UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: June 30, 1997
Commission File No.: 0-18900
EVEREST MEDICAL CORPORATION
(Exact name of small business issuer as specified in its charter)
13755 1st Avenue North, Suite 500, Minneapolis, MN 55441-5454
(Address of Principal executive offices) (Zip Code)
(612) 473-6262
(Issuer's Telephone number, including area code)
MINNESOTA 41-1454928
(State of incorporation) (IRS Employer I.D.#)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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
As of July 31, 1997, 7,028,002 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): YES___ NO X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
EVEREST MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(Unaudited) (Note)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 165,238 $ 712,810
Accounts receivable, net 1,266,169 1,135,545
Inventories 870,356 780,129
Prepaid insurance and deposits 78,051 167,739
------------ ------------
Total current assets 2,379,815 2,796,223
Equipment
Office and display equipment 453,786 396,794
Research and development equipment 188,224 188,715
Production equipment 1,148,568 1,040,134
------------ ------------
1,790,579 1,625,643
Less allowance for depreciation (1,454,725) (1,376,389)
------------ ------------
335,854 249,254
Patents, net of amortization 7,626 15,491
------------ ------------
Total assets $ 2,723,295 $ 3,060,968
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Customer advances $ 18,000 $ 18,000
Accounts payable 291,437 241,766
Accrued compensation and related taxes 213,031 165,917
Other accrued liabilities 139,447 171,490
Bank borrowings, short-term 200,000 --
Capital lease obligations, current portion 3,241 5,409
------------ ------------
Total current liabilities 865,156 602,582
Capital lease obligations, net of current portion -- 2,496
Other accrued liabilities, net of current portion -- 16,250
Convertible notes, net of current portion -- --
Shareholders' equity
Convertible preferred stock series A, ($.01 par value,
$2.50 liquidation value) 1,400,000 authorized; outstanding:
1997 - 636,937 shares; 1996 - 636,937 shares 1,561,717 1,561,717
Convertible preferred stock series B, ($.01 par value,
$2.75 liquidation value) authorized and outstanding:
1997 - 637,273 shares; 1996 - 652,273 shares 1,545,313 1,586,563
Convertible preferred stock series C, ($.01 par value,
$2.75 liquidation value) authorized and outstanding:
1997 - 410,906 shares; 1996 - 410,906 shares 1,002,832 1,002,832
Convertible preferred stock series D, ($.01 par value,
$2.875 liquidation value) authorized and outstanding:
1997 - 471,500 shares; 1996 - 471,500 shares 1,205,808 1,205,808
Common stock, ($.01 par value) 12,461,821 authorized; outstanding:
1997 - 7,028,002 shares; 1996 - 6,970,912 shares 70,280 69,709
Additional paid-in capital 17,214,675 16,240,199
Retained deficit (20,742,486) (19,227,188)
------------ ------------
1,858,139 2,439,640
------------ ------------
Total liabilities and shareholders' equity $ 2,723,295 $ 3,060,968
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 is derived from the audited
financial statements at that date.
(2)
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
3 Months Ended June 30 6 Months Ended June 30
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,785,315 $ 1,470,291 $ 3,290,119 $ 2,770,424
Cost of goods sold 986,816 826,260 1,904,488 1,540,143
----------- ----------- ----------- -----------
Gross margin 798,499 644,031 1,385,631 1,230,281
Cost and expenses:
Sales and marketing 574,603 365,933 1,103,116 743,009
Research and development 155,727 159,894 330,914 316,777
General and administrative 248,693 180,692 448,803 364,065
----------- ----------- ----------- -----------
Total operating expenses 979,023 706,519 1,882,832 1,423,851
Interest and other income (5,204) (6,137) (11,947) (35,257)
Interest expense 5,945 128,229 6,151 150,277
----------- ----------- ----------- -----------
Net loss (181,265) (184,580) (491,405) (308,590)
Less preferred stock dividends 86,716 90,579 173,433 181,418
----------- ----------- ----------- -----------
Loss applicable to common stock $ (267,981) $ (275,159) $ (664,838) $ (490,008)
=========== =========== =========== ===========
Net loss per common share $ (0.04) $ (0.05) $ (0.09) $ (0.08)
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 7,018,986 6,012,867 7,003,386 5,925,081
=========== =========== =========== ===========
</TABLE>
(3)
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1997 1996
- --------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (491,405) $ (308,589)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 108,618 89,241
Loss on sale and disposal of equipment -- --
Provision for losses on accounts receivable (3,367) 15,000
Provision for inventory obsolescence 2,328 48,977
Changes in operating assets and liabilities
Accounts receivable (122,482) (100,241)
Inventories (97,331) (261,215)
Prepaid expenses 39,528 (15,841)
Customer advances -- --
Accounts payable and accrued expenses 51,066 132,513
----------- -----------
Net cash used in operating activities (513,045) (400,155)
INVESTING ACTIVITIES
Purchase of equipment (140,288) (62,629)
----------- -----------
Net cash used in investing activities (140,288) (62,629)
FINANCING ACTIVITIES
Dividends paid (173,433) (113,640)
Proceeds from debt 200,000 500,000
Proceeds from warrants and options 67,928 427,326
Principal payments on debt and capital leases (4,142) (636,815)
Net proceeds from sale of common stock 15,408 --
----------- -----------
Net cash provided by financing activities 105,761 176,871
----------- -----------
Decrease in cash and cash equivalents (547,572) (285,913)
Cash and cash equivalents at beginning of period 712,810 1,028,476
----------- -----------
Cash and cash equivalents at end of period $ 165,238 $ 742,563
=========== ===========
</TABLE>
(4)
<PAGE>
EVEREST MEDICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
Note A - Business Activity
Everest Medical Corporation is engaged in the development, manufacturing and
marketing of bipolar electrosurgical devices for the gastrointestinal endoscopy,
laparoscopy and other minimally invasive surgery markets. The Company no longer
considers itself in the development stage.
