<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 2, 1997
Commission File number 0-21727
SeaMED Corporation
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(Exact Name of Registrant as specified in its charter)
Washington 91-1002092
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(State of Incorporation) (Federal I.R.S. No.)
14500 Northeast 87th Street, Redmond, Washington 98052-3431
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 425-867-1818
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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 ( )
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As of November 11, 1997, the Registrant had 5,284,563 shares of
Common Stock outstanding.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SeaMED CORPORATION
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Balance Sheets as of September 30, 1997 and June 30, 1997..........................................3
Statements of Income for the Quarters Ended
September 30, 1997 and 1996............................................................4
Statements of Cash Flows for the Quarters Ended September 30, 1997 and 1996........................5
Notes to Financial Statements......................................................................6
</TABLE>
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<PAGE> 3
SEAMED CORPORATION
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 9,233 $ 9,092
Investments ......................................... 4,552,873 6,231,369
Accounts receivable, net ............................ 9,398,592 8,794,968
Inventories ......................................... 12,487,257 11,198,563
Deferred income taxes ............................... 1,434,791 1,193,311
Prepaid expenses .................................... 401,424 169,553
------------- -------------
Total current assets ..................................... 28,284,170 27,596,856
Fixed assets, net ........................................ 4,459,721 4,331,814
Deposits and other assets ................................ 331,869 202,845
------------- -------------
Total assets ............................................. $ 33,075,760 $ 32,131,515
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 3,288,337 $ 2,482,551
Accrued expenses and reserves ....................... 5,448,629 5,787,715
Borrowings under bank line of credit ................ -- 1,068,240
Current portion of long-term debt ................... 121,336 --
------------- -------------
Total current liabilities ................................ 8,858,302 9,338,506
Long-term debt, less current portion ..................... 503,664 --
Shareholders' equity:
Common stock ........................................ 19,736,804 19,722,865
Note receivable from officer ........................ (75,000) (75,000)
Retained earnings ................................... 4,051,990 3,145,144
------------- -------------
Total shareholders' equity ............................... 23,713,794 22,793,009
------------- -------------
Total liabilities and shareholders' equity ............... $ 33,075,760 $ 32,131,515
============= =============
</TABLE>
See accompanying notes to financial statements.
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SEAMED CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Manufacturing .............................. $ 10,362,638 $ 6,723,718
Engineering ................................ 5,667,153 3,352,451
16,029,791 10,076,169
Costs of revenues:
Manufacturing .............................. 8,378,072 5,438,767
Engineering ................................ 4,920,164 2,952,746
------------ ------------
13,298,236 8,391,513
------------ ------------
Gross margin .................................. 2,731,555 1,684,656
Marketing, general and
Administrative expenses .................... 1,376,982 846,670
------------ ------------
Operating income .............................. 1,354,573 837,986
Other income (expense)
Interest expense ........................... (37,274) (82,215)
Interest and other income, net ............. 56,711 (7,181)
------------ ------------
19,437 (89,396)
------------ ------------
Income before income taxes .................... 1,374,010 748,590
Income tax provision .......................... 467,164 262,007
------------ ------------
Net income .................................... $ 906,846 $ 486,584
============ ============
Net income per share data:
Primary .................................... $ 0.16 $ 0.17
============ ============
Fully diluted .............................. $ 0.16 $ 0.12
============ ============
Weighted average common shares and equivalents:
Primary .................................... 5,626,815 2,477,686
============ ============
Fully Diluted .............................. 5,632,621 4,076,402
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
SEAMED CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
September 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................. $ 906,846 $ 486,584
Adjustments to reconcile net income to net cash
provided by (used in) operating
activities:
Depreciation ............................................ 401,549 241,359
Provision for bad debts ................................. 40,168 25,337
Deferred tax benefit .................................... (241,480) --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ........... (643,792) 303,722
Increase in inventories .............................. (1,288,694) (527,195)
Increase (decrease) in accounts payable, accrued
expenses, and deferred revenue .................... -- (815,303)
466,699
Increase in other assets and prepaid expenses ........ (360,895) (204,283)
----------- -----------
Net cash used in operating activities ...................... (719,599) (489,779)
INVESTING ACTIVITIES
Purchases of equipment ..................................... (529,456) (311,742)
Maturity of short-term investments ......................... 1,678,496 --
----------- -----------
Net cash provided by (used in) investing activities ........ 1,149,040 (311,742)
FINANCING ACTIVITIES
Proceeds from stock options exercised ...................... 13,939 2,470
Net proceeds (payments) of borrowing under credit line
(1,068,239) 428,755
Proceeds from notes payable ................................ 625,000 500,000
Principal payments on notes payable ........................ -- (129,104)
----------- -----------
Net cash (used in) provided by financing activities ........ (429,300) 802,121
----------- -----------
Net increase in cash ....................................... 141 600
Cash and cash equivalents at beginning of period ........... 9,092 2,912
----------- -----------
Cash and cash equivalents at end of period ................. $ 9,233 $ 3,512
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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ITEM 1. NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Description of Business
SeaMED Corporation (the "Company") primarily manufactures advanced durable
electronic medical instruments for medical technology companies, often as part
of systems that also include single-use components. To assist its customers in
developing and commercializing their instruments for manufacture by the Company,
the Company provides a wide range of engineering services and regulatory
expertise.
Accounting Period
The Company presents financial information for a 52/53 week fiscal year
that ends on the Thursday nearest to June 30. Each of the Company's fiscal
quarters ends, respectively, on the Thursday nearest to September 30, December
31 and March 31. For convenience of presentation, all fiscal periods in these
financial statements are shown as ending on a calendar month-end.
Unaudited Interim Financial Information
The financial information as of September 30, 1997 is unaudited, but
includes all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position at such dates and the operations and cash flows for the
periods then ended. The financial information is presented according to the
rules and regulations of the Securities and Exchange Commission and,
accordingly, does not include all of the information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles. Operating results for the period ended September
30, 1997 are not necessarily indicative of results that may be expected for the
entire year. This financial information should be read in conjunction with the
Company's audited financial statements for the year ended June 30, 1997,
included in its annual report on Form 10-K filed with the Securities and
Exchange Commission.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options and preferred stock will be excluded. The
impact is expected to result in an increase in primary earnings per share for
the quarters ended September 30, 1997 and 1996 of $.01 and $.46 per share,
respectively. The impact of Statement
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<PAGE> 7
128 on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.
2. INITIAL PUBLIC OFFERING
In November 1996, the Company completed an initial public offering of
securities, selling 1,529,720 shares of common stock at $11 per share, resulting
in net proceeds to the Company of $14,822,755, net of offering costs and
underwriters discount of $2,004,165. Of the net proceeds, the Company used
$1,765,000 to pay a cumulative preferred dividend on its convertible redeemable
preferred stock, $1,831,000 to pay down its line of credit with a bank to zero
and $1,296,000 to pay off in full three notes payable to the bank. In
conjunction with the offering, all of the Company's convertible redeemable
preferred stock outstanding immediately prior to the offering was converted into
2,934,029 shares of common stock.
3. INVENTORIES
Inventories consist of the following:
September 30, June 30,
1997 1997
------------ ------------
Work-in-process $ 3,361,404 $ 3,274,857
Purchased and manufactured parts 9,125,853 7,923,706
------------ ------------
$ 12,487,257 $ 11,198,563
============ ============
4. INVESTMENTS
Investments are classified as held to maturity. Investments are reported
at cost net of unamortized premium or discount. All investments mature within
one year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto included elsewhere in this
Form 10-Q. This Form 10-Q contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed in the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission.
OVERVIEW
SeaMED is a manufacturer of advanced medical instruments for medical
technology companies. SeaMED was incorporated in 1976, and since 1988 has
focused its business primarily on manufacturing medical instruments for medical
technology companies. To assist its customers in developing and commercializing
their products for manufacture by SeaMED, the Company provides a wide range of
engineering services and regulatory expertise.
