreements or any of the Security Documents, Lender shall be authorized to give or withhold such consent and determine such satisfaction and acceptance and exercise such discretion or judgment in Lender's sole and absolute discretion and to condition its consent, satisfaction or acceptance, or the exercise of such discretion, upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 10.10. Credit Inquiries. ---------------- Borrower hereby authorizes and permits Lender to respond to usual and customary credit inquiries from third parties concerning Borrower or any of its Subsidiaries. 10.11. Time of Essence. --------------- TIME IS OF THE ESSENCE as to all provisions of this Agreement, the Other Agreements and the Security Documents. 10.12. Entire Agreement. ---------------- This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the -43- entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. 10.13. Setoff. ------ Borrower and any guarantor hereby grant to Lender a lien, security interest and right of setoff as security for all liabilities and obligations to Lender, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Lender or any entity under the control of FleetBoston Corporation or in transit to any of them. At any time, without demand or notice, after a Default or Event of Default Lender may set off the same or any part thereof and apply the same to any liability or obligation of Borrower and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Revolving Credit Loans. ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE REVOLVING CREDIT LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 10.14. Interest Rate. ------------- All agreements between Borrower and Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to Bank for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of Borrower and Bank in the execution, delivery and acceptance of this Agreement to contract in strict compliance with the laws of the State of Connecticut from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Loan Documents or the Security Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between Borrower and Lender. 10.15. Loss of Revolving Credit Note, etc. ---------------------------------- Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Revolving Credit Note or any other security document which is not of public record, and in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Revolving Credit Note or other security document, Borrower will issue, in lieu thereof, a replacement Revolving Credit Note or other security document in the same principal amount thereof and otherwise of like tenor. 10.16. Interpretation. -------------- -44- No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, drafted or dictated such provision. 10.17. Further Assurances. ------------------ The Borrower, at its own expense, shall do, make, execute and deliver all such additional and further acts, things, deeds, assurances and instruments as the Lender may require more completely to vest in and assure to the Lender its rights hereunder or in any of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and continuation statements under the Code, (ii) obtaining governmental and other third party consents and approvals, including without limitation any consent of any licensor, lessor or other applicable party, (iii) obtaining waivers from mortgagees and landlords and (iv) taking all actions required by Sections 8-313 and 8-321 of the Code (1990) or Sections 8-106 and 9-115 of the Code (1994), as applicable in each relevant jurisdiction, with respect to certificated and uncertificated securities. 10.18. Concerning Revised Article 9 of the Code. ---------------------------------------- The parties acknowledge and agree to the following provisions of this Agreement in anticipation of the possible application, in one or more jurisdictions to the transactions contemplated hereby, of the revised Article 9 of the Code in the form or substantially in the form approved in 1998 by the American Law Institute and the National Conference of Commissioners on Uniform State Law ("Revised Article 9"). 10.18.1. Attachment. In applying the law of any jurisdiction in ---------- which Revised Article 9 is in effect, the Collateral is all assets of the Borrower, whether or not within the scope of Revised Article 9. The Collateral shall include, without limitation, the following categories of assets as defined in Revised Article 9: goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, general intangibles (including payment intangibles and software), supporting obligations and any and all proceeds of any thereof, wherever located, whether now owned and hereafter acquired. If the Borrower shall at any time, whether or not Revised Article 9 is in effect in any particular jurisdiction, acquire a commercial tort claim, as defined in Revised Article 9, the Borrower shall immediately notify the Lender in a writing signed by the Borrower of the brief details thereof and grant to the Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Lender. 10.18.2. Perfection by Filing. The Lender may at any time and from -------------------- time to time, pursuant to the provisions of (S)10.1, file financing statements, continuation statements and amendments thereto that describe the Collateral as all assets of the Borrower or words of similar effect and which contain any other information required by Part 5 of Revised Article 9 for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the Borrower is an organization, the type of organization and any organization identification number issued to the Borrower. The Borrower agrees to furnish any such information to the Lender promptly upon request. Any such financing statements, continuation statements or amendments may be signed by the Lender on behalf of the Borrower, -45- as provided in (S)10.1, and may be filed at any time in any jurisdiction whether or not Revised Article 9 is then in effect in that jurisdiction. 10.18.3. Other Perfection, etc. The Borrower shall at any time and ---------------------- from time to time, whether or not Revised Article 9 is in effect in any particular jurisdiction, take such steps as the Lender may reasonably request for the Lender (a) to obtain an acknowledgement, in form and substance satisfactory to the Lender, of any bailee having possession of any of the Collateral that the bailee holds such Collateral for the Lender, (b) to obtain "control" of any investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such terms are defined in Revised Article 9 with corresponding provisions in Rev. (S)(S) 9-104, 9-105, 9-106 and 9-107 relating to what constitutes "control" for such items of Collateral), with any agreements establishing control to be in form and substance satisfactory to the Lender, and (c) otherwise to insure the continued perfection and priority of the Lender's security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation and following the effectiveness of Revised Article 9 in any jurisdiction. 10.18.4. Other Provisions. In applying the law of any jurisdiction ---------------- in which Revised Article 9 is in effect, the following references to sections in this Agreement to existing Article 9 of that jurisdiction shall be to the Revised Article 9 Section of that jurisdiction indicated below:
- -------------------------------------------------------------------------------- Agreement Section Existing Article 9 Revised Article 9 - -------------------------------------------------------------------------------- 3 (S) 9-103(3) Rev. (S) 9-102(a)(34) - -------------------------------------------------------------------------------- 9.2 (S) 9-207 Rev. (S)9-207 - -------------------------------------------------------------------------------- 12 (S)(S) 8-106 and 9-115 (1994) Rev. (S)(S) 8-106 and 9-106 - -------------------------------------------------------------------------------- 17 (S) 9-504(1)(c) Rev. (S)(S) 9-608(a)(1)(C) and 9-615(a)(3) - --------------------------------------------------------------------------------
10.18.5. Savings Clause. Nothing contained in this (S)10.18 shall -------------- be construed to narrow the scope of the Lender's security interest in any of the Collateral or the perfection or priority thereof or to impair or otherwise limit any of the rights, powers, privileges or remedies of the Lender hereunder except (and then only to the extent) mandated by Revised Article 9 to the extent then applicable. 10.19. Information and Confidentiality. ------------------------------- Lender agrees to keep confidential any information furnished or made available to it by Borrower pursuant to this Agreement that is marked confidential; provided that nothing herein shall prevent Lender from disclosing -------- such information (i) to any Affiliate of Lender, or any officer, director, employee, attorney, agent, or advisor of Lender or any Affiliate of Lender, provided that any such Person shall agree to be bound by the same requirements to keep information confidential as are contained in this Section, (ii) to any other Person if reasonably incidental to the administration of the credit facilities provided herein, provided that any such Person shall agree to be bound by the same requirements to keep information confidential as are contained in this Section, (iii) as required by any law, rule, or regulation, (iv) upon the order of any court or administrative agency, (v) upon the request or demand of any regulatory agency or authority, (vi) that is or becomes available to the public or that is or becomes available to Lender or any of its Affiliates other than as a result of a disclosure by Lender or any of its Affiliates prohibited by this Agreement, (vii) in connection with any litigation to which Lender or any of its Affiliates may be a party, (viii) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, (ix) subject to provisions substantially similar to those contained in this Section 10.14, to any actual or proposed participant or assignee, and (x) to Gold -46- Sheets and other bank trade publications, such information to consist of deal terms and other information customarily found in such publications. 10.20. GOVERNING LAW; CONSENT TO FORUM. ------------------------------- THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT PROVIDED, HOWEVER, THAT IF ANY OF THE -------- ------- COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN CONNECTICUT, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF CONNECTICUT. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF CONNECTICUT, LOCATED IN HARTFORD, CONNECTICUT, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT, SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE -------------------- GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE COMMENCEMENT OF SUIT OR OTHER ACTION BY LENDER IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION OR ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 10.21. WAIVERS BY BORROWER. ------------------- A. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL -47- NOTES, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF THE COLLATERAL AND WAIVES ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS AND THE OTHER MATTERS WAIVED HEREIN FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. B. BORROWER REPRESENTS, WARRANTS AND ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE A PART IS A "COMMERCIAL TRANSACTION" WITHIN THE MEANING OF CHAPTER 903A OF CONNECTICUT GENERAL STATUTES, AS AMENDED. BORROWER HEREBY WAIVES ITS RIGHT TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES THE LENDER MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS. MORE SPECIFICALLY, BORROWER ACKNOWLEDGES THAT THE LENDER'S ATTORNEY MAY, PURSUANT TO CONN. GEN. STAT. (S)52- 278f, ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT SECURING A COURT ORDER. BORROWER ACKNOWLEDGES AND RESERVES ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT REMEDY AS AFORESAID AND THE LENDER ACKNOWLEDGES BORROWER'S RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT. BORROWER FURTHER WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER -48- IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year specified at the beginning of this Agreement. MOORE MEDICAL CORP. ("Borrower") By /s/ Linda Autore Name: Linda Autore Title: President and Chief Executive Officer FLEET CAPITAL CORPORATION ("Lender") By /s/ Edgar Ezerins Name: Edgar Ezerins Title: Vice President EX-10.12 6 0006.txt APPENDIX A FOR SECURITY AGREEMENT Exhibit 10.12 APPENDIX A GENERAL DEFINITIONS When used in the Loan and Security Agreement dated as of January 26, 2000, by and between Fleet Capital Corporation and Moore Medical Corp., the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Account Debtor - any Person who is or may become obligated under or on -------------- account of an Account. Accounts - all accounts, contract rights, chattel paper, instruments -------- and documents, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has or hereafter acquires any interest. Adjustment Date - the date which is seven (7) Business Days after the --------------- date on which a Compliance Certificate is delivered by the Borrower pursuant to subsection 7.1.3 hereof Affiliate - with respect to any Person, a Person (other than, with --------- respect to the Borrower, a Subsidiary of the Borrower): (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of such Person; or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by such Person or a Subsidiary of a Person. Agreement - the Loan and Security Agreement referred to in the first --------- sentence of this Appendix A, all Exhibits thereto and this Appendix A. Applicable Margin - For each period commencing on an Adjustment Date ----------------- through the date immediately preceding the next Adjustment Date (each a "Rate Adjustment Period"), the Applicable Margin with respect to each Revolving Credit Loan and with respect to the Unused Line Fee shall be the applicable percentage set forth below with respect thereto, based upon the Pricing Tier determined as set forth below with respect to the applicable Excess Availability during the fiscal quarter immediately preceding such Adjustment Date and the Leverage Ratio, determined on a Pro Forma Basis as of the end of the fiscal quarter of the Borrower immediately preceding such Adjustment Date:
-------------------------------------------------------------------------------------------- Pricing Tier Leverage Ratio -------------------------------------------------------------------------------------------- Excess ** 1.0:1 * 1.0:1 but ** * 1.5:1 Availability 1.5:1 -------------------------------------------------------------------------------------------- * $1.5MM Tier 1 Tier 1 Tier 2 -------------------------------------------------------------------------------------------- * $1.0MM but ** $1.5MM Tier 1 Tier 2 Tier 3 -------------------------------------------------------------------------------------------- ** $1.0MM Tier 2 Tier 3 Tier 3 --------------------------------------------------------------------------------------------
* (More than) ** (Less than or equal to) The Applicable Margin associated with a Pricing Tier level is outlined in the following Grid:
------------------------------------------------------------------------------------- Pricing Tier Base Rate LIBOR Portion Unused Line Fee Portion (p.a.) ------------------------------------------------------------------------------------- 3 1.00%. 2.75%. 0.35%. ------------------------------------------------------------------------------------- 2 0.50% 2.25%. 0.30% ------------------------------------------------------------------------------------- 1 0%. 1.75%. 0.25% -------------------------------------------------------------------------------------
