<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: JUNE 30, 1997
[ ] 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: 0-11647
HYCOR BIOMEDICAL INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1437178
- ------------------------------- ------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
18800 Von Karman Avenue, Irvine, California 92612-1517
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 440-2000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at July 31, 1997
----- ----------------------------
<S> <C>
Common Stock, $.01 Par Value 7,121,876
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 884,622 $ 631,404
Investments 3,284,172 4,732,585
Accounts receivable, net of allowance for
doubtful accounts of $57,071 and $101,191 3,105,822 3,028,689
Income tax receivable 387,140 409,242
Inventories (Note 2) 3,750,810 3,922,543
Prepaid expenses and other current assets 499,995 602,533
Deferred income tax benefit 615,504 491,000
----------- -----------
Total current assets 12,528,065 13,817,996
----------- -----------
PROPERTY AND EQUIPMENT, at cost 11,920,877 11,437,612
Less accumulated depreciation (6,987,518) (6,529,718)
----------- -----------
4,933,359 4,907,894
----------- -----------
GOODWILL AND OTHER INTANGIBLES, net of
amortization of $975,322 and $870,110 4,233,618 4,368,658
DEFERRED INCOME TAX BENEFIT 854,162 854,000
OTHER ASSETS 375,886 329,373
----------- -----------
Total assets $22,925,090 $24,277,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 807,995 $ 1,053,400
Accrued liabilities 520,723 726,474
Accrued payroll expenses 749,110 580,089
----------- -----------
Total current liabilites 2,077,828 2,359,963
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 71,031 72,181
Paid-in capital 12,179,810 12,605,636
Retained earnings 9,035,174 9,232,541
Accumulated foreign currency translation adjustments (426,343) 31,275
Unrealized losses on investments, net of tax benefit (12,410) (23,675)
----------- -----------
Total stockholders' equity 20,847,262 21,917,958
----------- -----------
Total liabilities and
stockholders' equity $22,925,090 $24,277,921
=========== ===========
</TABLE>
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<PAGE> 3
HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 4,864,543 $ 5,171,387 $ 9,447,212 $10,478,267
COST OF SALES 2,091,667 2,147,380 4,276,409 4,611,735
------------ ------------ ------------ -------------
Gross profit 2,772,876 3,024,007 5,170,803 5,866,532
------------ ------------ ------------ -------------
OPERATING EXPENSES
Selling, general and administrative 2,244,792 2,348,627 4,275,294 4,506,524
Research and development 678,116 645,487 1,337,498 1,345,914
------------ ------------ ------------ -------------
2,922,908 2,994,114 5,612,792 5,852,438
------------ ------------ ------------ -------------
OPERATING INCOME (LOSS) (150,032) 29,893 (441,989) 14,094
INTEREST INCOME, net 70,845 103,960 144,142 217,335
FOREIGN EXCHANGE G/(L) (4,184) (1,005) (1,998) 11,674
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (83,371) 132,848 (299,845) 243,103
PROVISION (BENEFIT) FOR INCOME TAXES (29,797) 54,508 (102,478) 96,675
------------ ------------ ------------ -------------
NET INCOME (LOSS) $ (53,574) $ 78,340 $ (197,367) $ 146,428
============ ============ ============ =============
NET INCOME (LOSS) PER SHARE $ (0.01) $ 0.01 $ (0.03) $ 0.02
============ ============ ============ =============
AVE. COMMON SHARES OUTSTANDING 7,137,623 7,852,399 7,149,937 7,886,020
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (197,367) $ 146,428
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 789,624 946,036
Deferred income tax provision (129,575) (87,650)
(Gain) Loss on foreign currency transactions 1,998 (11,674)
(Gain) Loss on sale of assets 36,127 11,456
Change in assets and liabilities, net of effects of
foreign currency adjustments
Accounts receivable (57,740) 846,612
Income tax receivable 21,411 10,856
Inventories 114,089 (18,622)
Prepaid expenses and other current assets (34,156) 243,017
Accounts payable (235,292) (412,128)
Accrued liabilities (197,224) (664,873)
Accrued payroll expenses 174,293 (243,284)
----------- ------------
Total adjustments 483,555 619,746
----------- ------------
Net cash provided by (used in) operating activities 286,188 766,174
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 1,415,105 984,298
Purchases of intangible assets (23,462) (4,173)
Purchases of property, plant and equipment (881,530) (857,207)
Direct costs of acquisition (164,478) -
Proceeds from sale of property and equipment 54,453 -
Proceeds from collection of notes receivable 18,523 13,133
----------- ------------
Net cash provided by (used in) investing activities 418,611 136,051
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 40,604 76,440
Purchases of Hycor common stock (467,580) (844,722)
----------- ------------
Net cash provided by (used in) financing activities (426,976) (768,282)
----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (24,605) 9,131
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 253,218 143,074
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 631,404 1,033,459
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 884,622 $ 1,176,533
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year - interest - -
- income taxes $ 13,106 $ 204,409
</TABLE>
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HYCOR BIOMEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited
financial statements include all adjustments necessary to present fairly
the financial position as of June 30, 1997 and December 31, 1996, the
results of operations and the cash flows for the three and six-month
periods ended June 30, 1997 and 1996.
