FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
This First Amendment, dated as of March 27, 2001, is made
by and among HESKA CORPORATION, a Delaware corporation ("Heska"),
DIAMOND ANIMAL HEALTH, INC., an Iowa corporation ("Diamond") (each
of Heska and Diamond may be referred to herein individually as a
"Borrower" and collectively as the "Borrowers"), and XXXXX FARGO
BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc., a
Minnesota corporation (the "Lender").
Recitals
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The Borrowers and the Lender have entered into a Second
Amended and Restated Credit and Security Agreement dated as of
June 14, 2000 (as amended to date and as the same may be hereafter
amended from time to time, the "Credit Agreement"). Capitalized
terms used in these recitals have the meanings given to them in the
Credit Agreement unless otherwise specified.
The Borrowers have requested that certain amendments be
made to the Credit Agreement, which the Lender is willing to make
pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants and agreements herein contained, it is agreed
as follows:
1. Defined Terms. Capitalized terms used in this
Amendment which are defined in the Credit Agreement shall have
the same meanings as defined therein, unless otherwise defined
herein. In addition, Section 1.1 of the Credit Agreement is
amended by adding or amending, as the case may be, the following
definitions:
"`Borrowing Base' for a Borrower means, at any time the
lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the
Lender's sole discretion:
(i) 80% of Eligible Accounts of such Borrower,
plus
(ii) the lesser of (A) the sum of (1) 30% of
Eligible Inventory of such Borrower
consisting of raw materials plus (2) 50%
of Eligible Inventory of such Borrower
consisting of finished goods, or (B) the
difference of (1) $6,000,000 less (2) the
aggregate amount of Advances made to all
Borrowers other than such Borrower in
reliance on Eligible Inventory, less
(iii) for any Borrower other than Heska, the
principal sum of all outstanding Advances
made to Heska in reliance on such
Borrower's Borrowing Base
"Limited Diamond Borrowing Base" on a given date means
the lesser of (A) Diamond's Availability as of such date or (B) the
amount by which the Tangible Net Worth of Diamond on such date
exceeds $2,000,000.
2. Eligible Accounts. Section 1.1 of the Credit
Agreement is further amended by deleting subsection (i) of the
definition of "Eligible Accounts" and replacing it with the
following:
"(i) That portion of Accounts with terms of 60 days or
less that are over 60 days past due, and all other Accounts over 90
days past the invoice date; provided, however, that certain Accounts
which are billed pursuant to dated term invoices with payment terms
of not greater than 180 days from the invoice date ("Dated Term
Accounts") which (A) do not remain unpaid more than 180 days from
such Dated Term Account's invoice date, (B) are not more than 30
days past due, and (C) are approved by the Lender in its sole
discretion, shall, despite the terms of this subsection (i), be
deemed Eligible Accounts;"
3. Revolving Advances. Section 2.2 of the Credit
Agreement is hereby amended by deleting the initial paragraph
thereof in its entirety and replacing such initial paragraph with
the following:
"The Lender agrees, on the terms and subject to the
conditions herein set forth, to make advances (the "Revolving
Advances") to any Borrower from time to time from the date the
Inactive Period ends (the "Funding Date") to the Termination
Date, on the terms and subject to the conditions herein set
forth. The Lender shall have no obligation to make a Revolving
Advance to a Borrower if, after giving effect to such requested
Revolving Advance, (a) the sum of the outstanding and unpaid
Revolving Advances would exceed the Aggregate Borrowing Base,
(b) the sum of the outstanding and unpaid Revolving Advances to
Diamond exceed the Limited Diamond Borrowing Base, (c) the sum
of the outstanding and unpaid Revolving Advances to Heska would
exceed the Expanded Heska Borrowing Base, or (d) during any
Default Period, the sum of the outstanding and unpaid Revolving
Advances to Heska would exceed Heska's Borrowing Base. Each
Borrower's obligation to pay the Revolving Advances shall be
evidenced by such Borrower's Revolving Note and shall be
secured by the Collateral as provided in Article III and the
Mortgaged Property as defined in each of the Factory Mortgage
and the Farm Mortgage. Within the limits set forth in this
Section 2.2, each Borrower may borrow, prepay pursuant to
Section 2.12 and reborrow. Each Borrower agrees to comply with
the following procedures in requesting Revolving Advances under
this Section 2.2:"
4. Issuance of Letters of Credit: Section 2.18(a)(i)(1)
of the Credit Agreement is hereby amended by deleting the amount
"$500,000" therein and replacing such amount with "$1,000,000".
