<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________________ to ________________
Commission file number: 000-12471
COLORADO MEDTECH, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0731006
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6175 LONGBOW DRIVE, BOULDER, COLORADO 80301
(Address of principal executive offices, including zip code)
(303) 530-2660
(Registrant's Telephone Number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
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 by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting and nonvoting common stock held
by nonaffiliates computed by reference to the average bid and asked prices of
such stock as of August 31, 1998 was $33,461,806.
The number of shares outstanding of the issuer's Common Stock as of August
31, 1998 was 10,740,846.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934 is incorporated by
reference in Part III of this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Colorado MEDtech, Inc. ("CMED"), through its wholly-owned subsidiaries,
RELA, Inc. ("RELA"), Novel Biomedical, Inc. ("Novel"), and BioMed Y2K, Inc.
("BioMed"), and its operating divisions, Respiratory Products and Erbtec
Engineering ("Erbtec") (collectively, the "Company"), is a leading
full-service provider of advanced medical products and comprehensive
outsourcing services. CMED was incorporated in 1977 as a Colorado corporation
to develop, manufacture, market and service computerized diagnostic and
testing instrumentation. RELA a Colorado corporation, was incorporated in
1977. RELA is an integrated custom product development and manufacturing
services company specializing in the design, development and manufacture of
electronic and electro-mechanical medical products and software systems. The
Company merged RELA into CMED in July 1998, and is now operating RELA as a
division of CMED. This merger will have no material effect on the day to day
operations of RELA. Novel, a Minnesota corporation acquired by CMED in
February 1997, was incorporated in 1986. Novel specializes in the custom
design, development and manufacture of unique disposable medical devices,
primarily catheters, used in angioplasty, minimally invasive surgery,
electrophysiology, and infertility treatment. BioMed, a Colorado corporation,
was incorporated in April 1998. BioMed offers a combination of tools and
services to support health care institutions' efforts to establish year 2000
compliance for their biomedical devices. In October 1997, CMED completed the
acquisition of the operating assets of Erbtec Engineering, Inc. Erbtec's main
products are high power Radio Frequency amplifiers, power supplies and
systems for Magnetic Resonance Imaging equipment. The Respiratory Products
division designs and develops instrumentation for respiratory care.
PRODUCTS AND SERVICES
OUTSOURCING SERVICES
RELA and Novel design, develop and manufacture healthcare products for a
broad range of customers that includes major pharmaceutical and medical
device companies. RELA develops electronic and electromechanical medical
devices and software, primarily for the diagnostic, therapeutic, respiratory
care and medical software markets. RELA also manufactures products for some
of its customers which range from surgical disposables to automated
instruments. Novel designs, develops and manufactures unique disposable
medical devices, primarily catheters, used in angioplasty, minimally invasive
surgery, electrophysiology and infertility treatment. RELA and Novel employ
engineers, scientists, and technicians, manufacturing specialists and
assembly workers. The Company believes its experience in applying its proven
methodologies and advanced technologies to the development of innovative new
products gives its clients an advantage in their marketplace by providing
them with state-of-the-art, quality products in a timely and cost-effective
manner.
In addition to development, RELA provides product definition services,
conducts focus groups and performs software verification and validation
activities necessary for Food and Drug Administration ("FDA") approval.
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Additional services include:
<TABLE>
<S> <C>
- - Feasibility studies - Disposables engineering
- - User interface design and usability testing - Prototype development
- - Electronic design and development - Design for manufacturability and reliability
- - Electronic packaging and printed-circuit design engineering
- - Software development, verification and validation - Pilot, short- and long-run production
- - Mechanical design and engineering - Quality assurance and testing
- - Machining and modeling services - Product service and sustaining engineering
</TABLE>
Rapidly advancing technologies, heightened worldwide competition and the
demands of an increasingly sophisticated marketplace have created pressures
on companies, both domestic and international, to develop high quality,
cost-effective, world-class products in time to meet the narrowing windows of
opportunity in the marketplace. These conditions have produced opportunities
for companies that can react to those market needs. Such companies need to
have the technology, experience and ability to develop high quality,
state-of-the-art products. The Company believes it is uniquely positioned to
provide its clients, within a single integrated structure, the valuable
product development and manufacturing resources they need to satisfy the
requirements of a worldwide marketplace.
MEDICAL PRODUCTS
CMED's Respiratory Products develops, manufactures, markets and services
computerized diagnostic and testing instrumentation. Its current program,
FreshAir-TM-, is a self-contained oxygen generation system. Respiratory
Products has applied for FDA approval of an oxygen regeneration system that
is intended for use in long-term healthcare facilities. This system is
expected to reduce the cost of oxygen to patients of these facilities. The
facilities would be able to generate their own oxygen rather than purchasing
it from third parties. The Company expects this product to be in commercial
production during fiscal 1999.
Erbtec specializes in designing, developing and manufacturing
high-performance RF amplifiers and integrated power delivery subsystems. By
combining RF, digital and embedded software technologies, Erbtec is able to
produce advanced, computer-controlled RF and DC power products. Erbtec
focuses on the MRI and general medical imaging industries for the sale of its
products.
BioMed provides software tools for Year 2000 compliance management and
reporting. BioMed has developed an extensive medical device compliance
database tailored to the needs of the healthcare industry. The modified
software, called BioMed Y2KOne-TM-, offers a combination of tools and
services to support healthcare institutions in there efforts to establish
Year 2000 compliance for their biomedical devices. Specific services offered
by BioMed include: Year 2000 compliance database for medical devices;
inventory consolidation, consulting and support; specialized Year 2000
training; device remediation, consulting and conversion planning; device
testing; custom software reviews and analysis; and, contingency planning and
cost impact analysis.
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MARKETING
The Company markets its services through a direct sales program and
nationwide network of independent manufacturers' representatives. The
Company employs 10 persons in the functions of sales and marketing. The
Company promotes its services through advertising, direct mail and exhibition
at industry trade shows.
SIGNIFICANT CUSTOMERS AND BACKLOG
For the period ended June 30, 1998, two customers accounted for
approximately 23% (GE Medical Systems, General Electric Company) and 22%
(Gen-Probe Incorporated) of the total revenues of the Company. For the
period ended June 30, 1997, the same two customers accounted for 0% and 19%
of the total revenues of the Company. Due to the nature of the outsourcing
services business, it is typical for the Company to have about 40% to 50% of
its total revenues from two to three customers in any given year. It is also
typical that the Company's revenues from these customers account for a very
high percentage of its total revenues for a one to three year period, then to
see the customers' revenue percentage drop, to be replaced by another large
customer. Foreign sales were 8% of the Company's total sales. The loss of a
significant customer could have a material, detrimental impact on the
Company's operations. Most sales are on net thirty-day credit terms.
At June 30, 1998, the Company's backlog of orders for services or
shipment of product in fiscal 1999 was approximately $40 million compared to
approximately $22 million at June 30, 1997. This increase is attributable to
the increase in orders booked during fiscal year 1998, which were in excess
of $60 million, compared to bookings of approximately $33 million in fiscal
year 1997.
RESEARCH AND PRODUCT DEVELOPMENT
The Company intends to continue to develop new products and services for
a broad range of customers. In addition to internal development efforts, the
Company may license or acquire related technology and/or products from
external resources.
While the Company employs approximately 200 engineers, scientists and
technicians in research and development activities, these employees' efforts
are primarily devoted to contract work for customers and their expenses are
included in the cost of sales and services. Research and development expenses
historically have been attributable to Respiratory Products. During fiscal
year 1998, most of the research and development expenses are attributable to
Respiratory's oxygen regeneration system, Erbtec's RF solid state amplifier
systems and BioMed's software tools and database. No research and
development expenditures are currently attributable to RELA or Novel. For
fiscal years 1998, 1997 and 1996, the Company incurred approximately
$1,681,000, $304,000 and $97,000, respectively, for research and development
activities.
Consistent with the Company's operating plans, the Company is
continuously pursuing the acquisition and development of new or improved
technology or products. Should the Company identify any opportunities that
would be commercially viable, the amount of future research and development
expenditures may increase.
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COMPETITION
The principal competitive factors in the outsourcing and medical
products markets are reputation, quality, price and schedule. The Company's
present and future competition comes from a variety of sources. These
sources include consulting, commercial product development and manufacturing
companies. There are a number of firms that provide services similar to the
Company's. These vary from small consulting operations offering a small
subset of the Company's services to a few integrated service companies. RELA
competitors include SeaMed Corporation and Kollsman Manufacturing Company.
Novel competitors include ACT Medical, Incorporated, Danforth Biomedical, and
NuMED, Incorporated. Erbtec competitors include Analogic Corporation and
ETO, Inc., a Division of Astex, Inc. BioMed competitors may include Clark
Information Services, Superior IS and System Resource Corp.
On a lesser scale, the Company also competes with commercial and
university research laboratories. There are both for-profit and
not-for-profit organizations nationwide that perform services similar to the
product development aspect of the Company's business. These include
Battelle, Inc., Stanford Research Institute, Arthur D. Little Center for
Product Development, Southwest Research Institute and the research
capabilities within the nation's leading universities.
As the Company develops and manufactures other proprietary products,
such as the oxygen regeneration system and the BioMed Y2KOne-TM- software, it
can expect to encounter additional competitors, many of which may be larger
and in a stronger financial position than the Company. As cost containment
efforts continue in the healthcare marketplace, competition will continue to
be intense in the future.
MANUFACTURING
The Company manufactures its products and customer products at four
facilities in Boulder, Colorado, Longmont, Colorado and Plymouth, Minnesota.
Most products are built in response to specific customer purchase orders,
while others are fabricated as standard products. The manufacturing process
consists primarily of assembly, test and packaging of both custom and
commercially available components from outside sources.
Most of the materials and components used in the Company's products are
available from a number of different suppliers. The Company generally
maintains multiple sources for most items, but some components are single
source. The Company is dependent upon its suppliers for timely delivery of
quality components. To date, the Company has not experienced significant
delays in the delivery of such components.
PRODUCT WARRANTIES AND SERVICE
The Company generally warrants its products for 90 days, but in limited
cases for up to 18 months, against defects in materials and workmanship. The
Company has established a provision for estimated expenses of providing
service under these warranties. Nonwarranty service is billed to the
customer as performed.
GOVERNMENT REGULATION
The Medical Device Amendments of 1976 to the Food, Drug and Cosmetic Act
(the "Act") and regulations issued or proposed thereunder, including the Safe
Medical Devices Act of 1990, provide for regulation by the FDA of the
marketing, design, manufacturing, labeling, packaging and distribution of
medical devices. These regulations
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apply to the Company's products and many of the Company's customers'
products. The Act and the regulations include requirements that
manufacturers of medical devices register with and furnish lists of devices
manufactured by them to the FDA. Prior to marketing a medical device, FDA
clearance must be obtained. Tasks to be performed for approval range from
bench-test data and engineering analysis to potentially expensive and
time-consuming clinical trials. The types of tasks for a particular product
submission are indicated by the classification of the device and previous
approvals for similar devices. There are also certain requirements of other
federal laws and of state, local and foreign governments, which may apply to
the manufacture and marketing of the Company's products. To date, the
Company has not experienced significant difficulty in complying with the
requirements imposed on it by the FDA or other governmental agencies.
The FDA's "Quality System Regulation for Medical Devices" ("QSR") sets
forth standards for the Company's design and manufacturing processes that
require the maintenance of certain records and provide for unscheduled
inspections of the Company's facilities. The Company does not expect to make
significant expenditures as a result of these requirements. The Company's
procedures and records were reviewed in 1995, 1997 and 1998 by the FDA during
routine general inspections. The inspections resulted in some procedural
changes that are intended to assure continued compliance with current QSR.
The ISO 9000 series of quality management and quality assurance
standards has been adopted by over 90 countries. ISO standards require that
a quality system be used to guide work to assure quality and to produce
quality products and services. EN ISO 9001, the most comprehensive of the
standards, covers 20 elements. These elements include management
responsibility, design control, training, process control and servicing. EN
ISO 9001 is the quality systems standard used by companies providing design,
development, manufacturing, installation and servicing.
RELA, Novel and Erbtec are registered device manufacturers with the
FDA and meet the agency's QSR requirements. In addition, the Company is
EN ISO 9001 and EN 46001 registered by a Notified Body. There are no material
costs or expenses associated with the Company's compliance with federal,
state and local environmental laws.
PATENTS
The Company has no significant patents. The Company believes that the
conduct of its business is not dependent upon its ability to obtain or defend
patents.
EMPLOYEES
As of June 30, 1998, the Company had 410 employees, of which 332 are
full-time. 88% of the Company's employees are employed at its operations in
Boulder and Longmont, Colorado and 12% of employees are employed in Plymouth,
Minnesota. No employees are represented by labor organizations and there are
no collective bargaining agreements. Employee relations are believed to be
good.
ITEM 2. DESCRIPTION OF PROPERTY.
CMED, RELA and BioMed operate out of leased facilities located at 6175
Longbow Drive, Boulder, Colorado and 410 South Sunset Street, Longmont,
Colorado. The Boulder facility has a five-year lease, which expires on June
30, 2002. The lease calls for average monthly payments over the term of the
lease of $36,139. In addition, the Company is responsible for certain
expenses, including property taxes, insurance and maintenance. CMED, RELA
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and BioMed conduct administrative operations, custom product development
services and consulting services at this facility.
RELA's manufacturing is conducted at its Longmont facility. This
facility has a five-year lease that expires on July 1, 2002. The lease calls
for average monthly payments over the term of the lease of $13,657. In
addition to the base lease payment, the Company is responsible for certain
expenses, including property taxes, insurance and maintenance.
Novel operates out of a leased facility located at 13845 Industrial Park
Boulevard, Plymouth, Minnesota. Novel has a four-year lease that expires on
January 31, 2001. This lease calls for average monthly payments over the
term of the lease of $8,941. In addition, Novel is responsible for certain
expenses, including property taxes, insurance and maintenance. Novel's
custom manufacturing and product development services are conducted out of
this facility.
Erbtec operates out of a leased facility located at 2760 29th Street,
Boulder, Colorado. Erbtec has a one-year lease that expires November 30,
1998. This lease calls for average monthly payments over the term of the
lease of $12,920. In addition, Erbtec is responsible for certain expenses,
including property taxes, insurance and maintenance. All of Erbtec's
operations are conducted out of this facility.
The Company has leased a facility located at 1510 Nelson Road, Longmont,
Colorado. The lease period begins October 1, 1998 and expires on June 30,
2002. The lease calls for average monthly payments over the term of the lease
of $7,119. In addition to the base lease payment, the Company is responsible
for certain expenses, including property taxes, insurance and maintenance.
The Company is planning to use this facility for manufacturing operations.
The Company owns a 10.91-acre parcel of industrial-zoned vacant land in
Louisville, Colorado (the "Louisville Parcel"). The Company's title in the
Louisville Parcel is in fee simple. It is the opinion of management that, as
the Louisville Parcel is vacant land, it is not necessary to provide
insurance coverage for the property. At June 30, 1998, the Company is
holding the land as available-for-sale. Notwithstanding the Company's
ownership of the Louisville Parcel, it is not the policy of the Company to
invest in real estate or interests in real estate, real estate mortgages, or
securities of or interests in persons primarily engaged in real estate
activities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of shareholders during the
last quarter of the fiscal year ended June 30, 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company has been traded on the Nasdaq (National
Association of Securities Dealers Automated Quotations) stock market since
the Company's initial public offering in July 1983. The Company's common
stock has been listed on the Nasdaq National Market since October 1997. The
following table sets forth the range of high and low closing prices of the
Company's common stock as reported by Nasdaq during fiscal years 1998 and
1997:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
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1998 1997
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High Low High Low
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<S> <C> <C> <C> <C>
First Fiscal Quarter $ 7.12 $5.12 $3.50 $2.62
Second Fiscal Quarter $ 7.00 $5.87 $3.31 $2.88
Third Fiscal Quarter $10.25 $5.81 $3.19 $2.81
Fourth Fiscal Quarter $10.12 $6.94 $6.31 $2.88
</TABLE>
The foregoing quotations represent quotations between dealers without
adjustment for retail markups, markdowns or commissions and may not represent
actual transactions.
At June 30, 1998 the Company had approximately 1,100 shareholders of
record. The Company has never paid a dividend, and does not anticipate the
payment of dividends in the foreseeable future.
The Company did not sell any unregistered securities in the three-month
period ended June 30, 1998.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected, consolidated financial information presented below for the
five years ended June 30, 1998, is derived from the consolidated financial
statements of the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and Management's
Discussion and Analysis of Financial Conditions and Results of Operations.
Certain reclassifications have been made to prior year financial statements
to conform with current presentation.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1998(a) 1997(b) 1996 1995 1994
------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales and service $ 47,300 $ 28,243 $ 19,130 $ 19,821 $ 20,615
Gross profit $ 16,943 $ 9,786 $ 6,790 $ 6,838 $ 7,250
Net income $ 4,492 $ 2,480 $ 1,597 $ 1,037 $ 806
Earnings per share
Basic (c) $ .47 $ .35 $ .23 $ .15 $ .15
Diluted (c) $ .37 $ .27 $ .21 $ .15 $ .15
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in)
Operating activities $ 8,268 $ 2,899 $ 1,268 $ 2,342 $ 2,450
Investing activities $ (8,922) $ (6,655) $ (2,798) $ (200) $ (121)
Financing activities $ 1,482 $ 4,811 $ - $ (897) $ 1,129
BALANCE SHEET DATA:
Cash and cash equivalents $ 2,499 $ 1,671 $ 615 $ 2,144 $ 3,727
Short-term investments $ 12,144 $ 10,293 $ 5,408 $ 2,593 $ -
Current assets $ 29,249 $ 20,585 $ 12,099 $ 9,746 $ 8,611
Total assets $ 34,007 $ 23,853 $ 13,217 $ 10,958 $ 9,883
Current liabilities $ 12,285 $ 9,461 $ 6,666 $ 6,005 $ 5,966
Total long-term debt $ - $ - $ - $ - $ -
Total shareholders' equity $ 21,723 $ 14,392 $ 6,550 $ 4,953 $ 3,917
Cash dividends per share $ - $ - $ - $ - $ -
</TABLE>
(a) In October 1997, the Company acquired the operating assets of Erbtec
Engineering, Inc.
(b) In February 1997, the Company acquired Novel Biomedical, Inc.
(c) As restated under Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have consisted of cash flow
from operations, cash deposits received from customers related to research
and development and manufacturing contracts and cash proceeds from the
issuance of common stock. Historically, the Company has also utilized
proceeds from debt borrowings. The Company expects capital expenditures to
be consistent with the previous year during fiscal year 1999. The Company
anticipates that it will fund its expenditures, as well as research and
development costs, through cash generated from operations.
On October 30, 1997, the Company was approved for a three year revolving
line of credit for $5 million the first year, $7 million the second year and
$9 million the third year The credit facility is at the bank's prime lending
rate (8.5% at June 30, 1998) through the term of the agreement and is secured
by all accounts receivable, general intangibles, inventory and equipment. The
agreement contains various restrictive covenants, which include, among
others, maintenance of certain financial ratios, maintenance of a minimum
tangible net worth and limitations on annual investments, dividends and
capital expenditures. As of June 30, 1998, no amounts were outstanding under
the credit facility.