These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and do not include
all the information and note disclosures required by generally accepted
accounting principles for complete financial statements and may be
subject to year-end adjustments.
The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1996 annual report on Form 10-K as filed with
the Securities and Exchange Commission. Certain items in the 1996
consolidated financial statements have been reclassified to conform with
the 1997 presentation.
The results of operations for any interim period are not
necessarily indicative of results to be expected for the full year.
Net income per share is based upon the weighted average number of
shares outstanding during the periods plus common stock equivalents
relating to warrants and options. The number of common stock equivalents
relating to options and warrants is determined using the treasury stock
method. Common stock equivalents are not included when their effect is
antidilutive. Fully diluted net income per share approximates primary
net income per share in each period.
In December 1997, the Company will be required to adopt Statement of
Financial Accounting Standard No. 128, "Earnings per share." The
provisions of this statement will require a change in the method of
calculating earnings per share which will result in an insignificant
difference from currently reported earnings per share.
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<PAGE> 6
2. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market. Cost includes material, direct labor and
manufacturing overhead. Inventories at June 30, 1997 and December 31,
1996 consist of:
<TABLE>
<CAPTION>
6/30/97 12/31/96
------- --------
<S> <C> <C>
Raw materials $ 838,846 $ 870,887
Work in process 1,125,623 1,216,066
Finished goods 1,786,341 1,835,590
---------- ----------
$3,750,810 $3,922,543
========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this report are forward-looking statements which involve risk and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products,
services and prices and other factors discussed in the Company's filings with
the Securities and Exchange Commission.
On July 21, 1997, the Company acquired from unrelated third parties all
of the outstanding stock of Cogent Diagnostics Limited ("Cogent"). Cogent is
based in Edinburgh, Scotland. Cogent develops, manufactures and markets a broad
line of test kits for diagnosis of autoimmune disease. Cogent sales for its
most recent fiscal year were approximately $1,400,000.
The Company decreased its working capital $1,008,000 as of June 30, 1997,
compared to December 31, 1996. This decrease was primarily a result of the
increased investment in PP&E, predominately related to the placement of
HY-TEC(TM) Instruments ($882,000), and the Company's stock repurchase program
($468,000). In July 1997, the Company entered into a business loan agreement
("Agreement") with Tokai Bank establishing a two year secured line of credit of
$2,000,0000. The agreement provides that the Company can borrow at a
predetermined spread over the London Inter-Bank Offered Rate (LIBOR). The
primary purpose of the agreement was to provide financing of the Cogent
acquisition and related costs. A copy of the business loan agreement is attached
to this form 10-Q as an exhibit and incorporated herein.
During the three and six-month periods ended June 30, 1997, sales
decreased 6% and 10%, respectively, compared to the same periods last year.
Revenue declines were due primarily to the loss of sales resulting from the 1995
Restructuring Plan and the related discontinued product lines. Revenues in 1996
from discontinued products were $774,000 for the quarter and $1,659,000 for the
six-month period. In addition, in periods when the U.S. dollar is strengthening,
the effect of the translation of the financial statements of the consolidated
foreign affiliates is that of lower sales, cost, and net income. The stronger
U.S. dollar in the second quarter 1997 and the six months 1997 when compared to
the corresponding 1996 periods resulted in lower reported sales of approximately
3% in both periods.