Note B - Basis of Presentation
The accompanying unaudited, condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1996.
Note C - Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computations as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. This statement replaces the presentation
of primary earnings per share (EPS) with basic EPS and also requires dual
presentation of basic and diluted EPS foe entities with complex capital
structures. This Statement is effective for the fiscal year ending December 31,
1997. For the quarter and six months ended June 30, 1997, there is no difference
between the basic earnings per share under Statement No. 128 and the primary net
loss per share as reported.
(5)
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net Sales. Net sales in the second quarter of 1997 were $1,785,315, an increase
of $315,024, or 21%, from the second quarter of 1996. This sales increase
resulted from growth of Everest-branded laparoscopy product line offset by
declines in the Company's OEM business for laparoscopy products.
Net sales for the six months ended June 30,1997 were $3,290,119, an increase of
$519,695, or 19%, from the same period of 1996. The sales for the period reflect
the 47% growth in sales of Everest-branded laparoscopy products and a 9%
increase in sales of the Company's gastrointestinal product offerings to its
direct and OEM customers. These increases were offset by a 43% decrease in
shipments to the Company's OEM laparoscopy customers.
The Company realized an increase of 47% in its Everest-branded laparoscopy
product sales during the first six months of 1997. This growth reflected the
impact of the BiCOAG(R) Bipolar Cutting Forceps which became the largest product
line for the Company and led the Everest-branded laparoscopy segment to its
second consecutive $1,000,000 quarter. The balance of the product line was off
slightly from the same period of 1996. This segment now accounts for 66% of the
Company's revenues as compared to 53% for the first six months of 1996.
The Company experienced a 43% decline in its OEM shipments of a private label
version of the Company's classic tip forceps to Ethicon Endo-Surgery, a division
of Johnson & Johnson, and Origin Medsystems, a division of Guidant Corporation,
as these customers balanced their inventory levels to be more reflective of
end-user demand. Sales of the Company's polypectomy snare to Japan increased 55%
from the same period of 1996. Sales of a version of the coagulating probe to
C.R. Bard decreased 4%, as compared to the second period of 1996.
The Company expects that as it continues to invest in sales and marketing
support programs, increased revenues will result from the Everest-branded
laparoscopy products as it gains market share. There are no assurances that the
Company will be successful in increasing its market share as it competes with
large, well-capitalized companies who have the ability to enter into contract
purchasing agreements with large institutions due to their broad product
offerings which may exclude the Company's products.
The Company also entered into an OEM agreement with Guidant Corporation for
versions of the Company's Bipolar Scissors and Bipolar Cutting Forceps for the
minimally invasive cardiac surgery market. The agreement calls for shipments to
commence in the third quarter. There are no minimum purchase commitments
required. The Company does not expect these revenues to impact the Company's
sales significantly in the near term.
(6)
<PAGE>
Gross Margin. Gross margin in the second quarter of 1997 was 44.7% of sales
compared to 43.8% of sales for the second quarter of 1996. The improved gross
margin was a result of the changing sales mix with Everest-branded products
representing 68% of the sales compared to 55% in the second quarter of 1996.
The gross margin for the first six months of 1997 was 42.1%, as compared to
44.4% for the same period of 1996. The decrease in gross margin was caused by
early product-cycle costs as the Company increased production of the 5mm BiCOAG
Cutting Forceps to meet the strong demand. The impact of such decline was offset
by the benefits realized from increased sales of Everest-branded products.