Notwithstanding the foregoing, (a) until the delivery of the Compliance Certificate for the fiscal period ending March 31, 2001, the Applicable Margin shall be the percentage corresponding to Pricing Tier 2 in the table above, and (b) if the Borrower fails to deliver any Compliance Certificate when due pursuant to subsection 7.1.3 of the Agreement, then for the period commencing on the date such Compliance Certificate was due through the date such failure has been cured to Lender's satisfaction or waived by Lender, the Applicable Margin shall be that percentage corresponding to Level 3 in the table above. Availability - the amount of money which Borrower is entitled to ------------ borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of Revolving Credit Loans then outstanding (including any amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower), the LC Amount and the amount of any reserves is subtracted from the Borrowing Base. If the sum of the amount outstanding, the LC Amount and any such reserves is equal to or greater than the Borrowing Base, Availability is 0. Bank - Fleet National Bank. ---- Base Rate - the rate of interest announced or quoted by Bank from time --------- to time as its prime rate or base rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such prime rate or base rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate. Base Rate Portion - that portion of the Revolving Credit Loans that is ----------------- not subject to a LIBOR Option. Borrowing Base - as at any date of determination thereof, an amount -------------- equal to the lesser of: (i) Maximum Revolving Loan Amount; or (ii) an amount equal to: (1) eighty percent (80%) of the net amount of Eligible Accounts outstanding at such date; PLUS (2) the lesser of (x) sixty-six and two-thirds percent (66 2/3%) of the Maximum Revolving Loan Amount as in effect on such date of determination and (y) sixty percent (60%) of the value of that portion of Eligible Inventory A-2 consisting of finished goods at such date, calculated on the basis of a weighted average cost basis to the extent such determination is permitted under GAAP, otherwise on the basis of the lower of cost or market with the cost calculated on a first- in, first-out basis; MINUS (3) the Reserve Amount. For the purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Lender's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. In the event of any material change in the value of any of the assets specified in the Borrowing Base, Lender may in the exercise of its reasonable judgement, after reasonable prior notice to Borrower, decrease from time to time the percentage advance rate related to any such asset in calculating the Borrowing Base. Business Day - (i) when used with respect to the LIBOR Option, shall ------------ mean a day other than a Saturday or Sunday on which dealings may be effected in deposits of United States Dollars in the London interbank foreign currency deposits market and on which Lender is conducting and other banks may conduct business in London, England or in the State of Connecticut and (ii) when used with respect to any other provision of the Agreement, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Connecticut or is a day on which banking institutions located in such state are closed. Capital Expenditures - expenditures made or liabilities incurred for -------------------- the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life or more than one year, including the total principal portion of Capitalized Lease Obligations. Capitalized Lease Obligation - any Indebtedness represented by ---------------------------- obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. CERCLA - the Comprehensive Environmental Response, Compensation and ------ Liability Act of 1980 as amended. Chattel Paper - as defined in the Code. ------------- Closing Date - the date on which all of the conditions precedent in ------------ Section 8 of the Agreement are satisfied and the initial Loans are made or the initial Letter of Credit or LC Guaranty is issued under the Agreement. Code - the Uniform Commercial Code as adopted and in force in the ---- State of Connecticut, as from time to time in effect. Collateral - all of the Property and interests in Property described ---------- in Section 5 of the Agreement, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Obligations. Compliance Certificate - as defined in subsection 7.1.3 of the ---------------------- Agreement. A-3 Consolidated - the consolidation in accordance with GAAP of the ------------ accounts or other items as to which such term applies. Consolidated Net Loss - as defined in Schedule 7.3. --------------------- ------------ Consolidated Tangible Net Worth - as defined in Schedule 7.3. ------------------------------- ------------ Current Assets - at any date means the amount at which all of the -------------- current assets of a Person would be properly classified as current assets shown on a balance sheet at such date in accordance with GAAP. Default - an event or condition the occurrence of which would, with ------- the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - as defined in subsection 2.1.2 of the Agreement. ------------ Deposit Account - as defined in the Code. --------------- Distribution - in respect of any corporation or other entity means and ------------ includes: (i) the payment of any dividends or other distributions or return of capital on capital stock or other equity interests of such corporation or other entity (except distributions of the common stock of such corporation or other entity) and (ii) the redemption or acquisition of Securities of such corporation or other entity or of any rights, warrants or options to acquire any such Securities unless made contemporaneously from the net proceeds of the sale of Securities. Dominion Account - a special account of Lender established by Borrower ---------------- pursuant to the Agreement at the Bank, and over which Lender shall have sole and exclusive access and control for withdrawal purposes. EBIT - as defined in Schedule 7.3. ---- ------------ Eligible Account - an Account arising in the ordinary course of ---------------- Borrower's business from the sale of goods or rendition of services if: (i) it does not arise out of a sale made by Borrower to a Subsidiary or an Affiliate of Borrower or to a Person controlling or controlled by an Affiliate of Borrower or a Subsidiary of Borrower. For the purposes of this definition "control" means the power to determine the management practices of the Person or to elect a majority of such Person's board of directors or persons performing similar functions; (ii) it is an open account and it does not remain unpaid more than 60 days past its due date but in any event is not unpaid more than 150 days past the invoice date thereof; (iii) 50% or more of the Accounts from the Account Debtor are Eligible Accounts hereunder; (iv) the total unpaid Accounts of the Account Debtor do not exceed 20% of the net amount of all Eligible Accounts (but only such excess shall not be Eligible Accounts solely due to this clause (iv)); A-4 (v) no covenant, representation or warranty contained in the Agreement with respect to such Account has been breached; (vi) the Account Debtor is not also Borrower's creditor or supplier, and the Account Debtor has not disputed liability with respect to such Account (but only the disputed amount shall not be Eligible Accounts solely due to this clause (vi)), and the Account Debtor has not made any claim with respect to any other Account due from such Account Debtor, and the Account is not and may not otherwise become subject to any right of set-off by the Account Debtor; (vii) the Account Debtor has not commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended and has not made an assignment for the benefit of creditors, nor has a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, nor has any other petition or other application for relief under the federal bankruptcy laws been filed against the Account Debtor, nor has the Account Debtor failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; (viii) it does not arise from a sale to an Account Debtor outside the fifty States of the United States of America or the United States territory of Guam, unless the sale is secured or guaranteed by an irrevocable letter of credit, guaranty or acceptance, in each case in form and substance acceptable to Lender in its discretion; (ix) it does not arise from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; (x) the Account Debtor is not the United States of America or any department, agency or instrumentality thereof, unless Borrower has assigned its right to payment of such Account to Lender, in a manner satisfactory to Lender, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. (S) 203 et seq., as amended); -- --- (xi) it is at all times subject to Lender's duly perfected, first priority security interest and to no other Lien that is not a Permitted Lien; (xii) the goods giving rise to such Account have been delivered to and accepted by the Account Debtor or the services giving rise to such Account have been performed by Borrower and accepted by the Account Debtor or the Account otherwise represents a final sale; (xiii) the Account is not evidenced by chattel paper or an instrument of any kind and has not been reduced to judgment; (xiv) Borrower has not made an agreement with the Account Debtor to extend the time of payment thereof beyond the time periods set forth in clause (ii) above; and (xv) it is otherwise acceptable to the Lender in the Lender's discretion. A-5 It is understood that the conditions set forth in subsections (iii) and (vi) shall be deemed to be met at all times until such time as the Lender has received the cross-aging and aged credit reports in accordance with (S)7.1.17 and the Reserve Amount has been reduced by the Lender from $2,000,000 to $1,000,000. Eligible Inventory - such finished goods Inventory of Borrower as ------------------ Lender, in its discretion, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory unless: (i) it is finished goods in good, new and saleable condition; (ii) it is not slow-moving, obsolete or unmerchantable (taking into account the industry standard of Borrower's business; (iii) it meets all standards imposed by any governmental agency or authority; (iv) it conforms in all respect to any covenants, warranties and representations set forth in the Agreement; (v) it is at all times subject to Lender's duly perfected, first priority security interest and no other Lien except a Permitted Lien; (vi) it is situated at a location in compliance with the Agreement (including, without limitation, the Lender's receipt of a waiver from the lessor of any leased property in form and substance satisfactory to the Lender) in the United States and is not in transit; and (vii) it is not samples or morgue goods (as determined in accordance with the Borrower's past practices consistently applied) or a product produced to a customer's specifications which are not covered by a purchase order. Environmental Laws - all federal, state and local laws, rules, ------------------ regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters, including without limitation the Resource Conservation and Recovery Act, CERCLA, the Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air Act, and the Toxic Substances Control Act. EPA - as defined in subsection 6.1.27. --- Equipment - all machinery, apparatus, equipment, fittings, furniture, --------- fixtures, motor vehicles and other tangible personal Property (other than Inventory) of every kind and description used in Borrower's and its Subsidiaries' operations or owned by Borrower or its Subsidiaries or in which Borrower or its Subsidiaries has an interest, whether now owned or hereafter acquired by Borrower or any of its Subsidiaries and wherever located, and all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor. ERISA - the Employee Retirement Income Security Act of 1974, as ----- amended, and all rules and regulations from time to time promulgated thereunder. Evans - Evans Pharmaceutical Corporation, an inactive corporation and ----- wholly-owned Subsidiary of the Borrower. A-6 Event of Default - as defined in Section 9.1 of the Agreement. As ---------------- used in the Agreement, an Event of Default will be deemed to be continuing at all times after it occurs unless and until it is expressly waived in accordance with Section 9.4 of the Agreement. Excess Availability - with respect to any fiscal quarter of the ------------------- Borrower, the amount by which (x) the Maximum Revolving Loan Amount exceeds (y) the average daily amount during such fiscal quarter of the sum of the LC Amount and the principal balance of the Revolving Credit Loans. Fixtures - as defined in the Code. -------- GAAP - generally accepted accounting principles in the United States ---- of America in effect from time to time. General Intangibles - all personal property of Borrower and its ------------------- Subsidiaries (including things in action) other than goods, Accounts, chattel paper, Investment Property, documents, instruments and money, whether now owned or hereafter created or acquired by Borrower including, without limitation, all patents, patent applications, trademarks, trademark applications, trade names, copyrights and copyright applications. Guarantor - a Subsidiary (or former Subsidiary) of the Borrower that --------- shall have guaranteed the Obligations pursuant to a guaranty agreement in form and substance satisfactory to Lender. Guarantor/Lien Condition -with respect to any acquisition by the ------------------------ Borrower or any of its Subsidiaries of a Person, the condition that (a) if the acquisition is an acquisition of all of the Voting Stock or equity interests of such other Person, such Person shall unconditionally become a Guarantor of all of the Obligations and shall grant first priority perfect Liens in all of its Property to secure such Guaranty and all of the Obligations, and (b) if the acquisition is an acquisition of less than all of the Voting Stock or equity interests of such other Person, the Borrower or such Subsidiary shall have granted to Lender a first priority perfected Lien on the Voting Stock or other equity interests acquired by the Borrower or such Subsidiary and shall have used its reasonable best efforts to cause such Person to unconditionally become a Guarantor of all of the Obligations and to grant first priority perfected Liens in all of its Property to secure such Guaranty and the Obligations. Hazardous Substances - as defined in subsection 6.1.27. -------------------- Indebtedness - as applied to a Person means, without duplication ------------ (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all reimbursement obligations in connection with the letters of credit or letter of credit guaranties issued for the account of such Person, (iii) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent A-7 upon interest rates, currency exchange rates, commodities or other indices (a "derivative contract"), (iv) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law (v) every obligation of such Person (an "equity related purchase obligation") to purchase, redeem, retire