<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 000-20997
STERILE RECOVERIES, INC.
(Exact name of Registrant as specified in its Charter)
FLORIDA 59-3252632
(State of incorporation) (I. R. S. Employer
Identification No.)
28100 U.S. HIGHWAY 19 NORTH, SUITE 201
CLEARWATER, FLORIDA 34621
(Address of Principal Executive Offices)
(813) 726-4421
(Registrant's Telephone Number)
Indicate by check 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 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of outstanding shares of each class of Registrant's Common Stock as of
November 12, 1996:
Common Stock, par value $.001 - 5,521,189
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
Condensed Statements of Operations for the three and
nine month periods ended September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . 3
Condensed Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flow for the nine month
periods ended September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 13
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
Page 2 of 14
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
STERILE RECOVERIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 8,230 $ 6,527 $ 23,513 $ 18,407
Cost of revenues 5,610 4,464 16,032 12,867
----------- ---------- --------- ------------
Gross profit 2,620 2,063 7,481 5,540
Distribution expenses 773 690 2,245 2,075
Selling and administrative expenses 1,180 962 3,446 2,987
----------- ---------- --------- ------------
Income from operations 667 411 1,790 478
Interest expense, net 22 371 714 1,124
----------- ---------- --------- ------------
Income (loss) before income tax expense 645 40 1,076 (646)
----------- ---------- -------- ------------
Income tax expense (benefit) (14) - (14) -
------------ ----------- -------- ------------
Net income (loss) $ 659 $ 40 $ 1,090 $ (646)
=========== ========== ======== ============
Pro forma information
Historical net income (loss) $ 645 $ 40 $ 1,076 $ (646)
Pro forma income tax expense - - - -
------------- ----------- --------- ------------
Pro forma net income (loss) $ 645 $ 40 $ 1,076 $ (646)
=========== ========== ========= ============
Pro forma net income (loss) per common share $ 0.12 $ 0.01 $ 0.26 $ (0.18)
=========== ========== ========= ============
Weighted average common shares outstanding 5,203 3,513 4,076 3,513
=========== ========== ========= ============
</TABLE>
See accompanying Notes to Condensed Financial Statements
Page 3 of 14
<PAGE> 4
STERILE RECOVERIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ---------------
(unaudited)
<S> <C> <C>
-- ASSETS --
Cash $ 6,581,367 $ 251,444
Accounts receivable, net 4,763,508 3,389,243
Inventories 820,103 305,450
Prepaid expenses and other assets 510,411 303,309
Reusable surgical products, net of accumulated
amortization of $2,154,889 and $l,137,603,
respectively 6,338,062 4,924,271
Property, plant and equipment, net 4,767,468 4,318,840
Goodwill, net 557,311 -
Deferred income taxes 200,000 -
------------- ------------
Total assets $ 24,538,230 $ 13,492,557
============= ============
-- LIABILITIES AND SHAREHOLDERS' EQUITY --
LIABILITIES:
Notes payable - working capital loan facility $ - $ 1,810,119
Notes payable - related parties 1,000,000 -
Accounts payable 1,477,767 1,166,657
Employee related accrued expenses 792,037 652,990
Other accrued expenses 1,177,500 568,084
Acquisition debt - 9,080,832
------------- ------------
Total liabilities 4,447,304 13,278,682
------------- ------------
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 par value;
authorized, 5,000,000 shares;
issued, none - -
Common Stock - $.001 par value;
authorized, 30,000,000 shares;
issued and outstanding, 5,517,689 and
3,225,807 shares, respectively 5,518 3,226
Additional paid-in capital 19,453,252 2,008,774
Accumulated earnings 632,156 (1,798,125)
------------- -----------
Total shareholders' equity 20,090,926 213,875
------------- -----------
Total liabilities and shareholders' equity $ 24,538,230 $13,492,557
============= ===========
</TABLE>
See accompanying Notes to Condensed Financial Statements
Page 4 of 14
<PAGE> 5
STERILE RECOVERIES, INC.
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,090,193 $ (645,681)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and intangible amortization . . . . . . . . . . . . . 361,867 316,800
Amortization of reusable surgical products . . . . . . . . . . . . 862,537 536,704
Provision for reusable surgical products shrinkage . . . . . . . . 289,691 -
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . (200,000) -
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (1,302,616) 97,363
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . (308,408) (103,374)
Prepaid expenses and Other . . . . . . . . . . . . . . . . . . . (73,615) (13,242)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 189,611 143,194
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 339,189 250,858
----------- -----------
Net cash flows provided by operating activities . . . . . . . . 1,248,449 582,622
----------- -----------
Cash flows used in investing activities
Purchases of property, plant and equipment . . . . . . . . . . . . . (783,869) (173,880)
Purchases of reusable surgical products . . . . . . . . . . . . . . . (2,566,019) (305,809)
Payment for acquisition of business, net of cash acquired . . . . . . 5,633 -
----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . (3,344,255) (479,689)
----------- -----------
Cash flows from financing activities
Proceeds from convertible demand notes . . . . . . . . . . . . . . . 1,000,000 -
Payments on related party debt . . . . . . . . . . . . . . . . . . . (167,025) -
Payments on acquisition debt . . . . . . . . . . . . . . . . . . . . (9,080,832) (600,000)
Payments on (net proceeds from) working capital loan . . . . . . . . (1,810,119) 413,059
Net proceeds from issuance of common stock . . . . . . . . . . . . . 18,483,705 -
----------- -----------
Net cash provided by (used in) financing activities . . . . . . . 8,425,729 (186,941)
----------- -----------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . 6,329,923 (84,009)
Cash and cash equivalents at beginning of period . . . . . . . . . . . 251,444 287,881
----------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 6,581,367 $ 203,872
=========== ===========
Supplemental cash flow information
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . $ 876,459 $ 1,037,865
=========== ===========
Supplemental schedule of non-cash investing activities:
Purchase of Surgipro (1996)
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . $ 952,000 $ -
Cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 -
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . (526,000) -
----------- -----------
Liabilities incurred or assumed . . . . . . . . . . . . . . . . . . $ 432,000 $ -
=========== ===========
</TABLE>
See accompanying Notes to Condensed Financial Statements
Page 5 of 14
<PAGE> 6
STERILE RECOVERIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation. The accompanying unaudited condensed
financial statements of Sterile Recoveries, Inc. (the
"Company") have been prepared in accordance with the
Securities and Exchange Commission's instructions to Form 10-Q
and, therefore, omit or condense footnotes and certain other
information normally included in financial statements prepared
in accordance with generally accepted accounting principles.
The accounting policies followed for quarterly financial
reporting conform with generally accepted accounting
principles for interim financial statements and include those
accounting policies disclosed in Note 1 to the Notes to
Financial Statements included in the Company's Registration
Statement on Form S-1, as amended (the "Registration
Statement"), filed with the Securities and Exchange
Commission in connection with the Company's initial public
offering (the "Offering"). In the opinion of management, all
adjustments of a normal recurring nature that are necessary
for a fair presentation of the financial information for the
interim periods reported have been made. The results of
operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results that can be
expected for the entire year ending December 31, 1996. The
unaudited condensed financial statements should be read in
conjunction with the financial statements and the notes
thereto included in the Registration Statement.
(b) Pro Forma Income Taxes. On completion of the Offering on
July 24, 1996, the Company terminated its S Corporation
election and became subject to corporate income taxes from
that date forward. The statements of operations for all
periods presented reflect the pro forma effect on income taxes
(benefits) as if the Company's earnings (losses) had been
subject to federal and state income taxes as a C Corporation
since the inception of the Company (see Note 5).
(c) Pro Forma Net Income (Loss) Per Common Share. Pro forma net
income (loss) per common share is computed by dividing pro
forma net income (loss) by the weighted average number of
shares of Common Stock outstanding. Pro forma net income
(loss) includes a pro forma provision for income taxes
assuming the Company had been subject to income taxes during
the period it was an S Corporation for income tax purposes.
All Common Stock and options issued within one year before the
Offering are deemed outstanding for all periods prior to the
Offering. Pro forma net income per common share after the
offering has been computed using the weighted average of the
outstanding Common Stock plus the dilutive Common Stock
equivalents (stock options), using the treasury stock method.
Primary and fully diluted calculations result in the same net
income per common share.
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1996 1995 1995
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Actual weighted average
shares outstanding . . . . 5,057,399 3,893,432 3,150,538 3,050,179
Additional shares . . . . . . 145,726 182,820 362,277 462,636
--------- --------- --------- ---------
Weighted average shares
used in income per share
calculation . . . . . . . . 5,203,125 4,076,252 3,512,815 3,512,815
========= ========= ========= =========
</TABLE>
Page 6 of 14
<PAGE> 7
STERILE RECOVERIES, INC.
Notes to Condensed Financial Statements (Cont'd.)
2. PUBLIC OFFERING
On July 24, 1996, the Company completed the Offering of 2,000,000
shares of its Common Stock priced at $9.50 per share. The net
proceeds of the Offering, after deducting commissions of $1,330,000
and approximately $1,000,000 in expenses, were $16,670,000. In
addition, the underwriters on August 9, 1996 exercised their
overallotment option to purchase 150,000 additional shares of the
Company's Common Stock. Proceeds to the Company of the underwriters'
purchase of shares pursuant to their exercise of the overallotment
option were $1,325,250 after commissions. The Company used
approximately $11,000,000 of the proceeds to retire debt, including
$8,380,832 of debt owed to AMSCO Sterile and $2,139,759 of debt owed
to a lender, Metro Factors, Inc. The supplementary pro forma income
per common share for the three months and nine months ended September
30, 1996, as if this debt has been retired at the beginning of the
respective periods, would be $0.14 and $0.39 per share, assuming
5,441,919 and 4,659,231 weighted average common shares outstanding,
respectively.
The underwriters also on August 9, 1996, exercised their overallotment
option to purchase 150,000 additional shares of Common Stock granted
to them by shareholders Richard T. Isel, Wayne R. Peterson and James
T. Boosales. The Company did not receive any proceeds from these
transactions with its shareholders.
3. INDEBTEDNESS
Acquisition debt consisted of the following as of the following dates:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
Purchase money note - AMSCO Sterile Recoveries,
Inc., monthly principal payments of $100,000
through July 1997 with a balloon payment due
August 1997; interest at a bank's prime rate
(8.75% and 8.25% at December 31, 1995 and
September 30, 1996, respectively) plus 1.5%;
collateralized by all Company assets, excluding
accounts receivable and real and personal
property at the Houston, Texas facility . . . . . . . . . . . . $ -0- $ 9,080,832
============ ===========
</TABLE>
The Purchase Money Security Agreement with AMSCO Sterile Recoveries,
Inc. ("AMSCO Sterile") contained various financial related covenants,
including, among other things, limiting in 1996 the Company's total
allowed capital expenditures and general indebtedness to approximately
$4,400,000 and $18,600,000, respectively. In addition, certain
limitations existed as to the permitted amount of Common Stock
dividends and distributions. During the period ending September 30,
1996, the entire debt to AMSCO Sterile was paid from proceeds of the
Offering and AMSCO Sterile released its liens on the Company's assets.
In March 1996, the Company borrowed $1,000,000 from a director for
working capital pursuant to a secured Convertible Demand Promissory
Note (the "Convertible Note") that is not redeemable before March 1,
1997. The Convertible Note bears interest at an annual rate of 8.5%,
and the entire principal amount of the Convertible Note is payable on
demand on or after March 1, 1997. At any time before that date, up to
$750,000 of the principal amount of the Convertible Note is convertible
into Common Stock at $5.85 per share. The Convertible Note is secured
by a first lien on the Company's Houston facility and the equipment
located there.
Page 7 of 14
<PAGE> 8
STERILE RECOVERIES, INC.
Notes to Condensed Financial Statements (Cont'd.)
The Company has established with First Union National Bank of Florida
a $15.0 million unsecured revolving credit facility that will expire
in July 1999. The facility imposes certain financial covenants.
Beginning January 1, 1997, total outstanding borrowings under the
facility are limited to three times the Company's earnings before
interest, taxes, depreciation, and amortization (EBITDA) for the
previous four quarters (declining to two and one-half times by the
third year). The facility also imposes a covenant concerning the
maintenance during the 1996 year of minimum tangible net worth of
$18,750,000. The minimum net worth requirement increases to
$19,245,000 for 1997 and to $20,745,000 for 1998. Thereafter, the
minimum net worth requirement will be $23,745,000. Pursuant to the
terms of the credit facility, the Company may elect to convert up to
$5.0 million of the available facility into term loans for capital
expenditures that are ratably payable over five years. All borrowings
accrue interest at the London Interbank Offering Rate (LIBOR) plus 200
basis points (7.625% as of October 28, 1996). The facility restricts
the declaration of dividends and prohibits the Company from
encumbering its assets. Currently, there are no borrowings under this
credit facility.
4. ACQUISITION TRANSACTION
In February 1996, the Company purchased the operations of Surgipro.
The Company paid consideration of approximately $600,000, consisting
of 90,000 shares of the Company's Common Stock valued at $526,000 and
a note payable of approximately $109,000 that was paid on the
completion of the Offering, for approximately $500,000 of assets and
the assumption of approximately $400,000 of liabilities. This
acquisition was accounted for as a purchase transaction and,
accordingly, the purchase price was allocated to the assets and
liabilities based upon their estimated fair values at the time of the
acquisition, with the excess of approximately $540,000 being allocated
to goodwill.