The Company expects its gross margins for the remainder of 1997 to improve for
the second half of 1997. The Company believes such improvements in margins will
result from production efficiencies and higher sales levels. There can be,
however, no assurance that the production changes the Company has recently
implemented will have the results expected, and higher sales are dependent on
more widespread acceptance of bipolar technology and successful sales and
marketing efforts.
Sales and Marketing. Sales and marketing expenses for the second quarter of 1997
were $574,603, an increase of $208,670, or 57%, from the same period in 1996.
The increase resulted from increased staffing and costs related to
reorganization of the sales and marketing department to support the growing
Everest-branded product sales, marketing initiatives aimed at the Company's
participation in the emerging minimally invasive cardiovascular market,
increases in commissions, and sales training costs associated with new
representation, both domestically and internationally. For the first six months,
sales and marketing expenses were $1,103,116, an increase of $360,107, or 48%,
from the same period of 1996 for the same reasons identified earlier.
Research and Development. Research and development expenses for the second
quarter of 1997 were $155,727, a decrease of $4,167, or 3%, from the same
period in 1996. For the first six months of 1997, research and development
expenses were $330,914, an increase of $14,137, or 4%, from the same period of
1996. The Company experienced such increase primarily due to the Company's
effort toward ISO 9000 and CE Mark certification for its products to continue
participation in the international market.
General and Administrative. General and administrative expenses for the second
quarter of 1997 were $248,693 an increase of $68,001, or 38%, from the same
period of 1996. Such increase resulted primarily from increased costs for D&O
insurance, increased activities in investor relations, including the retention
of an investor relations firm and the costs associated with securing a line of
credit from the bank. For the first six months of 1997, general and
administrative expenses were $448,803, an increase of $84,738, or 23%, from the
same period of 1996.
(7)
<PAGE>
Net Loss. Net loss for the second quarter was $181,265, compared to a net loss
of $184,580 for the same quarter in 1996. Despite higher revenues, the second
quarter loss was unchanged from the second quarter loss of 1996 primarily due to
the increases in operating expenses as the Company continues to pursue key
initiatives in the areas of sales and marketing, the ISO 9000 and CE Mark
certifications, initiatives in the emerging minimally invasive cardiac surgery
market and the securing of financing vehicles to meet the Company's financial
needs. The net loss for the first six months of 1997 was $491,405, compared to a
net loss of $308,590 in the same period of 1996. The increased loss reflects the
unfavorable impact of early product-cycle costs and related manufacturing
inefficiencies from the first quarter (related to the BiCOAG Bipolar Cutting
Forceps) had on gross margin. Operating expenses also increased because of costs
related to the Company's planned initiatives of ISO/CE Mark certification,
marketing initiatives for the minimally invasive cardiac surgery market and
higher sales and marketing necessary to support the sales growth and to increase
the productivity of the Company's independent sales force.
LIQUIDITY and CAPITAL RESOURCES
Cash and short-term investments were $165,238 on June 30, 1997, compared to
$712,810 on December 31, 1996. The Company used $513,045 of cash in operating
activities in the first six months of 1997, compared to $400,155 for the same
period of 1996. Operating activities in the first six months included an
increase in working capital due to the sales growth.
The Company spent $140,288 on capital equipment in the first six months and
expects this level of investment to decline over the next two quarters. During
the first six months, the Company also met its obligation on preferred stock
dividends of $173,433 and raised $83,336 from the exercise of outstanding
options and warrants.
The Company secured a $1,000,000 line of credit with Riverside Bank on May 6,
1997. This credit facility is intended to meet the Company's working capital
needs for 1997. The Company believes the line of credit will provide for the
Company's working capital needs for the balance of 1997. The line carries a rate
of interest equal to prime. The Company borrowed $200,000 against this line
during the quarter to meet its working capital needs.
The Company believes that cash and short-term investments onhand, cash generated
from operations and funds available from its line of credit will be sufficient
to fund operations for at least the next twelve months, assuming that its sales
goals are met and there are no significant unexpected expenditures.
(8)
<PAGE>
EFFECT OF INFLATION
The Company does not believe that inflation will have a significant effect on
operations.
CAUTIONARY STATEMENTS
This Management's Discussion and Analysis contains certain forward looking
statements relating primarily to (i) increased revenues from Everest-branded
laparoscopy products and (ii) improved gross margins due to product efficiencies
and higher sales levels. These statements are subject to certain risks and
uncertainties which could cause results to differ from those projected. These
risks and uncertainties, in addition to those discussed above, include: (i) the
Company's ability to compete with well-capitalized companies to increase market
share; (ii) more widespread acceptance of bipolar technology and (iii)
successful sales and marketing efforts.