5. Payment of Taxes and Other Claims; Payment of Past-
Due Accounts. Section 6.5 of the Credit Agreement is hereby amended
by deleting such section in its entirety and replacing it with the
following:
"Section 6.5 Payment of Taxes and Other Claims; Payment
of Past-Due Accounts. Each Borrower will pay or discharge, when
due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the
Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, prior to the date on
which penalties attach thereto, (b) all federal, state and
local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid,
might by law become a lien or charge upon any properties of
such Borrower; provided, that no Borrower shall be required to
pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been
made. Each Borrower will, (i) at all times, immediately pay all
of its accounts payable that are 60 days or more past due and
(ii) during any period for which any Revolving Advance is
outstanding, immediately pay all accounts payable (except for
accounts payable whose amount, applicability or validity is
being contested in good faith by appropriate proceedings or
methods) before such accounts become 60 days or more past due.
Each Borrower will at all times maintain its accounts payable
in accordance with the previous sentence."
6. Minimum Book Net Worth: Section 6.12 of the Credit
Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following:
"Section 6.12 Minimum Book Net Worth. Heska will
maintain, on a consolidated basis, as of each date listed
below, its Book Net Worth at an amount not less than the
amount set forth opposite such date:
Period Minimum Book Net Worth
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March 31, 2001 $23,045,000
April 30, 2001 $21,049,000
May 31, 2001 $19,656,000
June 30, 2001 $18,719,000
July 31, 2001 $17,139,000
August 31, 2001 $16,165,000
September 30, 2001 $15,362,000
October 31, 2001 $14,329,000
November 30, 2001 $14,072,000
December 31, 2001 and the
last day of each month
thereafter $14,489,000"
7. Minimum Net Income: Section 6.13 of the Credit
Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following:
"Section 6.13 Minimum Net Income. Heska will
achieve, on a consolidated basis, during each period
described below, Net Income in an amount not less than the
amount set forth opposite such period (amounts in parentheses
denote negative numbers):
Period Minimum Net Income
------ ------------------
Three months ending March 31, 2001 ($7,757,000)
Six months ending June 30, 2001 ($12,082,000)
Nine months ending September 30, 2001 ($15,439,000)
Twelve months ending December 31, 2001 ($16,312,000)"
8. Minimum Cash Balance: Section 6.14 of the Credit
Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following:
"Section 6.14 Minimum Cash Balance. Heska shall maintain
as of the last day of each month, on a consolidated basis,
its Liquidity at not less than $3,000,000."
9. New Covenants: Section 6.16 of the Credit Agreement
is hereby amended by deleting such Section in its entirety and
replacing it with the following:
"Section 6.16 New Covenants. On or before December 31,
2001, the Borrowers and the Lender shall agree on new covenant
levels for Sections 6.12, 6.13, 6.14, 6.15, 7.4(a)(v), and
7.10 for periods after such date. The new covenant levels will
be based on (i) the Borrower's projections for such periods and
(ii) the year to date financial results of Heska, on a
consolidated basis, and such new covenant levels shall be no
less stringent than the present levels. An Event of Default
shall occur if the new covenants are not agreed to by the
above date."
10. Investments and Subsidiaries: Section 7.4(a)(v) of
the Credit Agreement is hereby amended by deleting the phrase
"during the 2000 fiscal year" and replacing such phrase with "during
the 2001 fiscal year".
11. Capital Expenditures. Section 7.10 of the Credit
Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following:
"Section 7.10 Capital Expenditures. The Borrowers,
together with any Affiliates, will not incur or contract to
incur, in the aggregate, Capital Expenditures of more than
$1,800,000 in the aggregate during the period from January 1, 2001
through December 31, 2001."
12. No Other Changes. Except as explicitly amended by
this Amendment, all of the terms and conditions of the Credit
Agreement shall remain in full force and effect and shall apply to
any advance or letter of credit thereunder.
13. Conditions Precedent. This Amendment shall be
effective when the Lender shall have received an executed original
hereof, together with each of the following, each in substance and
form acceptable to the Lender in its sole discretion:
(a) The Acknowledgment and Agreement of Guarantor set
forth at the end of this Amendment, duly executed by the
Guarantor.