The following unaudited pro forma financial information assumes that
the acquisition of Surgipro had occurred at the beginning of the
respective periods after giving effect to certain pro forma
adjustments including, among others, adjustments to reflect
amortization of goodwill. The pro forma information is presented for
informational purposes only and may not be indicative of actual
results had the purchase occurred at the beginning of the respective
periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995
----------------------- ------------- --------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . $ 6,826,762 $23,627,193 $19,221,968
Net income (loss) . . . . . . . . . . . . $ 49,940 $ 1,042,211 $ (625,942)
Net income (loss) per common share . . . $ .01 $ .26 $ (.18)
</TABLE>
5. INCOME TAXES
Pro forma income taxes. For pro forma income tax purposes only, the S
Corporation's cumulative net operating losses as of December 31, 1995
of approximately $1.3 million have been treated as C Corporation net
operating losses, and accordingly, used to reduce pretax earnings in
1996. For all periods presented, the Company chose to recognize only
the tax benefit equivalent to the amount used to eliminate the pro
forma income tax expense, and no additional tax benefits (deferred tax
assets) for the remaining or unused net operating loss carryforward
have been recognized for any of the periods presented, because the
Company's operating profit history has been limited. As of September
30, 1996, for pro forma income tax purposes
Page 8 of 14
<PAGE> 9
STERILE RECOVERIES, INC.
Notes to Condensed Financial Statements (Cont'd.)
only, approximately $200,000 of net operating loss carryforwards exist
which will be used to reduce taxable income during the fourth quarter
of 1996.
Reconciliation of the income tax expense (benefit) calculated using
the federal statutory income tax rate of 34% to the income tax expense
recorded is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Federal income taxes (benefit) at
statutory rate . . . . . . . . . $ 219,000 $ 14,000 $ 366,000 $(220,000)
State income taxes, net of federal
benefit . . . . . . . . . . . . . 29,000 2,000 48,000 (29,000)
Net operating losses not currently
utilizable . . . . . . . . . . . - - - 249,000
Utilization of net operating loss
carryforwards . . . . . . . . . (248,000) (16,000) (414,000) -
-------- --------- --------- ---------
Income tax expense . . . . . $ - $ - $ - $ -
========= ========= ========= =========
</TABLE>
Historical income taxes. In accordance with the provisions of the
Internal Revenue Code, upon the conversion to a C Corporation, a
portion of the income earned after the conversion will be allocated to
the S Corporation. As a result of this allocation, the effective rate
for calculating income taxes is lower than the statutory rates. In
addition, the accounting rules require the establishment of deferred
taxes for all existing temporary differences in the Company's assets'
and liabilities' basis for income and financial reporting purposes at
the date of conversion to a C Corporation. The Company recorded
deferred tax assets of approximately $200,000 at the date of
conversion.
Recorded income tax expense for the three and nine months ended
September 30, 1996 is as follows:
<TABLE>
<S> <C>
Income taxes at effective rate . . . . . . . . . . . . . . . . . . $ 186,000
Income tax benefit from recording deferred tax asset . . . . . . . (200,000)
---------
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . $ (14,000)
=========
</TABLE>
Page 9 of 14
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The Company provides hospitals and surgery centers with a
comprehensive surgical procedure-based delivery and retrieval service for
reusable gowns, towels, drapes, and basins and provides other disposable
products necessary for surgery. At seven regional facilities, the Company
collects, sorts, cleans, inspects, packages, sterilizes, and delivers its
reusable products on a just-in-time basis. The Company offers an integrated
"closed-loop" reprocessing service that uses two of the most technologically
advanced reusable textiles: (i) a GORE(R) Surgical Barrier Fabric for gowns
and drapes that is breathable yet liquidproof and provides a viral/bacterial
barrier and (ii) an advanced microfiber polyester surgical fabric for gowns and
drapes that is liquid and bacterial resistant. The Company believes that its
reusable surgical products made from these fabrics provide protection and
comfort that are superior to disposable alternatives.
The Company purchased the assets of its business from AMSCO Sterile
Recoveries, Inc., an indirect wholly-owned subsidiary of AMSCO International,
Inc., on July 31, 1994 (the "Acquisition").
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of revenues represented by certain items reflected in the statements
of operations of the Company.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 68.2 68.4 68.2 69.9
----- ----- ----- -----
Gross profit
31.8 31.6 31.8 30.1
Distribution expenses 9.4 10.6 9.6 11.3
Selling and administrative expenses 14.3 14.7 14.6 16.2
----- ----- ----- -----
Income from operations 8.1 6.3 7.6 2.6
Interest expense .3 5.7 3.0 6.1
----- ----- ----- -----
Net income (loss) 7.8% .6% 4.6% (3.5)%
===== ====== ===== =====
</TABLE>
REVENUES. The Company's revenues increased $1.7 million, or 26.1%,
to $8.2 million in the third quarter of 1996 from $6.5 million in the third
quarter of 1995. Revenues for the first nine months of 1996 increased $5.1
million, or 27.7%, to $23.5 million from $18.4 million in the first nine months
of 1995. The revenue increases in each period were equally attributable to new
customers and increased revenues from current customers.
GROSS PROFIT. Cost of revenues increased $1.1 million, or 25.7%, to
$5.6 million in the third quarter of 1996 from $4.5 million in the third
quarter of 1995. Cost of revenues increased $3.2 million, or 24.6%, to $16.0
million in the first nine months of 1996 from $12.9 million in the first nine
months of 1995. Gross profit for the third quarter increased 0.2% to 31.8%
from 31.6% in the third quarter of 1995. Gross profit increased 1.7% to 31.8%
in the first nine months of 1996, compared to 30.1% in the first nine months of
1995. The improvement in gross profit is largely attributable to labor
efficiencies in the pack room and the economies of scale associated with
spreading fixed costs over more revenues. These favorable developments were
partially offset by increased costs for amortization of reusable surgical
products and the Company's relatively lower gross profit on its distribution of
a third party vendor's disposable products.
GORE is a registered trademark of W. L. Gore & Associates, Inc.
Page 10 of 14
<PAGE> 11
DISTRIBUTION EXPENSES. Distribution expenses increased $83,000, or
12.0%, to $773,000 in the third quarter of 1996 from $690,000 in the third
quarter of 1995. Distribution expenses increased $170,000, or 8.2%, to $2.2
million in the first nine months of 1996 from $2.1 million in the first nine
months of 1995. Distribution expenses as a percentage of revenues decreased
1.2% to 9.4% in the third quarter of 1996 from 10.6% in the third quarter of
1995. For the first nine months of 1996, distribution expenses decreased 1.7%
to 9.6% from 11.3% in the first nine months of 1995. The Company incurs
distribution expenses both in transporting its reusable surgical products
locally and to outlying metropolitan areas. The improvement in distribution
expenses as a percentage of revenues resulted primarily from efficiencies
derived from delivering more volume over existing routes.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased $218,000, or 22.7%, to $1.2 million in the third quarter of
1996 from $1.0 million in the third quarter of 1995. Selling and
administrative expenses increased $459,000, or 15.4%, to $3.5 million in the
first nine months of 1996 from $3.0 million in the first nine months of 1995.
As a percentage of revenues, selling and administrative expenses decreased 0.4%
to 14.3% during the third quarter of 1996 from 14.7% during the third quarter
of 1995, and decreased 1.6% to 14.6% during the first nine months of 1996 from
16.2% during the first nine months of 1995, primarily due to the leveraging of
fixed administrative expenses over additional revenues.
INTEREST EXPENSE. Interest expense decreased $349,000, or 94.1%, to
$22,000 in the third quarter of 1996 from $371,000 in the third quarter of
1995. Interest expense decreased $410,000, or 36.5%, to $714,000 in the first
nine months of 1996 from $1.1 million in the first nine months of 1995. As a
percentage of revenues, interest expense decreased 5.4% to 0.3% during the
third quarter of 1996 from 5.7% during the third quarter of 1995, and decreased
3.1% to 3.0% during the first nine months of 1996 from 6.1% during the first
nine months of 1995. These decreases occurred as a result of retiring the
AMSCO Sterile note and the working capital loan facility, and the recognition
of interest income from the Offering proceeds that remained after payment of
debt.
INCOME BEFORE INCOME TAX EXPENSE. As a result of the foregoing, the
Company's income before taxes increased to $645,000 in the third quarter of
1996, from an income before taxes of $40,000 in the third quarter of 1995. For
the first nine months of 1996, income before taxes increased to $1.1 million,
from a net loss of $646,000 in the first nine months of 1995. As a percentage
of revenues, income before taxes in the third quarter of 1996 was 7.8% of
revenues compared to an income before taxes of 0.6% of revenues in the third
quarter of 1995, and income before taxes in the first nine months of 1996 was
4.6% of revenues compared to a net loss of 3.5% of revenues in the first nine
months of 1995.
INCOME TAX EXPENSE. During the third quarter of 1996, the Company
changed from an S Corporation to a C Corporation for federal income tax
purposes. This change required the Company to record a deferred tax asset to
account for the differences between book and tax basis of assets and
liabilities. The result was a tax benefit of approximately $200,000 which
offset the income tax expense for the quarter (see Note 5).
NET INCOME PER SHARE. The Company recorded a pro forma net income per
share of $0.12 for the third quarter, which reflects the effect of a $248,000
tax benefit from the utilization of net operating loss carryforwards. Earnings
for the third quarter would have been $0.08 per share if fully taxed at an
effective rate of 38.5% (see Note 5).
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital have been from sales of
debt and equity securities, cash flows from operations, operating leases for
facilities and distribution vehicles, and available borrowings under its
working capital loan facility. In July and August 1996, the Company raised
$17.9 million through the sale of 2,150,000 shares of its Common Stock in an
initial public offering (the "Offering").
The Company's positive cash flow from operating activities was
$1,248,449 during the first nine months of 1996, compared to $582,622 during
the first nine months of 1995. The increase in cash from operating activities
from 1995 to 1996 resulted primarily from increased net income before
amortization and depreciation expense. This increase was partially offset by
cash used for increased accounts receivable. Inventories at September 30, 1996
were $820,103, compared to $305,450 at December 31, 1995. The increase in
inventory reflects the introduction and
Page 11 of 14
<PAGE> 12
continued growth of disposable surgical products to supplement the Company's
delivery and retrieval service for reusable surgical products.
The Company used approximately $2.9 million more net cash in investing
activities in the first nine months of 1996 than in the first nine months of
1995. The Company has made capital expenditures in 1996 for equipment of
$784,000 and for reusable surgical products of $2.6 million to support sales
growth, as compared to $174,000 for equipment and $306,000 for reusable
surgical products in the first nine months of 1995. These expenditures were
funded primarily by cash provided by financing and operating activities. The
Company received approximately $19.2 million during the first nine months of
1996 from the Offering, a private sale of Common Stock of $300,000, and a
$1,000,000 loan from a director pursuant to a secured convertible note. These
funds were used to retire debt of approximately $11.0 million and to purchase
additional assets.
During 1996, the Company has substantially increased its expenditures
for reusable surgical products, primarily to support anticipated increases in
business. The Company's business is capital intensive and will require
substantial capital expenditures for additional surgical products and equipment
during the next several years to achieve its operating and expansion plans. To
adequately service a new customer, the Company estimates that it makes an
investment in new reusable surgical products and carts equal to approximately
50% of the projected first year revenue from the customer. Until the beginning
of 1996, the Company minimized its new purchases of reusable surgical products
by using excess stocks of reusable surgical fabrics and products that were
included in the Acquisition at a relatively low cost. The Company estimates
that its capital expenditures for new carts and reusable surgical products will
continue at a relatively increased rate for the next 12 months, although the
amount will fluctuate depending on the growth rate of its business.
The Company amortizes its reusable surgical products on a per use
basis, based on estimates of the products' useful lives. The Company's
purchase of used reusable surgical products in the Acquisition at approximately
17% of AMSCO Sterile's net book value has resulted in lower amortization
expense since the Acquisition. The Company's purchases of new reusable
surgical products at current replacement cost will increase future amortization
and shrinkage expense for those assets.
The Company used approximately $11 million of the net proceeds of the
Offering to retire its working capital loan facility and acquisition debt
during the third quarter. Before the Offering, the business of the Company was
financed primarily with interest-bearing borrowings that negatively impacted
its earnings during those periods. The Company's interest expense in the first
nine months of 1996 was $714,000. The use of a portion of the Offering
proceeds to retire most of the Company's outstanding indebtedness will, on an
annualized basis, eliminate interest expense of approximately $1.3 million and
principal payments to AMSCO Sterile of approximately $1.2 million. Subsequent
to the Offering, the Company has cash of approximately $6.5 million, which it
invests to earn interest income. The excess cash and cash generated from
operations will be used to fund purchases of additional stocks of reusable
surgical products, primarily to support anticipated growth in revenues, and
other capital expenditures as necessary to support additional facility
capacity.
The Company has established with First Union National Bank of Florida
a $15.0 million unsecured revolving credit facility that will expire in July
1999. The facility imposes certain financial covenants. Beginning January 1,
1997, total outstanding borrowings under the facility are limited to three
times the Company's earnings before interest, taxes, depreciation, and
amortization (EBITDA) for the previous four quarters (declining to two and
one-half times by the third year). The facility also imposes a covenant
concerning the maintenance during 1996 of minimum tangible net worth of at
least $18,750,000. The Company currently complies with these covenants. The
minimum tangible net worth requirement increases to $19,245,000 for 1997 and
$20,745,000 for 1998. Thereafter, the minimum net worth requirement will be
$23,745,000. Pursuant to the terms of the credit facility, the Company may
elect to convert up to $5.0 million of the available facility into term loans
for capital expenditures that are ratably payable over five years. All
borrowings accrue interest at the London Interbank Offering Rate (LIBOR) plus
200 basis points (7.625% as of October 28, 1996). The facility restricts the
declaration of dividends and prohibits the Company from encumbering its assets.