SeaMED's manufacturing contracts with its customers are usually exclusive
contracts for a fixed period of time, generally ranging from three to five
years. SeaMED negotiates each manufacturing contract independently, and each
varies as to profitability. SeaMED negotiates the price of each manufactured
instrument on a cost and margin formula. SeaMED's contracts with its customers
generally permit annual manufacturing cost audits and price renegotiations.
During the contract term, customers have broad discretion to control the volume
and timing of instrument deliveries. Consequently, SeaMED's revenues with
respect to each instrument may vary substantially from period to period, and an
instrument that generates revenues in one quarter may not necessarily generate
revenues in each quarter of a fiscal year. In addition, for a variety of reasons
such as a customer's inventory levels, sales mix and timing of product launches,
SeaMED's revenues for an instrument do not necessarily correspond to the
customer's sales.
Manufacturing revenue growth depends primarily on two factors: increased
demand for instruments manufactured by SeaMED and SeaMED's ability to attract
additional manufacturing contracts from emerging and established medical
technology companies. SeaMED has no ability to increase demand for the
instruments it manufactures because SeaMED's customers control all product
marketing and sales. SeaMED markets its manufacturing capabilities and usually
procures additional manufacturing contracts as a result of its engineering
projects, but the volume and timing of future manufacturing revenues that relate
to any specific engineering project are highly variable, and certain engineering
projects may not lead to future manufacturing revenues. The manufacturing gross
margin percentage from year to year depends primarily on the product mix, as
gross margins vary by instrument and as a result of negotiated volume discounts.
Management may negotiate volume discounts if the larger volume results in
smaller per unit overhead allocation, thereby improving operating margin. For
manufacturing revenues from instruments not yet approved for commercial use
(known as "preproduction revenues"), the gross
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<PAGE> 9
margin percentage is generally lower because a smaller number of units limits
opportunities to achieve economies of scale, and the instrument and its
manufacturing process are being refined.
SeaMED provides its customers with engineering services at any stage of an
instrument's development, as part of its strategy to obtain exclusive
manufacturing rights for an instrument. SeaMED generally provides engineering
services under a project plan that identifies the engineering tasks,
deliverables and schedule. SeaMED negotiates each engineering project plan
independently, and, as a business strategy, generally prices engineering
contracts to cover direct project expenses (i.e., nonrecurring engineering
expenses) plus a share of marketing, general and administrative expenses.
SeaMED's objective in providing engineering services is to obtain, for a
specific time period (usually three to five years), exclusive manufacturing
rights to the instrument resulting from the engineering project. The customer
can typically cancel the engineering project at any time upon short notice.
Engineering revenues are derived primarily from professional services
provided by SeaMED's engineers. The balance of engineering revenues is sales of
materials to customers at cost. Engineering revenue growth depends primarily on
three factors: (i) the number and scope of existing engineering projects, (ii)
whether existing projects are in time-intensive phases, and (iii) whether new
engineering projects of sufficient scope replace engineering projects that are
completed or otherwise terminated. Engineering gross margins are low due to
SeaMED's strategy of pricing engineering services as part of an exclusive
manufacturing contract for the resulting instrument. Since demand for
engineering services is based on the number and scope of engineering projects,
if customers cancel one or more projects on short notice, SeaMED may experience
from time to time excess engineering capacity. Engineering margins may fluctuate
depending on the rates that customers pay under engineering project plans and
the utilization rates of engineers.
SeaMED from time to time selectively designs and manufactures nonmedical
commercial products that benefit from SeaMED's engineering and manufacturing
capabilities. SeaMED intends to maintain as its primary focus the design and
manufacturing of advanced medical instruments for medical technology companies.
Marketing, general and administrative expenses include the costs of
SeaMED's marketing, finance, and management information systems departments and
other administrative costs. In addition, marketing, general and administrative
expenses include the cost of a Company-wide bonus tied to operating performance
and return on operating assets based on an operating plan approved by the Board
of Directors. Future payments will vary based on the Company's performance
relative to plan objectives.
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RESULTS OF OPERATIONS
The following table sets forth statement of income data as a percentage of
revenues for the periods indicated.
Quarter Ended
September 30,
---------------------
1997 1996
------ ------
Revenues 100.0% 100.0%
Cost of sales 83.0 83.3
------ ------
Gross margin 17.0 16.7
Marketing, general and administrative 8.6 8.4
------ ------
Operating income 8.4 8.3
Other income (expenses) net 0.2 (0.9)
------ ------
Income before income taxes 8.6 7.4
Income tax provision 2.9 2.6
------ ------
Net income 5.7% 4.8%
====== ======
Revenues
The following table sets forth revenues with the corresponding percentage
of total revenues and the percentage increase for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended September 30,
-------------------------------------------------------------------------
1997 1996
---------------------------- ----------------------------
% of Total % of Total
Revenues Revenues Revenues Revenues % Increase
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Manufacturing $ 10,363 64.6% $ 6,724 66.7% 54.1%
Engineering 5,667 35.4 3,352 33.3 69.0%
---------- ---------- ---------- ---------- ----------
Total Revenues $ 16,030 100.0% $ 10,076 100.0% 59.1%
========== ========== ========== ========== ==========
</TABLE>
Manufacturing revenues increased by approximately $3.6 million in the
first quarter of fiscal year 1998 from the first quarter of fiscal year 1997,
due primarily to new medical instruments adding approximately $1.6 million in
revenues, increased revenues from existing medical instruments adding
approximately $3.0 million and increased revenues from the manufacture of the
Coinstar coin-counting machine adding approximately $500,000 in nonmedical
manufacturing revenues. Sales to Coinstar in the first quarter of fiscal year
1998 represented approximately 20.0% of total revenues and approximately 27.1%
of manufacturing revenues, compared to approximately 25.0% of total revenues and
approximately 33.5% of manufacturing revenues in the first quarter of fiscal
year 1997. Management expects that sales to Coinstar will tend to decrease as a
percentage of manufacturing revenues in the future, but the percentage may
fluctuate from quarter to quarter. Increases in manufacturing revenues were
offset by decreased volume of certain existing instruments and the phase-out of
the Company's proprietary instrument during the fourth quarter of fiscal year
1997.
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<PAGE> 11
Significant manufacturing revenues were generated by 15 instruments in the
first quarter of fiscal year 1998 compared to 12 instruments in first quarter of
fiscal year 1997. The only nonmedical commercial product that generated
significant manufacturing revenues during the first quarters of fiscal years
1998 and 1997 was the Coinstar coin-counting machine.
Engineering revenues increased by approximately $2.3 million in the first
quarter of fiscal year 1998 from the first quarter of fiscal year 1997, due
primarily to new projects adding approximately $2.0 million in revenues, and
increased time and hourly rates being billed on existing projects adding
approximately $1.2 million in revenues. Increases in engineering revenues were
offset by the transition of certain projects from engineering to manufacturing
and other projects being delayed or cancelled.
As of the respective ends of the first quarters of fiscal years 1998 and
1997, SeaMED had in its engineering project pipeline 22 and nine new medical
instruments or systems, and nine and five projects that enhance existing
medical instruments or systems and that SeaMED and the customer believe will
extend the life-cycle of the instrument. The 31 projects in the pipeline as of
the end of the first quarter of fiscal year 1998 were being performed for 27
different customers (14 projects for 11 different customers as of the end of
the first quarter of fiscal year 1997). Although management believes that the
31 projects in the pipeline have a good chance of some day resulting in
manufacturing contracts from which SeaMED will derive substantial manufacturing
revenues, the volume and timing of future manufacturing revenues that relate
to any specific engineering project are highly variable, and certain
engineering projects in the pipeline may not lead to future manufacturing
revenues.
As of the end of the first quarters of each of fiscal years 1998 and 1997,
SeaMED had in its engineering project pipeline one nonmedical commercial
product.
Price adjustments under existing manufacturing contracts have not been
significant. Increases in revenues have not been significantly influenced by
inflation.