Page 6
<PAGE> 7
Gross profit as a percentage of product sales decreased for the three and
six-month periods from approximately 58% to 57% and 56% to 55%, respectively,
compared to the same periods last year. The decrease in gross profit percentage
is due primarily to aggressive pricing in the allergy product line as well as
lower sales volumes.
Selling, general and administrative expenses for the three and six-month
periods ended June 30, 1997 have decreased approximately 4% and 5%,
respectively, compared to the same periods last year. This decrease is primarily
due to reduced expense levels at the Company's German subsidiary resulting from
the completion, in 1996, of certain contractual obligations arising from the
acquisition.
Research and development costs for the quarter increased approximately 5%
over the prior year period as the Company increased its investment in new
product development. Year-to-date expenses have decreased approximately 1% from
the prior year period due to the completion of several projects during the first
quarter of this year.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 1997, Hycor Biomedical Inc. held its Annual Meeting of
Stockholders. At such meeting, the following seven persons were elected as
directors of the Company to serve until the Annual Meeting of Stockholders in
1998 and until their successors are elected and qualified.
The tabulation of the votes cast for the election of the directors was
as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Richard D. Hamill 6,040,651 272,492
Samual D. Anderson 6,153,958 159,185
David S. Gordon 6,153,128 160,015
Reginald P. Jones 6,152,400 160,743
James R. Phelps 6,154,100 159,043
Richard E. Schmidt 6,150,937 162,206
David A. Thompson 6,153,786 159,357
</TABLE>
Page 7
<PAGE> 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 10.01: Business Loan Agreement between Hycor
Biomedical Inc. and Tokai Bank of
California.
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8K: None
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.
HYCOR BIOMEDICAL INC.
---------------------
Date: August 14, 1997 By: /s/ Armando Correa
---------------------------------------
Armando Correa, Director of Finance
(Mr. Correa is the Principal Accounting
Officer and has been duly authorized to
sign on behalf of the registrant.)
Page 8
<PAGE> 9
<TABLE>
<CAPTION>
Exhibit List
- ------------
Exhibit No. Name of Exhibit Page Number
- ----------- --------------- -----------
<C> <S> <C>
10.01 Business Loan Agreement between
Hycor Biomedical Inc. and Tokai
Bank of California 10-27
27. Financial Data Schedule 28
</TABLE>
Page 9
<PAGE> 1
EXHIBIT 10.01
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 07-11-1997 07-31-1999 A.M.
- -------------------------------------------------------------------------------------------------------
</TABLE>
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
ABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
<TABLE>
<S> <C>
BORROWER: HYCOR BIOMEDICAL, INC., A DELAWARE CORPORATION LENDER: TOKAI BANK OF CALIFORNIA
18800 VON KARMAN AVE. ORANGE COUNTY REGIONAL OFFICE
IRVINE, CA 92612 C/O 300 SOUTH GRAND AVENUE
P.O. BOX 30143
LOS ANGELES, CA 90071
</TABLE>
THIS BUSINESS LOAN AGREEMENT BETWEEN HYCOR BIOMEDICAL INC., A DELAWARE
CORPORATION ("BORROWER") AND TOKAI BANK OF CALIFORNIA ("LENDER") IS MADE AND
EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR
COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR
LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED
ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND
FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL
ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT
INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS
AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS
RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET
FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING OR EXTENDING OF ANY LOAN BY
LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION;
AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS
AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of JULY 11, 1997, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
BORROWER. The word "Borrower" means HYCOR BIOMEDICAL INC., a Delaware
corporation. The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in the
paragraph titled "Subsidiaries and Affiliates."
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CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entitles granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against borrower, or any one of more of them:
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise; whether
recovery upon such Indebtedness may be or hereafter may become barred
by any statute of limitations; and whether such Indebtedness may be or
hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means TOKAI BANK OF CALIFORNIA, its
successors and assign.