In June 1994, the Company completed the private placement of 1,500,000
units, each unit consisting of one share of no par common stock and two
warrants. The units were offered at the greater of $1.00 or 75% of the
average of the closing bid and ask price of the common stock for the five
days prior to subscription. 1,500,000 of the warrants were priced at 125% of
the average of the closing bid and ask price of the common stock on the date
of purchase of the units, and an additional 1,500,000 warrants were issued
with an exercise price equal to 175% of the average of the closing bid and
ask price of the common stock on the date of purchase of the units. The
exercise prices of the warrants ranged from $1.41 to $2.68. The proceeds
from this offering were approximately $1.5 million.
During June 1997, the Company called all of the above warrants that had
not previously been exercised. During fiscal year 1997, 2,070,000 of these
warrants were exercised for $4,630,800. The remaining 930,000 warrants were
exercised during July and August 1997, resulting in cash proceeds to the
Company of $1,120,800 and cancellation of 142,505 shares of previously issued
common stock that were used in lieu of cash to exercise the warrants.
In December 1993, the Company completed the private placement of 500,000
shares of no par value common stock at an offering price of $1.00 per share.
The net proceeds from this offering were approximately $493,000.
Of the 5,000,000 shares issued in the above transactions, 3,500,000 were
sold to a wholly-owned subsidiary of Vencor, Inc. ("Vencor"), a Louisville,
Kentucky-based operator of intensive care hospitals and nursing homes that
specialize in treating patients with catastrophic illnesses. The Company
entered into a standstill agreement with Vencor in June 1994 whereby Vencor
will not acquire more than 40% of the Company's common stock for five years
from the agreement date. At August 31, 1998, Vencor owned 33% of the
Company's outstanding stock.
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The Company's working capital increased to $16,965,000 at June 30, 1998
from $11,124,000 at June 30, 1997. The increase in working capital occurred
primarily because of the Company's cash flow from operations and the proceeds
from the issuance of common stock through the exercise of options and
warrants. The average number of days outstanding of the Company's accounts
receivable was approximately 50 days at June 30, 1998 compared to 57 days at
June 30, 1997. The Company has granted extended terms to certain customers
which increased the average number of days outstanding of the Company's
accounts receivable by 3 days for the year ended June 30, 1998.
During the year ended June 30, 1998, the Company acquired approximately
$1,479,000 of property and equipment consisting principally of computer
equipment. The Company has no present material commitments for capital
expenditures.
The ratio of current assets to current liabilities was 2.4 to 1 at June
30, 1998, compared to 2.2 to 1 at June 30, 1997. The liabilities to equity
ratio was .6 to 1 at June 30, 1998, compared to .7 to 1 at June 30, 1997.
The improvement in both of these ratios is due to the Company's profitable
growth during the year ended June 30, 1998.
Cash provided by operations during the year ended June 30, 1998 was $8.3
million and increased approximately $5.4 million, compared to fiscal year
1997, as a result of the profitable growth of the Company, the increase in
accounts payable and accrued expenses, improved inventory turns and the
reduction in days outstanding of accounts receivable.
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RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the
following table indicates the percentage relationships of income and expense
items to total revenue for the line items included in the Consolidated
Statements of Operations for the three years ended June 30, 1998, 1997 and
1996, and the percentage change in those items for the years ended June 30,
1998 and 1997, from the prior year.
<TABLE>
<CAPTION>
As a Percentage of Total Revenues Percentage Change from Prior Year
- --------------------------------- ---------------------------------
For the Years Ended June 30, For the Years Ended June 30,
1998 1997 1996 LINE ITEMS 1998 1997
---- ---- ---- ---------- ---- ----
% % % % %
<S> <C> <C> <C> <C> <C>
100.0 100.0 100.0 Sales and Service 67.5 47.6
64.2 65.3 64.5 Cost of Sales and Services 64.5 49.6
----- ----- ----- ----- -----
35.8 34.7 35.5 Gross Profit 73.1 44.1
----- ----- ----- ----- -----
3.7 4.6 5.2 Marketing and Selling 36.5 29.8
16.1 16.4 20.2 Operating, Gen'l and Admin 65.1 19.4
3.6 1.1 .5 Research and Development 452.5 213.4
----- ----- ----- ----- -----
23.4 22.0 25.9 Total Operating Expenses 78.1 25.2
----- ----- ----- ----- -----
12.4 12.7 9.6 Earnings from Operations 64.4 95.3
.9 1.0 2.4 Other Income, Net 42.9 (35.7)
----- ----- ----- ----- -----
13.3 13.7 11.9 Earnings Before Income Taxes 62.8 69.5
3.8 4.9 3.6 Provision for Income Taxes 30.0 102.5
----- ----- ----- ----- -----
9.5 8.8 8.3 Net Income 81.2 55.3
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Revenues were $47.3 million for the year ended June 30, 1998, compared
to $28.2 million for the prior year, an increase of 67%. Of total revenues,
outsourcing contributed approximately 75% and 95% in the fiscal years 1998
and 1997, respectively, while products contributed approximately 25% and 5%
in the fiscal years 1998 and 1997, respectively. The increase in revenues is
attributable in part to the acquisition of Novel, effective January 1997, and
of Erbtec in October 1997, which contributed approximately $14.8 million of
revenue during the year ended June 30, 1998. The Company's revenue growth
also was the result of core business growth, which had an increase in revenue
of 27% compared to 1997.
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Gross margins increased to 36% from 35% for the year ended June 30,
1998, compared to the year ended June 30, 1997. The increase in the
Company's margins is a result of the shifting composition of the Company's
revenues between products and services and the increase in sales of
proprietary products.
Marketing and selling expenses increased by 36% for the year ended June
30, 1998, as compared to the prior year. The increase is attributable to the
growth in sales and the acquisitions of Erbtec and Novel. Marketing and
selling expenses as a percentage of total revenue decreased to 4% from 5% for
the year ended June 30, 1998, compared to 1997 as a result of the increase in
revenues.
Operating, general and administrative expenses increased by 65% for the
year ended June 30, 1998, compared to the prior year. The increase is
attributable to the acquisition of Erbtec and Novel, expenses incurred in
August 1997 in moving the RELA manufacturing facility from Boulder, Colorado
to Longmont, Colorado, the addition of executive personnel at RELA, increased
recruiting and hiring costs of new employees and the overall growth of the
Company. As a percentage of revenues, operating, general and administrative
expenses were approximately 16% for each of the years ended June 30, 1998 and
1997.
Research and development expenses for the year ended June 30, 1998,
compared to the prior year increased by approximately $1.4 million, or 453%.
Research and development expenses are attributable to new products for
Respiratory Products, Erbtec and BioMed. Consistent with the Company's
operating plans, the Company continues to pursue the acquisition or
development of new or improved technology or products. Should the Company
identify any such opportunities, the amount of future research and
development expenditures may increase.
Net other income and expenses increased approximately $124,000 to
$413,000 for the year ended June 30, 1998, compared to $289,000 for the year
ended June 30, 1997. The increase is attributable to a higher short-term
investment balance during fiscal year 1998, compared to fiscal year 1997.
The fiscal year 1998 and 1997 consolidated statements of operations
contain a net tax provision of $1.8 million and $1.4 million, respectively.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, which requires recognition
of deferred income tax assets and liabilities for the expected future income
tax consequences, based on enacted tax laws, of temporary differences between
the financial reporting and tax bases of assets, liabilities and
carryforwards. SFAS No. 109 requires recognition of deferred tax assets for
the expected future effects of all deductible temporary differences, loss
carryforwards and tax credit carryforwards. Deferred tax assets are then
reduced, if deemed necessary, by a valuation allowance for any tax benefits
which, based on current circumstances, are not expected to be realized.
During fiscal year 1998, the Company determined the valuation allowance was
no longer required because the increased taxable income from the acquisition
of Erbtec could be offset by tax credits and net operating loss ("NOL")
carryforwards. In fiscal years 1998 and 1997, the Company reduced its
valuation allowance by $590,000 and $80,000, respectively, for the
utilization of prior years' NOL in the current year and certain deferred tax
assets that the Company now believes will be fully utilized. The effective
tax rate during fiscal year 1998 was 29%, compared to a 36% effective tax
rate during fiscal year 1997.
The Company recorded net income of approximately $4.5 million for the
fiscal year ended June 30, 1998, compared to $2.5 million for the fiscal year
ended June 30, 1997. Earnings per share for the year ended June 30, 1998
were $.37, calculated on 12,256,461 diluted weighted average shares
outstanding, compared to $.27 for the same period in the prior year
calculated on 9,114,292 diluted weighted average shares outstanding. The
diluted
-13-
<PAGE>
weighted average shares outstanding increased by approximately 3,142,000
shares for the year ended June 30, 1998, compared to the same period in 1997,
due to the exercise of 3,000,000 private placement warrants and the exercise
of options and Board of Director ("Board") and consultant warrants. This
increase in net income is attributed to the 67% growth in the Company's
revenues, an increase in gross margins by 1% for the fiscal year 1998,
compared to 1997, having the combination of operating, general and
administrative expenses and marketing and selling expenses increase at a
slower rate than revenues and the decrease in the effective tax rate.
The Company evaluated its overall business in fiscal year 1996 and, as a
result, sharpened its market focus. The Company has continued to refine its
market focus during 1997 and 1998. The current targeted markets are:
Diagnostic and Laboratory Instruments; Imaging Accessories; Therapeutic
Instruments; and, Software. Each area represents a U.S. market of $2 billion
or more per year, with annual growth of approximately 8% to 15%. Generally,
the marketplace for outsourcing services is expected to remain strong and
competitive, with significant opportunity for companies that can develop
low-cost, high quality products in a timely manner. Management is dedicated
to improving operating results through consistent performance, improved sales
levels and cost reductions. There are no assurances that management will be
successful in achieving improved operating results.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Revenues were $28.2 million for the year ended June 30, 1997, compared
to $19.1 million for the prior year, an increase of 48%. Of the total
revenues, outsourcing contributed approximately 95% for both fiscal year 1997
and 1996, while products contributed approximately 5% for both fiscal year
1997 and 1996. The increase in revenues was attributable to the growth of the
core business, which reported an increase in revenues of 41% in fiscal year
1997 compared to fiscal year 1996. The Company's revenue growth was also
improved by the acquisition of Novel in January 1997, which contributed $1.6
million of revenue during the last six months of fiscal year 1997.
The Company's gross margins as a percentage of total revenues, which
were approximately 35%, did not change for the years ended June 30, 1997 and
1996.
Marketing and selling expenses increased by 30% for the year ended June
30, 1997, as compared to the prior year. The increase was attributable to
the growth in sales and the acquisition of Novel. Marketing and selling
expenses as a percentage of total revenue were approximately 5% for the years
ended June 30, 1997 and 1996.
Operating, general and administrative expenses increased by
approximately $749,000, or 19% for the year ended June 30, 1997, compared to
the prior year. The increase was attributable to the overall growth of the
Company and the acquisition of Novel. As a percentage of revenues,
operating, general and administrative expenses decreased to 16% from 20%, in
fiscal year 1997, compared to fiscal year 1996, respectively.
Research and development expenses for the year ended June 30, 1997,
compared to the prior year, increased by approximately $207,000, or 213%.
The increase was a result of the Company's greater emphasis on developing
proprietary products.
Net other income and expenses decreased approximately $161,000 to
$289,000 for the year ended June 30, 1997, compared to $450,000 for the year
ended June 30, 1996. The decrease was attributable to a $122,000 gain from
the sale of the cardiopulmonary product lines and an approximately $50,000
gain on two dispute settlements that occurred during fiscal year 1996.
During fiscal year 1997, the Company's interest income increased by $47,000,
compared to fiscal year 1996.
-14-
<PAGE>
The fiscal year 1997 and 1996 statements of operations contained a net
tax provision of $1,385,000 and $684,000, respectively. In fiscal years 1997
and 1996, the Company reduced its valuation allowance by $80,000 and
$178,000, respectively, for the utilization of prior years' NOL in the then
current year and certain deferred tax assets that the Company believed would
be fully utilized. The effective tax rate during fiscal year 1997 was 36%,
compared to a 30% effective tax rate during fiscal year 1996.
The Company recorded net income of approximately $2.5 million for the
fiscal year ended June 30, 1997, compared to approximately $1.6 million for
the fiscal year ended June 30, 1996. Earnings per share for the year ended
June 30, 1997 were $.27, calculated on 9,114,292 diluted weighted average
shares outstanding, compared to $.21 for the same period in the prior year,
calculated on 7,766,805 diluted weighted average shares outstanding. The
diluted weighted average shares outstanding increased by approximately
1,347,000 shares for the year ended June 30, 1997 compared to the same period
in 1996 due to the increase in the dilutive common equivalent shares for
stock options and warrants because of the increase in the Company's stock
price during fiscal 1997 compared to fiscal 1996. This increase in net
income was attributed to the 48% growth in the Company's revenues, while
maintaining the gross margins at 35% for the fiscal years 1997 and 1996, and
having the operating, general and administrative expenses and marketing and
selling expenses increase at a slower rate than revenues.
INFORMATION SYSTEMS AND THE YEAR 2000 ISSUE
As is the case for most other companies using computers in their
operations, the Company and its subsidiaries are in the process of addressing
the Year 2000 problem. The Company is currently engaged in a comprehensive
project to upgrade its information technology and manufacturing computer
software to programs that will consistently and properly recognize the Year
2000. Many of the Company's systems include new hardware and packaged
software recently purchased from vendors who have represented that these
systems are already Year 2000 compliant. The Company is in the process of
obtaining assurances from vendors that timely updates will be made available
to make all remaining purchased software Year 2000 compliant. The Company
will utilize both internal and external resources to test and reprogram or
replace all of its software for Year 2000 compliance.
The Company does not believe that its proprietary products or any of its
outsourcing services involve any material Year 2000 risks. In addition to
reviewing its internal systems, the Company has begun formal communications
with its significant vendors concerning Year 2000 compliance. There can be no
assurance that the systems of other companies that interact with the Company
will be sufficiently Year 2000 compliant so as to avoid an adverse impact on
the Company's operations, financial condition and results of operations.
The Company does not presently anticipate that the costs to address the
Year 2000 issue will have a material adverse effect on the Company's
financial condition, results of operations or liquidity. Present estimated
cost for remediation is less than $100,000.
The Company presently anticipates that it will complete its Year 2000
assessment and remediation by the end of fiscal year 1999. However, there
can be no assurance that the Company will be successful in implementing its
Year 2000 remediation plan according to the anticipated schedule. In
addition, the Company may be adversely affected
-15-
<PAGE>
by the inability of other companies whose systems interact with the Company
to become Year 2000 compliant and by potential interruptions of utility,
communications or transportation systems as a result of Year 2000 issues.
Although the Company expects its internal systems will be Year 2000
compliant as described above, the Company intends to prepare a contingency
plan that will specify what it plans to do if it or important external
companies are not Year 2000 compliant in a timely manner. The Company
expects to prepare its contingency plan during fiscal year 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", ("SFAS 130"). SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Comprehensive income would have been approximately $4,527,147, $2,479,617 and
$1,596,602 for the years ended June 30, 1998, 1997 and 1996, respectively.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires that public companies report
information about their operating segments based on the financial information
used by the chief operating decision maker in their annual financial
statements and requires those companies to report selected information on
their interim statements. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Management has not determined the segments, if any,
that will be reported in connection with the adoption of SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for fiscal quarters and
fiscal years beginning after June 15, 1999. Management believes that the
adoption of SFAS 133 will not have significant impact on the Company's
financial condition and results of operations.
In April 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5 provides guidance on financial reporting of
start-up costs and organization costs and requires such costs to be expensed
as incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company believes that application of
SOP 98-5 will not have a material impact on its financial statements.
FORWARD-LOOKING STATEMENTS
The statements contained in this report which are not historical facts
are forward-looking statements that are subject to risks and uncertainties
that could cause actual results to differ materially from those set forth in
or implied by forward-looking statements. Such risks include, but are not
limited to, the risk that a downturn in general economic conditions may tend
to adversely affect research and development budgets of potential customers
upon which the Company is dependent, the risk that the Company's
project-oriented revenues could be delayed or
-16-
<PAGE>
adversely affected if new contracts are not in place when existing contracts
are completed, and the risk that the nature of bidding and performing
research and development-type contracts and manufacturing contracts may
result in short-term fluctuations in revenue or expense that could adversely
affect quarterly results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company, as part of its cash management strategy, had short-term
investments at June 30, 1998 consisting of approximately $9,137,000 in U.S.
Treasury and government agency securities, $2,300,000 in commercial paper and
$707,000 in corporate notes. The Company has the intent and ability to hold
these short-term investments to maturity and thus has classified these
investments, which are stated at amortized cost that approximates market, as
"held-to-maturity". All of the short-term investments mature in less than
one year. The Company has completed a market risk sensitivity analysis of
these short-term investments based upon an assumed 1% increase in interest
rates at July 1, 1998. If market interest rates had increased by 1% on
July 1, 1998, the Company would have had an approximate $36,000 loss on these
short-term investments. Because this is only an estimate, any actual loss
due to an increase in interest rates could differ from this estimate.
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Index to Financial Statements and Schedules:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
-18-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado MEDtech, Inc.:
We have audited the accompanying consolidated balance sheets of COLORADO
MEDTECH, INC. (a Colorado corporation) and subsidiaries as of June 30, 1998
and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended June 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colorado MEDtech, Inc. and
subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 24, 1998.