(b) Such other matters as the Lender may require.
14. Representations and Warranties. Each Borrower hereby
represents and warrants to the Lender as follows:
(a) Each Borrower has all requisite power and authority
to execute this Amendment and to perform all of its obligations
hereunder, and this Amendment has been duly executed and
delivered by each Borrower and constitutes the legal, valid and
binding obligation of each Borrower, enforceable in accordance
with its terms.
(b) The execution, delivery and performance by each
Borrower of this Amendment has been duly authorized by all
necessary corporate action and do not (i) require any
authorization, consent or approval by any governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation or of any order, writ,
injunction or decree presently in effect, having applicability
to any Borrower, or the articles of incorporation or by-laws of
any Borrower, or (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which any Borrower is a
party or by which it or its properties may be bound or
affected.
(c) All of the representations and warranties contained
in Article V of the Credit Agreement are correct as of the date
such representations and warranties were given with no changes
adverse to the Lender.
15. References. All references in the Credit Agreement to
"this Agreement" shall be deemed to refer to the Credit Agreement as
amended hereby; and any and all references in the Security Documents
to the Credit Agreement shall be deemed to refer to the Credit
Agreement as amended hereby.
16. No Waiver. The execution of this Amendment and
acceptance of any documents related hereto shall not be deemed to be
a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security
Document or other document held by the Lender, whether or not known
to the Lender and whether or not existing on the date of this
Amendment.
17. Release. The Borrowers, and the Guarantor by signing
the Acknowledgment and Agreement of Guarantor set forth below, each
hereby absolutely and unconditionally releases and forever
discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations,
insurers, indemnitors, successors and assigns thereof, together with
all of the present and former directors, officers, agents and
employees of any of the foregoing, from any and all claims, demands
or causes of action of any kind, nature or description, whether
arising in law or equity or upon contract or tort or under any state
or federal law or otherwise, which any Borrower or such Guarantor
has had, now has or has made claim to have against any such person
for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the
date of this Amendment, whether such claims, demands and causes of
action are matured or unmatured or known or unknown.
18. Costs and Expenses. The Borrowers hereby reaffirm
their agreement under the Credit Agreement to pay or reimburse the
Lender on demand for all costs and expenses incurred by the Lender
in connection with the Credit Agreement, the Security Documents and
all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel.
Without limiting the generality of the foregoing, the Borrowers
specifically agree to pay all fees and disbursements of counsel to
the Lender for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and
instruments incidental hereto. The Borrowers hereby agree that the
Lender may, at any time or from time to time in its sole discretion
and without further authorization by the Borrowers, make a loan to
any Borrower under the Credit Agreement, or apply the proceeds of
any loan, for the purpose of paying any such fees, disbursements,
costs and expenses.
19. Miscellaneous. This Amendment and the Acknowledgment
and Agreement of Guarantor may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together,
shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the date first written above.
HESKA CORPORATION DIAMOND ANIMAL HEALTH, INC.
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxx
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Name: XXXXXX X. XXXXXXXX Name: XXXXXX X. XXXXXXXX
Title: EVP and CFO Title: Secretary and Treasurer
XXXXX FARGO BUSINESS CREDIT, INC.
f/k/a Norwest Business Credit, Inc.
By: /s/Xxxxxxx Xxxxxx
----------------------
Name: XXXXXXX XXXXXX
Title: Assistant Vice President
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness
of Heska Corporation and Diamond Animal Health, Inc.
(collectively, the "Borrowers") to Xxxxx Fargo Business Credit,
Inc., f/k/a Norwest Business Credit, Inc. (the "Lender")
pursuant to a Guaranty dated as of June 14, 2000 (the
"Guaranty"), hereby (i) acknowledges receipt of the foregoing
First Amendment; (ii) consents to the terms and execution
thereof; (iii) reaffirms its obligations to the Lender
pursuant to the terms of its Guaranty; and (iv)
acknowledges that the Lender may amend, restate, extend,
renew or otherwise modify the Credit Agreement and any
indebtedness or agreement of the Borrowers, or enter into any
agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under
its Guaranty for all of the Borrowers' present and future
indebtedness to the Lender.
DIAMOND ANIMAL HEALTH, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
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Name: XXXXXX X. XXXXXXXX
Title: Secretary and Treasurer