Gross Margin
The following table sets forth gross margin, both in dollar amounts and as
a percentage of the corresponding revenue figure for the periods indicated.
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<PAGE> 12
<TABLE>
<CAPTION>
Quarter Ended September 30,
--------------------------------------------------------------
1997 1996
---------------------------- -----------------------------
Gross Gross Gross Gross
Margin ($) Margin (%) Margin ($) Margin (%)
----------- ----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Manufacturing $ 1,985 19.2% $ 1,285 19.1%
Engineering 747 13.2% 400 11.9%
Total gross margin $ 2,732 17.0% $ 1,685 16.7%
</TABLE>
Manufacturing gross margin percentage remained essentially unchanged in
the first quarter of fiscal year 1998 from the first quarter of fiscal year
1997. Preproduction revenues, which generally produce lower gross margins,
increased as a percent of sales and offset gross margin improvements achieved
by spreading facilities and certain other manufacturing overhead costs over a
higher revenue base. The increase in the engineering gross margin percentage to
13.2% in the first quarter of fiscal year 1998 from 11.9% for the first
quarter of fiscal year 1997 was primarily attributable to (i) spreading
certain fixed engineering costs over a higher revenue base, (ii) high
utilization of engineers, and (iii) increased hourly rates for engineering
services. Management expects engineering gross margin as a percentage of
revenues to fluctuate from quarter to quarter, but to average approximately
11% over time.
Marketing, General and Administrative Expenses
The following table sets forth marketing, general and administrative
expenses with the corresponding percentage of revenues for the fiscal years
indicated.
Quarter Ended September 30,
----------------------------------------------------------------
1997 1996
-------------------------- ---------------------------
MG&A % of MG&A % of
Expenses Revenues Expenses Revenues
-------- -------- -------- --------
(dollars in thousands)
$1,377 8.6% $847 8.4%
Marketing, general and administrative expenses increased to $1.4 million in the
first quarter of fiscal year 1998 from $847,000 in the first quarter of fiscal
year 1997, and as a percentage of revenues increased to 8.6% from 8.4% for the
respective quarters. The increase in expenses were due primarily to costs
associated with disseminating information to shareholders and the public,
increased headcount and management information systems costs associated with the
Company's growth. Marketing, general and administrative expenses before bonus
represented 6.8% and 6.2% of revenues in the first quarters of fiscal years 1998
and 1997, respectively.
Operating Income
Quarter Ended September 30,
----------------------------------------------------------------
1997 1996
--------------------------- ----------------------------
Operating % of Operating % of
Income Revenues Income Revenues
--------- --------- --------- ---------
(dollars in thousands)
$1,355 8.4% $838 8.3%
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The $517,000 increase (61.6%) in operating income in the first quarter of
fiscal year 1998 from the first quarter of fiscal year 1997 is due primarily to
an increase in sales volume and improved gross margins in engineering.
LIQUIDITY AND CAPITAL RESOURCES
SeaMED has historically financed its operations through earnings, debt and
sales of securities. In the first three months of fiscal year 1998 SeaMED's
operating activities resulted in net uses of cash of $720,000. This net use of
cash occurred despite a substantial increase in earnings in the first quarter of
fiscal year 1998 from the first quarter of fiscal year 1997, because SeaMED's
growth continues to require substantial infusions of working capital, primarily
to support increases in accounts receivable and inventories.
As part of its strategy to finance its growth, on November 19, 1996,
SeaMED completed its initial public offering of securities, selling 1,529,720
shares of common stock at $11 per share, resulting in net proceeds to the
Company of approximately $14.8 million. Of the net proceeds, the Company used
approximately $1.8 million to pay a cumulative preferred dividend on its
convertible redeemable preferred stock, approximately $1.8 million to pay down
its line of credit with Pacific Northwest Bank (the "Bank") to zero and
approximately $1.3 million to pay off in full three notes payable to the Bank.
SeaMED has used a portion of the remaining net proceeds to continue
funding working capital needs resulting from its growth and for general
corporate purposes, including leasehold improvements and purchases of equipment.
If the opportunity arises the Company may use a portion of the net proceeds to
acquire other manufacturing or engineering businesses or assets that complement
the Company's existing business. The Company currently is not engaged in any
discussions regarding such acquisitions and has no plans, arrangements,
understandings or agreements regarding any specific acquisition.
In July 1997, the Company's Board of Directors approved the replacement of
its fixed-balance cash management arrangement with Pacific Northwest Bank with a
line of credit arrangement (the "working capital facility") with Keybank
National Association, under which the Company can borrow against 85% of eligible
accounts receivable and 50% of eligible inventory, up to a maximum of $10.0
million in year one and $20.0 million in years two and three. Borrowings
under the working capital facility will bear interest at either the
bank's prime rate minus .25% or LIBOR plus 1.2%. At October 31, there were no
borrowings under the working capital facility. In addition the Bank has
committed to allow SeaMED, in SeaMED's discretion, to draw on an equipment
acquisition line of credit (the "equipment facility") with the Bank, under which
the Company can borrow up to $5.0 million. Borrowings under the equipment
facility will bear interest at LIBOR plus 1.4% and will be secured by the
equipment purchased using the equipment facility. At October 31, there were no
borrowings under the equipment facility.
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<PAGE> 14
SeaMED also has a term note payable to the Bank, entered into on July 31,
1997 and disbursed by the Bank on September 4, 1997. Borrowings under this note
bear interest at the Bank's announced prime rate, 8.5% at October 31, 1997, and
will adjust as the Bank's announced prime rate changes. The note is due in
monthly payments of $18,055 through December 2000. At October 31, 1997, the
balance outstanding on this note was approximately $607,000.
SeaMED believes that the net proceeds remaining from its initial public
offering, together with existing capital resources and amounts available under
its new working capital and equipment facilities, will satisfy the Company's
anticipated capital needs for the next 18 to 36 months (depending primarily on
SeaMED's growth rate and its results of operations). To accommodate anticipated
future growth, SeaMED will need additional sources of capital to fund working
capital needs for inventory and accounts receivable, to lease and acquire
furniture and equipment for additional plant facilities, to fund leasehold
improvements and to make other capital expenditures.
In May of 1997 SeaMED occupied an additional 60,000 square feet of space
to support growth. SeaMED now has approximately 148,000 square feet of space.
Due in large part to furnishing new space, SeaMED's capital expenditures
increased to approximately $529,000 in the first quarter of fiscal year 1998
from $312,000 in the first quarter of fiscal year 1997. Management anticipates
that the amount of capital expenditures in fiscal year 1998 will decrease
slightly from fiscal year 1997. In July 1997 SeaMED entered into a commitment to
lease an additional 81,000 square feet of space in stages beginning in January
1999.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 2(D). USE OF OFFERING PROCEEDS.
From November 18, 1996, the effective date of the Securities Act
registration statement for the Company's initial public offering of common
stock, through October 2, 1997, the Company has used the net offering proceeds
as follows:
<TABLE>
<CAPTION>
Use of Net Offering Proceeds Amount
- ------------------------------------------------------- ------
(000)
<S> <C>
Construction of plant, building and facilities $ 140
Purchase and installation of machinery and equipment 2,678
Repayment of indebtedness (including a cumulative
preferred stock dividend) 4,892
Working capital 2,560
Temporary investments 4,553
-------
$14,823
=======
</TABLE>
The uses of net offering proceeds set forth above are management's reasonable
estimates, and they assume the reinvestment of cash from operating activities
into the Company's net working capital. Temporary investments are United States
government obligations with a term of less than one year.
ITEM 6(A). EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
Exhibit 3.1 Amended and Restated Articles of Incorporation of the Registrant...
Exhibit 3.2+ Bylaws of the Registrant...........................................
Exhibit 10.1 Business Loan Agreement dated July 31, 1997 between Registrant
and Keybank N.A....................................................
Exhibit 10.2 Revolving Note, Principal Amount $20,000,000, dated July 31,
1997 made by Registrant in favor of Keybank N.A....................