F-1
<PAGE>
Page 1 of 2
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------ ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,499,072 $ 1,670,821
Short-term investments 12,144,005 10,293,101
Accounts receivable-
Trade - less allowance for uncollectible accounts
of $580,000 and $162,000, respectively 7,631,436 4,549,543
Unbilled 182,537 690,564
Inventories, net 4,225,680 2,390,267
Deferred income taxes 1,676,227 795,459
Prepaid expenses and other 890,260 195,483
------------ ------------
Total current assets 29,249,217 20,585,238
------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 3,224,215 2,307,210
Office furniture and fixtures 1,262,193 963,145
Leasehold improvements 485,748 365,860
Manufacturing equipment 1,063,920 548,054
------------ ------------
Total property and equipment 6,036,076 4,184,269
Less - Accumulated depreciation and amortization (4,301,804) (3,505,865)
------------ ------------
Property and equipment, net 1,734,272 678,404
------------ ------------
INVESTMENT IN LAND 500,000 500,000
------------ ------------
GOODWILL, net 1,724,796 1,628,326
------------ ------------
DEFERRED INCOME TAXES AND OTHER 798,997 461,465
------------ ------------
$ 34,007,282 $ 23,853,433
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-2
<PAGE>
Page 2 of 2
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------------------------------ ------ ------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,426,172 $ 3,075,225
Accrued product service costs 291,566 373,629
Accrued salaries and wages 3,126,671 1,805,770
Other accrued expenses 1,169,004 992,354
Customer deposits 2,804,450 3,175,530
Income taxes payable 466,788 38,691
------------ ------------
Total current liabilities 12,284,651 9,461,199
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 5,000,000 shares authorized;
none issued - -
Common stock, no par value; 25,000,000 shares authorized;
10,740,013 and 9,341,108 issued and outstanding
at June 30, 1998 and 1997, respectively 11,879,456 9,076,206
Retained earnings 9,808,175 5,316,028
Unrealized gain on available-for-sale investment 35,000 -
------------ ------------
Total shareholders' equity 21,722,631 14,392,234
------------ ------------
$ 34,007,282 $ 23,853,433
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES AND SERVICE $47,300,200 $28,243,185 $19,130,979
COST OF SALES AND SERVICE 30,357,492 18,456,764 12,341,217
----------- ----------- -----------
GROSS PROFIT 16,942,708 9,786,421 6,789,762
----------- ----------- -----------
COSTS AND EXPENSES:
Marketing and selling 1,756,661 1,287,091 991,508
Operating, general and administrative 7,626,103 4,619,447 3,870,181
Research and development 1,680,625 304,180 97,059
----------- ----------- -----------
Total operating expenses 11,063,389 6,210,718 4,958,748
----------- ----------- -----------
INCOME FROM OPERATIONS 5,879,319 3,575,703 1,831,014
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (14,127) (22,460) (59,945)
Interest income and other 426,955 311,374 509,533
----------- ----------- -----------
Total other income 412,828 288,914 449,588
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 6,292,147 3,864,617 2,280,602
PROVISION FOR INCOME TAXES 1,800,000 1,385,000 684,000
----------- ----------- -----------
NET INCOME $ 4,492,147 $ 2,479,617 $ 1,596,602
----------- ----------- -----------
----------- ----------- -----------
EARNINGS PER SHARE (Note 2):
Basic $.43 $.35 $.23
----------- ----------- -----------
----------- ----------- -----------
Diluted $.37 $.27 $.21
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 10,446,868 7,165,499 6,901,762
----------- ----------- -----------
----------- ----------- -----------
Diluted 12,256,461 9,114,292 7,766,805
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-4
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Unrealized
Gain On
Common Stock Available-
------------------------- For-Sale Retained
Shares Amount Investment Earnings
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCES, June 30, 1995 6,901,762 $ 3,713,652 $ - $1,239,809
Net income - - - 1,596,602
---------- ----------- ---------- ----------
BALANCES, June 30, 1996 6,901,762 3,713,652 - 2,836,411
Issuance of Common Stock 2,449,346 5,053,574 - -
Purchase of Common Stock (80,000) (242,144) - -
Common stock issued in conjunction
with the Novel acquisition 70,000 207,816 - -
Options issued in conjunction
with the Novel acquisition - 338,672 - -
Options issued for services
from consultants - 4,636 - -
Net income - - - 2,479,617
---------- ----------- ---------- ----------
BALANCES, June 30, 1997 9,341,108 9,076,206 - 5,316,028
Issuance of Common Stock 1,376,597 1,989,646 - -
Purchase of Common Stock (66,400) (507,390) - -
Common stock issued in conjunction
with the Erbtec acquisition 88,708 620,956 - -
Change in unrealized gain on
available-for-sale investment - - 35,000 -
Tax benefit from sale of option shares - 593,442 - -
Options issued for services
from consultants - 106,596 - -
Net income - - - 4,492,147
---------- ----------- ---------- ----------
BALANCES, June 30, 1998 10,740,013 $11,879,456 $ 35,000 $9,808,175
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-5
<PAGE>
Page 1 of 2
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,492,147 $ 2,479,617 $ 1,596,602
Adjustments to reconcile net income to net cash flows
from operating activities-
Deferred tax benefit (966,000) (80,000) (91,000)
Depreciation and amortization 1,047,007 433,747 391,405
Allowance for uncollectible accounts 392,783 (12,921) (25,000)
Reserve for inventory 134,578 (202,000) (295,000)
Gain on sale of product line - - (121,986)
Non-cash consulting services 106,596 4,636 -
Changes in operating assets and liabilities-
Accounts receivable (779,833) (1,758,217) (460,881)
Inventories 240,123 (377,038) (485,899)
Prepaid expenses and other assets 50,680 (165,430) 56,954
Accounts payable and accrued expenses 3,921,199 2,051,653 43,242
Customer deposits (371,080) 525,223 659,397
----------- ----------- -----------
Net cash flows from operating activities 8,268,200 2,899,270 1,267,834
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash paid for purchase of Novel, net - (1,126,363) -
Cash paid for purchase of Erbtec, net (5,392,731) - -
Purchase of investments (200,000) (25,000) -
Capital expenditures (1,478,570) (643,326) (231,982)
Increase in short-term investments, net (1,850,904) (4,859,839) (2,815,587)
Proceeds from sale of product line - - 250,000
----------- ----------- -----------
Net cash flows used in investing activities (8,922,205) (6,654,528) (2,797,569)
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-6
<PAGE>
Page 2 of 2
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock $1,989,646 $5,053,574 $ -
Purchase of Common Stock (507,390) (242,144) -
---------- ---------- -----------
Net cash flows from financing activities 1,482,256 4,811,430 -
---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 828,251 1,056,172 (1,529,735)
CASH AND CASH EQUIVALENTS, at beginning of period 1,670,821 614,649 2,144,384
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, at end of period $2,499,072 $1,670,821 $ 614,649
---------- ---------- -----------
---------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 14,849 $ 31,593 $ 59,767
---------- ---------- -----------
---------- ---------- -----------
Cash paid for income taxes $1,535,003 $1,675,000 $ 885,000
---------- ---------- -----------
---------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of Common Stock for acquisition of Novel $ - $ 207,816 $ -
---------- ---------- -----------
---------- ---------- -----------
Issuance of stock options for acquisition of Novel $ - $ 338,672 $ -
---------- ---------- -----------
---------- ---------- -----------
Issuance of Common Stock for acquisition of Erbtec $ 620,956 $ - $ -
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-7
<PAGE>
COLORADO MEDTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
(1) ORGANIZATION AND OPERATIONS
Colorado MEDtech, Inc. ("CMED") was incorporated in 1977 as a Colorado
corporation to develop, manufacture, market and service computerized
diagnostic and testing instrumentation.
RELA, Inc. ("RELA"), a Colorado corporation and wholly owned subsidiary
of CMED, was incorporated in 1977. RELA is an integrated custom product
development and manufacturing services company specializing in the design,
development and manufacture of electronic and electro-mechanical medical
products and software systems. The Company merged RELA into CMED in July 1998,
and is now operating RELA as a division of CMED. This merger will have no
material effect on the day to day operations of RELA.
Novel Biomedical, Inc. ("Novel"), a Minnesota corporation and wholly
owned subsidiary acquired by CMED in February 1997, was incorporated in 1986.
Novel specializes in the custom design, development and manufacture of
unique disposable medical devices, primarily catheters, used in angioplasty,
minimally invasive surgery, electrophysiology, and infertility treatment.
In October 1997, CMED completed the acquisition of the operating assets
of Erbtec Engineering, Inc. ("Erbtec"). Erbtec is operated as a division of
CMED. Erbtec's main products are high power Radio Frequency amplifiers, power
supplies and systems for Magnetic Resonance Imaging equipment.
BioMed Y2K, Inc. ("BioMed"), a Colorado corporation and wholly owned
subsidiary of CMED, was incorporated in April 1998. BioMed offers a
combination of tools and services to support health care institutions'
efforts to establish year 2000 compliance for their biomedical devices.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements reflect the consolidated results
of CMED, RELA, Novel and BioMed (collectively, the "Company"). All
significant intercompany transactions and accounts have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-8
<PAGE>
INVESTMENTS
The Company accounts for its investments in accordance with the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Short-term investments are primarily U.S. Treasury and government agency
securities, which the Company has the intent and the ability to hold to
maturity and thus has classified these investments, which are stated at
amortized cost which approximates market, as "held-to-maturity". All of the
Company's held-to-maturity investments mature in less than one year. The
unrealized gains and losses on these held-to-maturity investments were
immaterial at June 30, 1998 and 1997. The following is a summary of
held-to-maturity investments as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Security Type 1998 1997
------------- ---- ----
<S> <C> <C>
U.S. Treasury and
government agency
securities $ 9,137,095 $ 5,298,635
Commercial paper 2,299,905 3,968,369
Corporate notes 707,005 1,026,097
----------- -----------
$12,144,005 $10,293,101
----------- -----------
----------- -----------
</TABLE>
The Company also has approximately $120,000 of equity available-for-sale
investments which are marked to market in the accompanying consolidated balance
sheets. These equity available-for-sale investments have no specific maturity.
The realized and unrealized gains and losses on the equity available-for-sale
investments were immaterial as of and for the years ended June 30, 1998 and
1997.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The cost of inventories includes material, labor and manufacturing
overhead. As of June 30, 1998 and 1997, inventories, net of allowances,
consisted of:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 2,957,886 $ 1,791,104
Work-in-process 1,267,794 594,697
Finished goods - 4,466
----------- -----------
$ 4,225,680 $ 2,390,267
----------- -----------
----------- -----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are provided principally on the straight-line method over the
estimated useful lives of the assets, which range from 2 to 7 years.
Depreciation expense for the years ended June 30, 1998, 1997 and 1996 was
approximately $796,000, $401,000 and $391,000, respectively.
GOODWILL
Goodwill resulting from the Erbtec and Novel acquisitions is stated at
cost, net of accumulated amortization of approximately $284,000 and $33,000,
as of June 30, 1998 and 1997, respectively. Amounts of goodwill for Erbtec
F-9
<PAGE>
and Novel are being amortized using the straight-line method over estimated
useful lives of 2 and 25 years, respectively.
ACCRUED PRODUCT SERVICE COSTS
The Company warrants its products against defects in materials and
workmanship, generally for 90 days, but in limited cases for up to 18 months.
Estimated costs of product service are accrued at the time of sale.
CUSTOMER DEPOSITS
Customer deposits result from cash received in advance for future
contract work.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", ("SFAS 128"), which was effective for periods ended after December
15, 1997. This statement establishes standards for computing and presenting
earnings per share. Basic earnings per share are computed on the basis of the
weighted average shares outstanding during each period. Diluted earnings per
share are computed on the basis of the weighted average shares outstanding
during each period, including dilutive common equivalent shares for stock
options and warrants. As a result of adopting SFAS 128, reported earnings
per share for the years ended June 30, 1997 and 1996 were restated. The
effect of this accounting change on previously reported earnings per share
was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Primary earnings per share
(as reported under the prior method) $.37 $.24 $.21
Effect of SFAS 128
on basic earnings per share .06 .11 .02
---- ---- ----
Basic earnings per share $.43 $.35 $.23
---- ---- ----
---- ---- ----
Fully diluted earnings per share
(as reported under the prior method) $.36 $.23 $.17
Effect of SFAS 128
on diluted earnings per share .01 .04 .04
---- ---- ----
Diluted earnings per share $.37 $.27 $.21
---- ---- ----
---- ---- ----
</TABLE>
A reconciliation between the number of shares used to calculate basic
and diluted earnings per share is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (income available to
common shareholders) $ 4,492 $ 2,480 $ 1,597
------- ------- -------
------- ------- -------
Weighted average number of common shares
outstanding (shares used in basic earnings
per share computation) 10,447 7,165 6,902
Effect of stock options and warrants
(treasury stock method) 1,809 1,949 865
------- ------- -------
Shares used in diluted earnings per share
computation 12,256 9,114 7,767
------- ------- -------
------- ------- -------
</TABLE>
Options and warrants that were of an antidilutive nature for the years
ended June 30, 1998, 1997 and 1996 that were outstanding but not included in
the shares used in diluted earnings per share computation totaled
approximately 1,571,000, 3,972,000 and 4,630,000, respectively.
F-10
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130"). SFAS 130
establishes standards for reporting and displaying comprehensive income and
its components in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Comprehensive income would have
been approximately $4,527,147, $2,479,617 and $1,596,602 for the years ended
June 30, 1998, 1997 and 1996, respectively.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires that public companies report
information about their operating segments based on the financial information
used by the chief operating decision maker in their annual financial
statements and requires those companies to report selected information on
their interim statements. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Management has not determined the segments, if any,
that will be reported in connection with the adoption of SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for fiscal quarters and
fiscal years beginning after June 15, 1999. Management believes that the
adoption of SFAS 133 will not have significant impact on the Company's
financial condition and results of operations.
In April 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP 98-5"), "Reporting on the Costs of
Start-up Activities." SOP 98-5 provides guidance on financial reporting of
start-up costs and organization costs and requires such costs to be expensed
as incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company believes that application of
SOP 98-5 will not have a material impact on its financial statements.
REVENUE RECOGNITION POLICY
The Company recognizes revenue for manufacturing services upon shipment
of the related products and recognizes revenues for engineering contract
services as work is performed and contract requirements are met. Unbilled
receivables result from revenue recognized for contract services in excess of
billings. Unanticipated losses on engineering contracts are provided for, in
full, when determinable.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS 109"), which requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax
bases of assets, liabilities and carryforwards. SFAS 109 requires
recognition of deferred tax assets for the expected future effects of all
deductible temporary differences, loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by
a valuation allowance for any tax benefits which, based on current
circumstances, are not expected to be realized (see Note 6).
F-11
<PAGE>
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25. "Accounting for Stock Issued to
Employees" ("APB 25"). Effective in 1995, the Company adopted the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that companies
which do not choose to account for stock-based compensation as prescribed by
the statement shall disclose the pro forma effects on earnings and earnings
per share as if SFAS 123 had been adopted. Additionally, certain other
disclosures are required with respect to stock compensation and the
assumptions used to determine the pro forma financial statement effect of
SFAS 123 (see Note 5).
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
FINANCIAL INSTRUMENTS
The fair market values of accounts receivable, accounts payable and
other financial instruments approximate their carrying values in the
accompanying consolidated balance sheets.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
(3) ACQUISITIONS
In October 1997, the Company completed the acquisition of the operating
assets of Erbtec. The purchase was completed for $5.39 million in cash and
issuance of 88,708 shares of common stock, resulting in a total purchase
value of approximately $6.0 million, including acquisition costs. At the
date of the purchase, $1 million of the cash portion of the purchase price
was placed in escrow pending the performance of certain criteria outlined in
the purchase and sale agreement. During the quarter ended June 30, 1998, the
Company was informed that certain of the purchase and sale agreement criteria
would not be met and the seller would be refunding $750,000 of the escrowed
purchase price. This receivable is included in other current assets in the
accompanying consolidated balance sheets. The net purchase price, less the
net tangible assets acquired, resulted in goodwill of $480,773 that will be
amortized over a 2-year period. The accompanying consolidated financial
statements include the operating results of Erbtec since October 1, 1997, the
effective date of the acquisition. The total purchase price and net cash
used for the acquisition of Erbtec are as follows:
F-12
<PAGE>
<TABLE>
Assets acquired:
<S> <C>
Cash $ 8,882
Accounts receivable 2,186,816
Inventories 2,210,114
Equipment and furniture 373,227
Other assets 12,757
Goodwill 480,773
-----------
Total purchase price 5,272,569
Less:
Stock issued (620,956)
Cash acquired (8,882)
Plus:
Receivable of escrowed funds 750,000
-----------
Net cash paid for purchase of Erbtec $ 5,392,731
-----------
-----------
</TABLE>
In February 1997, the Company completed the acquisition of Novel. The
Company acquired Novel for $1,899,196, which included cash, the issuance of
70,000 shares of common stock, and the grant of 294,211 non-qualified stock
options. The stock was valued at fair market value on the date the Agreement
and Plan of Reorganization was entered into between CMED and Novel. The
non-qualified stock options were valued using the Black-Scholes option
pricing model. In fiscal 1998, the Company recognized certain tax benefits
related to assets obtained in the Novel acquisition, which resulted in an
adjustment to goodwill. The purchase price, less the net assets acquired,
resulted in goodwill of $1,528,332 that is being amortized over a 25-year
period. The accompanying consolidated financial statements include the
operating results of Novel since January 3, 1997, the effective date of the
acquisition.
The following unaudited pro forma results of operations of the Company
for the fiscal years ended June 30, 1998, 1997 and 1996 assume that the
acquisition of Erbtec had occurred on July 1, 1996 and the acquisition of
Novel had occurred on July 1, 1995. These pro forma results are not
necessarily indicative of the actual results of operations that would have
been achieved nor are they necessarily indicative of future results of
operations. Should the Company obtain additional information about the fair
market value of the assets acquired, the purchase price may be adjusted in
future periods.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $50,752,000 $42,480,000 $20,503,000
Net Income $ 4,293,000 $ 4,117,000 $ 1,560,000
Net Income Per Share (Diluted) $ .35 $ .44 $ .20
</TABLE>
F-13
<PAGE>
(4) CREDIT FACILITY
The Company entered into a bank financing arrangement on October 30,
1997 that provides for a three-year revolving line of credit for $5 million
the first year, $7 million the second year and $9 million the third year. The
credit facility is at the bank's prime lending rate (8.5% at June 30, 1998)
through the term of the agreement and is secured by all accounts receivable,
general intangibles, inventory and equipment. The agreement contains various
restrictive covenants which include, among others, maintenance of certain
financial ratios, maintenance of a minimum tangible net worth and limitations
on annual investments, dividends and capital expenditures. No amounts were
advanced under this credit facility during fiscal 1998 and 1997.
(5) SHAREHOLDERS' EQUITY
Preferred Stock
The Company's shareholders have authorized 5,000,000 shares of no par
value preferred stock, to be issuable from time to time in such series and to
have such rights and preferences as the Company's Board of Directors (the
"Board") may designate. As of June 30, 1998 and1997, no shares of preferred
stock have been issued.
COMMON STOCK
The Company's shareholders have authorized 25,000,000 shares of no par
value common stock, of which 10,740,013 and 9,341,108 shares were issued and
outstanding as of June 30, 1998 and 1997, respectively. During the years
ended June 30, 1998 and 1997, the Company purchased 66,400 and 80,000 shares
of common stock, respectively, which decreased the Company's equity by
approximately $507,000 and $242,000, respectively. These shares were
purchased so that the stock issued under the Employee Stock Purchase Plan
would be less dilutive.
STOCK OPTION PLAN
On June 25, 1992, the Board approved a Stock Option Plan (the "Plan").
The Plan provides for the grant of both incentive and nonstatutory stock
options as defined by the Internal Revenue Code of 1986, stock appreciation
rights and supplemental bonuses at the discretion of the Board. Under the
terms of the Plan, the purchase price of the shares subject to an incentive
option will be the fair market value of the Company's common stock on the
date the option is granted. If the grantee owns more than 10% of the total
combined voting power of all classes of stock on the date of grant, the
purchase price shall be at least 110% of the fair market value at the date of
grant and the exercise term shall be up to five years from the date of grant.
All other options granted under the Plan are exercisable up to 10 years from
the date of grant. Under the Plan, 3,500,000 shares of common stock are
reserved for options. Vesting periods for options issued are determined by
the Board at date of grant and currently vest over three to eight years. A
summary of the status of the Plan follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
------- ------- -------
<S> <C> <C> <C>
Balance outstanding at beginning
of fiscal year 1,470,571 1,385,949 754,817
Granted during period 873,400 374,200 788,000
Forfeited during period (62,101) (56,636) (156,868)
Exercised during period (246,719) (232,942) -
--------- --------- ---------
Outstanding at June 30, 2,035,151 1,470,571 1,385,949
--------- --------- ---------
--------- --------- ---------
Exercisable at June 30, 597,775 369,670 447,053
--------- --------- ---------
--------- --------- ---------
Weighted average exercise price:
At beginning of period $ 2.28 $ 1.91 $ 1.41
At end of period $ 3.98 $ 2.28 $ 1.91
Exercisable at end of period $ 2.07 $ 1.44 $ 1.29
Options granted $ 6.30 $ 3.04 $ 2.33
Options exercised $ 1.81 $ 1.33 $ -
Options forfeited $ 4.82 $ 2.30 $ 1.61
Weighted average fair value of
options granted during period $ 3.49 $ 1.64 $ 1.45
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------- -------------------
Weighted Weighted
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices Shares Price Life (Years) Shares Price
- --------------- ------ ----- ------------ ------ -----
<S> <C> <C> <C> <C> <C>
$1.25 - $1.66 242,667 $1.42 2.2 242,667 $1.42
$1.67 - $2.38 397,505 $1.85 4.4 235,835 $1.82
$2.39 - $4.25 556,679 $3.14 5.3 77,607 $3.04
$4.26 - $5.47 250,000 $5.47 4.1 41,666 $5.47
$5.48 - $8.00 588,300 $6.65 4.6 - $ -
--------- -------
2,035,151 597,775
--------- -------
--------- -------
</TABLE>
NON-QUALIFIED STOCK OPTIONS
The Company has issued non-qualified stock options outside the Plan to
purchase up to 728,651 shares of the Company's common stock in exchange for
employment recruiting services' the acquisition of Novel and to employees.