or otherwise acquire for value any shares of capital stock of any class issued by such Person, any warrants, options or other rights to acquire any such shares, or any rights measured by the value of such shares, warrants, options or other rights, (vi) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (i) through (v) (the "primary obligation") of another Person (the "primary obligor"), in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (A) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (B) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (C) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation, and (vii) in the case of Borrower (without duplication), the Obligations. The "amount" or "principal amount" of any Indebtedness at any time of determination represented by (w) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (x) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (y) any derivative contract shall be the maximum amount of any termination or loss payment required to be paid by such Person if such derivative contract were, at the time of determination, to be terminated by reason of any event of default or early termination event thereunder, whether or not such event of default or early termination event has in fact occurred and (z) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price. Inventory - all of Borrower's inventory, whether now owned or --------- hereafter acquired including, but not limited to, all goods intended for sale or lease by Borrower, or for display or demonstration; all work in process; all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in Borrower's business; and all documents evidencing and General Intangibles relating to any of the foregoing, whether now owned or hereafter acquired by Borrower. Instruments - as defined in the Code. ----------- A-8 Investment Property - as defined in the Code. ------------------- LC Amount - at any time, the aggregate undrawn face amount of all --------- Letters of Credit and LC Guaranties for Letters of Credit then outstanding. LC Guaranty - any guaranty or reimbursement agreement pursuant to ----------- which Lender or any Affiliate of Lender shall guaranty the payment or performance by Borrower of its reimbursement obligation under any Letter of Credit or shall agree to reimburse the issuer of such Letter of Credit for any drawings thereon. Legal Requirement - any requirement imposed upon Lender by any law of ----------------- the United States of America or by any regulation, order, interpretation, rule or official directive (whether or not having the force of law) of the Federal Reserve Board, or any other board, central bank or governmental or administrative agency, institution or authority of the United States of America, or any political subdivision thereof. Letter of Credit - any letter of credit issued by Lender or Bank or ---------------- any of Lender's Affiliates for the account of Borrower, including without limitation, the VA Letter of Credit. Leverage Ratio - as defined in Schedule 7.3. -------------- ------------ LIBOR Interest Payment Date with respect to any LIBOR Portion, the last day of each calendar quarter during the applicable LIBOR Period and the last day of the applicable LIBOR Period. LIBOR Option - the option granted pursuant to Section 2.3 of the ------------ Agreement to have the interest on all or any portion of the principal amount of the Revolving Credit Loans based on a LIBOR Rate. LIBOR Period - any period of one month, two months or three months ------------ commencing on a Business Day, selected as provided in Section 2.3(i); provided, however that no LIBOR Period shall extend beyond Revolving Credit Maturity Date. If any LIBOR Period so selected shall end on a date that is not a Business Day, such LIBOR Period shall instead end on the next succeeding Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month, in which event such LIBOR Period shall end on the immediately preceding Business Day. Any LIBOR Period relating to any LIBOR Portion that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. Each determination by Lender of the LIBOR Period shall, in the absence of manifest error, be conclusive. LIBOR Portion - that portion of the Revolving Credit Loans specified ------------- in a LIBOR Request (including any portion of Revolving Credit Loans which is being borrowed by Borrower concurrently with such LIBOR Request) which is not less than $500,000 and is an integral multiple of $100,000, which does not exceed the outstanding balance of Revolving Credit Loans not already subject to a LIBOR Option and, which, as of the date of the LIBOR Request specifying such LIBOR Revolving Credit Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.3 of the Agreement and the LIBOR Period of which has commenced and not terminated. A-9 LIBOR Rate - with respect to any LIBOR Portion of the related LIBOR ---------- Period, an interest rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) equal to the product of (i) the Base LIBOR Rate (as hereinafter defined) multiplied by (ii) Statutory Reserves. For purposes ---------- of this definition, the term "Base LIBOR Rate" shall mean the rate (rounded upwards, if necessary, to the next higher 1/16 of 1%) at which deposits of U.S. dollars approximately equal in principal amounts to the LIBOR Portion specified in the applicable LIBOR Request are offered to Lender by prime banks in the London interbank foreign currency deposits market at approximately 11:00 a.m., London time, 2 Business Days prior to the commencement of such LIBOR Period, for delivery on the first day of such LIBOR Period. Each determination by Lender of any LIBOR Rate shall, in the absence of manifest error, be conclusive. LIBOR Request - a notice in writing (or by telephone confirmed by ------------- telex, telecopy or other facsimile transmission on the same day as the telephone request) from Borrower to Lender requesting that interest on a Revolving Credit Loan be based on the LIBOR Rate, specifying: (i) the first day of the LIBOR Period; (ii) the length of the LIBOR Period consistent with the definition of such term; and (iii) the dollar amount of the LIBOR Portion consistent with the definition of such term. Lien - any security interest or other interest in Property securing an ---- obligation owed to, or a claim by, a Person other than the owner of a Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include rights of seller under conditional sale contracts or title retention agreements, reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of the Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale contract or title retention agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Loan Account - the loan account established on the books of Lender ------------ pursuant to Section 3.7 of the Agreement. Loan Documents - the Agreement, the Other Agreements and the Security -------------- Documents, as the same may be modified and/or amended from time to time. Material Adverse Effect - (i) a material adverse effect on the ----------------------- business, condition (financial or otherwise), operation, performance or Property of the Borrower or of Borrower and its Subsidiaries taken as a whole, (ii) a material adverse effect on the rights and remedies of Lender under the Loan Documents, or (iii) a material impairment of the ability of Borrower or any of its Subsidiaries to perform its obligations hereunder or under any Loan Document. Material Subsidiaries - means any Subsidiary of the Borrower that has --------------------- annual revenues of more than $5,000,000. Maximum Revolving Loan Amount - an amount equal to (i) $10,000,000, ----------------------------- for the period commencing on the Closing Date through and including September 30, 2001, (ii) $12,500,000, for the period commencing on October 1, 2001 through and including December 31, 2002 and (iii) $15,000,000, for the period commencing on January 1, 2003 through the Revolving Credit Maturity Date. A-10 Merginet Debt - Indebtedness of the Borrower in favor of Richard ------------- Bilger pursuant to the Asset Purchase Agreement by and between the Borrower and Richard Bilger, individually and d/b/a Merginet Medical Resources dated as of July 14, 2000, which Indebtedness is characterized as earn-out payments under such agreement, as such agreement is in effect on the date thereof and without giving effect to any amendments subsequent thereto. Money Borrowed - means, with respect to Borrower (i) Indebtedness -------------- arising from the lending of money by any Person to Borrower or any Subsidiary of Borrower; (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Borrower or a Subsidiary of Borrower, (1) which is represented by notes payable or drafts accepted that evidence extensions of credit to Borrower or a Subsidiary of Borrower, (2) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments executed by Borrower or a Subsidiary of Borrower, (3) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed by Borrower or a Subsidiary of Borrower as full or partial payment for Property, or (4) which is secured in whole or in part by a Lien on any Property of Borrower or any Subsidiary of Borrower; (iii) Indebtedness that constitutes a Capitalized Lease Obligation of Borrower or a Subsidiary of Borrower; (iv) reimbursement obligations of Borrower or any Subsidiary of Borrower with respect to letters of credit or guaranties of letters of credit, and (v) Indebtedness of the Borrower or any Subsidiary under clause (vi) of the definition of Indebtedness with respect to any other Indebtedness that would be Money Borrowed if it were owed directly by Borrower or any Subsidiary of Borrower. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) ------------------ of ERISA. Obligations - all Loans, the outstanding amount of all LC Guaranties ----------- and all other advances, debts, liabilities, obligations (including, without limitation, reimbursement obligations), covenants and duties, together with all interest, fees and other charges thereon, owing, arising, due or payable from Borrower to Lender or any of its Affiliates (including, without limitation, the Bank) of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under the Agreement, any of the other Loan Documents or pursuant to any interest rate protection arrangements or otherwise whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. Other Agreements - any and all agreements, instruments and documents ---------------- (other than the Agreement and the Security Documents), heretofore, now or hereafter executed by Borrower or any Subsidiary of Borrower and delivered to Lender or any of its Affiliates (including, without limitation, the Bank) in respect of the transactions contemplated by the Agreement. Participating Lender - each Person who shall be granted the right by -------------------- Lender to participate in any of the Loans described in the Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Lender. Perfection Certificate - the Perfection Certificate executed by ---------------------- Borrower on or about the Closing Date in favor of Lender. Permitted Acquisition - an acquisition by the Borrower or any of its --------------------- Subsidiaries (other than Evans or WW Supply) of (a) other Persons which at the time of such acquisition satisfy the Guarantor/Lien Condition, or (b) divisions or business segments of other Persons (whether by way of purchase of assets or capital stock, merger or otherwise), but no such acquisition referred to in clause (a) or (b) shall be a Permitted Acquisition unless: A-11 (i) when added to all prior Permitted Acquisitions during the twelve month period ending on the date of such acquisition, (x) no more than four Permitted Acquisitions shall have occurred during such twelve month period, (y) the aggregate purchase price for the proposed acquisition and all such other acquisitions during such twelve month period shall not exceed $4,000,000, except for amounts payable in common stock of Borrower or by promissory note which is subordinated to the Obligations by a subordination agreement in form and substance satisfactory to the Lender, and (z) the amount of such Subordinated Debt shall not exceed $5,000,000 at any time (exclusive of the Podiatry Online Subordinated Debt); (ii) the acquired Person, division or business is engaged primarily in the same, related or complementary business as the Borrower and its Subsidiaries, the structure of the acquisition and the documentation evidencing such acquisition and the rights and obligations of the Borrower and its Subsidiaries with respect thereto shall be reasonably acceptable to the Lender and, with respect to acquisitions of equity interests, the Borrower or a Wholly-Owned Subsidiary of the Borrower shall own, directly or indirectly, at least 51% of the Voting Stock and 51% of the equity interests of the acquired Person, division or business (except that Borrower or such Wholly-Owned Subsidiary may own less than 51% of the Voting Stock and less than 51% of the equity of the acquired Person, division or business so long as such acquisition does not result in the Borrower and its Subsidiaries having acquired less than 51% of the Voting Stock or less than 51% of the equity interest of more than two of the Persons, divisions and businesses acquired during the twelve month period ending on the date of such acquisition; (iii) with respect to acquisitions under subsection (b) above, the Borrower or such Subsidiary which is acquiring such Property grants the Lender first priority perfected Liens in all such acquired Property to secure the Obligations; (iv) the acquisition shall be approved by the Board of Directors (or Persons performing similar functions) of the acquired Person; (v) Borrower shall have provided to the Lender updated annual Projections satisfactory to the Lender which give effect to the proposed acquisition; and (vi) no Default or Event of Default shall exist at the time of or after giving effect to the acquisition; for the purpose of determining whether a Default will exist after giving effect to the acquisition, each of the financial covenants will be tested on a proforma basis after giving effect to the acquisition, with such adjustments to Borrower's Indebtedness and EBIT as are acceptable to the Lender. Permitted Liens - any Lien of a kind specified in clauses (i) through --------------- (xii) of subsection 7.2.5 of the Agreement. Permitted Officer Indebtedness - any Indebtedness of an officer or ------------------------------ director of the Borrower in favor of Borrower in an aggregate amount not to exceed the principal amount of promissory notes received by the Borrower as consideration for the issuance or transfer of not more than 200,000 shares in the aggregate of Borrower's capital stock to such officer or director. Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of ------------------------------------- Borrower incurred after the date hereof which is secured by a Purchase Money Lien and which, when aggregated with the principal amount of all other such Purchase Money Indebtedness and Capitalized Lease Obligations of Borrower at the time outstanding, does not exceed One Million and 00/100 Dollars ($1,000,000). For the purposes of this definition, the principal amount of any A-12 Purchase Money Indebtedness consisting of capitalized leases shall be computed as a Capitalized Lease Obligation. Person - an individual, partnership, corporation, limited liability ------ company, joint stock company, land trust, business trust, unincorporated organization or other entity, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for ---- employees of Borrower that is covered by Title IV of ERISA. Podiatry Online - Podiatry Online, Inc., a Florida corporation. --------------- Podiatry Online Subordinated Debt - Subordinated Debt of Podiatry --------------------------------- Online in favor of Alan Sherman and Michael Shore dated July 15, 2000 in the aggregate original principal amount of $750,000. Pro Forma Basis - as defined in Schedule 7.3. --------------- ------------ Projections - Borrower's forecasted Consolidated and consolidating (i) ----------- balance sheets, (ii) profit and loss statements, (iii) cash flow statements, (iv) capitalization statements and (v) Borrowing Base to Revolving Credit Loan projections, all prepared on a consistent basis with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. Property - any interest in any kind of property or asset, whether -------- real, personal or mixed, tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness --------------------------- (other than the Obligations) for the payments of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within 10 days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time of any such renewal, extension or refinancing. Purchase Money Lien - a Lien upon fixed assets which secures Purchase ------------------- Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets (and insurance on such fixed assets) the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Rentals - as defined in subsection 7.2.12 of the Agreement. ------- Reportable Event - any of the events set forth in Section 4043(b) of ---------------- ERISA. Reserves - as defined in subsection 1.1.1 of the Agreement. -------- Reserve Amount - Prior to the Lender's notifying the Borrower in -------------- writing that the Lender, in the Lender's discretion, has determined that the Borrower can provide the Lender with cross-aging and aged credit reports in form and detail satisfactory to the Lender, $2,000,000; thereafter, $1,000,000. A-13 Restricted Investment - any investment made in cash or by delivery of --------------------- Property to any Person whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) investment, to the extent existing on the Closing Date, in one or more Subsidiaries of Borrower (other than Evans and WW Supply); (ii) Property to be used by Borrower in the ordinary course of business; (iii) Current Assets arising from the sale of goods and services in the ordinary course of business of Borrower and its Subsidiaries; (iv) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one -------- year from the date of acquisition thereof; (v) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undivided profits aggregating at least $100,000,000; (vi) Permitted Acquisitions; (vii) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof; and (viii) the Permitted Officer Indebtedness. Revolving Credit Loan - a loan made by Lender as provided in Section --------------------- 1.1 of the Agreement or any other provision of the Agreement pursuant to which a loan is made or deemed to have been made to Borrower. Revolving Credit Loan Overadvance - the amount, if any, by which the --------------------------------- sum of the outstanding principal amount of Revolving Credit Loans plus the ---- LC Amount exceeds the Borrowing Base. Revolving Credit Maturity Date - January 26, 2004. ------------------------------ Revolving Credit Note - the Revolving Credit Note to be executed by --------------------- Borrower on or about the Closing Date in favor of Lender to evidence the Revolving Credit Loans, which shall be in the form of Exhibit A to the --------- Agreement. Security - shall have the same meaning as in Section 2(1) of the -------- Securities Act of 1933, as amended. Security Documents - The Trademark Security Agreement, the Stock ------------------ Pledge Agreement and all other instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. A-14 Settlement Agreement - the Settlement Agreement dated on or about the -------------------- Closing Date by and among the United States Department of Justice, the Borrower and Jayne Sieg, a copy of which has been provided to the Lender. Solvent - as to any Person, such Person (i) owns Property whose fair ------- saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Statutory Reserves - a fraction (expressed as a decimal) the numerator ------------------ of which is the number one, and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special emergency or supplemental reserves), if any, expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority to which Lender is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board of Governors of the Federal Reserve System or any successor thereto). Such reserve percentages shall include, without limitation, those imposed under such Regulation D. LIBOR Portions shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. Stock Pledge Agreement - the Stock Pledge Agreement executed by ---------------------- Borrower on or about the Closing Date in favor of Lender, as such Stock Pledge Agreement has been or will be amended from time to time. Subordinated Debt - unsecured Indebtedness of the Borrower or any of ----------------- its Subsidiaries that is expressly subordinated and made junior to the payment and performance in full of the Obligations, and evidenced as such by a subordination agreement or by another written instrument containing subordination provisions in form and substance approved by the Lender in writing, including, without limitation, the VA Debt. Subsidiary - with respect to any Person, any corporation, association, ---------- trust, limited liability company, or business entity of which such Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock and other equity interests at the time of determination. Tax - in relation to any LIBOR Portion and the applicable LIBOR Rate, --- any tax, levy, impost, duty, deduction, withholder or charges of whatever nature required by any Legal Requirement (i) to be paid by Lender and/or (ii) to be withheld or deducted from any payment otherwise required hereby to be made by Borrower to Lender; provided, that the term "Tax" shall not -------- include any taxes imposed upon the net income of Lender. Term - as defined in Section 4.1 of the Agreement. ---- Trademark Security Agreement - the Trademark Collateral Security and ---------------------------- Pledge Agreement executed by Borrower on or about the Closing Date in favor of Lender, as such Trademark Collateral Security and Pledge Agreement has been or will be amended from time to time. A-15 Uniform Customs- with respect to (i) any documentary Letter of Credit, --------------- the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 or any successor version thereto adopted by the Lender or Bank, as applicable, in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit and (ii) any standby Letter of Credit, the International Standby Practices promulgated by the Institute of International Banking Law and Practice, Inc. or any successor version thereto adopted by the Lender or Bank, as applicable, in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit. Unused Line Fee - as defined in Section 2.6 of the Agreement. --------------- VA Debt - Indebtedness of the Borrower to the United States of America ------- as evidenced by that certain Promissory Note dated on or about the Closing Date in the original principal amount of $5,200,000. VA Letter of Credit - The Letter of Credit issued by the Bank for the ------------------- benefit of the United States of America at the request of the Borrower in connection with the VA Debt, as to which the maximum amount that may be drawn thereon does not exceed $3,000,000, as such amount shall be reduced from time to time as the result of payments by the Borrower on the VA Debt. Voting Stock - Securities of any class or classes of a corporation, ------------ association, trust, limited liability company or other business entity the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of directors (or Persons performing similar functions). Wholly-Owned Subsidiary -a Subsidiary as to which all of its ----------------------- outstanding Voting Stock and equity interests are directly, or indirectly through one or more intermediaries, owned by the Borrower or a Wholly-Owned Subsidiary of the Borrower. WW Supply - W.W. Supply Corporation, an inactive corporation and --------- wholly-owned Subsidiary of the Borrower. Other Terms. All other terms contained in the Agreement shall have, ----------- when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. Certain Matters of Construction. The terms "herein," "hereof" and ------------------------------- "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. A-16 EX-10.20 7 0007.txt EMPLOYMENT AGREEMENT WITH LINDA AUTORE Exhibit 10.20 AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective January 1, 2001, TO EMPLOYMENT AGREEMENT effective as of March 1, 2000 (the "2000 Agreement"), by and between MOORE MEDICAL CORP., a Delaware corporation (the "Employer"), and LINDA M. AUTORE (the "Employee"). The Employer and Employee hereby amend and restate the 2000 Agreement to read as follows: 1. Term; Duties. For the period from March 1, 2000 through December 31, ------------ 2002 (or earlier, pursuant to paragraphs 6, 7,15 or 16) (the "Term"), the Employer will employ the Employee, and the Employee will serve the Employer, as its President chief executive officer. subject at all times to the direction of its Board of Directors and Executive Committee. The Employee agrees that during the Term she will devote her entire working time and give her best efforts and attention to the business of the Employer. 2. Salary. As compensation for her services during the Term, the Employer ------ will pay the Employee, in installments on the Employer's regular payroll payment dates and subject to statutory withholding amounts, a salary: (a) for the period from March 1 2000 through December 31, 2000, at the annual rate of $275,000; (b) for 2001, at the annual rate of $287,500; (c) for 2002, at the annual rate of $287,500 plus an inflationary adjustment for any increase during 2001 in the Consumer Price Index. 3. Bonus Compensation. As additional compensation for her services during ------------------- the Term, the Employer will pay the Employee such bonus compensation as may become due to senior executive officers of the Employer under the 2001 Executive Officers' Bonus Plan of the Employer. The Employee has received a copy of said Plan. 4. Vacation. The Employee will be entitled to four weeks vacation during -------- each calendar year in the Term. The Employee has received a list of the Employer's current benefit plans and policies regarding severance, sick leave and the like, available or applicable to the Employer's executives, including the Employee. The Employee acknowledges that said list does not set forth all material terms and conditions of these plans and policies, and that they are subject to modification or elimination by the Employer. If a new benefit plan is made available to officers of the Employer generally, the Employee will be a participant thereunder. 5. Non-Competition. The Employee covenants and agrees that during the --------------- Term, and 1 thereafter until June 30, 2003, she will not, directly or indirectly, engage or own any interest in any business competing with or planning to compete with any business or (if the Employee is aware thereof) planned business of the Employer, whether as principal, agent, partner, director, officer, stockholder, investor, lender, consultant, employee, or in any other capacity. The Employee agrees that a remedy at law for any breach or threatened breach of the foregoing covenant will be inadequate, and that Employer will be entitled to temporary and permanent injunctive relief in respect thereof without the necessity of posting a bond or proving actual damage to Employer. 6. Death. The death of the Employee will terminate the Term. ----- 7. Incapacity. If during the Term the Employee is unable, on account of ---------- illness or other incapacity, to perform her duties for a total of more than 90 days during any twelve month period, the Employer has the right to terminate the Term on ten days' written notice to the Employee, and the Employee will thereafter be entitled to receive only one-half of her salary installments otherwise payable until the earlier of the last day of (i) the month-end after the delivery of said notice, or (ii) the Term (determined without giving effect to such termination). 8. Employer Information. All information and materials disclosed by the -------------------- Employer to the Employee or acquired at the Employer's expense by the Employee or acquired or developed by the Employee in connection with her services under this Agreement, all trade secrets of the Employer and all Work-Product (hereinafter defined) (herein collectively "Employer Information") shall be and -------------------- remain the sole property of the Employer. The Employee shall protect all Employer Information which may be in her possession or custody and shall deliver all such Information (and all copies thereof, in any media) to the Employer at its request. Notwithstanding the foregoing, Employment Information shall not include information that the Employee can demonstrate (i) was known to her prior to the disclosure to her by the Employer, or (ii) was publicly known at the time of the disclosure or which thereafter became publicly known without fault of the Employee. 9. Work-Product. All right, title and interest in and to any work-product ------------ which the Employee acquires, compiles, authors, invents, makes or otherwise generates, in whole or in part, including all works authored and all inventions made, for use in connection with or arising out of or in relation to her services under this Agreement, whether or not copyrightable or patentable (herein collectively "Work-Product"), shall belong exclusively to the Employer. ------------ During and after the Term of this Agreement, the Employee shall execute, acknowledge, and deliver all documents, including, without limitation, all instruments of assignment, and perform all acts, which the Employer may reasonably request to secure its rights hereunder. 10. Confidentiality; Non-use. During and after the Term, the Employee ------------------------ shall not, without first obtaining the written consent of the Employer, divulge or disclose to anyone outside the Employer, whether by private or public communication or publication or otherwise, or use except pursuant to this Agreement, any Employer Information; however, an incidental non-derogatory disclosure by the Employee of Employer Information (other than trade secret or Work Product information) after 18 months following the end of the Term will not breach this provision.. 