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LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
LOAN. The "Loan or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement
or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens", (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
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<PAGE> 4
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written
agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current
liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
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ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which
it is presently engaged or presently proposes to engage. Borrower also
is duly qualified as a foreign corporation and is in good standing in
all states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable. Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled in
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20
of the California Health and Safety code, Section 25100, et seq., or
other applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. Except as disclosed to and
acknowledge by Lender in writing, Borrower represents and warrants
that: (a) During the period of Borrower's ownership of the properties,
there
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has been no use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any hazardous waste or substance by
any person on, under, about or from any of the properties. (b) Borrower
has no knowledge of, or reason to believe that there has been (i) any
use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about
or from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower
nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose
of, or release, any hazardous waste or substance on, under, about or
from any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or
liability on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's
due diligence in investigating the properties for hazardous waste and
hazardous substances. borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnity and hold harmless Lender against any and
all claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release occurring prior to Borrower's ownership or interest in the
properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of
the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower in pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or
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attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan
and Note, that would be prior or that may in any way be superior to
Lender's Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 18800 Von Karman Ave., Irvine
CA 92612. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
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LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or
the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of
not less than $13,000,000.00.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to
Tangible Net Worth of less than 0.75 to 1.00.
OTHER RATIO. Maintain a ratio of LIQUID ASSETS PLUS ACCOUNTS
RECEIVABLE TO CURRENT LIABILITIES OF 1.35 TO 1.00. Except as
provided above, all computations made to determine compliance
with the requirements contained in this paragraph shall be
made in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public
liability insurance, and such other insurance as Lender may
require with respect to Borrower's properties and operations,
in form, amounts, coverages and with insurance companies
reasonable acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written
notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such
loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured: (c) the amount of the
policy; (d) the properties insured; (e) the
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then current property values on the basis of which insurance has been
obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender
(however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable,
the actual cash value or replacement cost of any Collateral. The cost
of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge levy, lien or claim so long as (a) the legality of the same
shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
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INSPECTION. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default
exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS. Except for trade debt incurred in the normal course of
business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including
capital leases.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
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business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that notwithstanding
the foregoing, but only so long as no Event of Default has occurred and
is continuing or would result from the payment of dividends, if
Borrower is "Subchapter S Corporation" (as defined in the Internal
Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income
tax payments to satisfy their liabilities under federal and state law
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower,
or (d) purchase or retire any of Borrower's outstanding shares or alter
or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a materiel adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guaranty of the Loan or any
other loan with Lender.
FINANCIAL REPORTING. So long as Borrower shall have any outstanding obligations
with Lender, Borrower shall provide Lender with following financial reports:
a. As soon as available and in any event within forty five (45) days after the
end of each fiscal quarter of Borrower, a copy of Borrower's quarterly company
prepared Financial Statements (10-Q) for such quarter, in form and substance
acceptable to Lender;
b. As soon as available and in any event within ninety (90) days after the end
of each fiscal year of Borrower, a copy of Borrower's Financial Statements for
such year audited by an independent certified public accountant of recognized
standing acceptable to Lender, indicating an unqualified opinion together with
the 10-K report.
AMENDED DEFINITION AND PROVISION. The definition of "LIQUID ASSETS" and the
provision of section titled "COMPLIANCE CERTIFICATE" on this Agreement are
amended to read as follows:
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities including but not limited to stocks
listed on the major stock exchanges and securities issued by the United States
government and any state or municipality.
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COMPLIANCE CERTIFICATE. At the request of Lender, Borrower to provide a
certificate executed by Borrower's chief financial officer, or other officer or
person acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate, no
Event of Default exists under this Agreement. Notwithstanding the above, the
Borrower to provide Lender a written notice of any financial covenant violation
and/or any other violations under the Agreement within 5 days.
ADDITIONAL AFFIRMATIVE COVENANTS. Borrower further covenants and agrees with
Lender that while this Agreement is in effect, Borrower shall inform Lender
immediately of any litigation in the amount of $100,000.00 or more involving the
Borrower.
EVENT OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, and assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Borrower.