Exhibit 10.3 Term Note, Principal Amount $625,000, dated July 31, 1997 made
by Registrant in favor of Keybank N.A..............................
Exhibit 10.4 Proposal to Amend Lease, Building 2, dated July 18, 1997 between
Registrant and Washington Capital Management, Inc..................
Exhibit 11.1 Statement regarding computation of net income per share............
Exhibit 27.1 Financial Data Schedule............................................
</TABLE>
- ----------
+ Filed previously with the Company's Registration Statement on Form S-1
(No. 333-13455) filed with the Securities and Exchange Commission.
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<PAGE> 16
SIGNATURES
The unaudited interim financial statements furnished by management reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operation.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
By /S/ W. ROBERT BERG 11/17/97
------------------------------ ---------------------------------------
W. Robert Berg Date
Principal Executive Officer
By /s/ EDGAR F. RAMPY 11/17/97
------------------------------ ---------------------------------------
Edgar F. Rampy Date
Principal Financial Officer
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<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
Exhibit 3.1 Amended and Restated Articles of Incorporation of the Registrant...
Exhibit 3.2+ Bylaws of the Registrant...........................................
Exhibit 10.1 Business Loan Agreement dated July 31, 1997 between Registrant
and Keybank N.A....................................................
Exhibit 10.2 Revolving Note, Principal Amount $20,000,000, dated July 31,
1997 made by Registrant in favor of Keybank N.A....................
Exhibit 10.3 Term Note, Principal Amount $625,000, dated July 31, 1997 made
by Registrant in favor of Keybank N.A..............................
Exhibit 10.4 Proposal to Amend Lease, Building 2, dated July 18, 1997 between
Registrant and Washington Capital Management, Inc..................
Exhibit 11.1 Statement regarding computation of net income per share............
Exhibit 27.1 Financial Data Schedule............................................
</TABLE>
- ----------
+ Filed previously with the Company's Registration Statement on Form S-1
(No. 333-13455) filed with the Securities and Exchange Commission.
(i)
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SEAMED CORPORATION
ARTICLE 1.
NAME
The name of the corporation is SeaMED Corporation.
ARTICLE 2.
DURATION
This corporation has perpetual existence.
ARTICLE 3.
PURPOSE
This corporation is organized for the purposes of transacting any and all
lawful business for which a corporation may be incorporated under Title 23B of
the Revised Code of Washington, as amended.
ARTICLE 4.
REGISTERED OFFICE AND AGENT
The address of the registered office of the corporation is 5000 Columbia
Center, 701 Fifth Avenue, Seattle, Washington 98104-7078, and the name of the
registered agent at such address is PTSGE Corp.
ARTICLE 5.
CAPITAL STOCK
The total number of shares of stock that the corporation shall have the
authority to issue is Fifteen Million (15,000,000) as follows:
5.1 Ten Million (10,000,000) shares, which shares shall be of one class
and shall be designated Common Stock, no par value per share. All rights
accruing to the outstanding shares of the corporation not expressly provided for
to the contrary herein shall be vested in the Common Stock.
5.2 Five Million (5,000,000) shares of Preferred Stock, no par value per
share.
The Board of Directors shall have the full authority permitted by law to
divide the authorized and unissued shares of Preferred Stock into classes or
series, or both, and to provide for the issuance of such shares in an aggregate
amount not exceeding in the aggregate the number of shares of Preferred Stock
authorized by these Articles of Incorporation, as amended from time to time; and
to determine with respect to each such class and/or series the voting powers, if
any (which voting powers, if granted, may be full or limited), designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions relating thereto, including
without limiting the generality of the foregoing, the voting rights relating to
shares of Preferred Stock of any class and/or series (which may be one or more
votes per share or a fraction of a vote per share, which may vary over time and
which may be applicable generally or only upon the happening and continuance of
stated events or conditions), the rate of dividend to which holders of Preferred
Stock of any class and/or series may be entitled (which may be cumulative or
noncumulative), the rights of holders of Preferred Stock of any class and/or
series in the event of liquidation, dissolution or winding up of the affairs of
the corporation, the rights, if any, of holders of Preferred Stock of any class
and/or
<PAGE> 2
series to convert or exchange such shares of Preferred Stock of such class
and/or series for shares of any other class or series of capital stock or for
any other securities, property or assets of the corporation or any subsidiary
(including the determination of the price or prices or the rate or rates
applicable to such rights to convert or exchange and the adjustment thereof, the
time or times during which the right to convert or exchange shall be applicable
and the time or times during which a particular price or rate shall be
applicable), whether or not the shares of that class and/or series shall be
redeemable, and if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates, and whether any shares of that
class and/or series shall be redeemed pursuant to a retirement or sinking fund
or otherwise and the terms and conditions of such obligation.
Before the corporation shall issue any shares of Preferred Stock of any
class and/or series, articles of amendment in a form meeting the requirements of
the Washington Business Corporation Act, as amended from time to time (the
"Act"), setting forth the terms of the class and/or series and fixing the voting
powers, designations, preferences, the relative, participating, optional or
other special rights, if any, and the qualifications, limitations and
restrictions, if any, relating to the shares of Preferred Stock of such class
and/or series, and the number of shares of Preferred Stock of such class and/or
series authorized by the Board of Directors to be issued shall be filed with the
Secretary of State of the State of Washington in the manner prescribed by the
Act, and shall become effective without any shareholder action. The Board of
Directors is further authorized to increase or decrease (but not below the
number of such shares of such series then outstanding) the number of shares of
any class or series subsequent to the issuance of shares of that class or
series.
ARTICLE 6.
PREEMPTIVE RIGHTS
Shareholders of this corporation have no preemptive rights to acquire
additional shares of stock or securities convertible into shares of stock issued
by the corporation.
ARTICLE 7.
DIRECTORS
7.1 Number of Directors. The number of directors of this corporation shall
be fixed in the manner specified by the bylaws of this corporation. The first
director of the corporation is one (1) in number and his name and address is:
W. Robert Berg
14500 Northwest 87th Street
Redmond, Washington 98052
The first director shall serve until the first annual meeting of the
shareholders and until his successors are elected and qualified.
7.2 Removal. Any director or the entire Board of Directors may be removed
from office at any time, at a duly called special meeting of shareholders, by
the affirmative vote of shareholders which satisfies the requirements of Article
11 applicable to amendment, modification, or repeal of these Articles.
7.3 Vacancies. Vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by a
majority of the directors then in office, though less than a quorum, by the sole
remaining director or by action of the shareholders. All directors elected to
fill vacancies shall hold office for a term expiring at the next annual meeting
of shareholders, but shall continue to serve despite the expiration of the
director's term until his or her successor shall have been elected and qualified
or until there is a decrease in the number of directors. No decrease in the
number of directors constituting the Board of Directors shall shorten or
eliminate the term of any incumbent director.
<PAGE> 3
7.4 Classification of Directors. The directors shall be divided into three
classes, with each class to be as nearly equal in number as possible. The term
of office of directors of the first class shall expire at the first annual
meeting of shareholders after their election. The term of office of the
directors of the second class shall expire at the second annual meeting after
their election. The term of office of directors of the third class shall expire
at the third annual meeting after their election. At each annual meeting after
such classification, a number of directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to hold office
until the third succeeding annual meeting.
ARTICLE 8.
CUMULATIVE VOTING
Shareholders of this corporation shall not have the right to cumulate votes
in the election of directors.
ARTICLE 9.
LIMITATION OF DIRECTOR LIABILITY
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for:
(a) Acts or omissions involving intentional misconduct by the director
or a knowing violation of law by the director;
(b) Conduct violating RCW 23B.08.310 (which involves certain
distributions by the corporation);
(c) Any transaction from which the director will personally receive a
benefit in money, property, or services to which the director is not
legally entitled.
If the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any repeal or modification of the foregoing
paragraph by the shareholders of the corporation shall not adversely affect any
right or protection of a director of the corporation with respect to any acts or
omissions of such director occurring prior to such repeal or modification.