2 11. Conflicts of Interest; Conflicting Obligations. The Employee agrees ---------------------------------------------- that it is her responsibility to recognize and avoid, and disclose to the President of the Employer in writing, any situation which might, either directly or indirectly, adversely affect her judgment in serving the Employer or which might otherwise involve a conflict between her personal interests and the interests of the Employer. The Employee represents and warrants to the Employer that at the date hereof no such situation exists or is contemplated or anticipated. The Employee agrees not to disclose or use in the course of her services for the Employer any trade secret, confidential or proprietary information, or work-product of any party other than the Employer. The Employee represents and warrants to the Employer that her entry into and performance of this Agreement do not and will not conflict with any obligation by which she is or may become bound or any right of a third party to which or she is or may become subject. The Employee will not serve as a director of any other company unless she seeks and obtains the employer's approval prior to making a commitment to do so. 12. Non-Solicitation. The Employee agrees that, until one year after the ---------------- Term, she will not solicit, induce, attempt to hire, or hire any employee of the Employer, or assist in such hiring by any other party, or encourage any such employee to terminate her or her employment with the Employer. 13. Standard Intellectual Property Agreement. The Employee agrees to ---------------------------------------- execute the Employer's standard employee agreement relating to intellectual property and employment information. To the extent any of the provisions of this Agreement are in conflict with any of the provisions of such standard agreement, the provisions of ther Agreement will control. 14. Stock Option as an Inducement. As an inducement to the Employee to ----------------------------- enter into the 2000 Agreement, on February 23, 2000 the Compensation Committee of the Employer's Board of Directors authorized the grant to the Employee of an incentive stock option pursuant to the Employer's Incentive Stock Option Plan to purchase 27,000 shares of the common stock of the Employer at an exercise price of $10.25 per share, (the average market price on said date); the option becomes exercisable in four cumulative annual installments commencing on February 23, 2001, and it expires on February 22, 2005. 15. Effect of "Change of Control"; Termination; Severance. The Employer ----------------------------------------------------- or Employee may terminate the Term on written notice to the other within 30 days after a "Change of Control" (as defined in Section 3(b) of the Employer's Change of Control and Change of Position Payment Plan). The Employee has received a copy of said Plan. The Employee may also terminate the Term on written notice to the Employer within 30 days after "Change of Position" (as defined in Section 3(c)(ii) of the Plan)) occurring within twelve months after a Change of Control. A termination will be effective 30 days after the delivery of the notice. In the event of a termination by the Employer, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 100% of the "Base Amount" (as defined in Section 4 of the Plan). In the event of a termination by the Employee after a Change of Position within twelve months of a Change of Control, the Employee will be entitled to a severance payment, under Section 4 of the Plan and 3 subject thereto, in the amount of 100% of said Base Amount. 16. Termination. The Employer will have the right to terminate the Term ----------- for cause. However, in the event the Employee's employment is terminated by the Employer without cause, the Employee will be entitled to receive her salary payments through the end of the Term, less the compensation earned and consideration received by the Employee from any subsequent employment or for otherwise providing services. However, the Employee will not have an affirmative duty to seek employment not consistent with her experience (including prior levels of responsibility) and expertise. "Cause" shall include ----- material breach of this Agreement not cured within 10 days, breach of fiduciary duty, gross insubordination, willful neglect of duties, habitual unreliability, personal conduct in material violation of the Employer's written policies, and other matters of comparable severity, but it shall not consist of dissatisfaction with job performance. 17. Governing Law; Etc. This Restated and Amended Employment Agreement is ------------------ governed by the laws of Connecticut. It represents the entire agreement of the parties and it cannot be changed except by a writing signed by the Employer and the Employee. All notices by the Employee to the Employer under this Agreement shall be delivered to the Chairman of the Board of Directors of the Employer. IN WITNESS WHEREOF, the parties have signed and delivered this Restated and Amended Employment Agreement, effective as of March 1, 2001. MOORE MEDICAL CORP /s/ Linda M. Autore By: /s/ Robert H. Steele LINDA M. AUTORE Robert H. Steele, Chairman of the Board 4 EX-10.23 8 0008.txt 2001 EXECUTIVE OFFICERS BONUS PLAN Exhibit 10.23 MOORE MEDICAL CORP. 2001 EXECUTIVE OFFICERS' BONUS PLAN 1. Purpose; Eligibility; Etc. This Plan, which has been adopted by the -------------------------- Compensation Committee of the Board of Directors of Moore Medical Corp. (the "Company"), is designed to offer the incentive of bonus compensation to officers ------- designated by the Compensation Committee of the Company's Board of Directors, for purposes of the Plan, as participating executive officers ("Participants"). ------------ Neither this Plan nor designation as a Participant constitutes an agreement of continued employment and it confers no such right. No bonus will be payable to a Participant who breaches a material obligation to the Company. An officer who is designated a Participant during the year will (unless the Compensation Committee otherwise provides) be eligible for a pro rata bonus computed on an elapsed day basis, from the date of designation until year-end. If, for any reason whatsoever other than a termination of the Participant's employment as described in Section 3(c)(i) or Section 3(c)(ii)(z) of the Company's 2001-2002 Change of Control and Position Payment Plan within twelve months after a Change of Control (as defined in Section 3(b) thereof), death or disability, a Participant should cease being an employee of the Company or a subsidiary on a full-time basis before year-end, he or she will (unless the Compensation Committee otherwise provides) be entitled to no bonus compensation. If a Participant's employment is terminated as described in Section 3(c)(i) or Section 3(c)(ii)(z) of said 2001- 2002 Change of Control and Position Payment Plan within twelve months after a Change of Control (as defined in Section 3(b) thereof), or by reason of death or disability, the Participant will be eligible for a pro rata bonus computed on an elapsed day basis until the date of termination. 2. Bonuses. -------- (a) If the Company's gross margin for its 2001 fiscal year, as shown in its audited financial statements for the year, is at least 30.5% and its net revenues for the year exceeds an amount set forth in column A below: A B - - $150,000,000 50.00% $147,000,000 35.00% $145,000,000 32.50% $140,000,000 30.00% $138,000,000 27.50% $135,500,000 25.00% $134,000,000 12.50% as bonus compensation the Company will pay each Participant, within 60 days after its 2001 fiscal year-end, an amount equal to the percentage of his or her Base Salary (defined below) set forth in column B above. (b) In addition, the Board of Directors of the Company or its Compensation will consider authorizing an additional bonus to each Participant of up to 5% of his or her Base Salary based on the Company's pretax net income for its third and fourth quarters of its 2001 fiscal year. (c) A Participant's "Base Salary" is his or her W-2 gross pay for 2001, ----------- excluding any bonus under this Plan or any other agreement, any compensation paid for a period (other than normal vacation) during which he or she was not actively working full-time for the Company or a subsidiary, such as for a period of disability or for severance, any Company-401(k) contribution, car allowance, and other Company-provided benefits. (d) The Company reserves the right to withdraw and terminate this Plan by action of its Board of Directors or of its Compensation Committee (provided that the majority of said Board or Committee authorizing such withdrawal and termination consists of Continuing Directors (as defined in the Company's 2001- 2002 Change of Control and Change of Position Payment Plan)). EX-10.24 9 0009.txt EMPLOYMENT AGREEMENT WITH CHAD ROFFERS Exhibit 10.24 AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective March 1, 2001, TO EMPLOYMENT AGREEMENT effective as of September 5, 2000 (the "2000 Agreement"), by and between MOORE MEDICAL CORP., a Delaware corporation (the "Employer"), and CHAD A. ROFFERS (the "Employee"). The Employer and Employee hereby amend and restate the 2000 Agreement to read as follows: 1. Term; Duties. For the period from September 5, 2000 through December ------------ 31, 2002 (or earlier, pursuant to paragraphs 7, 8 15 or 16) (the "Term"), the Employer will employ the Employee, and the Employee will serve the Employer, as its Senior Executive Vice President - e-Business, Sales and Marketing, reporting to its President and subject at all times to the direction of its Board of Directors and Executive Committee. The Employee's office will be at such office of the Employer in Connecticut as the Employer may designate. The Employee agrees that during the Term he will devote his entire working time and give his best efforts and attention to the business of the Employer. 2. Salary. As compensation for his services during the Term, the Employer ------ will pay the Employee, in installments on the Employer's regular payroll payment dates and subject to statutory withholding amounts, a salary: (a) for the period from September 5, 2000 through December 31, 2000, at the annual rate of $218,000; (b) for January and February 2001, at the annual rate of $218,000; (c) for the period from March 1, 2001 through December 31, 2001, at the annual rate of $225,000; and (d) for 2002, at the annual rate of $225,000 plus an inflationary adjustment for any increase during 2001 in the Consumer Price Index. 3. Bonus Compensation. As additional compensation for his services during ------------------- the Term, the Employer will pay the Employee such bonus compensation as may become due to senior executive officers of the Employer under the 2001 Executive Officers' Bonus Plan of the Employer. The Employee has received a copy of said Plan. 4. Car Allowance. The Employee will participate in an interim car ------------- reimbursement allowance of $400 per month from March 1, 2001 through December 31, 2001, which will be reconsidered at 2001's year end for 2002. 5. Vacation. The Employee will be entitled to four weeks vacation during -------- each calendar year 1 in the Term. The Employee has received a list of the Employer's current benefit plans and policies regarding severance, sick leave and the like, available or applicable to the Employer's executives, including the Employee. The Employee acknowledges that said list does not set forth all material terms and conditions of these plans and policies, and that they are subject to modification or elimination by the Employer. If a new benefit plan is made available to officers of the Employer generally, the Employee will be a participant thereunder. 6. Non-Competition. The Employee covenants and agrees that during the --------------- Term, and thereafter until June 30, 2003, he will not, directly or indirectly, engage or own any interest in any business competing with or planning to compete with any business or (if the Employee is aware thereof) planned business of the Employer, whether as principal, agent, partner, director, officer, stockholder, investor, lender, consultant, employee, or in any other capacity. The Employee agrees that a remedy at law for any breach or threatened breach of the foregoing covenant will be inadequate, and that Employer will be entitled to temporary and permanent injunctive relief in respect thereof without the necessity of posting a bond or proving actual damage to Employer. 7. Death. The death of the Employee will terminate the Term. ----- 8. Incapacity. If during the Term the Employee is unable, on account of ---------- illness or other incapacity, to perform his duties for a total of more than 45 days during any twelve month period, the Employer has the right to terminate the Term on ten days' written notice to the Employee, and the Employee will thereafter be entitled to receive only one-half of his salary installments otherwise payable until the earlier of the last day of (i) the month-end after the delivery of said notice, or (ii) the Term (determined without giving effect to such termination). 9. Employer Information. All information and materials disclosed by the -------------------- Employer to the Employee or acquired at the Employer's expense by the Employee or acquired or developed by the Employee in connection with his services under this Agreement, all trade secrets of the Employer and all Work-Product (hereinafter defined) (herein collectively "Employer Information") shall be and -------------------- remain the sole property of the Employer. The Employee shall protect all Employer Information which may be in his possession or custody and shall deliver all such Information (and all copies thereof, in any media) to the Employer at its request. Notwithstanding the foregoing, Employment Information shall not include information that the Employee can demonstrate (i) was known to him prior to the disclosure to him by the Employer, or (ii) was publicly known at the time of the disclosure or which thereafter became publicly known without fault of the Employee. 10. Work-Product. All right, title and interest in and to any work- ------------ product which the Employee acquires, compiles, authors, invents, makes or otherwise generates, in whole or in part, including all works authored and all inventions made, for use in connection with or arising out of or in relation to his services under this Agreement, whether or not copyrightable or patentable (herein collectively "Work-Product"), shall belong exclusively to the Employer. ------------ During and after the Term of this Agreement, the Employee shall execute, acknowledge, and deliver all documents, including, 2 without limitation, all instruments of assignment, and perform all acts, which the Employer may reasonably request to secure its rights hereunder. 11. Confidentiality; Non-use. During and after the Term, the Employee ------------------------ shall not, without first obtaining the written consent of the Employer, divulge or disclose to anyone outside the Employer, whether by private or public communication or publication or otherwise, or use except pursuant to this Agreement, any Employer Information; however, an incidental non-derogatory disclosure by the Employee of Employer Information (other than trade secret or Work Product information) after 18 months following the end of the Term will not breach this provision. 