Page 12 of 14
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor any of its property is subject to any
litigation or other legal proceeding that is expected to have a
material effect on the Company or its business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
The Company did not file a report on Form 8-K during the three months
ended September 30, 1996.
Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Exhibit Description
10.32 Loan Agreement dated October 15, 1996, between the
Company and First Union National Bank of Florida
10.33 Revolving Line of Credit Promissory Note dated
October 15, 1996, executed by the Company in favor of
First Union National Bank of Florida
10.34 Security Agreement dated October 15, 1996, executed
by the Company in favor of First Union National Bank
of Florida
27 Financial Data Schedule (for SEC use only)
Page 13 of 14
<PAGE> 14
SIGNATURE
Pursuant to the requirements 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.
STERILE RECOVERIES, INC.
Date: November 12, 1996 By: /s/ James T. Boosales
---------------------------------
James T. Boosales
Executive Vice President and
Chief Financial Officer
Page 14 of 14
<PAGE> 1
EXHIBIT 10.32
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of the
15th day of October, 1996, by and between FIRST UNION NATIONAL BANK
OF FLORIDA, a national banking association (the "Lender"), and STERILE
RECOVERIES, INC., a Florida corporation (the "Borrower"), and is made in
reference to the following facts:
(A) The Lender has made available to Borrower a credit facility in
the amount of FIFTEEN MILLION AND N0/100 DOLLARS ($15,000,000.00) (the "Loan")
consisting of (i) a revolving line of credit (the "Revolving Loan") and
(ii) individual Term Loans (as defined below) made from time to time at
Borrower's request to fund its equipment purchases (the "Term Debt").
(B) The Loan is evidenced by a Revolving Line of Credit Note (the
"Note") that matures on August 31, 1999, as to the Revolving Loan, and on the
last day of the specified amortization period with respect to each Term Loan
(in each case, the "Maturity Date"). The Revolving Loan is unsecured; each
Term Loan will be secured by a security interest in the equipment purchased
with the Term Loan proceeds pursuant to an instrument of security
(collectively, the "Instruments of Security").
(C) This Agreement, the Note, the Instruments of Security, and the
other documents that evidence or secure the Loan collectively comprise the
"Loan Documents" and their execution by Borrower is required by the Lender as a
condition to the Loan.
NOW THEREFORE, for and in consideration of the mutual covenants and
conditions contained herein and other valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties covenant and agree as
follows:
ARTICLE I - INTRODUCTORY PROVISIONS
1.1 Recitals. The statements contained in the recitals of fact
set forth above (the "Recitals") are true and correct, and the Recitals by this
reference are made a part of this Agreement.
1.2 Exhibits. All exhibits attached to this Agreement are by this
reference incorporated in and made a part hereof.
1.3 Abbreviations and Definitions. The following abbreviations
and definitions will be used for purposes of this Agreement:
(a) The abbreviations and definitions set forth in the
Preamble and Recitals will be used for purposes of this Agreement.
<PAGE> 2
(b) The "Agreement" mean this Loan Agreement between the
parties; as amended from time to time.
(c) "Collateral" means the Equipment of the Borrower that
Borrower acquires with the proceeds of a Term Loan and that is subject to a
security interest granted to Lender as security for the Term Loan (and not for
the Revolving Loan or any other Term Loan) pursuant to an Instrument of
Security.
(d) "Default" means any event or condition which, with
the giving or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder or under the Loan Documents;
(e) "EBITDA" means Borrower's earnings before interest,
taxes, depreciation and amortization, as those terms are used under generally
accepted accounting principles, consistently applied.
(f) "Equipment" means individual items of equipment
purchased by Borrower from time to time with proceeds of a Term Loan, together
with all parts, accessories, attachments, additions, replacements, accessions,
substitutions, increases, products and proceeds thereof in any form.
(g) "Loans" means collectively, the Revolving Loan and
any Term Loans then outstanding hereunder.
(h) "Permitted Debt" means the $1,000,000.00 convertible
demand promissory note payable by Borrower to Lee R. Kemberling with a stated
interest rate of eight and one-half percent (8.5%) per annum, and secured by a
first lien on the Borrower's Houston, Texas facility and the equipment located
at such facility, excluding any newly acquired Collateral at the facility that
is financed with a Term Loan and encumbered by an Instrument of Security in
favor of Lender. Beginning March 1, 1997, such convertible note becomes
payable on demand and may be redeemed by the Borrower for face value. A
maximum amount of $750,000.00 may be converted to common stock at any time
prior to March 1, 1997.
"Permitted Debt" also means (a) the Loan; (b) up to TWO HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($250,000.00) incurred by Borrower during each calendar year
consisting of capital leasing obligations; (c) up to TWO HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($250,000.00) of debt incurred by Borrower during each
calendar year with alternative lenders for capital expenditures; (d) trade
payables and operating expenses incurred by Borrower in the ordinary course of
business; (e) debt in existence on the date of this Agreement and disclosed in
Borrower's financial statement furnished to Lender; (f) other debt to which
Lender consents in writing from time to time; and (g) any extensions, renewals,
replacements, modifications, and refundings of any of the foregoing debt.
2
<PAGE> 3
(i) "Permitted Liens" means
(i) liens securing the Loan;
(ii) liens currently securing the Permitted Debt
in favor of Lee R. Kemberling described under "Permitted Debt", except such
liens shall be subordinate to the Instruments of Security in favor of Lender as
to the Collateral encumbered thereby;
(iii) (1) liens for taxes, assessments, and other
similar governmental charges that are not yet delinquent or where the validity
of which are being contested in good faith by appropriate proceedings and as
required by applicable law as permitted herein;
(2) deposits under workers'
compensation, unemployment insurance, and social security laws, or to secure
the performance of bids, tenders, contracts (other than for the payment of
borrowed money), or leases, or to secure statutory obligations or surety or
appeal bonds, or to secure indemnity performance or other similar bonds, made
in the ordinary course of business;
(3) liens imposed by law, such as
carriers', warehousemen's or mechanics' liens, incurred in the ordinary course
of business;
(4) easements, rights-of-way,
restrictions, and other similar encumbrances incurred in the ordinary course of
business that do not in the aggregate materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Borrower;
(5) any attachment, judgment, or similar
Lien, unless the writ or judgment or other process it secures shall not, within
thirty (30) days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or shall not have been discharged within thirty
(30) days after the expiration of any such stay; and
(6) liens of landlords or of mortgagees
of landlords, arising solely by operation of law, on fixtures and moveable
property located on premises leased in the ordinary course of business,
provided that the rental payments secured thereby are not yet delinquent.
(iv) liens on particular equipment (and related
intangibles) that is subject to Permitted Debt consisting of obligations or
capital leasing obligations; and
(v) such other liens to which Lender consents in
writing from time to time in its sole and absolute discretion.
(j) "Revolving Loan" means the revolving line of credit
portion of the Loan (and includes any portion of the Loan that is not Term
Debt).
3
<PAGE> 4
(k) "Senior Debt" means loans or debt securities that
have claims prior to junior obligations and equity on Borrower's assets in the
event of liquidation. Senior Debt, as the term is used under generally
accepted accounting principles, consistently applied, includes funds borrowed
from banks, insurance companies, or other financial institutions, as well as
notes, bonds or debentures not expressly defined as junior or subordinated.
(l) "Subordinated Debt" means any and all existing or
future loans or other indebtednesses owed by the Borrower to shareholders,
officers, or directors of the Borrower, excluding the Permitted Debt.
(m) "Tangible Net Worth" means the total of all assets
appearing on a balance sheet prepared in accordance with generally accepted
accounting principles for the Borrower after deducting therefrom (without
duplication or deductions):
(i) Any write-up in the book carrying value of
any asset resulting from a re-evaluation thereof;
(ii) All reserves, including, but not limited to,
reserves for liabilities, fixed or contingent, deferred income taxes,
obsolescence, depletion, insurance and inventory valuation, which are not
deducted from assets;
(iii) The amount, if any, at which shares of stock
of the Borrower appears as an asset;
(iv) All indebtedness of the Borrower; and
(v) All goodwill, research and development, and
other intangible items of any kind appearing on the asset side of such balance
sheet.
(n) "Term Debt" means that component of the Loan that
constitutes Term Loans.
(o) "Term Loans" means the individual advances of
proceeds of the Loan disbursed from time to time as term loans in accordance
with Section 2.2.
ARTICLE II - LOAN
2.1 Revolving Loan.
(a) Subject to the terms and conditions of this
Agreement, provided no Event of Default exists, Lender shall loan to Borrower,
when requested by Borrower, Revolving Loans aggregating up to an amount equal
to $15,000,000.00 less the total of the principal balances outstanding as
Revolving Loans and Term Debt. Within these limits, and subject to the
4
<PAGE> 5
limitations of this Agreement, Borrower may borrow, make payments, and reborrow
under this Agreement. Borrower's obligation to repay the Revolving Loan will
be evidenced by the Note.
(b) The principal amount of the Revolving Loan
outstanding from time to time hereunder shall bear interest at the rate of
interest as set forth in the Note. Accrued interest and principal outstanding
from time to time under the Note shall be repaid in the manner set forth in the
Note.
2.2 Term Loans.
(a) Subject to the terms and conditions of this Agreement
and provided that no Event of Default exists, Lender agrees to make available
to Borrower on a term basis, when requested from time to time in accordance
with this section, Term Loans in principal amounts aggregating up to
$5,000,000.00. Borrower's obligation to repay the Term Loans will be
evidenced by the Note.
(b) Each Term Loan shall be payable by Borrower pursuant
to an amortization schedule of up to five years, established by Lender at its
discretion and documented by Lender in a written confirmation setting forth the
Loan amount, advance date, and amortization schedule. The terms of the
confirmation letter will be deemed correct in the absence of manifest error,
and at Lender's request, Borrower shall execute additional promissory notes or
other acknowledgment of the Loan terms.
(c) Each Term Loan shall bear interest at the rate set
forth in the Note.
(d) Borrower shall pay principal on each Term Loan in
equal monthly installments during the relevant amortization period on the fifth
(5th) day of each month beginning on the fifth (5th) of the first month
following the funding of the Loan, and pay interest monthly in arrears on the
outstanding balance of each Term Loan. Borrower shall repay on the fifth (5th)
day of the last month of the amortization period all outstanding principal and
accrued interest with respect to the Term Loan not previously paid.
(e) The maximum amount of any Term Loan will be 100% of
Borrower's confirmed cost of making the acquisition that is financed by the
Term Loan, less "soft costs," as determined by the Lender for Equipment
purchased, including taxes and delivery and set-up charges.
(f) To request a Term Loan, Borrower shall submit to
Lender a written borrowing request that includes the following information:
(i) a description of the Equipment to be acquired, (ii) the cost of the
acquisition and invoices or equivalent information substantiating the purchase,
(iii) when the acquisition will occur, (iv) the proposed amount of the Term
Loan to finance the acquisition, and (v) any other information requested by
Lender regarding the Term Loan or the proposed Collateral. Each Term Loan will
be subject to Lender's prior written approval of the proposed terms, including
the Collateral and the relationship between the amount of the Loan and
5
<PAGE> 6
the Collateral value. Borrower shall not request and Lender shall not be
required to consider any request for a Term Loan if such request would cause
the principal balance of the Loan to exceed $15,000,000.00 or the principal
balance of all Term Loans to exceed $5,000,000.00.
(g) Before any advance is made of proceeds of a Term
Loan, Borrower must have delivered to Lender (i) a UCC-1 financing statement
describing the Equipment constituting Collateral for filing in the appropriate
place in the jurisdiction in which the Collateral will be located, (ii) a
UCC-11 search of Borrower that confirms the absence of a lien on the Equipment
constituting Collateral for the Term Loan, (iii) evidence satisfactory to
Lender that the Borrower's status is active and the Term Loan transaction has
been authorized, and (iv) if appropriate for the jurisdiction and requested by
Lender, a landlord waiver of lien with respect to the Collateral. The
Equipment purchased shall be free and clear of all liens, security interests
and encumbrances, except (i) that which shall be in favor of Lender by virtue
of the Instruments of Security in favor of Lender, and (ii) the lien described
in Section 1.3(i)(ii) above so long as it is located at the Houston, Texas
facility and remains subordinate to the Instruments of Security.
2.3 Terms Governing All Loans.
(a) Borrower shall execute and deliver to Lender one
promissory note (the "Note") in the face amount of the Loan, payable to the
order of Lender, evidencing Borrower's obligation to repay the Loan.
(b) The applicable interest on the Revolving Loan and any
Term Loans shall be at the rate of interest as set forth in the Note.
(c) Borrower shall make all payments of interest and
principal under the Note without setoff or counterclaim, and in such coin or
currency of the United States of America that at the time of payment is legal
tender for the payment of public and private debt. Payments made after
2:00 p.m. St. Petersburg, Florida, time may be credited on the next banking day.
(d) Each borrowing under a Loan shall be effected by
crediting the amount thereof to the regular checking account of Borrower
maintained with Lender or with another bank approved by Lender.
(e) If the aggregate outstanding principal amount of the
Term Loan and the Revolving Loan at any time exceeds $15,000,000.00 or if the
aggregate outstanding balance of all Term Loans exceeds $5,000,000.00, Borrower
shall immediately pay to Lender such excess as a reduction of the principal
amount of the Loan. Borrower may request, and Lender may be willing in its
sole and absolute discretion, to make advances in excess of such maximum
principal amounts. All advances in excess of the maximum principal amount
shall be payable on demand and bear interest as provided in this Agreement for
the Loan generally.
6
<PAGE> 7
(f) As a condition to any advance made under the Loan,
all of the warranties and representations contained in this Agreement, as to
the date hereof, shall then be true and correct, and no default beyond the
applicable curative period shall exist thereunder.