ARTICLE 10.
INDEMNIFICATION OF DIRECTORS
10.1 Indemnification. The corporation shall indemnify its directors to the
full extent permitted by the Washington Business Corporation Act now or
hereafter in force. However, such indemnity shall not apply on account of:
(a) Acts or omissions of the director finally adjudged to be
intentional misconduct or a knowing violation of law;
(b) Conduct of the director finally adjudged to be in violation of RCW
23B.08.310; or
(c) Any transaction with respect to which it was finally adjudged that
such director personally received a benefit in money, property, or services
to which the director was not legally entitled.
The corporation shall advance expenses for such persons pursuant to the terms
set forth in the Bylaws, or in a separate directors' resolution or contract.
10.2 Authorization. The Board of Directors may take such action as is
necessary to carry out these indemnification and expense advancement provisions.
It is expressly empowered to adopt, approve, and amend from time to time such
Bylaws, resolutions, contracts, or further indemnification and expense
advancement arrangements as may be permitted by law, implementing these
provisions. Such Bylaws, resolutions, contracts
<PAGE> 4
or further arrangements shall include but not be limited to implementing the
manner in which determinations as to any indemnity or advancement of expenses
shall be made.
10.3 Amendment. No amendment or repeal of this Article shall apply to or
have any effect on any right to indemnification provided hereunder with respect
to acts or omissions occurring prior to such amendment or repeal.
ARTICLE 11.
MISCELLANEOUS
11.1 Repeal of and Amendment to Articles of Incorporation. Unless
otherwise provided herein, the provisions of these Articles of Incorporation may
be repealed or amended upon the affirmative vote of the holders of not less than
a majority of the outstanding shares of capital stock of the corporation. The
provisions set forth in Section 7.1 of Article 7, Article 9, Article 10 and this
sentence of Section 11.1 of Article 11 herein may not be repealed or amended in
any respect unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
the corporation.
11.2 Repeal of and Amendment to Bylaws. In furtherance and not in
limitation of the powers conferred by the Washington Business Corporation Act,
the Board of Directors is expressly authorized to make, adopt, repeal, alter,
amend, and rescind the Bylaws of the corporation by a resolution adopted by a
majority of the directors. The shareholders shall also have the power to adopt,
amend or repeal the Bylaws of the corporation as set forth therein.
11.3 Special Meetings of Shareholders. Special meetings of the
shareholders of the corporation for any purpose may be called at any time by the
Board of Directors or an authorized committee of the Board of Directors, but
such special meetings may not be called by any other person or persons.
ARTICLE 12.
INCORPORATOR
The name and address of the incorporator is:
Robert Vallelunga 5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
The undersigned incorporator has signed these Articles of Incorporation as
duplicate signed originals on October 1, 1996.
/s/ ROBERT VALLELUNGA
--------------------------------------
Robert Vallelunga
Incorporator
<PAGE> 1
EXHIBIT 10.1
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collatera l Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C>
$20,000,000.00 07-31-1997 07-05-2000 2000001 000 7996-314107 SAB10
- -----------------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------------
Borrower: Seamed Corporation Lender: Keybank National Association
14500 NE 87th Street Seattle Metropolitan Commercial
Redmond, WA 98052 Banking Center
700 Fifth Avenue
P.O. Box 90 WA-31-10-4871
Seattle, WA 98111-0090
===========================================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT between SEAMED CORPORATION ("Borrower") and KEYBANK
NATIONAL ASSOCIATION ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of July 31, 1997, and shall continue
thereafter until all indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means SEAMED CORPORATION. The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability act of 1980, as amended.
<PAGE> 2
07-31-1997 BUSINESS LOAN AGREEMENT Page 2
(Continued)
Loan No. 2000001
================================================================================
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security interest in any
Collateral for the indebtedness, including without limitation all Borrowers
granting such a security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with any indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such indebtedness may
be or hereafter may become barred by any statute of limitations; and whether
such indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means KEYBANK NATIONAL ASSOCIATION, its successors
and assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
-2-
<PAGE> 3
07-31-1997 BUSINESS LOAN AGREEMENT Page 3
(Continued)
Loan No. 2000001
================================================================================
Loan. The word "Loan" or Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement form time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted liens" mean: (a) liens and security
interests securing indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or
held by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of Borrower's
assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings
or other agreements, whether crated by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
-3-
<PAGE> 4
07-31-1997 BUSINESS LOAN AGREEMENT Page 4
(Continued)
Loan No. 2000001
================================================================================
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence of
insurance as required below; and (e) any other documents required under this
Agreement or by Lender or its counsel.
Borrower's Authorization. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related
Documents, and such other authorizations and other documents and instruments
as Lender or its counsel, in their sole discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth
in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
-4-
<PAGE> 5
07-31-1997 BUSINESS LOAN AGREEMENT Page 5
(Continued)
Loan No. 2000001
================================================================================
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its businesses
or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization, or bylaws, or
any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or
other applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's
-5-
<PAGE> 6
07-31-1997 BUSINESS LOAN AGREEMENT Page 6
(Continued)
Loan No. 2000001
================================================================================
ownership of the properties, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any hazardous
waste or substance by any person on, under, about or from any of the
properties. (b) Borrower has no knowledge of, or reason to believe that
there has been (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or substance
on, under, about or from the properties by any prior owners or occupants of
any of the properties, or (ii) any actual or threatened litigation or claims
of any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon the
properties to make such inspections and tests as Lender may deem appropriate
to determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be at Borrower's
expense and for Lender's purposes only and shall not be construed to create
any responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves have been
provided.
-6-
<PAGE> 7
07-31-1997 BUSINESS LOAN AGREEMENT Page 7
(Continued)
Loan No. 2000001
================================================================================
Binding Effect. This Agreement, the Note, and all of the Related Documents
are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 14500 NORTHEAST 87TH STREET, REDMOND, WA 98052.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which such
information is dated or certified; and none of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
-7-
<PAGE> 8
07-31-1997 BUSINESS LOAN AGREEMENT Page 8
(Continued)
Loan No. 2000001
================================================================================
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited by
a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than ninety (90) days after the end of each
fiscal quarter, Borrower's balance sheet and profit and loss statement for
the period ended, prepared and certified as correct to the best knowledge
and belief by Borrower's chief financial officer or other officer or person
acceptable 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, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender
may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.25 to 1.00. Except as provided above, all
computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender. Each Insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission, or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the name
of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the
-8-
<PAGE> 9
07-31-1997 BUSINESS LOAN AGREEMENT Page 9
(Continued)
Loan No. 2000001
================================================================================
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often then annually), Borrower will have
an independent appraiser satisfactory to Lender determine, as applicable,
the actual cash value or replacement cost of any Collateral. The cost of
such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of the indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits, Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(a) the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit
-9-
<PAGE> 10
07-31-1997 BUSINESS LOAN AGREEMENT Page 10
(Continued)
Loan No. 2000001
================================================================================
Borrower's books, accounts, and records and to make copies and memoranda of
Borrower's books, accounts and records. If Borrower now or at any time
hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such records
at all reasonable times and to provide Lender with copies of any records it
may request; all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds with
a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
-10-
<PAGE> 11
07-31-1997 BUSINESS LOAN AGREEMENT Page 11
(Continued)
Loan No. 2000001
================================================================================
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1988, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal and
state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
ADDITIONAL AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will maintain a minimum
interest coverage ratio of 2.0 to 1.0 measured quarterly. Interest coverage
shall be defined as earnings before interest and taxes divided by interest.
Borrower covenants and agrees with Lender that, while this Agreement is in
effect, all dividends shall be materially restricted without prior bank consent.
Borrower covenants and agrees with Lender that, while this Agreement is in
effect, advances will be limited to 85% of eligible account receivables and 50%
of eligible inventory. Borrower shall certify in writing to the bank on a
quarterly basis that they have been within the parameters of the borrowing
formula at all times during the quarter and that they are in compliance with all
covenants. Borrower covenants and agrees with Lender that, while this Agreement
is in effect, Borrower will maintain a ratio of Total Liabilities to Tangible
Net Worth of less than 1.25 to 1.00 measured quarterly.