12. Conflicts of Interest; Conflicting Obligations. The Employee agrees ---------------------------------------------- that it is his responsibility to recognize and avoid, and disclose to the President of the Employer in writing, any situation which might, either directly or indirectly, adversely affect his judgment in serving the Employer or which might otherwise involve a conflict between his personal interests and the interests of the Employer. The Employee represents and warrants to the Employer that at the date hereof no such situation exists or is contemplated or anticipated. The Employee agrees not to disclose or use in the course of his services for the Employer any trade secret, confidential or proprietary information, or work-product of any party other than the Employer. The Employee represents and warrants to the Employer that his entry into and performance of this Agreement do not and will not conflict with any obligation by which he is or may become bound or any right of a third party to which or he is or may become subject. The Employee will not serve as a director of any other company unless he seeks and obtains the employer's approval prior to making a commitment to do so. 13. Non-Solicitation. The Employee agrees that, until one year after the ---------------- Term, he will not solicit, induce, attempt to hire, or hire any employee of the Employer, or assist in such hiring by any other party, or encourage any such employee to terminate his or her employment with the Employer. 14. Stock Option as an Inducement. As an inducement to the Employee to ----------------------------- enter into the 2000 Agreement, on September 5, 2000 the Compensation Committee of the Employer's Board of Directors authorized the grant to the Employee of a non-qualified stock option pursuant to the Employer's 2000 Incentive Compensation Program to purchase 50,000 shares of the common stock of the Employer at an exercise price of $7.25, the closing market price of said stock on that date; the option becomes exercisable in four cumulative annual installments commencing on September 5, 2001, and it expires on September 4, 2005. The option will be subject to acceleration of exercisability of 50% of all otherwise non-exercisable installments in the event the Employee becomes entitled to a severance payment under paragraph 15. 15. Effect of "Change of Control"; Termination; Severance. The Employer ----------------------------------------------------- or Employee may terminate the Term on written notice to the other within 30 days after a "Change of Control" (as defined in Section 3(b) of the Employer's Change of Control and Change of Position Payment Plan). The Employee has received a copy of said Plan. The Employee may also terminate the Term on 3 written notice to the Employer within 30 days after "Change of Position" (as defined in Section 3(c)(ii) of the Plan)) occurring within twelve months after a Change of Control. A termination will be effective 30 days after the delivery of the notice. In the event of a termination by the Employer, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 100% of the "Base Amount" (as defined in Section 4 of the Plan). In the event of a termination by the Employee after a Change of Position within twelve months of a Change of Control, the Employee will be entitled to a severance payment, under Section 4 of the Plan and subject thereto, in the amount of 75% of said Base Amount. 16. Termination. The Employer will have the right to terminate the Term ----------- for cause. However, in the event the Employee's employment is terminated by the Employer without cause, the Employee will be entitled to receive his salary payments through the end of the Term, less the compensation earned and consideration received by the Employee from any subsequent employment or for otherwise providing services. However, the Employee will not have an affirmative duty to seek employment not consistent with his experience (including prior levels of responsibility) and expertise. "Cause" shall include ----- material breach of this Agreement not cured within 10 days, breach of fiduciary duty, gross insubordination, willful neglect of duties, habitual unreliability, personal conduct in material violation of the Employer's written policies, and other matters of comparable severity, but it shall not consist of dissatisfaction with job performance. 17. Governing Law; Etc. This Agreement is governed by the laws of ------------------ Connecticut. It represents the entire agreement of the parties and it can not be changed except by a writing signed by the President of the Employer and the Employee. All notices by the Employee to the Employer under this Agreement shall be delivered to the President of the Employer. 16. Governing Law; Etc. This Restated and Amended Employment Agreement is ------------------ governed by the laws of Connecticut. It represents the entire agreement of the parties and it cannot be changed except by a writing signed by the President of the Employer and the Employee. IN WITNESS WHEREOF, the parties have signed and delivered this Restated and Amended Employment Agreement, effective as of March 1, 2000. MOORE MEDICAL CORP. /s/ Chad A. Roffers By: /s/ Linda M. Autore CHAD A. ROFFERS Linda M. Autore, President 4 EX-10.25 10 0010.txt SUBSCRIPTION AGREEMENT WITH LINDA AUTORE Exhibit 10.25 THIS EXECUTIVE SUBSCRIPTION AGREEMENT, dated as of January 11, 2001, between MOORE MEDICAL CORP., a Delaware corporation (the "Company"), and LINDA M. AUTORE ------- ("Executive"). --------- In connection with the employment of Executive as President and Chief Executive Officer of the Company, the Company wishes to give Executive an opportunity to benefit from her contributions to the future growth of the Company. Accordingly, the Company and Executive desire to enter into this agreement, pursuant to which Executive shall purchase, and the Company shall sell, 50,000 shares of the common stock, $.01 par value (the "Common Stock"), of ------------ the Company. Such shares of the Common Stock are collectively referred to as the "Executive Stock". --------------- Section 1. Purchase and Sale of Common Stock. --------------------------------- (a) Closing. The closing of the purchase and sale of the Executive ------- Stock (the "Closing") shall take place at the offices of O'Sullivan Graev & ------- Karabell, LLP, located at 30 Rockefeller Plaza, New York, New York 10112, on the date hereof (the " Closing Date"). At the Closing, Executive shall purchase, and ------------ the Company shall sell, 50,000 shares of Common Stock for an aggregate purchase price of $281,250 for all such shares (the "Purchase Price"). At or promptly -------------- after the Closing, the Company shall deliver to Executive a certificate or certificates representing 50,000 shares of Common Stock and Manager shall deliver to the Company an executed promissory note (the "Note") and a pledge ---- agreement (the "Pledge Agreement") in the forms annexed hereto as Exhibit A and ---------------- --------- B, respectively. - - (b) Representations of Executive. In connection with the purchase and ---------------------------- sale of the Executive Stock hereunder, Executive hereby represents and warrants to the Company, on the Closing Date, as set forth below. (i) The Executive Stock shall be acquired for Executive's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"), -------------- or any applicable state securities laws, and the Executive Stock shall not be disposed of in contravention of the Securities Act, or any applicable state securities laws. (ii) Executive is (A) an "accredited investor" as defined in ------------------- Rule 501(a) under the Securities Act or (B) by reason of her business and financial experience, and the business and financial experience of those retained by Executive to advise her with respect to her investment in the Executive Stock being purchased hereunder, Executive, together with such advisors, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the risks and benefits of the investment in the Executive Stock. (iii) Executive is able to bear the economic risk of her investment, including the complete loss of such investment in the Executive Stock to be purchased by the Executive hereunder, for an indefinite period of time because the Executive Stock has not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available. (iv) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Executive Stock hereunder and has had full access to such other information concerning the Company as she has requested. (v) This Agreement, the Note and the Pledge Agreement constitute the legal, valid and binding obligations of Executive, enforceable against Executive in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing. The execution, delivery and performance of this Agreement, the Note and the Pledge Agreement by Executive do not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject. (c) Executive Acknowledgment. As an inducement to the Company to ------------------------ issue the Executive Stock to Executive, and as a condition thereto, Executive acknowledges and agrees, on the Closing Date, that neither the issuance of the Executive Stock to Executive nor any provision contained herein shall entitle Executive to remain in the employment of the Company or affect the right of the Company to terminate Executive's employment at any time for any reason. (d) Company and Executive Acknowledgment. The Company and Executive ------------------------------------ acknowledge and agree that this Agreement, the Note and the Pledge Agreement have been executed and delivered, and the shares of Executive Stock have been issued hereunder, in connection with and as a part of the compensation and incentive arrangements between the Company and Executive. (e) Representations and Warranties of the Company. In connection with --------------------------------------------- the purchase and sale of Executive Stock hereunder, the Company hereby represents and warrants to Executive as set forth below. (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (ii) The execution, delivery and performance of this Agreement and the Pledge Agreement, and the making of the loan in the principal amount of $281,250 pursuant to which the Note is being made by Executive have been duly authorized by the Company. This Agreement and the Pledge Agreement constitute valid and binding obligations of the Company enforceable against it in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, by -2- general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing. (iii) Any shares of the Company's capital stock acquired hereunder shall, upon payment of the Purchase Price by Executive as provided herein, be fully paid and nonassessable. Section 2. Demand Registration. ------------------- (a) On any date after the one-year anniversary of the date hereof, if the Executive shall in writing state that she desires to sell Registrable Securities in the public securities markets and requests the Company to effect the registration under the Securities Act of Registrable Securities, the Company shall promptly use its best efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register. (b) Anything contained in Section 2(a) to the contrary ------------ notwithstanding, the Company shall not be obligated to effect any registration under the Securities Act pursuant to Section 2(a) except in accordance with the ------------ following provisions: (i) The Company shall not be obligated to use its best efforts to file and cause to become effective (A) more than one Registration Statement initiated pursuant to this Section 2, or (B) any Registration --------- Statement during any period in which any other Registration Statement (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto) pursuant to which shares of Common Stock are to be or were sold has been filed and not withdrawn or has been declared effective within the prior 90 days. (ii) The Company may delay the filing or effectiveness of any Registration Statement for a period of up to 120 days after the date of a request for registration pursuant to this Section 2, if at the time of such --------- request (i) the Company is engaged, or has fixed plans to engage within 120 days of the time of such request, in a firm commitment underwritten public offering of shares of Common Stock in which the Executive may include Registrable Securities pursuant to Section 3; or (ii) the Company --------- reasonably determines that such registration and offering would interfere with any material transaction involving the Company, as approved by the Board of Directors or would be seriously detrimental to the Company; provided, however, that the Company may only delay the filing or -------- ------- effectiveness of a Registration Statement pursuant to this Section 2(b) for ------------ a total of 180 days after the date of a request for registration; and provided, further, that any such deferred filing shall not count as a -------- ------- request pursuant to this Section 2 if the Executive rescinds such request --------- prior to the expiration of the deferral period. (iii) With respect to any registration pursuant to this Section ------- 2, the Company may include in such registration any shares of Common Stock; - provided, however, that if the managing underwriter advises the Company -------- ------- that the inclusion of all Registrable Securities and/or other shares of Common Stock proposed to be included in such registration would interfere with the successful marketing (including pricing) of the -3- Registrable Securities proposed to be included in such registration, then the number of Registrable Securities and/or other shares of Common Stock proposed to be included in such registration shall be included in the following order: (A) first, the Registrable Securities requested to be ----- included in such registration; (B) second, the shares of Common Stock the Company proposes ------ to register; and (C) third, any other shares of Common Stock held by holders ----- who are entitled to registration rights. (c) At any time after filing but before the Registration Statement covering Registrable Securities becomes effective, the Executive may request the Company to withdraw or not to file the Registration Statement. In that event, if such request of withdrawal shall not have been caused by, or made in response to, (i) the material adverse effect of an event on the business, properties, condition, financial or otherwise, or operations of the Company or (ii) a material adverse change in the financial markets, the Executive shall have used her demand registration right under this Section 2 and the Company shall no --------- longer be obligated to register Registrable Shares pursuant to the exercise of such one registration right pursuant to this Section 2 unless the Executive --------- shall pay to the Company the expenses incurred by the Company through the date of such request. Section 3. Piggyback Registration. ---------------------- (a) Participation. Subject to Sections 3(b) and 6, if at any time ------------- ------------- - after the one-year anniversary of the date hereof, the Company or any stockholder with the right to demand registration proposes to file a Registration Statement (other than a registration on Form S-4 or S-8 or any successor to such Forms) with respect to the sale of any shares of Common Stock, then the Company shall give prompt notice (the "Piggyback Notice") of such ---------------- proposed filing to Executive. The Piggyback Notice shall offer Executive the opportunity to register such number (subject to Section 3(b)) of Registrable ------------ Securities as Manager may request and shall set forth (i) the anticipated filing date of such Registration Statement, (ii) the number of shares of Common Stock proposed to be included in such Registration Statement and (iii) the proposed manner of distribution. Subject to Sections 3(b) and 6 the Company shall include ------------- - in such Registration Statement such shares of Registrable Securities