2.4 Use of Proceeds. Borrower shall use the proceeds of the
Revolving Loan to provide working capital support. Borrower shall use the
proceeds of each Term Loan to acquire the Equipment specified in its loan
request.
2.5 Loan Fees. In addition to the loan commitment fee which has
been or is being paid by Borrower to Lender at closing of the Loan on the date
hereof, in the amount of THIRTY-TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($32,500.00), Borrower shall pay the following Loan fees to Lender, promptly
when due, during the term of the Loans:
(a) Unused Fee. The Borrower shall promptly pay to the
Lender at the end of each calendar quarter during the term of the Loan, in
arrears, a loan fee of one-quarter of one percent (1/4%) per annum (the "Line
of Credit Unused Loan Fee"), of the average undisbursed Loan proceeds at the
end of each calendar quarter (the "Line of Credit Principal Unused Loan
Amount"), which is calculated as follows: The face amount of the Note for each
month during the calendar quarter, less the amount of Loan outstanding from
time to time during such month during each calendar quarter, averaged on a
daily basis for each month, which three (3) months averaged Line of Credit
Principal Unused Loan Amount shall be added together and divided by three, and
which sum equals the Line of Credit Unused Loan Fee Amount times .0025 divided
by 4 (applicable quarter) equals the Loan Fee.
In hypothetical example only, the Line of Credit Principal Unused Loan Fee that
would be due by Borrower to Lender during a calendar quarter consisting of the
months of January, February and March, in example, is calculated as follows:
<TABLE>
<S> <C>
1. Month of January:
$15,000,000.00 (Face Amount of Note)
$ 2,000,000.00 (Less average daily disbursed principal amount)
--------------
$13,000,000.00 (Line of Credit Principal Unused Loan Amount for Month of January)
2. Month of February:
$15,000,000.00 (Face Amount of Note)
$ 5,000,000.00 (Less average daily disbursed principal amount)
--------------
$10,000,000.00 (Line of Credit Principal Unused Loan Amount for Month of February)
3. Month of March:
$15,000,000.00 (Face Amount of Note)
$ 4,000,000.00 (Less average daily disbursed principal amount)
--------------
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C>
$11,000,000.00 (Line of Credit Principal Unused Loan Amount for Month of
March)
4. Total of: $13,000,000.00
$10,000,000.00
$11,000,000.00
--------------
$34,000,000.00
5. $34,000,000.00 divided by 3 equals $11,333,333.33 the
averaged Line of Credit Principal Unused Loan Amount
for the applicable period.
6. $11,333,333.33 x .0025 = $28,833.33
7. $28,833.33 divided by 4 (per annum) = $7,083.33,
which is the quarterly Line of Credit Principal
Unused Loan Fee.
</TABLE>
(b) Term Loan Advance Fees. The Borrower shall promptly
pay to Lender at the time of Lender's making of each Term Loan a Term Loan
advance fee equal to one-quarter of one percent (1/4%) per annum of the
principal amount of each Term Loan.
ARTICLE III - ADDITIONAL LOAN PROVISIONS
3.1 Financial and Operational Disclosures as to the Loans.
(a) The Borrowers shall furnish to Lender on the
forty-fifth (45th) day following the end of each calendar quarterly period
during the term of any of the Loans the information and analysis indicating the
compliance by Borrower with the financial requirements of this Agreement in the
form set forth in Exhibit "A", or in such other form acceptable to Lender, in
its sole discretion.
(b) No later than ninety (90) days following the end of
each calendar or fiscal year end of Borrower, whichever is appropriate, during
the term of the Loans, the Borrower shall provide to Lender its audited
financial statements, prepared on a consolidating and consolidated basis, that
are prepared by a certified public accountant acceptable to the Lender in its
sole discretion, and reflecting its operations, including without limitation, a
balance sheet, profit and loss statement and statement of cash flows, with
supporting schedules and a 10-K report as filed with the Securities and
Exchange Commission.
(c) No later than forty-five (45) days following the end
of each calendar quarter during the term of the Loans, the Borrower shall
provide to Lender its unaudited internally prepared quarterly comparative
financial statements, including without limitation, a balance sheet,
8
<PAGE> 9
profit and loss statement, and statement of cash flows, with supporting
schedules and a 10-Q report, as filed with the Securities and Exchange
Commission.
(d) The Borrower shall provide to the Lender during the
term of the Loans photocopies of the Borrower's annual corporate tax returns,
as appropriate, that is submitted to the Internal Revenue Service (the "IRS"),
together with all supporting documentation therefor, no later than ten (10)
days of the submission of the same to the IRS.
All of the foregoing reports must be provided timely by Borrower to Lender in a
form and content acceptable to Lender in its sole discretion. Additionally,
Borrower shall furnish such additional information as Lender shall request from
time to time in its sole discretion.
3.2 Financial Covenants. In addition to the financial
reporting and requirements set forth above, the Borrower hereby agrees to the
following financial covenants at all times during the terms of the Loans:
(a) Borrower shall maintain a minimum Tangible
Net Worth as follows:
(i) From the date of closing through
December 30, 1996, measured quarterly, Borrower shall achieve and maintain a
minimum Tangible Net Worth of the Borrower of not less than $18,750,000.00;
(ii) As of December 31, 1996, and
measured quarterly through December 30, 1997, Borrower shall achieve and
maintain a minimum Tangible Net Worth of not less than $19,245,000.00;
(iii) As of December 31, 1997, and
measured quarterly through December 30, 1998, Borrower shall achieve and
maintain a minimum Tangible Net Worth of not less than $20,745,000.00; and
(iv) As of December 31, 1998, and
measured quarterly thereafter, Borrower shall achieve and maintain a minimum
Tangible Net Worth of not less than $23,745,000.00.
(b) Borrower shall comply with the following
covenants with respect to Senior Debt/EBITDA:
(i) Beginning December 31, 1996, and
measured quarterly during the calendar year 1997, Senior Debt at quarter end
shall not exceed 3.0 times EBITDA for the most recent twelve month period.
(ii) Beginning December 31, 1997, and
measured quarterly during the calendar year 1998, Senior Debt at quarter end
shall not exceed 2.75 times EBITDA for the most recent twelve month period.
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(iii) Beginning December 31, 1998, and
measured quarterly during the calendar year 1999, Senior Debt at quarter end
shall not exceed 2.5 times EBITDA for the most recent twelve month period.
Failure of the Borrower to achieve or maintain any of the aforementioned
financial covenants within the time periods indicated shall constitute a
default under the Loan and the Loan Documents, and shall entitle Lender to
immediately accelerate the same, without further notice, grace or curative
period (notwithstanding anything contained herein or in the Loan Documents to
the contrary).
ARTICLE IV - USURY
It is not the intention of the parties hereto to make any agreement
which shall be violative of the laws of the State of Florida relating to usury.
In no event shall Borrower or Lender accept or charge any interest which,
together with any other charges upon the principal or any portion thereof,
howsoever computed, shall exceed the maximum legal rate of interest allowable
under the laws of the State of Florida. Should any provisions of this
Agreement or any existing or further Note, Loan Agreements or any other
agreements between the parties be construed to require the payment of interest
which, together with any other charges upon the principal, or any portion
thereof, exceeds such maximum legal rate of interest, then any such excess
shall be and is hereby expressly waived, and shall be credited to the
outstanding principal balance.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
5.1 Organization, Standing, Corporate Power. Borrower is a
corporation duly formed, validly existing and in good standing under the laws
of the State of Florida. The Borrower has appropriate power and authority to
own its properties and to carry on its businesses as now being conducted, and
the Borrower has appropriate power and authority to execute and perform this
Agreement and to deliver the Note, and all other documents, instruments and
agreements provided for herein.
5.2 This Agreement. The execution and performance by the Borrower
of this Agreement, the borrowing hereunder, and the execution and delivery of
the Note and all other documents, instruments and agreements provided for
herein (a) have been duly authorized by all requisite corporate action; (b)
will not violate any provision of law or of the respective charter documents as
amended to the date hereof of Borrower; and (c) will not violate or be in
conflict with, result in a breach of, or constitute a default under any
indenture, agreement and other instrument to which the Borrower is a party or
by which it or any of its properties are bound, or any order, writ, injunction
or decree of any court or governmental institution.
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5.3 Litigation. There are no actions, suits or proceedings
pending, or to the knowledge of the Borrower, threatened against or adversely
affecting the Borrower at law or in equity or before or by any federal agency
or instrumentality, domestic or foreign, which involve any of the transactions
herein contemplated or the possibility of any judgment or liability which might
reasonably be expected to result in any material and adverse change in the
business, operations, property or assets, or in the condition, financial or
otherwise, of the Borrower. The Borrower is not in default with respect to any
judgment, order, writ, injunction, decree, rule or regulation of any court, or
federal, state, municipal or other governmental department.
5.4 Financial Statements. The Borrower has heretofore furnished
to the Lender balance sheets, annual statements, and other financial
information which are, to the best of its knowledge, correct and complete and
accurately present the financial condition and the results of the operation of
the Borrower as of the dates thereof. Since the date of the last furnishing of
said financial statements, there has been no material adverse change in the
financial condition of the Borrower.
5.5 Taxes. The Borrower has filed or caused to be filed all
federal and state tax returns which, to the knowledge of the officers thereof,
are required to be filed, and has paid or caused to be paid all taxes as shown
on said returns or on any assessment received by it and not being contested in
good faith, to the extent that such taxes have become due.
5.6 Other Instruments. Except as reflected on the financial
statements, the Borrowers are not a party to any agreement or instrument or
subject to any charter or other restrictions adversely affecting its business,
properties or assets, operations or condition, financial or otherwise.
5.7 Property and Assets. The Borrower has good and marketable
title to all the property and assets reflected on the most recent financial
statement furnished to the Lender, except such as have been disposed of in the
ordinary course of business since the date of said financial statement and all
such property and assets are free and clear of mortgages, pledges, liens,
charges or other encumbrances, except as are reflected on the financial
statements or as permitted by this Agreement.
5.8 Regulation U. No part of the proceeds of any Loans hereunder
will be used to purchase or carry, or to reduce or retire any loan incurred to
purchase or carry, any margin stocks (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) or to extend credit to others
for the purpose of purchasing or carrying any such margin stocks. The Borrower
is not engaged in the business of extending credit, nor is one of the
Borrower's important activities extending of credit, for the purpose of
purchasing or carrying such margin stocks. If requested by the Lender, the
Borrower shall furnish to the Lender in connection with any loan hereunder a
statement in conformity with the requirements of Federal Reserve Form U-1
referred to in said regulation.
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ARTICLE VI - CONDITIONS PRECEDENT
The obligation of the Lender to make the Loan hereunder is subject to
the following conditions precedent:
Condition to Disbursement. The obligation of the Lender to make any
loan or any disbursement under a Loan hereunder shall be subject to the
following conditions precedent:
(a) Representations and Warranties. In order to induce the Lender
to enter into this Agreement and to make the Loan or any Term Loans herein
provided for and disbursements thereunder, the Borrower represents and warrants
to the Lender that on the date of each borrowing or disbursement hereunder, the
representations and warranties set forth in this Agreement shall be true and
correct on and as of the date of such borrowing or disbursement, with the same
force and effect as though such representations and warranties had been made on
and as of such date.
(b) No Default. At the time of each borrowing or disbursement
hereunder, the Borrower has observed and performed all of the terms, conditions
and agreements set forth herein on its part to be observed or performed and no
Event of Default specified below, nor any event which, upon notice or lapse of
time or both, would constitute such an Event of Default, shall have occurred
and be continuing.
(c) Officer's Certificate. At the end of each calendar quarter,
the Borrower shall deliver to the Lender a certificate signed by the Treasurer
or Controller of the Borrower dated such date confirming that: to his
knowledge, no default exists hereunder, and no event which would become an
Event of Default upon notice or lapse of time or both has occurred and is then
continuing; there is no litigation or proceeding pending or, to his knowledge,
threatened against or affecting the Borrower, the result of which might
reasonably be expected to materially adversely affect the financial condition,
business or operations of the Borrower; and there has been no materially
adverse change in the financial condition of the Borrower since the date of the
latest financial statement of Borrower submitted to the Lender.
(d) Financial Statements. All financial statements, information
and other data furnished by the Borrower to the Lender in connection with the
Borrower's application for credit hereunder are, in all material respects,
accurate and correct; the financial statements have been prepared in accordance
with generally accepted accounting practices and accurately represent the
financial condition of the Borrower, except as approved by the Lender and
disclosed therein; no materially adverse changes have occurred since the date
of said statements; and no liabilities, contingent or otherwise, not shown on
said financial statements exist.
(e) Liens and Encumbrances. The properties and assets of the
Borrower, real, personal and mixed, are not subject to any liens or
encumbrances or outstanding financing statements, whether filed or unfiled,
except for liens for taxes not yet due and liens or encumbrances on personal or
real property as reflected in the Borrower's audited financial statements and
except for
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those liens and encumbrances on properties acquired subsequent to said
statement or permitted by this Agreement elsewhere herein.
(f) Litigation. There are no actions, suits, proceedings or
claims pending or threatened against or affecting the Borrower, the result of
which might reasonably be expected to materially adversely affect the financial
condition, business or operations of the Borrower.
(g) Authority. This Agreement and the Note provided for herein
are valid and binding obligations of the Borrower.