-11-
<PAGE> 12
07-31-1997 BUSINESS LOAN AGREEMENT Page 12
(Continued)
Loan No. 2000001
================================================================================
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 Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceedings, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
-12-
<PAGE> 13
07-31-1997 BUSINESS LOAN AGREEMENT Page 13
(Continued)
Loan No. 2000001
================================================================================
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given a
notice of a similar default within the preceding twelve (12) months, it may
be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly 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 Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
-13-
<PAGE> 14
07-31-1997 BUSINESS LOAN AGREEMENT Page 14
(Continued)
Loan No. 2000001
================================================================================
Applicable Law. This Agreement has been delivered to lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of King or
Pierce County, the State of Washington, Lender and Borrower hereby waive the
right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender or Borrower against the other. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Washington.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, 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. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans and
to enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs,
in addition to all other sums provided by law.
-14-
<PAGE> 15
07-31-1997 BUSINESS LOAN AGREEMENT Page 15
(Continued)
Loan No. 2000001
================================================================================
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change the 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
circumstances, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and 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.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of
-15-
<PAGE> 16
07-31-1997 BUSINESS LOAN AGREEMENT Page 16
(Continued)
Loan No. 2000001
================================================================================
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.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JULY 31, 1997.
BORROWER:
SEAMED CORPORATION
By /s/ EDGAR F. RAMPY
---------------------------------------------
EDGAR F. RAMPY, Vice President, Treasurer
and Chief Financial Officer
LENDER:
KEYBANK NATIONAL ASSOCIATION
By /s/ SARAH A. BULLOCK
---------------------------------------------
Authorized Officer
-16-
<PAGE> 1
EXHIBIT 10.2
Loan Number: 7996-314107-2000001
REVOLVING NOTE
(Prime\LIBOR)
Date: July 31, 1997
Principal Amount: $20,000,000.00
Interest Rate: Variable Rate for LIBO Fixed Rate
Maturity Date: July 05, 2000
Borrower: SEAMED CORPORATION
1. PROMISE TO PAY. SEAMED CORPORATION ("Borrower") promises to pay
to KEYBANK NATIONAL ASSOCIATION, Seattle Metropolitan Commercial Banking Office,
700 Fifth Avenue, Seattle, WA 98111 ("Lender"), or order, in lawful money of the
United States of America, the principal amount set forth above 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.
2. PAYMENT. Borrower will pay this loan on demand, or if no demand
is made, on the Maturity Date set forth above. In addition, Borrower will pay
regular quarterly payments of accrued unpaid interest, beginning August 05,
1997, and continuing on the same day of each quarter 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, times the
outstanding principal balance, times 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.
3. INTEREST RATE. This Note shall bear interest at the Variable
Rate, unless Borrower elects to have an Advance bear interest at a LIBO Fixed
Rate, as described below. Advances may bear interest at different rates.
(a) Variable Rate. Unless Borrower elects to have an advance
bear interest at a Fixed Rate, amounts outstanding hereunder shall bear
interest from the date of advance at a floating rate equal to the Prime
Rate minus one quarter percent (0.250%) (the "Variable Rate"). "Prime
Rate" means the floating commercial loan rate announced from time to
time by Lender as its "prime rate", and is not necessarily the lowest
rate offered by Lender. Changes in the Variable Rate will be effective
on the date the Prime Rate changes.
(b) LIBO Fixed Rate. Borrower may elect to have one or more
advances (each a "Fixed Rate Advance") bear interest for a term of 30,
60, 90, 120, or 180 days
<PAGE> 2
(the "Advance Period") at a fixed rate of interest equal to the
then-current LIBO Quote for the requested Advance Period, plus one and
20/100 percent (1.200%) (the "LIBO Fixed Rate"). "LIBO Quote" means a
rate calculated by Lender acting in good faith, which Lender determines
with reference to, but which may be different from, its LIBOR or
Eurodollar based costs of funds, on the date of the advance request for
the Advance Period selected by Borrower. The formula used by Lender in
determining the LIBO Quote is within its absolute discretion and may be
changed from time to time. Borrower may not select an Advance Period
that extends beyond the Maturity Date of the Note. Upon expiration of
the applicable Advance Period, Borrower may elect to roll the advance to
a new LIBO Fixed Rate, to pay the advance off, or have the advance bear
interest thereafter at the Variable Rate. If Borrower fails to elect any
of these options, the advance will thereafter bear interest at the
Variable Rate until Borrower selects a new LIBO Fixed Rate.
(c) Restrictions. Each Libor Rate Advance shall be in the
minimum amount of Two Hundred Thousand Dollars ($200,000.00).
4. 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. This Note evidences a revolving
line, which may be borrowed, repaid, and re-borrowed from time until maturity or
earlier termination. Principal payments shall first be applied to reduce
principal bearing interest at the Variable Rate, then to Fixed Rate Advances. If
Borrower prepays a Fixed Rate Advance prior to the last day of the applicable
Advance Period, Borrower shall also pay a Prepayment Premium, calculated as set
forth below. Lender will be entitled to receive the Prepayment Premium
regardless of whether prepayment is voluntary or involuntary, (including a
demand on the Note at a time when Borrower is in default hereunder) but not in
the event of a demand by Lender prior to the stated Termination Date in the
absence of default under this Note. Borrower acknowledges that Lender may or may
not, in any particular case, match-fund a Fixed Rate Advance and Borrower agrees
that Lender will be entitled to receive the Prepayment Premium irrespective of
match-funding. 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.
5. LATE CHARGE. If a payment is 10 days or more late, Borrower will
be charged 5.000% of the regularly scheduled payment or $10.00, whichever is
greater.
6. 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
-2-
<PAGE> 3
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 of the 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. 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, afar
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.
7. 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 must pay that amount. Upon
default, including failure to pay upon final maturity, Lender, at its option,
may also increase the interest rate on this Note to a floating rate equal to the
Prime Rate plus 5.00% per annum. 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, court costs,
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. This Note has
been delivered to and accepted by Lender in the State of Washington. If there is
a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of King or Pierce County, State of Washington. This Note shall be
governed by and construed in accordance with the laws of the State of
Washington.
8. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00
if Borrower makes a payment on Borrower's loan and the check or preauthorized
charge with which Borrower pays is later dishonored.
9. LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under this Note may be requested orally by Borrower or as provided in
this paragraph. 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. The following party or parties are authorized as provided in this
paragraph to request advances under the line of credit until Lender receives
from Borrower at Lender's address shown above written notice of revocation of
their authority: Edgar Rampy and W. Robert Berg. Borrower agrees to be liable
for all sums either advanced in accordance with the instructions of an
authorized person or 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 record, including daily
computer print-outs. Lender will have no
-3-
<PAGE> 4
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; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
10. PREPAYMENT PREMIUM. If for any reason Borrower shall prepay all
or a portion of the principal amount of any Fixed Rate Advance prior to the
expiration of the applicable Advance Period, Borrower shall also pay Lender a
Prepayment Premium. The Prepayment Premium will be equal to the present value,
at the time of prepayment (the "Prepayment Date"), of the excess of (i) the
interest that would have been payable on the amount prepaid at the interest rate
applicable to the Advance(s) from the Prepayment Date to the expiration date of
the Advance Period applicable to such Advance, over (ii) the interest that would
be chargeable on a note equal to the amount prepaid at a New Rate. The "New
Rate" shall be equal to the United States Treasury Security yield on a security
with a current remaining term to maturity the same as the Advance at the
Prepayment Date, plus the comparable interest rate spread as the Advance had to
the United States Treasury Security yield with the same maturity. The present
value shall be computed using 1/12th of the New Rate as the monthly discount
rate. If there is no U.S. Treasury Security with a comparable maturity, Lender
will determine the appropriate yield by interpolating between maturities.