The value of options issued to non-employees has been determined using the
Black-Scholes model and recorded in the accompanying consolidated financial
statements. All non-qualified stock options were granted with an exercise
price that was equal to the fair market value of the Company's stock on the
date of grant. A summary of the status of the Company's non-qualified stock
options outside the Plan follows.
F-15
<PAGE>
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
------- ------- -------
<S> <C> <C> <C>
Balance outstanding at beginning
of fiscal year 709,351 434,440 434,440
Granted during period - 294,211 -
Forfeited during period (10,958) (1,000) -
Exercised during period (84,140) (18,300) -
------- ------- -------
Outstanding at June 30, 614,253 709,351 434,440
------- ------- -------
------- ------- -------
Exercisable at June 30, 503,039 531,578 434,440
------- ------- -------
------- ------- -------
Weighted average exercise price:
At beginning of period $ 1.97 $ 1.28 $ 1.28
At end of period $ 2.05 $ 1.97 $ 1.28
Exercisable at end of period $ 1.85 $ 1.64 $ 1.28
Options granted $ - $ 2.97 $ -
Options exercised $ 1.28 $ 1.44 $ -
Options forfeited $ 2.97 $ 2.97 $ -
Weighted average fair value of $ - $ 1.75 $ -
options granted during period
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------- -------------------
Weighted Weighted
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices Shares Price Life (Years) Shares Price
- --------------- ------ ----- ------------ ------ -----
<S> <C> <C> <C> <C> <C>
$1.25 - $ 1.44 332,000 $1.27 .5 332,000 $1.27
$1.45 - $ 2.97 282,253 $2.97 3.7 171,039 $2.97
------- -------
614,253 503,039
------- -------
------- -------
</TABLE>
DIRECTOR, CONSULTANT AND OTHER WARRANTS
The Board grants warrants to the outside directors for serving on the
Board. Warrants were issued in February 1993 to purchase 120,000 shares of
the Company's common stock at $1.63 per share; in November 1993 to purchase
90,000 shares of the Company's common stock at $1.50 per share; in June 1995
to purchase 180,000 shares of the Company's common stock at $1.59 per share;
in November 1996, to purchase 15,000 shares of the Company's common stock at
$3.03 per share; in November 1997, to purchase 90,000 shares of the Company's
common stock at $6.41 per share; and in August 1998, to purchase 180,000
shares of the Company's common stock at $7.00 per share. During fiscal years
1998 and 1997, 110,000 and 70,000 director warrants were exercised,
F-16
<PAGE>
respectively. In fiscal 1997, 15,000 warrants expired, unvested. As of June
30, 1998, 195,000 warrants were vested. The warrants have a five-year term,
and have exercise prices equal to the fair market value of the Company's
stock on the date of grant.
In connection with a prior borrowing in March 1993, the Company issued
100,000 warrants to purchase the Company's common stock at an exercise price
of $1.50 per share. In May 1994, the Company changed the warrant price to
$1.25 per share. All of these warrants were exercised during fiscal year
1997. The warrants had a five-year term.
In March 1993, the Company issued 100,000 warrants with a five-year term
in connection with a purchase option on the Company's land (see Note 9).
These warrants were exercisable at $2.00 per share from March 1996 through
March 1997 and at $2.25 per share thereafter. These warrants would have
vested only if the land purchase option was exercised. The warrants expired
unexercised in March 1998.
In November 1993, the Company issued warrants to its attorneys to
purchase 100,000 shares of the Company's common stock. These warrants vested
25% per year beginning November 1993, and were exercisable at the average of
the bid and ask prices of the Company's common stock as of the vesting date.
The warrants vested in 1993, 1994, 1995 and 1996, and were exercisable at
$1.50, $1.25, $1.81 and $3.00 per share, respectively. All of these warrants
were exercised during fiscal 1998.
In May 1997, the Company granted 125,000 warrants to a consulting group
in exchange for investor relation services. The exercise prices range from
$4.00 to $10.00 per share and the warrants have a three-year term from the
date of grant. The Company has recognized approximately $107,000 and $5,000
of expense in fiscal years 1998 and 1997, respectively, related to these
warrants based on the value of the services received.
A summary of all of the above-described warrants is as follows:
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
------- ------- -------
<S> <C> <C> <C>
Balance outstanding at beginning
of fiscal year 630,000 675,000 675,000
Granted during period 90,000 140,000 -
Forfeited during period (100,000) (15,000) -
Exercised during period (210,000) (170,000) -
-------- -------- -------
Outstanding at June 30, 410,000 630,000 675,000
-------- -------- -------
-------- -------- -------
Exercisable at June 30, 295,000 430,000 460,000
-------- -------- -------
-------- -------- -------
Weighted average exercise price:
At beginning of period $2.72 $1.64 $1.64
At end of period $4.16 $2.72 $1.64
Exercisable at end of period $1.96 $1.84 $1.50
Warrants granted $6.41 $6.04 $ -
Warrants exercised $1.72 $1.40 $ -
Warrants forfeited $2.25 $1.59 $ -
Weighted average fair value of
warrants granted during period $1.82 $ .96 $ -
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------------------------
Warrants Outstanding Warrants Exercisable
----------------------------------- -------------------
Weighted Weighted
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices Shares Price Life (Years) Shares Price
- --------------- ------ ----- ------------ ------ -----
<S> <C> <C> <C> <C> <C>
$1.25 - $ 1.81 180,000 $1.58 1.7 180,000 $1.58
$1.82 - $ 3.03 15,000 $3.03 3.4 15,000 $3.03
$3.04 - $ 6.00 75,000 $5.00 1.9 75,000 $5.00
$6.01 - $10.00 140,000 $7.16 3.9 25,000 $7.00
------- -------
410,000 295,000
------- -------
------- -------
</TABLE>
PRIVATE PLACEMENT WARRANTS
In June 1994, the Company completed the private placement of 1,500,000
units, each unit consisting of one share of no par value common stock and two
warrants. During fiscal 1997, 2,070,000 of these warrants were exercised for
approximately $4,631,000. The remaining 930,000 warrants were exercised
during July and August 1997 at a price per share ranging from $1.41 to $2.68,
resulting in cash proceeds to the Company of approximately $1,121,000 and
cancellation of 142,505 shares of previously issued common stock that were
used in lieu of cash to exercise the warrants.
A summary of all of the above-described warrants is as follows:
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
------- ------- -------
<S> <C> <C> <C>
Balance outstanding at beginning
of fiscal year 930,000 3,000,000 3,000,000
Exercised during period (930,000) (2,070,000) -
-------- ---------- ---------
Outstanding at June 30, - 930,000 3,000,000
-------- ---------- ---------
-------- ---------- ---------
Exercisable at June 30, - 930,000 3,000,000
-------- ---------- ---------
-------- ---------- ---------
Weighted average exercise price:
At beginning of period $ 2.07 $ 2.18 $ 2.18
At end of period $ - $ 2.07 $ 2.18
Exercisable at end of period $ - $ 2.07 $ 2.18
Warrants exercised $ 2.07 $ 2.24 $ -
</TABLE>
F-18
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
In September 1996, the Board of Directors adopted an Employee Stock
Purchase Plan (the "ESPP"), effective for the plan year beginning January 1,
1997. Under the ESPP, the Company is authorized to issue up to 240,000
shares of common stock over a three-year period, with a maximum of 80,000
shares per year, to its full time employees, nearly all of whom are eligible
to participate. Under terms of the ESPP, employees can have up to 10% of
their salary withheld to purchase the Company's common stock. The purchase
price of the stock is 85% of the lower of its beginning-of-the-year or
end-of-the-year market price. In January 1998, the Company issued 75,526
shares of common stock under the ESPP at $2.50 per share.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
SFAS 123 defines a fair-value based method of accounting for employee
stock options or similar equity instruments. However, SFAS 123 allows the
continued measurement of compensation cost for such plans using the intrinsic
value-based method prescribed by APB 25, provided that pro forma disclosures
are made of net income or loss and net income or loss per share, assuming the
fair-value based method of SFAS 123 had been applied. The Company has
elected to account for its stock-based compensation plans under APB 25;
accordingly, for purposes of the pro forma disclosure presented below, the
Company has computed the fair values of shares issued under the ESPP, all
options and warrants issued during fiscal years 1998, 1997 and 1996 using the
Black-Scholes pricing model and the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 5.84% 5.70% 6.18%
Expected lives 3.8 years 3.5 years 4.2 years
Expected volatility 67.4% 69.8% 74.6%
Expected dividend yield 0% 0% 0%
</TABLE>
To estimate expected lives of options for this valuation, it was assumed
options would be exercised upon becoming fully vested. Cumulative
compensation cost recognized in pro forma net income or loss with respect to
options that are forfeited prior to vesting is adjusted as a reduction of pro
forma compensation expense in the period of forfeiture. The Company's common
stock market volatility was based on the closing market price at the end of
each month since the merger of CMED and RELA in October 1992. Fair value
compensation is highly sensitive to the volatility factor assumed; the
greater the volatility, the higher the computed fair value of options granted.
The total fair value of options and warrants granted, that are included
in the pro forma calculation, was computed to be approximately $2,536,000,
$628,000 and $1,141,000 for the years ended June 30, 1998, 1997 and 1996,
respectively. These amounts are amortized ratably over the vesting periods of
the options. Pro forma stock-based compensation, net of the effect of
forfeitures and taxes, was approximately $639,000, $216,000 and $62,000 for
1998, 1997 and 1996, respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net income and pro forma diluted
earnings per common share would have been reported as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income
As reported $4,492,147 $2,479,617 $1,596,602
Pro forma $3,852,790 $2,263,185 $1,534,299
Diluted Earnings Per Common Share
As reported $.37 $.27 $.21
Pro forma $.33 $.21 $.21
</TABLE>
(6) INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Current -
Federal $ 2,581,784 $ 1,347,733 $ 717,733
State 184,216 96,267 51,267
----------- ----------- ----------
2,766,000 1,444,000 769,000
Deferred -
Federal (901,664) (55,067) (79,333)
State (64,336) (3,933) (5,667)
----------- ----------- ----------
Total $ 1,800,000 $ 1,385,000 $ 684,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The Company's effective income tax rate was different than the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Federal income tax provision at
statutory rates $ 2,138,000 $ 1,314,000 $ 775,000
State income tax provision, net of
federal tax effect 206,000 133,000 75,000
Nondeductible expenses 46,000 18,000 12,000
SFAS 109 valuation allowance reduction (590,000) (80,000) (178,000)
----------- ----------- ----------
Effective tax $ 1,800,000 $ 1,385,000 $ 684,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
In accordance with certain provisions of the Internal Revenue Code, a
change in ownership of greater than 50% of a company within a three-year
period results in an annual limitation on the Company's ability to utilize
its net operating loss ("NOL") carryforwards from tax periods prior to the
ownership change. Such a change in ownership occurred with respect to the
Company on October 19, 1992. Accordingly, the NOL carryforwards at October
19, 1992 were restricted to annual cumulative amounts of approximately
$105,000 subject to the expiration of these carryforwards, or approximately
$1,575,000. As of June 30, 1998, the Company had NOL carryforwards available
of approximately $1,219,000. The Company's NOLs expire beginning in 1999
through 2007. The Company also has research and development and investment
tax credit carryforwards totaling approximately $140,000 expiring from 1999
through 2007.
F-20
<PAGE>
Deferred taxes are determined based on estimated future tax effects of
differences between the amounts reflected in the financial statements and the
tax basis of assets and liabilities given the provisions of the enacted tax
laws. Deferred tax assets include the tax effect of NOL and tax credit
carryforwards. The net deferred tax assets and liabilities as of June 30,
1998 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current
Tax effect of NOL carryforwards $ 457,000 $ 538,000
Allowance for doubtful accounts 217,000 57,000
Accrued vacation 177,000 99,000
Deferred service revenue - 15,000
Reserves 685,000 522,000
Tax credits 140,000 -
Valuation allowance - (436,000)
---------- ----------
Net current deferred tax asset $1,676,000 $ 795,000
---------- ----------
---------- ----------
Noncurrent
Tax credits $ - $ 140,000
Depreciation for book in excess of tax 367,000 296,000
Valuation allowance - (154,000)
---------- ----------
Net noncurrent deferred tax asset $ 367,000 $ 282,000
---------- ----------
---------- ----------
</TABLE>
The Company had established a valuation allowance due to the uncertainty
that the full amount of credits and NOL carryforwards would be applied
against future taxable income. During fiscal 1998, the Company determined
the valuation allowance was no longer required because the increased taxable
income from the acquisition of Erbtec could be offset by tax credits and NOL
carryforwards. During 1998, 1997 and 1996, the Company reduced the valuation
allowance by $590,000, $80,000 and $178,000 for the utilization of NOLs in
the respective years and certain deferred tax assets that the Company now
believes will be fully utilized.
(7) COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases its operating facilities and certain computer and test
equipment pursuant to noncancellable operating lease arrangements. The Company
incurred rent expense of $846,000, $467,000 and $511,000 for the years ended
June 30, 1998, 1997 and 1996, respectively, under such agreements.
At June 30, 1998, future minimum lease payments under leases having an
initial or remaining noncancellable term of one year or more were
approximately $825,000 in 1999, $792,000 in 2000, $769,000 in 2001, $728,000
in 2002, and none in 2003 or thereafter.
EMPLOYMENT AND COMPENSATION AGREEMENTS
In June 1993, the Company entered into an employment agreement with the
Company's Chairman, Chief Executive Officer and President, which had a
three-year term. The agreement fixed the employee's compensation. In
connection with and as a condition of the employment agreement, the employee
executed a noncompetition agreement in which he agreed not to engage in
competitive activities for a period of two years after his
F-21
<PAGE>
employment with the Company is terminated, whether voluntarily or
involuntarily. The Company also agreed to grant an incentive stock option to
purchase up to 300,000 shares of the Company's common stock at a purchase
price of $1.25 per share. The options vested at 100,000 shares per year over
three years. Each portion of the vested option is exercisable for five years
after the date each portion has vested. During fiscal 1998 and 1997, 80,000
of these options were exercised each year.
The Company and the employee extended the employment agreement in
November 1995 and in May 1996 through June 2002. The Company agreed to grant
an incentive stock option to purchase up to 300,000 shares of the Company's
common stock at a purchase price of $1.84 per share and another 260,000
shares at a purchase price of $3.25 per share, in consideration of the
extended employment agreement. The first group of options vests at 100,000
shares per year over three years. The remaining 260,000 shares vest in year
seven, however, earlier vesting can occur if the Company achieves certain
targeted stock prices by September 2000. If the Company terminates his
employment at any time prior to June 2002, no vesting of the options shall
occur after the date of termination, but the employee will be entitled to
receive a severance payment amounting to compensation for a period equal to
the lesser of 24 months or the unexpired term of the agreement. If the
employee terminates his employment prior to June 1999, no further vesting of
the stock options shall occur, and the unexercised portion of the options,
whether or not vested, shall terminate. Subject to these restrictions, each
portion of the vested options shall be exercisable for five years after the
date such portion has vested.
Two of the Company's other officers have also entered into employment
agreements with the Company. These agreements provide for a severance
payment equal to one year's salary if the officer's employment is terminated
as a result of loss of officer status, relocation of the Company or for
reasons other than cause and two years' salary if the officer's employment is
terminated as a result of a significant ownership change in the Company.
These agreements have no fixed term, and may be terminated by either party at
any time.
OTHER
In connection with an equity offering in June 1994, the Company entered
into a standstill agreement with a corporation that owns 3,500,000 shares of the
Company's common stock. The standstill agreement limits the corporation to not
more than a 40% ownership of the Company. The standstill agreement expires in
June 1999.
The Company had sales to this corporation of approximately $67,000,
$1,473,000 and $381,000 in 1998, 1997 and 1996, respectively. As of June 30,
1998 and 1997, the Company had accounts receivable balances of $0 and
$423,000, respectively, related to these sales.
(8) 401(k) RETIREMENT PLAN
In fiscal year 1988, the Company established the Colorado MEDtech, Inc.
401(k) Retirement Plan, which is governed by Section 401(k) of the Internal
Revenue Code. Employees are eligible to enroll in the plan on January 1 and
July 1, any time after they become full time employees of the Company. The
Company makes discretionary contributions that vest over a three-year period.
Company contributions were $175,000, $100,000 and $75,000 for the years ended
June 30, 1998, 1997 and 1996, respectively.
(9) INVESTMENT IN LAND
In 1987, the Company acquired a parcel of land from a shareholder, officer
and former director of the Company. The parcel comprises 10.91 acres of
industrial zoned land located within the city boundaries of Louisville,
Colorado. The Company purchased the parcel for $631,750, the price established
by an independent appraisal. During 1992, the Company obtained an independent
appraisal for the parcel that indicated a decline in
F-22
<PAGE>
the valuation of the property. The property is valued at the appraisal value
in the accompanying consolidated balance sheets. In connection with a
previous borrowing arrangement, the Company granted an option to purchase the
land at a purchase price of $640,968. This option expired, unexercised, in
March 1998. At June 30, 1998 the Company is holding the land as
available-for-sale.
(10) MAJOR CUSTOMERS
Four customers accounted for more than 10% of total sales and service
revenues for the years ended June 30, 1998, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer
--------
A 23% 0% 0%
B 22% 19% 2%
C 2% 14% 13%
D 0% 12% 27%
</TABLE>
At June 30, 1998 and 1997, these four customers had accounts receivable due
to the Company as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
A $ 1,662,000 $ -
B $ 1,996,000 $ 318,000
C $ 122,000 $ 996,000
D $ - $ 148,000
</TABLE>
The loss of a significant customer could have a material, detrimental impact on
the Company's operations.
(11) SALE OF PRODUCT LINES
In June 1995, the Company entered into an agreement to sell the Company's
cardiopulmonary product lines to a competitor (the "Purchaser"). The
transaction closed on August 16, 1995. The sale transaction included all
inventories, intangible property rights, customer lists and tooling associated
with cardiopulmonary product lines as well as the trade name Cybermedic. In
addition, the Purchaser assumed the warranty and service obligations related
to these products. The Purchaser placed noncancellable orders with the
Company for additional manufactured units. All of the units related to this
contract were shipped to the Purchaser during fiscal year 1996.
F-23
<PAGE>
(12) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's quarterly results of operations are summarized as follows (In
thousands, except earnings per share data):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal Year Ended June 30, 1997
Net sales and service $ 5,288 $ 5,777 $ 8,483 $ 8,695
Gross profit $ 1,755 $ 2,043 $ 2,847 $ 3,142
Net income $ 453 $ 492 $ 672 $ 863
Earnings per share (as restated):
Basic $ .07 $ .07 $ .10 $ .11
Diluted $ .05 $ .06 $ .08 $ .09
Fiscal Year Ended June 30, 1998
Net sales and service $ 7,260 $12,183 $13,450 $14,407
Gross profit $ 2,639 $ 4,008 $ 4,796 $ 5,500
Net income $ 664 $ 943 $ 1,329 $ 1,556
Earnings per share:
Basic $ .07 $ .09 $ .12 $ .14
Diluted $ .06 $ .08 $ .11 $ .12
</TABLE>
F-24
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) and (2) The following financial statements and financial statement
schedules are filed as part of this report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of June 30, 1998 and 1997
Consolidated Statements of Operations for the Years Ended June 30,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the Years Ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended June 30,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
All other schedules have been omitted because they were not applicable, not
required or the required information is shown in the consolidated
financial statements or notes thereto.