ARTICLE VII - AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with the Lender that from the date
hereof and so long as any sums are outstanding or may be borrowed hereunder,
unless the Lender shall otherwise consent in writing delivered to the Borrower,
it will:
7.1 Entity Existence. Do or cause to be done all things necessary
to preserve, renew and keep in full force and effect their respective entity
existence, and all its rights, licenses, permits and franchises required at the
date hereof, or which may be required in the future conduct of their
businesses, and comply with all laws and regulations applicable to them that
materially affect the Borrower, and conduct and operate their businesses in the
same lines and in substantially the same manner in which presently conducted
and operated (subject to changes in the ordinary course of business), and at
all times maintain, preserve and protect all property used and useful in the
conduct of its businesses, and maintain same in good working order and
condition.
7.2 Insurance. Keep its insurable properties adequately insured
at all times by financially sound and reputable insurers, and maintain such
other insurance to such extent and against such risks, including liability
insurance, fire, windstorm, and other risks insured against by extended
coverage as Lender shall require in its reasonable discretion. Borrower will
furnish Lender with a copy of such insurance policies containing an endorsement
in favor of Lender as loss payee as its interest may appear.
7.3 Obligations and Taxes. Pay all indebtedness and obligations
promptly and in accordance with normal terms, and pay and discharge promptly
all taxes, assessments and governmental charges or levies imposed upon them or
in respect of its properties, before the same shall become in default, as well
as all lawful claims for labor, materials and supplies or otherwise which, if
unpaid, might become a lien or charge upon such properties or any part thereof;
provided, however, that the Borrower shall not be required to pay and discharge
or cause to be paid and discharged any such tax assessment, charge, levy or
claim so long as the validity thereof shall be contested in good faith by
appropriate proceedings and the Borrower shall set aside on its books adequate
reserves with respect to any such tax, assessment, charge, levy or claim so
contested.
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7.4 Notice of Litigation. Furnish to Lender within ten (10) days
after service of process or equivalent notice, written notice of any material
litigation, including arbitrations and of any material proceeding by or before
any governmental agency.
7.5 Notice of Default. The Borrower will give prompt written
notice to Lender of all events of default under any of the terms and provisions
of this Agreement, the Note, or of any other agreement, contract, indenture,
document or instrument entered, or to be entered into by it; if applicable,
changes in management, litigation, and of any other matter which has resulted
in, involving more than $100,000.00, a materially adverse change in its
financial condition or operation; and immediately provide Lender with a copy of
its reports filed with the Securities and Exchange Commission.
7.6 Records. The Borrower will keep and maintain full and
accurate accounts and records of its operations according to generally accepted
accounting principles and practices, and will permit Lender and its designated
officers, employees, agents and representatives to have access thereto and to
make examination thereof at all reasonable times, to make audits, and to
inspect and otherwise check its properties, real, personal and mixed. Unless
Borrower is in Default or Lender otherwise has reasonable cause to do so,
Lender will not exercise its right to gain access to the business premises of
Borrower more than one time in a calendar quarter. Lender shall provide
Borrower with at least 48 hours advance notice of any visit to Borrower's
premises.
7.7 Execution of Other Documents. The Borrower will promptly,
upon demand by Lender, execute all such additional agreements, contracts,
indentures, documents and instruments in connection with this Agreement as
Lender, in its sole discretion, may reasonably deem necessary.
7.8 Subordinated Debt. There is no existing debt of the Borrower
which shall be deemed Subordinated Debt, except for the Permitted Debt, which
is not being subordinated. Any and all existing or future loans or other
indebtednesses owed to shareholders, officers, or directors of the Borrower
shall be subject, subordinate and inferior to the interest of the Lender in the
Loans and the Loan Documents, except as to the Permitted Debt. Such
subordination shall be evidenced by a Subordination of Indebtedness Agreement
executed by the appropriate parties as to all Subordinated Debt existing on the
date hereof, in form and substance acceptable to the Lender in its sole
discretion. The Borrower shall cause a like Subordination of Debt to be
immediately executed by the appropriate parties as to any future Subordinated
Debt.
7.9 Depository Account. Borrower will maintain its primary
depository account with the Lender at all times during the term of the Loans.
7.10 Landlords' Waivers. The Borrower shall promptly furnish to
the Lender during the term of the Loans a photocopy of any written leases
entered into by it for the leasing of real property upon which to conduct its
business operations, which the Lender may require, in its reasonable
discretion. Upon the Lender's request, the Borrower shall use reasonable
efforts to
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cause the execution by the landlord of such property of a Landlord's Waiver in
favor of the Lender, wherein the landlord waives its landlord's right in favor
of the Lender as to any personal property of the Borrower located on such
premises that is subject to a security interest in favor of Lender. Such
Landlord's Waiver shall be in form and content acceptable to the Lender in its
reasonable discretion.
7.11 Additional Security. To secure each Term Loan, Borrower
grants to the Lender a first purchase money security interest in the particular
equipment that Borrower acquires with the proceeds of each Term Loan (the
"Collateral"). Lender's security interest in each item of Collateral will
secure only the Term Loan that funded its purchase. The Lender will receive
this security interest in purchased equipment automatically without any further
action by the Lender when the Lender makes the advance that funds the
applicable equipment purchase.As reflected in this Agreement, the security
interest of the Lender in the Collateral will be perfected by the filing of the
UCC-1 Financing Statements in the state in which the Collateral is located.
During the term of a Term Loan, the Lender may require that the
Lender's security interest in the Collateral located in other states be
perfected as security for such Term Loan. If so required by the Lender, in its
sole and absolute discretion, during the term of such a Term Loan, the Borrower
will execute and deliver additional UCC-1 Financing Statements or other
instrument as required by the state in which such UCC-1 Financing Statement or
other instrument will be filed or recorded, to the Lender for filing in other
states, and in such event, the Borrower will pay the costs of preparation,
filing and recording such additional UCC-1 Financing Statements. The proper
form of UCC-1 Financing Statement or other instrument required by the state in
which the new Collateral will be located shall be provided by Borrower to
Lender, at Borrower's sole cost and expense. Further, Borrower shall provide,
at its expense, to the Lender, if so required by the Lender, in its sole and
absolute discretion, appropriate UCC searches and retrievals in such other
states to reflect the Lender as having a first security interest in those
states as to the Collateral. Simultaneously with the execution and delivery by
Borrower to Lender of a UCC-1 Financing Statement or other instrument as
required for each new Collateral, the Borrower shall provide to Lender, at its
sole expense, an executed Landlord Waiver and Opinion of Counsel in favor of
Lender. Borrower will not be required to execute a UCC-1 Financing Statement
for any purpose other than perfecting the Lender's security interest in
Collateral (Equipment purchased with Term Loan proceeds).
ARTICLE VIII - NEGATIVE COVENANTS
The Borrower covenants and agrees with Lender that from the date
hereof and so long as any sums are outstanding or may be borrowed under the
Loans, unless the Lender shall otherwise consent in writing delivered to the
Borrower, it will not:
8.1. Indebtedness. Create or incur any current debt except in the
regular course of business for goods and services and will not incur, create,
assume or permit to exist any indebtedness or liability for borrowed money or
any indebtedness evidenced by notes, bonds, debentures or similar obligations,
contingent or direct, if giving effect to such additional debt on a
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pro forma basis causes the aggregate amount of Borrower's debt, except for the
Note evidencing the Loan in favor of Lender, and except for the Permitted Debt,
to exceed $50,000.00.
8.2 Notes, Accounts. Sell, discount or otherwise dispose of
notes, accounts or other rights to receive payments, with or without recourse,
except for collection in the ordinary course of business.
8.3 Disposal of Property; Merger. Sell, lease, transfer or
otherwise dispose of its properties and assets having a historical cost of
$100,000.00 or more, whether now owned or hereafter acquired, except in the
ordinary course of business; or consolidate with or merge into any other
corporation, or acquire all or substantially all the assets of any other
person, firm or corporation.
8.4 Loans. Make any loans to any person, firm or corporation, or
become a guarantor or surety, nor pledge its credit in any manner, directly or
indirectly, which in the aggregate would exceed $50,000.00, except in the
ordinary course of business for business travel and expense advances.
8.5 Payments to Shareholders. Declare or pay any cash payments
with respect to stock to Borrowers' shareholders by way of dividends,
repurchases, or retirement of stock, or otherwise.
8.6 Liens. Incur, create, assume or permit to exist any mortgage,
pledge, lien, charge, security deed, deed of trust, or other encumbrance of any
nature whatsoever on any property or assets now owned or hereafter acquired by
the Borrower, except the Permitted Liens. Further, Borrower shall not permit
the entry of any monetary judgment or the assessment against, the filing of any
tax lien against, or the issuance of any writ of garnishment or attachment
against any property of or debts due Borrower in an amount in excess of
$50,000.00 and that is not discharged or execution is not stayed within thirty
(30) days of entry.
8.7 Sale and Leaseback. The Borrower will not enter into any sale
and leaseback agreement with respect to any of Borrower's fixed assets.
8.8 Default Under Other Agreements or Contracts. The Borrower
will not commit to do or fail to commit to do, any act or thing which would
constitute an Event of Default under any of the terms or provisions of any
other agreement, mortgage, contract, indenture, document or instrument executed
by it involving more than $100,000.00, except those that may be contested in
good faith, and would not, if settled unfavorably, materially and adversely
affect the financial condition of the Borrower.
8.9 Prepayments. Except in the ordinary course of business, make
any prepayments on any of its debts and obligations, including any notes,
leases, contracts and salaries, except for payments to trade creditors made in
order to take advantage of cash discounts and except for the prepayment of any
indebtedness owed by Borrower to Lender.
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8.10 Compliance with Law Generally. Be in violation of any law,
ordinance, governmental rules or regulations to which Borrower is subject, or
fail to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of the properties of Borrower or to
the conduct of its businesses, which violation or failure to obtain might
reasonably be expected to materially adversely affect the business, properties,
results of operation, or condition (financial or otherwise) of Borrower.
8.11 Fiscal Year. Change Borrower's fiscal year end at any time
during the term of the Loans without the consent of Lender, in its sole
discretion.
8.12 Investments. Purchase any stock, securities, or evidence of
indebtedness of any other person or entity except investments in direct
obligations of the United States Government and its agencies, certificates of
deposit of United States commercial banks having a tier 1 capital ratio of not
less than six percent (6%) and then in an amount not exceeding ten percent
(10%) of the issuing bank's unimpaired capital and surplus, daily accessible,
non-price fluctuating money market funds, commercial paper rated at least A1
(Standard & Poor's) P1 (Moody's), and letter of credit enhanced variable rate
demand notes rated at least A1 (Standard & Poor's) PI (Moody's).
ARTICLE IX - DEFAULTS AND REMEDIES
9.1 Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrences shall be voluntary or involuntary, or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body), then Lender shall be entitled to the
remedies set forth in Section 11.2 of this Agreement. The Events of Default
shall include, but not be limited to, the following:
(a) Any representation or warranty made herein or in any
report, certificate, financial statement or other instrument furnished in
connection with this Agreement, or the borrowing hereunder shall prove to be
false or misleading in any material respect when made;
(b) Default shall occur in the payment of interest or
principal on any indebtedness referred to herein, including the Note, within
five (5) days after the same shall become due and payable, whether at the due
date thereof or by acceleration or otherwise, or failure of the Borrower to
make payment of principal or interest on any other obligation for borrowed
money in excess of $100,000.00 beyond any period of grace provided with respect
thereto, or in the performance of any other agreement, term or condition
contained in any agreement under which any such obligation is created, if the
effect of such default is to cause or permit the holder or holders of such
obligation to accelerate the maturity thereof, except for obligations that
Borrower is contesting in good faith;
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(c) Any default shall occur in the due observance or
performance of any covenant, agreement or other provision of this Agreement or
the Instruments of Security referred to above other than for the payment of
money, and such default continues unremedied for a period of thirty (30) days
after notice from Lender;
(d) The Borrower shall: (i) apply for or consent to the
appointment of a receiver, trustee in bankruptcy for benefit of creditors, or
liquidator of it or any of its property; (ii) admit in writing its inability to
pay its debts as they mature; (iii) make a general assignment for the benefit
of creditors; (iv) be adjudicated a bankrupt or insolvent; (v) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors, or seeking to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute or an answer admitting an act of bankruptcy alleged in a
petition filed against it in any proceeding under any such law; or (vi) take
any action for the purposes of effecting any of the foregoing;
(e) An order, judgment or decree shall be entered against
the Borrower with the application, approval or consent of the Borrower by any
court of competent jurisdiction, approving a petition seeking its
reorganization or appointing a receiver, trustee or liquidator of the Borrower,
or of all or a substantial part of the assets thereof, and such order,
judgement or decree shall continue unstayed and in effect for any period of
sixty (60) days from the date of entry thereof;
(f) Final judgments for the payment of money in excess of
an aggregate of $50,000.00, excluding claims covered by insurance, shall be
rendered against the Borrower and the same shall remain undischarged for a
period of thirty (30) consecutive days during which execution shall not be
effectively stayed, provided that a judgment shall be deemed "final" only when
the time for appeal shall have expired without an appeal having been claimed,
or all appeals and further review claimed to have been determined adversely to
the Borrower; or
(g) Default by the Borrower in the terms and provisions
of any mortgages on its facilities which are not cured within any applicable
grace period.
9.2 Remedy. Upon the occurrence of any such Event of Default
which is not cured within thirty (30) days, Lender may, at its option, declare
all indebtedness of principal and interest due and payable, whereupon the Note
(notwithstanding any provisions hereof) shall be immediately due and payable,
and Lender shall have and may exercise from time to time any and all rights and
remedies available to it under any applicable law; and Borrower shall promptly
pay all costs of Lender of collection of any and all liabilities, and
enforcement of rights hereunder, including reasonable attorney's fees, and
legal expenses of any repairs to any of the Collateral, and expenses of repairs
to any realty or other property to which any of the Collateral may be affixed.