11. SWAP PROVISIONS. If Borrower and Lender are entering or
subsequently enter into an interest rate swap agreement related to this Note (a
"Swap"), then the following provisions shall apply: This Note shall be deemed to
be modified so that interest will accrue during the period of time the Swap is
in effect at a Fixed Rate equal to the rate designated in the Confirmation
issued by Lender applicable to such Swap, and calculated in accordance with the
procedures and quotation sources used in connection with the Swap. Upon a
termination of the Swap that does not constitute a default under this Note, the
interest and payment provisions under this Note shall, at Lender's sole and
exclusive option, revert to what they would have been absent the Swap. If this
Note is prepaid, then Lender shall have the right in its sole and absolute
discretion to terminate the Swap upon or at any time after such prepayment. In
addition to any premium that may be due under this Note upon prepayment,
Borrower will pay any amounts that may be due to Lender upon Early Termination
(as defined in the 1991 ISDA Definitions published by the International Swap
Dealers Association, Inc.) of the Swap.
12. ADDITIONAL PROVISIONS. Any advance that Lender in its sole
discretion may permit after the final payment date provided in this Note will be
due on demand and otherwise subject to the terms of this Note. If there is a
statutory change in state or federal law (including without limitation, a change
related to required reserves under applicable bank regulatory law or a change in
any provision of the Internal Revenue Code), or any regulation or interpretation
issued thereunder, that lowers Lender's effective yield on this Note, Lender
shall notify Borrower in writing of the change, and Borrower shall pay as
additional interest on this
-4-
<PAGE> 5
Note, the amount necessary to compensate Lender for the amount by which
Lender's effective yield was reduced.
13. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights and 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, each 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 Lender's security interest in the
collateral; and take any other action deemed necessary by Lender 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.
14. AFFIRMATIVE COVENANTS. The maximum amount of principal under this
note is limited to $10,000,000.00 for the first year of this loan. Provided
there have been no defaults on the loan during that period of time, the maximum
amount will increase to $20,000,000.00 during years two and three of the loan.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
KEYBANK NATIONAL ASSOCIATION BORROWER:
SEAMED CORPORATION
/s/ SARAH A. BULLOCK /s/ EDGAR F. RAMPY
- ----------------------------------- ------------------------------------
SARAH BULLOCK, Authorized Officer EDGAR F. RAMPY, Vice President
-5-
<PAGE> 1
EXHIBIT 10.3
Loan Number: 314107-2009002
TERM NOTE
(Prime/LIBOR)
Date: July 31, 1997
Principal Amount: 625,000.00
Interest Rate: Variable Rate or LIBO Fixed Rate
Maturity Date: December 5, 2000
Borrower: SEAMED CORPORATION
1. PROMISE TO PAY. SEAMED CORPORATION ("Borrower") promises to pay
to KEYBANK NATIONAL ASSOCIATION, SEATTLE METROPOLITAN COMMERCIAL BANKING CENTER
Office, 700 FIFTH AVENUE, SEATTLE, WA ("Lender"), or order, in lawful money of
the United States of America, the principal mount set forth above, together with
interest on the unpaid outstanding principal balance from the date funds are
actually disbursed until paid in full.
2. PAYMENT. Borrower will pay this loan in regular MONTHLY payments
of 18,055.01 principal and interest, beginning September 5, 1997, and continuing
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, times the outstanding principal balance,
times 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.
3. INTEREST RATE. This Note shall bear interest at the Variable
Rate, unless Borrower elects have interest accrue at a LIBO Fixed Rate, as
described below.
(a) Variable Rate. Unless Borrower elects to have this Note
bear interest at a LIBO Fixed Rate, amounts outstanding hereunder shall
bear interest at a floating rate equal to the Prime Rate plus zero
percent (.00%) (the "Variable Rate"). "Prime Rate" means the floating
commercial loan rate announced from time to time by Bank as its "prime
rate", and is not necessarily the lowest rate offered by Lender. Changes
in the Variable Rate will be effective on the date the Prime Rate
changes.
<PAGE> 2
(b) LIBO Fixed Rate. Borrower may elect to have this Note bear
interest for a period of 30 days, (the "Fixed Rate Period") at a fixed
rate of interest equal to the then-current LIBO Quote for the requested
Fixed Rate Period, plus one and forty hundredths percent (1.400%) (the
"LIBO Fixed Rate"). "LIBO Quote" means a rate calculated by Lender
acting in good faith, which Bank determines with reference to, but which
may be different from, its LIBOR or Eurodollar based costs of funds, on
the date of the request for a fixed rate quote, for the Fixed Rate
Period selected by Borrower. The formula used by Bank in determining the
LIBO Quote is within its absolute discretion and may be changed from
time to time. Borrower may not select a Fixed Rate Period that extends
beyond the Maturity Date of the Note. Upon expiration of the applicable
Fixed Rate Period, Borrower may select a new LIBO Fixed Rate, or have
the Note bear interest thereafter at the Variable Rate. If Borrower
fails to elect any of these options, the Note will thereafter bear
interest at the Variable Rate until Borrower selects a new LIBO Fixed
Rate.
4. 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. If Borrower prepays principal
under this Note, in whole or in part, at a time when the Note is accruing
interest at a LIBO Fixed Rate, then Borrower shall also pay a Prepayment
Premium, calculated as set forth below. Lender will be entitled to receive the
Prepayment Premium regardless of whether prepayment is voluntary or involuntary,
(including acceleration of the Note upon Borrower's default). Borrower
acknowledges that Lender may or may not, in any particular ease, match-fund a
LIBO Fixed Rate, and Borrower agrees that Lender will be entitled to receive the
Prepayment Premium irrespective of match-funding. 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.
5. LATE CHARGE. If a payment is 10 days or more late, Borrower will
be charged 5.000% of the regularly scheduled payment or $10.00, whichever is
greater.
6. 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. (e) 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 of the 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
-2-
<PAGE> 3
Indebtedness is impaired. 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.
7. 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 must pay that amount. Upon
default, including failure to pay upon final maturity, Lender, at its option,
may also increase the interest rate on this Note to a floating rate equal to the
Prime Rate plus 5.00% per annum. 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, court costs,
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. This Note has
been delivered to and accepted by Lender in the State of Washington. If there is
a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of King or Pierce County, State of Washington. This Note shall be
governed by and construed in accordance with the laws of the State of
Washington.
8. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00
if Borrower makes a payment on Borrower's loan and the cheek or preauthorized
charge with which Borrower pays is later dishonored.
9. PREPAYMENT PREMIUM. If for any reason Borrower shall prepay all
or a portion of this Note prior to the Maturity Date, at a time when interest is
accruing at a LIBO Fixed Rate, then Borrower shall also pay Lender a Prepayment
Premium. The Prepayment Premium will be equal to the present value, at the time
of prepayment (the "Prepayment Date"), of the excess of (i) the interest that
would have been payable on the amount prepaid at the interest rate applicable to
the Note from the Prepayment Date to the last day of the applicable Fixed Rate
Period, over (ii) the interest that would be chargeable on a note equal to the
amount prepaid at a New Rate. The "New Rate" shall be equal to the United States
Treasury Security yield on a security with a current remaining term to maturity
the same as the remaining Fixed Rate Period at the Prepayment Date, plus the
comparable interest rate spread as the Note had to the United States Treasury
Security yield with the same maturity. The present value shall be computed using
1/12th of the New Rate as the monthly discount rate. If there is no U.S.
Treasury Security with a comparable maturity, Lender will determine the
appropriate yield by interpolating between maturities.