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the
three-month period ended June 30, 1998.
-19-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 24, 1998. COLORADO MEDTECH, INC.
By: /s/ John V. Atanasoff, II
------------------------------
John V. Atanasoff, II
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John V. Atanasoff, II Chief Executive Officer, September 24, 1998
- ---------------------------- President and Director
John V. Atanasoff, II (Principal Executive Officer)
/s/ Dean A. Leffingwell Director September 24, 1998
- ----------------------------
Dean A. Leffingwell
/s/ Ira M. Langenthal Director September 24, 1998
- ----------------------------
Ira M. Langenthal
/s/ Robert L. Sullivan Director September 24, 1998
- ----------------------------
Robert L. Sullivan
/s/ Clifford W. Mezey Director September 24, 1998
- ----------------------------
Clifford W. Mezey
/s/ Michael R. Barr Director September 24, 1998
- ----------------------------
Michael R. Barr
/s/ John E. Wolfe Director September 24, 1998
- ----------------------------
John E. Wolfe
/s/ Bruce L. Arfmann Chief Financial Officer September 24, 1998
- ---------------------------- (Principal Accounting Officer)
Bruce L. Arfmann
</TABLE>
-20-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------ ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation; Complete Copy, as Amended. (A)
3.2 Bylaws, as Amended. (B)
4.2 Specimen of Common Stock Certificate. (C)
10.22 Promissory Notes payable to Lockett E. Wood and Deeds of
Trust with respect to Louisville, Colorado property acquisition. (D)
10.31 Colorado MEDtech, Inc. Stock Option Plan.
10.32 Employment Agreement between Colorado MEDtech, Inc. and
John V. Atanasoff, II. (E)
10.33 Standstill Agreement dated June 30, 1994 between Vencor, Inc.
and Colorado MEDtech, Inc. (F)
10.35 Employment Agreement between Colorado MEDtech, Inc. and
Bruce L. Arfmann (G)
10.37 Employment Agreement between Colorado MEDtech, Inc. and
Lockett E. Wood (G)
10.38 Extension of Employment Agreement between Colorado MEDtech, Inc.
and John V. Atanasoff, II (H)
10.39 Agreement and Plan of Reorganization among Colorado MEDtech, Inc.,
Novel Biomedical, Inc. and Jonathan Kagan (I)
10.40 Employment Agreement between Novel Biomedical, Inc. and
Jonathan Kagan (J)
10.41 Employment Agreement between Colorado MEDtech, Inc. and Lee Erb (K)
10.42 Colorado MEDtech, Inc. 1996 Employee Stock Purchase Plan as
Amended on November 21, 1997, Effective as of January 1, 1998 (L)
10.43 Asset Purchase Agreement by and among Colorado MEDtech, Inc.,
Erbtec Engineering, Inc., and Lee Erb, dated October 1, 1997 (M)
10.44 Loan Agreement, Commercial Security Agreement, and Promissory Note
dated October 30, 1997 between Colorado MEDtech, Inc. and Bank One,
Colorado, NA
21.1 Subsidiaries of Business Issuer
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule for the year ended June 30, 1998
</TABLE>
(A) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
May 14, 1993.
(B) Filed with Registration Statement (No. 2-83841-D) on Form S-18 on
May 17, 1983, with amendment filed as exhibit to the Company's Annual
Report on Form 10-K for the year ended October 31, 1984.
(C) Filed with Registration Statement (No. 2-83841-D) on Form S-18 on
May 17, 1983.
(D) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1987.
(E) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
June 21, 1993
(F) Filed as an exhibit to Schedule 13D Amendment No. 2 dated July 18,
1994 filed by Vencor, Inc.
(G) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1994.
<PAGE>
(H) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1996.
(I) Filed as an exhibit to the Company's Current Report on Form 8-K,
dated February 28, 1997.
(J) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1997.
(K) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(L) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997.
(M) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 1, 1997.
<PAGE>
COLORADO MEDTECH, INC. EXHIBIT 10.31
STOCK OPTION PLAN
(As amended September 26, 1997)
I. PURPOSE
The COLORADO MEDTECH, INC. Stock Option Plan (the "Plan") provides
for the grant of Stock Options, Stock Appreciation Rights and Supplemental
Bonuses to Employees and non-employee directors of Colorado MEDtech, Inc.
(the "Company"), and such of its subsidiaries (as defined in Section 424(f)
of the Internal Revenue Code of 1986, as amended (the "Code")) as the Board
of Directors of the Company (the "Board") shall from time to time designate
("Participating Subsidiaries"), in order to advance the interests of the
Company and its Participating Subsidiaries through the motivation, attraction
and retention of their respective Employees and non-employee directors.
II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan may be either:
(a) Incentive Stock Options ("ISOs") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the Code;
or
(b) Nonstatutory Stock Options ("NSOs") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422 of
the Code.
All Stock Options shall be ISOs unless the Option Agreement clearly
designates the Stock Options granted thereunder, or a specified portion
thereof, as NSOs. Subject to the other provisions of the Plan, a Participant
may receive ISOs and NSOs at the same time, provided that the ISOs and NSOs
are clearly designated as such, and the exercise of one does not affect the
exercise of the other.
Except as otherwise expressly provided herein, all of the provisions
and requirements of the Plan relating to Stock Options shall apply to ISOs
and NSOs.
III. ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Board or by
a committee composed solely of two or more directors ("Committee") each of
whom is a Non-Employee Director. The Committee or the Board, as the case may
be, shall have full authority to administer the Plan, including authority to
interpret and construe any provision of this Plan and any Stock Option, Stock
Appreciation Right or Supplemental Bonus granted hereunder, and to adopt such
rules and regulations for administering the Plan as it may deem necessary in
order to comply with the requirements of the Code, or in order that Stock
Options that are intended to be ISOs will be classified as incentive stock
options under the Code, or in order to conform to any regulation or to any
change in any law or regulation applicable thereto. The Committee or the
Board may delegate any of its responsibilities under this Plan, other than
its responsibility to grant Stock Options, to determine whether the Stock
Appreciation Rights or Supplemental Bonuses, if any, payable to a Participant
shall be paid in cash, in shares of Common Stock or a combination thereof, or
to interpret and construe this Plan. The Board of Directors may reserve to
itself any of the authority granted to the Committee as set forth herein, and
it may perform and discharge all of the functions and responsibilities of the
Committee at any time that a duly constituted
<PAGE>
Committee is not appointed and serving. All references in this Plan to the
"Committee" shall be deemed to refer to the Board of Directors whenever the
Board is discharging the powers and responsibilities of the Committee, and to
any special committee appointed by the Board to administer particular aspects
of this Plan.
3.2 ACTIONS OF THE COMMITTEE. All actions taken and all
interpretations and determinations made by the Committee in good faith
(including determinations of Fair Market Value) shall be final and binding
upon all Participants, the Company and all other interested persons. No
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation. Rule 16b-3 under the Securities Exchange
Act of 1934 (the "Exchange Act") provides that the grant of a stock option to
a director or officer of a company will be exempt from the provisions of
Section 16(b) of the Exchange Act if the conditions set forth in said Rule
are satisfied. Unless otherwise specified by the Committee, grants of Stock
Options hereunder to and exercises of Stock Options by individuals who are
officers or directors of the Company shall be made in a manner that satisfies
the conditions of said Rule.
IV. DEFINITIONS
4.1 "STOCK OPTION". A Stock Option is the right granted under
the Plan to purchase, at such time or times and at such price or prices
("Option Price") as are determined by the Committee, the number of shares of
Common Stock determined by the Committee.
4.2 "STOCK APPRECIATION RIGHT". A Stock Appreciation Right is the
right to receive payment, in shares of Common Stock, cash or a combination of
shares of Common Stock and cash, of the Redemption Value of a specified
number of shares of Common Stock then purchasable under a Stock Option.
4.3 "REDEMPTION VALUE". The Redemption Value of shares of Common
Stock purchasable under a Stock Option shall be the amount, if any, by which
the Fair Market Value of one share of Common Stock on the date on which the
Stock Option is exercised exceeds the Option Price for such share.
4.4 "COMMON STOCK". A share of Common Stock means a share of
authorized but unissued or reacquired Common Stock (no par value per share)
of the Company.
4.5 "FAIR MARKET VALUE". If the Common Stock is not traded
publicly, the Fair Market Value of a share of Common Stock on any date shall
be determined, in good faith, by the Committee after such consultation with
outside legal, accounting and other experts as the Committee may deem
advisable, and the Committee shall maintain a written record of its method of
determining such value. If the Common Stock is traded publicly, the Fair
Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers through NASDAQ (its automated system for
reporting quotes), for the date in question or, if the Common Stock is listed
on the NASDAQ National Market System or is listed on a national stock
exchange, the officially quoted closing price on NASDAQ or such exchange, as
the case may be, on the date in question.
2
<PAGE>
4.6 "EMPLOYEE". An Employee is an employee of the Company or any
Participating Subsidiary.
4.7 "PARTICIPANT". A Participant is a person to whom a Stock
Option, Stock Appreciation Right or Supplemental Bonus is granted.
4.8 "NON-EMPLOYEE DIRECTOR". A Non-Employee Director is a person who
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be
amended from time to time.
4.9 "SUPPLEMENTAL BONUS". A Supplemental Bonus is the right to
receive payment, in shares of Common Stock, cash or a combination of shares
of Common Stock and cash, of an amount determined under Section 7.7.
V. ELIGIBILITY AND PARTICIPATION
Grants of Stock Options, Stock Appreciation Rights and Supplemental
Bonuses may be made to Employees or non-employee directors of the Company or
any Participating Subsidiary; PROVIDED, HOWEVER, that only Employees,
including directors of the Company who are also Employees, shall be eligible
to receive ISOs. The Committee shall from time to time determine the
Participants to whom Stock Options shall be granted, the number of shares of
Common Stock subject to each Stock Option to be granted, the Option Price of
such Stock Options and other terms and provisions of such Stock Options, all
as provided in this Plan. The Option Price of any ISO shall be not less than
the Fair Market Value of a share of Common Stock on the date on which the
Stock Option is granted, but the Option Price of an NSO may be less than the
Fair Market Value on the date the NSO is granted if the Committee so
determines. If an ISO is granted to an Employee who then owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the Company,
the Option Price of such ISO shall be at least 110% of the Fair Market Value
of the Common Stock subject to the ISO at the time such ISO is granted, and
such ISO shall not be exercisable after five years after the date on which it
was granted. Each Stock Option shall be evidenced by a written agreement
("Option Agreement") containing such terms and provisions as the Committee
may determine, subject to the provisions of this Plan.
VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1 MAXIMUM NUMBER. The maximum aggregate number of shares of
Common Stock that may be made subject to Stock Options shall be 3,500,000
authorized but unissued shares. The aggregate Fair Market Value (determined
as of the time the ISO is granted) of the Common Stock as to which all ISOs
granted to an Employee may first become exercisable in a particular calendar
year may not exceed $100,000. If any shares of Common Stock subject to Stock
Options are not purchased or otherwise paid for before such Stock Options
expire, such shares may again be made subject to Stock Options.
6.2 CAPITAL CHANGES. In the event any changes are made to the
shares of Common Stock (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of ten percent
(10%) at any single time, stock split, combination of shares, exchange of
shares, change in corporate structure or otherwise), appropriate adjustments
shall be made in: (i) the number of shares of Common Stock theretofore made
subject to Stock Options, and in the purchase price of said shares; and
3
<PAGE>
(ii) the aggregate number of shares which may be made subject to Stock
Options. If any of the foregoing adjustments shall result in a fractional
share, the fraction shall be disregarded, and the Company shall have no
obligation to make any cash or other payment with respect to such a
fractional share.
VII. EXERCISE OF STOCK OPTIONS
7.1 TIME OF EXERCISE. Subject to the provisions of the Plan,
including without limitation Section 7.5, the Committee, in its discretion,
shall determine the time when a Stock Option, or a portion of a Stock Option,
shall become exercisable, and the time when a Stock Option, or a portion of a
Stock Option, shall expire. Such time or times shall be set forth in the
Option Agreement evidencing such Stock Option. A Stock Option shall expire,
to the extent not exercised, no later than the tenth anniversary of the date
on which it was granted. The Committee may accelerate the vesting of any
Participant's Stock Option by giving written notice to the Participant. Upon
receipt of such notice, the Participant and the Company shall amend the
Option Agreement to reflect the new vesting schedule. The acceleration of
the exercise period of a Stock Option shall not affect the expiration date of
that Stock Option.
7.2 EXCHANGE OF OUTSTANDING STOCK. The Committee, in its sole
discretion, may permit a Participant to surrender to the Company shares of
Common Stock previously acquired by the Participant as part or full payment
for the exercise of a Stock Option. Such surrendered shares shall be valued
at their Fair Market Value on the date of exercise.
7.3 USE OF PROMISSORY NOTE; EXERCISE LOANS. The Committee may, in
its sole discretion, impose terms and conditions, including conditions
relating to the manner and timing of payments, on the exercise of Stock
Options. Such terms and conditions may include, but are not limited to,
permitting a Participant to deliver to the Company his promissory note as
full or partial payment for the exercise of a Stock Option. The Committee,
in its sole discretion, may authorize the Company to make a loan to a
Participant in connection with the exercise of Stock Options, or authorize
the Company to arrange or guarantee loans to a Participant by a third party.
7.4 STOCK RESTRICTION AGREEMENT. The Committee may provide that
shares of Common Stock issuable upon the exercise of a Stock Option shall,
under certain conditions, be subject to restrictions whereby the Company has
a right of first refusal with respect to such shares or a right or obligation
to repurchase all or a portion of such shares, which restrictions may survive
a Participant's term of employment with the Company. The acceleration of
time or times at which a Stock Option becomes exercisable may be conditioned
upon the Participant's agreement to such restrictions.
7.5 TERMINATION OF EMPLOYMENT BEFORE EXERCISE. If a Participant's
employment with the Company or a Participating Subsidiary shall terminate for
any reason other than the Participant's disability, any Stock Option granted
to the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of 30 days (but, in the case of an ISO, in no event
beyond ten years from the date of grant of the ISO). If the Participant's
employment is terminated because the Participant is disabled within the
meaning of Section 22(e)(3) of the Code, any Stock Option granted to the
Participant, to the extent then exercisable under the applicable Option
Agreement(s), shall remain exercisable after the termination of his
employment for a period of three months (but, in the case of an ISO, in no
event beyond ten years from the date of grant of the ISO). If the Stock
Option is not exercised during the applicable period, it shall be deemed to
have
4
<PAGE>
been forfeited and of no further force or effect.
7.6 DISPOSITION OF FORFEITED STOCK OPTIONS. Any shares of Common
Stock subject to Stock Options forfeited by a Participant shall not
thereafter be eligible for purchase by the Participant but may be made
subject to Stock Options granted to other Participants.
7.7 GRANT OF SUPPLEMENTAL BONUSES. The Committee, either at the
time of grant or at any time prior to exercise of any Stock Option or Stock
Appreciation Right, may provide for a Supplemental Bonus from the Company or
Participating Subsidiary in connection with a specified number of shares of
Common Stock then purchasable, or which may become purchasable, under a Stock
Option, or a specified number of Stock Appreciation Rights which may be or
become exercisable. Such Supplemental Bonus shall be payable upon the
exercise of the Stock Option or Stock Appreciation Right with regard to which
such Supplemental Bonus was granted. A Supplemental Bonus shall not exceed
the amount necessary to reimburse the Participant for the income tax
liability incurred by him upon the exercise of the Stock Option or upon the
exercise of such Stock Appreciation Right, calculated using the maximum
combined federal and applicable state income tax rates then in effect and
taking into account the tax liability arising from the Participant's receipt
of the Supplemental Bonus. The Committee may, in its discretion, elect to
pay any part or all of the Supplemental Bonus in: (i) cash; (ii) shares of
Common Stock; or (iii) any combination of cash and shares of Common Stock.
The provisions of Section 8.3 shall apply to the giving of notice, the
determination of the number of shares to be delivered, and the time for
delivering shares. In applying Section 8.3, the Supplemental Bonus shall be
treated as if it were a Stock Appreciation Right that the Participant
exercised on the day the Supplemental Bonus became payable. Shares of Common
Stock issued pursuant to this Section 7.7 shall not be deemed to have been
issued upon the exercise of a Stock Option for purposes of the limitations
imposed by Section 6.1 of the Plan.
VIII. STOCK APPRECIATION RIGHTS
8.1 GRANT OF STOCK APPRECIATION RIGHTS. The Committee may, from
time to time, grant Stock Appreciation Rights to a Participant with respect
to not more than the number of shares of Common Stock which are, or may
become, purchasable under any Stock Option held by the Participant. The
Committee may, in its sole discretion, specify the terms and conditions of
such rights, including without limitation the time period or time periods
during which such rights may be exercised and the date or dates upon which
such rights shall expire and become void and unexercisable; provided,
however, that in no event shall such rights expire and become void and
unexercisable later than the time when the related Stock Option is exercised,
expires or terminates. Each Participant to whom Stock Appreciation Rights
are granted shall be given written notice advising him of the grant of such
rights and specifying the terms and conditions of the rights, which shall be
subject to all the provisions of this Plan.
8.2 EXERCISE OF STOCK APPRECIATION RIGHTS. Subject to Section
8.3, and in lieu of purchasing shares of Common Stock upon the exercise of a
Stock Option held by him, a Participant may elect to exercise the Stock
Appreciation Rights, if any, he has been granted and receive payment of the
Redemption Value of all, or any portion, of the number of shares of Common
Stock subject to such Stock Option with respect to which he has been granted
Stock Appreciation Rights; provided, however, that the Stock Appreciation
Rights may be exercised only when the Fair Market Value of the Common Stock
subject to such Stock Option exceeds the exercise price of the Stock Option.
A Participant shall exercise his Stock Appreciation Rights by delivering a
written notice to the Committee specifying the number of shares with respect
to which he exercises Stock Appreciation Rights and agreeing to surrender
5
<PAGE>
the rights to purchase an equivalent number of shares of Common Stock subject
to his Stock Option. If a Participant exercises Stock Appreciation Rights,
payment of his Stock Appreciation Rights shall be made in accordance with
Section 8.3 on or before the 90th day after the date of exercise of the Stock
Appreciation Rights.
8.3 FORM OF PAYMENT. If a Participant elects to exercise Stock
Appreciation Rights as provided in Section 8.2, the Committee may, in its
absolute discretion, elect to pay any part or all of the Redemption Value of
the shares with respect to which the Participant has exercised Stock
Appreciation Rights in: (i) cash; (ii) shares of Common Stock; or (iii) any
combination of cash and shares of Common Stock. The Committee's election
pursuant to this Section 8.3 shall be made by giving written notice to the
Participant within said 90-day period, which notice shall specify the portion
which the Committee elects to pay in cash, shares of Common Stock or a
combination thereof. In the event any portion is to be paid in shares of
Common Stock, the number of shares to be delivered shall be determined by
dividing the amount which the Committee elects to pay in shares of Common
Stock by the Fair Market Value of one share of Common Stock on the date of
exercise of the Stock Appreciation Rights. Any fractional share resulting
from any such calculation shall be disregarded. Said shares, together with
any cash payable to the Participant, shall be delivered within said 90-day
period.