for which it has received written requests to register such shares within 10 business days after the date of delivery of the Piggyback Notice. The Company may decline to file a Registration Statement after giving the Piggyback Notice, or withdraw a Registration Statement after filing and after such Piggyback Notice, but prior to the effectiveness of the Registration Statement. (b) Underwriter's Cutback. If a registration pursuant to this Section --------------------- ------- 3 involves an Underwritten Offering and the managing underwriter or underwriters - - of such proposed Underwritten Offering advises or advise the Company that in its or their opinion the number of securities requested to be included in such registration, or the inclusion of selling stockholders, would be reasonably likely to adversely affect the price, timing or distribution of the securities -4- offered, then the Company will include in such registration (i) first, 100% of the securities the Company, or the person initiating such registration, proposes to register, and (ii) the number of shares of Common Stock which other holders of Common Stock (including Executive) have requested be included in such registration, which in the opinion of the managing underwriter or underwriters can be sold without such adverse effect, selected pro rata from among such other --- ---- holders based upon their relative proportionate total holdings of Common Stock. (c) Expenses. The Company will pay all Registration Expenses -------- otherwise allocable to Executive in connection with such registration. (d) Certain Definitions. For purposes of Section 2 and this Section ------------------- 3. "Prospectus" means the prospectus included in any Registration ---------- Statement, as amended or supplemented by any prospectus supplement, including post-effective amendments and all material incorporated by reference in such prospectus. "Registrable Securities" means all shares of Executive Stock held by ---------------------- Executive immediately following the Closing; provided, however, that any -------- Registrable Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such Registrable Securities has been declared effective under the Securities Act and such Registrable Securities have been disposed of in accordance with the plan of distribution set forth in such Registration Statement, (ii) such Registrable Securities are distributed pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, (iii) such Registrable Securities shall have been otherwise transferred and new certificates for them not bearing a legend restricting further transfer under the Securities Act shall have been delivered by the Company, or (iv) such Registrable Securities are permitted to be disposed of pursuant to Rule 144 under the Securities Act without limitation pursuant to Rule 144(k); and provided further, that any securities that have ceased to be -------- ------- Registrable Securities cannot thereafter become Registrable Securities and any security that is issued or distributed in respect of securities that have ceased to be Registrable Securities is not a Registrable Security. "Registration Expenses" means all expenses incident to the Company's --------------------- performance of or compliance with Section 3, including (i) all registration and ---------- filing fees, and any other fees and expenses associated with filings required to be made with any stock exchange, the SEC and the NASD, (ii) all fees and expenses of compliance with state securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities under the laws of such jurisdictions as the managing underwriters may designate), (iii) all printing and related messenger and delivery expenses (including expenses of printing certificates for the shares in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses), (iv) all fees and disbursements of counsel for the Company and of all independent certified public accountants of the Company (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (v) Securities Act liability insurance if the Company so desires, (vi) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange, and (vii) all fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, excluding underwriting discounts and commissions and transfer taxes, if any, and excluding fees and disbursements of counsel to underwriters (other -5- than such fees and disbursements incurred in connection with any registration or qualification of shares under the securities or blue sky laws of any state). "Registration Statement" means any registration statement of the ---------------------- Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, as amended by any Prospectus supplement (including post-effective amendments), all material information incorporated by reference in such Prospectus, amendments and supplements to such Registration Statement (including post-effective amendments), and all exhibits and all material incorporated by reference in such Registration Statement. Section 4. Additional Restrictions on Transfer. ----------------------------------- (a) Legend. The certificates representing the Executive Stock sold ------ to Executive hereunder or otherwise received by Executive shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED AS OF JANUARY 11, 2001, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR -------------- TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. (b) Opinion of Counsel. No holder of Executive Stock may Transfer any ------------------ Executive Stock (except pursuant to an effective registration statement under the Securities Act) without first delivering to the Company an opinion of counsel reasonably satisfactory to the Company (which counsel shall be knowledgeable in securities law matters), which opinion shall be acceptable in form and substance to the Company, that registration under the Securities Act is not required in connection with such Transfer. (c) Holdback. Each holder of Executive Stock agrees not to effect any -------- public sale or distribution of any equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180 days after the effectiveness of any underwritten registration of securities of the Company, except as part of such underwritten registration if otherwise permitted, if required by the managing underwriter or underwriters in connection with such underwritten registration. Section 5. Definition of Executive Stock. For all purposes of this ----------------------------- Agreement, Executive Stock shall continue to be Executive Stock in the hands of any holder other than Executive, and each such other holder of Executive Stock shall succeed to all rights and obligations attributable to Executive as a holder of Executive Stock hereunder. Executive Stock shall also include (a) shares of the Company's capital stock issued with respect to shares of Executive Stock by way of a stock split, stock dividend, merger, consolidated, reorganization or other recapitalization, and (b) shares of the Company's capital stock issued upon conversion or exchange of any of the Executive Stock. Notwithstanding the foregoing, shares of Executive -6- Stock shall cease to be Executive Stock and shall no longer be subject to the limitations and restrictions contained herein, when such shares have been acquired by any purchaser pursuant to (i) an offering registered with the Securities and Exchange Commission or (ii) a transaction under Rule 144 or similar rule then in effect under the Securities Act. Section 6. Participation in Underwritten Offerings. No person may --------------------------------------- participate in any underwritten offering pursuant to Section 3 unless such --------- person (a) agrees to sell such person's securities on the basis provided in any underwriting arrangements approved by the persons entitled to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Section 7. Notices. All notices, demands and other communications to be ------- given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when personally delivered, sent by telecopy (with hard copy to follow) or overnight express courier, or (b) five days following mailing by certified or registered mail, postage prepaid and return receipt requested. Notices, demands and communications to the Company, and Executive shall, unless another address is specified in writing, be sent to the respective address or telecopy number indicated below. (i) Notices to the Company: Moore Medical Corp. 389 John Downey Drive New Britain, Connecticut 06050 Attn: Chairman of the Board Telephone: 860-767-8458 Telecopy: 860-767-8460 with a copy to: O'Sullivan Graev & Karabell LLP 30 Rockefeller Plaza New York, New York 10112 Telephone: 212-408-2400 Telecopy: 212-218-6220 Attn: Audrey A. Rohan, Esq.; (ii) Notices to Executive: -7- Linda M. Autore 47 Cranbury Road Norwalk, CT 06851 Telephone: 203-847-6155 Telecopy: 203-847-6155 Section 8. Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, void or otherwise unenforceable provisions shall be null and void. It is the intent of the parties, however, that any invalid, void or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by law. Section 9. Entire Agreement. This Agreement constitutes the entire ---------------- agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. Section 10. Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. Section 11. Successors and Assigns. To the extent applicable, this ---------------------- Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company and their respective successors and assigns, except that Executive may not assign any of Executive's rights or obligations hereunder (except as expressly provided herein). Section 12. Remedies. Each of the parties to this Agreement shall be -------- entitled to enforce its or her rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its or her favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its or her sole discretion apply to any court of law or equity of competent jurisdiction for preliminary injunctive relief, temporary restraining orders and/or any other temporary equitable remedies in order to enforce or prevent any violations of the provisions of this Agreement. Section 13. Amendments and Waivers. Any provision of this Agreement may be ---------------------- amended or waived only with the prior written consent of both parties hereto. Section 14. No Strict Construction. The language used in this Agreement ---------------------- shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any person or entity. -8- Section 15. Descriptive Headings. The descriptive headings of this -------------------- Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Section 16. APPLICABLE LAW; JURISDICTION; VENUE. THIS AGREEMENT SHALL BE ----------------------------------- GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT. WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR TO THE TRANSACTIONS CONTEMPLATED HEREBY ("PROCEEDINGS"), EACH PARTY ----------- IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CONNECTICUT AND THE UNITED STATES DISTRICT COURT LOCATED IN THE COUNTY OF HARTFORD IN THE STATE OF CONNECTICUT; AND (B) WAIVES ANY OBJECTION THAT IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDINGS BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT SUCH PROCEEDINGS HAVE BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. Section 17. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES -------------------- ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. * * * * * -9- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. MOORE MEDICAL CORP. By: /s/ Robert H. Steele ------------------------------ Robert H. Steele Chairman of the Board EXECUTIVE: /s/ Linda M. Autore ----------------------------- LINDA M. AUTORE EX-10.26 11 0011.txt PLEDGE AGREEMENT WITH LINDA AUTORE Exhibit 10.26 PLEDGE AGREEMENT dated as of January 11, 2001, by and between LINDA M. AUTORE, an individual (the "Pledgor") and MOORE MEDICAL CORP., a Delaware ------- corporation (the "Pledgee" or the "Company"). ------- ------- WHEREAS, pursuant to that certain Recourse Promissory Note dated the date hereof (as amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, the "Note"), the Pledgee has agreed, ---- subject to the terms thereof, to make available to the Pledgor certain financial accommodations on the terms and conditions set forth in the Note; WHEREAS, it is a condition to the effectiveness of the Note and the extension of such financial accommodations under the Note that the Pledgor execute and deliver this Agreement; and WHEREAS, the Pledgor owns 50,000 shares of common stock, $.01 par value (the "Shares"), of the Company and will derive substantial direct benefit ------ from the financial accommodations to be made available pursuant to the Note. NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Pledge. ------ The Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto the Pledgee, and grants to the Pledgee a security interest in, all of the Pledgor's right, title and interest in, to and under the following (collectively, the "Pledged Collateral"): (a) the Shares ------------------ (collectively, "Securities") of the Company; (b) any additional Securities of ---------- the Company as may hereafter at any time be delivered to the Pledgee by or on behalf of the Pledgor; (c) any cash or additional Securities or other property at any time and from time to time receivable or otherwise distributable in respect of, in exchange for, or in substitution of, any of the property referred to in any of the immediately preceding clauses (a) and (b); and (d) any and all ----------- --- products and proceeds of any of the foregoing, together with and all other rights, titles, interests, powers, privileges and preferences pertaining to said property. SECTION 2. Obligations Secured. ------------------- This Agreement is made, and the security interest created hereby is granted to the Pledgee, to secure the prompt performance and payment in full of the following (collectively, the "Secured Obligations"): (a) all obligations of ------------------- the Pledgor under this Agreement; (b) all obligations due and payable under the Note; and (c) any reasonable costs or expenses incurred by the Pledgee or Pledgee's counsel in connection with the realization of the security for which this Agreement provides, including, without limitation, any reasonable costs or expenses of any proceedings to which this Agreement may give rise. SECTION 3. Covenants. --------- The Pledgor hereby unconditionally covenants and agrees that the Pledgor will not create, assume, incur or permit or suffer to exist or to be created, assumed or incurred, any lien on any of the Pledged Collateral (or any interest therein), and will not sell, lease, assign, transfer or otherwise dispose of all or any portion of the Pledged Collateral (or any interest therein). SECTION 4. Additional Securities. --------------------- The Pledgor agrees that, until this Agreement has terminated in accordance with its terms, any certificates, instruments or other documents evidencing additional Securities of the Company at any time issued to the Pledgor or otherwise acquired by the Pledgor on or in connection with the Shares (such as, but not limited to, a stock dividend or stock split) shall be promptly delivered or otherwise transferred to the Pledgee, such additional Securities being additional Pledged Collateral and subject to the lien of, and the terms and conditions of, this Agreement. SECTION 5. Registration in Nominee