Any notice of sale, disposition or other intended action by Lender sent to
Borrower, at the address of Borrower specified herein or at any other address
shown on the records of the Lender at least ten (10) days prior to such action,
shall constitute reasonable notice to Borrower. Expenses of retaking, holding,
preparing for sale, selling, or the like, shall include Lender's
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reasonable attorney's fees and legal expenses. Upon disposition by Lender of
any property of Borrower in which Lender has a security interest, Borrower
shall be and remain liable for any deficiency, and Lender shall account to
Borrower for any surplus, and to hold the same as a reserve against all or any
liabilities of Borrower to Lender whether or not they, or any of them be then
due, and in such order of application as Lender may, from time to time, elect.
All rights, powers and remedies contained herein or in any other agreement,
instrument or document executed in connection herewith are cumulative. Without
in any way limiting the generality of the foregoing, the Lender shall also have
the following specific rights and remedies:
(a) To take immediate possession of any of the Collateral
securing the Loans, whether now owned or hereafter acquired, without notice,
demand, presentment or resort to legal process, and, for those purposes, to
enter any premises where any of the Collateral is located and remove the
Collateral therefrom or render it unusable.
(b) To require the Borrower to assemble and make the
Collateral available to the Lender at a place to be designated by the Lender
which is also reasonably convenient to the Borrower.
(c) To retain the Collateral in satisfaction of any
unpaid principal or interest on the Loans or sell the Collateral at public or
private sale after giving at least ten (10) days' notice of the time and place
of the sale and with or without having the Collateral physically present at the
place of the sale.
(d) To make any repairs to the Collateral which the
Lender deems necessary or desirable for the purposes of the sale.
(e) To exercise any and all rights of set-off which the
Lender may have against any account, fund, or property of any kind, tangible or
intangible, belonging to the Borrower which shall be in the Lender's possession
or under its control.
(f) To cure such defaults, with the result that all costs
and expenses incurred or paid by the Lender in effecting such cure shall be
additional charges on the Loans which bear interest at the interest rate of the
Loan and are payable upon demand.
The proceeds from any disposition of the Collateral for the Loans shall be used
to satisfy the following items in the order they are listed:
(a) The expenses of taking, removing, storing, repairing,
holding, and selling the Collateral, including any legal costs and attorneys'
fees. If the Note is referred to an attorney for collection, the Borrower
agrees to pay reasonable attorney's fees not to exceed fifteen percent (15%) of
the amount of the outstanding balance of the Note at the time it is referred to
the attorney.
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(b) The expense of liquidating or satisfying any liens,
security interests, or encumbrances on the Collateral which may be prior to the
security interest of the Lender.
(c) Any unpaid fees, accrued interest, and then the
unpaid principal amount of the Loan.
(d) Any other indebtedness of the Borrower to the Lender.
If the proceeds realized from the disposition of the Collateral shall fail to
satisfy any of the foregoing items, the Borrower shall forthwith pay any
deficiency to the Lender upon demand.
ARTICLE X - APPOINTMENT OF A RECEIVER
In case of default beyond the applicable curative period in any of the
terms, covenants and provisions of the Agreement, or upon the institution of
suit to enforce any rights and remedies of Lender hereunder, then Lender shall
immediately and without notice, be entitled as a matter of right to the extent
provided by law, and without regard to the value of the Collateral, or the
solvency or insolvency of the Borrower, to the appointment of a Receiver of all
assets of Borrower, or any of them, with the usual powers of Receivers in such
cases, said Receiver to continue to act for such period of time as the Court
appointing said Receiver may deem just and proper.
ARTICLE XI - MISCELLANEOUS
11.1 Notices. Any notice shall be conclusively deemed to have been
received by the Borrower and be effective on the day on which delivered to the
Borrower at the following address:
Sterile Recoveries, Inc.
28100 U.S. Highway 19 North, Suite 201
Clearwater, Florida 34621
Attention: James T. Boosales
Executive Vice President
Copy to: Glenn Rasmussen & Fogarty, P.A.
Post Office Box 3333
Tampa, Florida 33601
Attention: David S. Felman, Esquire
11.2 Survival of Representations. All covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loans herein
contemplated and the execution and delivery to Lender of the Note
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evidencing the Loan and shall continue in full force and effect so long as any
indebtedness created hereunder is outstanding and unpaid. All covenants and
agreements by or on behalf of either party which are contained or incorporated
in this Agreement shall bind and inure to the benefit of the successors and
assigns of both parties hereto.
11.3 Effect of Delay. Neither any failure nor any delay on the
part of Lender in exercising any right, power or privilege hereunder or under
the Note shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise or the exercise of any
other right, power or privilege.
11.4 Expenses. The Borrower will pay all out-of-pocket expenses
reasonably incurred by Lender in connection with the preparation of this
Agreement, the borrowings hereunder, and the enforcement of the rights of
Lender in connection with this Agreement, or with the Loans made or the Note
issued hereunder, including but not limited to the fees of and expenses of
counsel for Lender.
11.5 Modification and Waivers. No modification or waiver of any
provision of this Agreement or of the Note nor consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand
on the Borrower in any case shall thereby entitle the Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.6 Business Day. Should any installment on the Note become due
and payable on other than a business day of the Lender, the maturity thereof
shall be extended to the next succeeding business day with interest on the
principal amount thereof at the rate set forth herein.
11.7 Remedies Cumulative. Any rights or remedies of the Lender
hereunder or under the Note, or any other security agreement or writing shall
be cumulative and in addition to every other right or remedy contained therein
or herein, whether now existing or hereafter at law or in equity or by statute
or otherwise.
11.8 Binding Agreement. This Agreement shall be binding upon
Borrower and its successors and assigns and the terms hereof shall inure to the
benefit of Lender and its successors and assigns.
11.9 Exhibits. All references to "Exhibits" contained herein are
references to exhibits attached to the Agreement, the terms and conditions of
which are made a part hereof for all purposes, the same as if set forth herein
verbatim.
11.10 Number and Gender of Words. Whenever herein the singular
number is used, the same shall include the plural where appropriate, and words
of any gender shall include each other gender where appropriate.
21
<PAGE> 22
11.11 Captions. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
11.12 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part.
11.13 Governing Law. All documents executed pursuant to the
transactions contemplated herein, including, without limitation, this Agreement
and each of the Loan Documents, shall be deemed to be contracts made under, and
for all purposes shall be construed in accordance with, the internal laws and
judicial decisions of the State of Florida even though executed outside
thereof; provided that this Section 13.14 shall not affect the applicability
of, and interpretation or construction of, appropriate terms and provisions
under the Uniform Commercial Code of any jurisdiction which govern the security
interests in any of the Collateral. The Borrower hereby submits to the
jurisdiction and venue of the state and federal courts of Florida for the
purposes of resolving disputes hereunder or for the purposes of collection.
11.14 Indemnification. The Borrower hereby agrees to indemnify and
hold Lender harmless from and against any and all loss, damage, cost and
expense, including attorney's fees and costs, that the Lender may incur or
sustain by reason of the assertion of a claim or ruling by a governmental
entity that documentary stamp tax, intangible tax or any penalties or interest
associated therewith must be paid by reason of the execution and delivery of
any of the Note, Loan Documents, or this Agreement, or any subsequent renewals,
modifications, or amendments of the Note, Loan Documents, or this Agreement,
including but not limited to the Term Loans. The Borrower's indemnity under
the foregoing provision will not apply to the extent that the specified loss,
damage, cost, or expense arises from the Lender's moving a Note into the State
of Florida for purposes other than enforcement or requirement by any
governmental authority.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above set forth.
Signed, sealed and delivered FIRST UNION NATIONAL BANK OF
in the presence of: FLORIDA, a national banking association
By:
- ----------------------------- ------------------------------
SIGNATURE SIGNATURE
- ----------------------------- ---------------------------------
NAME LEGIBLY PRINTED, NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED TYPEWRITTEN OR STAMPED
Its President
- ----------------------------- -------------
SIGNATURE
(CORPORATE SEAL)
- -----------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Lender
STATE OF )
-------------------
COUNTY OF )
-------------------
The foregoing instrument was acknowledged before me this
______ day of ______________, 1996, by ________________________________, the
______ President of FIRST NATIONAL BANK OF FLORIDA, a national banking
association, on behalf of the association.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED
---------------------------------
------------------------------------------
SIGNATURE
------------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
23
<PAGE> 24
Signed, sealed and delivered STERILE RECOVERIES, INC.,
in the presence of: a Florida corporation
/s/ [witness] By: /s/ Bertram T. Martin, Jr.
- ----------------------------- ------------------------------
SIGNATURE SIGNATURE
[witness name] Bertram T. Martin, Jr.
NAME LEGIBLY PRINTED, NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED TYPEWRITTEN OR STAMPED
/s/ [witness] Its Executive Vice President
- -----------------------------
SIGNATURE
[witness name] (CORPORATE SEAL)
- -----------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Borrower
STATE OF [state name] )
-------------------
COUNTY OF [county name] )
-------------------
The foregoing instrument was acknowledged before me this
15th day of October, 1996, by Bertram T. Martin, Jr., the Executive Vice
President of STERILE RECOVERIES, INC., a Florida corporation, on behalf of the
corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED
---------------------------------
/s/ [notary name]
------------------------------------------
SIGNATURE
[notary name]
------------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
24
<PAGE> 25
EXHIBIT "A"
$15,000,000.00 COMMERCIAL REVOLVING LINE OF CREDIT
$5,000,000.00 AGGREGATE AMOUNT OF TERM LOANS
QUARTERLY LOAN AGREEMENT COMPLIANCE CERTIFICATION
To: FIRST UNION NATIONAL BANK OF FLORIDA
This shall certify that, for the quarter ending ______________________,
199______, STERILE RECOVERIES, INC., a Florida corporation (the "Borrower"),
will ________________ in compliance with the Loan Agreement.
I. FINANCIAL REPORTING COMPLIANCE
----------
A. Quarterly compliance certification within
forty-five (45) days of quarter end __________
B. Quarterly comparative unaudited
financial statements, with supporting
schedules and a 10-Q report within
forty-five (45) days of quarter end __________
C. Annual audited financial statements, prepared
on consolidating and consolidated basis, with
supporting schedules and a 10-K report
within ninety (90) days following each calendar
or fiscal year end of Borrower __________
ACTUAL COMPLIANCE
--------------------
II. Minimum Tangible Net Worth based on formula
set forth in the Loan Agreement between the parties ________ __________
III. Senior Debt/EBITDA as set forth in Loan Agreement
between parties
IV. No additional debt on pro forma basis causing Borrower's
debt to exceed $50,000.00, except for Permitted Debt
as defined in Loan Agreement between parties. ________ __________
V. No additional loans or advances, except ordinary course of
business travel and expense advances, which total more
than $50,000 in the aggregate ________ __________
25
<PAGE> 26
VI. No dividends to stockholders, etc. ________ __________
VII. No change in Borrower's fiscal year ________ __________
VIII. No purchase of stock, securities, etc.
except as set forth in Loan Agreement
between parties. ________ __________
IX. Borrowing under the line of credit has not
exceeded availability as determined by Lender
both as to Line of Credit Principal and Term Debt. ________ __________
DATE: CERTIFIED BY: STERILE RECOVERIES, INC.
-------------------------
By:
--------------------------
Its Authorized Officer
26
<PAGE> 1
EXHIBIT 10.33
REVOLVING LINE OF CREDIT NOTE
$15,000,000.00 [city], [state]
October 15, 1996
FOR VALUE RECEIVED, the undersigned, STERILE RECOVERIES, INC., a
Florida corporation (the "Borrower"), promises to pay to the order of FIRST
UNION NATIONAL BANK OF FLORIDA, a national banking association (the "Lender"),
the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00),
together with interest on the principal balance remaining unpaid from time to
time at the rates set forth below.
Revolving Line-of-Credit. This Note evidences revolving
line-of-credit extended by the Lender to the Borrower on the date hereof (the
"Loan"). Proceeds of this Note may be disbursed by the Lender to the Borrower
and shall be repaid by the Borrower to the Lender in the manner set forth below
in this Note and in accordance with a Loan Agreement being executed by the
Lender and the Borrower on or about the date hereof (the "Loan Agreement").
Proceeds that are disbursed and repaid from time to time shall be thereafter
available for redisbursement under this Note as provided in the Loan Agreement.
Provided however, the principal amount outstanding under this Note shall not at
any time exceed the principal sum shown above, nor the maximum amount permitted
under the terms of the Loan Agreement.
Term. The term of this Note is from the date of this Note through and
including August 31, 1999 (the "Term"). The last day of the Term will be
sometimes referred to below as the "Maturity Date".
Term Loans. The indebtedness evidenced by this Note shall consist of
two (2) components. The first component is the revolving line of credit
portion of the Note, and applies solely to any principal indebtedness of the
Note that is not Term Debt (the "Line of Credit Principal"). The second
component is any term loans that may be made from time to time by Lender to
Borrower as provided herein and in the Loan Agreement, which term loans shall
not exceed in the aggregate the principal sum of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) (the "Term Debt"). All Term Debt loans ("Term Loans")
shall be on terms and shall be repaid in the manner as set forth in the Loan
Agreement.
Interest. The principal balance of this Note remaining unpaid from
time to time, both as to the Line of Credit Principal and the Term Debt, shall
bear interest strictly as provided below.
Definitions. As used in this Note, the following terms shall have the
respective meanings indicated:
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
<PAGE> 2
(a) "Additional Interest" shall mean the aggregate of all amounts
paid by the Borrower to Lender pursuant to the provisions of
the Additional Costs Paragraph below.