IX. NO CONTRACT OF EMPLOYMENT
Nothing in this Plan shall confer upon the Participant the right to
continue in the employ of the Company, or any Participating Subsidiary, nor
shall it interfere in any way with the right of the Company, or any such
Participating Subsidiary, to discharge the Participant at any time for any
reason whatsoever, with or without cause. Nothing in this Article IX shall
affect any rights or obligations of the Company or any Participant under any
written contract of employment.
X. NO RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a stockholder with respect to
any shares of Common Stock subject to a Stock Option. Except as provided in
Section 6.2, no adjustment shall be made in the number of shares of Common
Stock issued to a Participant, or in any other rights of the Participant upon
exercise of a Stock Option by reason of any dividend, distribution or other
right granted to shareholders for which the record date is prior to the date
of exercise of the Participant's Stock Option.
XI. ASSIGNABILITY
No Stock Option, Stock Appreciation Right or Supplemental Bonus right
granted under this Plan, nor any other rights acquired by a Participant under
this Plan, shall be assignable or transferable by a Participant, other than
by will or the laws of descent and distribution or, in the case of an NSO,
pursuant to a qualified domestic relations order as defined by the Code,
Title I of the Employee Retirement Income Security Act, or the rules
thereunder. Notwithstanding the preceding sentence, the Committee may, in its
sole discretion, permit the assignment or transfer of an NSO, Stock
Appreciation Right or Supplemental Bonus right granted under this Plan by a
Participant, and the exercise thereof by a person other than such
Participant, on such terms and conditions as the Committee in its sole
discretion may determine. Any such terms shall be set forth in the Option
Agreement. In the event of a Participant's death, the Stock Option or any
Stock Appreciation Right or Supplemental Bonus right may be exercised by the
Personal Representative of the Participant's estate or, if no Personal
Representative has been
6
<PAGE>
appointed, by the successor or successors in interest determined under the
Participant's will or under the applicable laws of descent and distribution.
The terms of any rights under this Plan in the hands of a transferee or
assignee shall be determined as if held by the Participant and shall be of no
greater extent or term than if the transfer or assignment had not taken place.
XII. MERGER OR LIQUIDATION OF THE COMPANY
If the Company or its shareholders enter into an agreement to dispose
of all, or substantially all, of the assets or outstanding capital stock of
the Company by means of a sale or liquidation, or a merger or reorganization
in which the Company is not the surviving corporation, all Stock Options
outstanding under the Plan as of the day before the consummation of such
sale, liquidation, merger or reorganization, to the extent not exercised,
shall for all purposes under this Plan become exercisable in full as of such
date even though the dates of exercise established pursuant to Section 7.1
have not yet occurred, unless the Board shall have prescribed other terms and
conditions to the exercise of the Stock Option, or otherwise modified the
Stock Options.
XIII. AMENDMENT
The Board may from time to time alter, amend, suspend or discontinue
the Plan, including, where applicable, any modifications or amendments as it
shall deem advisable in order that ISOs will be classified as incentive stock
options under the Code, or in order to conform to any regulation or to any
change in any law or regulation applicable thereto; provided, however, that
no such action shall adversely affect the rights and obligations with respect
to Stock Options at any time outstanding under the Plan; and provided further
that no such action shall, without the approval of the shareholders of the
Company, (i) increase the maximum number of shares of Common Stock that may
be made subject to Stock Options (unless necessary to effect the adjustments
required by Section 6.2), or (ii) materially modify the requirements as to
eligibility for participation in the Plan.
XIV. REGISTRATION OF OPTIONED SHARES
The Stock Options shall not be exercisable unless the purchase of
such optioned shares is pursuant to an applicable effective registration
statement under the Securities Act of 1933, as amended (the "1933 Act"), or
unless, in the opinion of counsel to the Company, the proposed purchase of
such optioned shares would be exempt from the registration requirements of
the 1933 Act and from the registration or qualification requirements of
applicable state securities laws.
XV. WITHHOLDING TAXES
The Company or Participating Subsidiary may take such steps as it may
deem necessary or appropriate for the withholding of any taxes (including the
withholding of shares of Common Stock otherwise issuable which appropriate
Fair Market Value) which the Company or the Participating Subsidiary is
required by any law or regulation or any governmental authority, whether
federal, state or local, domestic or foreign, to withhold in connection with
any Stock Option, Stock Appreciation Right or Supplemental Bonus, including,
but not limited to, the withholding of all or any portion of any payment or
the withholding of issuance of shares of Common Stock to be issued upon the
exercise of any Stock Option or Stock Appreciation Right or upon payment of
any Supplemental Bonus, until the Participant reimburses the Company or
Participating Subsidiary for the amount the Company or Participating
7
<PAGE>
Subsidiary is required to withhold with respect to such taxes, or canceling
any portion of such payment or issuance in an amount sufficient to reimburse
itself for the amount it is required to so withhold.
XVI. BROKERAGE ARRANGEMENTS
The Committee, in its discretion, may enter into arrangements with
one or more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options, Stock
Appreciation Rights or Supplemental Bonuses, including, without limitation,
arrangements for the simultaneous exercise of Stock Option, Stock
Appreciation Rights or Supplemental Bonuses, and sale of the shares acquired
upon such exercise.
XVII. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of
this Plan to shareholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or
group of employees, which the Company or any Participating Subsidiary now has
lawfully put into effect, including, without limitation, any retirement,
pension, savings and stock purchase plan, insurance, death and disability
benefits and executive short-term incentive plans.
XVIII. EFFECTIVE DATE
This Plan was adopted by the Board of Directors and became effective
on June 25, 1992 and was approved by the Company's shareholders on May 14,
1993. No Stock Options shall be granted subsequent to ten years after the
effective date of the Plan. Stock Options outstanding subsequent to ten
years after the effective date of the Plan shall continue to be governed by
the provisions of the Plan.
8
<PAGE>
EXHIBIT 10.44
BANKONE.
LOAN AGREEMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$9,000,000.00 10-30-97 10-30-2000 001113 328 2992911044 00410
- -----------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: COLORADO MEDTECH, INC., A COLORADO CORPORATION; ET. AL.
6175 LONGBOW DRIVE
BOULDER, CO 80301
Lender: Bank One, Colorado, NA
Boulder
1125 17th Street
Denver, CO 80217
THIS LOAN AGREEMENT between COLORADO MEDTECH, INC., A COLORADO CORPORATION
RELA, INC., A COLORADO CORPORATION and NOVEL BIOMEDICAL, INC., A MINNESOTA
CORPORATION (referred to in this Agreement individually and collectively as
"Borrower") and Bank One, Colorado, NA referred to in this Agreement as
"Lender") is made and executed as of October 30, 1997. This Agreement
governs all loans, credit facilities and/or other financial accommodations
described herein and, unless otherwise agreed to in writing by Lender and
Borrower, all other present and future loans, credit facilities and other
financial accommodations provided by Lender to Borrower. All such loans,
credit facilities and other financial accommodations, together with all
renewals, extensions and modifications thereof, 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; and (b) 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 October 30, 1997, and shall
continue thereafter until all Loans and other obligations owing by Borrower
to Lender hereunder have been paid in full and Lender has no commitments or
obligations to make further Advances under the Loans to Borrower.
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 as
adopted in the State of Colorado. All references to dollar amounts shall
mean amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as may be
amended or modified from lime to time, together with all exhibits and
schedules attached hereto from
<PAGE>
time to time.
ACCOUNT. The word "Account" means a trade account receivable of Borrower
for goods sold or leased or for services rendered by Borrower in the
ordinary course of its business.
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means any advance or other disbursement of
Loan proceeds under this Agreement.
BORROWER. The word "Borrower" means individually and collectively COLORADO
MEDTECH, INC., A COLORADO CORPORATION, RELA, INC., A COLORADO CORPORATION
and NOVEL BIOMEDICAL, INC., A MINNESOTA CORPORATION and all other persons
and entities signing Borrowers' Note.
BORROWING BASE. The words "Borrowing Base" mean AS DETERMINED BY LENDER
FROM TIME TO TIME, THE LESSER OF (A) $5,000,000.00 UNTIL 10/30/98; (B)
$7,000,000.00 FROM 10/31/98 UNTIL 10/30/99; (C) $9,000,000.00 FROM 10/3l/99
UNTIL 10/30/2000 OR (D) THE SUM OF (i) 80% EIGHTY PERCENT OF THE AGGREGATE
AMOUNT OF ELIGIBLE ACCOUNTS; PLUS (ii) 50% FIFTY PERCENT OF THE AGGREGATE
AMOUNT OF ELIGIBLE INVENTORY WHICH FIGURE CANNOT EXCEED 25% TWENTY-FIVE
PERCENT OF MARGINED RECEIVABLES. In determining the amount of the
Borrowing Base, all Eligible Accounts and Eligible Inventory of all
Borrowers shall be included.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral for any Loan, whether real or
personal property, whether granted directly or indirectly, whether granted
now of 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.
COMMITTED SUM. The words "Committed Sum" mean an amount equal to
$9,000,000.00.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain terms and conditions acceptable to Lender
and in which Lender has a first lien security interest, less the amount of
all returns, discounts, credits, and offsets of any nature; provided,
however, unless otherwise agreed to by Lender in writing, Eligible Accounts
do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower and to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
<PAGE>
(b) All Accounts with respect to which Borrower has furnished a
payment and/or performance bond and that portion of any Accounts for
or representing retainage, if any, until all prerequisites to the
immediate payment of such retainage have been satisfied.
(c) Accounts with respect to which goods are placed on consignment or
subject to a guaranteed sale or other terms by reason of which the
payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of, or whose principal place of business is located outside
of, the United States or its territories, except to the extent such
Accounts are supported by insurance, bonds or other assurances
satisfactory to Lender in its sole and absolute discretion.
(e) Accounts with respect to which Borrower is or may become liable
to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which all goods have not been shipped or
delivered, or all services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such
debts become due.
(j) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States,
except to the extent an acknowledgment of assignment to Lender of any
such Accounts in compliance with the Federal Assignment of Claims Act
and other applicable laws has been received by Lender.
(k) Accounts which have not been paid or are not due and payable in
full within (60) SIXTY days from the original invoice date.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, the
aggregate value of all of Borrower's Inventory as defined below except:
<PAGE>
(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, end claims of third parties,
except Lender's security interest.
(b) Inventory which Lender, in its sole and absolute discretion,
deems to be obsolete, unsalable, damaged, defective, or unfit for
further processing.
(c) Inventory which has been returned or rejected.
(d) Inventory which is held by others on consignment, sale on
approval or otherwise riot in Borrower's physical possession, except
upon the written consent of Lender.
(e) Inventory located outside the United States.
(f) WORK IN PROCESS OLDER THAN (60) DAYS.
For purposes of this Agreement, Eligible Inventory shall be valued at the
lower of cost or market value.
ERISA. The word "ERISA" means the Employee Retirement, Income Security Act
of 1974, as amended.
GRANTOR. The word "Grantor" means and includes each and all of the persons
or entities granting a Security Interest in any Collateral for any of the
Loans.
GUARANTOR. The word "Guarantor" means and includes without limitation,
each and all of the guarantors, sureties, and accommodation parties for any
of the Loans.
INDEBTEDNESS. The word "indebtedness" means the indebtedness evidenced by
the Note, including all principal and accrued interest thereon, together
with all other liabilities, costs and expenses for which Borrower is
responsible under this Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" includes all other obligations, debts and
liabilities, plus any accrued interest thereon, owing by Borrower, at any
one or more of them, to Lender of any kind or character, now existing or
hereafter arising, as well as all present and future claims by Lender
against Borrower, of any one or more of them, and all renewals, extensions,
modifications, substitutions and rearrangements of any of the foregoing;
whether such Indebtedness arises by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, overdraft, indemnity agreement
or otherwise; whether such Indebtedness is voluntary or involuntary. due or
not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be liable primarily or secondarily or as
debtor, maker, comaker, drawer, endorser, guarantor, surety, accommodation
party or otherwise.
<PAGE>
INVENTORY. The word "Inventory" means all raw materials and all tangible
personal property, goods, merchandise and other personal property now owned
or hereafter acquired by Borrower which is held for sale or lease in the
ordinary course of Borrower's business, excluding all spare parts,
packaging materials, supplies and any advertising costs capitalized into
inventory.
LENDER. The word "Lender" means Bank One, Colorado, NA, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
NOTE. The word "Note" means any and all promissory note or notes which
evidence Borrower's Loans in favor of Lender, as well as any amendment,
modification, renewal or replacement thereof.
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 (1) not yet due, or (ii)
being contested in good faith by appropriate proceedings and for which
Borrower has established adequate reserves; (c) 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 any indebtedness
permitted under this Agreement; and (d) liens and security interests which,
as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation the Note and all 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 Note.
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 security interest, 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.
LINE OF CREDIT. Subject to the other terms and conditions herein, Lender
hereby establishes a Line of Credit for Borrower through which Lender agrees
to make advances to Borrower from time to time from the effective date of
this Agreement until the maturity date of the Note evidencing the Line of
Credit, provided the aggregate amount of such advances outstanding at any
time does not
<PAGE>
exceed the lesser of the amount equal to the Borrowing Base or an amount
equal to the Committed Sum. Within the foregoing limits, Borrower may
borrow, partially or wholly prepay, and reborrow under this Agreement.
BORROWING BASE COMPLIANCE. If at any time the aggregate principal amount
outstanding under the Line of Credit shall exceed the applicable Borrowing
Base, Borrower shall pay to Lender an amount equal to the difference
between the outstanding principal balance under the Line of Credit and the
Borrowing Base.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of his
Agreement conforms to the requirements of the definition of an Eligible
Account; and (b) All Account information listed on reports and schedules
delivered to Lender will be true and correct, subject to immaterial
variance.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Inventory will be determined on a consistent accounting basis; (d)
Except as reflected in the Inventory schedules delivered to Lender, all
Eligible Inventory is now and at all times hereafter will be of good and
merchantable quality, free from defects; and (e) Lender, its assigns, or
agents shall have the right at any time and at Borrower's expense to
inspect and examine the Inventory and to check and test the same as to
quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each request for an
Advance, as of the date of any renewal, extension or modification of any
Loan, and at all times any Loans or Lender's commitment to make Loans
hereunder is outstanding:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Colorado and
is duly qualified and in good standing in all other 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.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents to which Borrower is a party 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, of 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. Borrower has all requisite power and authority to execute and
deliver this Agreement and all other Related Documents to
<PAGE>
which Borrower is a party.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely discloses 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 and all other Related Documents to which
Borrower is a party constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective
terms, except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally be limited by
equitable principles.
PROPERTIES. Except for Permitted Liens, Borrower is the sole owner of, 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
six (6) years.
COMPLIANCE. Except as disclosed in writing to Lender (a) Borrower is
conducting Borrower's businesses in material compliance with all applicable
federal, state and local laws, statutes, ordinances, rules, regulations,
orders, determinations and Court decisions, including without limitation,
those pertaining to health or environmental matters. and (b) Borrower
otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the improper
storage of any toxic or hazardous substance or solid waste.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower, is pending or threatened, and no other event has occurred which
may in any one case or in the aggregate 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. All tax returns and reports of Borrower that are or were required
to be filed, have beer filed, and all taxes, assessments and other
governmental charges have been paid in full, except those that have been
disclosed in writing to Lender which are 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 and approved by
Lender in writing, Borrower has not entered into any Security Agreements,
granted a Security interest or permitted the filing or attachment of any
Security Interests on or affecting any of the Collateral, except in favor
of Lender.
<PAGE>
LICENSES, TRADEMARKS AND PATENTS. Borrower possesses and will continue to
possess all permits, licenses, trademarks, patents and rights thereto which
are needed to conduct Borrower's business and Borrower's business does not
conflict with or violate any valid rights of others with respect to the
foregoing.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes approved by Lender and such
proceeds will not be used for the purchasing or carrying of "margin stock"
as defined in Regulation U issued by the Board of Governors of the Federal
Reserve System.
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
initialed steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other then 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 6175 LONGBOW DRIVE, BOULDER, CO 80301. 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 the Loans to Borrower.
Borrower further agrees. that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
during the term of this Agreement.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
DEPOSITORY RELATIONSHIP. Establish and maintain its primary operating
account(s) with Lender.
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in
<PAGE>
Borrower's financial condition, (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, and (c) the creation, occurrence of, assumption by Borrower of
any actual or contingent liabilities not permitted under this Agreement.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine, audit and make and take away copies or
reproductions of Borrower's books and records at all reasonable times. 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.
FINANCIAL STATEMENTS, Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet, income statement, and statement of changes
in financial position for the year ended, audited by a certified public
accountant satisfactory to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, ages 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 at all times with the following
covenants and ratios:
CURRENT RATIO. Maintain, at all times, a ratio of Liquid Assets plus
inventory, to current liabilities less customer deposits, in excess of 1.40
to 1.00.
QUICK RATIO. Maintain, at all times, a ratio of Liquid Assets to current
liabilities in excess of 1.00 to 1.00.
DEBT SERVICE COVERAGE. Maintain, as of the end of each fiscal quarter, a
ratio of (a) net income before taxes, plus interest, depreciation,
amortization and depletion, less any Distributions for the 12 month period
ending with such fiscal quarter, to (b) current maturities of long-term
debt, plus current maturities of capital leases and interest expense for
the following 12 month period, of not less than 2.00 to 1.0
The financial covenants and ratios set forth in this paragraph shall be
determined and
<PAGE>
calculated for all Borrowers on a consolidated basis and reference in
this paragraph to "Borrower" shall mean all "Borrowers." For purposes of
this Agreement and to the extent the following terms are utilized in this
Agreement, the term "Tangible Net Worth" shall mean borrower's total
assets excluding all intangible assets (including, without limitation,
goodwill, trademarks, patents, copyrights, organization expenses, and
similar intangible items) less total liabilities excluding Subordinated
Debt. The term 'Subordinated Debt' shall mean all indebtedness owing by
Borrower which has been subordinated by written agreement to all
indebtedness now or hereafter owing by Borrower to Lender, such agreement
to be in form and substance acceptable to Lender. The term "Working
Capital" shall mean Borrower's Liquid Assets plus inventory, less current
liabilities. The term "Liquid Assets" shall mean borrower's unencumbered
cash, marketable securities and accounts receivable net of reserves. The
term "Cash Raw" shall mean not income after taxes, and exclusive of
extraordinary items, plus depreciation and amortization. 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 reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to from the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days' prior written notice to Lender. 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 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.
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 FEES AND CHARGES. In addition to all other agreed upon fees and
charges. pay the following: $12,500.00 YEAR ONE, $17,500.00 YEAR TWO,
$22,500.00 YEAR THREE.
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
<PAGE>
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 principles. 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. 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, all applicable
environmental statutes, rules, regulations and ordinances and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
WITHIN (45) FORTY FIVE DAYS AFTER EACH CALENDAR QUARTER with a certificate
executed by Borrower's chief financial officer, or other officer or person
acceptable to Lender, (a) certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date
of the certificate and that, as of the date of the certificate, no Event of
Default exists under this Agreement, and (b) demonstrating compliance with
all financial covenants set forth in this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all federal, state and local environmental 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; and 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
<PAGE>
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.