Name, Denominations. ------------------------------------------- The Pledgee shall have the right (in its sole and absolute discretion), to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as Pledgee or as sub-agent) or the name of the Pledgor, endorsed or assigned in blank or in favor of the Pledgee. The Pledgor will promptly give to the Pledgee copies of any notices or other communications received by her with respect to Pledged Securities registered in the name of the Pledgor. The Pledgee shall at all times have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger numbers of shares for any purpose consistent with this Agreement. SECTION 6. Remedies upon Event of Default. ------------------------------ (a) In addition to any right or remedy that the Pledgee may have under the Note, any other loan documents or otherwise under applicable law, if an Event of Default shall have occurred and be continuing, the Pledgee may exercise any and all the rights and remedies of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction (the "Code") ---- and may otherwise sell, assign, transfer, endorse and deliver the whole or, from time to time, any part of the Pledged Collateral at a public or private sale or on any securities exchange, for cash, upon credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Pledgee in its discretion shall deem appropriate. (b) If an Event of Default shall have occurred and be continuing, in addition to exercising the power of sale herein conferred upon it, the Pledgee shall also have the option to proceed by suit or suits at law or in equity to foreclose this Agreement and sell the Pledged Collateral or any portion thereof pursuant to judgment or decree of a court or courts having competent jurisdiction. (c) The rights and remedies of the Pledgee under this Agreement are cumulative and not exclusive of any rights or remedies which it would otherwise have. 2 SECTION 7. Application of Proceeds of Sale and Cash. ----------------------------------------- The proceeds of any sale of the whole or any part of the Pledged Collateral, together with any other moneys held by the Pledgee under the provisions of this Agreement, following an Event of Default, shall be applied by the Pledgee in the following order: (a) First: to the payment of all costs and expenses incurred in connection with such sale or other realization, including reasonable attorneys' fees incurred if the Pledgee endeavored to collect the Secured Obligations by or through an attorney at law; (b) Second: to the payment of the interest due upon any of the Secured Obligations, in any order which the Pledgee may elect; (c) Third: to the payment of the principal due upon any of the Secured Obligations in any order which the Pledgee may elect; and (d) Fourth: the balance (if any) of such proceeds shall be paid to the Pledgor or to whomsoever may be legally entitled thereto. SECTION 8. Full Recourse Obligations. -------------------------- The Pledgor hereby acknowledges and agrees that the Pledgee's recourse against the Pledgor hereunder shall not be limited to the Pledged Collateral. SECTION 9. Continuing Security Interest. ---------------------------- This Agreement shall create a continuing security interest in the Pledged Collateral and shall remain in full force and effect until it terminates in accordance with its terms. The Pledgor and the Pledgee hereby agree that the security interest created by this Agreement in the Pledged Collateral shall not terminate and shall continue and remain in full force and effect notwithstanding the transfer to the Pledgee of a portion of the Pledged Collateral. SECTION 10. Security Interest Absolute. -------------------------- All rights of the Pledgee hereunder, the grant of a security interest in the Pledged Collateral and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Note or any other loan document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of the payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Note, any other loan document, or any other agreement or instrument relating to any of the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Secured Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Secured Obligations). 3 SECTION 11. No Waiver. --------- Neither the failure on the part of the Pledgee to exercise, nor the delay on its part in exercising, any right, power or remedy hereunder, nor any course of dealing between the Pledgee and the Pledgor, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy hereunder preclude any other or the further exercise thereof or the exercise of any other right, power or remedy. SECTION 12. Notices. ------- Notices, requests and other communications required or permitted hereunder shall be given in accordance with the applicable terms of the Note. SECTION 13. Governing Law; Jurisdiction; Waiver of Jury Trial. ------------------------------------------------- (a) All questions concerning the construction, interpretation and validity of this Agreement shall be governed by and construed and enforced in accordance with the domestic laws of the State of Connecticut without giving effect to any choice or conflict of law provision or rule (whether in the State of Connecticut or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Connecticut. In furtherance of the foregoing, the internal law of the State of Connecticut will control the interpretation and construction of this Agreement, even if under such jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. Notwithstanding the foregoing provisions of this Section 13, those provisions of this Agreement that relate to ---------- the internal governance of the Company and are required by Delaware General Corporation Law to be governed by such, shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware. (b) Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties only in the courts of the State of Connecticut, County of Hartford, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Connecticut, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. (c) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO. 4 SECTION 14. Amendments. ---------- No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 15. Binding Agreement; Assignment. ----------------------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Pledgor shall not be permitted to assign this Agreement or any interest herein or in the Pledged Collateral, or any part thereof, or any cash or property held by the Pledgee as collateral under this Agreement. SECTION 16. Termination. ----------- Upon payment in full in cash of all of the Secured Obligations, this Agreement shall terminate. Upon termination of this Agreement in accordance with its terms, the Pledgee agrees to take such actions as the Pledgor may reasonably request, and at the sole cost and expense of the Pledgor, (a) to return the Pledged Collateral to the Pledgor, and (b) to evidence the termination of this Agreement, including, without limitation, the filing of any releases or any termination statements under the Code. SECTION 17. Severability. ------------ In case any provision of this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 18. Headings. -------- Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement. SECTION 19. Counterparts. ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute but one agreement. SECTION 20. Definitions. ----------- Terms not otherwise defined herein are used herein with the respective meanings given to them in the Note. * * * * * 5 IN WITNESS WHEREOF, the Pledgor has executed and delivered this Pledge Agreement under seal as of this the date first written above. PLEDGOR: /s/ Linda M. Autore -------------------------------------------- LINDA M. AUTORE PLEDGEE: MOORE MEDICAL CORP., a Delaware corporation By: /s/ Robert H. Steele --------------------------------- Name: Robert H. Steele Title: Chairman of the Board 6 EX-10.27 12 0012.txt PROMISSORY NOTE WITH LINDA AUTORE Exhibit 10.27 RECOURSE PROMISSORY NOTE $281,250 January 11, 2001 FOR VALUE RECEIVED, Linda M. Autore (the "Borrower"), hereby promises to pay to the order of Moore Medical Corp., a Delaware corporation (the "Holder"), on the third anniversary of the date hereof (the "Maturity Date"),the principal sum of Two Hundred Eight-One Thousand Two Hundred Fifty Dollars and No Cents ($281,250.00) (the "Principal Amount"), to be paid at the office of the Holder referred to below, in such coin or currency of the United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts, and to pay interest commencing on the date hereof on the Principal Amount hereof at a per annum rate equal to 6.0%, compounded annually based on a 360 day year, until the Principal Amount hereof shall have become due and payable, on the Maturity Date, pursuant to a Mandatory Prepayment, by acceleration or otherwise. Such interest shall be payable annually on each anniversary date hereof until and upon maturity or earlier repayment of the Principal Amount. In addition, the Borrower promises to pay additional interest at 3.0% per annum on any overdue principal and (to the extent permitted by law) on any overdue interest, from the due date thereof until the obligation of the Borrower with respect to the payment thereof shall be discharged. The Borrower shall make a mandatory prepayment (each, a "Mandatory --------- Prepayment") in an amount equal to a portion of the proceeds resulting from any - ---------- sale, transfer or other disposition of the Pledged Collateral (as defined in the Pledge Agreement) securing this Note in violation of, or pursuant to the Pledge Agreement, dated as of the date hereof, between the Borrower and the Holder (as amended, the "Pledge Agreement"). Each such Mandatory Prepayment shall be in ---------------- the amount of $5.625 per share of Pledged Collateral so sold, transferred or otherwise disposed of and shall be due and payable immediately upon receipt of any such proceeds by the Borrower and shall be applied first to interest on this Note accrued and unpaid as of the date of the Mandatory Prepayment and then to the Principal Amount of this Note then outstanding. The Holder shall be entitled to the rights and security granted by the Borrower to the Holder pursuant to the Pledge Agreement. This Note represents a full recourse obligation of the Borrower. The Borrower may, at her sole option, at any time and from time to time, prepay all or any portion of the interest or outstanding Principal Amount evidenced by this Note, together with accrued interest on the Principal Amount prepaid, without premium or penalty. In case of the occurrence of any of the following events (each, an "Event of Default"): - ----------------- (i) default in the payment of principal of or interest on this Note, when and as the same shall become due and payable, whether on the Maturity Date, pursuant to a Mandatory Prepayment or by acceleration hereof or otherwise; (ii) the Borrower shall (A) apply for or consent to the appointment of a receiver, trustee or liquidator, (B) admit in writing her inability to pay her debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent, (E) file a voluntary petition, or have filed against her a petition, in bankruptcy or petition or answer seeking a reorganization or an arrangement with her creditors, or (F) take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute or file an answer admitting the material allegations of a petition filed against her in any proceeding under any such law; (iii) an order, judgment or decree shall be entered, without the application, approval or consent of the Borrower, by any court of competent jurisdiction, approving a petition seeking reorganization of the Borrower, or appointing a receiver, trustee or liquidator for the Borrower; (iv) the Borrower's employment with the Holder is terminated or upon the Borrower's death; or (v) the Borrower shall sell all or any portion of her Pledged Collateral and not apply the proceeds to the repayment of this Note as set forth herein and in the Pledge Agreement; then, this Note shall forthwith become due and payable both as to principal and interest, automatically without any action on the part of the Holder hereof and without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived. Any prepayment under this Note shall be applied first to reduce accrued and unpaid interest, and any remaining amount shall reduce the Principal Amount of this Note. Except as provided in the following paragraph, the obligations of the Borrower and the rights of the Holder under this Note shall be absolute and shall not be subject to any counterclaim, set-off, deduction or defense. The Borrower hereby waives presentment, diligence, demand, protest and notice of dishonor and notice of any other kind whatsoever. The Borrower agrees to pay all costs and expenses of collection, including attorneys' fees incurred by the Holder, in collecting and enforcing this Note, and such fees shall be added to and become part of the Principal Amount of this Note and shall be collectible as part of such Principal Amount. 2 No interest or other amount shall be payable in excess of the maximum permissible rate under applicable law and any interest or other amount which is paid in excess of such maximum rate shall be deemed to be a payment of principal hereunder. This Note may not be changed, modified or terminated except by an agreement in writing signed by the party sought to be charged with the change, modification or termination. No delay or omission on the Holder's part in exercising any right, remedy or option shall operate as a waiver of any such or any other right, remedy or option or of any default. This Note shall be governed by, and construed in accordance with, the laws of the State of Connecticut, without giving effect to the principles of conflict of laws thereof. If any term or provision of the Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. Any legal action or proceeding with respect to this Agreement or the other Documents may be brought in the courts of the State of Connecticut, County of Hartford, and the United States of America for the District of Connecticut and, by execution and delivery of this Agreement, the Borrower hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower hereby irrevocably waives, in connection with any such action or proceeding, any objection, including, without limitation, any objection to the venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. The Borrower hereby irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address as set forth below. THE BORROWER (AND, BY ACCEPTANCE OF THIS NOTE, THE HOLDER) HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. This Note shall be binding upon the heirs, executors, administrators, successors and permitted assigns of the Borrower and shall inure to the benefit of the Holder and its successors and permitted assigns; provided, however, that the Borrower may not assign her rights or delegate her obligations hereunder without the prior written consent of the Holder. /s/ Linda M. Autore ------------------- Linda M. Autore 3 EX-23.1 13 0013.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-20037, 33- 68128, 333-75445 and 333-56448) and in the Prospectuses on Form S-3 included therein of Moore Medical Corp. of our report dated February 25, 2001 appearing on page 15 of this Form 10-K. We also consent to the reference to us under the heading "Experts" in such Prospectuses. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Hartford, Connecticut March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----