(b) "Applicable Margin" means as follows:
(i) Two hundred (200) basis points from the date of this
Note to one (1) year from the date of this Note;
(ii) One hundred ninety (190) basis points from one (1)
year from the date of this Note to two (2) years from
the date of this Note; and
(iii) One hundred seventy-five (175) basis points from two
(2) years from the date of this Note to the Maturity
Date.
(c) "Authorized Officer" means any of the President or Executive
Vice Presidents of the Borrower, or, with respect to financial
matters, the Treasurer or chief financial officer of the
Borrower, or any other person expressly designated by the
Board of Directors (or the appropriate committee thereof) of
the Borrower as an Authorized Officer for purposes of this
Note, in each case to be evidenced by documentation reasonably
acceptable to Lender.
(d) "Base Rate" means, in respect of each applicable Interest
Period, the offered rate for deposits in Dollars in the amount
of the then outstanding principal amount of the Loan expressed
as a percentage and rounded upward if necessary to the nearest
1/8 of 1% (which shall be the same for each date of the
Interest Period), being offered to major top quality banks at
11:00 a.m. London time, on the first day of an applicable
Interest Period for settlement in immediately available funds
by major top credit quality banks in the London Interbank
Market for a period equal to thirty (30) days. The Base Rate
shall be adjusted on the first day of each Interest Period to
the Base Rate then in effect, and shall continue until the
next adjustment, namely the first day of the following
Interest Period. Such adjustment shall occur automatically
upward or downward on each effective date of any change in the
rate, and shall be made without notice to the Borrower or any
other person or entity.
(e) "Business Day" shall mean a day on which Lender is open for
business in St. Petersburg, Florida.
(f) "Dollars" and the symbol "$" means Dollars constituting legal
tender for the payment of public and private debts in the
United States of America.
(g) "Interest Period" means each number of days that the Base Rate
remains constant, with the first day of the Interest Period
being the first date of a Base Rate change, and
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
2
<PAGE> 3
the last day of each such Interest Period being
the last day such interest rate remains in effect.
(h) "LIBOR Rate" means, for the Interest Period, the rate of
interest per annum determined pursuant to the following
formula:
Base Rate
---------
LIBOR Rate = 1-Reserve Requirement plus Applicable Margin
(i) "Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve, as the same may be amended or
supplemented from time to time.
(j) "Regulatory Change" means any change effective after the date
of this Note in United States Federal or state laws or
regulations (including Regulation D and capital adequacy
regulations) or foreign laws or regulations or the adoption or
making after such date of any interpretations, directives or
requests applying to a class of banks which includes the
Lender, under any United States Federal or state or foreign
laws or regulations (whether or not having the force of law)
by any court or governmental or monetary authority charged
with the interpretation or administration thereof; and
(k) "Reserve Requirement" means, for the Loan (for any Interest
Period) therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves)
are required to be maintained during such Interest Period
under Regulation D by the member banks of the Federal Reserve
System with respect to Dollar funding in the London interbank
market. Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required
to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities
which includes deposits by reference to which the Base Rate is
to be determined or (ii) any category of extensions of credit
or other assets which include the Loan.
Additional Costs.
(a) The Borrower shall promptly pay to the Lender from time to time,
such amounts as Lender may determine to be necessary to compensate it for any
costs incurred by Lender which it determines are attributable to its making or
maintaining any loan hereunder or its obligation to make any loan hereunder, or
any reduction in any amount receivable by Lender under this Note or any Term
Loan, including reductions in the rate of return on a Lender's capital (such
increases in costs and reductions in amounts receivable and returns being
herein called "Additional Costs"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to Lender under this
Note in respect of loan (other than taxes imposed on the income of Lender by
any jurisdiction in which the Lender is located); or (ii) imposes or modifies
any
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
3
<PAGE> 4
reserve, special deposit, or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, Lender
(other than any such reserve, deposit or requirement reflected in the LIBOR
Rate, in each case computed in accordance with the respective definitions of
such terms set forth in this Note); or (iii) has or would have the effect of
reducing the rate of return on capital of Lender to a level below that which
the Lender could have achieved but for such Regulatory Change (taking into
consideration Lender's policies with respect to capital adequacy); or (iv)
imposes any other condition affecting this Note (or any of such extensions of
credit or liabilities); provided that, if any such increased cost or reduction
results from any circumstances described in clauses (ii) through (iv) of this
subsection, the Borrower shall not be obligated to compensate Lender for such
increased costs or reductions occurring more than ninety (90) days prior to the
time Lender first notifies the Borrower of such circumstances. Lender will
notify an Authorized Officer of any event occurring after the date hereof which
would entitle it to compensation pursuant to this Additional Costs paragraph
promptly after it obtains knowledge thereof.
(b) Without limiting the effect of the foregoing provisions of this
Additional Costs paragraph in the event that, by reason of any Regulatory
Change, Lender either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or other
liabilities of the Lender which includes deposits by reference to which the
interest rate on the Loan is determined as provided in this Note or a category
of extensions of credit or other assets of Lender which includes the Loan or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if the Lender so elects, the
obligation of Lender to make the Loan hereunder shall be suspended until the
date such Regulatory Change ceases to be in effect.
(c) Determinations by Lender for purposes of this Additional Costs
paragraph of the effect of any Regulatory Change on its costs of making or
maintaining, or being committed to make the Loan or on amounts receivable by it
in respect of the Loan, and of the additional amounts required to compensate
the Lender in respect of any Additional Costs, shall be conclusive absent
manifest error, provided that such determinations are made on a reasonable
basis. The Lender shall furnish to an Authorized Officer an explanation of the
Regulatory Change and calculations, in reasonable detail, setting forth
Lender's determination of any such Additional Costs.
Suspension of Loan. Anything herein to the contrary notwithstanding,
if, on or prior to the determination of any interest rate for the Loan for any
Interest Period therefor, the Lender determines (which determination made on a
reasonable basis shall be conclusive absent manifest error) that:
(a) quotations of interest rates for the relevant deposits referred
to in the definition of LIBOR Rate set forth above are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
the rate of interest for the Loan as provided in this Note; or
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
4
<PAGE> 5
(b) the relevant rates of interest referred to in the definition of
"Base Rate" set forth above upon the basis of which the LIBOR Rate for such
Interest Period is to be determined do not adequately reflect the cost to the
Lender of making or maintaining the Loan for such Interest Period;
then the Lender shall give an Authorized Officer prompt notice thereof, and so
long as such condition remains in effect, the Lender shall be under no
obligation to make the Loan. The Lender shall give an Authorized Officer
notice describing in reasonable detail any event or condition described in this
Suspension of Loan paragraph promptly following the Lender's determination that
the availability of the Loan is, or is to be, suspended as a result thereof.
Illegality. Notwithstanding any other provision of this Note, in the
event that it becomes unlawful for Lender to honor its obligation to make or
maintain the Loan hereunder, then Lender shall promptly notify the Borrower
thereof and Lender's obligation to make or continue the Loan shall be suspended
until such time as Lender may again make and maintain the Loan.
Compensation. The Borrower shall promptly pay to Lender, upon the
request of Lender, such amount or amounts as shall be sufficient (in the
reasonable determination of Lender) to compensate it for any loss, cost or
expense incurred by it as a result of any payment, prepayment or conversion of
the Loan on a date other than the last day of the Interest Period for the Loan;
such compensation to include, without limitation, an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted for the period from the date of
such payment, prepayment or conversion to the last day of the then current
Interest Period for the Loan at the applicable rate of interest for the Loan
provided for herein, but excluding loss of margin for the period after any such
payment, failure to borrow or convert, over (ii) the Base Rate (as reasonably
determined by the Lender) for Dollar deposits of amounts comparable to such
principal amount and maturities comparable to such period. A determination of
Lender as to the amounts payable pursuant to this Compensation paragraph shall
be conclusive absent manifest error, provided that such determinations are made
on a reasonable basis. Lender shall furnish to an Authorized Officer
calculations in reasonable detail setting forth Lender's determination of the
amount of such compensation.
Computation of Interest. Interest on the amount of each advance made
pursuant to this Note shall be computed on the amount of each advance and from
the date of each advance at the LIBOR Rate applicable to such advance. All
interest on this Note shall be computed for the actual number of days elapsed
and on the basis of a year consisting of 360 days, unless the Highest Lawful
Rate would thereby be exceeded, in which event, to the extent necessary to
avoid exceeding the Highest Lawful Rate, interest shall be computed on the
basis of the actual number of days elapsed in the applicable calendar year in
which accrued.
Interest Period. Each Interest Period shall commence on the date the
Base Rate changes and shall end at 12:00 o'clock midnight on the date prior to
the next Interest Period.
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
5
<PAGE> 6
Interest Limitation. Notwithstanding any other provision of this Note
or of any instrument securing this Note or any other instrument executed in
connection with the Loan evidenced hereby, it is expressly agreed that the
amounts payable under this Note or under the other aforesaid instruments for
the payment of interest or any other payment in the nature of or which would be
considered as interest or other charge for the use or loan of money shall not
exceed the highest rate allowed by law, from time to time, to be charged by
Lender (the "Highest Lawful Rate"). In the event the provisions of this Note or
of any instruments referred to in this paragraph, regarding the payment of
interest or other payments in the nature of or which would be considered as
interest or other charge for the use or loan of money operate to produce a rate
that exceeds such limitation, then the excess over such limitation will not be
payable and the amount otherwise agreed to have been paid shall be reduced by
the excess so that such limitation will not be exceeded, and if any payment
actually made shall result in such limitation being exceeded, the amount of the
excess shall constitute and be treated as a payment on the principal hereof and
shall operate to reduce such principal by the amount of such excess, or if in
excess of the principal indebtedness, such excess shall be refunded.
Payments. Principal and interest shall be due and payable and shall
be paid at Post Office Box 44142, Jacksonville, Florida 32231-4142, Attn:
Commercial Loan Department, or at such other place as the Lender may designate
from time to time as follows:
(i) Monthly Payments. Accrued interest shall be due and payable
and shall be paid monthly, commencing on the fifth (5th) day of the month next
following the date of this Note is executed, and on the same day of each
succeeding month thereafter through and including the same day of the month
next preceding the Maturity Date.
(ii) Other Payments. Payments of principal and other required
payments of interest shall be due and payable and shall be paid in the manner
described in the Loan Agreement.
(iii) Maturity Date. On the Maturity Date, all indebtedness
evidenced by this Note (whether unpaid principal, accrued interest or
otherwise) that remains unpaid shall be due and payable and shall be paid.
Late Charge. Any installment not received within fifteen (15) days
when due shall be subject to, and it is agreed that the Lender shall collect
thereon and therewith a "late charge" in the amount of five percent (5%) of the
payment upon each such delinquent installment. Said "late charge" shall be
immediately due and payable and shall be paid by the Borrower without notice or
demand of the holder hereof.
Prepayment. Except as otherwise set forth in the Loan Agreement,
Borrower shall have the option of prepaying all or any part of the principal of
this Note at any time during the term of this Note, without notice, premium or
penalty for the privilege of such prepayments. Any partial prepayments shall
not postpone the due date of any subsequent monthly installments or change the
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
6
<PAGE> 7
amount of such installments, unless the Lender shall otherwise agree in
writing. In the event of any full prepayment, all accrued interest and other
charges evidenced by this Note and the instruments of security for this Note
shall be paid at the same time as such full principal prepayments.
Consent and Waiver. Each Obligor (which term shall mean and include
the Borrower, each guarantor, each endorser, and all others who may become
liable for all or any part of the obligations evidenced and secured hereby),
does hereby, jointly and severally: (a) consent to any forbearance or
extension of the time or manner of payment hereof and to the release of all or
any part of any security held by the Lender to secure payment of this Note and
to the subordination of any instrument of security securing this Note as to all
or any part of the property encumbered thereby, all without notice or consent
of that party; (b) agree that no course of dealing or delay or omission or
forbearance on the part of the Lender in exercising or enforcing any of its
rights or remedies hereunder or under any instrument securing this Note shall
impair or be prejudicial to any of the Lender's rights and remedies hereunder
or to the enforcement hereof and that the Lender may extend or postpone the
time and manner of payment and performance of this Note and any instrument
securing this Note, may grant forbearances and may release, wholly or
partially, any security held by the Lender as security for this Note and
release, partially or wholly, any person or party primarily or secondarily
liable with respect to this Note, all without notice to or consent by any party
primarily or secondarily liable hereunder and without thereby releasing,
discharging or diminishing its rights and remedies against any other party
primarily or secondarily liable hereunder; and (c) except as otherwise set
forth in this Note and the instruments of security for this Note, waive notice
of acceptance of this Note, notice of the occurrence of any default hereunder
or under any instrument securing this Note and presentment, demand, protest,
notice of dishonor and notice of protest and notices of any and all action at
any time taken or omitted by the Lender in connection with this Note or any
instrument securing this Note and waives all requirements necessary to hold
that party to the liability of that party.
Lien. The Lender is hereby granted a lien upon and a security interest
in all property of each Obligor now or at any time hereafter in the possession
of the Lender in any capacity whatsoever, including but not limited to any
balance or share of any deposit, trust or agency account as security for the
payment of this Note, and the Lender is hereby authorized upon default to
apply, on or after maturity (whether by acceleration or otherwise) to the
payment of this debt any such funds or property in possession of the Lender
belonging to each Obligor, in such order of application as Lender may from time
to time elect, without advance notice.
Cross Default. A default under this Note shall be and constitute a
default under any and all other notes or other evidence of indebtedness and any
instruments of security therefor in which an Obligor is liable and of which the
Lender is the holder (collectively the "Other Notes"). A default under any
other notes or other evidence of indebtedness or any instrument of security
therefor in which an Obligor is liable and the Lender is the holder, including,
without limitation,
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
7
<PAGE> 8
under the Other Notes, shall constitute a default under this Note and any
instruments of security therefor.