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CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower or Grantor, as the case may
be, as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding, and if Borrower or
Grantor gives Lender written notice of the creditor or forfeiture
proceeding and furnishes reserves or a surety bond for the creditor or
forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness. Lender, at its
option, may, but shall not be required to, permit the Guarantor's
estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default: (a) cures the default
within fifteen (15) days; or (b) if the cure requires more than fifteen
(15) days, immediately initiates steps which Lender deems in Lender's
sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly concurrently.
Election by Lender to pursue any remedy shall not
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exclude pursuit of any other remedy, and an election to make expenditures or
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND
ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF
THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. LENDER AND
BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER
AGAINST THE OTHER. (INITIAL HERE____________________________. SUBJECT
TO THE PROVISIONS ON ARBITRATION, THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN
NATURE, ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT
LIMITATION CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO
THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF
EITHER PARTY. No act to take or dispose of any Collateral shall
constitute a waiver of this arbitration agreement or be prohibited by
this arbitration agreement. This includes, without limitation,
obtaining injunctive relief or a temporary restraining order; invoking
a power of sale under any deed of trust or mortgage; obtaining a writ
of attachment or imposition of a receiver; or exercising any rights
relating to personal property, including taking or disposing of such
property with or without judicial process receiver; or exercising any
rights relating to personal property, including taking or disposing of
such property with or without judicial process pursuant to Article 9 of
the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or excise of
any right, concerning any Collateral, including any claim to rescind,
reform, or otherwise modify any agreement relating to the Collateral,
shall also be arbitrated, provided however that no arbitrator shall
have the right or the power to enjoin or restrain any act of any party.
Lender and Borrower agree that in the event of an action for judicial
foreclosure pursuant to California code of Civil Procedure Section 726,
or any similar provision in any other state, the commencement of such
an action will not constitute of waiver of the right to arbitrate and
the court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this Agreement shall preclude any party
from seeking equitable relief from a court of competent jurisdiction.
The statute of
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limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action
for these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of
the persons signing below is responsible for all obligations in this
Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, or one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interest. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners
of such interests in the Loans and will have all the rights granted
under the participation agreement or agreements governing the sale of
such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the in the Loans. Borrower
further agrees that the purchaser of any such participation interest
may enforce its interests irrespective of any personal claims or
defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not
there is a lawsuit, including attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other sums provided by law.
Page 24
<PAGE> 16
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROW. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and affiliates
of Borrower. Notwithstanding the foregoing however, under no
circumstances shall this agreement be construed to require Lender to
make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assign. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or
Page 25
<PAGE> 17
between Lender and any Grantor, shall constitute a waiver of any of
Lender's rights or of any obligations of Borrower or of any Grantor as
to any future transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent
instances where such consent is required, and in all cases such consent
may be granted or withheld in the sole discretion of Lender.
Page 26
<PAGE> 18
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY
11, 1997.
BORROWER:
HYCOR BIOMEDICAL INC., A DELAWARE CORPORATION
By: /s/ Richard D. Hamill
----------------------------------------------
Dr. Richard D. Hamill, Chairman/President
By: /s/ Reginald P. Jones
----------------------------------------------
Reginald P. Jones, Chief Financial Officer/Secretary/Treasurer
LENDER:
TOKAI BANK OF CALIFORNIA
By: /s/ Alonso Munoz
----------------------------------------------
Authorized Officer
Page 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 884,622
<SECURITIES> 3,284,172
<RECEIVABLES> 3,162,893
<ALLOWANCES> 57,071
<INVENTORY> 3,750,810
<CURRENT-ASSETS> 12,528,065
<PP&E> 11,920,877
<DEPRECIATION> 6,987,518
<TOTAL-ASSETS> 22,925,090
<CURRENT-LIABILITIES> 2,077,828
<BONDS> 0
0
0
<COMMON> 71,031
<OTHER-SE> 20,776,231
<TOTAL-LIABILITY-AND-EQUITY> 22,925,090
<SALES> 9,447,212
<TOTAL-REVENUES> 9,447,212
<CGS> 4,276,409
<TOTAL-COSTS> 4,276,409
<OTHER-EXPENSES> 5,612,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (299,845)
<INCOME-TAX> (102,478)
<INCOME-CONTINUING> (197,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,367)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