10. SWAP PROVISIONS. If Borrower and Lender are entering or
subsequently enter into an interest rate swap agreement related to this Note (a
"Swap"), then the following provisions
-3-
<PAGE> 4
shall apply: This Note shall be deemed to be modified so that (i) interest will
accrue during the period of time the Swap is in effect at a Fixed Rate equal to
the rate designated in the Confirmation issued by Lender applicable to such
Swap, and calculated in accordance with the procedures and quotation sources
used in connection with the Swap, and (ii) Borrower shall make principal
payments under this Note as set forth in an amortization schedule generated by
Lender in connection with the Swap. Upon a termination of the Swap that does not
constitute a default under this Note, the interest and payment provisions under
this Note, at Lender's sole and exclusive option, shall revert to what they
would have been absent the Swap. If this Note is prepaid, then Lender shall have
the right in its sole and absolute discretion to terminate the Swap upon or at
any time after such prepayment. In addition to any premium that may be due under
this Note upon prepayment, Borrower will pay any amounts that may be due to
Lender upon Early Termination (as defined in the 1991 ISDA Definitions published
by the International Swap Dealers Association, Inc.) of the Swap.
11. ADDITIONAL PROVISIONS. If there is a statutory change in state or
federal law (including without limitation, a change related to required reserves
under applicable bank regulatory law or a change in any provision of the
Internal Revenue Code), or any regulation or interpretation issued thereunder,
that lowers Lender's effective yield on this Note, Lender shall notify Borrower
in writing of the change, and Borrower shall pay as additional interest on this
Note, the amount necessary to compensate Lender for the amount by which Lender's
effective yield was reduce.
12. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights and 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, each 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 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 that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
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<PAGE> 5
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
KEYBANK NATIONAL ASSOCIATION BORROWER:
SEAMED CORPORATION
/s/ SARAH BULLOCK
- -----------------------------------
Authorized Officer /s/ EDGAR F. RAMPY
--------------------------------------
Edgar F. Rampy
AUTHORIZED OFFICER
-5-
<PAGE> 1
EXHIBIT 10.4
PROPOSAL TO AMEND LEASE
BUILDING 2
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LANDLORD: Washington Capital Management, Inc.
TENANT: SeaMED Corporation
PREMISES: Approximately 81,000 rentable square feet in Building
B which is projected to total 81,000 square feet as
outlined on Exhibit A (site plan). Premises are
measured to the edge of the roofline.
LEASE TERM: Ten (10) years commencing January 1, 1999. Please see
attached schedule.
BASE RENT: Leased $/SF/ Total
Months Sq. Feet Month $/Month
------ -------- ----- -------
01-06 40,500 $1.070 psf, $ 43,335
NNN
07-12 60,750 $1.070 psf, 65,002
NNN
13-36 81,000 $1.070 psf, 86,670
NNN
37-72 81,000 $1.161 psf, 94,080
NNN
73-108 81,000 $1.261 psf, 102,156
NNN
109-120 81,000 $1.37 psf, 110,960
NNN
EXPENSES: In addition to the Base Rent, Tenant shall pay all
operating expenses associated with the Premises
including, but not limited to, utilities, real estate
taxes, building insurance, janitorial, and common area
maintenance for the leased square footage as described
above.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
BUILDING SHELL: Landlord, at its sole cost and expense, shall
construct the building core and shell ("Core and
Shell") which shall include base electrical to panel,
two (2) hydraulic elevators (one of them being an Otis
4500# capacity approximately, 5'8" wide by 7'11" long
by 9'7" tall, or equivalent and the other being a
normal passenger elevator), stairwells designed to
meet fire codes, restroom plumbing infrastructure
stubbed in, loading doors with dock levelers at each
dock high door, sprinkler system installed with
monitoring devices, roof insulation, HVAC screening,
landscaping, and parking lot improvements.
TENANT IMPROVEMENT
ALLOWANCE: Exhibit B--Landlord's Work is modified as follows:
F) Landlord shall provide a tenant improvement
allowance of $2,340,000 (inclusive of sales
tax, permit fees, and space planning fees) for
improvements to the Premises above the Core
and Shell (the "Tenant Improvements"). At
Tenant's option, Landlord shall provide an
additional allowance of up to $160,000 (the
"Additional Allowance"). The Additional
Allowance shall be amortized over the Lease
Term as set forth in paragraph H below.
PARAGRAPH G, Substitute $2,340,000 for $750,000.
PARAGRAPH I, Substitute $2,500,000 for $840,000.
ARCHITECT: The architect for both Core and Shell and Tenant
Improvements shall be Lance Mueller & Associates.
CONTRACTOR: The general contractor for both Core and Shell and
Tenant Improvements shall be Foushee and Associates.
MISCELLANEOUS: 1) Delete Article 17 and Article 18.
2) Modify Schedule 1, Outline Specification, to
include building dimensions and attached site
plan approved by both parties.
</TABLE>
-2-
<PAGE> 3
This proposal, once accepted, shall serve as the outline for an amendment to the
existing Building 2 lease. This proposal is subject to approval by SeaMED's
Board of Directors. The next scheduled board meeting is July 31, 1997.
<TABLE>
<S> <C>
ACKNOWLEDGED AND AGREED: ACKNOWLEDGED AND AGREED:
SeaMED Corporation Washington Capital Management, Inc.
By: /s/ DON RICH By: /s/ MICHAEL S. BARNES
--------------------------------- -------------------------------
Its: Sr. V.P. Operations Its: VP
-------------------------------- ------------------------------
Date: 7/17/97 Date: 7/18/97
------------------------------- -----------------------------
</TABLE>
-3-
<PAGE> 1
EXHIBIT 11.1
SEAMED CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30
-------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY
Weighted average common shares outstanding.............. 5,268,899 671,797
Class B and C convertible redeemable
preferred stock classified as common stock
equivalents .......................................... 0 1,376,559
Net effect of dilutive stock options based on
the treasury stock method using average
market price.......................................... 329,205 320,575
Net effect of dilutive stock warrants based
on the treasury stock method using average
market price.......................................... 28,711 9,704
Net effect of stock options granted or
exercised at less than offering price during
the 12 mos prior to the Company's filing of
its initial public offering ("ipo"), calculated
using the treasury stock method at an offering
price of $11 per share................................ 0 99,052
--------- ---------
Total weighted average shares outstanding................. 5,626,815 2,477,686
========= =========
Net income................................................ 906,846 486,584
Less accretion of cumulative preferred stock
dividends............................................. 0 -65,763
--------- ---------
Adjusted income for computation of primary
earnings per share.................................... 906,846 420,821
========= =========
Primary net income per share.............................. $0.16 $0.17
========= =========
FULLY DILUTED:
Weighted average common share outstanding............... 5,268,899 671,797
Weighted average of all convertible
redeemable preferred stock outstanding................ 0 2,934,209
Net effect of dilutive stock options based
on the treasury stock method using the
greater of average or ending market price............. 334,648 356,385
Net effect of dilutive stock warrants based
on the treasury stock method using the
greater of average or ending market price............. 29,074 16,803
Net effect of stock options granted or
exercised at less than offering price
during the 12 mos prior to the Company's
filing of its ipo, calculated using the
treasury stock method at an offering price
of $11 per share...................................... 0 97,388
--------- ---------
Total weighted average shares outstanding................. 5,632,621 4,076,402
========= =========
Net income................................................ 906,846 486,584
========= =========
Fully diluted net income per share........................ $0.16 $0.12
========= =========
</TABLE>
Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,233
<SECURITIES> 4,552,873
<RECEIVABLES> 9,398,592
<ALLOWANCES> 418,058
<INVENTORY> 12,487,257
<CURRENT-ASSETS> 28,284,170
<PP&E> 8,531,002
<DEPRECIATION> 4,071,281
<TOTAL-ASSETS> 33,075,760
<CURRENT-LIABILITIES> 8,858,302
<BONDS> 0
0
0
<COMMON> 19,736,804
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,075,760
<SALES> 16,029,791
<TOTAL-REVENUES> 16,029,791
<CGS> 13,298,236
<TOTAL-COSTS> 13,298,236
<OTHER-EXPENSES> 1,320,271
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<INCOME-PRETAX> 1,374,010
<INCOME-TAX> 467,164
<INCOME-CONTINUING> 906,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 906,846
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