As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document.
( 9 )
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a vote of Security Holders
The Company held its Annual Meeting on Monday, April 21,1997. Proxies for the
Annual Meeting were solicited pursuant to Regulation 14 under the Securities and
Exchange Act of 1934. There was no solicitation in opposition to management's
nominees as listed in the Company's proxy statement, and all nominees were
elected.
The following persons were elected to serve as directors of the Company, by
votes indicated, until the next annual meeting of shareholders:
Number of Number of
Nominee Votes For Votes Withheld
- ------- --------- --------------
David D. Koentopf 8,095,042 84,191
John L. Shannon, Jr. 8,093,730 85,503
Donald R. Brattain 8,095,742 83,491
Richard J. Migliori, M,D, 8,097,442 81,791
By a vote of 4,205,894 shares in favor, with 635,775 shares opposed, 89,034
shares abstaining and 3,248,530 broker non-votes, the shareholders adopted the
Company's 1997 Stock Option Plan.
By a vote of 8,134,737 shares in favor, with 30,796 shares opposed and 14,120
shares abstaining, the shareholders also ratified the appointment of Ernst &
Young LLP as independent auditors for the fiscal year ending December 31, 1997.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10 Promissory Note dated May 6, 1997 for $1,000,000 line of
credit with Riverside Bank.
27 Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K:
None filed in the period.
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EVEREST MEDICAL CORPORATION
August 8, 1997 By: /s/ John L. Shannon, Jr.
John L. Shannon, Jr.,
President and Chief Executive Officer
August 8, 1997 By: /s/ Thomas F. Murphy
Thomas F. Murphy
Vice President and Assistant Secretary
( 11 )
PROMISSORY NOTE
Borrower: Everest Medical Corporation Lender: Riverside Bank
13755 First Avenue North LaSalle Plaza Office
Suite 500 800 LaSalle Avenue
Plymouth, MN 55441 Minneapolis, MN 55402
Principal Amount: $1,000,000.00 Initial Rate: 8.500% Date of Note: May 6, 1997
PROMISE TO PAY. Everest Medical Corporation ("Borrower") promises to pay to
RIVERSIDE BANK ("Lender"), or order, In lawful money of the United States of
America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00) or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan In one payment of all outstanding principal
plus all accrued unpaid Interest on March 31, 1999. In addition, Borrower will
pay regular monthly payments of accrued unpaid Interest beginning June 6, 1997,
and all subsequent Interest payments are due on the same day of each month after
that. 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
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or 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 and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the FIRST BANK
NATIONAL ASSOCIATION REFERENCE RATE (the "Index). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. The Index currently Is 8.600% per annum. The Interest rate to be
applied to the unpaid principal balance of this Note will be at a rate equal to
the Index, resulting In an Initial rate of 8.500% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law. Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender In the State of Minnesota. If there Is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of HENNEPIN County, the State of Minnesota. This Note shall be governed
by and construed In accordance with the laws of the State of Minnesota.
RIGHT OF SETOFF. 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 some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. 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.
COLLATERAL. This Note is secured by A $1,000,000.00 STANDBY LETTER OF CREDIT
NUMBER ST102443 FROM BANK ONE, TEXAS, N.A. BENEFITING RIVERSIDE BANK WITH AN
EXPIRATION DATE OF APRIL 30, 1999.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either 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. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent-, (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (a) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
LOAN SUPPLEMENT. AN EXHIBIT, TITLED "LOAN SUPPLEMENT," IS ATTACHED TO THIS NOTE
AND BY THIS REFERENCE IS MADE A PART OF THIS NOTE JUST AS IF ALL THE PROVISIONS,
TERMS AND CONDITIONS OF THE LOAN AGREEMENT HAD BEEN FULLY SET FORTH IN THIS
NOTE.
ANNUAL FEE. THE BANK SHALL COLLECT AT CLOSING A LOAN FEE IN THE AMOUNT OF
$2,000.00. IN ADDITION, THE BANK SHALL COLLECT AN ANNUAL FEE ON THE ANNIVERSERY
DATE OF THE NOTE, OR MAY 1, 1998, IN AN AMOUNT EQUAL TO $5,000.00.
PRIOR NOTE. LOAN NUMBER 90364108.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower 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 loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lendees 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 that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
SECTION DISCLOSURE. This loan is made under Minnesota Statutes, Section 334.01.
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:
Everest Medical Corporation
By /s/ Thomas F. Murphy
Thomas F. Murphy, Vice President
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