BORROWING BASE CERTIFICATE. Within 45 days after each FISCAL QUARTER,
Borrower shall deliver to Lender a borrowing base certificate, in form and
detail satisfactory to Lender, along with such supporting documentation as
Lender may request, including without limitation, an accounts receivable
aging report and/or a list or schedule of Borrower's accounts receivable,
inventory and/or equipment.
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:
MAINTAIN BASIC BUSINESS. Engage in any business activities substantially
different than those in which Borrower is presently engaged.
CONTINUITY OF OPERATIONS. Cease operations, liquidate, dissolve or merge
or consolidate with or into any other entity.
INDEBTEDNESS. Create, incur or assume additional indebtedness for borrowed
money, including capital losses, or guarantee any indebtedness owing by
others, other then (a) current unsecured trade debt incurred in the
ordinary course of business, (b) indebtedness owing to Lender, (c)
borrowings outstanding as of the date hereof and disclosed to Lender in
writing, and (d) any borrowings otherwise approved by Lender in writing.
LIENS. Mortgage, assign, pledge, grant a security interest in or otherwise
encumber Borrower's assets, except as allowed as a Permitted Lien.
TRANSFER OF ASSETS. Transfer, sell or otherwise dispose of any of
Borrower's assets other than in the ordinary course of business.
CHANGE IN MANAGEMENT. Permit a change in the senior executive or
management personnel of Borrower.
TRANSFER OF OWNERSHIP. Permit the sale, pledge or other transfer of any
ownership interest in Borrower.
INVESTMENTS. Invest in, or purchase, create, form or acquire any interest
in, any other enterprise or entity.
LOANS. Make any loans to any person or entity.
<PAGE>
DIVIDENDS. Pay any dividends on Borrower's capital stock or purchase,
redeem, retire or otherwise acquire any of Borrower's capital stock or
alter or amend Borrower's capital structure.
AFFILIATES. Enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service,
with any Affiliate of Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon
fair and reasonable terms no less favorable than would be obtained in a
comparable arm's length transaction with a person or entity not an
Affiliate of Borrower. As used herein, the term "Affiliate" means any
individual or entity directly or indirectly controlling, controlled by or
under common control with, another entity or individual.
CONDITIONS PRECEDENT TO ADVANCES. Lender's obligation to make any Advances
or to provide any other financial accommodations to or for the benefit of
Borrower hereunder shall be subject to the conditions precedent that as of
the date of such advance or disbursement and after giving effect thereto (a)
all representations and warranties made to Lender in this Agreement and the
Related Documents shall be true and correct as of and as if made on such
date, (b) no material adverse change in the financial condition of Borrower
or any Guarantor since the effective date of the most recent financial
statements furnished to Lender, or in the value of any Collateral, shall have
occurred and be continuing, (c) no event has occurred and is continuing, or
would result from the requested advance or disbursement, which with notice or
lapse of time, or both, would constitute an Event of Default, (d) no
Guarantor has sought claimed or otherwise attempted to limit, modify or
revoke such Guarantor's guaranty of any Loan, and (e) Lender has received all
Related Documents appropriately executed by Borrower and all other proper
parties.
ADDITIONAL PROVISIONS. THE BORROWER WILL MAINTAIN A MINIMUM TANGIBLE NET
WORTH OF NOT LESS THAN $12,000,000.00 THROUGH 06/30/98; $14,000,000.00 FROM
07/01/98 THROUGH 06/30/99; $17,000,000.00 FROM 07/0l/99 THROUGH 06/30/2000
(PLUS 75%) SEVENTY FIVE PERCENT OF NEW EQUITY CAPITAL IF APPLICABLE.
THE BORROWER WILL NOT PURCHASE, CREATE OR ACQUIRE A COMPANY WITH ANNUAL
REVENUES GREATER THAT FIFTY (50%) PERCENT OF ITS (COLORADO MEDTECH, INC.)
ANNUAL REVENUE, MEASURED AS OF ITS MOST RECENT FISCAL YEAR END, WITHOUT THE
LENDER'S WRITTEN CONSENT.
BORROWER WILL NOT PURCHASE, CREATE OR ACQUIRE A COMPANY WHOSE VALUE IS
GREATER THAN ITS (COLORADO MEDTECH, INC.) TANGIBLE NET WORTH, MEASURED AS OF
ITS MOST RECENT QUARTER END, WITHOUT THE LENDER'S PRIOR WRITTEN CONSENT.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys, delivers,
pledges, and transfers to Lender all Borrower's right, title and interest in
and to Borrower's accounts with Lender (whether checking, savings, or any
other account), including
<PAGE>
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.
EVENTS 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 any of the indebtedness.
OTHER DEFAULTS. Failure of Borrower, any Guarantor or any Grantor to
comply with or to perform when due any other term, obligation, covenant or
condition contained in this Agreement, the Note or in any of the other
Related Documents, or failure of Borrower to comply with or to perform any
other term, obligation, covenant or condition contained in any other
agreement now existing or hereafter arising between Lender and Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender under this Agreement or the Related Documents is false
or misleading in any material respect.
DEFAULT TO THIRD PARTY. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Borrower, Grantor
or any Guarantor to any third party under any agreement or undertaking.
BANKRUPTCY OR INSOLVENCY. If the Borrower, Grantor or any Guarantor: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver, trustee or custodian
appointed for, or take possession of, all or substantially all of the
assets of such party or any of the Collateral, either in a proceeding
brought by such party or in a proceeding brought against such party and
such appointment is not discharged or such possession is not terminated
within sixty (60) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (iv) files a
petition for relief under the United States Bankruptcy Code or any other
present or future federal or state insolvency, bankruptcy or similar laws
(all of the foregoing hereinafter collectively called "Applicable
Bankruptcy Law") or an involuntary petition for relief is filed against
such party under any Applicable Bankruptcy Law and such involuntary
petition is not dismissed within sixty (60) days after the filing thereof,
or an order for relief naming such party is entered under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged
within a period of sixty (60) days any attachment, sequestration or similar
writ levied upon any property of such party; or (vi) fails to pay within
thirty (30) days any final money judgment against such party.
LIQUIDATION, DEATH AND RELATED EVENTS. If Borrower, Grantor or any
Guarantor is an
<PAGE>
entity, the liquidation, dissolution, merger or consolidation of any
such entity or, if any of such parties is an individual, the death or
legal incapacity of any such individual.
CREDITOR OF 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.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, Lender
may, at its option, without further notice or demand, (a) terminate all
commitments and obligations of Lender to make Loans to Borrower, if any, (b)
declare all Loans and any other Indebtedness immediately due and payable, (c)
refuse to advance any additional amounts under the Note or to provide any
other financial accommodations under this Agreement, or (d) exercise all the
rights and remedies provided in the Note or in any of the Related Documents
or available at law, in equity, or otherwise; provided, however, if any Event
of Default of the type described in the "Bankruptcy or Insolvency" subsection
above shall occur, all Loans and any other Indebtedness shall automatically
become due and payable, without any notice, demand or action by Lender,
except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative end may be exercised singularly or concurrently.
Election by tender to pursue any remedy shall not exclude pursuit of any
other remedy, and an election to make expenditures or to 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.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreements 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 Colorado. Subject to the provisions on
arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado without regard to any
conflict of laws or provisions thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED
DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.
<PAGE>
ARBITRATION. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that proceeding,
all disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Agreement, any Related
Document or otherwise, including without limitation contract disputes and
tort claims, shall be arbitrated pursuant to the Commercial Rules of the
American Arbitration Association. Any arbitration proceeding held pursuant
to this arbitration provision shall be conducted in the city nearest the
Borrower's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. 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 arbitration provision
shall not limit the right of either party during any dispute, claim or
controversy to seek, use, and employ ancillary, provisional or preliminary
rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon or proceeding
under forcible entry and detainer for possession of, any real or personal
property, and any such action shall not be deemed an election of remedies.
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
receivership, 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 exercise of any right or remedy, 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 either party. Judgment upon any award rendered by any arbitrator
may be entered in any court having jurisdiction. Nothing in this
arbitration provision shall preclude either party from seeking equitable
relief from a court of competent jurisdiction. The statute of 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 any action for these purpose. The
Federal Arbitration Act (Title 9 of the United States Code) 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.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of 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 Interests.
<PAGE>
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including 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 hire one or more attorneys to help collect the indebtedness if
Borrower does not pay, and Borrower will pay Lender's reasonable attorneys'
fees.
NOTICES. All notices required to he given under this Agreement shall be
given in writing, and shall be effective when actually delivered or when
deposited with a notionally 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. It 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.
COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute the same document. Signature pages may be detached from the
counterparts to a single copy of this Agreement to physically form one
document.
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 assigns. 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
<PAGE>
Lender in exercising any right shall operate as a waiver of such right to
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 between Lender and any Grantor or
Guarantor, 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.
EACH BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT. AND EACH BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS
EXECUTED AS OF THE DATE SET FORTH ABOVE.
BORROWER:
COLORADO MEDTECH, INC., A COLORADO CORPORATION
By: /s/ John V. Atanasoff
-----------------------------------
JOHN V. ATANASOFF, PRESIDENT & CEO
By: /s/ Bruce L. Arfmann
-----------------------------------
BRUCE L. ARFMANN, CFO
RELA, INC., A COLORADO CORPORATION
By: /s/ John V. Atanasoff
-----------------------------------
JOHN V. ATANASOFF, CHAIRMAN OF THE BOARD
By: /s/ Bruce L. Arfmann
-----------------------------------
BRUCE L. ARFMANN, CFO
NOVEL BIOMEDICAL, INC., A MINNESOTA CORPORATION
By: /s/ John V. Atanasoff
-----------------------------------
JOHN V. ATANASOFF, CHAIRMAN OF THE BOARD
By: /s/ Bruce L. Arfmann
-----------------------------------
BRUCE L. ARFMANN, CFO
<PAGE>
LENDER:
Bank One, Colorado NA
By: /s/ Eric R. Long
-----------------------------------
Authorized Officer
- -----------------------------------------------------------------
LASER PRO, Reg U.S. Pat. & T.M. Off., Ver 3.23(c) 1997 CFI ProServices, Inc. All
rights reserved (CO-C40 CD625633.LNC3.OVL)
<PAGE>
BANKONE.
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$9,000,000.00 10-30-97 10-30-2000 001113 328 2992911044 00410
- -------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- -------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: COLORADO MEDTECH, INC., A COLORADO Lender: Bank One, Colorado, NA
CORPORATION; ET. AL. Boulder
6175 LONGBOW DRIVE 1125 17th Street
BOULDER, CO 80301 Denver, CO 80217
Grantor: COLORADO MEDTECH, INC., A COLORADO CORPORATION, RELA, INC., A
COLORADO CORPORATION and NOVEL BIOMEDICAL. INC., A MINNESOTA
CORPORATION
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BY COLORADO MEDTECH, INC., A
COLORADO CORPORATION, RELA, INC., A COLORADO CORPORATION AND NOVEL BIOMEDICAL,
INC., A MINNESOTA CORPORATION (REFERRED TO BELOW INDIVIDUALLY AND COLLECTIVELY
AS "GRANTOR") FOR THE BENEFIT OF BANKONE, COLORADO, NA REFERRED TO BELOW AS
"LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
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 as adopted in
the State of Colorado ("Code"). All references to dollar amounts shall mean
amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
BORROWER. The word "Borrower" means each and every person or entity
signing the Note, including without limitation COLORADO MEDTECH, INC., A
COLORADO CORPORATION, RELA, INC., A COLORADO CORPORATION and NOVEL
BIOMEDICAL. INC., A MINNESOTA CORPORATION.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
<PAGE>
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES
In addition, the word "Collateral" Includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, ports. supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All proceeds (including, without limitation, insurance proceeds)
from the sale, lease, destruction, loss, or other disposition of any
of the property described in this Collateral section.
(d) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph
microfilm. microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include any of the
Events of Default set forth below in the section titled "Events of
Default."
GRANTOR. The word "Grantor" means COLORADO MEDTECH, INC., A COLORADO
CORPORATION, RELA, INC., A COLORADO CORPORATION and NOVEL BIOMEDICAL, INC.,
A MINNESOTA CORPORATION.
GUARANTOR. The word "Guarantor" means and includes without limitation,
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the Indebtedness evidenced by
the Note, including all principal and accrued interest thereon, together
with all other liabilities, costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means Bank One, Colorado, NA, its successors and
assigns (which is a secured party under the Code).
NOTE. The word "Note" means the promissory note dated October 30, 1997, in
the principal amount of $9,000,000.00 from Borrower to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for such promissory note.
<PAGE>
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation the Note and all credit agreements, loan agreements.
environmental agreements, guarantee, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Note.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) Grantor
has the full right, power and authority to enter into this Agreement and to
pledge the Collateral to Lender; (b) Grantor has established adequate means of
obtaining from Borrower on a continuing basis information about Borrower's
financial condition; and (c) Lender has made no representation to Grantor about
Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Grantor waives notice of the incurring of any Indebtedness
and waives all requirements of presentment, protest, demand, and notice of
dishonor or nonpayment to Grantor, Borrower, or any other party to the
indebtedness or the Collateral. Lender may do any of the following with respect
to any obligation of any Borrower, without first notifying or obtaining the
consent of Grantor: (a) grant any extension of time for any payment, (b) grant
any renewal, (c) permit any modification of payment terms or other terms, (d)
release Borrower or any Guarantor from all or any portion of the Indebtedness,
or (e) exchange or release all or any portion of the Collateral or other
security for all or any portion of the Indebtedness. No such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
OBLIGATIONS OF GRANTOR. Grantor represents, warrants and covenants to Lender as
follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby irrevocably appoints Lender as
its attorney-in-fact for the purpose of executing any documents necessary
to perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement, or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of its security interest in the Collateral.
Grantor has disclosed to Lender all tradenames and assumed names currently
used by Grantor, all tradenames and assumed names used by Grantor within
the previous six (6) years and all of Grantor's current business locations.
Grantor will notify Lender in writing at least thirty (30) days prior to
the occurrence of any of the following: (i) any changes in Grantor's name,
tradename(s) or assumed name(s), or (ii) any change in Grantor's business
location(s) or the location of any of the Collateral.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its articles or agreements relating to entity incorporation,
organization or existence do not prohibit any term or
<PAGE>
condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner, of preparation and
execution, and all persons, appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as they
appear to be on the Collateral. At the time any account becomes subject to
a security interest in favor of Lender, the account shall be a good and
valid account representing an undisputed, bona fide indebtedness incurred
by the account debtor, for merchandise held subject to delivery
instructions or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against any such
account; and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those disclosed
to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of Intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of Inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Colorado, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
Inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this
<PAGE>
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it is the owner of
the Collateral and holds good and marketable title to the Collateral, free
and clear of all liens and encumbrances except for the lien of this
Agreement. No financing statement covering any of the collateral is on
file in any public office other than those which reflect the security
interest created by this Agreement or to which Lender has specifically
consented. Grantor shall defend Lender's rights in the Collateral against
the claims and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions. and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
his subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and governmental charges or levies upon the Collateral and
provide Lender evidence of such payment upon its request. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is in
good faith conducting an appropriate proceeding to contest the obligation
to pay and so long as Lender's interest in the Collateral is not
jeopardized in Lender's sole opinion. If the Collateral is subjected to a
lien which is not discharged within fifteen (15) days, Grantor shall
deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, data, attorneys' fees or other
charges that could accrue as a result of foreclosure or sale of the
Collateral. In any contest Grantor shall defend itself and Lender and
shall satisfy any final adverse judgment before enforcement against the
Collateral. Grantor shall name Lender as an additional obligee under any
surety bond furnished in the
<PAGE>
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor is conducting and will
continue to conduct Grantor's businesses in material compliance with all
federal, state and local laws, statutes, ordinances, rules, regulations,
orders, determinations and court decisions applicable to Grantor's
businesses and to the production, disposition or use of the Collateral,
including without limitation, those pertaining to health and environmental
matters such as the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (collectively, together with any subsequent
amendments, hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, and the Hazardous Substance
Waste Amendments of 1984 (collectively, together with any subsequent
amendments, hereinafter called "RCRA"). Grantor represents and warrants
that (i) none of the operations of Grantor is the subject of a federal,
state or local investigation evaluating whether any material remedial
action is needed to respond to a release or disposal of any toxic or
hazardous substance or solid waste into the environment; (ii) Grantor has
not filed any notice under any federal, state or local law indicating that
Grantor is responsible for the release into the environment, the disposal
on any promises in which Grantor is conducting its businesses or the
improper storage, of any material amount of any toxic or hazardous
substance or solid waste or that any such toxic or hazardous substance or
solid waste has been released, disposed of or is improperly stored, upon
any premises on which Grantor is conducting its businesses; and (iii)
Grantor otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the improper
storage, of any such toxic or hazardous substance or solid waste. The
terms "hazardous substance" and "release," as used herein, shall have the
meanings specified in CERCLA, and the terms "solid waste" and "disposal,"
as used herein, shall have the meanings specified in RCRA; provided,
however, that to the extent that the laws of the State of Colorado
establish meanings for such terms which are broader than that specified in
either CERCLA or RCRA, such broader meanings shall apply. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor 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 and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the termination of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risk insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender, and issued by a company or companies reasonably
acceptable to Lender. Grantor, 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
<PAGE>
thirty (30) days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a notice.
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 Grantor or any other person. In connection with
all policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such loss payable or
other endorsements as Lender may require. If Grantor at any time fails
to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as
Lender deems appropriate, including if it so chooses "single interest
Insurance," which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay
THE INDEBTEDNESS. Application of insurance proceeds to the payment of the
Indebtedness will not extend, postpone or waive any payments otherwise due,
or change the amount of such payments to be made and proceeds may be
applied in such order and such amounts as Lender may elect.
SOLVENCY OF GRANTOR. As of the date hereof, and after giving effect to
this Agreement and the completion of all other transactions contemplated by
Grantor at the time of the execution of this Agreement, (i) Grantor is and
will be solvent, (ii) the fair salable value of Grantor's assets exceeds
and will continue to exceed Grantor's liabilities (both fixed and
contingent), (iii) Grantor is paying and will continue to be able to pay
its debts as they mature, and (iv) if Grantor is not an individual Grantor
has and will have sufficient capital to carry on Grantor's businesses and
all businesses in which Grantor is about to engage.
LIEN NOT RELEASED. The lien, security interest and other security rights
of Lender hereunder shall not be impaired by any indulgence, moratorium or
release granted by Lender, including but not limited to, the following: (a)
any renewal, extension, increase or modification of any of the
Indebtedness; (b) any surrender, compromise, release, renewal, extension,
exchange or substitution granted in respect of any of the Collateral; (c)
any release or indulgence granted to any endorser, guarantor or surety of
any of the Indebtedness; (d) any release of any other collateral for any of
the Indebtedness; (e) any acquisition of any additional collateral for any
of the Indebtedness; and (f) any waiver or failure to exercise any right,
power or remedy granted herein, by law or in any of the Related Documents.