Events of Default. The happening of any of the following events shall
constitute a default hereunder: (a) failure of any Obligor to pay any
principal, interest or any other sums required hereunder when due under this
Note; or (b) a default shall occur in any instrument securing this Note or in
any other instrument executed in connection with the Loan evidenced hereby,
which is not cured within the applicable curative period set forth in such
instruments; or (c) a default shall occur under the Other Notes.
Acceleration. If a default shall occur hereunder which is not cured
within thirty (30) days, then at the option of the Lender, the entire principal
sum then remaining unpaid and accrued interest shall immediately become due and
payable without notice or demand, and said principal shall bear interest from
such date at the highest legal rate permitted by law, from time to time, to be
charged by Lender; it being agreed that interest not paid when due shall, at
the option of the Lender, draw interest at the rate provided for in this
paragraph. Failure to exercise the above options shall not constitute a waiver
of the right to exercise the same in the event of any subsequent default.
Attorneys' Fees. All parties liable for the payment of this Note
agree to pay the Lender reasonable attorneys' fees and costs, whether or not an
action be brought, for the services of counsel employed after maturity or
default to collect this Note or any principal or interest due hereunder, or to
protect the security, if any, or enforce the performance of any other agreement
contained in this Note or in any instrument of security executed in connection
with the Loan, including costs and attorneys' fees on any appeal, or in any
proceedings under the National Bankruptcy Code or in any post judgment
proceedings. Notwithstanding anything contained in this Note, the instruments
of security, or any other documents executed in connection therewith to the
contrary, the Borrower hereby expressly waive their statutory right under
Section 57.105(2) of the Florida Statutes to receive attorneys' fees in any
cause of action or other litigation based in whole or in part, directly or
indirectly, upon the foregoing documents. Such waiver by the Borrower
constitutes a material inducement for the Lender to make the Loan to the
Borrower.
Set Off. The Obligors shall have no right of set off against the
Lender under this Note or under any instruments securing this Note or executed
in connection with the Loan evidenced hereby. The Lender, however, shall have
the right, immediately and without further action by it, following a default
hereunder, to set off against this Note all money owed by the Lender in any
capacity to each or any Obligor, whether or not due.
Borrower. The Borrower warrants and represents to Lender that it is a
corporation duly formed, presently existing and in good standing under the laws
of the State of Florida.
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
8
<PAGE> 9
Waiver of Jury Trial. Borrower hereby voluntarily and irrevocably
waive the right to a trial by jury in connection with any litigation, action or
cause of action arising out of or by virtue of: (i) this instrument; or (ii)
any other agreement or document executed or contemplated to be in connection
with the Loan evidenced or secured hereby, or incident hereto; or (iii) any
course of conduct, course of dealing, representation, statement or other action
of any party in connection with the Loan. The parties to the Loan have
discussed this waiver, have agreed that it is an essential and material part of
their agreement concerning the Loan, and that no officer or representative of
Lender has the authority to modify, orally or in writing, the terms of this
paragraph. This agreement shall be binding on the Borrower, and, if
applicable, on all Obligors as defined herein, and constitutes a material
inducement for Lender entering into the Loan transaction.
Florida Law. This Note is executed under seal and constitutes a
contract under the laws of the State of Florida, and shall be enforceable in a
Court of competent jurisdiction in that State, regardless of in which State
this Note is being executed.
Headings. The headings of the paragraphs contained in this Note are
for convenience of reference only and do not form a part hereof and in no way
modify, interpret or construe the meaning of the parties hereto.
Documentary Stamps. Documentary stamps are not due and payable on
this Note.
Identification. This Note consists of ten (10) pages, all but the last
of which have been signed only for identification by the Executive Vice
President of the Borrower.
Signed for Identification
By: /s/ Bertram T. Martin, Jr.
---------------------------------
The Executive Vice President of Borrower
9
<PAGE> 10
THE UNDERSIGNED ACKNOWLEDGE THAT THE LOAN EVIDENCED HEREBY IS FOR
COMMERCIAL PURPOSES ONLY AND NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES.
Signed, sealed and delivered STERILE RECOVERIES, INC.,
in the presence of: a Florida corporation
/s/ [witness] By: /s/ Bertram T. Martin, Jr.
- -------------------------------- -------------------------------------
SIGNATURE SIGNATURE
[witness name] Bertram T. Martin, Jr.
- -------------------------------- -------------------------------------
NAME LEGIBLY PRINTED, NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED TYPEWRITTEN OR STAMPED
/s/ [witness] Its Executive Vice President
- --------------------------------
SIGNATURE
[witness name] (CORPORATE SEAL)
- --------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Borrower
STATE OF [state] )
--------------------------
COUNTY OF [county] )
-------------------------
The foregoing instrument was acknowledged before me this
15th day of October, 1996, by Bertram T. Martin, Jr., the Executive Vice
President of STERILE RECOVERIES, INC., a Florida corporation, on behalf of
the corporation.
PERSONALLY KNOWN _______ OR PRODUCED IDENTIFICATION
TYPE OF IDENTIFICATION PROVIDED _____________________
/s/ [notary]
------------------------------------
SIGNATURE
[notary name]
------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
10
<PAGE> 1
EXHIBIT 10.34
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is executed this
15th day of October, 1996, by STERILE RECOVERIES, INC., a Florida corporation
(the "Borrower"), in favor of FIRST UNION NATIONAL BANK OF FLORIDA, a national
banking association (the "Lender"), and is made in reference to the following
facts:
(A) The Lender has made available to Borrower a credit
facility in the amount of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00)
(the "Loan") consisting of (i) a revolving line of credit (the "Revolving
Loan") and (ii) individual term loans ("Term Loans") made from time to time at
Borrower's request to fund its equipment purchases (the "Term Debt").
(B) These terms of the Loan are evidenced by a Loan
Agreement (the "Loan Agreement") and a Revolving Line of Credit Note (the
"Note") dated the same date as this Agreement, between Borrower and the Lender.
The Revolving Loan is unsecured; each Term Loan will be secured only by a
security interest in the equipment purchase with the Term Loan proceeds
pursuant to this Agreement. Unless otherwise defined, each capitalized term
used in this Agreement has the respective meaning ascribed to it in the Loan
Agreement, and the definitions of those terms are incorporated by reference in
this Agreement.
NOW THEREFORE, for and in consideration of the premises and
other good and valuable consideration, the Borrower does hereby covenant,
agree, warrant and represent with and to the Lender as follows:
1. Recitals. The statements contained in the recitals
of fact set forth above (the "Recitals") are true and correct and the Recitals
by this reference are made a part of this Agreement.
2. Security Interest. To secure each Term Loan,
Borrower grants to the Lender a first purchase money security interest in the
particular equipment that Borrower acquires with the proceeds of each Term Loan
(the "Collateral"). Lender's security interest in each item of Collateral will
secure only the Term Loan that funded its purchase. The Lender will receive
this security interest in purchased equipment automatically without any further
action by the Lender when the lender makes the advance that funds the
applicable equipment purchase.
3. Use of Collateral. The Collateral was and shall be
acquired and is and shall be used primarily for business use.
4. Payment. Borrower shall pay and perform, all and
singular, the Loan, including but not limited to the payment of sums of
principal and interest and other sums payable by virtue of the Loan Documents
promptly when due, and to perform all of Borrower's agreements in the Loan
Documents and herein and to pay all taxes and assessments levied or assessed
against the Collateral, against this Agreement and against the Loan secured
hereby,
<PAGE> 2
whether such taxes and assessments be against the Collateral, the Loan, the
Borrower, the Lender, or another. All such taxes and assessments shall be paid
by Borrower before they become delinquent, and before the date they would have
become delinquent or within ten (10) days after payment of same, whichever
shall be sooner, Borrower shall deliver to Lender official receipts, or copies
thereof, showing payment.
5. Protection of Lender's Security. Borrower is and
will be the owner of the Collateral free and clear from any lien, security
interest or encumbrance, except for the lien and the obligations of this
Agreement and except for the Permitted Debt (defined in the Loan Agreement
being executed by Lender and Borrower on the date hereof), so long as the liens
securing the Permitted Debt are subordinate to the security interest in favor
of Lender created by this Agreement. No financing statement covering any of
the Collateral is on file in any public office. Borrower will from time to
time at the request of Lender execute one or more financing statements and such
other documents (and pay the costs of filing or recording the same in all
public offices deemed necessary or desirable by Lender) and do such other acts
and things, all as Lender may request to establish and maintain a valid
perfected first security interest in the Collateral to secure the payment and
performance of the Term Loan that it secures.
6. Costs and Attorneys' Fees. Borrower shall pay, all
and singular, the expenditures, costs, charges and expenses, including
reasonable attorneys' fees and costs information requests, incurred or paid at
any time by the Lender because of the failure on the part of the Borrower
promptly and fully to perform and pay the Loan, and all such costs, charges and
expenses shall be immediately due and payable and shall bear interest at the
highest legal rate permitted by law to be charged by Lender from time to time,
from date of payment by Lender until repaid by Borrower and, together with such
interest, shall be secured by the lien of this Agreement.
7. Default. Borrower shall be in default under this
Agreement upon the happening of an Event of Default under the Loan Agreement.
8. Acceleration. Upon the occurrence of any Event of
Default, Lender may, at its option, declare the Loan immediately due and
payable without demand or notice of any kind and the same thereupon shall
immediately become and be due and payable without demand or notice, and Lender
shall have and may exercise from time to time any and all rights and remedies
of a lender under the Uniform Commercial Code of the State of Florida and any
and all other rights and remedies available to it under any other applicable
law, including the right to foreclose this Agreement in the same proceedings.
A monetary default shall be deemed to include failure to make payments of
principal, interest and late charges under the Note as well as payments of
taxes and governmental assessments and premiums for insurance under this
Agreement and the Loan Agreement. Upon request or demand of Lender, Borrower
shall, at Borrower's expense, assemble the Collateral and make it available to
the Lender and Borrower shall promptly pay all costs of Lender of collection of
any and all of the Loan and enforcement of rights hereunder, including
reasonable attorneys' fees and legal expenses. Expenses of retaking, holding,
preparing for sale, selling or the like, shall include those incurred on
appeal, if any.
2
<PAGE> 3
9. Waiver. No waiver by Lender of any default shall
operate as a waiver of any other default or of the same default on a future
occasion. No delay or omission on the part of Lender in exercising any right
or remedy shall operate as a waiver thereof or the exercise of any other right
or remedy.
10. Provisions Cumulative. The provisions of this
Agreement are cumulative and in addition to the provisions of the Note secured
by this Agreement and the provisions of the instruments securing the Note and
Lender shall have all the benefits, rights and remedies of and under the Note
and any other instrument securing same. All rights of Lender hereunder shall
inure to the benefit of its successors and assigns and all obligations of
Borrower hereunder shall bind the successors and assigns of Borrower.
11. Florida Contract. This Agreement has been delivered
in the State of Florida and shall be construed in accordance with the laws of
Florida.
12. 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 to the extent of such prohibition or invalidity only, without
invalidating the remainder of such provision or of the remaining provisions of
this agreement.
13. Assignment by Lender. In the event of any assignment
hereof by Lender, Borrower covenants and agrees that Borrower will not assert
against any assignee hereof any claim or defense which Borrower may have
against Lender, except Borrower may assert against any such assignee any
defense of a type which may be asserted against a holder in due course of a
negotiable instrument under the Uniform Commercial Code of the State of
Florida.
14. Headings. The headings of the paragraphs contained
in this Agreement are for convenience of reference only and do not form a part
hereof and in no way modify, interpret or construe the meaning of the parties
hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, Borrower has executed this instrument
under seal the day and year first above written.
Signed, sealed and delivered STERILE RECOVERIES, INC.,
in the presence of: a Florida corporation
/s/ [witness] By: /s/ Bertram T. Martin, Jr.
- ------------------------------ ----------------------------------
SIGNATURE SIGNATURE
[witness name] Bertram T. Martin, Jr.
- ------------------------------ --------------------------------------
NAME LEGIBLY PRINTED, NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED TYPEWRITTEN OR STAMPED
/s/ [witness] Its Executive Vice President
- ------------------------------
SIGNATURE
(CORPORATE SEAL)
[witness name]
- ------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Borrower
STATE OF [state] )
------------------------
COUNTY OF [county] )
------------------------
The foregoing instrument was acknowledged before me this
15th day of October, 1996, by Bertram T. Martin, Jr., the Executive Vice
President of STERILE RECOVERIES, INC., a Florida corporation, on behalf
of the corporation.
PERSONALLY KNOWN _____________ OR PRODUCED IDENTIFICATION
TYPE OF IDENTIFICATION PROVIDED _________________________________
/s/ [notary]
--------------------------------------------------
SIGNATURE
[notary name]
--------------------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
4
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,581,367
<SECURITIES> 0
<RECEIVABLES> 4,891,736
<ALLOWANCES> 128,228
<INVENTORY> 820,103
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<PP&E> 5,703,248
<DEPRECIATION> 935,780
<TOTAL-ASSETS> 24,538,230
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0
0
<COMMON> 5,518
<OTHER-SE> 20,085,408
<TOTAL-LIABILITY-AND-EQUITY> 24,538,230
<SALES> 23,513,000
<TOTAL-REVENUES> 23,513,000
<CGS> 16,032,000
<TOTAL-COSTS> 16,032,000
<OTHER-EXPENSES> 5,691,000
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<INTEREST-EXPENSE> 714,000
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<INCOME-TAX> (14,000)
<INCOME-CONTINUING> 1,090,000
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<EPS-PRIMARY> .26
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