<PAGE>
REQUEST FOR ENVIRONMENTAL INSPECTIONS. Upon Lender's reasonable request
from time to time, Grantor will obtain at Grantor's expense an inspection
or audit report(s) addressed to Lender of Grantor's operations from an
engineering or consulting firm approved by Lender, indicating the presence
or absence of toxic and hazardous substances, underground storage tanks and
solid waste on any premises in which Grantor is conducting a business;
provided, however, Grantor will be obligated to pay for the cost of any
such inspection or audit no more than one time in any twelve (12) month
period unless Lender has reason to believe that toxic or hazardous
substance or solid wastes have been dumped or released on any such
premises. If Grantor fails to order or obtain an inspection or audit
within ten (10) days after its request, Lender may at its option order such
inspection or audit, and Grantor grants to Lender and its agents,
employees, contractors and consultants access to the promises in which it
is conducting its business and a license (which is coupled with an interest
and is irrevocable) to obtain inspections and audits. Grantor agrees to
promptly provide Lender with a copy of the results of any such inspection
or audit received by Grantor. The cost of such inspections and audits by
Lender shall be a part of the Indebtedness, secured by the Collateral and
payable by Grantor on demand.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may collect the accounts, notify account debtors to make
payments directly to Lender for application to the Indebtedness and to verify
the accounts with such account debtors. Lender also has the right, at the
expense of Grantor, to enforce collection of such accounts and adjust, settle,
compromise, sue for or foreclose on the amount owing under any such account, in
the same manner and to the same extent as Grantor. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise reasonable care, shall
not be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims. at any
time levied or placed on as Collateral. Lender also may (but shall not be
obligated to) pay all costs far insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and be payable on demand by
Lender. Such
<PAGE>
right shall be in addition to all other rights and remedies to which Lender
may be entitled upon the occurrence of an Event of Default.
EVENTS 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 Indebtedness or any other indebtedness or obligation now or
hereafter owing to Lender.
OTHER DEFAULTS. Failure of Grantor or Borrower to comply with or to
perform any other term, obligation, covenant or condition contained in this
Agreement, the Note, any of the other Related Documents or failure of
Borrower to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement now existing or hereafter
arising between Lender and Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender under this Agreement, the Note or any of the other
Related Documents is false or misleading in any material respect.
DEFAULT TO THIRD PARTY. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Borrower, Grantor
or any Guarantor to any third party under any agreement or undertaking.
BANKRUPTCY OR INSOLVENCY. If the Borrower, Grantor or any Guarantor: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver, trustee or custodian
appointed to, or take possession of, all or substantially all of the assets
of such party or any of the Collateral, either in a proceeding brought by
such party or in a proceeding brought against such party and such
appointment is not discharged or such possession is not terminated within
sixty (60) days after the effective date thereof or such party consents to
or acquiesces in such appointment or possession; (iv) files a petition for
relief under the United States Bankruptcy Code or any other present or
future federal or state insolvency, bankruptcy or similar laws (all of the
foregoing hereinafter collectively called "Applicable Bankruptcy Law") or
an involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not dismissed
within sixty (60) days after the filing thereof, or an order for relief
naming such party is entered under any Applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization or other relief of
debtors now or hereafter existing is requested or consented to by such
party; (v) fails to have discharged within a period of sixty (60) days any
attachment, sequestration or similar writ levied upon any property of such
party; or (vi) fails to pay within thirty (30) days any final money
judgment against such party.
LIQUIDATION, DEATH AND RELATED EVENTS. If Borrower, Grantor or any
Guarantor is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, if any of
<PAGE>
such parties is an individual, the death or legal incapacity of any
such individual.
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 Grantor or Borrower or
by any government agency against the Collateral or any other collateral
securing the Indebtedness.
RIGHTS AND REMEDIES ON DEFAULT. It an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Code. In addition and without limitation, Lender may exercise
any one or more of the following rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Borrower would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after Lender repossession.
SELL THE COLLATERAL. Lender shall have full Power to sell, lease,
transfer, or otherwise dispose of the Collateral or the proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral (as a unit
or in parcels) at public auction or private rate. Lender may buy the
Collateral, or any portion thereof (i) at any public sale, and (ii) at any
private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely
distributed standard price quotations. Lender shall not be obligated to
make any sale of Collateral regardless of a notice of sale having been
given. Lender may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Unless the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time and place of any
public sale thereof or, of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days prior to the date any public sale, or after which a
private sale, of any of such Collateral is to be held. All expenses
relating to the disposition of the Collateral, including without limitation
the expenses of retaking, holding, insuring. preparing for sale and selling
the Collateral, shall become a part at the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid. Any sale of Collateral through the
public trustee shall be deemed a commercially reasonable sale.
<PAGE>
APPOINT RECEIVER. To the extent permitted by applicable law. Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender may serve without bond, and
(c) all fees of the receiver and his or her attorney shall become part of
the Indebtedness secured by this Agreement and shall be payable on demand,
with interest at the Note rate from date of expenditure until repaid. The
receiver may be appointed by a court of competent jurisdiction upon ex
parte application and without notice, notice being expressly waived.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may transfer any Collateral into its own name or that
of its nominee and receive the payments, rents, income, and revenues
therefrom and hold the same as security for the Indebtedness or apply it to
payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general
intangibles, insurance policies, instruments, chattel paper, choses in
action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the
Collateral as Lender may determine. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Borrower for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Borrower shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Code, as may be amended
from time to time. In addition, Lender shall have and may exercise any or
all other rights and remedies it may have available at law, in equity, or
otherwise. Grantor waives any right to require Lender to proceed against
any third party, exhaust any other security for the Indebtedness or pursue
any other right or remedy available to Lender.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor or Borrower under this
Agreement, after Grantor or Borrower's failure to perform, shall not affect
Lender's right to declare a default and to exercise its remedies.
<PAGE>
MISCELLANEOUS PROVISIONS.
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 and supercedes all prior written and
oral agreements and understandings, it any, regarding same. 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 Colorado. This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado without
regard to any conflict of laws or provisions thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED
DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.
ATTORNEYS' FEES; EXPENSES. Grantor will upon demand pay to Lender the
amount of any and all costs and expenses (including without limitation,
reasonable attorneys' fees and expenses) which Lender may incur in
connection with (i) the perfection and preservation of the collateral
assignment and security interests created under this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, the Collateral, (iii) the exercise or
enforcement of any of the rights of Lender under this Agreement, or (iv)
the failure by Grantor to perform or observe any of the provisions hereof.
TERMINATION. Upon (i) the satisfaction in full of the indebtedness and all
obligations hereunder, (ii) the termination or expiration of any commitment
of Lender to extend credit that would become Indebtedness hereunder, and
(iii) Lender's receipt of a written request from Grantor for the
termination hereof, this Agreement and the security interests created
hereby shall terminate. Upon termination of this Agreement and Grantor's
written request, Lender will, at Granters sole cost and expense, return to
Grantor such of the Collateral as shall not have been sold or otherwise
disposed of or applied pursuant to the terms hereof and execute and deliver
to Grantor such documents as Grantor shall reasonably request to evidence
such termination.
INDEMNITY. Grantor hereby agrees to Indemnify, defend and hold harmless
Lender, and its officers, directors, shareholders. employees, agents and
representatives (each an
<PAGE>
"Indemnified Person") from and against any and all liabilities,
obligations, claims, losses, damages, penalties, actions. judgments,
suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by or
asserted against, any Indemnified Person (whether or not caused by any
Indemnified Person's sole, concurrent or contributory negligence)
arising in connection with the Related Documents, the indebtedness or
the Collateral (including, without limitation, the enforcement of the
Related Documents and the defense of any Indemnified Person's action
and/or inactions in connection with the Related Documents), except to
the limited extent that the Claims against the Indemnified Person are
proximately caused by such Indemnified Person's willful misconduct. The
Indemnification provided for in this section shall survive the
termination of this Agreement and shall extend and continue to benefit
each individual or entity who is or has at any time been an Indemnified
Person hereunder.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the Notices,
All notices required to be given under this Agreement shall be given in
writing, 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 then one Grantor or Borrower, notice to any Grantor or
Borrower will constitute notice to all Grantors and Borrowers. For notice
purposes, Grantor and Borrower will keep Lender informed at all times of
Grantor and Borrower's current address(es).
POWER OF ATTORNEY. Grantor hereby irrevocably appoints Lender all its true
and lawful attorney-in-fact, such power of attorney being coupled with an
Interest, with full power of substitution to do the following in the place
and stead of Grantor and in the name of Grantor: (a) to demand, collect,
receive, receipt for, sue and recover all sums of money of other property
which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute, sign and endorse any and all claims,
instruments, receipts, checks, drafts or warrants issued in payment for the
Collateral; (c) to settle or compromise any and all claims arising under
the Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
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 an offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid
<PAGE>
and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns; provided,
however, Grantor's rights and obligations hereunder may not be assigned or
otherwise transferred without the prior written consent of Lender.
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 to thereafter 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 Grantor, shall
constitute a waiver of any of Lender's rights or of any of Grantor's
obligations 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 to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 30,
1997.
GRANTOR:
COLORADO MEDTECH, INC., A COLORADO CORPORATION
By: /s/ John V. Atanasoff
-------------------------------------------
JOHN V. ATANASOFF, PRESIDENT & CEO
By: /s/ Bruce L. Arfmann
-------------------------------------------
BRUCE L. ARFMANN, CFO
RELA, INC., A COLORADO CORPORATION
By: /s/ John V. Atanasoff
-------------------------------------------
JOHN V. ATANASOFF, CHAIRMAN OF THE BOARD
By: /s/ Bruce L. Arfmann
-------------------------------------------
BRUCE L. ARFMANN, CFO
NOVEL BIOMEDICAL, INC., A MINNESOTA CORPORATION
<PAGE>
By: /s/ John V. Atanasoff
-------------------------------------------
JOHN V. ATANASOFF, CHAIRMAN OF THE BOARD
By: /s/ Bruce L. Arfmann
-------------------------------------------
BRUCE L. ARFMANN, CFO
- --------------------------------------------------------------------------------
LASER PRO, Reg U.S. Pat. & T.M. Off., Ver 3.23(c) 1997 CFI ProServices, Inc. All
rights reserved (CO-E40 CD625633.LNC3.OVL)
<PAGE>
BANKONE
PROMISSORY NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Initials
$9,000,000.00 10-30-1997 10-30-2000 001113 328 2992911104
- --------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item
- --------------------------------------------------------------------------------------------------
</TABLE>
Borrower: COLORADO MEDTECH, INC., A COLORADO Lender: Bank One Colorado, NA
CORPORATION; ET. AL. Boulder
6175 LONGBOW DRIVE 1125 17th Street
BOULDER, CO 80301 Denver, CO 80217
Principal Amount: $9,000,000.00 Date of Note: October 30, 1997
PROMISE TO PAY. For value received, COLORADO MEDTECH, INC., A COLORADO
CORPORATION, RELA, INC., A COLORADO CORPORATION and NOVEL BIOMEDICAL, INC., A
MINNESOTA CORPORATION referred to in this Note individually and collectively as
"Borrower") jointly and severally promise to pay to Bank One, Colorado. NA
("Lender"), or order in lawful money of the United States of America, the
principal amount of Nine Million & 00/100 Dollars ($9,000,000.00) ("Total
Principal Amount") or so much as may be outstanding, together with Interest on
the unpaid outstanding principal balance from the date advanced until paid in
full.
PAYMENT. This Note shall be payable as follows: Interest shall be due and
payable monthly as it accrues, commencing on November 30, 1997 and continuing on
the same day of each month thereafter during the term of this Note, and the
outstanding principal balance of this Note, together with all accrued but unpaid
interest, shall be due and payable on October 30, 2000. Interest on this Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at the address
designated by Lender from time to time in writing. If any payment of principal
of or interest on this Note shall become due on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day. As used
herein, the term "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which national banking associations are authorized to be
closed. Unless otherwise agreed to, in writing, or otherwise required by
applicable law, payments will be applied first to accrued, unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs, late
charges and other charges, provided, however, upon delinquency or other default,
Lender reserves the right to apply payments among principal, interest, late
charges, collection costs and other charges at its discretion. The books and
records of Lender shall be prima facie evidence of all outstanding principal of
and accrued but unpaid interest on the a Note. This Note may be executed in
connection with a loan agreement. Any such loan agreement may contain
additional rights, obligations and terms.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
fluctuation based upon the Prime Rate of interest in effect from time to time
(the "Index") (which rate may not be the
<PAGE>
lowest, best or most favorable rate of interest which Lender may charge on
loans to its customers). "Prime Rate" shall mean the rate announced from
time to time by Lender as its prime rate. Each change in the rate to be
charged on this Note will become effective without notice on the same day as
the Index changes. Except as otherwise provided herein, the unpaid principal
balance of this Note shall accrue interest at a rate per annum which will
from time to time be equal to the sum of the Index, plus 0.000%. NOTICE:
Under no circumstances will the Interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without fee all or a portion of the principal
amount owed hereunder earlier than it is due. All prepayments shall be applied
to the indebtedness owing hereunder In such order and manner as Lender may from
time to time determine in its sole discretion.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater, up to
the maximum amount of $250.00 per late charge.
DEFAULT. Borrower will be in default it any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under this
Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b)
Failure of Borrower or any other party to comply with or perform any term,
obligation, covenant or condition contained in this Note or in any other
promissory note, credit agreement, loan agreement, guaranty, security agreement,
mortgage, deed of trust or any other instrument, agreement or document, whether
now or hereafter existing, executed in connection with this Note (the Note and
all such other instruments, agreements, and documents shall be collectively
known herein as the "Related Documents"); (c) Any representation or statement
made or furnished to Lender herein, in any of the Related Documents or in
connection with any of the foregoing is false or misleading in any material
respect; (d) Borrower or any other party liable for the payment of this Note,
whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or
bankrupt, has a receiver or trustee appointed for any part of its property,
makes an assignment for the benefit of its creditors, or any proceeding is
commenced either by any such party or against it under any bankruptcy or
insolvency laws; (e) the occurrence of any event of default specified in any of
the other Related Documents or in any other agreement now or hereafter arising
between Borrower and Lender; (f) the occurrence of any event which permits the
acceleration of maturity of any Indebtedness owing now or hereafter by Borrower
to any third party; or (g) the liquidation, termination, dissolution, death or
legal incapacity of Borrower or any other party liable for the payment of this
Note, whether as maker, endorser, guarantee, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice
or demand (i) declare the entire unpaid principal balance on this Note, all
accrued unpaid interest and all other costs and expenses for which Borrower is
responsible for under this Note and any other Related Document immediately due,
(ii) refuse to advance any additional amounts under this Note, (iii) foreclose
all items securing payment hereof, (iv) pursue any other rights, remedies and
recourses available to the Lender, including without limitation, any such
rights, remedies or recourses under the Related Documents, at law or in equity,
or (v) pursue any combination of the foregoing. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted
<PAGE>
under applicable law, do one or both at the following: (a) increase the
variable interest rate on this Note to 3.000 percentage points over the
Index, and (b) add any unpaid accrued interest to principal and such sum will
bear interest therefrom until paid at the rate provided in this Note
(including any increased rate). The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire an attorney to help
collect this Note if Borrower does not pay and Borrower will pay Lender's
reasonable attorneys' fees and all other costs of collection, unless
prohibited by applicable law. This Note has been delivered to Lender and
accepted by Lender in the State of Colorado. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with
the laws of the State of Colorado without regard to any conflict of laws or
provisions thereof.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall be
used solely for business, commercial, agricultural or other similar purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT. TORT
OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED
TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a 1ien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's rights, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or any other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future. Borrower authorizes
Lender to the extent permitted by applicable law to charge or setoff all sums
owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that it
is understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal Amount.
The unpaid principal balance of this Note shall increase and decrease with each
new advance or payment hereunder, as the case may be. Subject to the terms
hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this
Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
<PAGE>
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
but prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them. whether individual, joint, or class in
nature, arising from this Note, any Related Document or otherwise, including
without limitation contract disputes and tort claims, shall be arbitrated
pursuant to the Commercial Rules of the American Arbitration Association. Any
arbitration proceeding held pursuant to, this arbitration provision shall be
conducted in the city nearest the Borrower's address having an AAA regional
office, or at any other place selected by mutual agreement of the parties. No
act to take or dispose of any collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreements This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, provisional or
preliminary rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal property,
and any such action shall not be deemed an election of remedies. This includes,
without limitation, obtaining injunctive relief or a temporary restraining
order, invoking a power of sale under any deed of trust or mortgages, obtaining
a writ of attachment or imposition of a receivership, 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 exercise of any right or remedy, 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 either party. Judgment upon any award rendered by any
arbitrator may be entered in any court having jurisdiction. Nothing in this
arbitration provision shall prejudice either party from seeking equitable relief
from a court of competent jurisdiction. The statute of limitations, estoppel,
waiver, laches and similar doctrines which would otherwise be applicable in an
act; or brought by a party shall be Applicable in any arbitration proceeding,
and the commencement of an arbitration proceeding shall be deemed the
commencement of any action, for these purposes. The Federal Arbitration Act
(Title 9 of the United States Code) shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower or with respect of any other indebtedness owing by such other
Borrower (a) make one or more additional, secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time of payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange. enforce, waive, subordinate, fail or
decide to perfect and release any security, with or without the substitution of
now collateral; (d) apply such security and direct the order or manner of sale
thereof, including without limitation, any nonjudicial sale permitted by the
terms of the controlling security agreements, as Lender in its discretion may
determine; (e) release, substitute, agree not to sue, or deal with any one
<PAGE>
or more of Borrower's sureties, endorsers, or other guarantors on any terms
or in any manner Lender may choose; and (f) determine how, when and what
application of payments and credits shall be made and any other indebtedness
owing by such other borrower. Borrowers and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this Note, or release any party or guarantor or collateral: or
unjustifiably impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also
agree the Lender may modify this Note without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS, BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
By: /s/ John V. Atanasoff
--------------------------------------------
John V. Atanasoff, II, President & CEO
By: /s/ Bruce L. Arfmann
--------------------------------------------
Bruce L. Arfmann, CFO
RELA, INC., A COLORADO CORPORATION
By: /s/ John V. Atanasoff
--------------------------------------------
John V. Atanasoff, II, Chairman, BOD
By: /s/ Bruce L. Arfmann
--------------------------------------------
Bruce L. Arfmann, CFO
NOVEL BIOMEDICAL, INC., A MINNESOTA CORPORATION
By: /s/ John V. Atanasoff
--------------------------------------------
John V. Atanasoff, II, Chairman, BOD
<PAGE>
By: /s/ Bruce L. Arfmann
--------------------------------------------
Bruce L. Arfmann, CFO
<PAGE>
Exhibit 21.1
COLORADO MEDTECH, INC.
Subsidiaries of Colorado MEDtech, Inc.
1. Novel Biomedical, Inc., a Minnesota corporation.
2. BioMed Y2K, Inc., a Colorado corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
September 28, 1998
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8, dated December 3, 1996.
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K FOR YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,499,072
<SECURITIES> 12,144,005
<RECEIVABLES> 8,211,436
<ALLOWANCES> (580,000)
<INVENTORY> 4,225,680
<CURRENT-ASSETS> 29,249,217
<PP&E> 6,036,076
<DEPRECIATION> (4,301,804)
<TOTAL-ASSETS> 34,007,282
<CURRENT-LIABILITIES> 12,284,651
<BONDS> 0
0
0
<COMMON> 11,879,456
<OTHER-SE> 9,843,175
<TOTAL-LIABILITY-AND-EQUITY> 34,007,282
<SALES> 47,300,200
<TOTAL-REVENUES> 47,300,200
<CGS> 30,357,492
<TOTAL-COSTS> 30,357,492
<OTHER-EXPENSES> 11,063,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,127
<INCOME-PRETAX> 6,292,147
<INCOME-TAX> 1,800,000
<INCOME-CONTINUING> 4,492,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,492,147
<EPS-PRIMARY> .43
<EPS-DILUTED> .37
</TABLE>
